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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 JUNE 30, 1999
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 BANK OF AMERICA CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713) 570-3200
(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 August 9, 1999, there were outstanding 9,959,013 shares of the
Company's Class A Common Stock and 802,645 shares of Class B Common Stock.
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TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
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Page
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations--Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows--Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
Certain statements in this Form 10-Q regarding future expectations of the
Company's business and the Company's results of operations may be regarded as
"forward looking statements" within the meaning of the Securities Litigation
Reform Act. Such statements are subject to various risks, including the
Company's high financial leverage, the cyclical nature of the markets for many
of the Company's products and raw materials and other risks. Actual outcomes
may vary materially.
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PART I -- FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,366 $ 53,822
Accounts receivable, less allowance for doubtful accounts of $2,845 at
June 30, 1999 and $3,122 at December 31, 1998 41,392 46,469
Inventories 28,535 26,556
Prepaid expenses 6,324 6,311
--------- ---------
Total current assets 89,617 133,158
Property, plant and equipment:
Land 10,622 10,727
Buildings and improvements 62,756 63,455
Machinery and equipment 315,807 312,736
Construction in progress 35,836 28,357
--------- ---------
425,021 415,275
Less accumulated depreciation (92,313) (76,268)
--------- ---------
332,708 339,007
Other assets, net of accumulated amortization of $11,767 at June 30, 1999
and $8,443 at December 31, 1998 69,140 57,392
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $27,899 at June 30, 1999 and $23,271 at December 31, 1998 197,257 201,885
--------- ---------
Total assets $ 688,722 $ 731,442
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable $ 32,337 $ 32,288
Accrued liabilities 27,818 33,483
Current portion of long-term debt 2,707 2,684
--------- ---------
Total current liabilities 62,862 68,455
Long-term debt, less current portion 582,811 584,168
Accrued pension and other employee benefits 14,463 25,836
Other long-term liabilities 23,785 23,930
Commitments and contingencies
Redeemable preferred stock: $.01 par value, authorized 10,000 shares,
55 issued and outstanding 5,500 5,500
Stockholders' equity (deficiency in assets):
Common stock:
Class A, $.01 par value, authorized 46,000 shares, issued and
outstanding: 9,959 at June 30, 1999 and 9,927 at December 31, 1998 100 99
Class B, $.01 par value, authorized 4,000 shares, issued and outstanding:
803 at June 30, 1999 and December 31, 1998, convertible
share-for-share into Class A shares 8 8
Additional paid-in capital 55,183 55,055
Retained deficit (55,990) (31,609)
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Total stockholders' equity (deficiency in assets) (699) 23,553
--------- ---------
Total liabilities and stockholders' equity (deficiency in assets) $ 688,722 $ 731,442
========= =========
</TABLE>
See notes to consolidated financial statements.
3
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PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues $ 69,030 $ 102,939 $ 139,979 $ 204,264
Cost of sales 71,430 77,914 127,700 149,888
-------- --------- --------- ---------
Gross profit (loss) (2,400) 25,025 12,279 54,376
Selling, general and administrative expenses 12,222 13,968 22,133 28,054
Unusual charges -- 507 -- 507
-------- --------- --------- ---------
Operating income (loss) (14,622) 10,550 (9,854) 25,815
Interest expense, net (12,671) (12,194) (24,996) (25,108)
Other income (expense), net 46 (326) (950) 2,762
-------- --------- --------- ---------
Income (loss) before taxes (27,247) (1,970) (35,800) 3,469
Income tax provision (benefit) (8,899) (1,032) (11,419) 1,631
-------- --------- --------- ---------
Net income (loss) $(18,348) $ (938) $ (24,381) $ 1,838
======== ========= ========= =========
Per Share Information:
Basic $ (1.70) $ (0.09) $ (2.27) $ 0.17
Diluted $ (1.70) $ (0.09) $ (2.27) $ 0.16
Weighted average number of common shares outstanding:
Basic 10,762 10,701 10,760 10,692
Diluted 10,762 10,701 10,760 11,828
</TABLE>
See notes to consolidated financial statements.
4
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PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
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SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
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Operating activities:
Net income (loss) $(24,381) $ 1,838
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 26,576 24,631
Net change in deferred taxes (11,782) 1,114
Reduction in post-retirement medical expense (12,530) --
Loss on disposals of assets 1,061 --
Foreign exchange loss (769) 597
Net effect of changes in operating assets and liabilities (2,989) (12,804)
-------- --------
Net cash flows from operating activities (24,814) 15,376
-------- --------
Investing activities:
Capital expenditures (16,704) (13,624)
Proceeds received from disposals of assets 1,145 --
-------- --------
Net cash flows from investing activities (15,559) (13,624)
-------- --------
Financing activities:
Payments on long-term debt (1,334) (1,308)
Other 129 244
-------- --------
Net cash flows from financing activities (1,205) (1,064)
-------- --------
Effect of exchange rate changes on cash 1,122 (756)
-------- --------
Net decrease in cash (40,456) (68)
Cash at beginning of period 53,822 51,887
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Cash at end of period $ 13,366 $ 51,819
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet at June 30, 1999 and the consolidated
statements of operations and cash flows for the 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 six months of 1999 are not necessarily indicative of results to be
expected for the year ending December 31, 1999. 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, 1998 is derived from the
December 31, 1998 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, 1998.
Net income (loss) per common share is computed using the weighted average
number of common shares outstanding during the period. 1998 per share
information has been computed after giving retroactive effect to a 7% stock
dividend on Class A and Class B Common Stock to stockholders of record in
December 1998.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities are as follows:
<TABLE>
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SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
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<S> <C> <C>
Accounts receivable $ 5,836 $ 7,808
Inventories (2,036) (3,523)
Prepaid expenses 901 (15)
Other assets (488) (3,916)
Accounts payable (598) (16,706)
Accrued liabilities (6,251) 310
Other long-term liabilities (353) 3,238
------- --------
Net change in operating assets and liabilities $(2,989) $(12,804)
======= ========
</TABLE>
Following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
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<S> <C> <C>
Cash payments for:
Interest $26,067 $25,708
Income taxes 168 128
</TABLE>
Non-cash investing activity:
In March 1999, the Company's subsidiary, Kemwater North America Company,
sold certain fixed assets. Proceeds received included cash plus a $2.5 million
note receivable.
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3. INVENTORIES
Inventories consist of the following:
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JUNE 30, DECEMBER 31,
1999 1998
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Raw materials, supplies and parts $17,657 $17,210
Finished goods and work-in-process 8,257 9,045
Inventories under exchange agreements 2,621 301
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$28,535 $26,556
======= =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company and its operations are subject to extensive United States and
Canadian federal, state, provincial and local laws, regulations, rules and
ordinances relating to pollution, the protection of the environment and the
release or disposal of regulated materials. The operation of any chemical
manufacturing plant and the distribution of chemical products entail certain
obligations under current environmental laws. Present or future laws may affect
the Company's capital and operating costs relating to compliance, may impose
cleanup requirements with respect to site contamination resulting from past,
present or future spills and releases and may affect the markets for the
Company's products. The Company believes that its operations are currently in
general compliance with environmental laws and regulations, the violation of
which could result in a material adverse effect on the Company's business,
properties or results of operations on a consolidated basis. There can be no
assurance, however, that material costs will not be incurred as a result of
instances of noncompliance or new regulatory requirements.
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 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.
5. EARNINGS PER SHARE
Computational amounts for earnings per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ (18,348) $ (938) $ (24,381) $ 1,838
========== ========== ========== =======
Basic Earnings per Share:
Weighted average number of common shares outstanding 10,762 10,701 10,760 10,692
========== ========== ========== =======
Net income (loss) per share $ (1.70) $ (0.09) $ (2.27) $ 0.17
========== ========== ========== =======
Diluted Earnings per Share:
Weighted average number of common shares outstanding 10,762 10,701 10,760 10,692
Effect of dilutive securities:
Preferred stock -- -- -- 504
Stock options -- -- -- 632
---------- ---------- ---------- -------
Weighted average number of common shares
outstanding, including dilutive securities 10,762 10,701 10,760 11,828
========== ========== ========== =======
Net income (loss) per share $ (1.70) $ (0.09) $ (2.27) $ 0.16
========== ========== ========== =======
</TABLE>
7
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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 consolidated financial statements and the related notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues decreased by $33.9 million or approximately 33% to
$69.0 million for the three months ended June 30, 1999, as compared to the
three months ended June 30, 1998. The decrease in revenues was primarily
attributable to lower electrochemical unit ("ECU") prices. ECU prices were
approximately 34% lower during the second quarter of 1999, versus the second
quarter of 1998. Revenues at the Company's downstream operations decreased
$7.0, or approximately 34%, primarily as a result of the disposal of the
Company's household bleach bottling operations during the third quarter of
1998, the pool chemicals business in the fourth quarter of 1998 and the iron
chlorides business in the first quarter of 1999. These businesses were
considered non-strategic, and the Company retained supply agreements with the
purchasers.
Cost of Sales. Cost of sales decreased $6.5 million or approximately 8%,
for the three months ended June 30, 1999, as compared to the same period in
1998, which was principally due to lower cost of sales at the downstream
subsidiaries as a result of the disposed operations discussed above.
Gross Profit (Loss). During the second quarter of 1999 Pioneer incurred a
gross loss on revenues, as a result of the lower ECU sales prices. The 1999
margin was a negative 3%, as compared to the gross profit margin of 24% in the
same period of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $1.7 million, or approximately 13%, for
the three months ended June 30, 1999. $1.3 million of the decrease is related
to the absence of incentive compensation accruals during 1999 due to lower
operating results.
Unusual Charges. 1998 unusual charges of $0.5 million related to the
consolidation and downsizing of certain administrative functions of the
downstream subsidiaries.
Interest Expense, Net. Interest expense, net increased by $0.5 million in
1999 as a result of decreased interest income. Interest income was lower due to
a reduction in cash balances in 1999. Offsetting this fluctuation was a small
decrease in gross interest expense in 1999, compared to 1998 as a result of
scheduled debt repayments.
Net Loss. Due to the factors described above, net loss for the three
months ended June 30, 1999 was $18.3 million, compared to a net loss of $0.9
million for the same period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues decreased by $64.3 million or approximately 31% to
$140.0 million for the six months ended June 30, 1999, as compared to the six
months ended June 30, 1998. ECU prices were approximately 35% lower during the
first half of 1999, versus the same period in 1998. In 1998, production and
sales volumes were negatively impacted by three failed transformers at one
plant. Revenues at the Company's downstream operations decreased $11.3, or
approximately 29%, primarily as a result of the disposal of the various
operations discussed above.
Cost of Sales. Cost of sales decreased $22.2 million or approximately 15%,
for the six months ended June 30, 1999, as compared to the same period in 1998.
$10.9 million of this decrease was due to the modification of the Company's
retiree health care benefits. Benefits under the plan to current retirees were
not impacted, but current employees will no longer receive benefits under this
plan. The remaining decrease in cost of sales was principally due to lower cost
of sales at the downstream subsidiaries as a result of the disposed operations
discussed above.
Gross Profit. Gross profit margin decreased to 9% in 1999 from 27% in
1998, primarily as a result of the ECU pricing decrease discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $5.9 million, or approximately 21%, for
the six months ended June 30, 1999. $1.6 million of this decrease was due to
the modification of the
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Company's retiree health care benefits discussed above. $3.2 million of the
decrease is related to the absence of incentive compensation accruals during
1999. The remaining decrease is related to overhead expense reductions.
Interest Expense, Net. Interest expense, net decreased slightly in 1999 as
a result of slightly lower debt levels in 1999 (due to scheduled debt
repayments) plus lower interest rates in 1999. Offsetting the interest expense
decrease was a decrease in interest income due to lower cash balances in 1999.
Other Income (Expense), Net. Other income (expense), net decreased from an
income amount of $2.8 million for the six months ended June 30, 1998 to an
expense of $1.0 million for the six months ended June 30, 1999. The 1999
expense amount was primarily the loss from the sale of the iron chlorides
business. 1998's other income included a gain from the settlement of a lawsuit,
an insurance recovery and a state franchise tax refund.
Net Income (Loss). Due to the factors described above, there was a net
loss for the six months ended June 30, 1999 of $24.4 million, compared to net
income of $1.8 million for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Revolving Facility. In March 1999, the Company reduced its existing $65.0
million Revolving Facility to a $50.0 million Revolving Facility (the "Amended
Revolving Facility"). The Amended Revolving Facility provides for revolving
loans (the "Revolving Loans") in an aggregate principal amount up to $50.0
million which includes a US$30.0 million Canadian sub-facility, and which is
also subject to borrowing base limitations. As of June 30, 1999, the Company
had the ability to draw up to approximately $30 million of additional
indebtedness, including letters of credit outstanding of $2.6 million. The
Company had no Revolving Loans outstanding at June 30, 1999.
Borrowing under the Amended Revolving Facility requires a minimum interest
coverage ratio of at least 0.7 to 1.0 (0.6 from October 1, 1999 to March 31,
2000) for the prior twelve months or on a year-to-date basis, whichever is
higher (subject to a borrowing base limitation that relates to the level of
accounts receivable). Failure to maintain a coverage ratio of 1.1 to 1.0 for
fifteen consecutive months would constitute an event of default.
Financial Leverage and Covenants. As of June 30, 1999, the Company had
$585.5 million of long-term debt outstanding. While the majority of the
Company's debt is due in 2006 and 2007, the Company is required to make certain
scheduled payments each year. The degree to which the Company is indebted could
have important consequences including, but not limited to: (i) limitations on
the ability to obtain additional financing in the future for working capital,
capital expenditures, general corporate purposes and other purposes, if needed;
(ii) the allocation of a substantial portion of cash flow from operations to
cover cash interest requirements, thereby limiting the funds available for
operations and any future business opportunities; and (iii) increasing the
Company's vulnerability to a downturn in its business or the economy.
PCI's cash requirements include payments of interest on $11.5 million of
long-term debt. PCI's subsidiary, Pioneer Americas, Inc. ("PAI"), is restricted
in paying dividends to PCI or funding cash to unrestricted subsidiaries, as
defined, to the sum of $5.0 million plus 50% of the cumulative consolidated net
income of PAI since June 1997. As of June 30, 1999, no distributions were
allowable under this covenant. However, the Company believes that the existing
cash balances of PCI and its unrestricted subsidiaries will be sufficient to
fund future required interest payments and other cash requirements until such
time that PAI's cumulative consolidated net income is positive.
PAI's ability to enter into new debt agreements is restricted by a debt
covenant requiring a minimum interest coverage ratio (as defined) of at least
2.0 to 1.0 for the prior four fiscal quarters. Currently, PAI is unable to
incur additional indebtedness as a result of this covenant, other than
borrowing available under its revolving credit facility. The Company's debt
agreements contain other restrictions on PAI's subsidiaries, including the
acquisition or disposition of assets or operations.
Annualized cash interest of approximately $51.5 million is payable on the
Company's long-term debt. To the extent that the Company draws upon the
commitments under the Amended Revolving Facility due to continuing adverse
business conditions or for other corporate purposes, the Company's aggregate
interest expense will be increased.
Business Conditions. Recent industry capacity additions have created an
imbalance between product demand and supply, resulting in weak market
conditions and lower ECU sales prices. ECU sales prices are at their lowest
level in twenty-five years. These lower sales prices generated decreased sales
revenues, negative sales margins, continuing losses from operations and
significant decreases in working capital, primarily cash balances.
Unless these poor business conditions improve, the Company can expect a
continuation of depressed sales levels, significant losses and continued usage
of cash for operations. Recent price increase announcements have been made for
both
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chlorine and caustic soda, indicating that the bottom of the current industry
cycle may have passed. The Company currently has availability under the Amended
Revolving Facility to fund continuing operations. However, if ECU prices do not
increase from current levels, future covenant waivers would be required under
the Amended Revolving Facility. Discussion is currently underway with respect
to such waivers with the lenders under that agreement. The Company is also
exploring other, less restrictive, revolving credit arrangements.
Foreign Operations and Exchange Rate Fluctuations. The Company has
operating activities in Canada and engages in export sales to various
countries. International operations and exports to foreign markets are subject
to a number of risks, including currency exchange rate fluctuations, trade
barriers, exchange controls, political risks and risks of increases in duties,
taxes and governmental royalties, as well as changes in laws and policies
governing foreign-based companies. In addition, earnings of foreign
subsidiaries and intracompany payments are subject to foreign taxation rules.
A portion of the Company's sales and expenditures are denominated in
Canadian dollars, and accordingly, the Company's results of operations and cash
flows may be affected by fluctuations in the exchange rate between the United
States dollar and the Canadian dollar. Currently, the Company is not engaged in
forward foreign exchange contracts, but may enter into such hedging activities
in the future.
Net Cash Flows from Operating Activities. During the first six months of
1999, the Company had a negative cash flow of $24.8 million from operating
activities, primarily attributable to the net loss for the period.
Net Cash Flows from Investing Activities. Cash used in investing
activities during the first six months of 1999 totaled $15.6 million, which was
due to capital expenditures related to property, plant and equipment, partially
offset by proceeds received from asset disposals.
Net Cash Flows from Financing Activities. Cash used in financing
activities during the first six months of 1999 included $1.3 million of debt
repayments.
Working Capital. Working capital decreased to $26.8 million at June 30,
1999 from $64.7 million at December 31, 1998, a decrease of $37.9 million.
Usage of cash for operating activities and capital expenditures primarily
accounted for this decrease. Decreased accounts receivable, due to lower ECU
prices, and decreased accounts payable and accrued liabilities, caused by the
timing of vendor payments, caused offsetting changes within working capital.
YEAR 2000 ISSUES
The Company is continuing efforts to resolve the potential impact of the
year 2000 on the processing of date-sensitive data by the Company's
computerized information systems. The year 2000 may be critical to these
systems as some computer programs were written using two digits rather than
four to define the applicable year. As a result, any of the Company's computer
applications that have date-sensitive programs may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in process system
failures in the manufacturing area that could cause serious production-related
issues. In addition, miscalculations or system failures could result in a
temporary inability to process transactions, issue invoices, remit payments,
communicate with financial institutions and other entities electronically and
update internal accounting systems. If not corrected in a timely manner, such
business disruptions could be detrimental to the continuing operations of the
Company.
The Company initiated a program almost two years ago to prepare its
computer systems and applications for the year 2000. Based on present
information, management believes that the year 2000 impact on all critical
business systems, including process control systems, have been addressed. The
Company utilized both internal and external resources to reprogram or replace
existing business critical systems for year 2000 compliance. Where appropriate,
critical systems were tested to verify year 2000 compliance. The total project
costs, including costs already expended, are presently estimated at
approximately $0.5 million. These funds are being obtained through working
capital, and are being expensed as incurred unless new software is purchased in
which case certain costs are capitalized.
The Company has taken steps to identify year 2000 compliance issues that
may be created by key customers, suppliers and financial institutions with
which the Company does business. While no single customer represents greater
than 10% of the Company's revenues, the Company does have several large
customers who each account for a sizable dollar amount of sales revenue. The
Company's significant vendors include electrical power companies, salt
companies and freight companies. The loss of any key customer or the inability
of any of the Company's key vendors to provide its goods and services to the
Company would have a negative impact on the Company's operations until those
entities return to normal operations.
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The Company has developed written contingency plans to address the issues
that could arise should the Company or any of its significant suppliers,
customers or financial institutions not be prepared to accommodate year 2000
issues timely. Where practical, alternate key suppliers have been identified to
minimize supplier interruption problems. In addition, the Company believes that
in an emergency situation it could revert in many cases to the use of manual
systems that do not rely on computers. Through these manual systems, the
Company could perform the minimum functions required to maintain the flow of
goods and provide a minimum level of information reporting to maintain a level
of control over the business cycle. However, should the Company have to utilize
manual systems, it is uncertain that it could maintain current levels of
operations and this could have a material adverse impact on the business.
Between now and the beginning of the year 2000, the Company intends to
maintain constant surveillance on the year 2000 issues and will adapt its plans
as required. The Company will continue to refine the existing contingency
plans. During the remainder of 1999, year 2000 remediation efforts and
compliance testing will be done on some systems which were either determined
not to be essential to the operation of the business and/or adequate
work-around alternatives were identified.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
The Company is required to adopt the provisions of SFAS No. 133 in 2001.
Management is currently evaluating the impact of SFAS No. 133 on its financial
statements and related disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 have not changed
significantly through the six months ended June 30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the stockholders of the Company was held on May 20,
1999. At the meeting, Philip J. Ablove, Andrew M. Bursky, and John R. Kennedy
were re-elected as directors of the Company, with terms of office ending at the
annual meeting of stockholders to be held in 2002. A total of 8,953,039,
8,952,983 and 8,959,163 shares, respectively, were voted in favor of the
election of Messrs. Ablove, Bursky and Kennedy.
The stockholders also ratified the selection of Deloitte & Touche LLP as
independent certified public accountants to audit the financial statements of
the Company and its subsidiaries for the fiscal year ending December 31, 1999.
A total of 8,957,692 shares were voted in favor of ratification and 3,983
shares were voted against ratification.
11
<PAGE> 12
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 June 30, 1999.
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.
August 12, 1999 By: /s/ Philip J. Ablove
-----------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
(Principal Financial Officer)
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,366
<SECURITIES> 0
<RECEIVABLES> 44,237
<ALLOWANCES> 2,845
<INVENTORY> 28,535
<CURRENT-ASSETS> 89,617
<PP&E> 425,021
<DEPRECIATION> 92,313
<TOTAL-ASSETS> 688,722
<CURRENT-LIABILITIES> 62,862
<BONDS> 582,811
5,500
0
<COMMON> 108
<OTHER-SE> (807)
<TOTAL-LIABILITY-AND-EQUITY> 688,722
<SALES> 139,979
<TOTAL-REVENUES> 139,979
<CGS> 127,700
<TOTAL-COSTS> 127,700
<OTHER-EXPENSES> 22,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,996
<INCOME-PRETAX> (35,800)
<INCOME-TAX> (11,419)
<INCOME-CONTINUING> (24,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,381)
<EPS-BASIC> (2.27)
<EPS-DILUTED> (2.27)
</TABLE>
