<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 JUNE 30, 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 33-98828
PIONEER CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1420850
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 [ ]
On August 11, 2000, 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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PIONEER CORPORATION OF AMERICA
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--June 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations--Three Months
Ended June 30, 2000 and 1999 and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows--Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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 CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,091 $ 2,903
Accounts receivable, net of allowance for
doubtful accounts of $1,509 at June 30, 2000
and $1,592 at December 31, 1999 51,283 50,063
Inventories 25,329 23,130
Prepaid expenses 5,117 5,730
---------- -----------
Total current assets 88,820 81,826
Property, plant and equipment:
Land 10,622 10,622
Buildings and improvements 61,228 61,014
Machinery and equipment 342,196 333,094
Construction in progress 15,999 19,435
---------- -----------
430,045 424,165
Less: accumulated depreciation (120,031) (103,096)
---------- -----------
310,014 321,069
Due from affiliates 15,680 15,231
Other assets, net of accumulated amortization
of $11,588 at June 30, 2000 and $9,206 at
December 31, 1999 67,093 66,965
Excess cost over fair value of net assets acquired,
net of accumulated amortization of $36,664 at
June 30, 2000 and $32,095 at December 31, 1999 187,899 192,464
---------- -----------
Total assets $ 669,506 $ 677,555
========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
<S> <C> <C>
Current liabilities:
Accounts payable $ 24,836 $ 28,796
Accrued liabilities 31,467 30,716
Current portion of long-term debt 2,609 2,609
---------- -----------
Total current liabilities 58,912 62,121
Long-term debt, less current portion 595,225 583,260
Accrued pension and other employee benefits 15,786 15,091
Other long-term liabilities 13,498 16,140
Commitments and contingencies
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 65,483 65,483
Retained deficit (79,399) (64,541)
---------- -----------
Total stockholder's equity (deficiency in assets) (13,915) 943
---------- -----------
Total liabilities and stockholder's equity
(deficiency in assets) $ 669,506 $ 677,555
========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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PIONEER CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 86,584 $ 65,997 $ 168,271 $ 134,036
Cost of sales 74,944 68,588 145,661 122,338
-------- -------- --------- ---------
Gross profit (loss) 11,640 (2,591) 22,610 11,698
Selling, general and administrative expenses 10,812 11,395 21,640 20,803
Unusual charges (86) -- 786 1,017
-------- -------- --------- ---------
Operating income (loss) 914 (13,986) 184 (10,122)
Interest expense, net (12,926) (12,254) (26,028) (24,171)
Other income, net 3,812 28 3,940 39
-------- -------- --------- ---------
Loss before taxes (8,200) (26,212) (21,904) (34,254)
Income tax benefit (2,635) (8,516) (7,047) (10,847)
-------- -------- --------- ---------
Net loss $ (5,565) $ (17,696) $ (14,857) $ (23,407)
======== ========= ========= =========
Net loss per share $ (5,565) $ (17,696) $ (14,857) $ (23,407)
======== ========= ========= =========
Weighted average number of common shares outstanding 1 1 1 1
======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
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PIONEER CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (14,857) $ (23,407)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 24,967 25,870
Net change in deferred taxes (7,277) (11,208)
Reduction in post-retirement medical expense -- (12,530)
Loss (gain) on disposal of assets (2,516) 1,061
Loss (gain) from foreign exchange rate fluctuations 417 (769)
Net effect of changes in operating assets and liabilities (3,162) (2,867)
----------- -----------
Net cash flows used in operating activities (2,428) (23,850)
----------- -----------
Investing activities:
Capital expenditures (8,420) (16,704)
Proceeds received from disposals of assets 3,896 1,145
----------- -----------
Net cash flows provided by (used in) investing activities (4,524) (15,559)
----------- -----------
Financing activities:
Net proceeds under revolving credit arrangements 13,185 --
Repayments on long-term debt (1,220) (1,334)
----------- -----------
Net cash flows used in financing activities 11,965 (1,334)
Effect of exchange rate changes on cash (825) 1,122
----------- -----------
Net increase (decrease) in cash 4,188 (39,621)
Cash at beginning of period 2,903 50,593
----------- -----------
Cash at end of period $ 7,091 $ 10,972
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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PIONEER CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet at June 30, 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 six 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 Corporation of America ("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. 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.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net effects of changes in operating assets and liabilities are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Accounts receivable $ (1,463) $ 5,799
Due from affiliates (1,470) 1,789
Inventories (2,399) (1,456)
Prepaid expenses 915 (1,044)
Other assets 7,739 (706)
Accounts payable (3,314) (838)
Accrued liabilities 1,286 (5,911)
Other long-term liabilities (4,456) (500)
----------- ----------
Net change in operating assets and liabilities $ (3,162) $ (2,867)
=========== ==========
</TABLE>
Following are supplemental disclosures of cash flow information:
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
---------- ----------
Cash payments for:
Interest $ 26,976 $ 25,331
Income taxes 11 168
3. INVENTORIES
Inventories consist of the following:
JUNE 30, DECEMBER 31,
2000 1999
--------- ----------
Raw materials, supplies and parts $ 15,701 $ 16,822
Finished goods and work-in-process 6,785 5,350
Inventories under exchange agreements 2,843 958
--------- ---------
$ 25,329 $ 23,130
========= =========
6
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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 certain of the previous owners
of acquired business in connection with certain environmental liabilities at
certain of 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, PCI Chemicals Canada Inc. ("PCI Canada"), 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, PCI Canada and the subsidiary note guarantors comprise
all of the direct and indirect subsidiaries of Pioneer. Summarized financial
information of PCI Canada and the guarantors of these notes are as follows:
<TABLE>
<CAPTION>
PCI NOTE CONSOLIDATED PCI NOTE CONSOLIDATED
CANADA GUARANTORS COMPANY CANADA GUARANTORS COMPANY
------------- ------------- ------------- ------------ ------------- ------------
AS OF JUNE 30, 2000 AS OF DECEMBER 31, 1999
----------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 19,375 $ 69,445 $ 88,820 $ 22,073 $ 59,753 $ 81,826
Non-current assets 157,137 423,549 580,686 160,415 435,314 595,729
Current liabilities 19,067 39,845 58,912 23,961 38,160 62,121
Non-current liabilities 191,575 432,934 624,509 184,565 429,926 614,491
FOR THE THREE MONTHS ENDED JUNE 30, 2000 FOR THE THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------- -----------------------------------------------
Revenues $ 31,417 $ 55,167 $ 86,584 $ 24,818 $ 41,179 $ 65,997
Gross profit (loss) 4,130 7,510 11,640 499 (3,090) (2,591)
Net loss (1,717) (3,848) (5,565) (4,551) (13,145) (17,696)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------- -----------------------------------------------
Revenues $ 63,309 $104,962 $168,271 $ 51,224 $ 82,812 $134,036
Gross profit 9,363 13,247 22,610 4,711 6,987 11,698
Net loss (3,480) (11,377) (14,857) (6,260) (17,147) (23,407)
</TABLE>
Separate financial statements of PCI Canada and the guarantors of the PCI
Canada notes are not included as management believes that separate financial
statements of these entities are not material to investors.
6. OTHER LONG-TERM LIABILITIES (ENVIRONMENTAL)
The Company's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those
applicable to waste management, discharge of materials into the air and water,
clean-up liability from historical waste disposal practices, and employee
health and safety. At several of the Company's facilities, investigations or
remediation is underway, and at some of these locations regulatory agencies are
considering whether additional actions are
7
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necessary to protect or remediate surface or groundwater resources. The Company
could be required to incur additional costs to construct and operate
remediation systems in the future.
In connection with the 1995 transaction pursuant to which the Company
acquired all of the outstanding common stock and other equity interests of an
acquired company from the holders of those interests (the "Sellers"), the
Sellers agreed to indemnify the Company and its affiliates for certain
environmental remediation obligations arising prior to the closing date from or
relating to certain plant sites or arising before or after the closing date with
respect to certain environmental liabilities relating to certain properties and
interests held by the Company for the benefit of the Sellers (the "Contingent
Payment Properties"). Amounts payable in respect of such liabilities would
generally be payable as follows: (i) out of certain reserves established on the
Company's balance sheet at December 31, 1994; (ii) either by offset against the
amounts payable under the $11.5 million in notes payable by the Company to the
Sellers or from amounts held in an account (the "Contingent Payment Account")
established for the deposit of proceeds from the Contingent Payment Properties;
and (iii) in certain circumstances and subject to specified limitations, out of
the personal assets of the Sellers. To the extent that liabilities exceed
proceeds from the Contingent Payment Properties, the Company would be limited,
for a ten-year period, principally to its rights of offset against the Seller's
notes to cover such liabilities.
During June 2000, the Company and the Sellers effected an agreement,
pursuant to which the Company, in exchange for cash and other consideration,
relieved the Sellers from their environmental indemnity obligations and agreed
to transfer to the Sellers the record title to the Contingent Payment Properties
the $800,000 remaining cash balance in the Contingent Payment Account that was
determined to be in excess of anticipated environmental liability. The cash
balance in the Contingent Payment Account at the time of this transaction was
$6.1 million. This cash balance was not previously reflected on the Company's
balance sheet since a right of setoff existed.
As part of this transaction, a third-party environmental analysis was
performed on all of the Company's sites subject to the indemnity. The Company
then adjusted the remediation reserve on its balance sheet to the discounted
future cash flows for estimated environmental remediation. As a result of the
above transaction and the new environmental analysis, the Company reported a
pre-tax gain of $1.8 million during the second quarter of 2000 which is
reflected as a reduction of cost of sales.
7. RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues. Revenues increased by $20.6 million or approximately 31% to
$86.6 million for the three months ended June 30, 2000, as compared to the
three months ended June 30, 1999. The increase in revenues was primarily
attributable to higher electrochemical unit ("ECU") prices. ECU prices were
approximately 39% higher during the second quarter of 2000 versus the second
quarter of 1999.
Cost of Sales. Cost of sales increased $6.4 million or approximately 9%,
for the three months ended June 30, 2000, as compared to the same period in
1999, principally due to a $5.2 million increase in power costs and an increase
in sales volume. This increase was partially offset by a $1.8 million reduction
in environmental remediation expense in connection with the environmental
analysis conducted during the quarter.
Gross Profit (Loss). During the second quarter of 2000, gross profit
increased $14.2 million as a result of higher ECU sales prices, partially
offset by the cost of sales increase discussed above. Gross profit margin for
the second quarter of 2000 was 13%, as compared to a negative margin of 4% in
the same period of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $0.6 million, or approximately 5%, for the
three months ended June 30, 2000, primarily as a result of overhead expense
reductions.
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.
Other Income, Net. Other income, net for the quarter ended June 30, 2000
was $3.8 million, which consisted primarily of a $3.3 million gain from the
sale of certain excess property.
Net Loss. Due to the factors described above, net loss for the three
months ended June 30, 2000 was $5.6 million, compared to a net loss of $17.7
million for the same period in 1999.
8
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SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues. Revenues increased by $34.2 million or approximately 26% to
$168.3 million for the six months ended June 30, 2000, as compared to the six
months ended June 30, 1999. ECU prices were approximately 30% higher during the
first half of 2000 versus the same period in 1999.
Cost of Sales. Cost of sales increased $23.3 million or approximately 19%,
for the six months ended June 30, 2000, as compared to the same period in 1999.
$10.9 million of this increase was due to the absence of the gain resulting
from the modification of the Company's retiree health care benefits that
occurred during the first quarter of 1999. The remaining increase in cost of
sales was principally due to higher power costs and greater sales volume,
partially offset by the reduction in environmental remediation expense during
the three months ended June 30, 2000.
Gross Profit (Loss). Gross profit increased $10.9 million, for a gross
margin of 13% in 2000 compared to 9% in 1999, primarily as a result of the ECU
pricing increase, partially offset by the cost of sales increase discussed
above.
Unusual Charges. Unusual charges for the six months ended June 30, 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 due to 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 $0.8 million, or approximately 4%, for the
six months ended June 30, 2000. An increase of $1.6 million was due to the
absence of the modification of the Company's retiree health care benefits
referred to above, offset by decreases related to overhead expense reductions.
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.
Other Income, Net. Other income, net for the six months ended June 30,
2000 was primarily a $3.3 million gain from the sale of certain excess
property.
Net Loss. Due to the factors described above, the net loss for the six
months ended June 30, 2000 of $14.9 million, decreased from a net loss of $23.4
million for the same period in 1999.
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 June 30, 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 CORPORATION OF AMERICA
August 11, 2000 By: /s/ Philip J. Ablove
--------------------
Philip J. Ablove
Executive Vice President
and Chief Financial Officer
10
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule
