<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, 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 April 20, 1999, there were outstanding 9,984,015 shares of the
Company's Class A Common Stock and 802,645 shares of Class B Common Stock.
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PIONEER COMPANIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations--Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows--Three Months Ended March 31, 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
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</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.
2
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PART I -- FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,932 $ 53,822
Accounts receivable, less allowance for doubtful accounts of $2,956 at
March 31, 1999 and $3,122 at December 31, 1998 40,964 46,469
Inventories 28,432 26,556
Prepaid expenses 6,703 6,311
----------- -----------
Total current assets 117,031 133,158
Property, plant and equipment:
Land 10,622 10,727
Buildings and improvements 62,680 63,455
Machinery and equipment 309,297 312,736
Construction in progress 33,420 28,357
----------- -----------
416,019 415,275
Less accumulated depreciation (83,463) (76,268)
----------- -----------
332,556 339,007
Other assets, net of accumulated amortization of $10,321 at March 31, 1999
and $8,443 at December 31, 1998 57,519 57,392
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $25,585 at March 31, 1999 and $23,271 at
December 31, 1998 199,571 201,885
----------- -----------
Total assets $ 706,677 $ 731,442
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,353 $ 32,288
Accrued liabilities 34,200 33,483
Current portion of long-term debt 2,688 2,684
----------- -----------
Total current liabilities 65,241 68,455
Long-term debt, less current portion 583,499 584,168
Accrued pension and other employee benefits 13,965 25,836
Other long-term liabilities 20,952 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:
Common stock:
Class A, $.01 par value, authorized 46,000 shares, issued and
outstanding: 9,959 at March 31, 1999 and 9,927 at
December 31, 1998 99 99
Class B, $.01 par value, authorized 4,000 shares, issued and outstanding:
803 at March 31, 1999 and December 31, 1998, convertible
share-for-share into Class A shares 8 8
Additional paid-in capital 55,055 55,055
Retained deficit (37,642) (31,609)
----------- -----------
Total stockholders' equity 17,520 23,553
----------- -----------
Total liabilities and stockholders' equity $ 706,677 $ 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
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 70,949 $ 101,325
Cost of sales 56,270 71,974
----------- -----------
Gross profit 14,679 29,351
Selling, general and administrative expenses 9,911 14,086
----------- -----------
Operating income 4,768 15,265
Interest expense, net (12,325) (12,914)
Other income (expense), net (996) 3,088
----------- -----------
Income (loss) before taxes (8,553) 5,439
Income tax provision (benefit) (2,520) 2,663
----------- -----------
Net income (loss) $ (6,033) $ 2,776
=========== ===========
Net income (loss) per common share:
Basic $ (0.56) $ 0.26
=========== ===========
Diluted $ (0.56) $ 0.23
=========== ===========
Weighted average number of common shares outstanding:
Basic 10,757 10,683
Diluted 10,757 11,873
</TABLE>
See notes to consolidated financial statements.
4
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PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ (6,033) $ 2,776
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 13,249 12,123
Net change in deferred taxes (2,520) 2,923
Reduction in post-retirement medical expense (12,530) --
Loss on disposals of assets 1,057 --
Foreign exchange loss (260) (186)
Net effect of changes in operating assets and liabilities 828 (4,631)
----------- -----------
Net cash flows from operating activities (6,209) 13,005
----------- -----------
Investing activities:
Capital expenditures (7,270) (4,581)
Proceeds received from disposals of assets 1,143 --
----------- -----------
Net cash flows from investing activities (6,127) (4,581)
----------- -----------
Financing activities:
Payments on long-term debt (665) (654)
----------- -----------
Net cash flows from financing activities (665) (654)
----------- -----------
Effect of exchange rate changes on cash 111 204
----------- -----------
Net change in cash (12,890) 7,974
Cash at beginning of period 53,822 51,887
----------- -----------
Cash at end of period $ 40,932 $ 59,861
=========== ===========
</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 March 31, 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 three 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. ("Pioneer") 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. Per share
information for 1998 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>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable $ 5,951 $ 10,524
Inventories (2,121) (3,442)
Prepaid expenses 380 623
Other assets 190 (963)
Accounts payable (4,197) (15,130)
Accrued liabilities 437 3,297
Other long-term liabilities 188 460
----------- -----------
Net change in operating assets and liabilities $ 828 $ (4,631)
=========== ===========
</TABLE>
Following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash payments for:
Interest $ 3,761 $ 4,691
Income taxes 351 --
</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.
6
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3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Raw materials, supplies and parts $ 16,906 $ 17,210
Finished goods and work-in-process 9,638 9,045
Inventories under exchange agreements 1,888 301
----------- -----------
$ 28,432 $ 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
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss) $ (6,033) $ 2,776
=========== ===========
Basic Earnings per Share:
Weighted average number of common shares outstanding 10,757 10,683
=========== ===========
Net income (loss) per share $ (0.56) $ 0.26
=========== ===========
Diluted Earnings per Share:
Weighted average number of common shares outstanding 10,757 10,683
Effective of dilutive securities:
Preferred stock -- 504
Stock options -- 686
----------- -----------
Weighted average number of common shares outstanding,
including dilutive securities 10,757 11,873
=========== ===========
Net income (loss) per share $ (0.56) $ 0.23
=========== ===========
</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 MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues decreased by $30.4 million, or approximately 30%,
to $70.9 million for the three months ended March 31, 1999, as compared to the
three months ended March 31, 1998. The decrease in revenues was primarily
attributable to lower electrochemical unit ("ECU") prices. ECU prices were
approximately 36% lower during the first quarter of 1999, versus the first
quarter of 1998. Partially offsetting this decrease was a slight increase in
chlor-alkali sales volumes in 1999, as 1998 production volumes were negatively
impacted by three failed transformers, which are now fully operational.
Revenues at the Company's downstream operations decreased as the Company
disposed of its household bleach operations during the third quarter of 1998,
its pool chemicals business in the fourth quarter of 1998 and its 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 $15.7 million, or approximately
22%, for the three months ended March 31, 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 disposal of the operations discussed above.
Gross Profit. Gross profit margin decreased to 21% in 1999 from 29% in
1998, primarily as a result of the ECU pricing decrease and other items
discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $4.2 million, or approximately 30%, for
the three months ended March 31, 1999. $1.6 million of this decrease was due to
the modification of the Company's retiree health care benefits discussed above.
The remaining decrease was primarily due to the absence of incentive
compensation accruals during 1999.
Interest Expense, Net. Interest expense, net decreased slightly in
1999 as a result of lower interest rates in 1999, compared to 1998.
Other Income (Expense), Net. Other income (expense), net decreased
from income of $3.1 million for the quarter ended March 31, 1998 to an expense
of $1.0 million for the quarter ended March 31, 1999. Other income in 1998
included a gain from the settlement of a lawsuit, an insurance recovery and a
state franchise tax refund. The 1999 amount was primarily a loss resulting from
the sale of the iron chlorides business in the first quarter of 1999 of $1.0
million.
Net Income (Loss). Due to the factors described above, net loss for
the three months ended March 31, 1999 was $6.0 million, compared to a net
income of $2.8 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 March 31, 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 March 31, 1999.
8
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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 monthly coverage ratio of
1.1 to 1.0 for fifteen consecutive months would constitute an event of default.
Financial Leverage and Covenants. As of March 31, 1999, the Company
had $586.2 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, acquisitions, 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.
Pioneer's cash requirements include payments of interest on $11.5
million of long-term debt. Pioneer's subsidiary, Pioneer Americas, Inc.
("PAI"), is restricted in paying dividends to Pioneer 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 March 31,
1999, no distributions were allowable under this covenant. However, the Company
believes that the existing cash balances of Pioneer 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.
The Company believes that existing cash balances, cash flow from
current and anticipated future levels of operations and the availability under
the Amended Revolving Facility will be adequate to make the required payments
of principal and interest on outstanding indebtedness, as well as to fund its
future capital expenditures and working capital requirements. 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
revolving 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.
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 three
months of 1999, the Company had a negative cash flow of $6.2 million from
operating activities, primarily attributable to the net loss for the period,
along with a reduction in accounts payable and accrued liability balances at
March 31, 1999 compared to December 31, 1999.
Net Cash Flows from Investing Activities. Cash used in investing
activities during the first three months of 1999 totaled $6.1 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 three months of 1999 totaled $0.7 million for debt
payments.
Working Capital. Working capital decreased to $51.8 million at March
31, 1999 from $64.7 million at December 31, 1998, a decrease of $12.9 million.
Usage of cash for operating activities and capital expenditures primarily
accounted for this
9
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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 currently working 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 many 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 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 would be detrimental to the continuing operations of the
Company.
The Company has initiated a program to prepare its computer systems
and applications for the year 2000. Based on present information, management
believes that while many of the systems are already year 2000 compliant, other
systems will require modification or replacement with new programs. The Company
will utilize both internal and external resources to reprogram, replace and
test software for year 2000 compliance. The Company plans to complete the year
2000 conversion tasks by July 1999. The total project costs (including costs
spent to-date) are presently estimated not to exceed $1.0 million, to be
obtained through working capital, and will be expensed as incurred unless new
software is purchased in which case certain costs will be capitalized.
The Company is taking 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.
The anticipated future costs of the year 2000 conversion project and
the date on which the Company anticipates project completion are based on
management's best estimates, which were derived using numerous assumptions of
future events including the continued availability of certain resources, third
party modification plans and other factors. There can be no guarantee that
these estimates will be achieved and actual results could vary significantly
from current estimates.
The Company is developing a written contingency plan which will be
completed by mid-1999 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. The Company believes that in
an emergency situation it could revert 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. 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. The Company intends to maintain constant
surveillance on the year 2000 issues and will adapt its plans as required.
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
the third quarter of 1999. Management does not believe the adoption of the
above-mentioned accounting change will have a material effect on the Company's
financial statements.
10
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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 fiscal quarter ended March 31, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Amendment No. 1, dated March 29, 1999, to Amended and
Restated Loan and Security Agreement dated as of May 29,
1998, among Pioneer Americas, Inc., PCI Chemicals Canada
Inc., the lenders party thereto, Bank of America National
Trust and Savings Association, as Administrative Agent and
U.S. Funding Agent, and Bank America Robertson Stephens, as
Arranger.
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, 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.
April 27, 1999 By: /s/ Philip J. Ablove
--------------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
(Principal Financial Officer)
11
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10 Amendment No. 1, dated March 29, 1999, to Amended and Restated Loan
and Security Agreement dated as of May 29, 1998, among Pioneer
Americas, Inc., PCI Chemicals Canada Inc., the lenders party
thereto, Bank of America National Trust and Savings Association, as
Administrative Agent and U.S. Funding Agent, and Bank America
Robertson Stephens, as Arranger.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
AMENDMENT NO. 1 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
March 29, 1999
Pioneer Americas, Inc., formerly known as
Pioneer Americas Acquisition Corp.
700 Louisiana Street
Suite 4300
Houston, Texas 77002
Attn: Chief Financial officer and Corporate Secretary
and
PCI Chemicals Canada Inc./PCI Chimie Canada Inc. ("PCI Canada")
630 Rene-Levesque Boulevard West
31st Floor
Montreal, Quebec
Canada H3B 1S6
Ladies and Gentlemen:
Reference is made to the Amended and Restated Loan and Security
Agreement dated as of May 29, 1998 among Pioneer Americas, Inc., formerly known
as Pioneer Americas Acquisition Corp. ("PAI"), PCI Chemicals Canada Inc./PCI
Chimie Canada Inc. ("PCI Canada"), the lenders from time to time party thereto
(the "Lenders"), Bank of America National Trust and Savings Association,
formerly known as Bank of America Illinois, as Administrative Agent, as U.S.
Funding Agent and as a Lender and Bank America Robertson Stephens, as Arranger
(the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such temps in the Loan Agreement.
1. Background. On or about August 20, 1998, Pioneer Americas, Inc.
merged with and into Pioneer Americas Acquisition Corp., with Pioneer Americas
Acquisition Corp. being the surviving entity and changing its name to "Pioneer
Americas, Inc." (the "Merger"). As a consequence of the Merger, "Pioneer
Americas, Inc." became the name of one of the Borrowers under the Loan
Agreement. Borrowers have requested that Agents and Lenders agree to amend the
Loan Agreement to reflect the foregoing transactions. In addition, Borrowers
have requested that Agents and Lenders agree to amend the Loan Agreement in
certain other respects, all as set forth herein.
Agents and Lenders have agreed to the foregoing, on the terms and
conditions described herein.
2. Amendments. The Loan Agreement is hereby amended as follows:
(a) To the extent required by the context, references in the Loan
Agreement to each of "PAAC" and "PAI" are hereby deemed to be references to
"Pioneer Americas, Inc., formerly known as Pioneer Americas Acquisition Corp."
<PAGE> 2
(b) All references to PAI as a "Designated Subsidiary" are hereby
deleted from the Loan Agreement.
(c) BankAmerica Robertson Stephens has been replaced as Arranger by
NationsBanc Montgomery Securities. Consequently, all references in the Loan
Agreement to "Bank America Robertson Stephens" as the "Arranger" are hereby
deleted and replaced with references to "NationsBanc Montgomery Securities".
(d) The definition of the term "Borrowing Base" contained in Section
1.l of the Loan Agreement is hereby amended and restated in its entirety, as
follows:
"'Borrowing Base" means an amount equal to 85% of the U.S. Dollar
Equivalent of the net amount (after deduction of such reserves and allowances
as Administrative Agent deems proper and necessary in its reasonable business
judgment) of Eligible Account Receivable of each Borrower and each Designated
Subsidiary.'"
(e) The definition of the term "Kemwater" contained in Section 1.1 of
the Loan Agreement is hereby amended and restated in its entirety, as follows:
"'Kemwater means KWT, Inc., a Delaware corporation and a Subsidiary of
Parent.'"
(f) The definition of the term "Loan Limit" contained in Section 1.1
of the Loan Agreement is hereby amended and restated in its entirety, as
follows:
"'Loan Limit' at any time means with respect to (a) PAAC, an amount
equal to US$27,000,000 (the "PAAC Maximum") and (b) PCI Canada, an amount equal
to the U.S. Dollar Equivalent of $23,000,000 (the "PCI Canada Maximum"), in
each case, minus any permanent reductions in such amounts made pursuant to
Section 2.1.2, provided, that the PAAC Maximum and the PCI Canada Maximum may
be reallocated by Borrowers two times during each 12 month period hereafter, by
means of a written notice executed by Borrowers and received by Administrative
Agent at least thirty (30) days prior to the effective date of such
reallocation, so long as (i) the aggregate amount of the PAAC Maximum and the
PCI Maximum does not at any time exceed the U.S. Dollar Equivalent of
$50,000,000 minus any permanent reductions in such amount made pursuant to
Section 2.1.2, (ii) the PAAC Maximum is not at any time less than US$25,000,000
or greater than the sum of the Maximum Loan Amounts of the U.S. Lenders, (iii)
the PCI Canada Maximum is not at any time greater than the U.S. Dollar
Equivalent of the sum of the Maximum Loan Amounts of the Canadian Lenders and
(iv) at the effective date of each reallocation, Borrowers deliver to
Administrative Agent such amended and restated Notes as Administrative Agent
shall reasonably request in order to evidence the reallocated Loan Limits."
(g) The definition of the term "Revolving Credit Amount" contained in
Section 1.1 of the Loan Agreement is hereby amended and restated in its
entirety, as follows:
"'Revolving Credit Amount' means an amount equal to US$50,000,000, as
such amount may be reduced from time to time pursuant to this Agreement."
(h) A new definition of the term "TCP" is hereby inserted into Section
1.1 of the Loan Agreement, in appropriate alphabetical order, as follows:
"'TCP' means T.C. Products, Inc., a Washington corporation and a
Subsidiary of TCH.
2
<PAGE> 3
(i) Section 4.29 of the Loan Agreement is hereby amended and restated
in its entirety, as follows:
"4.29 Holding Companies: Licensing Companies.
As of March 29, 1999, each of Parent, PAI, BMPC, TCH and Imperial is a
holding company without material assets, operations or business, other than the
ownership by (a) Parent of the common stock of PAI and Pioneer Water
Technologies, Inc., (b) PAI of the common stock of its Subsidiaries, (c) TCH of
the common stock of TCP and (d) Imperial of the common stock of Kemwater North
America Company. As of March 29, 1999, neither of East or Pioneer Licensing,
Inc. has any material assets, operations or business, other than the ownership
of certain intellectual property held for license to the other Companies in the
ordinary course of business. As of March 29, 1999, none of Parent, PAI, BMPC,
East, TCH, Imperial or Pioneer Licensing, Inc. has any Indebtedness or other
obligations other than Indebtedness of each of them in respect of the Seller
Notes, the Senior Secured Loans, the Term Loans and this Agreement."
(j) Section 5.32 of the Loan Agreement is hereby amended and restated
in its entirety, as follows:
"5.32 Interest Coverage Ratio.
Not permit the Interest Coverage Ratio (a) measured on the last day of
any calendar month for the preceding twelve (12) month period or for the period
from the beginning of the then current Fiscal Year through such measurement
date, whichever yields the higher ratio, (a) to be less than 1.1:1.0 for more
than one period of consecutive measurement dates, such period not to exceed
fifteen (15) months, OR (b) within such period, to be less than 0.7:1.0 on any
measurement date (except as provided in clause (c) below) OR (c) to be less
than 0.6:1.0 on any measurement date between October 1, 1999 and March 31,
2000, inclusive. For purposes of this Section 5.32. interest expense shall
include, without limitation, implicit interest expense on Capitalized Leases."
(k) Section 6.1(n)(iii) of the Loan Agreement is hereby amended to
delete therefrom the reference to "PAAC" and replace it with a reference to
"Parent".
(l) The Maximum Loan Amounts of the Lenders set forth in the signature
pages to the Loan Agreement are hereby amended and restated in their entirety,
as follows:
<TABLE>
<CAPTION>
US Lender Maximum Loan Amount
--------- -------------------
<S> <C>
Bank of America National Trust and US $ 3,858,000
Savings Association
Transamerica Business Credit Corporation US $11,571,000
Sanwa Business Credit Corporation US $11,571,000
--------------
Total US $27,000,000
Canadian Lender Maximum Loan Amount
--------------- -------------------
Bank of America Canada US Dollar Equivalent of $15,333,000
Credit Lyonnais Canada US Dollar Equivalent of $ 7,667,000
-----------------------------------
Total US Dollar Equivalent of $23,000,000
</TABLE>
3
<PAGE> 4
(m) This Amendment No. 1 to Amended and Restated Loan and Security
Agreement (the "Amendment") shall have the effect of amending the Loan
Agreement and the Related Agreements as appropriate to express the agreements
contained herein. In all other respects, the Loan Agreement and the Related
Agreements shall remain in full force and effect in accordance with their
respective terms.
3. Conditions to Effectiveness. This Amendment shall be effective upon
delivery of this Amendment to Administrative Agent, executed by each Agent and
each Lender and accepted by each Borrower and each other Obligor, together with
the following, all in form and substance satisfactory to Administrative Agent:
(a) A new Note payable to each Lender and executed by the applicable
Borrower, reflecting its revised Maximum Loan Amount;
(b) A certificate executed by each Borrower to the effect that no
Event of Default or Unmatured Event of Default has occurred and is continuing
and that all representations and warranties contained in Section 4 of the Loan
Agreement remain true and correct in all material respects as through made on
the date thereof, except for those representations and warranties which were
expressly made as of a specific date; and
(c) a $125,000 amendment fee paid by Borrowers to Administrative
Agent, for distribution to the Lenders in accordance with their respective Pro
Rata Shares.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, formerly
known as BANK OF AMERICA ILLINOIS, as
Administrative Agent and U.S. Funding Agent
By:
----------------------------------------
Its:
---------------------------------------
BANK OF AMERICA CANADA, as Canadian
Funding Agent
By:
----------------------------------------
Its:
---------------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, formerly
known as BANK OF AMERICA ILLINOIS, as
a U.S. Lender
By:
----------------------------------------
Its:
---------------------------------------
4
<PAGE> 5
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as a U.S. Lender
By:
----------------------------------------
Its:
---------------------------------------
FLEET BUSINESS CREDIT CORPORATION,
formerly known as SANWA BUSINESS
CREDIT CORPORATION, as a U.S. Lender
By:
----------------------------------------
Its:
---------------------------------------
BANK OF AMERICA CANADA,
as a Canadian Lender
By:
----------------------------------------
Its:
---------------------------------------
By:
----------------------------------------
Its:
---------------------------------------
Acknowledged and agreed to this
____ day of March, 1999
PIONEER AMERICA, INC.,
formerly known as PIONEER
AMERICAS ACQUISITION CORP.
By:
----------------------------------------
Its:
---------------------------------------
PCI CHEMICALS CANADA INC./
PCI CHIMIE CANADA INC.
By:
----------------------------------------
Its:
---------------------------------------
5
<PAGE> 6
Acknowledgement and Acceptance of Subsidiary Guarantors
Each of the undersigned is a party to the Master Corporate Guaranty
dated as of May 29, 1998 in favor of Bank of America National Trust and Savings
Association, formerly known as Bank of America Illinois, as Administrative
Agent for the benefit of Agents and lenders (the "Guaranty"), pursuant to which
each of the undersigned has guaranteed the Liabilities of each Borrower under
the Loan Agreement and the Related Agreements. Each of the undersigned hereby
acknowledges receipt of the foregoing Amendment No. 1 to Amended and Restated
Loan And Security Agreement, accepts and agrees to be bound by the terms
thereof, ratifies and confirms all of its obligations under the Guaranty, and
agrees that the Guaranty shall continue in full force and effect as to it,
notwithstanding such amendment.
Acknowledged and Agreed to
this ____ day of March, 1999.
PIONEER CHLOR ALKALI COMPANY, INC.
IMPERIAL WEST CHEMICAL CO.
ALL-PURE CHEMICAL CO.
BLACK MOUNTAIN POWER COMPANY
PCI CAROLINA, INC.
By:
---------------------------------
------------------------------------
of each company listed above
6
<PAGE> 7
Acknowledgement and Acceptance of Subsidiary Guarantors
Each of the undersigned is a party to the Master Corporate Guaranty
dated as of May 29, 1998 in favor of Bank of America National Trust and Savings
Association, formerly known as Bank of America Illinois, as Administrative
Agent for the benefit of Agents and lenders (the "Guaranty"), pursuant to which
each of the undersigned has guaranteed the Liabilities of each Borrower under
the Loan Agreement and the Related Agreements. Each of the undersigned hereby
acknowledges receipt of the foregoing Amendment No. 1 to Amended and Restated
Loan And Security Agreement, accepts and agrees to be bound by the terms
thereof, ratifies and confirms all of its obligations under the Guaranty, and
agrees that the Guaranty shall continue in full force and effect as to it,
notwithstanding such amendment.
Acknowledged and Agreed to
this ____ day of March, 1999.
PIONEER AMERICAS, INC. formerly known
as PIONEER AMERICAS ACQUISITION CORP.
By:
----------------------------------
-------------------------------------
of each company listed above
PCI CHEMICALS CANADA INC./
PCI CHIMIE CANADA INC.
By:
----------------------------------
Its:
---------------------------------
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 40,932
<SECURITIES> 0
<RECEIVABLES> 43,920
<ALLOWANCES> 2,956
<INVENTORY> 28,432
<CURRENT-ASSETS> 117,031
<PP&E> 416,019
<DEPRECIATION> 83,463
<TOTAL-ASSETS> 706,677
<CURRENT-LIABILITIES> 65,241
<BONDS> 583,499
5,500
0
<COMMON> 107
<OTHER-SE> 17,413
<TOTAL-LIABILITY-AND-EQUITY> 706,677
<SALES> 70,949
<TOTAL-REVENUES> 70,949
<CGS> 56,270
<TOTAL-COSTS> 56,270
<OTHER-EXPENSES> 9,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,325
<INCOME-PRETAX> (8,553)
<INCOME-TAX> (2,520)
<INCOME-CONTINUING> (6,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,033)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
