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 MARCH 31, 1997
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 April 24, 1997: 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 March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures S-1
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,620 $ 72,418
Marketable securities 31,158 31,423
Receivables:
Trade 17,836 18,850
Other 2,121 2,542
Inventories 61,706 69,307
Prepaid expenses and other current assets 6,406 5,474
------------- -------------
Total current assets 176,847 200,014
Timber and timberlands, net of accumulated
depletion of $223,621 and $221,063,
respectively 323,160 324,986
Property, plant and equipment, net of accumulated
depreciation of $78,954 and $76,753,
respectively 101,211 102,029
Deferred financing costs, net 23,565 24,249
Deferred income taxes 55,035 55,047
Restricted cash 29,765 29,967
Other assets 7,446 6,455
------------- -------------
$ 717,029 $ 742,747
============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 3,685 $ 3,928
Accrued interest 9,078 24,899
Accrued compensation and related benefits 7,728 10,033
Deferred income taxes 10,173 10,173
Other accrued liabilities 1,387 3,335
Long-term debt, current maturities 18,319 16,258
------------- -------------
Total current liabilities 50,370 68,626
Long-term debt, less current maturities 752,111 759,769
Other noncurrent liabilities 27,068 26,387
------------- -------------
Total liabilities 829,549 854,782
------------- -------------
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 (193,807) (193,322)
------------- -------------
Total stockholder's deficit (112,520) (112,035)
------------- -------------
$ 717,029 $ 742,747
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales:
Lumber and logs $ 60,266 $ 54,725
Other 6,549 5,079
------------- -------------
66,815 59,804
------------- -------------
Operating expenses:
Cost of goods sold (exclusive of depletion
and depreciation) 38,045 33,078
Selling, general and administrative expenses 3,381 3,630
Depletion and depreciation 6,702 6,679
------------- -------------
48,128 43,387
------------- -------------
Operating income 18,687 16,417
Other income (expense):
Investment, interest and other income
(expense) 962 3,298
Interest expense (19,619) (19,498)
------------- -------------
Income before income taxes 30 217
Provision in lieu of income taxes (15) (93)
------------- -------------
Net income $ 15 $ 124
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15 $ 124
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion and depreciation 6,702 6,679
Amortization of deferred financing
costs and discounts on long-term
debt 3,843 3,566
Net sales of marketable securities 22 21,579
Net losses (gains) on marketable
securities 243 (1,198)
Increase (decrease) in cash resulting from
changes in:
Receivables 713 5,401
Inventories, net of depletion 5,761 2,901
Prepaid expenses and other assets (1,914) 247
Accounts payable (169) 182
Accrued interest (15,821) (16,052)
Other liabilities (2,977) (3,478)
Accrued and deferred income taxes 15 93
Other 70 (5)
------------- -------------
Net cash provided by (used for)
operating activities (3,497) 20,039
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,258) (2,842)
Net proceeds from sale of assets 11 42
------------- -------------
Net cash used for investing
activities (2,247) (2,800)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions, repurchases of and principal
payments on long-term debt (8,756) (8,494)
Dividends paid (500) (1,600)
Restricted cash withdrawals, net 202 300
------------- -------------
Net cash used for financing
activities (9,054) (9,794)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (14,798) 7,445
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,418 48,396
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,620 $ 55,841
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 31,597 $ 31,984
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM GROUP INC. AND SUBSIDIARIES
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, 1996 (the "Form 10-K"). Any capitalized terms used but not
defined in these 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 noted 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 March 31, 1997, the
consolidated results of operations for the three months ended March 31,
1997 and 1996 and consolidated cash flows for the three months ended March
31, 1997 and 1996. Certain reclassifications of prior period information
have been made to conform to the current presentation. The Company is a
wholly owned subsidiary of MGHI which in turn is a wholly owned subsidiary
of MAXXAM.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Lumber $ 47,733 $ 49,829
Logs 13,973 19,478
------------- -------------
$ 61,706 $ 69,307
============= =============
</TABLE>
3. RESTRICTED CASH
Restricted cash represents the amount held by the Trustee under
the indenture governing the Timber Notes of the Company's indirect wholly
owned subsidiary, Scotia Pacific.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
7.95% Scotia Pacific Timber Collateralized
Notes due July 20, 2015 $ 327,418 $ 336,130
10-1/2% Pacific Lumber Senior Notes due March
1, 2003 235,000 235,000
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 107,332 104,173
Other 680 724
------------- -------------
770,430 776,027
Less: current maturities (18,319) (16,258)
------------- -------------
$ 752,111 $ 759,769
============= =============
</TABLE>
5. CONTINGENCIES
Pacific Lumber's operations 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.
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,
together with the cost of litigation incurred in connection with certain
timber harvesting operations of Pacific Lumber, have increased the cost of
logging operations. Pacific Lumber is subject to certain pending matters
described below which could have a material adverse effect on the
consolidated financial position, results of operations or liquidity of
Pacific Lumber, and in turn the Company. There can be no assurance that
certain pending or future governmental regulations, legislation, judicial
or administrative decisions or California ballot initiatives will not have
a material adverse effect on the Company.
In May 1996, the USFWS published the Final Designation of
critical habitat for the marbled murrelet, a coastal seabird, which
designated 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 Pacific Lumber's timberlands are included in
the Final Designation, the substantial portion of such acreage being young
growth timberlands. In order to mitigate the impact of the Final
Designation, particularly with respect to timberlands occupied by the
marbled murrelet, Pacific Lumber over the last few years has attempted to
develop the Murrelet HCP. Due to, among other things, the unfavorable
response of the USFWS to Pacific Lumber's initial Murrelet HCP efforts,
Pacific Lumber and its subsidiaries filed the Takings Litigation alleging
that certain portions of their timberlands have been "taken" and seeking
just compensation. Pursuant to the Headwaters Agreement entered into by
Pacific Lumber, MAXXAM, the United States and California on September 28,
1996 described in Note 6 below, the Takings Litigation has been stayed at
the request of the parties.
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
various regulatory and legal issues are resolved; however, if Pacific
Lumber is unable to harvest, or is severely limited in harvesting, on
timberlands designated as critical habitat for the marbled murrelet, such
effect could be materially adverse to Pacific Lumber, and in turn the
Company. 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 other species listed as threatened or endangered
under the ESA and/or the CESA and to designate critical habitat for such
species. For example, the NMFS has announced that by April 25, 1997 it
will make a final determination concerning whether to list the coho salmon
under the ESA in northern California, including, potentially, lands owned
by Pacific Lumber. It is uncertain what impact, if any, such listings
and/or designations of critical habitat would have on the consolidated
financial position, results of operations or liquidity of Pacific Lumber,
and in turn the Company.
In 1994, the BOF adopted certain regulations regarding compliance
with long-term sustained yield ("LTSY") objectives. These regulations
require that timber companies project timber growth and harvest on their
timberlands over a 100-year planning period and establish a LTSY harvest
level that takes into account environmental and economic considerations.
Timber companies must submit an SYP which demonstrates that the average
annual harvest over any rolling ten-year period will not exceed the LTSY
harvest level and that Pacific Lumber's projected timber inventory is
capable of sustaining the LTSY harvest level in the last decade of the 100-
ear planning period. On December 17, 1996, Pacific Lumber submitted a
proposed SYP to the CDF. The proposed SYP sets forth an LTSY harvest level
substantially the same as Pacific Lumber's average annual timber harvest
over the last six years. The proposed SYP also indicates that Pacific
Lumber's average annual timber harvest during the first decade of the SYP
would approximate the LTSY harvest level. During the second decade of the
proposed SYP, Pacific Lumber's average annual timber harvest would be
approximately 8% less than that proposed for the first decade. The SYP,
when approved, will be valid for ten years. Thereafter, revised SYPs will
be prepared every decade that will address the LTSY harvest level based
upon reassessment of changes in the resource base and protection of public
resources.
The proposed SYP assumes that the transactions contemplated by
the Headwaters Agreement (see Note 6) will be consummated and that the
Multi-Species HCP will permit Pacific Lumber to harvest its timberlands
(including over the next two decades a substantial portion of its old
growth timberlands not transferred pursuant to the Headwaters Agreement) to
achieve maximum sustained yield. The SYP is subject to review and approval
by the CDF, and there can be no assurance that the SYP will be approved in
its proposed form. Until the SYP is reviewed and approved, the Company is
unable to predict the impact that these regulations will have on Pacific
Lumber's future timber harvesting practices. It is possible that the
results of the review and approval process could require Pacific Lumber to
reduce its timber harvest in future years from the harvest levels set forth
in the proposed SYP. The Company believes Pacific Lumber would be able to
mitigate the effect of any required reduction in harvest level by
acquisitions of additional timberlands and making corresponding amendments
to the SYP; however, there can be no assurance that Pacific Lumber would be
able to do so and the amount of such acquisitions would be limited by
Pacific Lumber's available financial resources. The Company is unable to
predict the ultimate impact the sustained yield regulations will have on
its future financial position, results of operations or liquidity.
Various groups and individuals have filed objections with the CDF
and the BOF regarding the CDF's and the BOF's actions and rulings with
respect to certain of Pacific Lumber's THPs and other timber harvesting
operations, and Pacific Lumber expects that such groups and individuals
will continue to file such objections. In addition, lawsuits are pending
or threatened which seek to prevent Pacific Lumber from implementing
certain of its approved THPs or which challenge other operations by Pacific
Lumber. These challenges have severely restricted Pacific Lumber's ability
to harvest old growth timber on its property. To date, challenges with
respect to Pacific Lumber's THPs relating to young growth timber and to its
other operations have been limited; however, no assurance can be given as
to the extent of such challenges in the future. Pacific Lumber believes
that environmentally focused challenges to its timber harvesting and other
operations are likely to occur in the future, particularly with respect to
virgin and residual old growth timber. Although such challenges have
delayed or prevented Pacific Lumber from conducting a portion of its
operations, they have not had a material adverse effect on Pacific Lumber's
consolidated financial position, results of operations or liquidity.
Nevertheless, it is impossible to predict the future nature or degree of
such challenges or their ultimate impact on the consolidated financial
position, results of operations or liquidity of Pacific Lumber, and in turn
the Company.
The Company is also involved in various claims, lawsuits and
proceedings. 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 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.
6. HEADWATERS AGREEMENT
On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California. The
Headwaters Agreement provides the framework for the acquisition by the
United States and California of approximately 5,600 acres of Pacific
Lumber's timberlands commonly referred to as the Headwaters Forest and the
Elk Head Springs Forest (collectively, the "Headwaters Timberlands"). A
substantial portion of the Headwaters Timberlands consists of virgin old
growth timberlands. The Headwaters Timberlands would be transferred in
exchange for (a) property and other consideration (possibly including cash)
from the United States and California having an aggregate fair market value
of $300 million and (b) approximately 7,755 acres of adjacent timberlands
to be acquired by the United States and California (the "Elk River
Timberlands") from a third party. The United States and California would
also acquire and retain an additional 1,900 acres of timberlands from such
third party.
The Headwaters Agreement also provides, among other things, for
the expedited processing by the United States of a Permit (an incidental
take permit) to be based upon a Multi-Species HCP covering (a) the
Resulting Pacific Lumber Timber Property (the property Pacific Lumber will
own after consummation of the Headwaters Agreement) and (b) the Headwaters
Timberlands and the 1,900 acres of additional timberlands to be acquired
and retained by the United States and California (both as conserved
habitat). The agreement also requires expedited processing by California
of an SYP covering the Resulting Pacific Lumber Timber Property.
On December 5, 1996, the United States and California each
furnished a list of properties consisting of oil and gas interests,
timberlands and a variety of other real estate properties for Pacific
Lumber's review and approval. Neither list was accompanied by the
requisite background information, although both lists did indicate that
additional information would be made available. On December 10, 1996,
Pacific Lumber wrote to the United States and California, stating, among
other things, that the requisite background information had not been
furnished, requesting the missing information and indicating that certain
of the properties did not appear to be "available," as legislative action
would be required for exchange of certain of the properties. In February
1997, as permitted by the Headwaters Agreement, Pacific Lumber notified
California that its presented properties were not acceptable.
As part of the Headwaters Agreement, the Pacific Lumber Parties
agreed to not enter the Headwaters Forest or the Elk Head Forest to conduct
logging operations, including salvage logging (the "Moratorium"). The
Moratorium was to terminate if by July 28, 1997 the parties had not
achieved the Specified Items to their respective satisfaction. On March
11, 1997, the Pacific Lumber Parties agreed to amend the Headwaters
Agreement to extend the period of time during which these closing
conditions must be met to February 17, 1998. The extension is, however,
subject to the achievement of certain milestones toward completion of the
Headwaters Agreement. The parties have agreed to execute an amendment to
the Headwaters Agreement evidencing these modifications.
Closing of the Headwaters Agreement is subject to various
conditions, including (a) acquisition by the government of the Elk River
Timberlands from a third party, (b) approval of an SYP and a Multi-Species
HCP and issuance of a Permit, each in form and substance satisfactory to
Pacific Lumber, (c) the issuance by the Internal Revenue Service and the
California Franchise Tax Board of closing agreements in form and substance
sought by and satisfactory to the Pacific Lumber Parties, (d) the absence
of a judicial decision in any litigation brought by third parties that any
party reasonably believes will significantly delay or impair the
transactions described in the Headwaters Agreement, and (e) the dismissal
with prejudice at closing of the Takings Litigation. The parties to the
Headwaters Agreement are working to satisfy these conditions; however,
there can be no assurance that the Headwaters Agreement will be
consummated.
MAXXAM GROUP INC.
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.
This section 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
Form 10-Q. 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 section and the Company's 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 and its principal operating subsidiaries, Pacific
Lumber and Britt, are engaged in forest products 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 months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- -------------
(In millions of dollars,
except shipments and
prices)
<S> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 13.0 10.4
Redwood common grades 57.2 57.3
Douglas-fir upper grades 2.5 2.2
Douglas-fir common grades 19.4 19.3
Other 3.9 1.9
------------- -------------
Total lumber 96.0 91.1
============= =============
Logs (2) 2.5 5.9
============= =============
Wood chips (3) 60.2 49.0
============= =============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,322 $ 1,386
Redwood common grades 505 482
Douglas-fir upper grades 1,211 1,153
Douglas-fir common grades 486 378
Logs (4) 478 469
Wood chips (5) 75 87
Net sales:
Lumber, net of discount $ 59.1 $ 51.9
Logs 1.2 2.8
Wood chips 4.5 4.3
Cogeneration power 1.0 .4
Other 1.0 .4
------------- -------------
Total net sales $ 66.8 $ 59.8
============= =============
Operating income $ 18.7 $ 16.4
============= =============
Operating cash flow (6) $ 25.4 $ 23.1
============= =============
Income before income taxes $ -- $ .2
============= =============
Net income $ -- $ .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>
Net sales
Net sales for the three months ended March 31, 1997 increased
from the three months ended March 31, 1996, principally due to higher
average realized prices for common grade redwood and Douglas-fir lumber and
increased shipments of manufactured upper grade redwood lumber.
Operating income
Operating income for the three months ended March 31, 1997
increased from the three months ended March 31, 1996, principally due to
the increase in sales discussed above.
Income before income taxes
Income before income taxes for the three months ended March 31,
1997 was substantially unchanged from the three months ended March 31,
1996. While operating income was higher as discussed above, investment,
interest and other income was lower primarily due to lower earnings from
marketable securities.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Pacific Lumber Credit Agreement and the indentures governing
the Pacific Lumber Senior Notes and the Timber Notes contain various
covenants which, among other things, limit the ability of Pacific Lumber
and Scotia Pacific to incur additional indebtedness and liens, to engage in
transactions with affiliates, to pay dividends and to make investments. As
of March 31, 1997, under the most restrictive of these covenants,
approximately $21.5 million of dividends could be paid by Pacific Lumber to
the Company.
As of March 31, 1997, $39.1 million of borrowings was available
under the Pacific Lumber Credit Agreement, of which $4.7 million was
available for letters of credit and $30.0 million for timberland
acquisitions. No borrowings were outstanding as of March 31, 1997, and
letters of credit outstanding amounted to $10.3 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.
During the three months ended March 31, 1997, the Company paid dividends
of $0.5 million. As of March 31, 1997, under the most restrictive of these
covenants, $0.3 million of dividends could be paid by the Company.
As of March 31, 1997, the Company had consolidated long-term debt
of $722.3 million (net of current maturities and restricted cash deposited
in the Liquidity Account) as compared to $729.8 million at December 31,
1996. 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 from
operations and to 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
governmental regulation affecting timber harvesting practices, 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.
Pacific Lumber's operations are subject to a variety of
California and federal laws, regulations and judicial and administrative
interpretations dealing with timber harvesting, endangered species and
critical habitat, 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, together with the cost of
litigation incurred in connection with certain timber harvesting operations
of Pacific Lumber, have increased the cost of logging operations. Pacific
Lumber is subject to certain pending matters which could have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity. There can be no assurance that these pending
matters or future governmental regulations, legislation or judicial or
administrative decisions would not have a material adverse effect on the
Company. See Part II. Item 1. "Legal Proceedings" and Note 5 to the
Condensed Consolidated Financial Statements for further information
regarding regulatory and environmental factors affecting the Company's
operations. See also Note 6 to the Condensed Consolidated Financial
Statements for the recent agreement to extend the Headwaters Agreement to
February 17, 1998.
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 lumber mills from time to time.
MAXXAM GROUP INC.
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.
With respect to the Marbled Murrelet action described under
"Timber Harvesting Litigation," on April 18, 1997, the U.S. Ninth Circuit
Court of Appeals reversed the trial court's decision which had
preliminarily enjoined eight already-approved THPs to the extent they rely
on the Federal Owl Plan. Pacific Lumber had previously obtained regulatory
reapproval of seven of the eight THPs and confirmed with the trial court
that six of those THPs were no longer subject to the preliminary
injunction.
With respect to the Redway action described under "Timber
Harvesting Litigation," the defendants' motion to dismiss is pending; trial
of the case is set for June 23, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
On March 12, 1997, the Company filed a Current Report on Form 8-K
(under Item 5), dated March 11, 1997, concerning an agreement to amend the
Headwaters Agreement to extend to February 17, 1998 the period of time
during which the closing conditions must be met.
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: April 24, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 57,620
<SECURITIES> 31,158
<RECEIVABLES> 17,836
<ALLOWANCES> 0
<INVENTORY> 61,706
<CURRENT-ASSETS> 176,847
<PP&E> 180,165
<DEPRECIATION> 78,954
<TOTAL-ASSETS> 717,029
<CURRENT-LIABILITIES> 50,370
<BONDS> 770,430
0
0
<COMMON> 0
<OTHER-SE> (112,520)
<TOTAL-LIABILITY-AND-EQUITY> 717,029
<SALES> 66,815
<TOTAL-REVENUES> 66,815
<CGS> 38,045
<TOTAL-COSTS> 38,045
<OTHER-EXPENSES> 10,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,619
<INCOME-PRETAX> 30
<INCOME-TAX> 15
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
