<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, 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.)
4300 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 October 29, 1997, there were outstanding 8,623,220 shares of the
Company's Class A Common Stock and 701,062 shares of Class B Common Stock.
<PAGE> 2
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATIONP
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations--Three Months Ended September 30, 1997 4
and 1996 and Nine Months Ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows--Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II--OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I --FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,248 $ 15,754
Accounts receivable, less allowance for doubtful accounts of $1,356 at
September 30, 1997 and $1,311 at December 31, 1996 42,837 25,053
Inventories 19,974 11,026
Prepaid expenses 2,668 1,807
--------- ---------
Total current assets 101,727 53,640
Property, plant and equipment:
Land 6,518 5,043
Buildings and improvements 30,417 20,956
Machinery and equipment 146,593 80,898
Cylinders and tanks 4,541 4,540
Construction in progress 26,407 12,321
--------- ---------
214,476 123,758
Less accumulated depreciation (28,327) (17,479)
--------- ---------
186,149 106,279
Other assets, net of accumulated amortization of $3,597 at September 30, 1997
and $1,631 at December 31, 1996 48,621 27,190
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $12,307 at September 30, 1997 and $8,027
at December 31, 1996 132,011 114,459
--------- ---------
Total assets $ 468,508 $ 301,568
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,181 $ 18,103
Accrued liabilities 27,175 23,859
Returnable deposits 3,287 3,238
Current portion of long-term debt 2,794 128
--------- ---------
Total current liabilities 61,437 45,328
Long-term debt 325,083 161,103
Returnable deposits 3,271 3,272
Accrued pension and other employee benefits 18,511 14,100
Other long-term liabilities 16,385 17,864
Commitments and contingencies
Preferred stock: $.01 par value, 55,000 shares, 55,000 authorized
issued and outstanding 5,500 --
Stockholders' equity:
Common stock:
Class A, $.01 par value, authorized 46,000 shares, issued and
outstanding 8,623 at September 30, 1997 and 8,459 at December 31, 1996 86 79
Class B, $.01 par value, authorized 4,000 shares, issued and outstanding
701 at September 30, 1997 and at December 31, 1996, convertible
share-for-share into Class A shares 7 7
Additional paid-in capital 54,720 53,853
Retained earnings (deficit)
(16,492) 5,962
--------- ---------
Total stockholders' equity 38,321 59,901
--------- ---------
Total liabilities and stockholders' equity $ 468,508 $ 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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $ 72,329 $ 55,969 $ 172,362 $ 159,082
Cost of sales 53,719 41,341 134,477 115,085
--------- --------- --------- ---------
Gross profit 18,610 14,628 37,885 43,997
Selling, general and administrative expense 9,235 8,301 25,411 23,147
--------- --------- --------- ---------
Operating income 9,375 6,327 12,474 20,850
Interest expense, net 6,962 4,691 17,102 13,908
Other income, net 452 398 879 491
--------- --------- --------- ---------
Income (loss) before taxes and extraordinary item 2,865 2,034 (3,749) 7,433
Income tax provision 2,147 1,248 46 4,400
--------- --------- --------- ---------
Income (loss) before extraordinary item 718 786 (3,795) 3,033
Extraordinary item from early extinguishment of
debt (net of income tax benefit of $12,439) -- -- (18,658) --
--------- --------- --------- ---------
Net income (loss) $ 718 $ 786 $ (22,453) $ 3,033
========= ========= ========= ==========
Per Share Data (1)
Primary:
Earnings (loss) before extraordinary item $ 0.08 $ 0.09 $ (0.41) $ 0.33
Extraordinary item, net of tax benefit -- -- (2.00) --
--------- --------- --------- ----------
Net income (loss) $ 0.08 $ 0.09 $ (2.41) $ 0.33
========= ========= ========= ==========
Fully diluted net income - third quarter 1997 only $ 0.07
=========
Average number of common shares outstanding:(1)
Included in primary share calculation 9,325 9,160 9,301 9,154
Included in fully diluted per share calculation 9,764
</TABLE>
(1) All share and per share information reflects the 7% stock dividend declared
December 9, 1996.
See notes to consolidated financial statements.
4
<PAGE> 5
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating activities:
Net income (loss) $ (22,453) $ 3,033
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item (net of tax) 18,658 --
Depreciation and amortization 16,650 14,266
Net change in deferred taxes (3,476) 3,805
Net effect of changes in operating assets and liabilities (net of
acquisitions) (Note 2) (1,424) 2,683
--------- ---------
Net cash flows from operating activities 7,955 23,787
Investing activities:
Acquisition of businesses (97,000) (7,031)
Capital expenditures (12,370) (13,205)
--------- ---------
Net cash flows used in investing activities (109,370) (20,236)
Financing activities:
Payments on long-term debt (162,353) (33)
Proceeds from long-term debt 300,000 --
Debt issuance and related costs (16,612) --
Issuance of Class A common stock 874 148
Net cash flows from financing activities 121,909 115
--------- ---------
Net increase in cash 20,494 3,666
Cash acquired in purchase -- 292
Cash at beginning of period 15,754 11,276
--------- ---------
Cash at end of period $ 36,248 $ 15,234
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet at September 30, 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 in the
opinion of management are necessary for a fair presentation. Operating results
for the first nine 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, except per share data, 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
stockholders of record on December 16, 1996. Common stock equivalents are not
significant for the three months ended September 30, 1996 and for the nine
months ended September 30, 1997 and September 30, 1996; accordingly, such items
were not used in the computation of net income (loss) per common share for the
stated periods.
ACQUISITION
On June 17, 1997, the Company consummated the acquisition of a chlor-alkali
production facility and related business located in Tacoma, Washington (the
"Tacoma Acquisition") from OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of
Occidental Chemical Corporation. Pursuant to the Asset Purchase Agreement, dated
as of May 14, 1997, the Company acquired substantially all of the assets and
properties used by OCC Tacoma in the chlor-alkali business at Tacoma,
Washington. The purchase price consisted of (i) $97,000, payable in cash; (ii)
55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per
share, of PCI, having a liquidation preference of $100 per share, and (iii) the
assumption of certain obligations related to the acquired chlor-alkali business.
The Tacoma Acquisition was accounted for in accordance with the purchase method
of accounting. The acquired goodwill of approximately $15,000 is being amortized
straight-line over 25 years. Results of operations of the acquired business have
been reflected in the Company's financial statements since June 17, 1997.
PRO FORMA FINANCIAL DATA
The following pro forma financial data presents the consolidated financial
results of operations as if the Tacoma 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 Tacoma
Acquisition actually been made as of such date.
6
<PAGE> 7
PRO FORMA COMBINED SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- -----------
<S> <C> <C>
Revenues $ 209,383 $ 232,653
Income (loss) before extraordinary item (737) 3,578
Extraordinary item, early extinguishment
of debt (net of income tax benefit of $12,439) (18,658) --
--------- ---------
Net income (loss) $ (19,395) $ 3,578
========= =========
Weighted average number of shares of common stock outstanding
9,301 9,154
Per Share Data:
Income (loss) before extraordinary item $ (0.08) $ 0.39
Extraordinary loss (2.00) --
--------- ---------
Net income (loss) $ (2.08) $ 0.39
========= =========
</TABLE>
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Accounts receivable $ (17,449) $ 3,939
Inventories (1,727) 122
Prepaid expenses 36 (369)
Other assets (3,549) (2,518)
Accounts payable 13,240 (3,185)
Accrued liabilities 6,743 4,230
Returnable deposits (129) 45
Other long-term liabilities 1,411 419
----------- -----------
Net change in operating accounts $ (1,424) $ 2,683
=========== ===========
</TABLE>
7
<PAGE> 8
Following is supplemental cash flow information:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- --------
<S> <C> <C>
Cash payments for:
Interest $ 17,458 $ 9,956
Income taxes 543 3,664
Acquisition of OCC Tacoma facility:
Cash paid for acquisition $ 97,000
Issuance of preferred stock 5,500
Liabilities assumed 2,955
--------
Fair value of assets acquired $105,455
========
Acquisition of T.C. Products, Inc.:
Cash paid for acquisition $ 5,459
Long-term debt issued 4,500
Liabilities assumed 3,994
----------
Fair value of assets acquired $ 13,953
==========
Acquisition of KWT, Inc.:
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 stockholders' equity of $3,805 for the nine months ended
September 30, 1996 due to the recognition of the net operating loss
carryforward.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials, supplies and parts $ 12,192 $ 10,610
Finished goods and work-in-process 12,032 4,349
Inventories under exchange agreements (4,250) (3,933)
-------- --------
$ 19,974 $ 11,026
======== ========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The manufacturing operations of the Company are subject to United States
federal, state and local laws and regulations relating to protection of the
environment, including those applicable to waste management, discharge of
pollutants into the air and water, cleanup liability from historical waste
disposal practices and employee health and safety. Each of the United States
federal environmental programs typically has a state counterpart. The state
environmental programs generally must be at least as stringent as the federal
requirements, and some state regulations are more onerous than the federal
requirements. Both federal and state environmental programs allow the imposition
of substantial civil and criminal penalties for noncompliance. Although the
Company believes that its operations are in general compliance with applicable
environmental laws and regulations, risks of substantial costs and liabilities
are inherent in chemical manufacturing operations, and there can be no assurance
that significant costs and liabilities will not be incurred. Moreover, it is
possible that other developments, such as new environmental laws and regulations
or stricter enforcement and cleanup policies, could results in substantial costs
and liabilities to the Company. The Company has accrued $11.9 million related to
expected future environmental restoration and remediation costs, computed on an
undiscounted basis. In the opinion of management, there is currently no material
estimable range of loss in excess of the amount recorded. However, it is
possible that new information about the sites for which the reserve has been
established, new technology or future developments could require the Company to
reassess its potential exposure related to environmental matters.
The Company relies on indemnification from the previous owners in
connection with certain environmental liabilities at its chlor-alkali plants and
other facilities. There can be no assurance, however, that such indemnification
arrangements will be
8
<PAGE> 9
adequate to protect the Company from environmental liabilities at these
sites or that such third parties will perform their obligations under the
respective indemnification arrangements, in which case the Company would be
required to incur significant expenses for environmental liabilities, which
would have a material adverse effect on the Company.
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.
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, 1997 and the results of operations of the Company for the three
months and nine months ended September 30, 1997 and 1996, respectively. The
following table sets forth certain operating data of the Company for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $ 72,329 $ 55,969 $ 172,362 $ 159,082
Cost of sales 53,719 41,341 134,477 115,085
--------- --------- --------- ---------
Gross profit 18,610 14,628 37,885 43,997
Selling, general and administrative expense 9,235 8,301 25,411 23,147
--------- --------- --------- ---------
Operating income 9,375 6,327 12,474 20,850
Interest expense, net 6,962 4,691 17,102 13,908
Other income, net 452 398 879 491
--------- --------- --------- ---------
Income (loss) before taxes and extraordinary item 2,865 2,034 (3,749) 7,433
Income tax provision 2,147 1,248 4,400
--------- --------- --------- ---------
Net income (loss) before extraordinary item 718 786 (3,795) 3,033
Extraordinary item -- -- (18,658) --
--------- --------- --------- ---------
Net income (loss) $ 718 $ 786 $ (22,453) $ 3,033
========= ========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues
Revenues increased by $13.3 million or approximately 8.3% to
$172.4 million for the nine months ended September 30, 1997. Revenues for
Pioneer Chlor Alkali Company, Inc. ("PCAC") increased $10.7 million or
approximately 9.7% in the first nine months of 1997 compared to the same period
a year ago. The increase in revenues was attributable to the additional sales
volumes from PCAC's Tacoma plant which was acquired on June 17, 1997. Partially
offsetting this increase were lower electrochemical unit ("ECU") pricing and
lower sales volumes from PCAC's Henderson and St. Gabriel plants. ECU prices
decreased by approximately 5%, which reflects a $54 per ton decrease in caustic
soda prices, partially offset by a $41 per ton increase in chlorine prices.
Caustic soda sales volume decreased 5% mainly due to lost revenues caused by
weather-related delays in Mississippi River barge shipments during the first
quarter of 1997 and a reduction in exchange activity. Production at Henderson
and St. Gabriel was also curtailed somewhat by the shortage of railcars
currently being experienced in the United States. Revenues for All-Pure Chemical
Co. ("All-Pure") increased 3% or $1.2 million in the first nine months of 1997
compared to the same period 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 third quarter of 1996, partially offset by lower overall sales
volumes and prices due to continuing competitive pressures on All-Pure's
products. Revenues for Kemwater North America Co. ("Kemwater") increased
approximately $1.6 million or 5.7% because KWT, Inc., which was acquired on
February 1, 1996, was included for the full nine months of 1997.
Cost of Sales
Cost of sales increased by $19.4 million or approximately 17% to $134.5
million for the nine months ended September 30, 1997. This increase was the
result of the acquisitions mentioned above, partially offset by lower cost of
sales for chlorine and caustic soda due to lower sales volumes from PCAC's
Henderson and St. Gabriel plants.
9
<PAGE> 10
Gross Profit
Gross profit margin decreased from 28% during the first nine months of 1996
to approximately 22% during the first nine months of 1997. This decrease was
primarily a result of lower ECU prices described above. In addition, an export
shipment of caustic soda during the third quarter of 1997, which had been
scheduled earlier in the year at the lower prices then prevailing, reduced
gross profit because it resulted in a loss.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $2.3 million or
9.8% to $25.4 million during the 1997 period primarily due to the inclusion of
those expenses related to KWT, Inc. and T.C. Products, Inc., additional
personnel hired in the first half of 1997 and an increase in accrued
employee profit sharing.
Interest Expense, Net
Interest expense increased by approximately $3.2 million to $17.1 million
in the first nine months of 1997 from $13.9 million in the first nine months of
1996. This increase was a result of the debt incurred for the Tacoma
Acquisition, partially offset by lower interest expense from refinancing $135.0
million 13 3/8% First Mortgage Notes with 9 1/4% Senior Notes.
Income (Loss) Before Taxes and Extraordinary Item
As a result of the above, income (loss) before income taxes and
extraordinary item decreased $11.2 million to a loss of $3.8 million for the
nine months ended September 30, 1997 from income of $7.4 million for the nine
months ended September 30, 1996.
Extraordinary Loss from Early Extinguishment of Debt
During the second quarter of 1997, the Company recognized an $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid on the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenues
Revenues increased by $16.4 million to $72.3 million for the three months
ended September 30, 1997. Revenues for PCAC increased $18.1 million or
approximately 50% in the third quarter of 1997 compared to the same period a
year ago. The increase in revenues was attributable to sales from the Tacoma
plant which was acquired June 17, 1997. In addition, caustic soda sales volume
increased due to an export shipment in September 1997. Partially offsetting
these increases in revenue was a decrease in were ECU prices of approximately
5%, which reflects a $52 per ton decrease in caustic soda prices, partially
offset by a $36 per ton increase in chlorine prices. Revenues for All-Pure
decreased 8% or $1.4 million in the third quarter of 1997 compared to the same
period a year ago. This decrease was due to the lower sales prices and sales
volumes caused by competitive market pressures. Revenues for Kemwater decreased
approximately 13% as significant competitive pressures in Kemwater's products
have resulted in lower sales volumes and prices.
Cost of Sales
Cost of sales increased by $12.4 million or almost 30% to $53.7 million
during the third quarter of 1997 compared to the year ago period. This increase
was the result of the acquisition mentioned above, along with somewhat higher
ECU manufacturing costs when compared to the same period a year ago.
Gross Profit
Gross profit margin remained basically unchanged at 26% during the third
quarter of 1997 compared to the year ago period. Higher sales volumes were
offset by lower ECU prices described above. In addition, an export shipment of
caustic soda during the third quarter of 1997, which had been scheduled earlier
in the year at the lower prices then prevailing, reduced gross profit because
it resulted in a loss.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $0.9 million or
11% to $9.2 million during the third quarter of 1997 compared to the third
quarter of 1996. This increase was primarily due to additional employee profit
sharing accrued in the third quarter of 1997 compared to the third quarter of
1996.
10
<PAGE> 11
Interest Expense
Interest expense increased by approximately $2.3 million to $7.0 million in
the third quarter of 1997 from $4.7 million in the third quarter of 1996. This
increase was a result of the debt incurred for the Tacoma Acquisition, partially
offset by lower interest expense from refinancing $135.0 million 13 3/8% First
Mortgage Notes with 9 1/4% Senior Notes.
Income (Loss) Before Taxes and Extraordinary Item
As a result of the above, income (loss) before income taxes and
extraordinary item increased $0.8 million to $2.9 million for the three months
ended September 30, 1997 from income of $2.0 million for the three months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On June 17, 1997, one of PCI's subsidiaries entered into a $35.0 million
revolving loan and letter of credit facility (subject to borrowing base
limitations that relate to the level of accounts receivable and inventory) (the
"Revolving Facility").
The Revolving Facility provides for revolving loans (the "Revolving Loans")
in an aggregate principal amount up to $35.0 million, of which up to $10.0
million will be available for the issuance of letters of credit. As of September
30, 1997, the Company had $2.8 million in letters of credit outstanding and had,
subject to certain restrictions (including borrowing base limitations), the
ability to draw up to $32.2 million of additional indebtedness. The Company had
no Revolving Loans outstanding at September 30, 1997.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the
Revolving 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 approximately $27.0 million will be payable on the Company's long-term debt.
The Company anticipates that capital expenditures for 1997, excluding
acquisitions, will be approximately $20.0 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 were to
draw upon the commitments under the Revolving 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.
As of September 22, 1997, the Company entered into an Asset Purchase
Agreement (the "Purchase Agreement") with Imperial Chemical Industries PLC
("ICI") and certain of its subsidiaries. Pursuant to the Purchase Agreement, the
Company will acquire substantially of the assets and properties used by ICI in
its North American chlor-alkali business. The purchase price consists of
approximately $235.6 million, payable in cash, and the assumption of certain
obligations related to the acquired chlor-alkali business. In conjunction with
this acquisition, the Company is currently engaged in a series of related
transactions (the "Financings") comprised of (i) the offering of $175.0 million
of new Senior Notes (the "Offering"), (ii) borrowings of $58.0 million in
term loans under a new senior secured term loan facility (the "Term
Facility") and (iii) the amendment of the existing senior revolving loan and
letter of credit facility to increase availability to $65.0 million (the
"Revolving Facility"). The Company expects the new credit facilities, consisting
of the Term Facility and the $65.0 million Revolving Facility, to be effective
at the closing of the Offering and the acquisition of the ICI business.
Net Cash Flows Provided by Operating Activities. During the first nine
months of 1997, the Company generated $8.0 million in cash from operating
activities compared to $23.8 million during the first nine months of 1996. The
decrease was primarily due to lower operating income and increased interest paid
during the period.
Net Cash Flows Used in Investing Activities. Cash used in investing
activities for the first nine months of 1997 was $109.4 million due to the
acquisition of the Tacoma plant and various capital expenditures related to
property, plant and equipment.
Net Cash Flows Provided by Financing Activities. There was $121.9 million
in cash provided by financing activities in the first nine months of 1997 from
the issuance of new debt associated with the acquisition of the Tacoma facility
and the refinancing of the Company's senior secured debt in the second quarter
of 1997.
11
<PAGE> 12
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 establishes new standards for computing and presenting earnings per
share. The Company is required to adopt the provisions of SFAS No. 128 for its
consolidated financial statements for the year ended December 31, 1997 and
subsequent periods. Upon adoption, the standard also requires the restatement of
all prior period earnings per share information presented. The adoption of SFAS
No. 128 is not expected to have a material effect on the Company's earnings per
share computations or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," (SFAS No.
131). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for reporting and
displaying of comprehensive income and its components. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. These two
statements have no effect on the Company's 1997 financial statements, but
management is currently evaluating what, if any, additional disclosures may be
required when these two statements are adopted for the first quarter of the year
ending December 31, 1998.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On September 22, 1997, the Company and two newly-formed subsidiaries of the
Company, PCI Chemicals Canada, Inc. ("PCI Canada") and PCI Carolina, Inc. ("PCI
Carolina"), entered into an Asset Purchase Agreement with Imperial Chemical
Industries PLC., ICI Canada Inc. ("ICI Canada") and ICI Americas, Inc. In
accordance with the terms of the agreement, PCI Canada and PCI Carolina will
purchase the forest products division of ICI Canada Inc. ("ICI Canada"),
consisting of certain assets located in Canada and the United States and used
for the manufacture and sale of chlor alkali and other industrial chemicals, for
approximately $235.6 million in cash. It is anticipated that the closing of the
transaction will occur during the fourth quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
--- -----------
2 Asset Purchase Agreement, dated as of September 22, 1997,
between PCI Chemicals Canada Inc., PCI Carolina, Inc. and
the Company and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries PLC.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On July 1, 1997, the Company filed a Current Report on Form
8-K dated June 17, 1997. The report disclosed under Item 2,
Acquisition or Disposition of Assets, that on June 17, 1997,
PCAC had acquired substantially all of the assets and
properties used by OCC Tacoma, Inc. in the chlor-alkali
business in Tacoma, Washington, including a chlor-alkali
production facility, and the source of consideration for the
acquisition was also disclosed. Filed with the report were
financial statements of the business acquired and pro forma
financial information.
13
<PAGE> 14
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 4, 1997 By: /s/ Philip J. Ablove
------------------------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
(Principal Financial Officer)
14
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