<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, 1998
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 33-98828
PIONEER AMERICAS ACQUISITION CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1215192
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4300 NATIONSBANK CENTER, 700 LOUISIANA STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 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 [ ]
On April 17, 1998, there were outstanding 1,000 shares of the Registrant's
Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies,
Inc.
The Registrant meets the conditions set forth in General Instruction
(H)(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the
reduced disclosure format permitted by General Instruction (H)(2) of Form 10-Q.
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TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
<TABLE>
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Page
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<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations--Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows--Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
</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 discussed in detail.
Actual outcomes may vary materially.
<PAGE> 3
PART I --FINANCIAL INFORMATION
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------ -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 59,625 $ 50,995
Accounts receivable, less allowance for doubtful accounts of $1,792 at
March 31, 1998 and $2,002 at December 31, 1997 54,206 65,189
Due from parent 5,351 2,810
Inventories 25,946 22,625
Prepaid expenses 47 1,372
--------- ---------
Total current assets 145,175 142,991
Property, plant and equipment:
Land 9,092 9,092
Buildings and improvements 55,855 55,589
Machinery and equipment 268,013 263,838
Construction in progress 31,574 31,836
--------- ---------
364,534 360,355
Less accumulated depreciation (42,632) (34,130)
--------- ---------
321,902 326,225
Investment in and advances to unconsolidated subsidiary 28,420 28,551
Other assets, net of accumulated amortization of $2,583 at March 31, 1998
and $2,990 at December 31, 1997 46,430 48,560
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $15,504 at March 31, 1998 and $13,319 at December 31, 1997 199,295 201,032
--------- ---------
Total assets $ 741,222 $ 747,359
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 30,429 $ 45,711
Accrued liabilities 37,536 33,745
Current portion of long-term debt 2,570 2,570
--------- ---------
Total current liabilities 70,535 82,026
Long-term debt, less current portion 566,512 567,160
Accrued pension and other employee benefits 21,576 21,068
Other long-term liabilities 19,098 17,224
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding 1 1
Additional paid-in capital 66,169 66,169
Retained deficit (2,669) (6,289)
--------- ---------
Total stockholder's equity 63,501 59,881
--------- ---------
Total liabilities and stockholder's equity $ 741,222 $ 747,359
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues $ 94,619 $ 38,743
Cost of sales 64,948 29,003
--------- ---------
Gross profit 29,671 9,740
Selling, general and administrative expenses 12,180 6,170
--------- ---------
Operating income 17,491 3,570
Equity in net loss of unconsolidated subsidiary (1,136) (1,055)
Interest expense, net (12,448) (4,458)
Other income, net 3,089 231
--------- ---------
Income (loss) before taxes 6,996 (1,712)
Income tax provision 3,376 178
--------- ---------
Net income (loss) $ 3,620 $ (1,890)
========== =========
Net income (loss) per share $ 3,620 $ (1,890)
========== =========
Weighted average number of common shares outstanding 1 1
========== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
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<S> <C> <C>
Operating activities:
Net income (loss) $ 3,620 $ (1,890)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 11,383 4,080
Equity in net loss of unconsolidated subsidiaries 1,136 1,055
Net change in deferred taxes 3,293 (42)
Foreign exchange loss (186) --
Net effect of changes in operating assets and liabilities (5,021) 379
-------- --------
Net cash flows from operating activities 14,225 3,582
-------- --------
Investing activities:
Investment in and advances to unconsolidated subsidiary (1,006) (1,022)
Capital expenditures (4,146) (2,337)
-------- --------
Net cash flows from investing activities (5,152) (3,359)
-------- --------
Financing activities:
Payments on long-term debt (647) --
-------- --------
Net cash flows from financing activities (647) --
-------- --------
Effect of exchange rate on cash 204 --
-------- --------
Net increase in cash 8,630 223
Cash at beginning of period 50,995 14,417
-------- --------
Cash at end of period $ 59,625 $ 14,640
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1998 and the statements of
operations and cash flows for all periods presented are unaudited and reflect
all adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. Operating results for the first
three months of 1998 are not necessarily indicative of results to be expected
for the year ending December 31, 1998. The consolidated financial statements
include the accounts of Pioneer Americas Acquisition Corp. ("Pioneer") and its
consolidated 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
financial statements are stated in thousands of dollars unless otherwise
indicated.
The consolidated balance sheet at December 31, 1997 is derived from the
December 31, 1997 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, 1997.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effects of changes in operating assets and liabilities are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
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<S> <C> <C>
Accounts receivable $ 11,082 $ 392
Due from parent (2,541) (293)
Inventories (3,272) (2,649)
Prepaid expenses 1,366 350
Other assets (409) 97
Accounts payable (15,380) 456
Accrued liabilities 3,717 2,282
Other long-term liabilities 416 (256)
--------- --------
Net change in operating assets and liabilities $ (5,021) $ 379
========= ========
</TABLE>
Following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
--------- --------
<S> <C> <C>
Cash payments for:
Interest $ 4,359 $ 605
Income taxes -- 135
</TABLE>
6
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3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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<S> <C> <C>
Raw materials, supplies and parts $ 17,413 $ 18,314
Finished goods and work-in-process 10,292 7,188
Inventories under exchange agreements (1,759) (2,877)
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$ 25,946 $ 22,625
=========== ===========
</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 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
agreements 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. PCI CHEMICALS CANADA INC.
Pioneer is a holding company with no operating assets or operations. A
subsidiary of Pioneer acquired in October 1997, PCI Chemicals Canada Inc.
("PCICCI"), has outstanding $175.0 million of 9 1/4% Senior Secured Notes, due
October 15, 2007. These notes are fully and unconditionally guaranteed on a
joint and several basis by Pioneer and Pioneer's other direct and indirect
wholly-owned subsidiaries. Together, PCICCI and the subsidiary note guarantors
comprise all of the direct and indirect subsidiaries of Pioneer. Summarized
financial information of PCICCI and the guarantors of these notes are as
follows:
<TABLE>
<CAPTION>
NOTE CONSOLIDATED NOTE CONSOLIDATED
PCICCI GUARANTORS COMPANY PCICCI GUARANTORS COMPANY
------------- ------------- ------------- ------------- ------------- -------------
AS OF MARCH 31, 1998 AS OF DECEMBER 31, 1997
---------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 53,896 $ 91,279 $ 145,175 $ 39,211 $ 103,780 $ 142,991
Non-current assets 228,417 367,630 596,047 187,009 417,359 604,368
Current liabilities 25,259 45,276 70,535 24,465 57,561 82,026
Non-current liabilities 195,569 411,617 607,186 193,121 412,331 605,452
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
<S> <C> <C> <C>
Revenues $ 39,249 $ 55,370 $ 94,619
Gross profit 13,834 15,837 29,671
Net income (loss) 3,781 (161) 3,620
</TABLE>
Separate financial statements of PCICCI and the guarantors of the PCICCI
notes are not included as management has determined that separate financial
statements of these entities are not material to investors.
7
<PAGE> 8
6. RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues
Revenues increased by $55.9 million or approximately 144% to $94.6 million
for the three months ended March 31, 1998. The increase in revenues was
primarily attributable to additional sales volumes from the Pioneer Chlor Alkali
Co., Inc. ("PCAC") acquisition of a chlor-alkali plant in Tacoma, Washington in
June 1997 and the acquisition of business of PCI Chemicals Canada Inc. and PCI
Carolina, Inc. (together "PCI Canada") in October 1997. In addition, PCAC
average electrochemical unit ("ECU") prices increased approximately 11%.
Partially offsetting these increases were decreased sales due to lower
production volumes at PCAC's Henderson and Tacoma plants in early 1998, due to a
failed transformer at Henderson, which is now fully operational, and a lack of
railcar availability in the western United States due to Union Pacific rail
transportation problems. Revenues at All-Pure Chemical Company, Inc.
("All-Pure") decreased slightly due to the adverse weather conditions on the
West Coast.
Cost of Sales
Cost of sales increased $35.9 million, or 124%, for the three months ended
March 31, 1998, principally because of the sales volumes of the acquired
operations. Cost of sales at All-Pure decreased somewhat as a result of
decreased sales volumes.
Gross Profit
Gross profit margin increased to 31% in 1998 from 25% as a result of the
revenues and cost of sales fluctuations described above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $6.0 million for
the three months ended March 31, 1998, primarily due to the acquisition of PCI
Canada. Also, during 1998 "pay-for-performance" accruals were made in excess of
the 1997 first quarter accruals.
Equity in Net Loss of Unconsolidated Subsidiary
Equity in net loss of unconsolidated subsidiary increased slightly due to
losses sustained by the unconsolidated subsidiary during the first quarter of
1998. These losses were attributable to decreased sales and decreased gross
margins.
Interest Expense, Net
Interest expense, net increased $8.0 million to $12.4 million for the first
three months of 1998. This increase was the result of the debt incurred for the
acquisitions of the Tacoma plant and the business of PCI Canada, partially
offset by lower interest expense from refinancing $135.0 million of 13 3/8%
First Mortgage Notes at substantially lower interest rates.
Other Income, Net
Other income for the first three months of 1998 includes a gain from the
settlement of a lawsuit of approximately $0.9 million, an accrual for a business
interruption insurance claim at PCAC's Henderson plant related to the failed
transformer, and a state franchise tax refund.
Net Income
Due to the factors described above, net income for the first quarter of
1998 was $3.6 million, compared to a net loss of $1.9 million for the same
period of 1997.
8
<PAGE> 9
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, 1998.
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 AMERICAS ACQUISITION CORP.
April 27, 1998 By: /s/ Philip J. Ablove
---------------------------
Philip J. Ablove
Vice President and
Chief Financial Officer
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 59,625
<SECURITIES> 0
<RECEIVABLES> 55,998
<ALLOWANCES> 1,792
<INVENTORY> 25,946
<CURRENT-ASSETS> 145,175
<PP&E> 364,534
<DEPRECIATION> 42,632
<TOTAL-ASSETS> 741,222
<CURRENT-LIABILITIES> 70,535
<BONDS> 566,512
0
0
<COMMON> 1
<OTHER-SE> 65,500
<TOTAL-LIABILITY-AND-EQUITY> 741,222
<SALES> 94,619
<TOTAL-REVENUES> 94,619
<CGS> 64,948
<TOTAL-COSTS> 64,948
<OTHER-EXPENSES> 12,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,448
<INCOME-PRETAX> 6,996
<INCOME-TAX> 3,376
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,620
<EPS-PRIMARY> 3,620
<EPS-DILUTED> 3,620
</TABLE>
