<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-9859
PIONEER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1215192
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4200 NATIONSBANK CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713) 225-3831
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 8, 1996, there were outstanding 7,905,813 shares of the
Company's Class A Common Stock and 655,199 shares of Class B Common Stock.
<PAGE> 2
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Consolidated Financial Statements
[ ] Consolidated Balance Sheets--September 30, 1996 and December 31, 1995 3
[ ] Consolidated Statements of Operations--Three Months Ended September
30, 1996 and 1995 and Nine Months Ended September 30, 1996 and 1995 5
[ ] Consolidated Statements of Cash Flows-- Nine Months Ended September
30, 1996 and 1995 6
[ ] Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
PART I --FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,234 $ 11,276
Accounts receivable, less allowance for doubtful
accounts of $1,528 at September 30, 1996 and
$1,424 at December 31, 1995 27,262 29,238
Inventories 14,820 13,004
Prepaid expenses 4,199 3,781
--------- ---------
Total current assets 61,515 57,299
Property, plant and equipment:
Land 5,043 1,711
Buildings and improvements 21,208 13,997
Machinery and equipment 76,802 67,587
Cylinders and tanks 4,541 4,503
Construction in progress 11,257 9,394
--------- ---------
118,851 97,192
Less accumulated depreciation (15,894) (7,795)
--------- ---------
102,957 89,397
Other assets, net of accumulated amortization of $2,308 at
September 30, 1996 and $1,168 at December 31, 1995 13,785 11,664
Excess cost over fair value of net assets acquired, net of
accumulated amortization of $6,759 at September 30,
1996 and $3,311 at December 31, 1995 115,856 108,940
--------- ---------
Total assets $ 294,113 $ 267,300
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,089 $ 18,793
Accrued liabilities 29,290 24,108
Returnable deposits 3,488 3,437
Current portion of long-term debt 128 --
-------- --------
Total current liabilities 50,995 46,338
13 3/8% Mortgage Notes due 2005 135,000 135,000
Seller notes 11,463 11,463
Notes payable 14,683 --
Returnable deposits 3,275 3,281
Accrued pension and other employee benefits 13,857 13,573
Other long-term liabilities 13,379 13,170
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock: $.01 par value, authorized 10,000,000
shares, none issued -- --
Common stock:
Class A, $.01 par value, authorized 46,000,000 shares,
issued and outstanding 7,905,813 at September 30,
1996 and 7,883,593 at December 31, 1995 79 79
Class B, $.01 par value, authorized 4,000,000 shares,
issued and outstanding 655,199 at September 30,
1996 and December 31, 1995, convertible share-for-
share into Class A shares 7 7
Additional paid-in capital 44,009 40,056
Retained earnings 7,366 4,333
-------- --------
Total stockholders' equity 51,461 44,475
-------- --------
Total liabilities and stockholders' equity $294,113 $267,300
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD
FROM
THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 1
SEPTEMBER 30, SEPTEMBER 30, THROUGH
------------------ ------------------ APRIL 20,
1996 1995 1996 1995 1995
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues $55,969 $59,248 $159,082 $95,653 $ 57,848
Costs and expenses:
Cost of sales 41,341 39,972 115,085 64,873 37,400
Cost of sales-acquisition related
inventory step up -- -- -- 1,671 --
Selling, general and administrative 8,301 8,446 23,147 14,187 7,047
Interest expense, net 4,691 4,923 13,908 8,735 1,665
------- ------- -------- ------- --------
Total costs and expenses 54,333 53,341 152,140 89,466 46,112
Other income, net 398 45 491 394 (115)
------- ------- -------- ------- --------
Income before income taxes and
extraordinary item 2,034 5,952 7,433 6,581 11,621
Provision for income taxes 1,248 2,509 4,400 3,137 4,809
------- ------- -------- ------- --------
Income before extraordinary item 786 3,443 3,033 3,444 6,812
Extraordinary expense (net of income
tax benefit of $2,140) -- -- -- -- (3,420)
------- ------- -------- ------- --------
Net income $ 786 $ 3,443 $ 3,033 $ 3,444 $ 3,392
======= ======= ======== ======= ========
Net income per share $ .09 $ .40 $ .35 $ .50
======= ======= ======== =======
Weighted average number of shares of
common stock outstanding 8,561 8,539 8,555 6,928
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD
FROM
NINE MONTHS ENDED JANUARY 1
SEPTEMBER 30, THROUGH
--------------------- APRIL 20,
1996 1995 1995
-------- --------- -------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,033 $ 3,444 $ 3,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,266 8,090 4,490
Write-off of previous finance costs -- 255 1,282
Gain on disposal of property, plant and equipment -- -- 13
Equity in earnings of Basic Investments, Inc. and Victory
Valley Land Company, L.P. -- -- (204)
Future tax effects -- -- (2,086)
Utilization of net operating loss carryforward ("NOL") 3,805 1,838 --
Changes in operating assets and liabilities (net of
purchases of Kemira Water Treatment, Inc. and T.C. Products,
Inc.):
Accounts receivable 3,939 (3,839) (3,570)
Inventories 122 1,254 (638)
Prepaid expenses (369) (865) 722
Other assets (2,518) (2,598) (1,342)
Accounts payable (3,185) (3,395) 4,899
Accrued liabilities 4,230 13,072 (3,784)
Returnable deposits 45 97 (259)
Other long-term liabilities 419 590 (304)
-------- --------- -------
Net cash provided by operating activities 23,787 17,943 2,611
-------- --------- -------
Investing activities:
Purchase of T.C. Products, Inc. (5,459) -- --
Purchase of Kemira Water Treatment, Inc. (1,572) -- --
Purchase of Predecessor Company -- (152,318) --
Purchases of property, plant and equipment (13,205) (7,221) (3,447)
Proceeds from the sale of property, plant and equipment -- -- 58
-------- --------- -------
Net cash used in investing activities (20,236) (159,539) (3,389)
-------- --------- -------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD
FROM
NINE MONTHS ENDED JANUARY 1
SEPTEMBER 30, THROUGH
--------------------- APRIL 20,
1996 1995 1995
-------- --------- ---------
<S> <C> <C> <C>
Financing activities:
Payments on revolving credit facility -- (27,500) --
Proceeds from borrowings on revolving credit facility -- 18,500 --
Payments on long-term debt (33) -- (103,971)
Proceeds from borrowings on long-term debt -- -- 106,000
Proceeds from borrowings on 13 3/8% First Mortgage Notes
due 2005 -- 135,000 --
Proceeds from issuance of common stock 148 21,037 --
Dividends paid on preferred stock and purchase stock put
warrant -- -- (2,341)
-------- --------- ---------
Net cash provided by (used in) financing activities 115 147,037 (312)
-------- --------- ---------
Net increase (decrease) in cash 3,666 5,441 (1,090)
Cash acquired in purchase 292 2,220 --
Cash at beginning of period 11,276 880 3,310
-------- --------- ---------
Cash at end of period $ 15,234 $ 8,541 $ 2,220
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,956 $ 32 $ 3,067
Income taxes 3,664 1,051 1,852
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD
FROM
NINE MONTHS ENDED JANUARY 1
SEPTEMBER 30, THROUGH
--------------------- APRIL 20,
1996 1995 1995
-------- --------- ---------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and financing activities:
The allocation of the purchase price of the Acquisition is summarized as
follows:
Cash paid for Acquisition $ 152,318
Seller notes issued 11,463
NOL benefit recognized 13,600
Liabilities assumed 90,596
---------
Fair value of assets acquired $ 267,977
=========
The allocation of the purchase price of Kemira Water
Treatment, Inc. is summarized as follows:
Cash paid for purchase $ 1,572
Long-term note issued to seller 8,017
Liabilities assumed 2,167
--------
Fair value of assets acquired $ 11,756
========
The allocation of the purchase price of T.C. Products, Inc. is
summarized as follows:
Cash paid for purchase $ 5,459
Long-term notes issued to sellers 4,500
Liabilities assumed 3,994
--------
Fair value of assets acquired $ 13,953
========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pioneer
Companies, Inc. ("PCI") (formerly GEV Corporation) and its subsidiaries
(collectively referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. All dollar
amounts in the tabulations in the notes to the financial statements are stated
in thousands of dollars unless otherwise indicated.
On April 20, 1995, the Company purchased Pioneer Americas, Inc. (the
"Predecessor Company") which, through its subsidiaries, manufactures chlorine,
caustic soda and related products used in a variety of applications including
water treatment, plastics, detergents and agricultural chemicals. Prior to
April 20, 1995 the Company had no other active operations. On April 20, 1995,
pursuant to a Stock Purchase Agreement, dated as of March 24, 1995 (the
"Acquisition Agreement"), by and among PCI, Pioneer Americas Acquisition Corp.
("PAAC"), and the holders of the outstanding common stock and other common
equity interests (the "Sellers") of the Predecessor Company, PAAC acquired all
of such stock and interests (the "Acquisition") for a purchase price of
approximately $176.5 million. The Acquisition has been accounted for as a
purchase transaction and, accordingly, the consolidated financial statements
subsequent to April 20, 1995 reflect the purchase price, including transaction
costs, allocated to tangible and intangible assets acquired and liabilities
assumed, based on their estimated fair values as of April 20, 1995.
On February 2, 1996, subsidiaries of the Company completed the purchase
of Kemira Water Treatment, Inc. ("KWT") including certain royalty and license
agreements, from a subsidiary of Kemira Oy of Finland ("Kemira") for a
purchase price of approximately $9.6 million, of which $1.6 million was paid
in cash and $8.0 million in a note issued to Kemira. The $8.0 million note
bears an interest rate equal to LIBOR plus 1.2%. The principal is payable in
four equal installments on March 31, 2000, March 31, 2001, March 31, 2002 and
December 31, 2002, and interest is due annually on December 31. KWT produces
specialty and commodity inorganic coagulants, including polyaluminum chloride,
aluminum sulfate, sodium aluminate and ferric sulfate, at its plant in
Savannah, Georgia for sale to the water treatment market in the eastern United
States and the Caribbean. The purchase of KWT has been accounted for as a
purchase transaction and, accordingly, the consolidated financial statements
subsequent to February 2, 1996 reflect the purchase price, including
transaction costs, allocated to tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values as of February 2,
1996, and include the results of KWT subsequent to such date.
Effective July 1, 1996, All-Pure Chemical Co. ("All-Pure"), an indirect
wholly-owned subsidiary of PCI, acquired T.C. Products, Inc. ("T.C. Products")
through the acquisition of its parent, T.C. Holdings, Inc., from its
shareholders. Consideration for the acquisition consisted of net cash payments
of $5,458,835 and All-Pure subordinated notes with an aggregate principal
amount of $4,500,000 due July 31, 2001, subject to prepayment. The Company's
existing cash balances were used to fund the cash portion of the purchase
price. T.C. Products is the sole operating asset of T.C. Holdings, Inc.
Following the acquisition T.C. Products continues to manufacture and package
bleach and related products at its plant in Tacoma, Washington. The
acquisition of T.C. Products has been accounted for as a purchase transaction
and, accordingly, the consolidated financial statements subsequent to July 1,
1996 reflect the purchase price, including transaction costs, allocated to
tangible and intangible assets acquired and liabilities assumed, based on
their estimated fair values as of July 1, 1996, and include the results of
T.C. Products subsequent to such date. Financial statements with respect to
the acquisition were filed with the Securities and Exchange Commission on Form
10-Q/A on October 11, 1996. Pro forma financial data for the three- and
nine-month periods ended September 30, 1996 is omitted as permitted by the
rules and regulations of the Securities and Exchange Commission.
Share and per share information has been retroactively restated to
reflect the one-for-four reverse stock split of PCI's Class A and Class B
Common Stock, effective April 27, 1995. Income (loss) per common share is
computed using the weighted average number of Class A and Class B common
shares outstanding during the period.
9
<PAGE> 10
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The consolidated balance sheet as of September 30, 1996, the statements
of operations for the three- and nine-month periods ending September 30, 1996
and 1995 and the statements of cash flows for the nine months ended September
30, 1996 and 1995 are unaudited and reflect all adjustments, consisting of
normal recurring items, which management considers necessary for a fair
presentation. Operating results for the first nine months of 1996 are not
necessarily indicative of results to be expected for the year ending December
31, 1996.
The consolidated balance sheet at December 31, 1995 is derived from the
December 31, 1995 audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting principles,
since certain information and disclosures normally included in the notes to the
financial statements have been condensed or omitted as permitted by the rules
and regulations of the Securities and Exchange Commission. The accompanying
unaudited financial statements should be read in conjunction with the financial
statements contained in the Annual Report on Form 10-K for the year ended
December 31, 1995.
PRO FORMA FINANCIAL DATA
The following pro forma financial data presents the consolidated
financial results of operations as if the Acquisition had occurred at the
beginning of the period presented and does not purport to be indicative of
either future results of operations or results that would have occurred had
the Acquisition actually been made as of such date.
PRO FORMA COMBINED SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
--------- ---------
ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
Revenues $ 159,082 $ 153,501
Income before extraordinary item 3,033 7,528
Extraordinary item, early extinguishment of debt
(net of income tax benefit of $2,140) -- 3,420
Net income 3,033 4,108
Weighted average number of shares of common stock outstanding 8,555 8,534
PER SHARE DATA:
Income before extraordinary item $ .35 $ .88
Extraordinary item -- (.40)
Net income .35 .48
</TABLE>
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials, supplies and parts $12,150 $ 9,849
Finished goods and work-in-process 2,670 3,155
------- -------
$14,820 $13,004
======= =======
</TABLE>
10
<PAGE> 11
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and potential claims
arising in the ordinary course of its business. In the opinion of management,
the Company has adequate legal defenses and/or insurance coverage with respect
to these matters and management does not believe that they will materially
affect the Company's operations or financial position.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and the notes thereto.
This item will discuss and analyze the financial condition of the Company
at September 30, 1996 and the results of operations of the Company for the
three months and nine months ended September 30, 1996 in comparison with the
combined operations of the Company and the Predecessor Company for the
comparable 1995 periods. The following table sets forth certain operating data
of the Company and the Predecessor Company for the periods indicated. For
comparative purposes the Company's results of operations for the nine months
ended September 30, 1995 include the Predecessor Company's operating results
from January 1, 1995 through April 20, 1995. The Predecessor Company's
operating results for the period exclude $1.0 million of transaction costs
related to the Acquisition. The Company believes that this provides a
meaningful basis for comparison.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1996 1995 1996 1995(1)
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues $55,969 $59,248 $159,082 $153,501
Cost of sales 41,341 39,972 115,085 102,273
Cost of sales-acquisition related inventory step up -- -- -- 1,671
Selling, general and administrative expenses 8,301 8,446 23,147 21,234
Interest expense, net 4,691 4,923 13,908 10,400
Other income, net 398 45 491 1,251
------- ------- -------- --------
Income before income taxes and extraordinary item 2,034 5,952 7,433 19,174
Provision for income taxes 1,248 2,509 4,400 7,946
------- ------- -------- --------
Net income before extraordinary item 786 3,443 3,033 11,228
Extraordinary expense (net of income tax benefit of
$2,140) -- -- -- 3,420
------- ------- -------- --------
Net income $ 786 $ 3,443 $ 3,033 $ 7,808
======= ======= ======== ========
</TABLE>
(1) Includes Predecessor Company from January 1, 1995 through April 20, 1995
12
<PAGE> 13
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues
Revenues increased by $5.6 million or 4% to $159.1 million for the nine
months ended September 30, 1996, principally as a result of revenues of
acquired companies offsetting declines at the water treatment subsidiaries and
higher chlor-alkali volumes offset by lower electrochemical unit ("ECU")
prices. The average ECU price in the first nine months of 1996 decreased 4%
from the first nine months of 1995 because a decrease in prices for caustic
soda exceeded the increase in prices for chlorine.
Cost of Sales
Cost of sales increased by $11.1 million or 11% to $115.1 million for the
nine months ended September 30, 1996 because of the inclusion of acquired
companies. This increase is also attributable to higher volumes of ECUs sold
and higher raw material prices, particularly electrolytic power which
increased due to substantially higher natural gas prices, a major component of
power costs at one plant. The combination of lower ECU prices and higher raw
material costs were the principal factors that resulted in a reduction of the
gross profit margin in the 1996 period to 27.7% from 32.3%.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $1.9 million or
9% to $23.1 million during the 1996 period primarily due to increased goodwill
amortization resulting from the Acquisition, additional accrued compensation
pursuant to the Company's incentive compensation program and selling, general
and administrative expenses of acquired companies.
Interest Expense, Net
Interest expense during the first nine months of 1996 increased to $13.9
million from $10.4 million for the 1995 period due to indebtedness incurred as
a result of the Acquisition and in connection with the acquisitions during the
1996 period.
Other Income, Net
Other income, net was $0.8 million lower in the first nine months of 1996
due to insurance proceeds recognized in the 1995 period.
Income Before Income Taxes and Extraordinary Item
As a result of the above, net income before income taxes and extraordinary
item decreased $11.8 million to $7.4 million for the nine months ended September
30, 1996 from $19.2 million for the nine months ended September 30, 1995.
Provision for Income Taxes
Provision for income taxes was $4.4 million in 1996 as compared to $7.9
million in 1995 due to lower pre-tax income. Taxable income is higher than
book income due to the non-deductibility of amortization of the excess cost
over the fair value of the net assets acquired. A provision for income taxes
is recorded on the income statement; however, federal income taxes payable are
reduced due to the utilization of the net operating loss carryforward,
resulting in additional paid-in capital.
Extraordinary Expense
An extraordinary expense of $3.4 million net of an income tax benefit of
$2.1 million recorded during the first nine months of 1995 was due to costs
incurred, and previously capitalized costs written off, pertaining to debt
refinanced by the Predecessor Company in 1995 prior to the Acquisition.
13
<PAGE> 14
RESULTS OF OPERATIONS--(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues
Revenues decreased by $3.3 million or 6% to $56.0 million for the three
months ended September 30, 1996, despite the inclusion of revenues of
businesses acquired after September 30, 1995. This decrease resulted from
decreases at the water treatment subsidiaries and lower chlor-alkali volumes
offset to some extent by higher ECU prices. The average ECU price for the
three months ended September 30, 1996 increased 7% from the three months ended
September 30, 1995 as the increase in chlorine prices more than offset the
decrease in caustic soda prices.
Cost of Sales
Cost of sales increased by $1.4 million or 3% to $41.3 million for the
three months ended September 30, 1996. This increase is attributable to the
inclusion of costs of the acquired companies, higher volumes sold, and higher
raw material prices, particularly electrolytic power which increased due to
substantially higher natural gas prices.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased slightly despite
the inclusion of acquired companies principally because of a greater incentive
plan accrual in the 1995 period.
Interest Expense, Net
Interest expense during the 1996 period decreased somewhat despite more
outstanding debt from the acquisitions as there was a step down in interest
rates on the 13 3/8% First Mortgage Notes that occurred after September 30,
1995.
Income Before Income Taxes and Extraordinary Item
As a result of the above, net income before income taxes and extraordinary
item decreased $4.0 million to $2.0 million for the three months ended September
30, 1996 from $6.0 million for the three months ended September 30, 1995.
Provision for Income Taxes
Provision for income taxes was $1.2 million in 1996 as compared to $2.5
million in 1995 due to lower pre-tax income. Taxable income is higher than
book income due to the non-deductibility of amortization of the excess cost
over the fair value of the net assets acquired. A provision is recorded on the
income statement; however, federal income taxes payable are reduced due to the
utilization of the net operating loss carryforward resulting in additional
paid-in capital.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred substantial indebtedness in connection with the
Acquisition, the transaction with Kemira and the acquisition of T.C. Products.
As of September 30, 1996, the Company had outstanding indebtedness of
approximately $161.1 million. The Company incurred $8.0 million of term debt
concurrently with the acquisition of KWT, with principal payments due at
various times beginning March 31, 2000 and with a final payment due December
31, 2002. The Company incurred an additional $4.5 million of term debt
concurrently with the acquisition of T.C. Products, with principal payments
due July 31, 2001, subject to prepayment.
The Company has an available Credit Facility which provides a $30 million
revolving line of credit, subject to borrowing base limitations that relate to
the level of accounts receivable and inventory. As of September 30, 1996, the
Company had $2.9 million of letters of credit outstanding and had, subject to
certain restrictions (including borrowing base limitations), the ability to
draw up to $18.1 million of additional secured indebtedness under the Credit
Facility.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the
Credit Facility, will be adequate to make the required payments of principal
and interest on outstanding indebtedness, as well as to fund its foreseeable
capital expenditures and working capital requirements. Annualized cash
interest of $19.8 million will be payable on the Company's long-term debt. To
the extent that the Company were to draw upon the commitments under the Credit
Facility due to adverse business conditions or to finance acquisitions or for
other corporate purposes, the Company's aggregate interest expense would be
increased.
The Company anticipates that capital expenditures for 1996, excluding
acquisitions, will be approximately $16.0 million, including approximately
$3.4 million for environmental compliance matters. The Company believes that
forecasted capital expenditures will permit it to maintain its facilities on a
basis competitive within the industry through improved efficiency and
throughput and continuation of high operating rates.
The Company's belief that it will generate sufficient cash flow for its
requirements is based, among other things, on the assumptions that: (i) the
Company's cash flow will be positive as a result of the continuing operating
profitability of its business; (ii) the Company will invest in working capital
in accordance with prior practices; and (iii) the Company will not incur any
material capital expenditures in excess of its business plan.
Net Cash Provided by Operating Activities. During the first nine months
of 1996, the Company generated $23.8 million in cash from operating activities
from profitability, depreciation, the utilization of the NOL and a decrease in
working capital (excluding the effects of the purchases of KWT and T.C.
Products).
Net Cash Used in Investing Activities. Cash used in investing activities
for the first nine months of 1996 was $20.2 million, primarily due to the
purchases of KWT and T.C. Products by the Company and capital expenditures
related to property, plant and equipment.
Net Cash Provided by (Used in) Financing Activities. There was $0.1
million in cash provided by financing activities in the first nine months of
1996 from the issuance of common stock. The Company obtained approximately
$147.0 million in cash through borrowings and the issuance of common stock
from the Acquisition offset by the payment of dividends on Preferred Stock
during the first nine months of 1995.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIONEER COMPANIES, INC.
November 13, 1996 By: /s/ Philip J. Ablove
--------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,234
<SECURITIES> 0
<RECEIVABLES> 27,262
<ALLOWANCES> 1,528
<INVENTORY> 14,820
<CURRENT-ASSETS> 61,515
<PP&E> 118,851
<DEPRECIATION> (15,894)
<TOTAL-ASSETS> 294,113
<CURRENT-LIABILITIES> 50,995
<BONDS> 161,146
<COMMON> 86
0
0
<OTHER-SE> 51,375
<TOTAL-LIABILITY-AND-EQUITY> 294,113
<SALES> 159,082
<TOTAL-REVENUES> 159,082
<CGS> 115,085
<TOTAL-COSTS> 115,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 13,908
<INCOME-PRETAX> 7,433
<INCOME-TAX> 4,400
<INCOME-CONTINUING> 3,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,033
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
