REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of MAXXAM Group Inc.:
We have audited the accompanying consolidated balance sheets of
MAXXAM Group Inc. (a Delaware corporation and a wholly owned subsidiary of
MAXXAM Group Holdings Inc.) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, cash flows and
stockholder's deficit for each of the three years in the period ended
December 31, 1996. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
MAXXAM Group Inc. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule
listed in Item 14(a)(2) of this Form 10-K is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 24, 1997
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
December 31,
---------------------------
1996 1995
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 72,418 $ 48,396
Marketable securities 31,423 36,568
Receivables:
Trade 18,850 20,576
Other 2,542 1,624
Inventories 69,307 77,904
Prepaid expenses and other current assets 5,474 7,101
------------- -------------
Total current assets 200,014 192,169
Timber and timberlands, net of accumulated
depletion of $221,063 and $204,856,
respectively 324,986 337,390
Property, plant and equipment, net of accumulated
depreciation of $76,753 and $67,732,
respectively 102,029 100,142
Deferred financing costs, net 24,249 27,288
Deferred income taxes 55,047 58,485
Restricted cash 29,967 31,367
Other assets 6,455 5,542
------------- -------------
$ 742,747 $ 752,383
============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 3,928 $ 4,166
Accrued interest 24,899 25,354
Accrued compensation and related benefits 10,033 9,611
Deferred income taxes 10,173 10,244
Other accrued liabilities 3,335 4,435
Long-term debt, current maturities 16,258 14,195
------------- -------------
Total current liabilities 68,626 68,005
Long-term debt, less current maturities 759,769 764,310
Other noncurrent liabilities 26,387 33,813
------------- -------------
Total liabilities 854,782 866,128
------------- -------------
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 (193,322) (195,032)
------------- -------------
Total stockholder's deficit (112,035) (113,745)
------------- -------------
$ 742,747 $ 752,383
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Net sales:
Lumber and logs $ 243,726 $ 216,898 $ 227,430
Other 20,858 25,694 22,199
------------- ------------- -------------
264,584 242,592 249,629
------------- ------------- -------------
Operating expenses:
Cost of goods sold (exclusive of
depletion and depreciation) 148,522 127,124 129,598
Selling, general and administrative
expenses 15,853 15,884 16,250
Depletion and depreciation 28,176 26,405 25,946
------------- ------------- -------------
192,551 169,413 171,794
------------- ------------- -------------
Operating income 72,033 73,179 77,835
Other income (expense):
Investment, interest and other
income 10,942 9,393 14,367
Interest expense (78,045) (77,824) (77,383)
------------- ------------- -------------
Income before income taxes and
extraordinary item 4,930 4,748 14,819
Credit (provision) in lieu of income
taxes 680 (1,211) 3,616
------------- ------------- -------------
Income before extraordinary item 5,610 3,537 18,435
Extraordinary item:
Loss on litigation settlement, net
of related credit in lieu of
income taxes of $6,312 -- -- (14,866)
------------- ------------- -------------
Net income $ 5,610 $ 3,537 $ 3,569
============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,610 $ 3,537 $ 3,569
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depletion and depreciation 28,176 26,405 25,946
Amortization of deferred
financing costs and
discounts on long-term
debt 14,714 13,328 12,127
Net (purchases) sales of
marketable securities 10,298 (19,533) 5,321
Net losses (gains) on
marketable securities (5,153) (4,175) (1,669)
Increase (decrease) in cash
resulting from changes in:
Inventories, net of depletion 6,011 (7,695) 3,634
Accounts payable (238) 463 832
Receivables 1,284 5,778 (7,660)
Prepaids and other assets 714 (3,384) (528)
Accrued and deferred income
taxes (925) 2,303 (3,815)
Other liabilities (4,288) 7,734 (2,283)
Accrued interest (455) (411) (451)
Other 5 1,020 (86)
------------- ------------- -------------
Net cash provided by
operating activities 55,753 25,370 34,937
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of note receivable from
affiliate -- 2,500 --
Net proceeds from sale of assets 122 18 1,149
Capital expenditures (15,200) (9,852) (11,322)
------------- ------------- -------------
Net cash used for
investing activities (15,078) (7,334) (10,173)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions, repurchase of and
principal payments on long-term
debt (14,153) (14,300) (13,237)
Net borrowings (payments) under
revolving credit agreements -- -- (2,900)
Incurrence of financing costs -- (150) (213)
Restricted cash withdrawals, net 1,400 1,035 1,160
Dividends paid (3,900) (4,800) --
------------- ------------- -------------
Net cash used for
financing activities (16,653) (18,215) (15,190)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 24,022 (179) 9,574
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 48,396 48,575 39,001
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 72,418 $ 48,396 $ 48,575
============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
MAXXAM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS OF DOLLARS)
Common
Stock
($.08-1/3 Additional Accumulated
Par) Capital Deficit Total
------------- ------------- ------------- -------------
Balance, January 1, 1994 $ -- $ 81,287 $ (197,338) $ (116,051)
Net income -- -- 3,569 3,569
------------- ------------- ------------- -------------
Balance, December 31, 1994 -- 81,287 (193,769) (112,482)
Net income -- -- 3,537 3,537
Dividend -- -- (4,800) (4,800)
------------- ------------- ------------- -------------
Balance, December 31, 1995 -- 81,287 (195,032) (113,745)
Net income -- -- 5,610 5,610
Dividend -- -- (3,900) (3,900)
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ -- $ 81,287 $ (193,322) $ (112,035)
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
MAXXAM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
MAXXAM Group Inc. ("MGI") and its subsidiaries, collectively referred to
herein as the "Company." MGI is a wholly owned subsidiary of MAXXAM Group
Holdings Inc. ("MGHI") which is a wholly owned subsidiary of MAXXAM Inc.
("MAXXAM"). Intercompany balances and transactions have been eliminated.
Certain reclassifications have been made to prior years' financial
statements to be consistent with the current year's presentation.
The Company is engaged in forest products operations conducted
through its wholly owned subsidiaries, The Pacific Lumber Company ("Pacific
Lumber") and Britt Lumber Co., Inc. ("Britt"). Pacific Lumber is engaged
in several principal aspects of the lumber industry, including the growing
and harvesting of redwood and Douglas-fir timber, the milling of logs into
lumber and the manufacture of lumber into a variety of finished products.
Britt manufactures redwood and cedar fencing and decking products from
small diameter logs, a substantial portion of which are obtained from
Pacific Lumber. Housing, construction and remodeling are the principal
markets for the Company's lumber products. Export sales generally
constitute less than 6% of forest product sales. A significant portion of
forest product sales are made to third parties located west of the
Mississippi River.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities,
(ii) disclosure of contingent assets and liabilities known to exist as of
the date the financial statements are published and (iii) the reported
amount of revenues and expenses recognized during each period presented.
The Company reviews all significant estimates affecting its consolidated
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their publication. Adjustments made with
respect to the use of estimates often relate to improved information not
previously available. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the subsequent
resolution of any one of the contingent matters described in Note 8
could differ materially from current estimates. The results of an adverse
resolution of such uncertainties could have a material effect on the
Company's consolidated financial position, results of operations or
liquidity.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less.
Marketable Securities
Marketable securities are carried at fair value. The cost of the
securities sold is determined using the first-in, first-out method.
Included in investment, interest and other income for each of the three
years ended December 31, 1996 were: 1996 - net unrealized holding losses
of $902 and net realized gains of $5,287; 1995 - net unrealized holding
gains of $1,666 and net realized gains of $2,509; and 1994 - net unrealized
holding losses of $1,094 and net realized gains of $2,763.
Inventories
Inventories are stated at the lower of cost or market. Cost is
primarily determined using the last-in, first-out ("LIFO") method.
Timber and Timberlands
Timber and timberlands are stated at cost, net of accumulated
depletion. Depletion is computed utilizing the unit-of-production method
based upon estimates of timber values and quantities.
Property, Plant and Equipment
Property, plant and equipment, including capitalized interest, is
stated at cost, net of accumulated depreciation. Depreciation is computed
utilizing the straight-line method at rates based upon the estimated useful
lives of the various classes of assets.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized
over the estimated term of the related borrowing.
Restricted Cash and Concentrations of Credit Risk
Restricted cash represents the amount deposited into an account
(the "Liquidity Account") held by the trustee under the indenture governing
the 7.95% Timber Collateralized Notes due 2015 (the "Timber Notes") of
Scotia Pacific Holding Company ("Scotia Pacific"), a wholly owned
subsidiary of Pacific Lumber. See Note 4. The Liquidity Account is not
available, except under certain limited circumstances, for Scotia Pacific's
working capital purposes; however, it is available to pay the Rated
Amortization (as defined in Note 4) and interest on the Timber Notes if and
to the extent that cash flows are insufficient to make such payments. The
required Liquidity Account balance will generally decline as principal
payments are made on the Timber Notes. Investment, interest and other
income for the years ended December 31, 1996, 1995 and 1994 includes
interest of approximately $2,865, $2,560 and $2,638, respectively,
attributable to an investment rate agreement (at 7.95% per annum) with the
financial institution which holds the Liquidity Account.
At December 31, 1996 and 1995, cash and cash equivalents include
$17,600 and $19,742, respectively, (the "Payment Account") which is
reserved for debt service payments on the Timber Notes (see Note 4). The
Payment Account and the Liquidity Account are each held by a different
financial institution. In the event of nonperformance by such financial
institutions, the Company's exposure to credit loss is represented by the
amounts deposited plus any unpaid accrued interest thereon. The Company
mitigates its concentrations of credit risk with respect to these
restricted cash deposits by maintaining them at high credit quality
financial institutions and monitoring the credit ratings of these
institutions.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and restricted cash
approximate fair value. Marketable securities are carried at fair value
which is determined based on quoted market prices. As of December 31, 1996
and 1995, the estimated fair value of long-term debt, including current
maturities, was $747,991 and $772,841, respectively. The estimated fair
value of long-term debt is determined based on the quoted market prices for
the Timber Notes, the 10-1/2% Senior Notes due 2003 (the "Pacific Lumber
Senior Notes"), the 11-1/4% Senior Secured Notes due 2003 (the "MGI Senior
Notes") and the 12-1/4% Senior Secured Discount Notes due 2003 (the "MGI
Discount Notes" and together with the MGI Senior Notes, the "MGI Notes"),
and on the current rates offered for borrowings similar to the other debt.
Some of the Company's publicly traded debt issues are thinly traded
financial instruments; accordingly, their market prices at any balance
sheet date may not be representative of the prices which would be derived
from a more active market.
2. INVENTORIES
Inventories consist of the following:
December 31,
---------------------------
1996 1995
------------- -------------
Lumber $ 49,829 $ 59,563
Logs 19,478 18,341
------------- -------------
$ 69,307 $ 77,904
============= =============
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as
follows:
Estimated December 31,
---------------------------
Useful Lives 1996 1995
------------- ------------- -------------
Logging roads, land and improvements 15 years $ 11,541 $ 7,929
Buildings 33 years 34,877 29,661
Machinery and equipment 5 - 15 years 132,364 129,764
Construction in progress -- 520
------------- -------------
178,782 167,874
Less: accumulated depreciation (76,753) (67,732)
------------- -------------
$ 102,029 $ 100,142
============= =============
Depreciation expense for the years ended December 31, 1996, 1995
and 1994 was $ 9,382 , $9,663 and $9,269, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
---------------------------
1996 1995
------------- -------------
7.95% Scotia Pacific Timber Collateralized
Notes due through July 20, 2015 $ 336,130 $ 350,233
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 104,173 92,498
Other 724 774
------------- -------------
776,027 778,505
Less: current maturities (16,258) (14,195)
------------- -------------
$ 759,769 $ 764,310
============= =============
The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits Scotia Pacific from incurring any additional
indebtedness for borrowed money and limits the business activities of
Scotia Pacific to the ownership and operation of its timber and
timberlands. The Timber Notes are senior secured obligations of Scotia
Pacific and are not obligations of, or guaranteed by, Pacific Lumber or any
other person. The Timber Notes are secured by a lien on (i) Scotia
Pacific's timber and timberlands (representing $165,970 of the Company's
consolidated balance at December 31, 1996), (ii) Scotia Pacific's contract
rights and certain other assets, (iii) the funds deposited in the Payment
Account and the Liquidity Account, and (iv) substantially all of Scotia
Pacific's other property and equipment.
The Timber Notes are structured to link, to the extent of
available cash, the deemed depletion of Scotia Pacific's timber (through
the harvest and sale of logs) to required amortization of the Timber Notes.
The required amount of amortization due on any Timber Note payment date is
determined by various mathematical formulas set forth in the Timber Note
Indenture. The minimum amount of principal which Scotia Pacific must pay
(on a cumulative basis) through any Timber Note payment date in order to
avoid an Event of Default (as defined) is referred to as rated amortization
("Rated Amortization"). If all payments of principal are made in
accordance with Rated Amortization, the payment date on which Scotia
Pacific will pay the final installment of principal is July 20, 2015. The
amount of principal which Scotia Pacific must pay through each Timber Note
payment date in order to avoid prepayment or deficiency premiums is
referred to as scheduled amortization ("Scheduled Amortization"). If all
payments of principal are made in accordance with Scheduled Amortization,
the payment date on which Scotia Pacific will pay the final installment of
principal is July 20, 2009.
Substantially all of the Company's consolidated assets are owned
by Pacific Lumber and a significant portion of Pacific Lumber's assets are
owned by Scotia Pacific. The Company expects that Pacific Lumber will
provide a major portion of the Company's future operating cash flow.
Pacific Lumber is dependent upon Scotia Pacific for a significant portion
of its operating cash flow. The holders of the Timber Notes have priority
over the claims of creditors of Pacific Lumber with respect to the assets
and cash flows of Scotia Pacific, and the holders of the Pacific Lumber
Senior Notes have priority over the claims and creditors of the Company
with respect to the assets and cash flows of Pacific Lumber. Under the
terms of the Timber Note Indenture, Scotia Pacific will not have available
cash for distribution to Pacific Lumber unless Scotia Pacific's cash flow
from operations exceeds the amounts required by the Timber Note Indenture
to be reserved for the payment of current debt service (including interest,
principal and premiums) on the Timber Notes, capital expenditures and
certain other operating expenses.
Principal and interest on the Timber Notes are payable semi-
annually on January 20 and July 20. On January 21, 1997, Scotia Pacific
paid $8,712 of principal on the Timber Notes. The Timber Notes are
redeemable at the option of Scotia Pacific, in whole but not in part, at
any time. The redemption price of the Timber Notes is equal to the sum of
the principal amount, accrued interest and a prepayment premium calculated
based upon the yield of like-term Treasury securities plus 50 basis points.
Interest on the Pacific Lumber Senior Notes is payable semi-
annually on March 1 and September 1. The Pacific Lumber Senior Notes are
redeemable at the option of Pacific Lumber, in whole or in part, on or
after March 1, 1998 at a price of 103% of the principal amount plus accrued
interest. The redemption price is reduced annually until March 1, 2000,
after which time the Pacific Lumber Senior Notes are redeemable at par.
The Pacific Lumber Senior Notes are unsecured and are senior indebtedness
of Pacific Lumber; however, they are effectively subordinated to the Timber
Notes. The indenture governing the Pacific Lumber Senior Notes contains
various covenants which, among other things, limit Pacific Lumber's ability
to incur additional indebtedness and liens, to engage in transactions with
affiliates, to make investments and to pay dividends.
Pacific Lumber has a revolving credit agreement with a bank (as
amended and restated, the "Pacific Lumber Credit Agreement") which expires
on May 31, 1999. Borrowings under the Pacific Lumber Credit Agreement are
secured by Pacific Lumber's trade receivables and inventories, with
interest currently computed at the bank's reference rate plus 1-1/4% or the
bank's offshore rate plus 2-1/4%. The Pacific Lumber Credit Agreement
provides for borrowings of up to $60,000, of which $15,000 may be used for
standby letters of credit and $30,000 is restricted to timberland
acquisitions. Borrowings made pursuant to the portion of the credit
facility restricted to timberland acquisitions would also be secured by the
purchased timberlands. As of December 31, 1996, $46,992 of borrowings was
available under the Pacific Lumber Credit Agreement, of which $4,732 was
available for letters of credit and $30,000 was restricted to timberland
acquisitions. No borrowings were outstanding as of December 31, 1996, and
letters of credit outstanding amounted to $10,268. The Pacific Lumber
Credit Agreement contains covenants substantially similar to those
contained in the indenture governing the Pacific Lumber Senior Notes.
As of December 31, 1996, under the most restrictive covenants
contained in the indentures governing the Pacific Lumber Senior Notes, the
Timber Notes and the Pacific Lumber Credit Agreement, Pacific Lumber could
pay approximately $17,200 of dividends.
On August 4, 1993, the Company issued $100,000 aggregate
principal amount of the MGI Senior Notes and $126,720 aggregate principal
amount (approximately $70,000 net of original issue discount) of the MGI
Discount Notes. The MGI Notes are secured by the Company's pledge of 100%
of the common stock of Pacific Lumber, Britt and MAXXAM Properties Inc.
("MPI"), a wholly owned subsidiary of the Company, and by MGHI's pledge of
27,938,250 shares of Kaiser Aluminum Corporation ("Kaiser") common stock.
The indenture governing the MGI Notes, among other things, restricts the
ability of the Company to incur additional indebtedness and liens, engage
in transactions with affiliates, pay dividends and make investments. As of
December 31, 1996, under the most restrictive of these covenants,
approximately $500 of dividends could be paid by the Company. The MGI
Notes are senior indebtedness of the Company; however, they are effectively
subordinated to the liabilities of the Company's subsidiaries, which
include the Timber Notes and the Pacific Lumber Senior Notes. The MGI
Discount Notes are net of discount of $21,547 and $33,222 at December 31,
1996 and 1995, respectively.
The MGI Senior Notes pay interest semi-annually on February 1 and
August 1 of each year. The MGI Discount Notes will not pay any interest
until February 1, 1999, at which time semi-annual interest payments will
become due on each February 1 and August 1 thereafter.
Maturities
Scheduled maturities of long-term debt for the five years
following December 31, 1996, using the Scheduled Amortization for the
Timber Notes, are: $16,258 in 1997, $19,430 in 1998, $21,745 in 1999,
$24,065 in 2000, $24,827 in 2001 and $691,249 thereafter. Maturities for
1997 through 2001 are principally attributable to the Timber Notes.
Restricted Net Assets of Subsidiaries
At December 31, 1996, certain debt instruments restricted the
ability of Pacific Lumber to transfer assets, make loans and advances and
pay dividends to the Company. As of December 31, 1996, all of the assets
of Pacific Lumber and its subsidiaries are subject to such restrictions.
5. CREDIT (PROVISION) IN LIEU OF INCOME TAXES
Income taxes are determined using an asset and liability approach
which requires the recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
Under this method, deferred income tax assets and liabilities are
determined based on the temporary differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
The Company and its subsidiaries are members of MAXXAM's consolidated
return group for federal income tax purposes.
Pursuant to a tax allocation agreement between MAXXAM, Pacific
Lumber, Scotia Pacific and Salmon Creek Corporation ("Salmon Creek"), a
wholly owned subsidiary of Pacific Lumber, (the "PL Tax Allocation
Agreement"), Pacific Lumber is liable to MAXXAM for the federal
consolidated income tax liability of Pacific Lumber, Scotia Pacific and
certain other subsidiaries of Pacific Lumber (but excluding Salmon Creek)
(collectively, the "PL Subgroup") computed as if the PL Subgroup was a
separate affiliated group of corporations which was never connected with
MAXXAM. The PL Tax Allocation Agreement further provides that Salmon Creek
is liable to MAXXAM for its federal income tax liability computed on a
separate company basis as if it was never connected with MAXXAM. The
remaining subsidiaries of MGI are each liable to MAXXAM for their
respective income tax liabilities computed on a separate company basis as
if they were never connected with MAXXAM, pursuant to their respective tax
allocation agreements.
MGI's tax allocation agreement with MAXXAM, (the "Tax Allocation
Agreement"), provides that the Company's federal income tax liability is
computed as if MGI files a consolidated tax return with all of its
subsidiaries except Salmon Creek, and that such corporations were never
connected with MAXXAM (the "MGI Consolidated Tax Liability"). The federal
income tax liability of MGI is the difference between (i) the MGI
Consolidated Tax Liability and (ii) the sum of the separate tax liabilities
for the Company's subsidiaries (computed as discussed above), but excluding
Salmon Creek. To the extent that the MGI Consolidated Tax Liability is
less than the aggregate amounts in (ii), MAXXAM is obligated to pay the
amount of such difference to MGI.
The credit (provision) in lieu of income taxes on income before
income taxes and extraordinary item consists of the following:
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Current:
Federal credit (provision) in
lieu of income taxes $ (159) $ (167) $ --
State and local (9) (35) (55)
------------- ------------- -------------
(168) (202) (55)
------------- ------------- -------------
Deferred:
Federal credit (provision) in lieu
of income taxes 363 (33) 2,366
State and local 485 (976) 1,305
------------- ------------- -------------
848 (1,009) 3,671
------------- ------------- -------------
$ 680 $ (1,211) $ 3,616
============= ============= =============
A reconciliation between the credit (provision) in lieu of income
taxes and the amount computed by applying the federal statutory income tax
rate to income before income taxes and extraordinary item is as follows:
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Income before income taxes and
extraordinary item $ 4,930 $ 4,748 $ 14,819
============= ============= =============
Amount of federal income tax based upon
the statutory rate $ (1,726) $ (1,662) $ (5,187)
Revision of prior years' tax estimates
and other changes in valuation
allowances 3,372 907 7,739
Expenses for which no federal tax
benefit is available (493) -- --
State and local taxes, net of federal
tax effect (573) (657) 812
Other 100 201 252
------------- ------------- -------------
$ 680 $ (1,211) $ 3,616
============= ============= =============
Revision of prior years' tax estimates and other changes in
valuation allowances as shown in the table above include amounts for the
reversal of reserves which the Company no longer believes are necessary,
other changes in prior year tax estimates and changes in valuation
allowances with respect to deferred income tax assets. Generally, the
reversal of reserves relates to the expiration of the relevant statute of
limitations with respect to certain income tax returns or the resolution of
specific income tax matters with the relevant tax authorities. For the
years ended December 31, 1996, 1995 and 1994, the reversal of reserves
which the Company believes are no longer necessary resulted in a credit to
the income tax provision of $3,203, $127 and $7,048, respectively.
As shown in the Consolidated Statement of Operations for the year
ended December 31, 1994, the Company recorded an extraordinary loss related
to the settlement of litigation in connection with the Company's
acquisition of Pacific Lumber (see Note 10). The Company reported the loss
net of related deferred income taxes of $6,312 which is less than the
federal and state statutory income tax rates due to expenses for which no
tax benefit was recognized.
The components of the Company's net deferred income tax assets
(liabilities) are as follows:
December 31,
---------------------------
1996 1995
------------- -------------
Deferred income tax assets:
Loss and credit carryforwards $ 79,411 $ 83,705
Timber and timberlands 28,992 32,528
Other liabilities and other 22,934 19,846
Valuation allowances (51,049) (51,595)
------------- -------------
Total deferred income tax assets, net 80,288 84,484
------------- -------------
Deferred income tax liabilities:
Property, plant and equipment (17,458) (16,560)
Inventories (15,091) (16,068)
Other (2,865) (3,615)
------------- -------------
Total deferred income tax liabilities (35,414) (36,243)
------------- -------------
Net deferred income tax assets $ 44,874 $ 48,241
============= =============
</TABLE
The valuation allowances listed above relate to loss and credit
carryforwards. As of December 31, 1996, approximately $28,992 of the net
deferred income tax assets listed above relate to the excess of the tax
basis over financial statement basis with respect to timber and
timberlands. The Company believes that it is more likely than not that
this net deferred income tax asset will be realized, based primarily upon
the estimated value of its timber and timberlands which is well in excess
of its tax basis. Also included in net deferred income tax assets as of
December 31, 1996 is $28,362 which relates to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company evaluated
all appropriate factors to determine the proper valuation allowances for
loss and credit carryforwards. These factors included any limitations
concerning use of the carryforwards, the year the carryforwards expire and
the levels of taxable income necessary for utilization. The Company has
concluded that it will more likely than not generate sufficient taxable
income to realize the benefit attributable to the loss and credit
carryforwards for which valuation allowances were not provided.
Included in the net deferred income tax assets listed above are
$41,206 and $43,731 at December 31, 1996 and 1995, respectively, which are
recorded pursuant to the tax allocation agreements with MAXXAM.
The following table presents the estimated tax attributes for
federal income tax purposes for the Company and its subsidiaries as of
December 31, 1996, under the terms of the respective tax allocation
agreements. The utilization of certain of these attributes is subject to
limitations.
Expiring
Through
-------------
Regular Tax Attribute Carryforwards:
Net operating losses $ 215,651 2011
Net capital losses 4,201 1998
Minimum tax credit 379 Indefinite
Alternative Minimum Tax Attribute
Carryforwards:
Net operating losses $ 174,948 2011
6. EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Pacific Lumber has a defined benefit plan which covers all
employees of Pacific Lumber. Under the plan, employees are eligible for
benefits at age 65 or earlier, if certain provisions are met. The benefits
are determined under a career average formula based on each year of service
with Pacific Lumber and the employee's compensation for that year. Pacific
Lumber's funding policy is to contribute annually an amount at least equal
to the minimum cash contribution required by The Employee Retirement Income
Security Act of 1974, as amended.
A summary of the components of net periodic pension cost is as
follows:
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Service cost - benefits earned during
the year $ 1,903 $ 1,483 $ 1,643
Interest cost on projected benefit
obligation 1,682 1,693 1,263
Actual loss (gain) on plan assets (2,762) (3,900) 10
Net amortization and deferral 1,448 2,460 (859)
------------- ------------- -------------
Net periodic pension cost $ 2,271 $ 1,736 $ 2,057
============= ============= =============
The following table sets forth the funded status and amounts
recognized in the Consolidated Balance Sheet:
December 31,
---------------------------
1996 1995
------------- -------------
Actuarial present value of accumulated plan
benefits:
Vested benefit obligation $ 18,506 $ 16,910
Non-vested benefit obligation 1,371 1,214
------------- -------------
Total accumulated benefit obligation $ 19,877 $ 18,124
============= =============
Projected benefit obligation $ 23,582 $ 21,841
Plan assets at fair value, primarily equity and (21,800) (18,363)
debt securities ------------- -------------
Projected benefit obligation in excess of plan 1,782 3,478
assets
Unrecognized net transition asset 18 24
Unrecognized net gain (loss) 2,855 (27)
Unrecognized prior service cost (39) (45)
------------- -------------
Accrued pension liability $ 4,616 $ 3,430
============= =============
The assumptions used in accounting for the defined benefit plan
were as follows:
1996 1995 1994
------------- ------------- -------------
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Discount rate 7.5% 7.25% 8.5%
Expected long-term rate of return on 8.0% 8.0% 8.0%
assets
POSTRETIREMENT MEDICAL BENEFITS
Pacific Lumber has an unfunded defined benefit plan for certain
postretirement medical benefits which covers substantially all employees of
Pacific Lumber. Participants of the plan are eligible for certain health
care benefits upon termination of employment and retirement and
commencement of pension benefits. Participants make contributions for a
portion of the cost of their health care benefits. The expected costs of
postretirement medical benefits are accrued over the period the employees
provide services to the date of their full eligibility for such benefits.
A summary of the components of net periodic postretirement
medical benefit cost is as follows:
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Service cost - medical benefits earned
during the year $ 332 $ 228 $ 216
Interest cost on accumulated postretirement
medical benefit obligation 415 317 294
Net amortization and deferral -- (53) (7)
------------- ------------- -------------
Net periodic postretirement medical benefit
cost $ 747 $ 492 $ 503
============= ============= =============
The postretirement medical benefit liability recognized in the
Company's Consolidated Balance Sheet is as follows:
December 31,
---------------------------
1996 1995
------------- -------------
Retirees $ 1,182 $ 634
Actives eligible for benefits 905 726
Actives not eligible for benefits 3,818 3,317
------------- -------------
Accumulated postretirement medical benefit
obligation 5,905 4,677
Unrecognized net gain (loss) (86) 553
------------- -------------
Postretirement medical benefit liability $ 5,819 $ 5,230
============= =============
The annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10.5% for 1997 and
is assumed to decrease gradually to 5.5% in 2008 and remain at that level
thereafter. Each one percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement medical
benefit obligation as of December 31, 1996 by approximately $810 and the
aggregate of the service and interest cost components of net periodic
postretirement medical benefit cost by approximately $130.
The discount rates used in determining the accumulated
postretirement medical benefit obligation were 7.5% and 7.25% at December
31, 1996 and 1995, respectively.
EMPLOYEE SAVINGS PLAN
Pacific Lumber's employees are eligible to participate in a
defined contribution savings plan sponsored by MAXXAM. This plan is
designed to enhance the existing retirement programs of participating
employees. Employees may elect to contribute up to 16% of their
compensation to the plan. For those participants who have elected to make
voluntary contributions to the plan, Pacific Lumber's contributions consist
of a matching contribution of up to 4% of the compensation of participants.
The cost to the Company of this plan was $1,388, $1,281 and $1,215 for the
years ended December 31, 1996, 1995 and 1994, respectively.
WORKERS' COMPENSATION BENEFITS
Pacific Lumber is self-insured for workers' compensation
benefits. Included in accrued compensation and related benefits and other
noncurrent liabilities are accruals for workers' compensation claims
amounting to $8,000 and $8,900 at December 31, 1996 and 1995, respectively.
Workers' compensation expenses amounted to $3,080, $3,579 and $4,069 for
the years ended December 31, 1996, 1995 and 1994, respectively.
7. RELATED PARTY TRANSACTIONS
MAXXAM provides the Company and certain of the Company's
subsidiaries with accounting and data processing services. In addition,
MAXXAM provides the Company with office space and various office personnel,
insurance, legal, operating, financial and certain other services.
MAXXAM's expenses incurred on behalf of the Company are reimbursed by the
Company through payments consisting of (i) an allocation of the lease
expense for the office space utilized by or on behalf of the Company and
(ii) a reimbursement of actual out-of-pocket expenses incurred by MAXXAM,
including, but not limited to, labor costs of MAXXAM personnel rendering
services to the Company. Charges by MAXXAM for such services were $2,680,
$1,994 and $2,254 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company believes that the services being rendered are on
terms not less favorable to the Company than those which would be
obtainable from unaffiliated third parties.
In 1994, in connection with the litigation settlement described
in Note 10, Pacific Lumber paid approximately $3,185 to a law firm in which
a director of Pacific Lumber is also a partner.
8. 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 United States Fish and Wildlife Service ("USFWS")
published its final designation of critical habitat for the marbled
murrelet (the "Final Designation"), 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 timber. 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 a habitat conservation plan for the
marbled murrelet (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 two actions (the
"Takings Litigation") alleging that certain portions of their timberlands
have been "taken" and seeking just compensation. Pursuant to an agreement
entered into by Pacific Lumber, MAXXAM, the United States and California on
September 28, 1996 (the "Headwaters Agreement") described in Note 9 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 federal Endangered Species Act ("ESA") and/or the California
Endangered Species Act ("CESA") and to designate critical habitat for such
species. For example, the National Marine Fisheries Service 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 California Board of Forestry ("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. The sustained yield plan ("SYP") must demonstrate
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-year planning period. On December 17, 1996, Pacific
Lumber submitted a proposed SYP to the California Department of Forestry
("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 9) will be consummated and that the
Multi-Species HCP (as defined in Note 9) 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 timber harvesting plans ("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.
9. HEADWATERS AGREEMENT
On September 28, 1996, Pacific Lumber (on behalf of itself, its
subsidiaries and affiliates) and MAXXAM (collectively, 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 (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 an incidental take permit
("Permit") to be based upon a habitat conservation plan for multiple
species ("Multi-Species HCP") covering (a) the timberlands and timber
harvesting rights which Pacific Lumber will own after consummation of the
Headwaters Agreement (the "Resulting Pacific Lumber Timber Property") and
(b) the Headwaters Timberlands and the 1,900 acres of Elk River Timberlands
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. There have been ongoing discussions between
the Pacific Lumber Parties and the United States regarding the properties
and other consideration to be furnished by the United States.
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.
10. SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Supplemental information on non-cash
investing and financing activities:
Net margin borrowings (payments) for
marketable securities $ -- $ (6,648) $ 5,628
Timber and timberlands acquired
subject to loan from seller -- 615 910
Supplemental disclosure of cash flow
information:
Interest paid, net of capitalized
interest $ 63,785 $ 64,907 $ 65,707
Income taxes paid (refunded) (2,900) (5,190) 1,170
Tax allocation payments to MAXXAM 188 -- 397
Investment, Interest and Other Income
In February 1994, Pacific Lumber received a franchise tax refund
of $7,243, the substantial portion of which represents interest, from the
State of California relating to tax years 1972 through 1985. This amount
is included in investment, interest and other income for the year ended
December 31, 1994.
Items Related to 1992 Earthquake
In 1995 Pacific Lumber recorded reductions in cost of sales of
$1,527 resulting from business interruption insurance reimbursements for
higher operating costs and the related loss of revenues resulting from the
April 1992 earthquake.
Extraordinary Item Related to Litigation Settlement
During 1994, MAXXAM, Pacific Lumber and others agreed to a
settlement, subsequently approved by the court, of class and related
individual claims brought by former stockholders of Pacific Lumber against
MAXXAM, the Company, Pacific Lumber, former directors of Pacific Lumber and
others concerning the Company's acquisition of Pacific Lumber. Of the
$52,000 settlement, $33,000 was paid by insurance carriers of MAXXAM and
Pacific Lumber, $14,800 was paid by Pacific Lumber, and the balance was
paid by other defendants and through the assignment of certain claims. In
1994, the Company recorded an extraordinary loss of $14,866 related to the
settlement and associated costs, including a $2,000 accrual for certain
contingent claims and $4,400 of related legal fees, net of benefits for
federal and state income taxes of $6,312.
11. QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summary quarterly financial information for the years ended
December 31, 1996 and 1995 is as follows:
Three Months Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
1996:
Net sales $ 59,804 $ 71,303 $ 68,473 $ 65,004
Operating income 16,417 19,010 17,184 19,422
Net income (loss) 124 3,909 (35) 1,612
1995:
Net sales $ 51,968 $ 65,644 $ 63,300 $ 61,680
Operating income 12,423 21,767 18,697 20,292
Net income (loss) (3,292) 3,172 1,148 2,509
MAXXAM GROUP INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
December 31,
---------------------------
1996 1995
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 45,611 $ 21,862
Marketable securities 31,423 36,568
Other current assets 102 2,867
------------- -------------
Total current assets 77,136 61,297
Investments in and advances from subsidiaries -- 141
Deferred income taxes 21,947 17,671
Deferred financing costs and other assets 4,260 4,905
------------- -------------
$ 103,343 $ 84,014
============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and other accrued
liabilities $ 866 $ 573
Accrued interest 4,688 4,688
------------- -------------
Total current liabilities 5,554 5,261
Long-term debt 204,173 192,498
Advances from and investments in subsidiaries 5,351 --
Other liabilities 300 --
------------- -------------
Total liabilities 215,378 197,759
------------- -------------
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 (193,322) (195,032)
------------- -------------
Total stockholder's deficit (112,035) (113,745)
------------- -------------
$ 103,343 $ 84,014
============= =============
<FN>
See notes to consolidated financial statements and accompanying notes.
MAXXAM GROUP INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Investment, interest and other income
(expense) $ 1,961 $ 1,341 $ (2,159)
Interest expense (23,573) (22,341) (21,180)
General and administrative expenses (826) (370) (598)
Equity in earnings of subsidiaries 16,514 16,170 18,790
------------- ------------- -------------
Loss before income taxes (5,924) (5,200) (5,147)
Credit in lieu of income taxes 11,534 8,737 8,716
------------- ------------- -------------
Net income $ 5,610 $ 3,537 $ 3,569
============= ============= =============
<FN>
See notes to consolidated financial statements and accompanying notes.
MAXXAM GROUP INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,610 $ 3,537 $ 3,569
Adjustments to reconcile net income
to net cash used for operating
activities:
Amortization of deferred
financing costs and
discounts on long-term
debt 12,320 11,059 9,930
Equity in earnings of
subsidiaries (16,514) (16,170) (18,790)
Net sales (purchases) of
marketable securities 10,246 (20,011) (1,808)
Net gains on marketable
securities (5,101) (3,697) (731)
Increase (decrease) in cash
resulting from changes in:
Receivables (3,505) 171 90
Accrued and deferred income
taxes (1,519) (5,237) (8,518)
Accrued interest and other
liabilities 4,104 330 (911)
Accounts payable -- -- (53)
Other -- (16) 232
------------- ------------- -------------
Net cash used for
operating activities 5,641 (30,034) (16,990)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net advances from subsidiaries 22,008 33,112 41,112
------------- ------------- -------------
Net cash provided by
investing activities 22,008 33,112 41,112
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions of long-term debt -- (630) --
Dividends paid (3,900) (4,800) --
------------- ------------- -------------
Net cash provided
by (used for)
financing activities (3,900) (5,430) --
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 23,749 (2,352) 24,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 21,862 24,214 92
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 45,611 $ 21,862 $ 24,214
============= ============= =============
<FN>
See notes to consolidated financial statements and accompanying notes.
MAXXAM GROUP INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
A. DEFERRED INCOME TAXES
The deferred income tax assets and liabilities reported in the
accompanying unconsolidated balance sheet are determined by computing such
amounts on a consolidated basis, as if MGI files a consolidated tax return
with all of its subsidiaries except Salmon Creek, and that such
corporations were never connected with MAXXAM, and then reducing such
consolidated amounts by the amounts recorded by the Company's subsidiaries,
but excluding Salmon Creek, pursuant to their respective tax allocation
agreements with MAXXAM. The Company's net deferred income tax assets
relate primarily to loss and credit carryforwards and to the excess of the
tax basis over financial statement basis with respect to timber and
timberlands. The Company has concluded that it is more likely than not
that these net deferred income tax assets will be realized based in part
upon the estimated values of the underlying assets which are in excess of
their tax basis.
B. LONG-TERM DEBT
The MGI Notes are secured by the Company's pledge of 100% of the
common stock of Pacific Lumber, Britt and MPI and by MGHI's pledge of
27,938,250 shares of Kaiser's common stock.
Long-term debt consists of the following:
December 31,
---------------------------
1996 1995
------------- -------------
11-1/4% MGI Senior Secured Notes due August 1, 2003 $ 100,000 $ 100,000
12-1/4% MGI Senior Secured Discount Notes due 104,173 92,498
August 1, 2003, net of discount ------------- -------------
$ 204,173 $ 192,498
============= =============
C. SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
Supplemental information on non-cash
investing and financing activities:
Net margin borrowings (payments) for
marketable securities $ -- $ (6,648) $ 5,628
Supplemental disclosure of cash flow
information:
Interest paid $ 11,253 $ 11,250 $ 11,156
Tax allocation refunds from MAXXAM 7,127 3,500 198
Income taxes refunded 3,121 -- --