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, 1996
Commission File Number 33-55538
SCOTIA PACIFIC HOLDING COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 74-2652575
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
P. O. BOX 712 95565
125 MAIN STREET, 2ND FLOOR (Zip Code)
SCOTIA, CALIFORNIA
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (707) 764-2330
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 May 1, 1996: 3,000
Registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.<PAGE>
SCOTIA PACIFIC HOLDING COMPANY
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheet at March 31, 1996 and December 31, 1995 3
Statement of Income for the three months ended
March 31, 1996 and 1995 4
Statement of Cash Flows for the three months ended
March 31, 1996 and 1995 5
Condensed Notes to 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 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures S-1
SCOTIA PACIFIC HOLDING COMPANY
BALANCE SHEET
(In thousands of dollars, except share amounts)<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,218 $ 21,542
Receivables:
Due from Pacific Lumber 7,725 4,471
Accrued interest 85 157
Prepaid timber harvesting costs and other current assets 1,975 2,020
------------ ------------
Total current assets 15,003 28,190
Timber and timberlands, net of depletion of $132,063 and $129,666 at March 31,
1996 and December 31, 1995, respectively 177,401 179,364
Property and equipment, net of accumulated depreciation of $4,894 and $4,873 at
March 31, 1996 and December 31, 1995, respectively 3,753 3,804
Deferred financing costs, net 15,642 15,954
Deferred income taxes 32,388 32,683
Restricted cash 31,067 31,367
------------ ------------
$ 275,254 $ 291,362
============ ============
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Due to Pacific Lumber $ 121 $ 825
Accrued interest 5,283 12,375
Other accrued liabilities 803 1,136
Long-term debt, current maturities 14,322 14,103
------------ ------------
Total current liabilities 20,529 28,439
Long-term debt, less current maturities 327,418 336,130
------------ ------------
Total liabilities 347,947 364,569
------------ ------------<PAGE>
Contingencies
Deficiency in net assets:
Common stock, $1.00 par value, 3,000 shares authorized and issued 3 3
Excess of liabilities assumed and common stock issued over assets
contributed (59,376) (59,376)
Cumulative activity since inception (13,320) (13,834)
------------ ------------
Total deficiency in net assets (72,693) (73,207)
------------ ------------
$ 275,254 $ 291,362
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
SCOTIA PACIFIC HOLDING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
------------ ------------
(In thousands of dollars)
<S> <C> <C>
Log sales to Pacific Lumber $ 20,060 $ 16,206
------------ ------------
Operating expenses:
General and administrative 1,583 1,562
Depletion and depreciation 2,450 2,556
------------ ------------
4,033 4,118
------------ ------------
Operating income 16,027 12,088
Other income (expense):
Interest and other income 723 735
Interest expense (7,141) (7,389)
------------ ------------
Income before income taxes 9,609 5,434
Provision in lieu of income taxes (3,944) (2,230)
------------ ------------
Net income $ 5,665 $ 3,204
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
SCOTIA PACIFIC HOLDING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
------------ ------------
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,665 $ 3,204
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Provision in lieu of income taxes 3,944 2,230
Depletion and depreciation 2,450 2,556
Amortization of deferred financing costs 312 286
Decrease in accrued interest (7,092) (7,358)
Increase in receivables (3,182) (1,387)
Decrease in amounts due to Pacific Lumber (704) (80)
Increase (decrease) in other accrued liabilities (333) 30
Other 47 (63)
------------ ------------
Net cash provided by (used for) operating activities 1,107 (582)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets 32 -
Capital expenditures (470) (316)
------------ ------------
Net cash used for investing activities (438) (316)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash deposits, net 300 77
Principal payments on Timber Notes (8,493) (8,235)
Dividends paid (8,800) (5,900)
------------ ------------
Net cash used for financing activities (16,993) (14,058)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,324) (14,956)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,542 20,160
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,218 $ 5,204
============ ============
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assumption of net tax liabilities by Pacific Lumber $ 3,649 $ 1,907
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 13,921 $ 14,461
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
SCOTIA PACIFIC HOLDING COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars)
1. GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
financial statements; accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and related
notes thereto contained in the Annual Report on Form 10-K filed by Scotia
Pacific Holding Company (the "Company") with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (the "Form 10-K").
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 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 financial
position of the Company at March 31, 1996 and the results of operations and
cash flows for the three months ended March 31, 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 The
Pacific Lumber Company ("Pacific Lumber"). Pacific Lumber is a wholly
owned indirect subsidiary of MAXXAM Group Inc. ("MGI"), which 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 Company's Timber
Notes.
At March 31, 1996 and December 31, 1995, cash and cash
equivalents also includes $4,578 and $19,742, respectively, which is
restricted for debt service payments on the succeeding Note Payment date
for the Timber Notes.
3. CONTINGENCIES
The Company's business is 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 compliance with such existing laws and regulations
will have a material adverse effect on its financial position,
results of operations or liquidity, the Company is subject to certain
pending matters, including the pending final designation of critical
habitat for the marbled murrelet (described below), which could have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Moreover, the laws and regulations relating to
the Company's business 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 the
Company or its ability to sell logs or timber (see below).
In 1995, the U.S. Fish and Wildlife Service (the "USFWS")
published its proposed final designation ("Proposed Designation") of
critical habitat for the marbled murrelet, seeking to designate over four
million acres as critical habitat for the marbled murrelet, including
approximately 25,000 acres of the Company's timberlands. The Proposed
Designation was subject to a 60-day comment period and Pacific Lumber filed
comments vigorously opposing the Proposed Designation. The USFWS has not
yet published its final designation of critical habitat for the marbled
murrelet but is under court order to do so by May 15, 1996. The Company is
unable to predict when or if it will be able to harvest on any acreage
finally designated as critical habitat. Furthermore, it is impossible for
the Company to determine the potential adverse impact of such designation
on the Company's financial position, results of operations or liquidity
until such time as the Proposed Designation is finalized and related
regulatory and legal issues are fully resolved. However, if the Company is
unable to harvest, or is severely limited in harvesting, on timberlands
designated as marbled murrelet critical habitat, such restrictions could
have a material adverse effect on its financial position, results of
operations or liquidity. If the Company is unable to harvest or is
severely limited in harvesting, it intends to seek full 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 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. The first ten-year period began in May
1994. 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 and the Company 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 (or permit it to increase) its timber harvest in future years from
the average annual harvest that it has experienced in recent years
(including that relating to the Company's timberlands). The Company and
Pacific Lumber believe that they would be able to mitigate the effect of
any required reduction in harvest level by acquisitions of additional
timberlands and by increasing the productivity of their timberlands,
although there can be no assurance that they would be able to do so. 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
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 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 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 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
financial position, results of operations or liquidity.
4. DEFICIENCY IN NET ASSETS
A reconciliation of the cumulative activity component of the
Company's Deficiency in Net Assets is as follows:
Three Months
Ended
March 31,
1996
---------------
Balance at beginning of period $ (13,834)
Net income 5,665
Assumption of net tax liabilities by
Pacific Lumber 3,649
Dividends paid (8,800)
---------------
Balance at end of period $ (13,320)
===============
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
In order to take account of the relative values of the species
and categories of timber included in the Company Timber, the Mbfe concept
was developed for use in structuring the Timber Notes. Under the Mbfe
concept, one thousand board feet, net Scribner scale, of residual old
growth redwood timber equates to one Mbfe. One thousand board feet, net
Scribner scale, of each other species and category of timber included in
the Company Timber was assigned a value in Mbfe equal to a fraction of an
Mbfe. This fraction was generally determined by dividing the SBE Price (as
defined below) applicable to such species and category for the first half
of 1992 by the SBE Price applicable to residual old growth redwood for the
first half of 1992.
The Master Purchase Agreement generally contemplates that all
sales of logs by the Company to Pacific Lumber will be at a price which
equals or exceeds the applicable stumpage price for such species and
category, as set forth in the most recent Harvest Value Schedule published
by the California State Board of Equalization (the "SBE Price"). The
Harvest Value Schedule is published by the California State Board of
Equalization at six month intervals for purposes of computing yield taxes
imposed on the harvesting of timber. SBE Prices are established by the
State of California for tax purposes and are intended by the taxing
authorities to represent average actual log prices (adjusted for an
estimated timber industry inflation factor) between unrelated parties
during the approximate twenty-four month period ended sixty days prior to
the date such SBE Prices are published. SBE Prices may not necessarily be
representative of actual prices that would be realized from unrelated
parties at subsequent dates.
Logging operations on the Company's timberlands are highly
seasonal. Logging activity is normally significantly higher in the months
of April through November than in the months of December through March.
Management expects that the Company's revenues and cash flows will continue
to reflect that seasonality.
Log sales to Pacific Lumber
Revenues from the sale of logs were $20.1 million and $16.2
million for the three months ended March 31, 1996 and 1995, respectively.
The volume of log deliveries for such periods represented approximately
29,700 Mbfe and 28,700 Mbfe, respectively. The increase in revenues was
due to a 20% increase in average realized SBE Prices along with the higher
volume of log deliveries (see "--Trends").
Operating income
Operating income was $16.0 million and $12.1 million for the
three months ended March 31, 1996 and 1995, respectively. This increase
was principally due to the increase in log sales as discussed above.
Income before income taxes
Income before income taxes was $9.6 million and $5.4 million for
the three months ended March 31, 1996 and 1995, respectively. This
increase was principally due to the increase in operating income.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
In January 1996, the Company repaid approximately $8.5 million of
the aggregate principal amount outstanding on the Timber Notes in
accordance with Scheduled Amortization.
The Company paid $8.8 million of dividends to Pacific Lumber
during the three months ended March 31, 1996. At March 31, 1996, the
Indenture permitted the payment of $4.9 million of dividends, which were
paid in April 1996.
TRENDS
The Company's business is 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 compliance with such existing laws and regulations
will have a material adverse effect on its financial position, results
of operations or liquidity, the Company is subject to certain pending
matters, including the pending final designation of critical habitat
for the marbled murrelet (see Note 3 to the Financial Statements set
forth in Part I, Item 1 of this Report), which could have a material
adverse effect on the Company's financial position, results of operations
or liquidity. Moreover, the laws and regulations relating to the Company's
business 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 the
Company or its ability to sell logs or timber. See also Note 3 to the
Financial Statements set forth in Part I, Item 1 of this Report.
Judicial or regulatory actions adverse to the Company, increased
regulatory delays and inclement weather in northern California,
independently or collectively, could impair Pacific Lumber's ability to
conduct normal timber harvesting operations on the Company's timberlands.
See also Part II, Item 1. "Legal Proceedings -- Timber Harvesting
Litigation" regarding a government takings action recently filed by the
Company and additional takings claims which could be filed by Pacific
Lumber and its subsidiaries, including the Company.
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.
TIMBER HARVESTING LITIGATION
In connection with the Marbled Murrelet action, on April 3, 1996,
the Court granted a preliminary injunction preventing harvesting on the
eight THPs to the extent each relies on the Owl Plan; Pacific Lumber is
appealing the preliminary injunction.
On May 7, 1996, the Company, Pacific Lumber and Salmon Creek
filed a lawsuit entitled The Pacific Lumber Company, et. al. v. The United
States of America in the United States Court of Federal Claims. The suit
alleges that the federal government has "taken" over 3,800 acres of Pacific
Lumber's old growth timberlands through its application of the ESA
(including approximately 1,000 acres of the Company's timberlands on
which Pacific Lumber has harvesting rights). The Company, Pacific Lumber
and Salmon Creek seek constitutional "just compensation" damages for
the taking of these timberlands by the federal government's actions.
Pacific Lumber and its subsidiaries, including the Company, intend to file
additional takings claims with respect to any of their timberlands which
are finally designated as critical habitat for the marbled murrelet.
ITEM 5. OTHER INFORMATION<PAGE>
None.
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.
SCOTIA PACIFIC HOLDING COMPANY
Date: May 8, 1996 By: /s/ GARY L. CLARK
----------------------------------------
Gary L. Clark
Vice President - Finance and Administration
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,218
<SECURITIES> 0
<RECEIVABLES> 7,725
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,003
<PP&E> 8,647
<DEPRECIATION> 4,894
<TOTAL-ASSETS> 275,254
<CURRENT-LIABILITIES> 20,529
<BONDS> 341,740
0
0
<COMMON> 3
<OTHER-SE> (72,696)
<TOTAL-LIABILITY-AND-EQUITY> 275,254
<SALES> 20,060
<TOTAL-REVENUES> 20,060
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,141
<INCOME-PRETAX> 9,609
<INCOME-TAX> 3,944
<INCOME-CONTINUING> 5,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,665
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
