March 16, 2005 Contact: Ron Kurtz (713) 267-3686 MAXXAM REPORTS RESULTS FOR FOURTH QUARTER, TWELVE MONTHS OF 2004 HOUSTON, Texas (March 16, 2005) - MAXXAM Inc. (AMEX: MXM) today reported a net loss of $0.8 million, or $0.13 per share, for the fourth quarter of 2004, compared to net income of $13.3 million, or $1.88 per share, for the fourth quarter of 2003. Net sales for the fourth quarter of 2004 totaled $104.6 million, compared to $93.8 million for the same period of 2003. For 2004, MAXXAM reported a net loss of $46.6 million, or $7.79 per share, compared to a net loss of $11.6 million, or $1.79 per share, for 2003. Net sales for 2004 were $347.5 million compared to $336.6 million for 2003. MAXXAM reported operating income of $13.3 million for the fourth quarter and $14.3 million for 2004, compared to operating income of $27.3 million and $41.4 million for the comparable periods of 2003. FOREST PRODUCTS OPERATIONS The forest products segment's net sales for the fourth quarter of 2004 increased slightly compared to the same period of a year ago as a result of an increase in net sales of logs and chips for the fourth quarter as compared to the same period of 2003. Although lumber shipments increased overall, the mix shifted away from upper grades to lower-priced common grades resulting in a decline in revenues from lumber sales. The forest products segment's operating income decreased for the fourth quarter of 2004 versus the same period of 2003. Results for the fourth quarter of 2003 include a $16.8 million gain on the sale of timberlands. In addition, gross margins on sales of lumber for the 2004 fourth quarter decreased due to higher per unit production costs, largely driven by the need to increase purchases of logs from third parties as a result of lower harvests. REAL ESTATE OPERATIONS Net sales for the real estate segment increased for the 2004 fourth quarter versus the same period of 2003. An increase in sales of acreage at Palmas del Mar, residential and commercial lots at Fountain Hills and residential lots at Mirada contributed to the higher net sales. Operating results improved largely due to the increase in sales. RACING OPERATIONS Net sales and operating results for the racing segment declined slightly for the 2004 fourth quarter versus the same period of the prior year. Average daily attendance at Sam Houston Race Park and handle from host simulcasting declined in the fourth quarter of 2004 versus the same period of 2003, and this negatively impacted pari-mutuel commissions. The decline in operating results was due to lower net sales and higher operating expenses. CORPORATE OPERATIONS The corporate segment's operating loss for the fourth quarter of 2004 increased principally due to a $6.1 million charge related to stock-based compensation expense, which is adjusted as the market value of the Company's common stock changes. OTHER MATTERS Prior to issuance of this press release, MAXXAM filed its annual report on Form 10-K with the Securities and Exchange Commission. The audited Consolidated Financial Statements and other sections of the Form 10-K discuss how the cash flows of The Pacific Lumber Company (Palco) and Scotia Pacific Company LLC (Scotia LLC), subsidiaries of MAXXAM, have been adversely affected by the failure of the California North Coast Regional Water Quality Control Board to release for harvest a number of timber harvesting plans (THPs) which have already been approved by the other government agencies which review Palco's THPs. Palco is currently in default under its credit agreement, and management estimates that, without the prompt release of a substantial portion of these THPs and necessary amendments to such credit agreement, its cash flows from operations, together with funds under the credit agreement, will not provide sufficient liquidity to fund its current level of operations. Scotia LLC estimates that, without the prompt release of a substantial portion of these THPs, its cash flows from operations, together with funds available under its credit agreement, will be inadequate to pay the entire amount of interest due on the July 20, 2005, payment date for the Scotia LLC Timber Notes, which would constitute an event of default under the indenture governing the Timber Notes. In the event of a Scotia LLC default or a Palco liquidity shortfall, Palco and Scotia LLC may be required to take extraordinary actions: reducing expenditures by laying off employees and shutting down various operations; seeking other sources of liquidity, such as from asset sales; and seeking protection by filing under the U. S. Bankruptcy Code. Deloitte & Touche LLP's ("Deloitte") audit report on MAXXAM's Consolidated Financial Statements for the year ended December 31, 2004, contains an explanatory paragraph concerning these matters, which states that the cash flows of MAXXAM Inc.'s wholly owned subsidiary, Palco and its wholly owned subsidiary, Scotia LLC, have been adversely affected by delays in obtaining regulatory approvals to harvest timber, and that the difficulties these subsidiaries are experiencing in meeting their loan agreement covenants and paying the interest on the Timber Notes raise substantial doubts about Palco's and Scotia LLC's ability to continue as going concerns. Further, Deloitte's audit report states that the difficulties of these subsidiaries raise substantial doubt about the ability of MAXXAM Inc. and subsidiaries to realize their timber related assets and discharge their timber related liabilities in the normal course of business and continue as a going concern. As previously announced in prior earnings statements, MAXXAM may from time to time purchase shares of its common stock on national exchanges or in privately negotiated transactions. 152-103001 Company press releases may contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions 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 expressed or implied in the forward-looking statements as a result of various factors.
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