<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 MARCH 31, 1997
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 May 2, 1997, there were outstanding 8,622,380 shares of the Company's
Class A Common Stock and 701,062 shares of Class B Common Stock.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets--March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations--Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows--Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II--OTHER INFORMATION
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
PART I --FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,064 $ 15,754
Accounts receivable, less allowance for doubtful accounts of $1,440 at
March 31, 1997 and $1,311 at December 31, 1996 24,123 25,053
Inventories 13,173 11,026
Prepaid expenses 1,291 1,807
--------- ---------
Total current assets 54,651 53,640
Property, plant and equipment:
Land 5,043 5,043
Buildings and improvements 21,112 20,956
Machinery and equipment 82,405 80,898
Cylinders and tanks 4,583 4,540
Construction in progress 12,960 12,321
--------- ---------
126,103 123,758
Less accumulated depreciation (20,368) (17,479)
--------- ---------
105,735 106,279
Other assets, net of accumulated amortization of $3,486 at March 31, 1997
and $1,631 at December 31, 1996 26,763 27,190
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $9,292 at March 31, 1997 and $8,027 at December 31, 1996 113,193 114,459
--------- ---------
Total assets $ 300,342 $ 301,568
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,587 $ 18,103
Accrued liabilities 24,921 23,859
Returnable deposits 3,175 3,238
Current portion of long-term debt 128 128
--------- ---------
Total current liabilities 45,811 45,328
Long-term debt 161,071 161,103
Returnable deposits 3,272 3,272
Accrued pension and other employee benefits 14,555 14,100
Other long-term liabilities 17,312 17,864
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value, authorized 10,000 shares, none issued
Common stock:
Class A, $.01 par value, authorized 46,000 shares, issued and
outstanding 8,623 at March 31, 1997 and 7,906 at December 31, 1996 86 79
Class B, $.01 par value, authorized 4,000 shares, issued and outstanding
701 at March 31, 1997 and 655 at December 31, 1996, convertible
share-for-share into Class A shares 7 7
Additional paid-in capital 54,720 53,853
Retained earnings 3,508 5,962
--------- ---------
Total stockholders' equity 58,321 59,901
--------- ---------
Total liabilities and stockholders' equity $ 300,342 $ 301,568
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues $ 46,046 $ 48,896
Cost of sales 36,339 34,752
-------- --------
Gross profit 9,707 14,144
Selling, general and administrative expense 8,405 6,968
-------- --------
Operating income 1,302 7,176
Interest expense, net 4,774 4,462
Other income, net 229 86
-------- --------
Income (loss) before taxes (3,243) 2,800
Income tax provision (benefit) (789) 1,645
-------- --------
Net income (loss) $ (2,454) $ 1,155
======== ========
Net income (loss) per share $ (0.27) $ 0.13
======== ========
Weighted average number of shares of common stock outstanding 9,252 9,142
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) $ (2,454) $ 1,155
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,904 4,568
Net change in deferred taxes (438) 1,425
Net effect of changes in operating assets and liabilities (net of
acquisitions) (181) (825)
-------- --------
Net cash flows from operating activities 1,831 6,323
-------- --------
Investing activities:
Acquisition of businesses -- (1,572)
Capital expenditures (2,363) (5,114)
-------- --------
Net cash flows from investing activities (2,363) (6,686)
-------- --------
Financing activities:
Payments on long-term debt (32) --
Issuance of Class A common stock 874 --
-------- --------
Net cash flows from financing activities 842 --
-------- --------
Net increase (decrease) in cash 310 (363)
Cash acquired in purchase -- 69
Cash at beginning of period 15,754 11,276
-------- --------
Cash at end of period $ 16,064 $ 10,982
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet at March 31, 1997 and the consolidated
statements of operations and cash flows for all periods presented are unaudited
and reflect all adjustments, consisting of normal recurring items, which
management considers necessary for a fair presentation. Operating results for
the first three months of 1997 are not necessarily indicative of results to be
expected for the year ending December 31, 1997. The consolidated financial
statements include the accounts of Pioneer Companies, Inc. ("PCI") 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 consolidated
financial statements are stated in thousands of dollars unless otherwise
indicated.
The consolidated balance sheet at December 31, 1996 is derived from the
December 31, 1996 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, 1996.
Income (loss) per common share is computed using the weighted average
number of common shares outstanding during the period, after giving retroactive
effect to a 7% stock dividend on Class A and Class B Common Stock to
shareholders of record on December 16, 1996. Common stock equivalents are not
significant; accordingly, such items were not used in the computation of net
income (loss) per common share.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Accounts receivable $ 930 $ 2,410
Inventories (2,147) (490)
Prepaid expenses 516 1,733
Other assets 61 441
Accounts payable (516) (8,891)
Accrued liabilities 1,135 3,728
Returnable deposits (63) (117)
Other long-term liabilities (97) 361
------------ -----------
Net change in operating accounts $ (181) $ (825)
============ ===========
</TABLE>
Following is supplemental cash information:
<TABLE>
Three Months Ended
March 31,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 835 $ 232
Income taxes 138 2,150
Acquisition of KWT, Inc. during the period:
Cash paid for acquisition $ 1,572
Long-term debt issued 8,017
Liabilities assumed 2,167
---------
Fair value of assets acquired $ 11,756
=========
</TABLE>
Other non-cash items included in the consolidated financial statements
include an increase in shareholder's equity of $1.4 million for the three
months ended March 31, 1996 due to the recognition of the net operating loss
carryforward.
6
<PAGE> 7
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials, supplies and parts $ 9,884 $ 10,610
Finished goods and work-in-process 6,714 4,349
Inventories under exchange agreements (3,425) (3,933)
-------- --------
$ 13,173 $ 11,026
======== ========
</TABLE>
4. 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.
7
<PAGE> 8
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 March 31, 1997 and the results of operations of the Company for the three
months ended March 31, 1997 and 1996. The following table sets forth certain
operating data of the Company for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues $ 46,046 $ 48,896
Cost of sales 36,339 34,752
-------- --------
Gross profit 9,707 14,144
Selling, general and administrative expense 8,405 6,968
-------- --------
Operating income 1,302 7,176
Interest expense, net 4,774 4,462
Other income, net 229 86
-------- --------
Income (loss) before taxes (3,243) 2,800
Income tax provision (benefit) (789) 1,645
-------- --------
Net income (loss) $ (2,454) $ 1,155
======== ========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues
Revenues decreased by $2.9 million or approximately 6% to $46.0 million
for the three months ended March 31, 1997. Electrochemical unit ("ECU") prices
decreased approximately 3% while caustic soda and chlorine sales volumes
decreased by 21% and 3%, respectively. The decrease in caustic soda sales was
due to weather-related delays in Mississippi River barge shipments. Revenues
for All-Pure Chemical Co. ("All-Pure") increased 13% or $1.2 million in the
first quarter of 1997 compared to the same quarter a year ago. This increase
was due to the revenues associated with the acquisition of T.C. Products, Inc.
which the Company acquired in the second quarter of 1996. Revenues for Kemwater
North America Co. ("Kemwater") increased approximately 11% as the February 1,
1996 acquisition of KWT, Inc. resulted in three full months of revenue during
the first quarter of 1997.
Cost of Sales
Cost of sales increased by $1.6 million or almost 5% to $36.3 million for
the three months ended March 31, 1997. This increase was the result of the
acquisitions mentioned above, partially offset by lower cost of sales for
caustic soda and chlorine due to lower sales volumes.
Gross Profit
Gross profit margin decreased from 29% during the first quarter of 1996 to
approximately 21% during the first quarter of 1997. This decrease was a result
of lower ECU prices described above along with somewhat higher ECU
manufacturing costs.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $1.4 million or
21% to $8.4 million during the 1997 period primarily due to the related costs
associated with the acquisition of KWT, Inc. and T.C. Products, Inc.
Income (Loss) Before Taxes
As a result of the above, income (loss) before income taxes decreased $6.0
million to a loss of $3.2 million for the three months ended March 31, 1997
from income of $2.8 million for the three months ended March 31, 1996.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
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 March 31, 1997, the
Company had $5.2 million of letters of credit outstanding and had, subject to
certain restrictions (including borrowing base limitations), the ability to
draw up to $14.0 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. The Company
anticipates that capital expenditures for 1997, excluding acquisitions, will be
approximately $16.0 million, including approximately $4.4 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. To the extent that the Company was 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'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.
On December 11, 1996, the Company announced that it had initiated
discussions with Occidental Chemical Corporation ("OxyChem") regarding the
proposed acquisition by the Company of OxyChem's Tacoma, Washington
chlor-alkali facility (the "Tacoma Facility"). If agreement with OxyChem on
the terms of the transaction can be reached, the Company expects that the
securing of required financing and completion of the transaction could occur
during the first half of 1997. The Tacoma Facility would be the Company's
largest plant.
Net Cash Flows from Operating Activities. During the first three months of
1997, the Company generated $1.8 million in cash from operating activities
mainly due to depreciation and amortization, partially offset by a net loss and
a decrease in working capital.
Net Cash Flows from Investing Activities. Cash used in investing
activities for the first three months of 1997 was $2.4 million due to capital
expenditures related to property, plant and equipment.
Net Cash Flows from Financing Activities. There was $0.8 million in cash
provided by financing activities in the first three months of 1997 from the
issuance of common stock.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities
The Company and Michael J. Ferris entered into a Stock Purchase
Agreement dated January 4, 1997, in connection with Mr. Ferris' employment as
President and Chief Executive Officer of the Company. In accordance with the
terms of the Agreement, on February 13, 1997, the Company sold 150,000 shares
of the Company's Class A Common Stock to Mr. Ferris for $5.346 per share, or
$801,900 in the aggregate. The price paid was the average of the closing sale
prices of the Common Stock as reported on the NASDAQ National Market System on
the days during which the Common Stock was traded during
the thirty consecutive trading days immediately preceding the date of the
Agreement. The shares were sold to Mr. Ferris in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933.
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 March 31, 1997.
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.
May 13, 1997 By: /s/ Philip J. Ablove
--------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,064
<SECURITIES> 0
<RECEIVABLES> 25,563
<ALLOWANCES> (1,440)
<INVENTORY> 13,173
<CURRENT-ASSETS> 54,651
<PP&E> 126,103
<DEPRECIATION> (20,368)
<TOTAL-ASSETS> 300,342
<CURRENT-LIABILITIES> 45,811
<BONDS> 161,071
0
0
<COMMON> 93
<OTHER-SE> 58,228
<TOTAL-LIABILITY-AND-EQUITY> 300,342
<SALES> 46,046
<TOTAL-REVENUES> 46,046
<CGS> 36,339
<TOTAL-COSTS> 36,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,774
<INCOME-PRETAX> (3,243)
<INCOME-TAX> (789)
<INCOME-CONTINUING> (3,243)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,243)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
