UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File Number 333-18723
MAXXAM GROUP HOLDINGS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0518669
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5847 SAN FELIPE, SUITE 2600 77057
HOUSTON, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at August 11, 1999: 1,000
Registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at June 30, 1999 and
December 31, 1998
Consolidated Statement of Operations for the
three and six months ended June 30, 1999
and 1998
Consolidated Statement of Cash Flows for the six
months ended June 30, 1999 and 1998
Condensed Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
APPENDIX A GLOSSARY OF DEFINED TERMS
MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 112.1 $ 150.8
Marketable securities 41.7 11.7
Receivables:
Trade 10.0 10.5
Other 9.6 7.1
Inventories 29.0 44.0
Prepaid expenses and other current assets 8.7 8.0
------------ ------------
Total current assets 211.1 232.1
Timber and timberlands, net of accumulated
depletion of $177.0 and $178.4, respectively 257.2 302.3
Property, plant and equipment, net of accumulated
depreciation of $90.4 and $85.7,
respectively 100.9 103.1
Note receivable from MAXXAM Inc. 140.1 132.8
Investment in Kaiser Aluminum Corporation 22.5 41.5
Deferred financing costs, net 25.0 26.2
Deferred income taxes 20.8 90.4
Restricted cash 293.9 16.6
Other assets 8.4 7.2
------------ ------------
$ 1,079.9 $ 952.2
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 7.0 $ 3.4
Accrued interest 34.7 34.9
Accrued compensation and related benefits 9.3 8.4
Deferred income taxes 8.0 9.7
Other accrued liabilities 3.7 2.2
Long-term debt, current maturities 15.9 8.3
------------ ------------
Total current liabilities 78.6 66.9
Long-term debt, less current maturities 977.2 990.2
Other noncurrent liabilities 49.1 29.6
------------ ------------
Total liabilities 1,104.9 1,086.7
------------ ------------
Contingencies
Stockholder's deficit:
Common stock, $1.00 par value; 3,000 shares
authorized; 1,000 shares issued
Additional capital 123.2 123.2
Accumulated deficit (148.2) (257.7)
------------ ------------
Total stockholder's deficit (25.0) (134.5)
------------ ------------
$ 1,079.9 $ 952.2
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Lumber and logs $ 36.6 $ 57.8 $ 78.2 $ 106.3
Other 4.8 5.7 9.9 9.1
------------ ------------ ------------ ------------
41.4 63.5 88.1 115.4
------------ ------------ ------------ ------------
Operating expenses:
Cost of goods sold 36.2 39.5 76.0 72.6
Selling, general and
administrative expenses 4.4 3.6 7.9 6.7
Depletion and depreciation 4.2 5.7 9.1 11.3
------------ ------------ ------------ ------------
44.8 48.8 93.0 90.6
------------ ------------ ------------ ------------
Operating income (loss) (3.4) 14.7 (4.9) 24.8
Other income (expense):
Gain on sale of Headwaters
Timberlands 239.8
Equity in earnings (loss) of
Kaiser Aluminum (5.6) 5.8 (19.1) 10.1
Corporation
Investment, interest and
other income 15.2 5.7 23.4 14.1
Interest expense (20.6) (23.8) (41.2) (47.6)
------------ ------------ ------------ ------------
Income (loss) before income taxes (14.4) 2.4 198.0 1.4
Credit (provision) in lieu of
income taxes 3.6 1.2 (88.5) 3.1
------------ ------------ ------------ ------------
Net income (loss) $ (10.8) $ 3.6 $ 109.5 $ 4.5
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109.5 $ 4.5
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depletion and depreciation 9.1 11.3
Gain on sale of Headwaters Timberlands (239.8)
Equity in undistributed loss (earnings)
of Kaiser Aluminum Corporation 19.1 (10.1)
Amortization of deferred financing
costs and discounts on long-term
debt 1.2 8.9
Net gain on other asset dispositions (1.9)
Net sales (purchases) of marketable
securities (23.6) 32.4
Net gain on marketable securities (6.4) (3.0)
Deferral of interest payment on note
receivable from MAXXAM Inc. (0.9)
Increase (decrease) in cash resulting from
changes in:
Receivables (8.5) 5.6
Inventories, net of depletion 12.6 4.9
Prepaid expenses and other assets (0.6) (0.4)
Accounts payable 3.3 1.5
Accrued interest (0.1) (0.4)
Other accrued liabilities 0.7 (2.7)
Accrued and deferred income taxes 88.5 (4.1)
Long-term assets (1.2) (0.8)
Long-term liabilities (0.3) (0.4)
------------ ------------
Net cash provided by (used for)
operating activities (36.5) 44.4
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of Headwaters
Timberlands 298.4
Capital expenditures (17.6) (6.0)
Restricted cash withdrawals used to acquire
timberlands 12.9
Net proceeds from sale of assets 6.6
------------ ------------
Net cash provided by investing
activities 293.7 0.6
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption, repurchases of and principal
payments on long-term debt (5.5) (10.8)
Dividends paid (2.5)
Restricted cash (deposits) withdrawals, net (290.2) 0.3
Other (0.2)
------------ ------------
Net cash used for financing
activities (295.9) (13.0)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (38.7) 32.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 150.8 91.8
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 112.1 $ 123.8
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 40.1 $ 39.1
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Form 10-K. Any capitalized terms used but not
defined in these Condensed Notes to Consolidated Financial Statements are
defined in the "Glossary of Defined Terms" contained in Appendix A. All
references to the "Company" include MAXXAM Group Holdings Inc. and its
subsidiary companies unless otherwise indicated or the context indicates
otherwise. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations
for the interim periods presented are not necessarily indicative of the
results to be expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at June 30, 1999, the
consolidated results of operations for the three and six months ended June
30, 1999 and 1998 and consolidated cash flows for the six months ended June
30, 1999 and 1998. Certain reclassifications of prior period information
have been made to conform to the current presentation. The Company is a
wholly owned subsidiary of MAXXAM.
There were no reconciling items between net income and
comprehensive income in either of the three and six month periods ended
June 30, 1999 and 1998.
SFAS No. 133 requires companies to recognize all derivative
instruments as assets or liabilities in the balance sheet and to measure
those instruments at fair value. SFAS No. 133 initially required adoption
by January 1, 2000. SFAS No. 137, issued in June 1999, delayed the
required implementation date of SFAS No. 133 to no later than January 1,
2001. Kaiser, the Company's equity investee, has hedging programs which
use various derivative products to "lock-in" a price (or range of prices)
for products sold or used so that earnings and cash flows are subject to
reduced risk of volatility. Under SFAS No. 133, Kaiser will be required to
"mark-to-market" its hedging positions at the end of each period in advance
of the period of recognition for the transaction to which the hedges
relate. Pursuant to SFAS No. 130, Kaiser will reflect changes in the fair
value of its open hedging positions as an increase or reduction in
stockholders' equity through comprehensive income. Under SFAS No. 130, the
impact of the changes in the fair value of Kaiser's hedging positions will
be reversed from comprehensive income (net of any fluctuations in other
"open" positions) and will be reflected in traditional net income upon
occurrence of the transactions to which the hedge relates. Under the
equity method of accounting which the Company follows in accounting for its
investment in Kaiser, the Company will reflect its equity share of Kaiser's
adjustments to stockholder's equity through comprehensive income.
2. HEADWATERS TRANSACTIONS
As described in Note 7 below, on September 28, 1996, the Pacific
Lumber Parties entered into the Headwaters Agreement with the United States
and California which provided the framework for the acquisition by the
United States and California of the Headwaters Timberlands. A substantial
portion of the Headwaters Timberlands contains virgin old growth timber.
Approximately 4,900 of these acres were owned by Salmon Creek, with the
remaining 700 acres being owned by Scotia LLC (Pacific Lumber owned the
timber and related timber harvesting rights on this acreage). On March 1,
1999, the Pacific Lumber Parties, the United States and California
consummated the Headwaters Agreement. Salmon Creek received $299.9 million
for its 4,900 acres, and for its 700 acres, Pacific Lumber received the
7,700 acre Elk River Timberlands which Pacific Lumber contributed to Scotia
LLC in June 1999. Of these proceeds, $285.0 million was deposited into an
escrow account held by an escrow agent and are to be made available as
necessary to support the Timber Notes, and may be released only under
certain circumstances. As of June 30, 1999, the Escrowed Funds were $288.2
million, which includes interest earned.
As a result of the disposition of the Headwaters Timberlands, the
Company recognized a pre-tax gain of $239.8 million ($142.1 million net of
deferred taxes) in the first quarter of 1999. This amount represents the
gain attributable to the portion of the Headwaters Timberlands for which
the Company received $299.9 million in cash. With respect to the remaining
portion of the Headwaters Timberlands for which the Company received the
Elk River Timberlands, no gain has been recognized as this represented an
exchange of substantially similar productive assets. These timberlands
have been reflected in the Company's financial statements at an amount
which represents the Company's historical cost for the timberlands which
were transferred to the United States.
Scotia LLC and Pacific Lumber also entered into the Owl Creek
Agreement and the Grizzly Creek Agreement with California regarding the
future sale to California of the Owl Creek and Grizzly Creek groves. The
Owl Creek Agreement provides for Scotia LLC to sell the Owl Creek grove to
California, no later than June 30, 2002, for the lesser of the appraised
fair market value or $79.7 million. At California's option, 25% of the
payment may be paid upon closing with three equal annual installments
thereafter and without interest. With respect to the Grizzly Creek
Agreement, California may purchase from Pacific Lumber, no later than
October 31, 2000, a portion of this grove for a purchase price determined
based on fair market value, but not to exceed $19.9 million. The net
proceeds from the Grizzly Creek grove will be placed into an escrow account
(on the same basis as the net proceeds from the sale of the Headwaters
Timberlands) unless, at the time of receipt of such proceeds, the Escrowed
Funds are no longer held in an escrow account. California also has a five
year option under the Grizzly Creek Agreement to purchase additional
property adjacent to the Grizzly Creek grove. The sale of the Owl Creek
grove or Grizzly Creek grove will not be reflected in the Company's
financial statements until it has been concluded.
3. INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Lumber $ 24.2 $ 36.0
Logs 4.8 8.0
------------ ------------
$ 29.0 $ 44.0
============ ============
</TABLE>
4. RESTRICTED CASH
Cash and cash equivalents include restricted cash held as
security for short positions in marketable securities and for debt service
payments on the Timber Notes of $25.4 million and $74.8 million at June 30,
1999 and December 31, 1998, respectively.
Long-term restricted cash at June 30, 1999 primarily consists of
the Escrowed Funds and funds held in the Prefunding Account. Long-term
restricted cash at December 31, 1998 primarily consists of funds held in
the Prefunding Account.
5. INVESTMENT IN KAISER
Subsequent to its formation, the Company received, as a capital
contribution from MAXXAM, the Kaiser Shares. Kaiser operates in several
principal aspects of the aluminum industry--the mining of bauxite into
alumina, the production of primary aluminum from alumina and the
manufacture of fabricated (including semi-fabricated) aluminum products.
Kaiser's common stock is publicly traded on the New York Stock Exchange
under the trading symbol "KLU." The Kaiser Shares represent a 35.2% equity
interest in Kaiser at June 30, 1999.
The market value for the Kaiser Shares based on the price per
share quoted at the close of business on August 11, 1999 was $253.2
million. There can be no assurance that such value would be realized
should the Company dispose of its investment in the Kaiser Shares.
The following table contains summarized financial information of Kaiser (in
millions).
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 955.4 $ 1,030.0
Property, plant and equipment, net 1,088.0 1,108.7
Other assets 1,002.8 852.2
------------ ------------
Total assets $ 3,046.2 $ 2,990.9
============ ============
Current liabilities $ 543.4 $ 558.4
Long-term debt, less current maturities 962.3 962.6
Other liabilities 1,357.5 1,227.2
Minority interests 116.4 123.5
Stockholders' equity 66.6 119.2
------------ ------------
Total liabilities and
stockholders' equity $ 3,046.2 $ 2,990.9
============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 525.0 $ 614.8 1,004.4 $ 1,211.8
Costs and expenses (524.3) (559.5) (1,036.7) (1,111.7)
Other expenses (26.2) (29.6) (52.6) (56.8)
------------ ------------ ------------ ------------
Income (loss) before income taxes
and minority interests (25.5) 25.7 (84.9) 43.3
Credit (provision) for income
taxes 8.6 (9.0) 28.8 (15.2)
Minority interests 1.2 2.2 0.6
============ ============ ============ ============
Net income (loss) $ (15.7) $ 16.7 $ (53.9) $ 28.7
============ ============ ============ ============
Equity in earnings (loss) of
Kaiser $ (5.6) $ 5.8 $ (19.1) $ 10.1
============ ============ ============ ============
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
6.55% Scotia LLC Class A-1 Timber Collateralized
Notes due July 20, 2028 $ 155.4 $ 160.7
7.11% Scotia LLC Class A-2 Timber Collateralized
Notes due July 20, 2028 243.2 243.2
7.71% Scotia LLC Class A-3 Timber Collateralized
Notes due July 20, 2028 463.3 463.3
Pacific Lumber Credit Agreement
12% MGHI Senior Secured Notes due August 1, 2003 130.0 130.0
Other 1.2 1.3
------------ ------------
993.1 998.5
Less: current maturities (15.9) (8.3)
------------ ------------
$ 977.2 $ 990.2
============ ============
</TABLE>
7. CONTINGENCIES
Regulatory and environmental matters play a significant role in
the Company's business, which is subject to a variety of California and
federal laws and regulations, as well as the Final HCP, Final SYP and
Pacific Lumber's 1999 TOL, dealing with timber harvesting practices,
threatened and endangered species and habitat for such species, and air and
water quality. While regulatory and environmental concerns have resulted
in restrictions on the geographic scope and timing of the Company's timber
operations, increased operational costs and engendered litigation and other
challenges to the Company's operations, prior to 1998 they had not had a
significant adverse effect on the Company's financial position, results of
operations or liquidity. However, the Company's results of operations for
1998 and for 1999 through the date of this report were adversely affected
by certain regulatory and environmental matters, including during the
second half of 1998 through the date of this report, the absence of a
sufficient number of available THPs to enable the Company to conduct its
operations at historic levels.
On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California which
provided the framework for the acquisition of the Headwaters Timberlands by
the United States and California. Consummation of the Headwaters Agreement
was also conditioned upon, among other things, approval of an SYP,
approval of a Multi-Species HCP and issuance of the Permits. As further
described in Note 2 "Headwaters Transactions," on March 1, 1999, the
Pacific Lumber Parties, the United States and California consummated the
Headwaters Agreement. In addition to the transfer of the Headwaters
Timberlands by the Pacific Lumber Parties described in Note 2, the Final
SYP and the Final HCP were approved and the Permits were issued. The
Pacific Lumber Parties and California also executed the California
Agreement.
The Final SYP complies with certain California Board of Forestry
regulations requiring timber companies to project timber growth and harvest
on their timberlands over a 100-year planning period and establish an LTSY
harvest level. An SYP must demonstrate that the average annual harvest
over any rolling ten-year period will not exceed the LTSY harvest level and
that a timber company's projected timber inventory is capable of sustaining
the LTSY harvest level in the last decade of the 100-year planning period.
The Final SYP is effective for 10 years and may be amended by Pacific
Lumber subject to approval by the CDF. The Final SYP is subject to review
after five years. Revised SYPs would be prepared every decade that address
the LTSY harvest level based upon reassessment of changes in the resource
base and other factors.
Several species, including the northern spotted owl, the marbled
murrelet, the coho salmon and the steelhead trout, have been listed as
endangered or threatened under the ESA and/or the CESA. The Final HCP and
the Permits allow incidental "take" of these and certain other listed
species so long as there is no "jeopardy" to the continued existence of
such species. The Final HCP identifies the measures to be instituted in
order to minimize and mitigate the anticipated level of take to the
greatest extent practicable. The Final HCP not only provides for the
Company's compliance with habitat requirements for the northern spotted
owl, the marbled murrelet, the coho salmon and the steelhead trout, it also
provides for issuance of Permits for thirteen additional species that are
or may be listed in the future. The Final HCP and related Permits have a
term of 50 years, and, among other things, include the following protective
measures: (i) setting aside timberlands as marbled murrelet conservation
areas; (ii) establishing streamside "no-cut" and limited cut buffers and
identifying mass wasting areas of concern based on an assessment of each of
the Company's watersheds to be completed within five years; (iii) limiting
harvesting activities during certain times of the year and during wet
weather conditions, and (iv) making certain specified improvements to the
Company's roads. The Final SYP is also subject to the foregoing
provisions. The Company believes that the Final SYP and the Final HCP
should in the long-term expedite the preparation and facilitate approval of
its THPs, although the Company is experiencing difficulties in the THP
submission and approval process as it implements these agreements.
Under the Federal Clean Water Act, the EPA is required to
establish TMDLs in water courses that have been declared to be "water
quality impaired." The EPA and the North Coast Regional Water Quality
Control Board are in the process of establishing TMDLs for seventeen
northern California rivers and certain of their tributaries, including
certain water courses that flow within the Company's timberlands. The
final TMDL requirements applicable to the Company's timberlands may require
aquatic measures that are different from or in addition to the
prescriptions to be developed pursuant to the watershed analysis process
contained in the Final HCP.
Lawsuits are pending and threatened which seek to prevent the
Company from implementing the Final HCP and/or the Final SYP, implementing
certain of the Company's approved THPs or carrying out certain other
operations. On or about January 29, 1999, the Company received the EPIC
Notice Letter which alleges various violations of the ESA and challenges,
among other things, the validity and legality of the Permits. On or about
May 21, 1999, EPIC and other environmental groups sent the Supplemental
EPIC Notice Letter, incorporating the EPIC Notice Letter and threatening to
sue MAXXAM, Pacific Lumber, Scotia LLC, Salmon Creek and various government
agencies for alleged violations of the ESA relating to various aspects of
the Headwaters Agreement. Separately, on March 31, 1999, the EPIC-
SYP/Permits lawsuit was filed which alleges various violations of the CESA
and CEQA, and challenges, among other things, the validity and legality of
the Permits issued by California and the Final SYP. On March 31, 1999, the
USWA lawsuit was filed which also challenges the validity and legality of
the Final SYP. The Company believes that appropriate procedures were
followed throughout the public review and approval process concerning the
Final Plans, and the Company is working with the relevant state and federal
agencies to defend these challenges. Although uncertainties are inherent
in the final outcome of the EPIC Notice Letter, the Supplemental EPIC
Notice Letter, the EPIC-SYP/Permits lawsuit and the USWA lawsuit, the
Company believes that the resolution of these matters should not result in
a material adverse effect on its financial condition or results of
operations or the ability to harvest timber. While the Company expects
environmentally focused objections and lawsuits to continue, it believes
that the Final HCP, Final SYP and the Permits should enhance its position
in connection with these continuing challenges, and over time, reduce or
minimize such challenges.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item are defined in the
"Glossary of Defined Terms" contained in Appendix A.
This Quarterly Report on Form 10-Q contains statements which
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a
number of places in this section, in Item 3. "Quantitative and Qualitative
Disclosures About Market Risk," and in Part II. Item 1. "Legal
Proceedings." Such statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions. This Form 10-Q and the Form 10-K identify other factors
that could cause such differences. No assurance can be given that these
are all of the factors that could cause actual results to vary materially
from the forward-looking statements.
RESULTS OF OPERATIONS
The Company engages in forest products operations principally
through its subsidiaries, Pacific Lumber and Britt. The Company's business
is seasonal in that the forest products business generally experiences
lower first quarter sales due largely to the general decline in
construction-related activity during the winter months. Accordingly, the
Company's results for any one quarter are not necessarily indicative of
results to be expected for the full year.
The following table presents selected operational and financial
information for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(In millions of dollars,
except shipments and prices)
<S> <C> <C> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 6.4 11.9 14.2 22.1
Redwood common grades 28.9 59.6 67.6 113.5
Douglas-fir upper grades 2.5 1.6 4.5 3.5
Douglas-fir common grades 12.4 12.1 27.7 21.3
Other 1.9 3.2 4.4 5.7
------------ ------------ ------------ ------------
Total lumber 52.1 88.4 118.4 166.1
============ ============ ============ ============
Wood chips (2) 31.2 48.6 76.6 80.8
============ ============ ============ ============
Average sales price:
Lumber: (3)
Redwood upper grades $ 1,499 $ 1,513 $ 1,454 $ 1,503
Redwood common grades 625 550 588 529
Douglas-fir upper grades 1,322 1,296 1,299 1,281
Douglas-fir common grades 450 331 410 340
Wood chips (4) 74 75 78 70
Net sales:
Lumber, net of discount $ 36.6 $ 57.3 $ 78.2 $ 105.8
Wood chips 2.3 3.7 5.9 5.7
Cogeneration power 0.7 1.2 1.3 1.8
Other 1.8 1.3 2.7 2.1
------------ ------------ ------------ ------------
Total net sales $ 41.4 $ 63.5 $ 88.1 $ 115.4
============ ============ ============ ============
Operating income (loss) $ (3.4) $ 14.7 $ (4.9) $ 24.8
============ ============ ============ ============
Operating cash flow (5) $ 0.8 $ 20.5 $ 4.2 $ 36.2
============ ============ ============ ============
Income (loss) before income taxes (6) $ (14.4) $ 2.4 $ 198.0 $ 1.4
============ ============ ============ ============
Net income (loss) $ (10.8) $ 3.6 $ 109.5 $ 4.5
============ ============ ============ ============
Capital expenditures $ 5.2 $ 3.2 $ 17.6 $ 6.0
============ ============ ============ ============
<FN>
- ---------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Wood chip shipments are expressed in thousands of bone dry units of
2,400 pounds.
(3) Dollars per thousand board feet.
(4) Dollars per bone dry unit.
(5) Operating income before depletion and depreciation, also referred to
as "EBITDA."
(6) 1999 results include a $239.8 million gain on the sale of the
Headwaters Timberlands.
</TABLE>
Net sales
Net sales for the three and six month periods ended June 30, 1999
decreased from the comparable 1998 periods due primarily to lower shipments
of upper and common grade redwood lumber offset somewhat by higher prices
for common grade redwood and Douglas-fir lumber. The decrease in shipments
of redwood lumber is largely due to continuing reductions in the volume of
logs available for the production of lumber products. As was the case in
the first quarter of 1999, the diminished supply of approved THPs, combined
with seasonal restrictions on logging operations, continued to affect log
supplies in the second quarter. See "--Trends" for further discussion of
the factors affecting the supply of approved THPs.
Operating income (loss)
The Company had an operating loss for the three and six months
ended June 30, 1999 as compared to operating income for the comparable
1998 periods, primarily due to decreases in net sales discussed above.
Results for the first half of 1999 were also affected by higher costs and
expenses due to higher logging costs and manufacturing inefficiencies
resulting from production curtailments at the sawmills due to the lack of
logs.
Income (loss) before income taxes
The Company had a loss before income taxes for the three months
ended June 30, 1999 as compared to income before income taxes for the
comparable 1998 period, primarily due to the operating loss discussed above
as well as a loss from Kaiser. The impact of these losses was partially
offset by an increase in investment, interest and other income as a result
of investing the net proceeds from the sale of the Headwaters Timberlands,
as well as higher earnings from marketable securities. Income before
income taxes for the first half of 1999 increased from the comparable prior
year period, principally due to the gain on the sale of the Headwaters
Timberlands of $239.8 million ($142.1 million net of deferred taxes),
offset by the operating loss discussed above as well as a loss from Kaiser.
Income before income taxes for the first half of 1999 was also favorably
affected by the increase in investment, interest and other income discussed
above.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See above for cautionary information with respect to
such forward-looking statements.
The indenture governing the MGHI Notes, among other things,
restricts the ability of the Company to incur additional indebtedness and
liens, engage in transactions with affiliates, pay dividends and make
investments. During the six months ended June 30, 1999, no dividends were
paid by the Company.
During the six months ended June 30, 1999, MGI paid $18.7 million
in dividends to the Company.
The Pacific Lumber Credit Agreement and the indenture governing
the Timber Notes contain various covenants which, among other things, limit
the ability of Pacific Lumber and Scotia LLC to incur additional
indebtedness and liens, to engage in transactions with affiliates, to pay
dividends and to make investments. As of June 30, 1999, under the most
restrictive of these covenants, no dividends could be paid by Pacific
Lumber to its parent.
As of June 30, 1999, $21.3 million of total availability existed
under the Pacific Lumber Credit Agreement, no borrowings were outstanding
and letters of credit outstanding amounted to $12.1 million.
The Escrowed Funds, including accumulated interest, were $288.2
million as of June 30, 1999 and are to be made available as necessary to
support Scotia LLC's Timber Notes. The Escrowed Funds will be released
by the Escrow Agent only in accordance with the terms of the Escrow
Agreement.
On July 16, 1999, Scotia LLC's Line of Credit Agreement was
extended for an additional year to July 16, 2000. Interest on initial
borrowings outstanding for less than six months was increased to the Base
Rate (as defined in the agreement) plus 0.25% or a one month or six month
LIBOR rate plus 1%.
On the July 20, 1999 note payment date, Scotia LLC had $6.5
million in cash available to pay the $31.6 million in interest due on the
Timber Notes. Scotia LLC borrowed the remaining $25.1 million in funds
under the terms of the Line of Credit Agreement. In addition, Scotia LLC
paid approximately $2.8 million of principal on the Timber Notes (the
amount equal to Scheduled Amortization) using funds received as a capital
contribution from Pacific Lumber. Funds for the $2.8 million principal
payment were provided from the Escrowed Funds and were released in
accordance with the terms of the Escrow Agreement. The indenture governing
the Timber Notes was amended to allow the capital contribution from Pacific
Lumber to be applied as a principal payment.
As of June 30, 1999, the Company had consolidated long-term debt
of $977.2 million (net of current maturities) as compared to $990.2 million
at December 31, 1998. The decrease in long-term debt was due to $5.4
million of principal payment on the Timber Notes and an increase in the
current portion of long-term debt of $7.6 million. The Company and its
subsidiaries anticipate that existing cash, cash equivalents, marketable
securities, funds available under the Escrow Agreement and available
sources of financing will be sufficient to fund their working capital and
capital expenditure requirements for the next year. With respect to their
long-term liquidity, dividends from Scotia LLC to Pacific Lumber will be
limited for at least the next two to three years, and therefore, absent any
release to Pacific Lumber of the Escrowed Funds, Pacific Lumber will not
have adequate funds to support all of its working capital and capital
expenditure requirements, and it will require contributions from MGI to
meet any deficiencies. Although the Company believes that existing cash
and cash equivalents should provide sufficient funds to meet the working
capital and capital expenditure requirements for itself and its
subsidiaries, until such time as Pacific Lumber has adequate cash flows
from operations, dividends from Scotia LLC and/or funds released from the
Escrowed Funds, there can be no assurance that this will be the case.
Furthermore, due to its highly leveraged condition, the Company is more
sensitive than less leveraged companies to factors affecting its
operations, including governmental regulation and litigation affecting its
timber harvesting practices (see Note 7 to the Consolidated Financial
Statements), increased competition from other lumber producers or
alternative building products and general economic conditions.
TRENDS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See above for cautionary information with respect to
such forward-looking statements.
The Company's forest products operations are conducted by Pacific
Lumber and Britt. Regulatory and environmental matters play a significant
role in Pacific Lumber's operations, which are subject to a variety of
California and federal laws and regulations, as well as the Final HCP, Final
SYP and Pacific Lumber's 1999 TOL, dealing with timber harvesting practices,
threatened and endangered species and habitat for such species, and air and
water quality. Moreover, these laws and regulations are modified from time
to time and are subject to judicial and administrative interpretation.
Compliance with such laws, regulations and judicial and administrative
interpretations, and related litigation have increased the cost of logging
operations. The Company's forest products segment has also been adversely
affected by a lack of available logs as a result of a severely diminished
supply of available THPs. Prior to the consummation of the Headwaters
Agreement on March 1, 1999, the reduced number of approved THPs was
attributable to several factors, including a significantly reduced level of
THPs submitted by Pacific Lumber to the CDF during 1998 and during the
first two months of 1999 due to (a) the extensive amount of time devoted by
Pacific Lumber's foresters, wildlife and fisheries biologists and other
personnel to (i) amending a significant number of previously submitted THPs
to incorporate various new requirements which Pacific Lumber agreed to as
part of the Pre-Permit Agreement, (ii) preparing the Combined Plan and all
the related data, responding to comments on the Combined Plan, assessing
and responding to federal and state proposals and changes concerning the
Combined Plan and evaluating the Final Plans, (iii) responding to comments
received by Pacific Lumber from various federal and state governmental
agencies with respect to its filed THPs in light of the new and more
stringent requirements that Pacific Lumber agreed to observe pursuant to
the Pre-Permit Agreement, and (iv) responding to newly filed litigation
involving certain of Pacific Lumber's approved THPs and (b) implementation
of a provision contained in the Pre-Permit Agreement which required, for
the first time, a licensed geologist to review virtually all of Pacific
Lumber's THPs prior to submission to the CDF. Pacific Lumber also
experienced an unexpected significantly slower rate of review and approval
with respect to its filed THPs due, in large part, to the issues that
emerged in applying the requirements embodied in the Pre-Permit Agreement
to Pacific Lumber's THPs, certain of which requirements imposed new
forestry practices that applied solely to Pacific Lumber's operations.
With the consummation of the Headwaters Agreement, Pacific Lumber
has completed its work in connection with preparation of the Final Plans;
however, significant additional work continues to be required in connection
with their implementation. The remainder of 1999 will be a transition year
for Pacific Lumber with respect to the filing and approval of its THPs.
Certain of the THPs which were approved by the CDF prior to March 1, 1999
were grandfathered under the Implementation Agreement, and are harvestable
subject to the harvesting restrictions prescribed under the THPs and
satisfaction of certain agreed conditions. The remaining THPs which were
in the process of being reviewed but were not yet approved by the CDF at
the time of the consummation of the Final Plans each require varying
degrees of revisions. Pacific Lumber believes that the rate of submissions
of THPs and the review and approval of THPs during at least the third
quarter will continue to be slower than Pacific Lumber has historically
experienced as Pacific Lumber, the CDF and other agencies develop
procedures for implementing the Final Plans. Nevertheless, Pacific Lumber
anticipates that after a transition period, the implementation of the Final
Plans will streamline the process of preparing THPs and potentially shorten
the time to obtain approval of THPs.
There can be no assurance that Pacific Lumber will not continue
to experience difficulties in receiving approvals of its THPs similar to
those it has been experiencing. Furthermore, there can be no assurance
that certain pending legal, regulatory and environmental matters or future
governmental regulations, legislation or judicial or administrative
decisions, or adverse weather conditions, would not have a material
adverse effect on the Company's financial position, results of operations
or liquidity. See Part II. Item 1. "Legal Proceedings" and Note 7 to
the Consolidated Financial Statements for further information regarding
regulatory and legal proceedings affecting the Company's operations.
YEAR 2000
The Company has established a team to address the potential
impacts of the year 2000 on each of its critical business functions. The
team has completed its assessment of the Company's critical information
technology and embedded technology, including its geographic information
system and equipment and systems used in operating its sawmills and
cogeneration plant, and is now in the process of making the required
modifications for these systems to be year 2000 compliant. The
modification costs are expected to be immaterial, costing less than
$100,000 and, except for the Company's cogeneration plant and the financial
systems for Britt, all modifications and testing have been completed.
Modifications and testing of the cogeneration plant and the financial
systems for Britt are expected to be completed by the end of the third
quarter of 1999. Systems modification costs are being expensed as
incurred. Costs associated with new systems are being capitalized and will
be amortized over the life of the product.
In addition to addressing the Company's internal systems, the
team has identified key vendors that could be impacted by year 2000 issues,
and surveys have been conducted regarding their compliance efforts.
Management is evaluating the responses to the surveys and making direct
contact with parties which are deemed to be critical. These inquiries are
being made by the Company's own staff, and the costs associated with this
program are expected to be minimal.
Kaiser, the Company's equity investee, has implemented a
company-wide program to coordinate the year 2000 efforts of its individual
business units and to track their progress. The intent of the program is
to make sure that critical items are identified on a sufficiently timely
basis to assure that the necessary resources can be committed to address
any material risk areas that could prevent its systems and assets from
being able to meet Kaiser's business needs and objectives. Spending
related to this program, which began in 1997 and is expected to continue
through 1999, is estimated to be in the $10-15 million range. As of June
30, 1999, Kaiser estimates that approximately $3 million of year 2000
expenditures are yet to be incurred. Such remaining amounts will be
incurred over the balance of 1999, primarily in the third quarter of the
year. In total, Kaiser believes that its remediation and testing efforts
are approximately 85% complete at July 31, 1999. The balance is expected
to be substantially complete by the end of the third quarter of the year.
Kaiser plans to commit the necessary resources for these efforts. In
addition to addressing Kaiser's internal systems, the company-wide program
involves identification of key vendor and customer relationships that could
be impacted by year 2000 issues.
While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to address
possible year 2000 problems in a timely manner, there can be no assurance
that the program, or underlying steps implemented, will be successful in
resolving all such issues prior to the year 2000. If the steps taken by
the Company (or critical third parties) are not made in a timely manner, or
are not successful in identifying and remedying all significant year 2000
issues, business interruptions or delays could occur. However, based on
the information the Company has gathered to date and its expectations of
its ability to remedy problems encountered, the Company believes that it
will not experience significant business interruptions that would have a
material impact on its results or financial condition. The most reasonably
likely worst case scenario which the Company could experience would be
problems with certain of the Company's personal computers, field equipment,
financial software or GIS software. The Company believes that any such
problems could be remedied at minimal cost within a few days and that
contingency plans used in the past for dealing with problems with its
equipment and software are adequate to address the types of problems which
could be encountered in such a scenario. These plans include purchases of
replacement equipment, use of third parties for processing GIS information
and working with vendors to make any needed software modifications.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for cautionary information
with respect to such forward-looking statements.
This item is not applicable for the Company and its subsidiaries;
however, Kaiser, the Company's equity investee, utilizes hedging
transactions to lock-in a specified price or range of prices for certain
products which it sells or consumes and to mitigate its exposure to changes
in foreign currency exchange rates. See Exhibit 99.3 in the Company's Form
10-K for information relative to Kaiser's hedging activities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings subsequent to the filing of the Form 10-K.
TIMBER HARVESTING LITIGATION
With respect to the Mateel action, this case has been set for
trial on November 15, 1999.
On March 31, 1999, the EPIC-SYP/Permits lawsuit was filed against
Pacific Lumber, Salmon Creek, Scotia LLC and others in the Superior Court
of Sacramento County (subsequently transferred to the Superior Court of
Humboldt County pursuant to Pacific Lumber's motion). This action alleges,
among other things, that the CDF and the CDFG violated the CEQA and the
CESA with respect to the Final SYP and the Permits issued by California.
The plaintiffs seek, among other things, injunctive relief to set aside the
CDF's and the CDFG's decisions approving the Final SYP and the Permits
issued by California.
On March 31, 1999, the USWA lawsuit was also filed against
Pacific Lumber, Salmon Creek and Scotia LLC in the California Superior
Court of Sacramento County (subsequently transferred to the Superior Court
of Humboldt County pursuant to Pacific Lumber's motion). This action
alleges, among other things, violations of the Forest Practice Act in
connection with the CDF's approval of the Final SYP. The plaintiffs seek
to prohibit the CDF from approving any THPs relying on the Final SYP.
The Company believes that appropriate procedures were followed
throughout the public review and approval process concerning the Final
Plans, and the Company is working with the relevant state and federal
agencies to defend the USWA lawsuit and the EPIC-SYP/Permits lawsuit.
Although uncertainties are inherent in the final outcome of the EPIC-
SYP/Permits lawsuit and the USWA lawsuit, the Company believes that the
resolution of these matters should not result in a material adverse effect
on its financial condition or results of operations or the ability to
harvest timber.
With respect to the EPIC lawsuit described in the Form 10-K, on
May 5, 1999, the Court dissolved the preliminary injunction, granted the
defendants' motion for summary judgment and dismissed the case as moot.
HUNSAKER MATTER
With respect to the Hunsaker action described in the Form 10-K,
on March 30, 1999, the Court dismissed the lawsuit with prejudice and
ordered the plaintiffs to pay the defendants' costs with respect to the
lawsuit. On April 30, 1999, the plaintiffs filed a notice of appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
<TABLE>
<S> <C>
4.1 First Supplemental Indenture, dated as of July 16,
1999, to the Indenture between Scotia LLC and State
Street Bank and Trust Company regarding Scotia LLC's Class
A-1, Class A-2 and Class A-3 Timber Collateralized Notes
(incorporated herein by reference to Exhibit 4.1 to the
Scotia LLC June 1999 Form 10-Q)
4.2 First Amendment, dated as of July 16, 1999, to the Line of
Credit Agreement among Scotia LLC, the financial institutions
party thereto and Bank of America National Trust and Savings
Association, as agent (incorporated herein by reference to
Exhibit 4.2 to the Scotia LLC June 1999 Form 10-Q)
*27 Financial Data Schedule for the six months ended June 30, 1999
* Included with this filing
</TABLE>
B. REPORTS ON FORM 8-K:
On July 1, 1999, the Company filed a current report on Form 8-K
(under Item 5) dated June 29, 1999, concerning a press release issued by
Kaiser, in which the Company owns a 35.2% interest.
On July 9, 1999, the Company filed a current report on Form 8-K
(under Item 5) dated July 5, 1999, concerning press statements issued by
Kaiser Aluminum & Chemical Corporation, a wholly owned subsidiary of
Kaiser.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, who have signed this report
on behalf of the Registrant and as the principal financial and accounting
officers of the Registrant.
MAXXAM GROUP HOLDINGS INC.
Date: August 13, 1999 By: /s/ PAUL N. SCHWARTZ
Paul N. Schwartz
Vice President, Chief Financial
Officer and Director
(Principal Financial Officer)
Date: August 13, 1999 By: /s/ ELIZABETH D. BRUMLEY
Elizabeth D. Brumley
Controller
(Principal Accounting Officer)
APPENDIX A
GLOSSARY OF DEFINED TERMS
Britt: Britt Lumber Co., Inc., an indirect wholly owned subsidiary of MGI
California Agreement: An agreement between the Pacific Lumber Parties and
California regarding the enforcement of the California bill which
authorized state funds for the purchase of the Headwaters Timberlands
while imposing certain environmental restrictions on the remaining
timberlands held by the Pacific Lumber Parties
CDF: California Department of Forestry and Fire Protection
CDFG: California Department of Fish and Game
CEQA: California Environmental Quality Act
CESA: California Endangered Species Act
Combined Plan: The combined SYP and Multi-Species HCP released by Pacific
Lumber and Scotia LLC for public review and comment in July 1998
Company: MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM
Elk River Timberlands: The 7,700 acres of timberlands transferred to
Pacific Lumber upon the consummation of the Headwaters Agreement
EPA: Environmental Protection Agency
EPIC: Environmental Protection Information Center, Inc.
EPIC lawsuit: An action entitled Environmental Protection Information
Center, Inc., Sierra Club v. The Pacific Lumber Company, Scotia
Pacific Holding Company and Salmon Creek Corporation (No. C-98-3129)
filed August 12, 1998 in the United States District Court for the
Northern District of California
EPIC Notice Letter: A notice received by the Company on or about January
29, 1999 from EPIC and the Sierra Club of their intent to sue Pacific
Lumber and several federal agencies under the ESA
EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of
Forestry and Fire Protection, California Department of Fish and Game,
The Pacific Lumber Company, Scotia Pacific Company LLC, Salmon Creek
Corporation, et al. (No. 99CS00639) filed March 31, 1999 in the
Superior Court of Sacramento County and transferred to the Superior
Court of Humboldt County on July 13, 1999 (No. CV-990445)
ESA: The federal Endangered Species Act
Escrow Agent: The agent holding the Escrowed Funds under the Escrow
Agreement
Escrow Agreement: The agreement covering the Escrowed Funds
Escrowed Funds: Proceeds of $285.0 million received by Salmon Creek in
connection with the sale of the Headwaters Timberlands, plus accrued
interest, which have been deposited into an escrow account pursuant to
the Escrow Agreement as necessary to support the Timber Notes
Final HCP: The Multi-Species HCP approved on March 1, 1999 in connection
with the consummation of the Headwaters Agreement
Final Plans: The Final HCP and the Final SYP
Final SYP: The SYP approved on March 1, 1999 in connection with the
consummation of the Headwaters Agreement
Forest Practice Act: The California Forest Practice Act
Form 10-K: The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1998
GIS: The geographical information system of the Company
Grizzly Creek Agreement: The agreement entered into by Pacific Lumber with
California regarding the future sale of a portion of the Grizzly Creek
grove
Grizzly Creek Grove: A grove of approximately 1,000 acres of primarily old
growth timber owned by Pacific Lumber on land owned by Scotia LLC
Headwaters Agreement: The September 28, 1996 agreement between the Pacific
Lumber Parties, the United States and California which provided the
framework for the acquisition by the United States and California of
the Headwaters Timberlands
Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber
the Headwaters Forest and the Elk Head Springs Forest which were sold
to the United States and California on March 1, 1999
Hunsaker action: An action entitled William Hunsaker, et al. v. Charles E.
Hurwitz, The Pacific Lumber Company, MAXXAM Group Inc., MXM Corp.,
Federated Development Company and Does (1-50) (No. C98-4515) filed
November 24, 1998 in the United States District Court for the Northern
District of California
Implementation Agreement: The Implementation Agreement with Regard to
Habitat Conservation Plan agreed to in connection with the
consummation of the Headwaters Agreement
Kaiser: Kaiser Aluminum Corporation, an equity investee of the Company
engaged in aluminum operations
Kaiser Shares: 27,938,250 shares of the common stock of Kaiser, all of
which are pledged as collateral for the MGHI Notes
Line of Credit Agreement: The agreement between a group of lenders and
Scotia LLC pursuant to which Scotia LLC may borrow in order to pay
interest on the Timber Notes
LTSY: Long-term sustained yield
Mateel action: An action entitled Mateel Environmental Justice Foundation
v. Pacific Lumber, Scotia Pacific Holding Company, Salmon Creek
Corporation and MAXXAM Group Inc. (No. DR 980301) brought on May 27,
1998 in the Superior Court of Humboldt County
MAXXAM: MAXXAM Inc.
MGHI Notes: 12% MGHI Senior Secured Notes due August 1, 2003
MGI: MAXXAM Group Inc., a wholly owned subsidiary of the Company
Multi-Species HCP: A habitat conservation plan covering multiple species
Owl Creek Agreement: The agreement entered into by Scotia LLC with
California regarding the future sale of the Owl Creek grove
Owl Creek Grove: A grove of approximately 900 acres of primarily old
growth timber owned by Scotia LLC
Pacific Lumber: The Pacific Lumber Company, an indirect wholly owned
subsidiary of MGI
Pacific Lumber Credit Agreement: The revolving credit agreement between
Pacific Lumber and a bank which provides for borrowings of up to $60.0
million, all of which may be used for revolving borrowings, $20.0
million of which may be used for standby letters of credit and $30.0
million of which may be used for timberland acquisitions.
Pacific Lumber Parties: Pacific Lumber, including its subsidiaries and
affiliates, and MAXXAM
Permits: The incidental take permits issued by the United States and
California pursuant to the Final HCP
Prefunding Account: Restricted cash held in an account by the trustee
under the indenture governing the Timber Notes to enable Scotia LLC to
acquire timberlands
Pre-Permit Agreement: The February 27, 1998 Pre-Permit Application
Agreement in Principle entered into by Pacific Lumber, MAXXAM and
various government agencies regarding certain understandings that they
had reached regarding the Multi-Species HCP, the Permits and the SYP
Salmon Creek: Salmon Creek Corporation, a wholly owned subsidiary of
Pacific Lumber
Scotia LLC: Scotia Pacific Company LLC, a limited liability company wholly
owned by Pacific Lumber
Scotia LLC June 1999 Form 10-Q: Scotia LLC's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999, File No. 333-63825
SFAS No. 130: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income"
SFAS No. 133: Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
SFAS No. 137: Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133"
Supplemental EPIC Notice Letter: A notice sent to MAXXAM, Pacific Lumber,
Scotia LLC, Salmon Creek and various government agencies on or about
May 21, 1999 from EPIC, the Sierra Club and other environmental
groups incorporating the EPIC Notice Letter and alleging violations of
the ESA relating to various aspects of the Headwaters Agreement
SYP: Sustained yield plan establishing long-term sustained yield harvest
levels for a company's timberlands
THP: Timber harvesting plan required to be filed with and approved by the
CDF prior to the harvesting of timber
Timber Notes: Scotia LLC's $867.2 million original aggregate principal
amount of 6.55% Series B Class A-1 Timber Collateralized Notes, 7.11%
Series B Class A-2 Timber Collateralized Notes and 7.71% Series B
Class A-3 Timber Collateralized Notes due July 20, 2028
TMDLs: Total maximum daily load limits
TOL: Timber operator's license allowing the holder to conduct timber
harvesting operations
USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO,
CLC, and Donald Kegley v. California Department of Forestry and Fire
Protection, The Pacific Lumber Company, Scotia Pacific Company LLC and
Salmon Creek Corporation (No. 99CS00626) filed on March 31, 1999 in
the Superior Court of Sacramento County and transferred to the
Superior Court of Humboldt County on July 13, 1999 (No. CV-990452)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 112,100
<SECURITIES> 41,700
<RECEIVABLES> 19,600
<ALLOWANCES> 0
<INVENTORY> 29,000
<CURRENT-ASSETS> 211,100
<PP&E> 191,300
<DEPRECIATION> 90,400
<TOTAL-ASSETS> 1,079,900
<CURRENT-LIABILITIES> 78,600
<BONDS> 993,100
0
0
<COMMON> 0
<OTHER-SE> (25,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,079,900
<SALES> 88,100
<TOTAL-REVENUES> 88,100
<CGS> 76,000
<TOTAL-COSTS> 76,000
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,200
<INCOME-PRETAX> 198,000
<INCOME-TAX> 88,500
<INCOME-CONTINUING> 109,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,500
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
