-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HyQCGeqskBvaaJ3X+w6qkk1MSdMfCMon7SmDUNpEGSMaeE8Fcnjb+mCq/9cXVYup qBCM2EBhBFfcMwzYpe+Azw== 0000900421-98-000024.txt : 19980506 0000900421-98-000024.hdr.sgml : 19980506 ACCESSION NUMBER: 0000900421-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXXAM GROUP HOLDINGS INC CENTRAL INDEX KEY: 0001029500 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 760518669 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-18723 FILM NUMBER: 98610037 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7139757600 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 10-Q 1 MGHI 1998 FIRST QUARTER 10-Q 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, 1998 Commission File Number 333-18723 MAXXAM GROUP HOLDINGS INC. (Exact name of Registrant as specified in its charter) DELAWARE 76-0518669 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification Number) organization) 5847 SAN FELIPE, SUITE 2600 77057 HOUSTON, TEXAS (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (713) 975-7600 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Number of shares of common stock outstanding at April 29, 1998: 1,000 Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. TABLE OF CONTENTS PAGE PART I. - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheet at March 31, 1998 and December 31, 1997 3 Consolidated Statement of Operations for the three months ended March 31, 1998 and 1997 4 Consolidated Statement of Cash Flows for the three months ended March 31, 1998 and 1997 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 6. Exhibits and Reports on Form 8-K 13 Signature S-1 MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS)

MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)

MAXXAM GROUP HOLDINGS 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 Form 10-K filed by the Company. Any capitalized terms used but not defined in these Condensed Notes to Consolidated Financial Statements are defined in the "Glossary of Defined Terms" contained in Appendix A. All references to the "Company" include MAXXAM Group Holdings Inc. and its subsidiary companies unless otherwise 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, 1998, the consolidated results of operations for the three months ended March 31, 1998 and 1997 and consolidated cash flows for the three months ended March 31, 1998 and 1997. The Company is a wholly owned subsidiary of MAXXAM. SFAS No. 130 was issued in June 1997 with the adoption required for fiscal years beginning after December 31, 1997. SFAS No. 130 requires the presentation of an additional income measure (termed "comprehensive income"), which adjusts traditional net income for certain items that previously were only reflected as direct charges to equity (such as minimum pension liabilities). For the quarters ended March 31, 1998 and 1997, there is not a significant difference between "traditional" net income and comprehensive net income as the amount of the adjustments required to arrive at comprehensive income is not significant. 2. INVENTORIES Inventories consist of the following:

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. INVESTMENT IN KAISER Subsequent to its formation, the Company received, as a capital contribution from MAXXAM, 27,938,250 Pledged Kaiser Shares. Kaiser is an integrated producer and marketer of alumina, primary aluminum and fabricated aluminum products. Kaiser's common stock is publicly traded on the New York Stock Exchange under the trading symbol "KLU." The Pledged Kaiser Shares represent a 35.3% equity interest in Kaiser at March 31, 1998. The Company follows the equity method of accounting for its investment in Kaiser. The Company and MAXXAM are entities under common control; accordingly, the Company has recorded its investment in Kaiser at MAXXAM's historical cost. During the first quarter of 1993, losses exhausted Kaiser's equity with respect to its common stockholders. The Company recorded its equity share of such losses in January 1993 up to the amount of its investment in the Pledged Kaiser Shares. From January 1993 until August 1997, cumulative losses with respect to the results of operations attributable to Kaiser's common stockholders exceeded cumulative earnings. However, this was no longer the case when equity attributable to Kaiser's common stockholders increased upon conversion of the PRIDES into Kaiser common stock. As a result, the Company recorded a $33,400 adjustment to reduce the stockholder's deficit reflecting the Company's 35.4% equity interest in the impact of the PRIDES conversion on the common stockholders. In addition, the Company began recording its equity in Kaiser's results of operations. The market value for the Pledged Kaiser Shares based on the price per share quoted at the close of business on April 29, 1998 was $291,600. There can be no assurance that such value would be realized should the Company dispose of its investment in the Pledged Kaiser Shares. The following table contains summarized financial information of Kaiser. For more information regarding Kaiser's financial condition and operations, reference is made to Kaiser's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, both filed with the SEC.

5. LONG-TERM DEBT Long-term debt consists of the following:

Net sales Net sales for the quarter ended March 31, 1998 decreased from the comparable prior year quarter due primarily to lower shipments of lumber, logs, and chips and to lower average realized prices for common grade Douglas-fir lumber. This impact was partially offset by higher average realized prices for upper and common grade redwood lumber. The decrease in volumes was due largely to well-above-normal rainfall during the 1998 period which reduced demand, hindered logging operations, slowed production, and inhibited shipments. Operating income Operating income for the three months ended March 31, 1998 decreased from the comparable prior year period, principally due to the decrease in net sales discussed above. Loss before income taxes Loss before income taxes for the three months ended March 31, 1998 increased from the comparable 1997 period principally due to lower operating income discussed above. This impact was partially offset by equity in earnings from Kaiser, higher earnings on marketable securities and a gain on the sale of a non-timber property. As discussed in Note 4 to the Consolidated Financial Statements, the Company began reflecting its equity share of earnings in Kaiser in September 1997. FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES This section contains statements which constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See above for cautionary information with respect to such forward-looking statements. The 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, 1998, under the most restrictive of these covenants, approximately $17.2 million of dividends could be paid by Pacific Lumber to its parent. As of March 31, 1998, $30.3 million of borrowings was available under the Pacific Lumber Credit Agreement, of which $4.9 million was available for letters of credit and $20.6 million was restricted to timberland acquisitions. As of March 31, 1998, $9.4 million of borrowings were outstanding and letters of credit outstanding amounted to $15.1 million. The indenture governing the MGI Notes, among other things, restricts the ability of MGI to incur additional indebtedness, engage in transactions with affiliates, pay dividends and make investments. During the three months ended March 31, 1998, no dividends were paid. The indenture governing the MGHI Notes, among other things, restrict the ability of the Company to incur additional indebtedness and liens, engage in transactions with affiliates, pay dividends and make investments. During the three months ended March 31, 1998, no dividends were paid by the Company. As of March 31, 1998, the Company had consolidated long-term debt of $856.4 million (net of current maturities and restricted cash deposited in the Liquidity Account) as compared to $864.5 million at December 31, 1997. The decrease in long-term debt was primarily due to $10.8 million in principal payments on the Timber Notes offset by $3.6 million in accretion of discount on the MGI Discount Notes. The Company anticipates that cash flow from operations, together with existing cash, cash equivalents, marketable securities and available sources of financing, will be sufficient to fund its working capital and capital expenditure requirements for the next year. With respect to its long-term liquidity, the Company believes that its existing cash and cash equivalents, together with its ability to generate sufficient levels of cash from operations and its ability to obtain both short- and long-term financing, should provide sufficient funds to meet its working capital and capital expenditure requirements. However, due to its highly leveraged condition, the Company is more sensitive than less leveraged companies to factors affecting its operations, including litigation and governmental regulation affecting timber harvesting practices (see "--Trends" below), increased competition from other lumber producers or alternative building products and general economic conditions. TRENDS This section contains statements which constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See above for cautionary information with respect to such forward-looking statements. The Company's forest products operations are conducted by Pacific Lumber and Britt. Pacific Lumber's operations are subject to a variety of California and federal laws and regulations dealing with timber harvesting, threatened and endangered species and habitat for such species, and air and water quality. Moreover, these laws and regulations are modified from time to time and are subject to judicial and administrative interpretation. Compliance with such laws, regulations and judicial and administrative interpretations, 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 6 to the Condensed Consolidated Financial Statements for further information regarding regulatory and environmental factors and the Headwaters Agreement affecting the Company's operations. 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. 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. No material developments have occurred with respect to such legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS: 27 Financial Data Schedule B. REPORTS ON FORM 8-K: None. SIGNATURE 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 HOLDINGS INC. Date: May 1, 1998 By: /s/ Paul N. Schwartz Paul N. Schwartz Vice President APPENDIX A GLOSSARY OF DEFINED TERMS BOF: California Board of Forestry CDF: California Department of Forestry CESA: California Endangered Species Act Company: MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM EPA: Environmental Protection Agency ESA: The federal Endangered Species Act Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1997 HCP: Habitat conservation plan HCP/SYP Agreement: A February 27, 1998 Pre-Permit Application Agreement in Principle entered into by Pacific Lumber, MAXXAM and various government agencies regarding certain understandings that they had reached regarding the Multi-Species HCP, the Permits and the SYP Headwaters Agreement: The September 28, 1996 agreement between the Pacific Lumber Parties, the United States and California which provides the framework for the acquisition by the United States and California of the Headwaters Timberlands Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber timberlands consisting of two forest groves commonly referred to as the Headwaters Forest and the Elk Head Springs Forest Kaiser: Kaiser Aluminum Corporation, an equity investee of the Company engaged in aluminum operations Liquidity Account: A liquidity account maintained by Scotia Pacific with respect to the Timber Notes LTSY: Long-term sustained yield MAXXAM: MAXXAM Inc. MGHI Notes: 12% MGHI Senior Secured Notes due August 1, 2003 MGI: MAXXAM Group Inc., a wholly owned subsidiary of the Company MGI Discount Notes: 12-1/4% MGI Senior Secured Discount Notes due August 1, 2003, net of discount MGI Notes: MGI Discount Notes and MGI Senior Notes MGI Senior Notes: 11-1/4% MGI Senior Secured Notes due August 1, 2003 Multi-Species HCP: The habitat conservation plan covering multiple species contemplated by the Headwaters Agreement NMFS: National Marine Fisheries Service Pacific Lumber: The Pacific Lumber Company, an indirect, wholly owned subsidiary of MGI Pacific Lumber Credit Agreement: The revolving credit agreement between Pacific Lumber and a bank which provides for borrowings of up to $60,000,000 of which $20,000,000 may be used for standby letters of credit and $30,000,000 is restricted to timberland acquisitions. Pacific Lumber Parties: Pacific Lumber, including its subsidiaries and affiliates, and MAXXAM Pacific Lumber Senior Notes: 10-1/2% Pacific Lumber Senior Notes due March 1, 2003 Permits: The incidental take permits related to the Multi-Species HCP Pledged Kaiser Shares: The 27,938,250 shares of common stock of Kaiser pledged as security for the MGI Notes PRIDES: 8,855,550 8.255% Preferred Redeemable Increased Dividend Equity Securities issued by Kaiser during the first quarter of 1994; all outstanding shares were converted into 7,227,848 shares of Kaiser common stock in August 1997 Salmon Creek: Salmon Creek Corporation, a wholly owned subsidiary of Pacific Lumber Scotia Pacific: Scotia Pacific Holding Company, a wholly owned subsidiary of Pacific Lumber SEC: Securities and Exchange Commission SFAS No. 130: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" SYP: Sustained yield plan establishing long-term sustained yield harvest levels for a company's timberlands THP: Timber harvesting plan required to be filed with and approved by the CDF prior to the harvesting of timber Timber Notes: the 7.95% Scotia Pacific Timber Collateralized Notes due July 20, 2015 USFWS: United States Fish and Wildlife Service EX-27 2 FINANCIAL DATA SCHEDULE MGHI 1998 1ST QUARTER 10-Q
5 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. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 81,790 49,253 11,183 0 55,993 209,514 181,871 78,834 900,488 56,157 905,107 0 0 1 (70,318) 900,488 51,907 51,907 33,064 33,064 8,788 0 23,819 (977) (1,851) 874 0 0 0 874 0 0

~~-----END PRIVACY-ENHANCED MESSAGE-----~~