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, 1996
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 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 1, 1996: 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.
MAXXAM GROUP INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1996 and
December 31, 1995 3
Consolidated Statement of Operations for the three
and six months ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows for the six months
ended June 30, 1996 and 1995 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
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
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66,822 $ 48,396
Marketable securities 29,058 36,568
Receivables:
Trade 14,754 20,576
Other 5,586 1,624
Inventories 69,563 77,904
Prepaid expenses and other current assets 6,348 7,101
------------ ------------
Total current assets 192,131 192,169
Timber and timberlands, net of depletion of
$212,261 and $204,856 at June 30, 1996 and
December 31, 1995, respectively 331,244 337,390
Property, plant and equipment, net of accumulated
depreciation of $71,998 and $67,732 at
June 30, 1996 and December 31, 1995,
respectively 100,183 100,142
Deferred financing costs, net 25,760 27,288
Deferred income taxes 56,993 58,485
Restricted cash 31,067 31,367
Other assets 6,142 5,542
------------ ------------
$ 743,520 $ 752,383
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 4,959 $ 4,166
Accrued compensation and related benefits 9,107 9,611
Accrued interest 25,063 25,354
Deferred income taxes 10,244 10,244
Other accrued liabilities 3,235 4,435
Long-term debt, current maturities 14,415 14,195
------------ ------------
Total current liabilities 67,023 68,005
Long-term debt, less current maturities 761,213 764,310
Other noncurrent liabilities 26,596 33,813
------------ ------------
Total liabilities 854,832 866,128
------------ ------------
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 (192,599) (195,032)
------------ ------------
Total stockholder's deficit (111,312) (113,745)
------------ ------------
$ 743,520 $ 752,383
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Lumber and logs $ 66,471 $ 59,686 $ 121,196 $ 106,669
Other 4,832 5,958 9,911 10,943
------------ ------------ ------------ ------------
71,303 65,644 131,107 117,612
------------ ------------ ------------ ------------
Operating expenses:
Costs of goods sold
(exclusive of depletion
and depreciation) 41,417 33,034 74,495 62,504
Selling, general and
administrative expenses 3,600 3,525 7,230 7,617
Depletion and depreciation 7,276 7,318 13,955 13,301
------------ ------------ ------------ ------------
52,293 43,877 95,680 83,422
------------ ------------ ------------ ------------
Operating income 19,010 21,767 35,427 34,190
Other income (expense):
Investment, interest and
other income 2,750 2,445 6,048 4,247
Interest expense (19,494) (19,407) (38,992) (38,930)
------------ ------------ ------------ ------------
Income (loss) before income taxes 2,266 4,805 2,483 (493)
Credit (provision) in lieu of
income taxes 1,643 (1,633) 1,550 373
------------ ------------ ------------ ------------
Net income (loss) $ 3,909 $ 3,172 $ 4,033 $ (120)
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,033 $ (120)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depletion and depreciation 13,955 13,301
Amortization of deferred financing
costs and discounts on long-term
debt 7,190 6,511
Net sales (purchases) of marketable
securities 9,551 (6,989)
Net gains on marketable securities (2,041) (1,393)
Decrease in receivables 5,033 14,095
Decrease in inventories, net of
depletion 6,310 3,534
Increase in accounts payable 793 1,691
Increase (decrease) in other
liabilities (11,513) 1,324
Decrease (increase) in prepaid expenses
and other current assets 153 (1,058)
Decrease (increase) in accrued and
deferred income taxes 911 (583)
Decrease in accrued interest (291) (208)
Other (5) (339)
------------ ------------
Net cash provided by operating
activities 34,079 29,766
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of note receivable from affiliate - 2,500
Net proceeds from sale of assets 94 14
Capital expenditures (5,908) (4,495)
------------ ------------
Net cash used for investing
activities (5,814) (1,981)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash withdrawals, net 300 77
Principal payments on long-term debt (8,539) (8,281)
Dividends paid (1,600) -
------------ ------------
Net cash used for financing
activities (9,839) (8,204)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,426 19,581
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,396 48,575
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66,822 $ 68,156
============ ============
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Net repayments of margin borrowings for
marketable securities $ - $ 6,648
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 32,093 $ 32,627
Tax allocation payments to MAXXAM Inc., net 167 -
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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, 1995 (the "Form 10-K"). Any capitalized terms used but not
defined in the following Condensed Notes to Consolidated Financial
Statements have the same meaning given to them in 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 June 30, 1996, the
consolidated results of operations for the three and six months ended June
30, 1996 and 1995 and consolidated cash flows for the six months ended June
30, 1996 and 1995. 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. RESTRICTED CASH
Restricted cash represents the amount deposited into an account
held by the Trustee under the indenture governing the Timber Notes of the
Company's indirect wholly owned subsidiary, Scotia Pacific Holding Company
("Scotia Pacific").
At June 30, 1996 and December 31, 1995, cash and cash equivalents
also includes $11,327 and $19,742, respectively, which is restricted for
debt service payments on the succeeding note payment date for the Timber
Notes. In January 1996 and July 1996, Scotia Pacific repaid $8,493 and
$5,610, respectively, of the aggregate principal amount outstanding on the
Timber Notes.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Lumber $ 54,017 $ 59,563
Logs 15,546 18,341
------------- -------------
$ 69,563 $ 77,904
============= =============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
7.95% Scotia Pacific Timber Collateralized Notes due July 20, 2015 $ 341,740 $ 350,233
11-1/4% MGI Senior Secured Notes due August 1, 2003 100,000 100,000
12-1/4% MGI Senior Secured Discount Notes due August 1, 2003, net of
discount 98,160 92,498
10-1/2% Pacific Lumber Senior Notes due March 1, 2003 235,000 235,000
Other 728 774
------------ ------------
775,628 778,505
Less: current maturities (14,415) (14,195)
------------ ------------
$ 761,213 $ 764,310
============ ============
</TABLE>
5. CREDIT (PROVISION) IN LIEU OF INCOME TAXES
The credit in lieu of income taxes for the second quarter of 1996
includes a benefit of $2,620 relating to the refund of taxes previously
paid in connection with a settlement of certain federal income tax matters
in June 1996. The Company received the cash refund in August 1996.
6. CONTINGENCIES
The Company's forest products operations are primarily conducted
by The Pacific Lumber Company ("Pacific Lumber") and are subject to a
variety of California and federal laws and regulations dealing with timber
harvesting, endangered species and critical habitat, and air and water
quality. While the Company does not expect that Pacific Lumber's
compliance with such existing laws and regulations will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity, Pacific Lumber is subject to certain pending
matters, including the resolution of issues relating to the final
designation of critical habitat for the marbled murrelet (described below),
which could have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity. Moreover, the laws
and regulations relating to the Company's forest products operations are
modified from time to time and are subject to judicial and administrative
interpretation. There can be no assurance that certain pending or future
governmental regulations, legislation or judicial or administrative
decisions would not materially and adversely affect Pacific Lumber or its
ability to sell lumber, logs or timber.
In May 1996, the U.S. Fish and Wildlife Service (the "USFWS")
published its final designation of critical habitat for the marbled
murrelet ("Final Designation"), designating over four million acres as
critical habitat for the marbled murrelet. Although nearly all of the
designated habitat is public land, approximately 33,000 acres of the
Company's (privately owned) timberlands are included in the Final
Designation, the substantial portion of such 33,000 acres being young
growth timber. Pacific Lumber's wildlife surveys to date (based upon
current survey protocols) have indicated that Pacific Lumber has
approximately 6,600 acres of occupied marbled murrelet habitat. A
substantial portion of this land contains virgin and residual old growth
timber and the bulk of it falls within the area covered by the Final
Designation. In order to mitigate the impact of the Final Designation,
particularly with respect to timberlands occupied by the marbled murrelet,
Pacific Lumber has attempted over the last few years to develop a habitat
conservation plan for the marbled murrelet (the "Murrelet HCP"). The USFWS
has given unfavorable responses to Pacific Lumber's Murrelet HCP efforts.
For this reason and a variety of others, Pacific Lumber and its
subsidiaries have filed two actions alleging that certain portions of its
timberlands have been "taken" and seeking just compensation (see Part II,
Item 1, "Legal Proceedings--Timber Harvesting Litigation").
It is impossible for the Company to determine the potential
adverse effect of the Final Designation on the Company's consolidated
financial position, results of operations or liquidity until such time as
the related regulatory and legal issues are fully resolved. However, if
Pacific Lumber is unable to harvest, or is severely limited in harvesting,
on timberlands designated as marbled murrelet critical habitat, such effect
could be material. If Pacific Lumber is unable to harvest or is severely
limited in harvesting, it intends to seek just compensation from the
appropriate governmental agencies on the grounds that such restrictions
constitute a governmental taking.
There continue to be other regulatory actions and lawsuits
seeking to have various other species listed as threatened or endangered
under the federal Endangered Species Act and/or the California Endangered
Species Act and to designate critical habitat for such species. It is
uncertain what impact, if any, such listings and/or designations of
critical habitat would have on the Company's consolidated financial
position, results of operations or liquidity.
In 1994, the California Board of Forestry ("BOF") adopted certain
regulations regarding compliance with long-term sustained yield objectives.
These regulations require timber companies to project the average annual
growth they will have on their timberlands during the last decade of a
100-year planning period ("Projected Annual Growth"). During any rolling
ten-year period, the average annual harvest over such ten-year period may
not exceed Projected Annual Growth. Pacific Lumber is required to submit,
by October 1996, a plan setting forth, among other things, its Projected
Annual Growth. Pacific Lumber has not completed its analysis of the
projected productivity of its timberlands (including enhancements to
productivity which could be achieved by a variety of methods) and is
therefore unable to predict the impact that these regulations will have on
its future timber harvesting practices; however, the final results of this
analysis could require Pacific Lumber to reduce its timber harvest in
future years from the average annual harvest that it has experienced in
recent years. Pacific Lumber believes that it would be able to mitigate
the effect of any required reduction in harvest level by acquisitions of
additional timberlands, although there can be no assurance that it would be
able to do so. The Company is unable to predict the ultimate impact the
sustained yield regulations will have on its future consolidated financial
position, results of operations or liquidity.
Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") and the BOF regarding the CDF's
and the BOF'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 certain of the
Company's THPs. In addition, lawsuits are pending which seek to prevent
the Company from implementing certain of its approved THPs and other
harvesting operations. These challenges have severely restricted Pacific
Lumber's ability to harvest old growth timber on its property. To date,
challenges with respect to the Company's THPs relating to young growth
timber have been limited; however, no assurance can be given as to the
extent of such challenges in the future. The Company believes that
environmentally focused challenges to its THPs are likely to occur in the
future, particularly with respect to virgin and residual old growth timber.
Although such challenges have delayed or prevented the Company from
conducting a portion of its operations, they have not had a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity. It is, however, impossible to predict the future
nature or degree of such challenges or their ultimate impact on the
Company's consolidated financial position, results of operations or
liquidity.
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 determine the ultimate costs that may be incurred, management
believes that 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, results of operations or liquidity.
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 seasonal in that the Company 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, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)
<S> <C> <C> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 12.9 12.8 23.3 23.5
Redwood common grades 60.8 64.8 118.1 115.9
Douglas-fir upper grades 2.8 1.4 5.0 3.2
Douglas-fir common grades 18.6 11.1 37.9 24.5
Other 8.4 4.0 10.3 7.0
------------- ------------- ------------- -------------
Total lumber 103.5 94.1 194.6 174.1
============= ============= ============= =============
Logs (2) 5.7 1.6 11.6 2.1
============= ============= ============= =============
Wood chips (3) 52.4 52.8 101.4 99.7
============= ============= ============= =============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,392 $ 1,478 $ 1,389 $ 1,508
Redwood common grades 525 498 504 467
Douglas-fir upper grades 1,158 1,290 1,156 1,333
Douglas-fir common grades 438 378 407 378
Logs (4) 544 559 505 482
Wood chips (5) 67 99 77 94
Net sales:
Lumber, net of discount $ 63.5 $ 58.8 $ 115.4 $ 105.7
Logs 3.0 .9 5.8 1.0
Wood chips 3.5 5.2 7.8 9.4
Cogeneration power .9 .4 1.3 .8
Other .4 .3 .8 .7
------------- ------------- ------------- -------------
Total net sales $ 71.3 $ 65.6 $ 131.1 $ 117.6
============= ============= ============= =============
Operating income $ 19.0 $ 21.8 $ 35.4 $ 34.2
============= ============= ============= =============
Operating cash flow (6) $ 26.3 $ 29.1 $ 49.4 $ 47.5
============= ============= ============= =============
Income (loss) before income taxes $ 2.3 $ 4.8 $ 2.5 $ (.5)
============= ============= ============= =============
Net income (loss) $ 3.9 $ 3.2 $ 4.0 $ (.1)
============= ============= ============= =============
<FN>
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of 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.
(6) Operating income before depletion and depreciation, also referred to as "EBITDA."
</TABLE>
Shipments
Lumber shipments to third parties for the second quarter of 1996
increased from the second quarter of 1995. Increased shipments of common
Douglas-fir lumber were partially offset by decreased shipments of redwood
common lumber. Log shipments for the second quarter of 1996 were 5.7
million feet (net Scribner scale), an increase of 4.1 million feet from the
second quarter of 1995.
Lumber shipments to third parties for the six months ended June
30, 1996 increased from the six months ended June 30, 1995 due primarily to
increased shipments of Douglas-fir and redwood common lumber. Log
shipments for the six months ended June 30, 1996 were 11.6 million feet, an
increase of 9.5 million feet from the six months ended June 30, 1995.
Net sales
Net sales for the second quarter of 1996 increased from the
second quarter of 1995. This increase was principally due to higher
shipments and average realized prices of common Douglas-fir lumber,
increased shipments of logs and upper grade Douglas-fir lumber and higher
average realized prices for redwood common lumber, partially offset by
decreased shipments of redwood common lumber and lower average realized
prices for upper grade redwood lumber and wood chips.
Net sales for the six months ended June 30, 1996 increased from
the six months ended June 30, 1995. This increase was principally due to
higher shipments of common and upper grade Douglas-fir lumber, logs and
higher average realized prices for Douglas-fir and redwood common lumber,
partially offset by lower average realized prices for upper grade redwood
lumber and wood chips. Shipments of fencing and other value-added common
lumber products from the Company's new remanufacturing facility were a
contributing factor in the improved redwood common lumber realizations.
Operating income
Operating income for the second quarter of 1996 decreased from
the second quarter of 1995 and increased for the six months ended June 30,
1996 from the six months ended June 30, 1995. Cost of goods sold increased
during the quarter and six month period ended June 30, 1996 compared to the
same periods in 1995 primarily due to the increased costs associated with
the higher shipments of common grade lumber. Additionally, cost of goods
sold for the second quarter of 1995 was reduced by $1.5 million of business
interruption proceeds for the settlement of claims related to the April
1992 earthquake.
Income (loss) before income taxes
Income before income taxes for the second quarter of 1996
decreased from the second quarter of 1995 principally due to the decrease
in operating income discussed above. Income before income taxes for the
six months ended June 30, 1996 increased from the same period in 1995,
primarily as a result of the increase in operating income as discussed
above.
Credit (provision) in lieu of income taxes
The credit in lieu of income taxes for the second quarter of 1996
includes a benefit of $2.6 million relating to the refund of taxes
previously paid in connection with a settlement of certain federal income
tax matters in June 1996.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Company conducts its operations through its principal
operating subsidiaries, Pacific Lumber and Britt Lumber Co., Inc.. 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 June 30,
1996, under the most restrictive of these covenants, approximately $18.2
million of dividends could be paid by Pacific Lumber.
As of June 30, 1996, $45.1 million of borrowings was available
under Pacific Lumber's Revolving Credit Agreement, of which $5.1 million
was available for letters of credit and $30.0 million for timberland
acquisitions. No borrowings were outstanding as of June 30, 1996, and
letters of credit outstanding amounted to $9.9 million.
The indenture governing the MGI Notes, among other things,
restricts the ability of the Company to incur additional indebtedness,
engage in transactions with affiliates, pay dividends and make investments.
In January 1996, the Company paid dividends of $1.6 million. As of June
30, 1996, under the most restrictive of these covenants, an additional $2.3
million of dividends could be paid by the Company.
As of June 30, 1996, the Company had consolidated long-term debt
of $730.1 million (net of current maturities and restricted cash deposited
in the Liquidity Account) as compared to $732.9 million at December 31,
1995. The decrease in long-term debt was primarily due to principal
payments on the Timber Notes. The Company and its subsidiaries anticipate
that cash flow from operations, together with existing cash, cash
equivalents, marketable securities 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,
the Company and its subsidiaries believe that their existing cash and cash
equivalents, together with their ability to generate sufficient cash flow
from operations and obtain both short and long-term financing, should
provide sufficient funds to meet their working capital and capital
expenditure requirements. However, due to their highly leveraged
condition, the Company and its subsidiaries are more sensitive than less
leveraged companies to factors affecting their operations, including
litigation and governmental regulation affecting their timber harvesting
practices, increased competition from other lumber producers or alternative
building products and general economic conditions.
TRENDS
The Company's forest products operations are primarily conducted
by Pacific Lumber and are subject to a variety of California and federal
laws and regulations dealing with timber harvesting, endangered species and
critical habitat, and air and water quality. While the Company does not
expect that Pacific Lumber's compliance with such existing laws and
regulations will have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity,
Pacific Lumber is subject to certain pending matters, including the
resolution of issues relating to the Final Designation of critical habitat
for the marbled murrelet, which could have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity. Moreover, the laws and regulations relating to the Company's
forest products operations are modified from time to time and are subject
to judicial and administrative interpretation. There can be no assurance
that certain pending or future governmental regulations, legislation or
judicial or administrative decisions would not materially and adversely
affect Pacific Lumber or its ability to sell lumber, logs or timber. See
also Note 6 of the Condensed Notes to Consolidated Financial Statements set
forth in Part I, Item 1 of this Report and Part II, Item 1. "Legal
Proceedings--Timber Harvesting Litigation" for further information,
including government takings actions recently filed and additional takings
claims which could be filed by Pacific Lumber and its subsidiaries.
Judicial or regulatory actions adverse to Pacific Lumber,
increased regulatory delays and inclement weather in northern California,
independently or collectively, could impair Pacific Lumber's ability to
maintain adequate log inventories and force Pacific Lumber to temporarily
idle or curtail operations at certain of its lumber mills from time to
time.
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 Report on Form 10-Q for the quarterly period
ended March 31, 1996 (the "Form 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.
In connection with U.S., ex rel., Martel v. Hurwitz, et al., on
June 11, 1996, defendants filed their motion to dismiss this case. On
August 6, 1996, the Court transferred this case to the judge handling the
Federal Deposit Insurance Corporation, as manager of the FSLIC Resolution
Fund v. Charles E. Hurwitz (No. H-96-6041) action in the U.S. District
Court for the Southern District of Texas (the "FDIC action"). The Company
is not a defendant in the FDIC action. For further information concerning
the FDIC action, see MAXXAM's Annual Report on Form 10-K for the period
ended December 31, 1995.
In connection with the Kayes/Miller action and the DOL civil
action, the settlement agreement in these cases was approved by the Court
at the July 12, 1996 final hearing. The settlement called for payment to
the class plaintiffs and their counsel of $7.0 million in cash by Pacific
Lumber in exchange for full releases by the plaintiffs of defendants and
dismissal of the Kayes/Miller and DOL civil actions.
TIMBER HARVESTING LITIGATION
In connection with the Marbled Murrelet action, on May 7, 1996,
the U. S. Ninth Circuit Court of Appeals reversed the preliminary
injunction order concerning harvesting pursuant to exemptions for forest
health. In addition to appealing the preliminary injunction issued on
April 3, 1996 preventing harvesting on eight THPs to the extent each
relies on the Owl Plan, Pacific Lumber has obtained reapproval of two of
the THPs without reliance on the Owl Plan and has received confirmation
from the Court that these two THPs are not subject to the preliminary
injunction. Pacific Lumber continues to review and seek reapproval of the
other THPs covered by the April 3, 1996 preliminary injunction.
In connection with The Pacific Lumber Company, et al. v. The
United States of America, the Court has granted the parties' agreed
motion to stay this action until September 15, 1996 in order to negotiate a
possible settlement involving approximately 4,500 acres of Pacific Lumber's
timberlands, including a 3,000 acre stand of virgin old growth timber often
referred to as the "Headwaters Forest." Settlement discussions have
commenced. On July 23, 1996, EPIC and the Sierra Club filed a motion to
intervene in this lawsuit.
In connection with Salmon Creek Corporation v. California State
Board of Forestry, et al., in July 1996 the parties submitted an agreed
motion to stay this action until September 15, 1996 in order to negotiate a
possible settlement involving the Headwaters Forest.
In connection with the EPIC action, on May 7, 1996, the U. S.
Ninth Circuit Court of Appeals affirmed the District Court's decision
permanently enjoining Pacific Lumber from conducting timber harvesting
operations in connection with THP 90-237. Pacific Lumber intends to appeal
this decision to the U. S. Supreme Court.
In connection with Lost Coast League v. The California Department
of Forestry, et al., on June 19, 1996, the Court dissolved the injunction
concerning the THP and awarded costs to the defendants. On June 28, 1996,
the Court of Appeal reinstated the injunction on the THP, pending review.
On July 22, 1996, the Court of Appeal dissolved the injunction and denied
plaintiff's appeal.
ITEM 5. OTHER INFORMATION
See Part II, Item 1. "Legal Proceedings" for information
regarding settlement discussions involving the Headwaters Forest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
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 principal accounting officer of the
Registrant.
MAXXAM GROUP INC.
Date: August 13, 1996 By: /s/ GARY L. CLARK
Gary L. Clark
Vice President
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 66,822
<SECURITIES> 29,058
<RECEIVABLES> 14,754
<ALLOWANCES> 0
<INVENTORY> 69,563
<CURRENT-ASSETS> 192,131
<PP&E> 172,181
<DEPRECIATION> 71,998
<TOTAL-ASSETS> 743,520
<CURRENT-LIABILITIES> 52,608
<BONDS> 775,628
0
0
<COMMON> 0
<OTHER-SE> (111,312)
<TOTAL-LIABILITY-AND-EQUITY> 743,520
<SALES> 131,107
<TOTAL-REVENUES> 131,107
<CGS> 74,495
<TOTAL-COSTS> 74,495
<OTHER-EXPENSES> 21,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,992
<INCOME-PRETAX> 2,483
<INCOME-TAX> (1,550)
<INCOME-CONTINUING> 4,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,033
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
