<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended March 31, 1996 Commission File No. 0-8841
The Pioneer Group, Inc.
-----------------------
(exact name of registrant as specified in its charter)
Delaware 13-5657669
- --------------------------------------------------------------------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
60 State Street, Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 742-7825
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
Indicate by checkmark 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 twelve 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 at least the past 90 days.
X Yes No
--------- ---------
As of March 31, 1996, there were 24,947,173 shares of the Registrant's Common
Stock, $.10 par value per share, issued and outstanding.
<PAGE> 2
PART I FINANCIAL INFORMATION
<TABLE>
ITEM 1 FINANCIAL STATEMENTS
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
3/31/96 12/31/95
(Unaudited)
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates value ........................................... $ 19,974 $ 27,809
Investment in marketable securities, at value ......................................................... 8,681 7,630
Receivables:
From securities brokers and dealers
for sales of mutual fund shares ................................................................ 12,630 12,385
For gold shipments ............................................................................... 3,211 5,410
Other ............................................................................................ 20,387 14,085
Mining inventory ...................................................................................... 17,812 15,605
Other current assets .................................................................................. 9,043 8,295
-------- --------
Total current assets .......................................................................... 91,738 91,219
-------- --------
NONCURRENT ASSETS:
Mining operations:
Mining equipment and facilities (net of accumulated
depreciation of $45,747 in 1996 and $42,631 in 1995) ...................................... 63,402 46,980
Deferred mining development costs (net of accumulated
amortization of $11,919 in 1996 and $11,420 in 1995) ...................................... 9,287 9,622
Cost of acquisition in excess of net assets (net of accumulated amortization
of $7,179 in 1996 and $6,501 in 1995) ........................................................... 24,106 24,784
Long-term venture capital investments, at value
(cost $44,589 in 1996 and $38,802 in 1995) ....................................................... 48,854 44,520
Long-term investments ................................................................................. 14,943 16,934
Timber project in development:
Timber equipment and facilities ................................................................... 8,331 8,130
Deferred timber development costs ................................................................ 22,987 21,140
Building in progress .................................................................................. 16,154 12,239
Furniture, equipment, and leasehold improvements (net of accumulated
depreciation and amortization of $11,346 in 1996 and $10,558 in 1995) ............................ 13,506 13,766
Dealer advances (net of accumulated amortization of $3,679 in 1996 and $2,563 in 1995)................. 22,534 17,095
Other noncurrent assets ............................................................................... 15,580 12,640
-------- --------
Total noncurrent assets ....................................................................... 259,684 227,850
-------- --------
$351,422 $319,069
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to funds for shares sold ...................................................................... $ 12,906 $ 12,369
Accrued expenses and accounts payable ................................................................. 32,828 27,242
Accrued employees' compensation ....................................................................... 3,222 1,705
Accrued income taxes .................................................................................. -- 1,169
Current portion of notes payable ...................................................................... 68,053 56,053
-------- --------
Total current liabilities ..................................................................... 117,009 98,538
-------- --------
Noncurrent liabilities:
Notes payable, net of current portion ................................................................. 10,236 11,048
Deferred income taxes, net ............................................................................ 20,350 14,503
-------- --------
Total noncurrent liabilities .................................................................. 30,586 25,551
-------- --------
Total liabilities ............................................................................. 147,595 124,089
-------- --------
Minority interest ..................................................................................... 49,791 44,637
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.10 par value; authorized 60,000,000 shares;
issued 24,957,493 shares in 1996 and 24,833,508 shares in 1995 ................................. 2,496 2,483
Paid-in capital .................................................................................. 10,501 7,660
Retained earnings ................................................................................ 146,221 143,603
Treasury stock at cost, 10,320 shares in 1996 and 0 shares in 1995 ............................... (268) --
-------- --------
158,950 153,746
Less - Deferred cost of restricted common stock issued ........................................... (4,914) (3,403)
-------- --------
Total stockholders' equity .................................................................... 154,036 150,343
-------- --------
$351,422 $319,069
======== ========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements
<PAGE> 3
THE PIONEER GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Revenues and sales:
Investment management fees ..................... $ 18,848 $ 15,072
Underwriting commissions and distribution fees . 3,856 1,782
Shareholder services fees ...................... 6,089 5,544
Trustee fees and other income .................. 6,066 2,022
----------- -----------
Revenues from financial services businesses . 34,859 24,420
Gold sales ..................................... 21,237 21,259
----------- -----------
Total revenues and sales ..................... 56,096 45,679
----------- -----------
Costs and expenses:
Management, distribution, shareholder service
and administrative expenses .................. 29,190 20,991
Gold mining operating costs and expenses ....... 16,645 14,413
----------- -----------
Total costs and expenses ..................... 45,835 35,404
----------- -----------
Other (income) expense:
Unrealized and realized gains on venture capital
and marketable securities investments, net .... (217) (511)
Interest expense ............................... 420 432
Other, net ..................................... 421 172
----------- -----------
Total other (income) expense ................. 624 93
----------- -----------
Income before provision for federal, state and foreign
income taxes and minority interest ................ 9,637 10,182
----------- -----------
Provision for federal, state and foreign income taxes 3,912 3,902
----------- -----------
Income before minority interest ...................... 5,725 6,280
----------- -----------
Minority interest .................................... 611 483
----------- -----------
Net income ........................................... $ 5,114 $ 5,797
=========== ===========
Earnings per share ................................... $ 0.20 $ 0.23
=========== ===========
Dividends per share .................................. $ 0.10 $ 0.10
=========== ===========
Weighted average common and
common equivalent shares outstanding ................. 25,439,000 25,209,000
=========== ===========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
<PAGE> 4
THE PIONEER GROUP, INC AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED
(UNAUDITED) MARCH 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 5,114 $ 5,797
-------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 6,505 5,369
Unrealized and realized gains on venture capital and marketable securities,net (217) (511)
(Equity in earnings of) provision on other investments ....................... 20 (598)
Restricted stock plan expense ................................................ 389 291
Deferred income taxes ........................................................ 5,847 1,585
Minority interest ............................................................ 611 483
Changes in operating assets and liabilities:
Receivable from securities brokers and dealers for sales of mutual fund shares (245) (1,113)
Receivables for gold shipments ............................................... 2,199 799
Other receivables ............................................................ (6,302) (2,707)
Mining inventory ............................................................. (2,207) (3,204)
Other current assets ......................................................... (748) 727
Other assets ................................................................. (244) (565)
Payable to funds for shares sold ............................................. 537 1,423
Accrued expenses and accounts payable ........................................ 5,586 (57)
Accrued employees' compensation .............................................. 1,517 938
Accrued income taxes ......................................................... (744) (569)
-------- --------
TOTAL ADJUSTMENTS ........................................................ 12,504 2,291
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 17,618 8,088
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining equipment and facilities ...................................... (19,538) (3,883)
Deferred mining development costs, net ........................................... (164) (2)
Additions to furniture, equipment and leasehold improvements ..................... (810) (1,840)
Building in progress ............................................................. (3,915) ---
Investments in marketable securities ............................................. (3,353) (4,828)
Proceeds from sale of marketable securities ...................................... 2,297 2,683
Long-term venture capital investments ............................................ (6,105) (374)
Proceeds from sale of venture capital investments ................................ 1,900 940
Deferred timber development costs ................................................ (1,873) (2,212)
Timber equipment and facilities .................................................. (201) (3,040)
Other investments ................................................................ (2,716) (2,202)
Cost of acquisition in excess of net assets, acquired ............................ --- (96)
Long-term investments ............................................................ (1,880) ---
Proceeds from sale of long-term investments ...................................... 3,964 ---
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................... (32,394) (14,854)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ................................................................... (2,496) (2,480)
Distributions to minority interestholder of gold mining subsidiary ............... --- (350)
Distributions to limited partners of venture capital subsidiary .................. --- (8)
Exercise of stock options ........................................................ 254 ---
Restricted stock plan award ...................................................... 7 12
Dealer advances .................................................................. (6,555) (2,594)
Amounts raised by venture capital investment partnership ......................... 4,543 ---
Borrowings ....................................................................... 12,000 2,000
Repayments of notes payable ...................................................... (812) (812)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ...................... 6,941 (4,232)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................. (7,835) (10,998)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................................... 27,809 23,118
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................ $ 19,974 $ 12,120
======== ========
</TABLE>
THE COMPANY'S ANNUAL REPORT ON FORM 10-K SHOULD BE READ IN CONJUNCTION WITH
THESE FINANCIAL STATEMENTS.
<PAGE> 5
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE 1 - NATURE OF OPERATIONS AND ORGANIZATION
The Pioneer Group, Inc., and its subsidiaries (collectively, the "Company"), are
engaged in financial services businesses in the United States and several
foreign countries and in a number of natural resource development projects,
including a gold mining venture in the Republic of Ghana and three timber
ventures in the Russian Far East.
In the United States, the Company conducts four lines of financial services
businesses: (i) Pioneering Management Corporation ("PMC") serves as investment
manager to the 30 U.S. registered investment companies in the Pioneer Family of
Mutual Funds and several institutional accounts, (ii) Pioneer Funds Distributor,
Inc. ("PFD") serves as distributor of shares of the Pioneer Family of Mutual
Funds, (iii) Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage
in venture capital investing and management activities, and (iv) Pioneering
Services Corporation serves as shareholder servicing agent for the Pioneer
Family of Mutual Funds.
The Company's international financial services businesses include investment
operations in: (i) Warsaw, Poland, where the Company manages and distributes
units of three mutual funds, owns 50% of a unitholder servicing agent and
manages an institutional venture capital fund, (ii) Dublin, Ireland, where the
Company distributes shares of, manages and services three offshore investment
funds, sold primarily in Western Europe, and (iii) Moscow, Russia, where the
Company provides financial services, including investment advisory, investment
banking and brokerage services, and where the Company owns 51% of the First
Voucher Fund, the largest Russian voucher investment fund. In addition, the
Company has investment operations in the Czech Republic and has invested in
investment management operations in India and Taiwan.
The Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"),
conducts mining and exploration activities in the Republic of Ghana and
exploration activities elsewhere in Africa. PGL's principal asset is its
ownership of 90% of the outstanding shares of Teberebie Goldfields Limited
("TGL"), which operates a gold mine in the western region of the Republic of
Ghana. The Republic of Ghana owns the remaining 10% of TGL. The Company also
participates in several natural resource development ventures in Russia,
including a project pursuing the development of timber production in the Russian
Far East, in which the Company has a 71% direct interest and a 3% indirect
interest.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of The Pioneer Group, Inc. and its
subsidiaries (the "Company") conform to generally accepted accounting
principles. The Company has not changed any of its principal accounting policies
from those stated in the Annual Report on Form 10-K for the year ended December
31, 1995. The footnotes to the financial statements reported in the 1995 Annual
Report on Form 10-K are incorporated herein by reference, except to the extent
that any such footnote is updated by the following:
<PAGE> 6
Certain reclassifications have been made to the accompanying 1995 consolidated
financial statements to conform with the 1996 presentation.
Income taxes paid were $442,000 and $2,596,000 for the three months ended March
31, 1996, and March 31, 1995, respectively. In addition, interest paid was
$1,123,000 for the three months ended March 31, 1996, and $385,000 for the three
months ended March 31, 1995. Included in these interest paid amounts were
$709,000 for the three months ended March 31, 1996, that was capitalized related
to the development of the Company's building in progress and Russian timber
operations.
<TABLE>
NOTE 3 - MINING INVENTORY
Mining inventories consist of the following:
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Gold-in-process $ 1,425 $ 1,485
Materials and supplies 16,387 14,120
------- -------
$17,812 $15,605
======= =======
</TABLE>
<TABLE>
NOTE 4 - MINING EQUIPMENT
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Mobile mine equipment $ 42,446 $ 31,482
Crusher 18,597 18,460
Processing plant and laboratory 4,918 4,911
Leach pads and ponds 16,495 15,726
Building and civil works 10,689 10,595
Office furniture and equipment 1,816 1,731
Motor vehicles 2,073 1,756
Construction in progress 10,295 3,161
Other assets 1,820 1,789
-------- --------
109,149 89,611
Less: accumulated depreciation (45,747) (42,631)
-------- --------
Total mining equipment $ 63,402 $ 46,980
======== ========
</TABLE>
NOTE 5 - INCOME TAXES
The Company adopted the accounting and disclosure rules specified by Statement
of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income Taxes"
as of January 1, 1993. Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the expected future tax consequences of events that have been
included in the financial statements or tax
<PAGE> 7
returns. The amounts of deferred tax assets or liabilities are based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Deferred tax assets consist principally of
deferred interest on debt paid to the Company by TGL and on loans to Forest
Starma (the Company's Russian timber venture), non-qualified pension expense,
deferred rent expense, foreign tax credits and restricted stock plans' temporary
differences. Deferred tax liabilities include principally deferred foreign
income taxes, dealer advances and cumulative unrealized gains related to the
Company's venture capital investment portfolio.
NOTE 6 -- STOCK PLANS
The Company records stock compensation in accordance with APB 25. The Company
has a Restricted Stock Plan (the "1995 Plan") to provide incentives to certain
employees who have contributed and are expected to contribute materially to the
success of the Company and its subsidiaries. An aggregate total of 600,000
shares of the Company's stock may be awarded to participants under the 1995 Plan
at a price to be determined by the Board of Directors, generally $.10 per share.
The 1995 Plan expires in January 2000. The Company's 1990 Restricted Stock Plan
(the "1990 Plan") expired in January 1995. The 1995 Plan and the 1990 Plan are
collectively referred to as the "Plans."
<TABLE>
The following tables summarize restricted stock plan activity for the Plans
during the first three months of 1996.
<CAPTION>
Unvested Shares
---------------
1995 Plan 1990 Plan Total
--------- --------- -----
<S> <C> <C> <C>
Balance at 12/31/95 600 401,969 402,569
Awarded 70,465 -- 70,465
Vested -- (131,588) (131,588)
Forfeited (250) (550) (800)
------ -------- --------
Balance at 3/31/96 70,815 269,831 340,646
====== ======== ========
<CAPTION>
Vested Shares
-------------
1995 Plan 1990 Plan Total
--------- --------- -----
Balance at 12/31/95 3,337 353,450 356,787
Vested -- 131,588 131,588
------ -------- --------
Balance at 3/31/96 3,337 485,038 488,375
====== ======== ========
</TABLE>
The Company awarded 3,937 shares in 1995 under the 1995 Plan. In addition, the
Company awarded 123,400 shares in 1995 and 101,460 shares in 1994 under the 1990
Plan.
<PAGE> 8
The participant's right to resell the awarded stock, under the Plans, is
generally restricted as to 100% of the shares awarded during the first two years
following the award, 60% during the third year and 20% less each year
thereafter. The Company may repurchase unvested restricted shares at $.10 per
share upon termination of employment.
Awards under the Plans are compensatory, and, accordingly, the difference
between the award price and the market value of the shares under the Plans at
the award date, less the applicable tax benefit, is being amortized on a
straight-line basis over a five-year period.
The Company also maintains the 1988 Stock Option Plan (the "Option Plan"),
pursuant to which options on the Company's stock may be granted to key employees
of the Company. The Company has reserved an aggregate of 2,400,000 shares for
issuance under the Option Plan. Both incentive stock options intended to qualify
under Section 422A of the Internal Revenue Code of 1986 and non-statutory
options not intended to qualify for incentive stock option treatment
("non-statutory options") may be granted under the Option Plan. The Option Plan
is administered by the Board of Directors or a committee of disinterested
directors designated by the Board (the "Committee") and unless the Option Plan
is earlier terminated, no option may be granted after August 1, 1998. The option
price per share is determined by the Board of Directors or the Committee, but
(i) in the case of incentive stock options, may not be less than 100% of the
fair market value of such shares on the date of option grant, and (ii) in the
case of non-statutory options, may not be less than 90% of the fair market value
on the date of option grant. Options issuable under the Option Plan become
exercisable as determined by the Board of Directors or the Committee not to
exceed ten years from the date of grant. Options granted to date vest over five
years at an annual rate of 20% on each anniversary date of the date of the
grant.
<TABLE>
The following table summarizes all stock option activity since December 31, 1993
<CAPTION>
Number of Exercise
shares price per share
---------------- ------------------
<S> <C> <C>
Outstanding at December 31, 1993 1,635,000 $ 4.188 - $12.000
Granted 191,500 15.875 - 21.250
Exercised (32,000) 4.188
--------- ------------------
Outstanding at December 31, 1994 1,794,500 $ 4.188 - $21.250
Granted 207,500 26.500 - 27.500
Exercised (25,000) 6.000 - 6.125
--------- ------------------
Outstanding at December 31, 1995 1,977,000 $ 4.188 - $27.500
Exercised (44,000) 4.188 - 7.063
--------- ------------------
Outstanding at March 31, 1996 1,933,000 $ 4.188 - $27.500
========= ==================
</TABLE>
At March 31, 1996, options to purchase 1,316,900 shares of common stock had
vested and were unexercised under the Option Plan.
On May 4, 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the
"1995 Purchase Plan"), which qualifies as an "Employee Stock Purchase Plan"
within the meaning of Section 423 of the Internal Revenue Code of 1986. An
aggregate total of 500,000 shares of common stock have been authorized for
issuance under the 1995 Purchase Plan, to be
<PAGE> 9
implemented through one or more offerings, each approximately six months in
length beginning on the first business day of each January and July. The price
at which shares may be purchased during each offering will be the lower of (i)
85% of the closing price of the common stock as reported on the NASDAQ National
Market (the "closing price") on the date that the offering commences or (ii) 85%
of the closing price of the common stock on the date the offering terminates. In
1995, the Company issued 18,228 shares under the 1995 Purchase Plan.
NOTE 7 - NET CAPITAL
As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD"), is subject to the
Securities and Exchange Commission's regulations and operating guidelines which,
among other things, require PFD to maintain a specified amount of net capital,
as defined, and a ratio of aggregate indebtedness to net capital, as defined,
not exceeding 15 to 1. Net capital and the related ratio of aggregate
indebtedness to net capital may fluctuate on a daily basis. PFD's net capital,
as computed under Rule 15c3-1, was $2,485,197 at March 31, 1996, which exceeded
required net capital of $1,062,022 by $1,423,175. The ratio of aggregate
indebtedness to net capital at March 31, 1996, was 6.41 to 1.
PFD is exempt from the reserve requirements of Rule 15c3-3, since its
broker-dealer transactions are limited to the purchase, sale and redemption of
redeemable securities of registered investment companies. All customer funds are
promptly transmitted and all securities received in connection with activities
as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or
securities for, or owe money or securities to, customers.
NOTE 8 - BENEFIT PLANS
The Company and its subsidiaries have two defined contribution benefit plans for
eligible employees: a retirement benefit plan and a savings and investment plan
("the Benefit Plans") qualified under section 401 of the Internal Revenue Code
of 1986. The Company makes contributions to a trustee, on behalf of eligible
employees, to fund both the retirement benefit and the savings and investment
plans. The Company's expenses under the Benefit Plans were $577,000 for the
three months ended March 31, 1996, and $512,000 for the three months ended March
31, 1995.
Both of the Company's qualified Benefit Plans described above cover all
full-time employees who have met certain age and length of service requirements.
Regarding the retirement benefit plan, the Company contributes an amount which
would purchase a certain targeted monthly pension benefit at the participant's
normal retirement date. In connection with the savings and investment plan,
participants can voluntarily contribute up to 10% of their compensation to the
plan, and the Company will match this contribution up to 2%.
NOTE 9 - RELATED PARTY TRANSACTIONS
Certain officers and/or directors of the Company and its subsidiaries are
officers and/or trustees of the Pioneer mutual funds and the Company's
international mutual funds. Investment management fees earned from the mutual
funds were approximately $17,624,000 for the three months ended March 31, 1996,
and $14,400,000 for the three months ended March 31, 1995. Underwriting
commissions and distribution fees earned from the sales of mutual funds shares
were approximately $3,856,000 for the three months ended March 31, 1996, and
$1,782,000 for the three months ended March 31, 1995, respectively. Shareholder
services fees earned from
<PAGE> 10
the mutual funds were approximately $6,089,000 for the three months ended March
31, 1996, and $5,544,000 for the three months ended March 31, 1995.
Within the Pioneer mutual funds, revenues from Pioneer II were approximately
$8,801,000 for the three months ended March 31, 1996, and $7,920,000 for the
three months ended March 31, 1995. Revenues from Pioneer Fund were $4,608,000
for the three months ended March 31, 1996, and $3,874,000 for the three months
ended March 31, 1995.
Certain partners of Hale and Dorr, the Company's legal counsel, are officers
and/or directors of the Company and its subsidiaries. Amounts paid to Hale and
Dorr for legal services were $314,000 for the three months ended March 31, 1996,
and $585,000 for the three months ended March 31, 1995.
At March 31, 1995, the Company had a receivable from an officer for $109,000.
This receivable was fully paid in the second quarter of 1995.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
U.S. rental expense was $787,000 for the three months ended March 31, 1996, and
$820,000 for the three months ended March 31, 1995. Future minimum payments
under the leases amount to approximately $2,354,000 for the last nine months of
1996, $3,212,000 in 1997, $3,303,000 in 1998, $3,425,000 in 1999, $3,280,000 in
2000, $3,357,000 in 2001 and $2,180,000 thereafter. These future minimum
payments include estimated annual operating expenses of approximately $1,062,000
in the last nine months of 1996, and $1,416,000 thereafter.
The Company is contingently liable to the Investment Company Institute Mutual
Insurance Company for unanticipated expenses or losses in an amount not to
exceed $500,000. Two thirds of this amount is secured by an irrevocable standby
letter of credit with a bank.
In September 1995, the Overseas Private Investment Corporation ("OPIC") executed
a commitment letter with TGL and the Company pursuant to which OPIC agreed,
subject to the fulfillment of certain conditions, to finance up to $54 million
in connection with the Phase III expansion. Such commitment expires on July 1,
1996. As of May 3, 1996, TGL and the Company have not executed definitive loan
agreements with respect to such OPIC guaranteed financing and there can be no
assurance that such OPIC guaranteed financing will become available, or that it
will be available on terms acceptable to TGL and the Company. In order to
facilitate financing, TGL has obtained credit approval from Caterpillar
Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc.
(collectively, "Caterpillar"), pursuant to which Caterpillar has agreed, subject
to the fulfillment of certain conditions, to provide a revolving credit facility
of up to $21 million to finance the purchase of Caterpillar and other mining
equipment. Such revolving facility would be subject to renewal in January 1997.
In May 1996, Caterpillar issued a disbursement, at TGL's request, for $8.4
million of such facility. There can be no assurance that TGL will be able to
obtain similar or satisfactory terms for subsequent tranches of the Caterpillar
credit facility. On March 6, 1996, TGL executed a loan agreement with Enskilda,
a division of Skandinaviska Enskilda Banken, pursuant to which Enskilda has
agreed to provide a direct loan of Swedish Krona 94.5 million (approximately
$13.6 million) to finance the gyratory crusher and related equipment procured
from Svedala Crushing and Screening AB. This loan, which has not yet been drawn
down, is guaranteed by the Swedish Export Credits Board. As
<PAGE> 11
TGL obtains these alternative sources of financing, TGL intends to
proportionately reduce the amount of its OPIC guaranteed financing.
The Company is committed to additional capital contributions of $2.1 million to
Pioneer Poland U.S. L.P. and $1.5 million to Pioneer Poland U.K. L.P. These
contributions are payable in three annual installments commencing in 1996. At
March 31, 1996, the Company was committed to additional capital contributions of
$2.2 million to Pioneer Ventures Limited Partnership II, a U.S. venture capital
fund.
NOTE 11- NOTES PAYABLE
<TABLE>
Notes payable of the Company consists of the following:
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(Dollars in Thousands)
<S> <C> <C>
Lines of Credit ............................................................. $ 64,000 $ 52,000
Preferred shares financing related to the Russian investment operations,
principal payable in three annual installments of $2,000,000 through 1998,
interest payable at 5%....................................................... 6,000 6,000
Small Business Administration ("SBA") financing, notes payable to a bank,
interest payable semi-annually at rates ranging from 6.12% to 9.8%,
principal due in 1998 through 2003........................................... 4,950 4,950
Note payable to a bank guaranteed by the Swedish Exports Credits Guarantee
Board, principal payable in semi-annual installments of $812,000 through March
31, 1997, interest payable at 5.77%, secured by equipment.................... 1,624 2,436
Notes payable to a bank, guaranteed by the Company, principal payable in
semi-annual installments, of $214,000 through November 30, 1999,
no interest payable, secured by equipment.................................... 1,715 1,715
-------- --------
78,289 67,101
Less: Current portion....................................................... (68,053) (56,053)
-------- --------
$ 10,236 $ 11,048
======== ========
</TABLE>
On February 28, 1995, the Company entered into an agreement with a commercial
bank providing for a $30 million unsecured line of credit. Advances under the
line bear interest, at the Company's option, at (a) the higher of the bank's
base lending rate or the federal funds rate plus 0.50%, (b) LIBOR plus 1.10%, or
(c) at a money market rate set by the bank. The line, which expires on May 31,
1996, provides that the Company must pay additional interest to the bank at the
rate of 0.25% per annum of the unused portion of the line. On May 22, 1995, the
Company entered into a second agreement with the commercial bank providing for
an
<PAGE> 12
additional $10 million unsecured line of credit with substantially the same
terms as the first agreement, including applicable interest rates and expiration
date. This second line was subsequently increased to $15 million on October 20,
1995, to $30 million on December 20, 1995, to $40 million on February 27, 1996,
and to $50 million on April 15, 1996. At May 3,1996, the Company had $71.0
million outstanding under the lines. The weighted average interest rate on the
lines of credit outstanding was 7.1% in 1995 and 6.5% for the three months ended
March 31, 1996.
The Company entered into a commitment letter agreement on February 29, 1996 with
the commercial bank for a new senior credit facility in the amount of $115
million. Such commitment is subject to the fulfillment of certain conditions and
expires on May 31, 1996. Under the proposed new facility, the Company can borrow
up to $35 million under a revolving credit agreement ("RCA") to finance dealer
advances relating to sales of back-end load shares of the Company's domestic
mutual funds. See Note 14 below for further discussion on dealer advances. The
RCA is subject to annual renewal by the Company and the commercial bank. In the
event the RCA is not renewed, at maturity, it will automatically convert to a
five-year term loan. Advances under the RCA bear interest, at the Company's
option, at (a) the higher of the bank's base lending rate or the federal funds
rate plus 0.50% or (b) LIBOR plus 1.25%. In addition, the Company can borrow up
to $80 million for general corporate purposes and to refinance existing debt.
This loan is payable in full if five years from the first drawdown. Advances
under this loan bear interest, at the Company's option, at (a) the higher of the
bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR plus
the applicable margin, of either 0.75%, 1.25% or 1.50% as defined under the
commitment letter. The senior credit facility provides that the Company must pay
additional interest to the bank at the rate of 0.375% per annum of the unused
portion of the facility and an annual arrangement fee of $35,000. The commitment
fees are approximately $0.7 million.
<TABLE>
Maturities of notes payable at March 31, 1996 for each of the next five years
and thereafter are as follows (dollars in thousands):
<S> <C>
1996 $68,053
1997 2,429
1998 3,629
1999 428
2000 1,500
Thereafter 2,250
-------
$78,289
=======
</TABLE>
NOTE 12 - MAJOR CUSTOMERS AND EXPORT SALES
During the three months ended March 31, 1996, gold sales aggregated $21.2
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $8.7 million and $12.5 million of
total gold sales, respectively, representing 100% of such total gold sales.
During the three months ended March 31, 1995, gold sales aggregated $21.3
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $12.8 million and $8.5 million of
total gold sales, respectively, representing 100% of such total gold sales.
<PAGE> 13
NOTE 13 - ACQUISITIONS
<TABLE>
Cost in excess of net assets acquired, net, as reflected in the accompanying
consolidated balance sheets, consists of the following:
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Mutual of Omaha Fund $20,238 $20,768
Management Company
Russian investment operations 1,996 2,050
Gold mining operations 1,872 1,966
------- -------
$24,106 $24,784
------- -------
</TABLE>
NOTE 14 - DEALER ADVANCES
Certain of the Pioneer Family of Mutual Funds maintain a multi-class share
structure, whereby the participating funds offer both the traditional front-end
load shares and back-end load shares (B-shares). B-shares do not require the
investor to pay any sales charge unless there is a redemption before the
expiration of the minimum holding period which ranges from three to six years.
However, the Company pays upfront sales commissions (dealer advances) to
broker-dealers ranging from 2% to 4%. The participating Funds pay the Company
distribution fees of 0.75% and service fees of 0.25%, per annum of their
respective net assets, subject to annual renewal by the participating Fund's
Board of Trustees. In addition, the Company is paid a contingent deferred sales
charge (CDSC) on B-shares redeemed within the minimum holding period. The CDSC
is paid based on declining rates ranging from 2% to 4%. The Company capitalizes
and amortizes dealer advances for book purposes over periods which range from
three to six years depending on the participating Fund. The Company deducts the
dealer advances in full for tax purposes in the year such advances are paid.
Distribution and service fees received by the Company from participating Funds
are recorded in income as earned. CDSC received by the Company from redeeming
shareholders reduce unamortized dealer advances directly. For the three months
ended March 31, 1996, and March 31, 1995, the Company paid dealer advances in
the amount of $6.6 million and $2.6 million, respectively. The Company
introduced C-shares for certain of the Pioneer Family of Mutual Funds in 1996.
NOTE 15 - FINANCIAL INFORMATION BY BUSINESS SEGMENT
Total revenues and income (loss) by business segment, excluding intersegment
transactions, were as follows:
<PAGE> 14
<TABLE>
NOTE 15 - FINANCIAL INFORMATION
BY BUSINESS SEGMENT
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
MUTUAL FUND
INVESTMENT UNDERWRITING VENTURE CAPITAL SHAREHOLDER
MANAGEMENT AND OTHER INVESTMENTS SERVICES
---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS
- ------------
ENDED 3/31/96 3/31/95 3/31/96 3/31/95 3/31/96 3/31/95 3/31/96 3/31/95
- ----- ------- ------- ------- ------- ------- ------- ------- -------
REVENUES &
OTHER INCOME $20,953 $14,943 $ 6,920 $ 3,611 $ 812 $ 308 $6,174 $5,558
======= ======= ======= ======= ======= ======= ====== ======
INCOME (LOSS)
BEFORE INCOME
TAXES & MINORITY
INTEREST $12,235 $10,063 $(6,083)(1) $(6,823)(1) $ (995)(2) $ (135)(2) $ 504 $ 670
======= ======= ======= ======= ======= ======= ====== ======
DEPRECIATION &
AMORTIZATION $ 489 $ 257 $ 2,088 $ 1,151 $ 31 $ 26 $ 552 $ 376
======= ======= ======= ======= ======= ======= ====== ======
CAPITAL
EXPENDITURES $ 4,108 $ 108 $ 31 $ 839 $ 28 $ 7 $ 558 $ 886
======= ======= ======= ======= ======= ======= ====== ======
IDENTIFIABLE
ASSETS AT
QUARTER END $73,224 $34,137 $73,998 $32,643 $61,849 $25,824 $8,670 $8,229
======= ======= ======= ======= ======= ======= ====== ======
<CAPTION>
GOLD MINING OTHER CONSOLIDATED
----------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS
ENDED 3/31/96 3/31/95 3/31/96 3/31/95 3/31/96 3/31/95
------- ------- ------- ------- ------- -------
REVENUES &
OTHER INCOME $21,237 $21,259 $ 0 $ 0 $ 56,096 $ 45,679
======= ======= ======= ======= ======== ========
INCOME (LOSS)
BEFORE INCOME
TAXES & MINORITY
INTEREST $ 4,397 (3) $ 6,579 (3) $ (421)(4) $ (172)(4) $ 9,637 $ 10,182
======= ======= ======= ======= ======== ========
DEPRECIATION &
AMORTIZATION $ 3,708 $ 3,850 $ 26 $ 0 $ 6,894 $ 5,660
======= ======= ======= ======= ======== ========
CAPITAL
EXPENDITURES $19,538 $ 3,883 $ 201 $ 3,040 $ 24,464 $ 8,763
======= ======= ======= ======= ======== ========
IDENTIFIABLE
ASSETS AT
QUARTER END $96,116 $78,122 $37,565 $30,136 $351,422 $209,091
======= ======= ======= ======= ======== ========
<FN>
(1) Net of interest expense related to third parties of approximately $282 for
the three months ended March 31, 1996 and $231 for the three months ended March
31, 1995.
(2) Net of interest expense related to third parties of approximately $100 for
the three months ended March 31, 1996 and $99 for the three months ended March
31, 1995.
(3) Net of interest expense related to third parties of approximately $39 for
the three months ended March 31, 1996 and $102 for the three months ended March
31, 1995.
(4) Net of expense related to the Company of $167 for the three months ended
March 31, 1996 and $75 for the three months ended March 31, 1995. These expenses
were related to the Company's Russia natural resources ventures.
</TABLE>
<PAGE> 15
PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF OPERATIONS
The Pioneer Group, Inc. (the "Company") reported first quarter 1996 earnings of
20 cents per share, 3 cents per share lower than earnings in the first quarter
of 1995. First quarter results included earnings of 13 cents per share from the
Company's worldwide investment management businesses, up 3 cents per share from
the first quarter of 1995. These results included increased earnings from each
of the domestic mutual fund and Russian investment operations, partially offset
by decreased earnings from the Polish mutual fund operations and costs
associated with the Czech Republic mutual fund operations. The Company's gold
mining operations, consisting of its wholly owned subsidiary, Pioneer Goldfields
Limited ("PGL"), and its 90% owned subsidiary, Teberebie Goldfields Limited
("TGL"), contributed earnings of 10 cents per share in the first quarter of
1996, 5 cents per share lower than earnings in the first quarter of 1995. The
Company's worldwide venture capital operations lost 2 cents per share in both
the first quarter of 1996 and 1995 as operating costs exceeded increases in
portfolio valuations. The Company's Russian powdered metals operation lost 1
cent per share in the first quarter of 1996.
FINANCIAL SERVICES BUSINESSES
Revenues. The Company's worldwide financial services businesses have three
principal sources of revenues: fees derived from managing the 30 U. S.
registered investment companies in the Pioneer Family of Mutual Funds and
institutional accounts, fees from underwriting and distribution of mutual fund
shares, and fees derived from acting as shareholder servicing agent. The Company
earns similar revenues from its international investment operations in Poland,
Russia, Ireland, the Czech Republic, and from its joint ventures in India and
Taiwan.
Revenues from the worldwide financial services businesses of $34.9 million in
the first quarter of 1996 were $10.4 million higher than revenues in the
comparable 1995 quarter as a result of increases in all revenue categories as
discussed below.
Management fees of $18.8 million in the first quarter of 1996 were $3.8
million, or 25%, higher than management fees in the first quarter of 1995. The
$4.3 million increase in management fees earned from the U.S. registered mutual
funds more than offset the $0.8 million decrease in management fees earned from
the Company's Polish mutual funds. Assets under management of $14.6 billion at
March 31, 1996, increased by $0.8 billion over the 1995 year-end level and by
$3.1 billion over the March 31, 1995 level. The increase in assets under
management since year end of $0.8 billion was principally attributable to
strong U.S. registered mutual fund sales and a higher stock market. The
increase since the first quarter of 1995 of $3.1 billion was largely
attributable to a higher stock market.
<PAGE> 16
Underwriting commissions and distribution fees of $3.9 million in the first
quarter of 1996 were $2.1 million higher or more than double underwriting
commissions and distribution fees in the first quarter of 1995. Underwriting
commissions earned from sales of U.S. registered mutual funds increased by $0.5
million as a result of the significant increase in the sales of such funds. The
Company's U.S. registered mutual fund sales (including reinvested dividends) of
$670 million in the first quarter of 1996 were $297 million, or 79%, higher than
sales during the prior year's comparable period, while redemptions of $362
million increased by $113 million, or 46%. The Company had net sales of $308
million in the first quarter of 1996 compared to $125 million in the first
quarter of 1995. Sales of Polish mutual funds increased from $4 million in the
first quarter of 1995 to $32 million in the first quarter of 1996. Underwriting
commissions on sales of the Polish mutual funds increased by $0.7 million as a
result of the increased sales, of which the Company earned the full
broker-dealer commission on 25% of the Polish mutual fund sales which were
consummated at its recently created point of sales centers. Distribution fees
increased by $0.9 million as a result of increased average assets under
management of the Company's back-end load funds.
Shareholder services fees of $6.1 million in the first quarter of 1996 increased
by $0.5 million, or 10%, over the first quarter of 1995, as a result of an
increase in the number of shareholder accounts and a fee increase effective
January 1, 1996.
Trustee fees and all other income of $6.1 million in the first quarter of 1996
increased by $4.0 million over the first quarter of 1995, principally from
interest and dividend income from the Company's new Russian investment
management operations acquired in the second quarter of 1995.
Costs and Expenses. Costs and expenses of the worldwide financial services
businesses increased by $8.2 million, or 39%, over 1995's first quarter to $29.2
million in the first quarter of 1996. Approximately one-half of the increase in
expenses resulted from the following accounting conventions or unusual
circumstances: (i) approximately $2 million represents expenses related to the
Company's Russian investment operations which were acquired in April 1995 and
which are accounted for on the consolidated method, (ii) approximately
$0.6 million of the increase related to increased valuations of the Company's
joint ventures in India and Taiwan which were recorded in the first quarter of
1995 and which were accounted for as a reduction in expense rather then as a
revenue item, and (iii) approximately $0.8 million related to expenses
associated with the amortization of dealer advances resulting from substantial
increases in sales of back-end load mutual fund shares. The amortization
expenses were more than offset by the increase in distribution fees ($0.9
million) resulting from the increased asset levels. The other half of the
increased expenses resulted from higher payroll costs, higher costs related to
additional office space and higher costs related to mutual fund distribution
(including printing and mailing of sales literature, paying commissions earned
by the sales force and mutual fund advertising and public relations).
Other Income and Expense. The Company reported net venture capital investment
portfolio gains (excluding operating expenses) of $0.1 million in the first
quarters of each of 1996 and 1995 from investments in the Company's U.S.
venture capital portfolio. The Company's investments in its own mutual funds,
principally during their startup phase, had no earnings in the first quarter
of 1996. In the first quarter of 1995, these investments had net gains of $0.4
million, primarily attributable to investments in the Pioneer Tax-Free State
Series Trust, which experienced strong performance during this period.
The Company had net gains of $0.1 million in the first quarter of 1996 from
investments held by the First Voucher Fund (the "Voucher Fund"), the Russian
investment fund in which the Company owns a 51% interest.
<PAGE> 17
Taxes. The Company's effective tax rate for the worldwide financial services
businesses was 46% for the first quarter of 1996, slightly lower than the 47%
effective rate for the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
IRS regulations require that, in order to serve as trustee, the Company must
maintain a net worth of at least 2% of the assets of Individual Retirement
Accounts and other qualified retirement plan accounts at year end. At March 31,
1996, the Company served as trustee for $4.6 billion of qualified plan assets
and the ratio of net worth to qualified assets was 3.4%. The Company's
stockholders' equity of $154.0 million at March 31, 1996, would permit it to
serve as trustee for up $7.7 billion of qualified plan assets.
The Company completed the acquisition of Mutual of Omaha Fund Management
Company ("FMC") on December 1, 1993. If certain asset targets are reached, the
Company would be obligated to pay up to $3 million of additional consideration
to FMC's former owner in 1996. The Company does not believe, however, that the
asset target levels will be reached. As a result, the Company does not believe
that it will be obligated to make any further payments to FMC's former owner.
For certain of the Pioneer Family of Mutual Funds, the Company has introduced a
multi-class share structure. Under the multi-class share structure, which was
first introduced in April 1994, the participating, or "multi-class", funds offer
both traditional front-end load shares (Class A shares) and back-end load shares
(Class B and C shares). On back-end load shares, the investor does not pay any
sales charge unless there is a redemption before the expiration of the minimum
holding period which ranges from three to six years in the case of Class B
shares and is one year in the case of Class C shares. The Company, however, pays
"up-front" commissions to broker-dealers related to sales and service of the
back-end load shares ranging from 2% to 4% of the sales transaction amount on
Class B shares and of 1% on Class C shares. The multi-class funds pay the
Company distribution fees of 0.75%, and service fees of 0.25% (which are
generally reallowed to broker-dealers), per annum of their respective net assets
invested in Class B and Class C shares, subject to annual renewal by the
trustees of the funds. Class B shares were introduced in April 1994 and Class C
shares were introduced in January 1996. Sales of back-end load shares were $198
million in the first quarter of 1996 and $73 million in the first quarter of
1995 and dealer advances totaled $6.6 million in the first quarter of 1996 and
$2.6 million in the first quarter of 1995. Dealer advances, net of amortization,
were $22.5 million at March 31, 1996. In 1996, the Company intends to finance
this program, in part, through the financing facility described in the section
entitled "General."
In April 1995, the Company acquired approximately 51% of the shares of the
Voucher Fund, the largest voucher investment fund established in Russia in
connection with that country's privatization program. The shares were issued by
the Voucher Fund to two newly-formed subsidiaries of Pioneer Omega, Inc.
("Pioneer Omega"), a Delaware corporation in which the Company owns 80% of the
outstanding securities. In addition to acquiring shares in the Voucher Fund,
Pioneer Omega, acting through its subsidiary,
<PAGE> 18
Pioneer First Russia, Inc., acquired a Russian company that holds the right to
manage the Voucher Fund's investments. Pioneer Omega paid $2.0 million in cash
and issued preferred shares (the "Omega shares") valued at $6 million as
consideration for the acquisition of the management company and related rights.
The holder of the Omega shares has the right to cause the Company to purchase
such shares (the "put option") and the Company has a corresponding right to
purchase such shares from the holder (the "call option"). The put and call
options are each exercisable with respect to one-third of the Omega shares on
the first, second and third anniversaries of the closing of the transaction. The
put and call option exercise price is $2 million per tranche, plus a 5% per
annum premium on the option exercise price. The Company will pay a total of $6.6
million for the Omega shares over a three-year period as the put and/or call
options are exercised. In April 1996, the Company exercised its option and
purchased the first tranche of Omega shares for $2.1 million.
RECENT DEVELOPMENTS
In meetings held in April 1996, the shareholders of the Company's two largest
U.S. registered mutual funds approved management fee increases. A third fund
implemented a similar, though not identical, fee increase in January 1996. The
Company expects that a significant amount of the increased fee revenues in 1996,
estimated at $7.5 million, will be expended to meet increases in costs for its
investment advisory personnel and purchases of computer systems to be employed
in its investment management business. In addition, the Company will continue to
invest in the growth of this increasingly competitive business, including
product development and distribution initiatives and enhancements. The impact of
these fee increases on the Company's earnings is not possible to predict at this
time.
NATURAL RESOURCE DEVELOPMENT BUSINESSES
GOLD MINING BUSINESS
In the first quarter of 1996, the gold mining business contributed $2.5 million,
or 10 cents per share, to the Company's earnings; 5 cents per share below last
year's first quarter.
Revenues of $21.2 million were essentially unchanged compared with the first
quarter of 1995 as a 5% decrease in gold sales, to 53,300 ounces, was offset by
a 5% increase in the gold price, to $398 per ounce. The decrease in production
was attributable, in part, to lower than expected equipment availability during
the fourth quarter of 1995 and first quarter of 1996 and the mining of a higher
proportion of ore from the lower-grade southern part of the Teberebie pit during
the fourth quarter of 1995. Equipment availability is expected to improve during
the second and third quarter of 1996 with the phase-in of larger capacity
replacement mining equipment. Total gold production for 1996 is targeted at
245,000 ounces. See "Recent Developments" below.
<PAGE> 19
<TABLE>
The following table compares TGL's production results, cash costs and total
costs per ounce for the three months ended March 31, 1996 with the same period
in 1995:
<CAPTION>
Three Months ended
March 31,
(Increase)/
1996 1995 Decrease
------- ------- -----------
<S> <C> <C> <C>
Production (ounces) 53,300 56,100 2,800
======= ======= ======
Cash Costs:
Production Costs $ 190 $ 141 $ (49)
Royalties 12 11 (1)
General and administrative 32 26 (6)
------- ------- ------
CASH COSTS PER OUNCE 234 178 (56)
------- ------- ------
Non-Cash Costs:
Depreciation and Amortization 69 68 (1)
Other 2 6 4
------- ------- ------
COST OF PRODUCTION PER OUNCE 305 252 (53)
------- ------- ------
Interest and other costs 11 10 (1)
------- ------- ------
TOTAL COSTS PER OUNCE $ 316 $ 262 $ (54)
======= ======= ======
</TABLE>
Production Costs. Production costs represent costs attributable to mining ore
and waste and processing the ore through crushing and processing facilities.
TGL's costs of production are affected by ore grade, gold recovery rates, the
waste to ore or "stripping" ratio, the age of equipment and associated equipment
availability, the weather, the availability of labor, haul distances, foreign
exchange fluctuations and the inherent lag in gold production from new
operations. In the first quarter of 1996, production costs increased by $49 per
ounce to $190 per ounce compared with the first quarter of 1995 principally
because of an increase in the stripping ratio from approximately 2.3:1 to 3.0:1,
essentially in-line with expectations, and higher than anticipated mining
equipment maintenance costs. Accordingly, the increase in the stripping ratio
resulted in an increase in variable costs such as fuel, wear parts, and tires.
TGL also experienced increases in processing costs primarily attributable to the
continued development of a second run-of-mine, or dump leach, pad which was not
operational in the first quarter of 1995.
Royalties. Under the Ghanaian Minerals and Mining Law, royalties are levied at
rates ranging from 3% to 12% of operating revenues as determined by reference to
an operating ratio. Such operating ratio represents the percentage that
operating profits, after giving effect to capital allowances and interest
expense (as permitted by TGL's Deed of Warranty), bears to gold sales. In the
first quarter of 1995 and 1996, the royalty rate payable by TGL remained at 3%
of operating revenue, the minimum permitted by law,
<PAGE> 20
principally because of a sustained level of capital expenditures, and associated
capital allowances, since the inception of the project.
General and Administrative Costs. General and administrative costs consist
principally of administrative salaries and related benefits, travel expenses,
insurance, utilities, legal costs, employee meals, rents, vehicle expenditures,
and customs clearing costs. These costs increased by 15%, primarily as a result
of increases in salaries and benefits relating to the 1995 collective bargaining
agreement, and in commercial insurance premiums and customs clearing costs. In
addition, the cost per ounce increased by $2 per ounce because of a 5% decrease
in production.
Depreciation and Amortization. Depreciation and amortization is calculated using
units-of-production and straight-line methods designed to fully depreciate
property, plant and equipment over the lesser of their estimated useful lives
and ten years. These costs remained relatively unchanged compared with the first
quarter of 1995.
Other. Other costs represent a provision for future reclamation costs and costs
related to exploration activities conducted by TGL at the Teberebie concessions
and in other parts of Ghana. The decrease of $4 per ounce during the first
quarter of 1996 compared with the corresponding period in 1995 was attributable
principally to a decrease in exploration diamond drilling.
Interest and Other Costs. Interest and other costs increased slightly
principally because of an increase in political risk premiums.
Income Taxes. The effective tax rates during the first quarter of 1995 and 1996
did not differ materially from the Ghanaian statutory rate for mining companies
of 35%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow. PGL's cash balances decreased by $1.7 million to $0.7 million during
the first quarter of 1996. Cash generated from operating activities aggregated
$15.6 million while capital expenditures and loan principal payments were $19.8
million and $1.8 million, respectively. Major capital expenditures by TGL during
the first quarter of 1996 included $10.6 million for mining equipment, $6.8
million related to the Phase III mine expansion (South Plant), and $1.1 million
for leach pad and pond development. During the quarter, TGL received
approximately $4.3 million in financing from the Company; including $4.0 million
in bridge financing, of which $3.0 million was outstanding at March 31, 1996,
for the Phase III mine expansion of TGL. Otherwise, TGL generated sufficient
operating cash flow to fund all of its scheduled third-party debt service
payments and short-term cash commitments.
Third-Party Debt. At the end of the first quarter of 1995, third-party debt
aggregated $3.3 million, including $1.7 million which was guaranteed by the
Company. Excluding
<PAGE> 21
Phase III expansion financing, scheduled third-party debt service for 1996 is
expected to aggregate $1.3 million, all of which is expected to be funded by
mining operations revenues.
Risk Management. In the past, TGL purchased put options to secure a minimum
selling price for its gold. All outstanding options expired on March 31, 1996
and TGL currently does not intend to renew these options unless the price of
gold declines to below $375 per ounce.
The Company maintains $64.8 million of "political risk" insurance principally
from the Overseas Private Investment Corporation ("OPIC") covering 90% of its
equity and loan guarantees. This insurance also covers 90% of the Company's
proportionate share of TGL's cumulative retained earnings. In addition, the
Company maintains standby coverage of $2.1 million, which can be activated
semiannually, to cover increases in the Company's proportionate share of TGL's
cumulative retained earnings. In addition to other commercial insurance
policies, TGL has secured business interruption coverage of up to $19.0 million
for losses associated with machinery breakdown and property damage and to defray
continuing infrastructure and interest costs.
Phase III Mine Expansion. In July 1995, the Board of Directors of TGL approved
the Phase III expansion of the Teberebie mine. Phase III will include a further
heap leach operation and the construction of a near-pit gyratory crushing
facility which will act as the primary crushing facility for both the existing
West Plant and the new South Plant. Phase III will also gradually introduce a
new and larger mining fleet, with the objective of mining at an annualized rate
of approximately 60 million tonnes of material per year (including 12 million
tonnes of crushed ore) and raising overall gold production to at least 400,000
ounces per year when Phase III is completed (expected in 1998). Realization of
this objective is subject to the uncertainties inherent in any mining and
processing operation. The initial work on the project has commenced. The major
crushing equipment has been ordered and the initial mining equipment, consisting
of four CAT 785 trucks and a CAT 5230 hydraulic shovel, has been delivered to
the site and good progress is being made in training operators on the new
equipment. Total capital investment planned for 1996 is approximately $68
million, including $46 million in expansion capital. Expansion capital
represents approximately $32 million for the purchase of crushing and processing
facilities and approximately $14 million for the purchase of mining equipment.
Financing Facilities. In September 1995, OPIC executed a commitment letter
(which expires July 1, 1996) with TGL and the Company pursuant to which OPIC
agreed, subject to the fulfillment of certain conditions, to finance up to $54
million in connection with the Phase III expansion. As of May 14, 1996, TGL and
the Company have not executed definitive loan agreements with respect to such
OPIC guaranteed financing and there can be no assurance that such OPIC
guaranteed financing will become available, or that it will be available on
terms acceptable to TGL and the Company. In the interim, the Company provided $4
million in bridge financing to TGL in the first quarter of 1996, of
<PAGE> 22
which TGL has now repaid $3.0 million. In order to facilitate financing, TGL has
obtained credit approval from Caterpillar Financial Services Corporation, a
wholly owned subsidiary of Caterpillar Inc. (collectively, "Caterpillar"),
pursuant to which Caterpillar has agreed, subject to the fulfillment of certain
conditions, to provide a revolving credit facility of up to $21 million to
finance the purchase of Caterpillar and other mining equipment. Such revolving
facility is subject to renewal in January 1997. In May 1996, Caterpillar issued
a disbursement, at TGL's request, for $8.4 million of such facility. There can
be no assurance that TGL will be able to obtain similar or satisfactory terms
for subsequent tranches of the Caterpillar credit facility. On March 6, 1996,
TGL executed a loan agreement with Enskilda, a division of Skandinaviska
Enskilda Banken, pursuant to which Enskilda has agreed to provide a direct loan
of SEK 94.5 million (approximately $13.6 million) to finance the gyratory
crusher and related equipment procured from Svedala Crushing and Screening AB.
This loan, which has not yet been drawn down, is guaranteed by the Swedish
Export Credits Board. As TGL obtains these alternative sources of financing, TGL
intends to proportionately reduce the amount of its OPIC guaranteed financing.
<TABLE>
Reserves. The following table sets forth the proven and probable in situ
reserves of TGL as at December 31, 1995. The cut-off grades used to delineate
the reserves are 0.765 grams per tonne for crushed ore and 0.25 grams per tonne
for run-of-mine at a gold price of $385 per ounce.
<CAPTION>
CRUSHED ORE RUN-OF-MINE
----------- -----------
Grams Grams
per per
Tonnes Tonnes Ounces Tonnes Tonnes Ounces
------ ------ ------ ------ ------ ------
MINEABLE RESERVES
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Proven 149,236,000 1.46 7,039,000 49,859,000 0.54 865,000
Total Probable 22,740,000 1.41 1,030,000 8,625,000 0.56 154,000
Total Reserves 171,976,000 1.46 8,069,000 58,484,000 0.54 1,019,000
TOTAL RESERVE OUNCES: 9,088,000
=========
</TABLE>
RECENT DEVELOPMENTS
The terms of employment and remuneration for TGL's monthly rated employees are
determined pursuant to a "condition of service" agreement between TGL and the
Ghana Mineworkers' Union (the "GMU"). The terms of the agreement (other than pay
levels) are negotiated every three years. Levels of pay are negotiated annually.
In July 1995, TGL and the GMU executed a new three year agreement. In May 1996,
TGL and the GMU reached agreement on 1996 pay levels which TGL estimates will
increase costs by approximately $2.1 million. As a result, cash costs of
production will increase by approximately $20 per ounce in the second quarter of
1996 (because of the retroactive
<PAGE> 23
effect of the increase) and by approximately $7 for each of the third and fourth
quarters of 1996.
As with all heap leach operations, there is a time lag between when ore is
placed on a heap, after mining and certain processing costs have been incurred,
and when gold from that ore is recovered and revenue realized. Therefore, cash
costs tend to rise during periods when significant heap leach pad development
occurs, such as during or after an expansion or any large increase in
production. During 1995, material continued to be added to new heaps which form
part of the Phase II expansion. Mining and certain processing costs were
incurred at this stage but, due to the time lag in leaching, recovery rates were
well below their theoretical maximum. This effect, coupled with a higher
stripping ratio and the mining of lower grade ore, resulted in a 23% increase in
the cash cost per ounce. The Company believes that the average cash costs per
ounce will be favorably affected by the economies of scale expected from the
Phase III expansion when the mine reaches a steady state of production
anticipated to be in 1998. As explained above, however, there will be periods in
the future when cash costs per ounce rise, primarily as a result of the
production lag inherent in starting new heaps and lifts.
TGL has further revised its 1996 gold production target to approximately 245,000
ounces from 255,000 ounces. TGL's production continues to be adversely affected
by (i) equipment availability problems which have led to a smaller tonnage of
ore being mined, crushed and placed on the heap leach pads and (ii) lower than
anticipated ore grade. As a result, production in the first half of 1996 is
targeted at approximately 110,000 ounces. TGL continues to estimate that second
half production will approximate 135,000 ounces as new and larger mining
equipment is phased in.
TIMBER BUSINESS
LIQUIDITY AND CAPITAL RESOURCES
The Company's Russian venture, Forest Starma, in which the Company has a 71%
direct interest and a 3.0% indirect interest is pursuing the development of
timber production under two long-term leases comprising 88,800 hectares
(approximately 219,500 acres) in the aggregate with annual cutting rights of
210,000 cubic meters awarded to the venture in the Khabarovsk Territory of
Russia. Forest Starma is in the process of securing additional cutting of
approximately 90,000 cubic meters per year. Forest Starma has developed a site,
including a jetty, from which it exports timber for markets in the Pacific Rim,
primarily Japan. Timber harvesting commenced in the first quarter of 1995 and
the first shipments of timber (acquired in the development phase) totaling
approximately 30,000 cubic meters occurred in the third and fourth quarters of
1995. Through the middle of April 1996, Forest Starma increased timber
inventories to approximately 50,000 cubic meters. In mid-April, shipments
commenced and by mid-May such shipments aggregated approximately 10,100 cubic
meters. The related revenues were used to offset development costs.
<PAGE> 24
Capital required by this venture is now projected at approximately $36.4 million
through the end of 1996 including $20.1 million in subordinated debt provided by
the Company and $9.3 million financed pursuant to a conditional loan commitment
already in place. The $9.3 million loan, which initially would be guaranteed by
the Company, would cease to be guaranteed when the project meets certain
production and cash flows tests. During 1996, the Company expects to provide
additional bridge financing as Forest Starma applies for up to $7.0 million in
third party financing. The Company has financed $2.0 million in the first
quarter of 1996 to Forest Starma.
Investments by the Company in Forest Starma aggregated $31.4 million (net of an
assumed value added tax recovery on imports) at March 31, 1996, $9.3 million of
which is considered bridge financing by the Company subject to repayment upon
receipt of third party loan proceeds. Forest Starma is expected to reach a
production level of approximately 220,000 cubic meters per year by the end of
1996, provided that Forest Starma is able to obtain the additional cutting
rights described above.
The Company has secured OPIC political risk insurance in amount of up to $47
million which would protect 90% of the Company's equity investment and loans and
a proportionate share of cumulative retained earnings.
In November 1995, Amgun-Forest and Udinskoye, the Company's other Russian timber
ventures, each executed a long-term lease (50 years) relating to timber
harvesting. The Amgun-Forest lease covers 264,700 hectares (approximately
654,000 acres) with annual cutting rights of 350,000 cubic meters while the
Udinskoye lease covers 156,600 hectares (approximately 387,000 acres) with
annual cutting rights of 200,000 cubic meters. Work on the feasibility study on
Amgun-Forest has commenced, and the Udinskoye feasibility study will be carried
out at a later date. The studies will form the basis for estimating capital
requirements for these projects. Preliminary estimates for these two projects
are that, prior to securing third-party financing, the Company will provide
funding of approximately $1.3 million in 1996.
GENERAL
The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining operations) decreased by $5 million in the first
quarter of 1996 to $28 million due to the Company's investing activities
including the building in progress in Russia, the various Russian timber
ventures, the Company's international financial service ventures and the
financing of dealer advances associated with sales of back-end load mutual fund
shares.
On February 28, 1995, the Company entered into an agreement with a commercial
bank providing for a $30 million unsecured line of credit. Advances under the
line bear interest, at the Company's option, at (a) the higher of the bank's
base lending rate or the federal funds rate plus 0.50%, (b) the London Interbank
Offered Rate ("LIBOR") plus 1.10%, or (c) at a money market rate set by the
bank. The line, which expires on May 31,
<PAGE> 25
1996, provides that the Company must pay additional interest to the bank at the
rate of 0.25% per annum of the unused portion of the line. On May 22, 1995, the
Company entered into a second agreement with the commercial bank providing for a
$10 million unsecured line of credit with substantially the same terms as the
first agreement including applicable interest rates and expiration date. This
second line was subsequently increased to $15 million on October 20, 1995, to
$30 million on December 20, 1995, to $40 million on February 27, 1996, and to
$50 million on April 15, 1996. At May 14, 1996, the Company had $71.0 million
outstanding under the lines.
The Company entered into a commitment letter agreement on February 29, 1996 with
the commercial bank for a new senior credit facility in the amount of $115
million. Such commitment is subject to the fulfillment of certain conditions and
expires on May 31, 1996. Under the proposed new facility, the Company can borrow
up to $35 million under a revolving credit agreement ("RCA") to finance dealer
advances relating to sales of back-end load shares of the Company's domestic
mutual funds. The RCA is subject to annual renewal by the Company and the
commercial bank. In the event the RCA is not renewed at maturity, it will
automatically convert to a five-year term loan. Advances under the RCA bear
interest, at the Company's option, at (a) the higher of the bank's base lending
rate or the federal funds rate plus 0.50% or (b) LIBOR plus 1.25%. In addition,
the Company can borrow up to $80 million for general corporate purposes and to
refinance existing debt. This loan is payable in full in five years from the
first drawdown. Advances under this loan bear interest, at the Company's option,
at (a) the higher of the bank's base lending rate or the federal funds rate plus
0.50% or (b) LIBOR plus the applicable margin, tied to the Company's financial
performance, of either 0.75%, 1.25% or 1.50% as defined under the commitment
letter. The senior credit facility provides that the Company must pay additional
interest to the bank at the rate of 0.375% per annum of the unused portion of
the facility and an annual arrangement fee of $35,000. The commitment fees are
approximately $0.7 million.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's plans and strategies for its
worldwide financial services and natural resources businesses, consists of
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects" and similar expressions are intended to identify
forward-looking statements. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements
include, but are not limited to, the following:
The Company derives a significant portion of its revenues from investment
management fees, underwriting and distribution fees and shareholder services
fees. Success in the investment management and mutual fund share distribution
businesses is substantially dependent on investment performance. Good
performance stimulates sales of shares and
<PAGE> 26
tends to keep redemptions low. Sales of shares generate higher management fees
and distribution fees (which are based on assets of the funds). Good performance
also attracts institutional accounts, Conversely, relatively poor performance
results in decreased sales and increased redemptions and the loss of
institutional accounts, with corresponding decreases in revenues to the Company.
Investment performance may also be affected by economic or market conditions
which are beyond the control of the Company.
The mutual fund industry is intensely competitive. Many organizations in this
industry are attempting to sell and service the same clients and customers, not
only with mutual fund investments but with other financial services products.
Some of the Company's competitors have more products and product lines and
substantially greater assets under management and financial resources.
As described above, the Company also offers a multi-class share structure. Under
such structure, the Company pays a commission on the sale but the investor does
not pay any sales charge unless it redeems before the expiration of the minimum
holding period, which ranges from three to six years in the case of Class B
Shares and which is one year in the case of Class C Shares. The Company's cash
flow and results of operations may be adversely affected by vigorous sales of
back-end load shares because its recovery of the cost of commissions paid up
front to dealers is spread over a period of years. During this period, the
Company bears the costs of financing and the risk of market decline.
The businesses of the Company and its financial services subsidiaries are
dependent upon their associations with the Pioneer Family of Mutual Funds with
which they have contractual relationships. In the event any of the management
contracts, underwriting contracts or service agreements were canceled or not
renewed pursuant to the terms thereof, the Company may be substantially
adversely affected.
The Securities and Exchange Commission has jurisdiction over registered
investment companies, registered investment advisers, broker-dealers and
transfer agents and, in the event of a violation of applicable rules or
regulations by the Company or its subsidiaries, may take action which could have
a serious effect on the Company.
Because a significant portion of the Company's revenues and net income are
derived almost entirely from the mining and sale of gold by TGL, the Company's
earnings are directly related to the price of gold. Gold prices have
historically fluctuated significantly and are affected by numerous factors,
including expectations for inflation, the strength of the U.S. dollar, global
and regional demand and political and economic conditions. If, as a result of a
decline in gold prices, the Company's revenues from gold sales were to fall
below cash costs of production, and to remain below its cash costs of production
for any substantial period, the Company could determine that it is not
economically feasible to TGL to continue commercial production.
<PAGE> 27
While an internationally recognized engineering firm audited and verified TGLs'
gold reserves in August 1995, and indicated that the reserves are estimated in
accordance with good engineering practices using current cost estimates, reserve
estimates are necessarily imprecise and depend to some extent on statistical
inferences drawn from limited drilling which may, on occasion, prove unreliable.
Reserve estimates are based upon a number of assumptions, including the price of
gold, cut-off grades and operating costs. Increases in operating costs, reduced
recovery rates or market price fluctuations of gold may render all or a portion
of such reserves uneconomic to mine.
TGL has recently discovered clay filled fault zones below and parallel to the
lowest ore zone at the Teberebie mine that create areas of slope instability
within the pit. This instability may result in failures of sections of the
footwall of the mine, especially during the rainy season. TGL has engaged a
geotechnical consultant to conduct a study to identify the extent of, and
address a solution to, this instability. It is possible that it may be necessary
to mine in a manner which results in more footwall waste being removed than
presently planned. This may result in an increase in the average stripping
ratio. It is not yet possible to determine the impact, if any, of slope
instability on operating costs. A significant increase in the average stripping
ratio, however, would increase production costs.
To attain projected levels of gold production, TGL must successfully complete
its Phase III expansion, and the new crushing facility to be constructed in
connection with Phase III, the South Plant, must become operational on time. The
Company believes that the construction schedule for Phase III is feasible. There
can, however, be no assurance that Phase III will in fact be completed or become
operational in accordance with TGL's current proposed construction schedule. As
a result, future gold production achieved by the Teberebie mine may fail to meet
current projections.
TGL is dependent upon a number of key supplies for its mining operations,
including electricity, explosives, diesel fuel, lubricants, tires and sodium
cyanide. There can be no assurance that a disruption in the supplies to TGL of
these key materials will not occur and adversely affect the Company's
operations.
The operations at TGL depend on the ability to recruit, train and retain
employees with the requisite skills to operate large-scale mining equipment.
Although TGL offers its employees an attractive compensation package,
competition for skilled labor is strong among the various mines in Ghana. There
can be no assurance that the Company's operations will not be adversely affected
by a shortage of skilled laborers or by an increase in the time required to
fully train new employees.
The Company has incurred considerable expenses in connection with the Forest
Starma timber project located in the Russian Far East. Although the Company has
commenced harvesting and has made shipments, Forest Starma is still in the
development stage. The commercial feasibility of Forest Starma is also
dependent upon a number of factors which are not within the control of the
Company, including, the price of timber, the weather and the strength of the
Japanese economy, the primary market for Forest Starma's timber.
<PAGE> 28
While the Company continues to believe that the project will achieve commercial
feasibility, there can be no assurance that it will do so.
The Company has a significant number of operations and investments located
outside of the U. S., including the gold mining operation at TGL and the timber
and investment operations in Russia. Foreign operations and investments may be
adversely affected by exchange controls, currency fluctuations, taxation,
political instability and laws or policies of the particular countries in which
the Company may have operations. There is no assurance that permits,
authorizations and agreements to implement plans at the Company's projects can
be obtained under conditions or within time frames that make such plans
economically feasible, that applicable laws or the governing political
authorities will not change or that such changes will not result in the
Company's having to incur material additional expenditures. While the Company is
currently applying for political risk insurance to cover its Russian investment
operations, there can be no assurance that it will be able to obtain such
coverage.
THE COMPANY BELIEVES THAT IT IS IN SOUND FINANCIAL CONDITION, THAT IT HAS
SUFFICIENT LIQUIDITY FROM OPERATIONS AND FINANCING FACILITIES TO COVER
SHORT-TERM COMMITMENTS AND CONTINGENCIES AND THAT IT HAS ADEQUATE CAPITAL
RESOURCES TO PROVIDE FOR LONG-TERM COMMITMENTS.
<PAGE> 29
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
11 Computation of earnings per share.
27 Financial Data Schedule.
(b) Reports filed on form 8-K. None.
SIGNATURES
----------
It is the opinion of management that the financial information contained in this
report reflects all adjustments necessary to a fair statement of results for the
period report, but such results are not necessarily indicative of results to be
expected for the year due to the effect that stock market fluctuations may have
on assets under management. All accounting policies have been applied
consistently with those of prior periods. Such financial information is subject
to year-end adjustments and annual audit by independent public accountants.
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.
THE PIONEER GROUP, INC.
/s/ William H. Keough
-----------------------
William H. Keough
Senior Vice President
Chief Financial Officer
and Treasurer
<PAGE> 30
EXHIBIT INDEX
-------------
11 Computation of earnings per share.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
THE PIONEER GROUP, INC.
<TABLE>
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMPUTATION FOR CONSOLIDATED
STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31,
- ------------------- ----------------------------
1996 1995
---- ----
<S> <C> <C>
NET INCOME (1) $ 5,114 $ 5,797
=========== ===========
SHARES
Weighted average number of
common shares outstanding 24,924,000 24,790,000
Dilutive effect of stock options and restricted stock
proceeds as common stock equivalents computed under
the treasury stock method using the average price
during the period 515,000 419,000
WEIGHTED AVERAGE NUMBER OF SHARES
outstanding as adjusted (1) 25,439,000 25,209,000
=========== ===========
EARNINGS PER SHARE (1) $ 0.20 $ 0.23
=========== ===========
<FN>
(1) These amounts agree with the related amounts in the Consolidated Statement
of Income.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<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> 1.00000
<CASH> 19,974
<SECURITIES> 8,681
<RECEIVABLES> 36,228
<ALLOWANCES> 0
<INVENTORY> 17,812
<CURRENT-ASSETS> 91,738
<PP&E> 158,486
<DEPRECIATION> (57,093)
<TOTAL-ASSETS> 351,422
<CURRENT-LIABILITIES> 117,009
<BONDS> 0
<COMMON> 2,496
0
0
<OTHER-SE> 151,540
<TOTAL-LIABILITY-AND-EQUITY> 351,422
<SALES> 0
<TOTAL-REVENUES> 56,096
<CGS> 0
<TOTAL-COSTS> 45,835
<OTHER-EXPENSES> 815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> 9,026
<INCOME-TAX> 3,912
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,114
<EPS-PRIMARY> 0.200
<EPS-DILUTED> 0.200
</TABLE>
