FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
Commission File Number 1-8857
MAXXAM GROUP INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1310680
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5847 SAN FELIPE, SUITE 2600
HOUSTON, TEXAS
(Address of Principal Executive Offices)
77057
(Zip Code)
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 November 1, 1994: 100
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.<PAGE>
<PAGE>
MAXXAM GROUP INC.
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations for the three and nine
months ended September 30, 1994 and 1993 . . . . . . . . . 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1994 and 1993 . . . . . . . . . . . . . 5
Condensed Notes to Consolidated Financial Statements . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
<PAGE>
CONSOLIDATED BALANCE SHEET<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 17,499 $ 39,001
Marketable securities . . . . . . . . . . 23,571 17,775
Receivables:
Trade . . . . . . . . . . . . . . . . 10,877 15,910
Other . . . . . . . . . . . . . . . . 7,142 4,212
Inventories . . . . . . . . . . . . . . . 79,972 73,413
Prepaid expenses and other current assets 3,276 3,189
------------ ------------
Total current assets . . . . . . . . 142,337 153,500
Timber and timberlands, net of depletion of
$184,897 and $171,007 at September 30, 1994
and December 31, 1993, respectively . . . 353,811 365,511
Property, plant and equipment, net of
accumulated depreciation of $56,314
and $50,090 at September 30, 1994 and
December 31, 1993, respectively . . . . . 104,609 102,780
Deferred financing costs, net . . . . . . . . . 30,797 32,725
Deferred income taxes . . . . . . . . . . . . . 61,927 58,371
Restricted cash . . . . . . . . . . . . . . . . 32,710 33,562
Other assets . . . . . . . . . . . . . . . . . 6,382 9,572
------------ ------------
$ 732,573 $ 756,021
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . $ 4,570 $ 2,871
Accrued interest . . . . . . . . . . . . . 9,564 26,216
Accrued compensation and related benefits 12,258 7,782
Deferred income taxes . . . . . . . . . . 14,132 14,132
Other accrued liabilities . . . . . . . . 4,679 4,543
Long-term debt, current maturities . . . . 16,670 16,093
------------ ------------
Total current liabilities . . . . . . 61,873 71,637
Long-term debt, less current maturities . . . . 766,418 772,310
Other noncurrent liabilities . . . . . . . . . 22,826 28,125
------------ ------------
Total liabilities . . . . . . . . . . 851,117 872,072
------------ ------------
Contingencies
Stockholder's deficit:
Common stock, $.08-1/3 par value; 1,000
shares authorized; 100 shares issued - -
Additional capital . . . . . . . . . . . . 81,287 81,287
Accumulated deficit . . . . . . . . . . . (199,831) (197,338)
------------ ------------
Total stockholder's deficit . . . . . (118,544) (116,051)
------------ ------------
$ 732,573 $ 756,021
============ ============
/TABLE
<PAGE>
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1994 1993 1994 1993
--------- --------- ---------- ----------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Net sales:
Lumber and logs . . . . . . . . . . . $ 54,313 $ 53,963 $ 164,198 $ 156,701
Other . . . . . . . . . . . . . . . . 6,386 4,840 16,190 12,846
--------- --------- --------- ---------
60,699 58,803 180,388 169,547
--------- --------- --------- ---------
Operating expenses:
Costs of goods sold (exclusive of
depletion and depreciation) . . . 31,624 36,410 95,815 94,337
Depletion and depreciation . . . . . . 6,079 6,352 17,394 19,194
Selling, general and administrative . 3,634 6,856 11,967 15,601
--------- --------- --------- ---------
41,337 49,618 125,176 129,132
--------- --------- --------- ---------
Operating income . . . . . . . . . . . . . 19,362 9,185 55,212 40,415
Other income (expense):
Investment, interest and other income 2,277 2,053 11,914 6,651
Interest expense . . . . . . . . . . . (19,421) (19,671) (57,741) (60,849)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes, extraordinary
items and cumulative effect of changes
in accounting principles . . . . . . . 2,218 (8,433) 9,385 (13,783)
Credit in lieu of income taxes . . . . . . 6,045 3,013 2,988 2,629
--------- --------- --------- ---------
Income (loss) from continuing operations
before extraordinary items and
cumulative effect of changes in
accounting principles . . . . . . . . 8,263 (5,420) 12,373 (11,154)
Loss from net assets transferred to MAXXAM,
net of minority interests and related
income taxes . . . . . . . . . . . . . - (11,700) - (512,970)
--------- --------- --------- ---------
Income (loss) before extraordinary items and
cumulative effect of changes in
accounting principles . . . . . . 8,263 (17,120) 12,373 (524,124)
Extraordinary items:
Loss on litigation settlement, net of
related credit in lieu of income
taxes of $6,312 . . . . . . . . . - - (14,866) -
Loss on early extinguishment of debt,
net of related credit in lieu of
income taxes of $3,290 and $8,856,
respectively . . . . . . . . . . - (6,387) - (17,189)
Cumulative effect of changes in accounting
principles:
Postretirement benefits other than
pensions, net of related credit in
lieu of income taxes of $1,566 . - - - (2,348)
Accounting for income taxes . . . . . - - - 14,916
--------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . . $ 8,263 $ (23,507) $ (2,493) $(528,745)
========= ========= ========= =========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1994 1993
----------- -----------
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (2,493) $ (528,745)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depletion and depreciation . . . . . . . . . . 17,394 19,194
Amortization of deferred financing costs and
discounts on long-term debt . . . . . . . . 9,013 4,284
Net gains on marketable securities . . . . . . (1,455) (4,151)
Loss from net assets transferred to MAXXAM, net - 512,970
Extraordinary loss on early extinguishment of
debt, net . . . . . . . . . . . . . . . . . - 17,189
Incurrence of financing costs . . . . . . . . . - (34,093)
Cumulative effect of changes in accounting
principles, net . . . . . . . . . . . . . . - (12,568)
Decrease in receivables . . . . . . . . . . . . 4,926 12,639
Increase in accounts payable . . . . . . . . . 1,699 6,272
Decrease in accrued interest . . . . . . . . . (16,652) (23,778)
Increase in inventories, net of depletion . . . (3,443) (12,552)
Increase (decrease) in other liabilities . . . (2,605) 2,275
Increase in accrued and deferred income taxes . (2,252) (4,070)
Other . . . . . . . . . . . . . . . . . . . . . 855 (265)
---------- ----------
Net cash provided by (used for) operating
activities . . . . . . . . . . . . . . . 4,987 (45,399)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . (10,020) (8,883)
Net purchases of marketable securities . . . . . . . (4,228) (935)
Increase in net assets transferred to MAXXAM . . . . - (11,770)
---------- ----------
Net cash used for investing activities . . . (14,248) (21,588)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash released . . . . . . . . . . . . . . 852 1,025
Net borrowings under revolving credit agreements . . 100 4,600
Redemptions, repurchase of and principal payments on
long-term debt . . . . . . . . . . . . . . . . (13,193) (716,490)
Proceeds from issuance of long-term debt . . . . . . - 790,000
Restricted cash deposits . . . . . . . . . . . . . . - (35,000)
Dividends paid . . . . . . . . . . . . . . . . . . . - (20,000)
---------- ----------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . (12,241) 24,135
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . (21,502) (42,852)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . 39,001 54,254
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . $ 17,499 $ 11,402
========== ==========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Net margin borrowings for marketable securities . $ 614 $ 2,508
Timber and timberlands acquired subject to loan from
seller . . . . . . . . . . . . . . . . . . . . 910 -
Net assets transferred to MAXXAM . . . . . . . . . . - 33,975
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest . . . . . $ 65,380 $ 80,343
Income taxes paid . . . . . . . . . . . . . . . . . 1,120 46
Tax allocation payments to MAXXAM . . . . . . . . . 397 1,722
</TABLE>
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
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 Annual Report on Form 10-K filed by MAXXAM Group
Inc. with the Securities and Exchange Commission for the fiscal year ended
December 31, 1993 (the "Form 10-K"). All references to the "Company"
include MAXXAM Group 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 September 30, 1994,
the consolidated results of operations for the three and nine months ended
September 30, 1994 and 1993 and consolidated cash flows for the nine months
ended September 30, 1994 and 1993. Certain reclassifications of prior
period information have been made to conform to the current presentation.
The Company is a wholly owned subsidiary of MAXXAM Inc. ("MAXXAM").
2. CASH AND CASH EQUIVALENTS
At September 30, 1994 and December 31, 1993, cash and cash
equivalents includes $8,872 and $20,280, respectively, which is reserved
for debt service payments on the 7.95% Timber Collateralized Notes due
2015.
3. INVENTORIES
Inventories consist of the following:<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
-------------- --------------
<S> <C> <C>
Lumber . . . . . . . . . . . . . . . . . . . $ 57,829 $ 52,354
Logs . . . . . . . . . . . . . . . . . . . . 22,143 21,059
------------- -------------
$ 79,972 $ 73,413
============= =============
</TABLE>
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION> September 30, December 31,
1994 1993
-------------- ------------
<S> <C> <C>
7.95% Timber Collateralized Notes due July 20, 2015 . $ 363,811 $ 376,953
11-1/4% Senior Secured Notes due August 1, 2003 . . . 100,000 100,000
12-1/4% Senior Secured Discount Notes due August 1,
2003, net of discount. . . . . . . . . . . . . . 80,367 73,499
10-1/2% Senior Notes due March 1, 2003 . . . . . . . 235,000 235,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 3,910 2,951
------------- ------------
783,088 788,403
Less: current maturities . . . . . . . . . . . . . . (16,670) (16,093)
------------- ------------
$ 766,418 $ 772,310
============= ============
/TABLE
<PAGE>
<PAGE>
5. INVESTMENT, INTEREST AND OTHER INCOME
In February 1994, The Pacific Lumber Company ("Pacific Lumber," a
wholly owned subsidiary of the Company) received a franchise tax refund of
$7,243, the substantial portion of which represents interest, from the
State of California relating to tax years 1972 through 1985. This amount
is included in investment, interest and other income for the nine months
ended September 30, 1994.
6. CREDIT IN LIEU OF INCOME TAXES
The credit in lieu of income taxes for the third quarter of 1994
includes a credit relating to reserves the Company no longer believes are
necessary. The credit in lieu of income taxes for the third quarter of
1993 includes a credit resulting from an increase in the federal statutory
income tax rate from 34% to 35%.
7. LOSS FROM NET ASSETS TRANSFERRED TO MAXXAM
The loss from net assets transferred to MAXXAM was as follows:
<TABLE>
<CAPTION>
Three Nine
Months Months
Ended Ended
September 30, September 30,
1993 1993
------------- -------------
<S> <C> <C>
Net sales:
Aluminum operations . . . . . . . . . . . . . . . $ 142,160 $ 1,016,966
Real estate and other . . . . . . . . . . . . . . 5,379 19,654
------------ -------------
147,539 1,036,620
------------ -------------
Costs and expenses:
Aluminum operations . . . . . . . . . . . . . . . 156,913 1,091,353
Real estate and other . . . . . . . . . . . . . . 8,206 28,132
------------ -------------
165,119 1,119,485
------------ -------------
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles . . . . . . . . . (17,580) (82,865)
Income taxes . . . . . . . . . . . . . . . . . . . . . 5,905 31,050
Minority interests . . . . . . . . . . . . . . . . . . (25) 3,641
------------ -------------
Loss before extraordinary item and cumulative effect of
changes in accounting principles . . . . . . . . . (11,700) (48,174)
Extraordinary item:
Loss on redemption of debt, net of related
benefits for income taxes and minority
interests of $11,249 and $2,791, respectively - (19,045)
Cumulative effect of changes in accounting principles:
Postretirement and postemployment benefits, net of
related benefits for income taxes and
minority interests of $237,682 and $64,554,
respectively . . . . . . . . . . . . . . . . - (440,519)
Accounting for income taxes . . . . . . . . . . . - (5,232)
------------ -------------
Loss from net assets transferred to MAXXAM . . . . . . $ (11,700) $ (512,970)
============ =============
/TABLE
<PAGE>
<PAGE>
8. LOSS ON LITIGATION SETTLEMENT AND CONTINGENCIES
On May 17, 1994, MAXXAM and Pacific Lumber announced that an
agreement in principle had been reached to settle class and related
individual claims brought by former stockholders of Pacific Lumber against
MAXXAM, the Company, Pacific Lumber, former directors of Pacific Lumber and
others concerning the Company's acquisition of Pacific Lumber. Of the
pending approximately $52,000 settlement, approximately $33,000 was paid by
insurance carriers of MAXXAM and Pacific Lumber, approximately $14,800 was
paid by Pacific Lumber and the balance was paid by other defendants and
through the assignment of certain claims. The settlement is subject to
certain contingencies, including a fairness hearing which is scheduled to
be held on November 17, 1994. The above described cash payments are being
held in the registry of the court pending satisfaction of these
contingencies. In the second quarter of 1994, the Company recorded an
extraordinary loss of $14,866 related to the settlement and associated
costs, net of benefits for federal and state income taxes of $6,312.
The Company's operations are subject to a variety of California
and, in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, water quality and air and water pollution.
The Company does not expect that compliance with such existing laws and
regulations will have a material adverse effect on the Company's future
operating results. There can be no assurance, however, that future
legislation, governmental regulations or judicial or administrative
decisions would not adversely affect the Company or its ability to sell
lumber, logs or timber.
Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") regarding the CDF's actions and
rulings with respect to certain of the Company's timber harvesting plans
("THPs"), and the Company expects that such groups and individuals will
continue to file objections to the Company's THPs. In addition, lawsuits
are pending which seek to prevent the Company from implementing certain of
its approved THPs. These challenges have severely restricted Pacific
Lumber's ability to harvest virgin old growth redwood timber on its
property during the past few years, as well as substantial amounts of
virgin Douglas-fir timber which are located in virgin old growth redwood
stands. No assurance can be given as to the extent of such litigation in
the future. The Company believes that environmentally focused challenges
to its THPs are likely to occur in the future. Although such challenges
have delayed or prevented the Company from conducting a portion of its
operations, to date such challenges have not had a material adverse effect
on the Company's consolidated financial position or results of operations.
It is, however, impossible to predict the future nature or degree of such
challenges or their ultimate impact on the operating results or
consolidated financial position of the Company.
The Company is also involved in various claims, lawsuits and
proceedings relating to a wide variety of other matters. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the incurrence
of such costs should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
<PAGE>
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 have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company's business is highly seasonal in that the Company has
historically experienced lower first and fourth 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 nine months ended September 30, 1994 and 1993. The
information presented in the table is in millions of dollars except
shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shipments:
Lumber(1):
Redwood upper grades . . . . . 12.5 17.0 38.2 49.8
Redwood common grades . . . . . 55.8 42.8 160.9 136.7
Douglas-fir upper grades . . . 1.7 2.3 6.1 8.5
Douglas-fir common grades . . . 16.0 8.1 47.9 35.6
---------- --------- --------- ---------
Total lumber . . . . . . . . 86.0 70.2 253.1 230.6
========== ========= ========= =========
Logs(2) . . . . . . . . . . . . . . 1.6 8.0 12.0 8.9
========== ========= ========= =========
Wood chips(3) . . . . . . . . . . . 57.0 40.0 152.2 111.2
========== ========= ========= =========
Average sales price:
Lumber(4):
Redwood upper grades . . . . . $ 1,434 $ 1,328 $ 1,436 $ 1,272
Redwood common grades . . . . . 472 472 460 475
Douglas-fir upper grades . . . 1,431 1,248 1,402 1,189
Douglas-fir common grades . . . 429 457 439 439
Logs(4) . . . . . . . . . . . . . . 515 700 638 701
Wood chips(5) . . . . . . . . . . . 85 84 82 81
Net sales:
Lumber, net of discount . . . . . . $ 53.5 $ 48.3 $ 156.6 $ 150.5
Logs . . . . . . . . . . . . . . . . .8 5.6 7.6 6.2
Wood chips . . . . . . . . . . . . . 4.8 3.4 12.5 9.0
Cogeneration power . . . . . . . . . 1.2 1.2 2.7 2.9
Other . . . . . . . . . . . . . . . .4 .3 1.0 .9
---------- --------- --------- ---------
Total net sales . . . . . . $ 60.7 $ 58.8 $ 180.4 $ 169.5
========== ========= ========= =========
Operating income . . . . . . . . . . . . $ 19.4 $ 9.2 $ 55.2 $ 40.4
========== ========= ========= =========
Income (loss) from continuing operations
before income taxes, extraordinary
items and cumulative effect of
changes in accounting principles . . $ 2.2 $ (8.4) $ 9.4 $ (13.8)
========== ========= ========= =========
Loss from net assets transferred to
MAXXAM, net of minority interests
and related income taxes . . . . . . $ - $ (11.7) $ - $ (513.0)
========== ========= ========= =========
Net income (loss) . . . . . . . . . . . . $ 8.3 $ (23.5) $ (2.5) $ (528.7)
========== ========= ========= =========
Capital expenditures . . . . . . . . . . $ 3.5 $ 2.3 $ 10.0 $ 8.9
========== ========= ========= =========
<FN>
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of board feet, net Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
</TABLE>
Shipments
Lumber shipments for the third quarter of 1994 were 86.0 million
board feet, an increase of 23% from 70.2 million board feet for the third
quarter of 1993. This increase was principally due to a 30% increase in
redwood common lumber shipments and a 98% increase in shipments of common
grade Douglas-fir lumber, partially offset by a 26% decrease in shipments
of upper grade redwood lumber. Log shipments for the third quarter of 1994
were 1.6 million feet (net Scribner scale), a decrease from 8.0 million
feet for the third quarter of 1993.
Lumber shipments for the nine months ended September 30, 1994
were 253.1 million board feet, an increase of 10% from 230.6 million board
feet for the nine months ended September 30, 1993. This increase was
principally due to an 18% increase in redwood common lumber shipments and a
35% increase in shipments of common grade Douglas-fir lumber, partially
offset by a 23% decrease in shipments of upper grade redwood lumber. Log
shipments for the nine months ended September 30, 1994 were 12.0 million
feet (net Scribner scale), an increase from 8.9 million feet for the nine
months ended September 30, 1993.
Old growth trees constitute Pacific Lumber's principal source of
upper grade redwood lumber. Due to the severe restrictions on Pacific
Lumber's ability to harvest virgin old growth timber on its property (see
"Trends" under Item 7 of the Form 10-K), Pacific Lumber's supply of upper
grade lumber has decreased in some premium product categories. Pacific
Lumber has been able to lessen the impact of these decreases by augmenting
its production facilities to increase its recovery of upper grade lumber
from smaller diameter logs and increasing the production of manufactured
upper grade lumber products through its end and edge glue facility (which
was recently expanded). However, unless Pacific Lumber is able to sustain
the harvest level of old growth trees it has experienced in recent years,
Pacific Lumber expects that its supply of premium upper grade lumber
products will decrease from current levels and that its manufactured lumber
products will constitute a higher percentage of its shipments of upper
grade lumber products.
Net sales
Revenues from net sales of lumber and logs for the third quarter
of 1994 increased by approximately 1% from the third quarter of 1993. This
increase was principally due to increased shipments of redwood common
lumber, increased shipments of common grade Douglas-fir lumber and an 8%
increase in the average realized price of upper grade redwood lumber,
partially offset by decreased shipments of upper grade redwood lumber and
decreased log shipments. The increase in other sales for the third quarter
of 1994 as compared to the third quarter of 1993 was attributable to
increased sales of wood chips.
Revenues from net sales of lumber and logs for the nine months
ended September 30, 1994 increased by approximately 5% from the nine months
ended September 30, 1993. This increase was principally due to increased
shipments of redwood common lumber, a 13% increase in the average realized
price of upper grade redwood lumber, increased shipments of common grade
Douglas-fir lumber, increased log shipments and an 18% increase in the
average realized price of upper grade Douglas-fir lumber, partially offset
by decreased shipments of upper grade redwood lumber and a 3% decrease in
the average realized price of redwood common lumber. The increase in other
sales for the nine months ended September 30, 1994 as compared to the nine
months ended September 30, 1993 was attributable to increased sales of wood
chips.
Operating income
Operating income for the third quarter of 1994 increased by
approximately 111% as compared to the third quarter of 1993. Operating
income for the nine months ended September 30, 1994 increased by
approximately 37% as compared to the nine months ended September 30, 1993.
These increases were principally due to higher sales of lumber and wood
chips, lower purchases of lumber and logs from third parties, improved
sawmill productivity and reduced overhead costs in 1994 compared to 1993.
For the nine months ended September 30, 1993, cost of goods sold was
reduced by $1.2 million for an additional business interruption insurance
claim as a result of the April 1992 earthquake.
Pacific Lumber's cost of producing lumber products has continued
to increase as a result of compliance with evolving environmental
regulations, litigation associated with its timber harvesting plans and
greater costs attributable to processing larger numbers of smaller diameter
logs and producing manufactured products.
Income (loss) from continuing operations before income taxes,
extraordinary items and cumulative effect of changes in
accounting principles
Income from continuing operations before income taxes,
extraordinary items and cumulative effect of changes in accounting
principles increased for the third quarter of 1994 and the nine months
ended September 30, 1994 as compared to the same periods in 1993. These
increases resulted from the increases in operating income, higher
investment, interest and other income and decreased interest expense.
Investment, interest and other income for the nine months ended September
30, 1994 includes the receipt of a franchise tax refund of $7.2 million (as
described in Note 5 to the Condensed Notes to Consolidated Financial
Statements). Interest expense decreased due to lower interest rates
resulting from the refinancing of the Company's long-term debt in March and
August of 1993.
Extraordinary item - loss on litigation settlement
The litigation settlement in the second quarter of 1994 (as
described in Note 8 to the Condensed Notes to Consolidated Financial
Statements) resulted in an extraordinary loss of $14.9 million, net of
related income taxes of $6.3 million. The extraordinary loss consists of
Pacific Lumber's $14.8 million cash payment to the settlement fund, a $2.0
million accrual for additional contingent claims and $4.4 million of
related legal fees. See also "Pacific Lumber Merger Litigation" under Part
II, Item 1 of this Report.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
As of September 30, 1994, the Company had consolidated long-term
debt of $733.7 million (net of current maturities and restricted cash
deposited in the Liquidity Account) as compared to $738.7 million at
December 31, 1993. The decrease in long-term debt was primarily due to
principal payments on the Timber Notes.
The Company conducts its operations through its principal
operating subsidiaries, Pacific Lumber and Britt Lumber Co., Inc.
("Britt"). The indentures governing the Pacific Lumber Senior Notes and
the Timber Notes and Pacific Lumber's Revolving Credit Agreement contain
various covenants which, among other things, limit the payment of dividends
and restrict transactions between Pacific Lumber and its affiliates. As of
September 30, 1994, under the most restrictive of these covenants,
approximately $15.7 million of dividends could be paid by Pacific Lumber.
In May 1994, the Revolving Credit Agreement was amended to extend its
maturity date to May 31, 1997 and modify the dividend restriction existing
at December 31, 1993. On February 24, 1994, Pacific Lumber paid dividends
of $5.7 million which represented the entire amount permitted at
December 31, 1993. Pacific Lumber paid an additional $12.3 million of
dividends in June 1994 as a result of the amendment to the Revolving Credit
Agreement and Pacific Lumber's operating results for the four months ended
April 30, 1994.
The indenture governing the MGI Notes contains various covenants
which, among other things, limit the payment of dividends and restrict
transactions between the Company and its affiliates. As of September 30,
1994, under the most restrictive of these covenants, the amount of
dividends which could be paid by the Company was not significant.
The Company anticipates that cash flows from operations, together
with existing cash, marketable securities and available sources of
financing, will be sufficient to fund the working capital and capital
expenditures requirements of the Company and its respective subsidiaries
for the foreseeable future; however, due to its highly leveraged condition,
the Company is more sensitive than less leveraged companies to factors
affecting its operations, including governmental regulation affecting its
timber harvesting practices, increased competition from other lumber
producers or alternative building products and general economic conditions.
<PAGE>
MAXXAM GROUP INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1994 and June 30, 1994 (the "Forms 10-Q") for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings. Any capitalized or italicized terms used but not defined in
this Item have the same meaning given to them in the Form 10-K and the
Forms 10-Q.
PACIFIC LUMBER MERGER LITIGATION
With respect to the In re Ivan F. Boesky multidistrict securities
litigation matter, on September 28, 1994, the judge signed the preliminary
approval of the settlement agreement, which, among other things,
established October 28, 1994 as the postmark deadline for requests for
exclusion from the settlement (none has been received), established
November 4, 1994 as the deadline for filing any objections to the
settlement (none has been filed), established November 17, 1994 as the date
for the fairness hearing and established December 23, 1994 as the postmark
deadline for proofs of claim. Prior to preliminary approval of the
settlement agreement, certain changes were made from the agreement in
principle described in the Form 10-Q for the quarterly period ended June
30, 1994 (the "Second Quarter Form 10-Q"). The settlement agreement, as
then executed, does not purport to cover certain claims brought in the
Thompson State action by non-shareholders of Pacific Lumber or shareholders
acting in capacities other than as shareholders involving environmental or
other Pacific Lumber non-shareholder corporate issues.
With respect to the DOL civil action, at the September 2, 1994
status conference, at defendants' request, the judge instructed the parties
to attend a settlement conference before a federal magistrate, which has
been scheduled for November 14, 1994, and scheduled the next status
conference for December 16, 1994.
With respect to the Miller action, the defendants and plaintiff
in the DOL civil action have invited the Miller plaintiffs to attend the
settlement conference referenced above. Additionally, on October 3, 1994,
the U.S. House of Representatives approved a bill amending ERISA, which had
been previously passed by the U.S. Senate on October 28, 1993, intended, in
part, to overturn the U.S. District Court's dismissal of the Miller action
and to make available certain remedies not previously provided under ERISA.
On October 22, 1994, the President signed this legislation (the Pension
Annuitants' Protection Act of 1994). As a result of the passage of this
legislation, the Miller plaintiffs have asked the U.S. Ninth Circuit Court
of Appeal to vacate the U.S. District Court judgment dismissing their case
and to remand the case to the U.S. District Court; defendants have opposed
this request. It is uncertain what effect, if any, this legislation will
have on the pending appeal or the final disposition of this case.
PACIFIC LUMBER ENVIRONMENTAL LITIGATION
With respect to the Marbled Murrelet, et al. v. Bruce Babbitt, et
al. (No. C93-1400) action, a trial was held in U.S. District Court
commencing August 15, 1994 and concluding September 8, 1994. Pacific
Lumber is awaiting a decision.
With respect to the EPIC v. California Department of Forestry, et
al. (No. 94CP0317) action, on October 4, 1994, the Court denied the TRO,
dismissed the case on its merits and awarded the Pacific Lumber defendants
their costs.
With respect to the EPIC v. California Department of Forestry, et
al. (No. 94DR0198) action, on August 10, 1994, plaintiff requested that the
Court dismiss this case with prejudice and the Court subsequently did so.
ITEM 5. OTHER INFORMATION
In Part I, Item 1, "Business--Regulatory and Environmental
Factors" of the Form 10-K and Part II, Item 5, "Other Information" of the
Second Quarter Form 10-Q, a bill is described which relates to acquisition
of certain of Pacific Lumber's timberlands. The bill, substantially
amended to protect Pacific Lumber's private property rights, was passed by
the U.S. House of Representatives in September 1994. However, the U.S.
Senate recessed without acting upon a similar bill and agreed to limit its
business, upon reconvening after the November election, to a single
unrelated subject. It therefore appears unlikely that this legislation
will move forward in this session of the U.S. Congress.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
*27 Financial Data Schedule
------------------
* Included with this filing.
B. REPORTS ON FORM 8-K:
None.<PAGE>
<PAGE>
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 has signed this report on
behalf of the Registrant and as the chief financial officer of the
Registrant.
MAXXAM GROUP INC.
Date: November 14, 1994 By: JOHN T. LA DUC
-------------------------------
John T. La Duc
Vice President and
Chief Financial Officer<PAGE>
<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.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 17,499
<SECURITIES> 23,571
<RECEIVABLES> 10,877
<ALLOWANCES> 0
<INVENTORY> 79,972
<CURRENT-ASSETS> 142,337
<PP&E> 160,923
<DEPRECIATION> 56,314
<TOTAL-ASSETS> 732,573
<CURRENT-LIABILITIES> 61,873
<BONDS> 783,088
<COMMON> 0
0
0
<OTHER-SE> (118,544)
<TOTAL-LIABILITY-AND-EQUITY> 732,573
<SALES> 180,388
<TOTAL-REVENUES> 180,388
<CGS> 95,815
<TOTAL-COSTS> 95,815
<OTHER-EXPENSES> 29,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,741
<INCOME-PRETAX> 9,385
<INCOME-TAX> (2,988)
<INCOME-CONTINUING> 12,373
<DISCONTINUED> 0
<EXTRAORDINARY> (14,866)
<CHANGES> 0
<NET-INCOME> (2,493)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
