<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, 2000
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)
<TABLE>
<S> <C>
DELAWARE 06-1215192
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
700 LOUISIANA STREET, SUITE 4300, 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 30, 2000, there were outstanding 10,733,176 shares of the
Company's Class A Common Stock and 858,831 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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<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations--Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows--Three Months Ended March 31, 2000 and 1999 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 9
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</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
<PAGE> 3
PART I --FINANCIAL INFORMATION
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,178 $ 5,510
Accounts receivable, net of allowance for doubtful accounts of $2,679 at
March 31, 2000 and $2,739 at December 31, 1999 48,045 50,185
Inventories 24,816 23,130
Prepaid expenses and other current assets 6,987 7,468
-------- --------
Total current assets 89,026 86,293
Property, plant and equipment:
Land 10,622 10,622
Buildings and improvements 63,756 63,949
Machinery and equipment 338,750 338,851
Construction in progress 21,161 19,434
-------- --------
434,289 432,856
Less: accumulated depreciation (115,280) (107,315)
-------- --------
319,009 325,541
Other assets, net of accumulated amortization of $13,761 at March 31, 2000
and $12,302 at December 31, 1999 81,177 76,308
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $34,840 at March 31, 2000 and $32,526 at December 31,
1999 190,153 192,464
-------- --------
Total assets $679,365 $680,606
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current
liabilities:
Accounts payable $ 28,078 $ 30,443
Accrued liabilities 39,403 34,517
Current portion of long-term debt 10,626 10,626
-------- --------
Total current liabilities 78,107 75,586
Long-term debt, less current portion 599,672 594,723
Accrued pension and other employee benefits 15,482 15,091
Other long-term liabilities 16,891 16,408
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: 10,675 at March 31, 2000 and 10,656 at December 31,
1999 107 106
Class B, $.01 par value, authorized 4,000 shares, issued and outstanding:
859 at March 31, 2000 and December 31, 1999, convertible
share-for-share into Class A shares 9 9
Additional paid-in capital 55,176 55,176
Retained deficit (91,579) (81,993)
-------- --------
Total stockholders' equity (deficiency in assets) (36,287) (26,702)
-------- --------
Total liabilities and stockholders' equity (deficiency in assets) $679,365 $680,606
======== ========
</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,
----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues $84,304 $ 70,949
Cost of sales 72,968 56,270
------- --------
Gross profit 11,336 14,679
Selling, general and administrative expenses 11,271 9,911
Unusual charges 872 1,017
------- --------
Operating income (loss) (807) 3,751
Interest expense, net (13,492) (12,325)
Other income, net 128 21
------- --------
Loss before taxes (14,171) (8,553)
Income tax benefit (4,585) (2,520)
------- -------
Net loss $(9,586) $(6,033)
======= =======
Net loss per share:
Basic and diluted $ (0.83) $ (0.52)
======= =======
Weighted average number of common shares outstanding:
Basic and diluted 11,529 11,510
</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,
--------------------------
2000 1999
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<S> <C> <C>
Operating activities:
Net loss $(9,586) $(6,033)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 12,633 13,249
Net change in deferred taxes (4,450) (2,520)
Reduction in post-retirement medical expense -- (12,530)
Loss on disposals of assets 872 1,057
Foreign exchange loss (gain) 25 (260)
Net effect of changes in operating assets and liabilities 2,670 828
------- ------
Net cash flows from operating activities 2,164 (6,209)
------- ------
Investing activities:
Capital expenditures (3,802) (7,270)
Proceeds received from disposals of assets 529 1,143
------- ------
Net cash flows from investing activities (3,273) (6,127)
------- ------
Financing activities:
Net proceeds under revolving credit arrangements 5,538 --
Payments on long-term debt (589) (665)
Issuance of common stock 1 --
------- ------
Net cash flows from financing activities 4,950 (665)
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Effect of exchange rate changes on cash (173) 111
------- ------
Net change in cash 3,668 (12,890)
Cash at beginning of period 5,510 53,822
------- -------
Cash at end of period $ 9,178 $40,932
======= =======
</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, 2000 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 2000 are not necessarily indicative of results to be
expected for the year ending December 31, 2000. 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.
Certain amounts have been reclassified in prior years to conform to the current
year presentation.
The consolidated balance sheet at December 31, 1999 is derived from the
December 31, 1999 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, 1999.
Net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Per share information for 1999 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 1999.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effect of changes in operating assets and liabilities are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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<S> <C> <C>
Accounts receivable $ 2,094 $ 5,951
Inventories (1,729) (2,121)
Prepaid expenses 369 380
Other assets 496 190
Accounts payable (2,284) (4,197)
Accrued liabilities 4,949 437
Other long-term liabilities (1,225) 188
------- ------
Net change in operating assets and liabilities $ 2,670 $ 828
======= ======
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Following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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<S> <C> <C>
Cash payments for:
Interest $5,103 $3,761
Income taxes 59 351
</TABLE>
6
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3. INVENTORIES
Inventories consist of the following:
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<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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Raw materials, supplies and parts $ 15,341 $ 16,822
Finished goods and work-in-process 7,125 5,350
Inventories under exchange agreements 2,350 958
-------- --------
$ 24,816 $ 23,130
======== ========
</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,
------------------------------
2000 1999
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<S> <C> <C>
Net loss $ (9,586) $ (6,033)
======== ========
Basic Earnings per Share:
Weighted average number of common shares outstanding 11,529 11,510
======== ========
Net loss per share $ (0.83) $ (0.52)
======== ========
Diluted Earnings per Share:
Weighted average number of common shares outstanding 11,529 11,510
======== ========
Net loss per share $ (0.83) $ (0.52)
======== ========
</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, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues. Revenues increased by $13.4 million, or approximately 19%, to
$84.3 million for the three months ended March 31, 2000, as compared to the
three months ended March 31, 1999. The increase in revenues was primarily
attributable to higher electrochemical unit ("ECU") prices and greater sales
volume.
Cost of Sales. Cost of sales increased $16.7 million, or approximately
30%, for the three months ended March 31, 2000, as compared to the same period
in 1999. $10.9 million of this increase was due to the absence of the gain on
modification of the Company's retiree health care benefits during the first
quarter of 1999. The remaining increase in cost of sales was principally due to
greater volume and higher power costs.
Gross Profit. Gross profit margin decreased to 13% in 2000 from 21% in
1999, primarily as a result of the cost of sales increase discussed above,
partially offset by the ECU pricing increase.
Unusual Charges. Unusual charges for the three months ended March 31, 2000
included a $0.9 million loss related to the disposition of the Company's alum
coagulant business at Antioch, California. Unusual charges in 1999 were
primarily a loss of $1.0 million resulting from the sale of the Company's iron
chlorides business in the first quarter of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.4 million, or approximately 14%, for the
three months ended March 31, 2000. This increase was due to the absence of the
gain on modification of the Company's retiree health care benefits as discussed
above of $1.6 million. Without this item, such expense would have experienced a
slight decrease.
Interest Expense, Net. Interest expense, net increased in 2000 primarily
as a result of interest incurred on revolving credit balances and higher
variable interest rates in 2000 as compared to 1999.
Net Loss. Due to the factors described above, net loss for the three
months ended March 31, 2000 was $9.6 million, compared to a net loss of $6.0
million for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Revolving Facility. In September 1999, the Company entered into a $50.0
million three-year revolving credit facility with Congress Financial Corporation
(Southwest) (the "Revolving Facility") that replaced an existing $50.0 million
revolving credit facility. The Revolving Facility provides for revolving loans
in an aggregate amount up to $50.0 million, subject to borrowing base
limitations related to the level of accounts receivable and inventory, which,
together with certain other collateral, secure borrowings under the facility.
The total borrowing base at March 31, 2000 of $45.6 million was subject to a
reserve of $5.0 million until the Company's ratio of interest to fixed charges,
as defined, exceeds 1.15:1 for a period of two consecutive quarters. As of March
31, 2000, there were letters of credit outstanding of $4.6 million (excluding
transitional letters of credit of $1.9 million) and loans outstanding of $26.7
million.
Financial Leverage and Covenants. As of March 31, 2000, the Company had
$610.3 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 the notes
issued in connection with the acquisition of Pioneer Corporation of America
("PCA") and its subsidiaries as they existed on April 20, 1995, the date they
were acquired by the Company. PCA is restricted in paying dividends to the
Company or funding cash to unrestricted subsidiaries, as defined, to the sum of
$5.0 million plus 50% of the cumulative consolidated net income of PCA since
June 1997. As of March 31, 2000,
8
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no distributions were allowed by 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 PCA's cumulative consolidated net income is
positive.
PCA'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, PCA is unable to incur
additional indebtedness as a result of this covenant, other than borrowing
available under its revolving credit facility plus $10 million. The Company's
debt agreements contain other restrictions on PCA'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
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 $55.3 million is payable on the Company's long-term debt. To the
extent that the Company draws 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.
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
2000, the Company had a positive cash flow of $2.2 million from operating
activities, primarily attributable to a decrease in accounts receivable and an
increase in accrued liability balance, partially offset by a decrease in
accounts payable balances at March 31, 2000 compared to December 31, 1999.
Net Cash Flows from Investing Activities. Cash used in investing
activities during the first three months of 2000 totaled $3.3 million, which was
due primarily to capital expenditures partially offset by proceeds received from
asset disposals.
Net Cash Flows from Financing Activities. Cash inflows from financing
activities during the first three months of 2000 totaled approximately $5.0
million due primarily to net borrowing under the Revolving Facility of $5.5
million, offset by scheduled debt payments.
Working Capital. Working capital increased to $10.9 million at March 31,
2000 from $10.7 million at December 31, 1999, an increase of $0.2 million.
YEAR 2000 ISSUES
The year 2000 did not have any impact on the processing of date-sensitive
data by the Company's computerized information systems. The cumulative costs
incurred by the Company through March 31, 2000 for year 2000 conversion tasks
did not exceed $1.0 million, and were expensed as incurred unless new software
was purchased, in which case certain costs were capitalized.
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 first
quarter of 2001. Management does not believe the adoption of SFAS No. 133 will
have a material effect on the Company's financial position or results of
operations.
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, 1999 have not changed
significantly through the three months ended March 31, 2000.
9
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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 March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIONEER COMPANIES, INC.
May 10, 2000 By: /s/ Philip J. Ablove
-----------------------------
Philip J. Ablove
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
10
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,178
<SECURITIES> 0
<RECEIVABLES> 50,724
<ALLOWANCES> 2,679
<INVENTORY> 24,816
<CURRENT-ASSETS> 89,026
<PP&E> 434,289
<DEPRECIATION> 115,280
<TOTAL-ASSETS> 679,365
<CURRENT-LIABILITIES> 78,107
<BONDS> 599,672
5,500
0
<COMMON> 116
<OTHER-SE> (36,403)
<TOTAL-LIABILITY-AND-EQUITY> 679,365
<SALES> 84,304
<TOTAL-REVENUES> 84,304
<CGS> 72,968
<TOTAL-COSTS> 72,968
<OTHER-EXPENSES> 11,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,492
<INCOME-PRETAX> (14,171)
<INCOME-TAX> (4,585)
<INCOME-CONTINUING> (9,586)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,586)
<EPS-BASIC> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
