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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 November 1, 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
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Page
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations - Three Months Ended September 30, 2000
and 1999 and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -Nine Months Ended September 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
</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 CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,855 $ 2,903
Accounts receivable, net of allowance for doubtful accounts of $1,335 at
September 30, 2000 and $1,592 at December 31, 1999 48,482 50,063
Inventories 25,144 23,130
Prepaid expenses 4,618 5,730
------------ ------------
Total current assets 82,099 81,826
Property, plant and equipment:
Land 10,622 10,622
Buildings and improvements 61,248 61,014
Machinery and equipment 341,069 333,094
Construction in progress 17,003 19,435
------------ ------------
429,942 424,165
Less: accumulated depreciation (126,827) (103,096)
------------ ------------
303,115 321,069
Due from affiliates 3,792 15,231
Other assets, net of accumulated amortization of $10,765 at September 30, 2000
and $8,956 at December 31, 1999 80,873 66,965
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $37,754 at September 30, 2000 and $32,095 at December 31,
1999 181,750 192,464
------------ ------------
Total assets $ 651,629 $ 677,555
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable $ 32,725 $ 28,796
Accrued liabilities 38,981 30,716
Current portion of long-term debt 7,109 2,609
------------ ------------
Total current liabilities 78,815 62,121
Long-term debt, less current portion 582,401 583,260
Accrued pension and other employee benefits 15,270 15,091
Other long-term liabilities 12,470 16,140
Commitments and contingencies (see Note 4)
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 (102,811) (64,541)
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Total stockholder's equity (deficiency in assets) (37,327) 943
------------ ------------
Total liabilities and stockholder's equity (deficiency in assets) $ 651,629 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 86,224 $ 71,571 $ 254,495 $ 205,607
Cost of sales 83,029 71,781 228,690 194,119
------------ ------------ ------------ ------------
Gross profit (loss) 3,195 (210) 25,805 11,488
Selling, general and administrative expenses 9,364 11,769 31,790 32,572
------------ ------------ ------------ ------------
Operating loss (6,169) (11,979) (5,985) (21,084)
Interest expense, net (14,579) (12,806) (40,607) (36,977)
Other income (expense), net (17,158) 2,581 (13,218) 1,603
------------ ------------ ------------ ------------
Loss before taxes (37,906) (22,204) (59,810) (56,458)
Income tax benefit (14,496) (8,265) (21,543) (19,112)
------------ ------------ ------------ ------------
Net loss $ (23,410) $ (13,939) $ (38,267) $ (37,346)
============ ============ ============ ============
Net loss per share $ (23,410) $ (13,939) $ (38,267) $ (37,346)
============ ============ ============ ============
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)
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NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
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<S> <C> <C>
Operating activities:
Net loss $ (38,266) $ (37,346)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 37,454 38,737
Net change in deferred taxes (21,449) (18,847)
Reduction in post-retirement medical expense -- (12,530)
Loss on disposal of assets 14,859 1,061
Loss (gain) from foreign exchange rate fluctuations 768 (769)
Net effect of changes in operating assets and liabilities 13,935 3,947
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Net cash flows from operating activities 7,301 (25,747)
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Investing activities:
Capital expenditures (12,746) (23,513)
Net proceeds received from disposals of assets 4,825 1,145
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Net cash flows from investing activities (7,921) (22,368)
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Financing activities:
Net proceeds under revolving credit arrangements 4,997 3,315
Repayments on long-term debt (1,855) (2,004)
------------ ------------
Net cash flows from financing activities 3,142 1,311
Effect of exchange rate changes on cash (1,570) 1,148
------------ ------------
Net increase (decrease) in cash 952 (45,656)
Cash at beginning of period 2,903 50,593
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Cash at end of period $ 3,855 $ 4,937
============ ============
</TABLE>
See notes to consolidated financial statements.
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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 September 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 nine 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 accounting principles generally accepted in
the United States of America, 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>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
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<S> <C> <C>
Accounts receivable $ 1,545 $ 2,564
Due from affiliates (1,584) 1,786
Inventories (2,344) 397
Prepaid expenses 1,402 (1,747)
Other assets 6,266 (2,932)
Accounts payable 5,352 (140)
Accrued liabilities 8,754 5,667
Other long-term liabilities (5,456) (1,648)
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Net change in operating assets and liabilities $ 13,935 $ 3,947
============ ============
</TABLE>
Following are supplemental disclosures of cash flow information:
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NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
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<S> <C> <C>
Cash payments for:
Interest $ 33,196 $ 29,442
Income taxes 11 178
</TABLE>
3. INVENTORIES
Inventories consist of the following:
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SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
Raw materials, supplies and parts $ 14,118 $ 16,822
Finished goods and work-in-process 8,165 5,350
Inventories under exchange agreements 2,861 958
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$ 25,144 $ 23,130
============ ============
</TABLE>
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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.
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 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.
The Company relies on indemnification from certain of the previous owners
of acquired businesses 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.
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
and 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.
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
7
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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 SEPTEMBER 30, 2000 AS OF DECEMBER 31, 1999
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 18,249 $ 63,850 $ 82,099 $ 22,073 $ 59,753 $ 81,826
Non-current assets 153,930 415,600 569,530 186,584 409,503 595,729
Current liabilities 28,038 50,777 78,815 23,961 38,160 62,121
Non-current liabilities 147,226 462,915 610,141 184,565 429,926 614,491
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 35,194 $ 51,030 $ 86,224 $ 27,420 $ 44,151 $ 71,571
Gross profit (loss) 6,077 (2,882) 3,195 2,657 (2,867) (210)
Net loss (259) (23,151) (23,410) (1,996) (11,943) (13,939)
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 98,503 $ 155,992 $ 254,495 $ 78,644 $ 126,963 $ 205,607
Gross profit 15,440 10,365 25,805 7,368 4,120 11,488
Net loss (3,739) (34,528) (38,267) (8,256) (29,090) (37,346)
</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. DISPOSITION OF COAGULANT CHEMICALS BUSINESS
On August 21, 2000, the Company sold its coagulant business and transferred
to the buyer fixed assets, including a plant in Spokane, Washington, and certain
technology-related assets and liabilities associated with the Spokane
operations. The Company received cash of $0.9 million as payment for Spokane. On
the same date, an affiliate of the Company also sold its coagulant business to
the same buyer, transferring assets and liabilities associated with a plant in
Savannah, Georgia, except for a related party payable of $17 million for
advances from the Company which were written off by the Company, and is
reflected as a decrease in due from affiliates on the balance sheet and an
increase in other expense on the income statement. This transaction did not have
a material impact on the Company's cash flows.
7. RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues increased by $14.7 million or approximately 20% to $86.2
million for the three months ended September 30, 2000, as compared to the three
months ended September 30, 1999. The increase in revenues was primarily
attributable to higher electrochemical unit ("ECU") prices. ECU prices were
approximately 45% higher during the third quarter of 2000 versus the third
quarter of 1999.
Cost of Sales. Cost of sales increased $11.2 million or approximately 16%
for the three months ended September 30, 2000, as compared to the same period in
1999, principally due to an $8.9 million increase in power costs.
Gross Profit (Loss). During the third quarter of 2000, gross profit
increased by $3.4 million as a result of higher ECU sales prices, partially
offset by the cost of sales increase discussed above. Gross profit margin for
the third quarter of 2000 was 4%, as compared to a small negative margin in the
same period of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $2.4 million for the three months ended
September 30, 2000, primarily as a result of overhead expense reductions and
lower amortization costs.
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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 (Expense), Net. Other income (expense), net for the quarter
ended September 30, 2000 was $19.7 million less than the year-ago period. This
reduction was due to one-time refunds and credits received in the third quarter
of 1999, along with the non-cash intercompany receivable write-down discussed in
Note 6 of Notes to Consolidated Financial Statements.
Net Loss. Due to the factors described above, net loss for the three months
ended September 30, 2000 was $23.4 million, compared to a net loss of $13.9
million for the same period in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues. Revenues increased by $48.9 million, or approximately 24%, to
$254.5 million for the nine months ended September 30, 2000, as compared to the
nine months ended September 30, 1999. ECU prices were approximately 35% higher
during the first nine months of 2000 versus the same period in 1999. Sales
volumes during the first nine months of 2000 were also higher than the same
period in 1999.
Cost of Sales. Cost of sales increased $34.6 million, or approximately 18%,
for the nine months ended September 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 a $15.9 million increase in power costs and
greater sales volume.
Gross Profit (Loss). Gross profit increased $14.3 million, resulting in a
gross profit margin of 10% in 2000 compared to 6% in 1999, primarily as a result
of the ECU pricing increase, partially offset by the cost of sales increase
discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $0.8 million, or approximately 2%, for the
nine months ended September 30, 2000. Decreases related to overhead expense
reductions were partially offset by an increase of $1.6 million due to the
absence of the modification of the Company's retiree health care benefits
referred to above.
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 (Expense), Net. Other income (expense), net decreased for the
nine months ended September 30, 1999 by $14.8 million compared to the same
period in 1999. The decrease was the result of a non-cash related party
receivable write-down discussed in Note 6, partially offset by the $3.3 million
gain from the sale of certain excess property in 2000.
Net Loss. Due to the factors described above, the net loss for the nine
months ended September 30, 2000 of $38.3 million, increased from a net loss of
$37.3 million for the same period in 1999.
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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 September 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
November 8, 2000 By: /s/ Philip J. Ablove
----------------------------------
Philip J. Ablove
Executive Vice President and
Chief Financial Officer
10
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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