-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DOE0LZzctHW/Eg+ZkuKd1mrUYBYriaW17pw0HEczdaJMqIp4+F0UUhsjQAGaBJbn AM15k8YLng0ANB6TYWZlbQ== 0000950135-00-002710.txt : 20000512 0000950135-00-002710.hdr.sgml : 20000512 ACCESSION NUMBER: 0000950135-00-002710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER GROUP INC CENTRAL INDEX KEY: 0000733060 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 135657669 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08841 FILM NUMBER: 626295 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 10-Q 1 THE PIONEER GROUP INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMMISSION FILE NO. 0-8841 ------------------------ THE PIONEER GROUP, INC. (exact name of registrant as specified in its charter) ------------------------ DELAWARE 13-5657669 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 60 STATE STREET, BOSTON, MASSACHUSETTS 02109 (Address of principal executive offices) (Zip Code) 617-742-7825 (Registrant's telephone number, including area code) NO CHANGES (Former name, former address and former fiscal year, if changes since last report) ------------------------ 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 twelve 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 [ ] ------------------------ As of March 31, 2000, there were 26,792,944 shares of the Registrant's Common Stock, $.10 par value per share, issued and outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents, at cost which approximates fair value..................................................... $ 33,912 $ 36,740 Restricted cash............................................. 13 99 Investment in marketable securities, at fair value.......... 3,343 3,850 Receivables: From securities brokers and dealers for sales of mutual fund shares............................................ 11,898 9,429 From Pioneer Family of Mutual Funds..................... 20,406 20,610 For securities sold..................................... 47 194 Income taxes............................................ 14,167 -- Other................................................... 8,898 8,022 Timber inventory............................................ 7,061 3,908 Other current assets........................................ 8,769 9,749 -------- -------- Total current assets................................ 108,514 92,601 -------- -------- NONCURRENT ASSETS: Cost of acquisition in excess of net assets (net of accumulated amortization of $14,282 in 2000 and $13,842 in 1999)..................................................... 14,349 14,539 Long-term venture capital investments, at fair value (cost $55,176 in 2000 and $55,504 in 1999)...................... 50,765 51,093 Long-term investments, at lower of cost or fair value....... 8,177 6,712 Timber operations: Timber equipment and facilities (net of accumulated depreciation of $13,674 in 2000 and $6,231 in 1999)..... 12,482 19,496 Deferred timber development costs (net of accumulated amortization of $10,893 in 2000 and $2,279 in 1999)..... -- 8,609 Building (net of accumulated depreciation of $2,172 in 2000 and $1,990 in 1999)....................................... 24,690 24,559 Furniture, equipment, and leasehold improvements (net of accumulated depreciation and amortization of $19,105 in 2000 and $17,646 in 1999)................................. 16,560 17,266 Other noncurrent assets..................................... 21,850 26,633 Net noncurrent assets of discontinued operations............ 18,270 38,324 -------- -------- Total noncurrent assets............................. 167,143 207,231 -------- -------- $275,657 $299,832 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Payable to funds for shares sold............................ $ 11,896 $ 9,420 Accounts payable............................................ 8,077 5,832 Accrued expenses............................................ 28,639 22,023 Brokerage liabilities....................................... 125 265 Accrued income taxes........................................ 8,262 6,899 Distribution and service fees due to brokers and dealers.... 8,911 9,043 Current portion of notes payable............................ 16,343 1,343 Net current liabilities of discontinued operations.......... 16,247 31,815 -------- -------- Total current liabilities........................... 98,500 86,640 -------- -------- NONCURRENT LIABILITIES: Notes payable, net of current portion....................... 23,867 63,892 -------- -------- Total noncurrent liabilities........................ 23,867 63,892 -------- -------- Total liabilities................................... 122,367 150,532 -------- -------- Minority interest........................................... 62,358 62,202 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $0.10 par value; authorized 60,000,000 shares; issued 26,807,148 shares in 2000 and 26,532,064 shares in 1999......................................... 2,681 2,653 Paid-in capital......................................... 50,397 47,372 Retained earnings....................................... 52,102 50,044 Treasury stock at cost, 14,204 shares in 2000 and 50,885 shares in 1999......................................... (402) (1,804) Cumulative translation adjustment....................... (3,989) (3,943) -------- -------- 100,789 94,322 -------- -------- Less -- Deferred cost of restricted common stock issued................................................. (9,857) (7,224) -------- -------- Total stockholders' equity.......................... 90,932 87,098 -------- -------- $275,657 $299,832 ======== ========
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 2 3 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------- 2000 1999 ----------- ----------- Revenues and sales: Investment management fees.............................. $ 39,393 $ 35,275 Underwriting commissions and distribution fees.......... 3,092 4,090 Shareholder services fees............................... 11,108 11,085 Revenues from brokerage activities...................... -- 215 Trustee fees and other income........................... 6,053 7,094 ----------- ----------- Revenues from financial services businesses............. 59,646 57,759 Timber sales............................................ -- -- ----------- ----------- Total revenues and sales........................... 59,646 57,759 ----------- ----------- Costs and expenses: Management, distribution, shareholder service and administrative expenses............................... 51,197 50,213 Timber operating costs and expenses..................... 1,552 362 ----------- ----------- Total costs and expenses........................... 52,749 50,575 ----------- ----------- Other (income) expenses: Reduction in carrying value of timber assets............ 15,300 -- Unrealized and realized (gains) losses on venture capital and marketable securities investments, net.......................... (1,549) 3,292 Equity in losses of affiliated companies................ 1,232 2,178 Interest expense........................................ 1,867 2,227 ----------- ----------- Total other expenses............................... 16,850 7,697 ----------- ----------- Loss from continuing operations before provision (benefit) for income taxes and minority interest.................... (9,953) (513) ----------- ----------- Provision (benefit) for income taxes........................ (12,167) 675 ----------- ----------- Income (loss) from continuing operations before minority interest.................................................. 2,214 (1,188) ----------- ----------- Minority interest........................................... 156 1,216 ----------- ----------- Net income (loss) from continuing operations before cumulative effect of change in accounting principle............................ 2,058 (2,404) Loss from discontinued operations........................... -- (6,044) Cumulative effect of change in accounting principle, (start-up costs, net of income taxes of $261).................................. -- (12,112) ----------- ----------- Net income (loss)........................................... $ 2,058 $ (20,560) =========== =========== Basic earnings (loss) per share: Continuing operations................................... $ 0.08 $ (0.09) Discontinued operations................................. -- (0.24) Cumulative effect of change in accounting principle..... -- (0.47) ----------- ----------- Total basic earnings (loss) per share.............. $ 0.08 $ (0.80) =========== =========== Diluted earnings (loss) per share: Continuing operations................................... $ 0.08 $ (0.09) Discontinued operations................................. -- (0.24) Cumulative effect of change in accounting principle..... -- (0.47) ----------- ----------- Total diluted earnings (loss) per share............ $ 0.08 $ (0.80) =========== =========== Dividends per share......................................... $ -- $ -- =========== =========== Basic shares outstanding.................................... 26,211,000 25,791,000 =========== =========== Diluted shares outstanding.................................. 26,588,000 25,791,000 =========== ===========
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 3 4 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................................... $ 2,058 $(20,560) Less net loss of discontinued operations................... -- (6,044) Less cumulative effect of change in accounting principle... -- (12,112) -------- -------- Net income (loss) from continuing operations............... $ 2,058 $ (2,404) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................ 3,650 3,956 Reduction in carrying value of timber assets............. 15,300 -- Unrealized and realized (gains) losses on venture capital, marketable securities, and long term investments, net....................................... (1,549) 3,326 Equity in (earnings) losses of affiliated companies...... 1,232 2,178 Restricted stock plan expense............................ 915 855 Deferred income taxes.................................... 1,555 (4,516) Minority interest........................................ 156 1,215 Changes in operating assets and liabilities: Investments in marketable securities, net................ 578 1,148 Receivable from securities brokers and dealers for sales of mutual fund shares.................................. (2,469) (2,005) Receivables for securities sold.......................... 147 184 Receivables from Pioneer Family of Mutual Funds and other.................................................. (681) 4,980 Income tax refund receivable............................. (14,167) -- Timber inventory......................................... (3,153) (3,656) Other current assets..................................... 530 529 Other noncurrent assets.................................. 1,710 (426) Payable to funds for shares sold......................... 2,476 2,010 Accrued expenses and accounts payable.................... 8,729 4,256 Brokerage liabilities.................................... (140) (1,989) Accrued income taxes..................................... 1,700 (13,206) -------- -------- Total adjustments and changes in operating assets and liabilities.......................................... 16,519 (1,161) -------- -------- Net cash provided by (used in) continuing operating activities........................................... 18,577 (3,565) -------- -------- Net cash provided by (used in) discontinued operating activities........................................... 14,938 (836) -------- -------- Net cash provided by (used in) operating activities........................................... 33,515 (4,401) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to furniture, equipment and leasehold improvements............................................. (1,308) (1,557) Building................................................... (140) 408 Long-term venture capital investments...................... -- (884) Proceeds from sale of long-term venture capital investments.............................................. 328 742 Proceeds from sale of domestic venture capital operations............................................... -- 34,945 Other investments.......................................... 223 362 Deferred timber development costs.......................... (5) (47) Timber equipment and facilities............................ (429) (720) Cost of acquisition in excess of net assets acquired....... (250) -- Deconsolidation of pension company subsidiary.............. -- (9,634) Purchase of long-term investments.......................... (1,805) -- Proceeds from sale of long-term investments................ 1,818 135 -------- -------- Net cash provided by (used in) continuing investing activities........................................... (1,568) 23,750 -------- -------- Net cash used in investing activities, discontinued operations........................................... -- (2,552) -------- -------- Net cash provided by (used in) investing activities........................................... (1,568) 21,198 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Liquidation of venture capital partnership................. -- (1,972) Distributions to limited partners of venture capital subsidiary............................................... -- (1,288) Sale of stock by subsidiary................................ -- 555 Exercise of stock options.................................. 546 180 Restricted stock plan award................................ 24 16 Dealer advances............................................ 63 -- Revolving credit agreement (repayments) borrowings, net.... (25,000) (30,000) Repayments of notes payable................................ (25) (4,290) Reclassification of restricted cash........................ 86 961 -------- -------- Net cash used in continuing financing activities..... (24,306) (35,838) -------- -------- Net cash used in financing activities, discontinued operations........................................... (10,452) (1,939) -------- -------- Net cash used in financing activities................ (34,758) (37,777) -------- -------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........................................... (17) (536) NET DECREASE IN CASH AND CASH EQUIVALENTS................... (2,828) (21,516) -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 36,740 44,212 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 33,912 $ 22,696 ======== ========
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 4 5 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2000 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Company conform to generally accepted accounting principles. The Company has not changed any of its principal accounting policies from those stated in the Annual Report on Form 10-K for the year ended December 31, 1999. The footnotes to the financial statements reported in the 1999 Annual Report on Form 10-K are incorporated herein by reference, except to the extent that any such footnote is updated by the following: Certain reclassifications have been made to the accompanying 1999 consolidated financial statements to conform with the 2000 presentation. During the first quarter of 1999, the Company adopted the provisions of the American Institute of Certified Public Accountants (the "AICPA") SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that costs of start-up activities be expensed as incurred. The Company had capitalized certain pre-operating costs in connection with capitalized organizational costs associated with its financial services operations and its natural resource operations. Adoption of SOP 98-5 resulted in write-offs of $12.1 million, or $0.47 per share, which is reflected in the accompanying consolidated financial statements as a change in accounting principle. In the second quarter of 1999, the Company sold newly issued shares of its Polish pension company subsidiary resulting in a 30% interest for $20 million. In connection with the sale, the Company deconsolidated the Polish pension company as control is shared. The Company is accounting for its investment in the pension company under the equity method retroactive to January 1, 1999. The effect of this transaction is reflected in the accompanying Consolidated Statements of Cash Flows as deconsolidation of pension company subsidiary. Interest paid was $1,740,000 and $2,482,000 for the three months ended March 31, 2000 and 1999, respectively. Income taxes refunded were $8,419,000 for the three months ended March 31, 2000. Income taxes paid were $16,572,000 for the three months ended March 31, 1999. 5 6 NOTE 2 -- EARNINGS PER SHARE The following table details the calculation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings available to stockholders by weighted average shares outstanding not including contingently issuable shares. Diluted EPS includes the effect of the contingently issuable shares and other common stock equivalents, if not antidilutive.
NET EARNINGS/ INCOME/ (LOSS) (LOSS) SHARES PER SHARE --------- ------- ---------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS ENDED 3/31/00 Basic earnings per share calculation: Continuing operations......................... $ 2,058 26,211 $ 0.08 Discontinued operations....................... $ -- 26,211 $ -- -------- ------ ------ Total............................... $ 2,058 26,211 $ 0.08 ======== ====== ====== Options....................................... 315 Restricted stock.............................. 62 ------ Diluted earnings per share calculation: Continuing operations......................... $ 2,058 26,588 $ 0.08 Discontinued operations....................... $ -- 26,588 $ -- -------- ------ ------ Total............................... $ 2,058 26,588 $ 0.08 ======== ====== ====== FOR THE THREE MONTHS ENDED 3/31/99 Basic earnings per share calculation: Continuing operations......................... $ (2,404) 25,791 $(0.09) Discontinued operations....................... $ (6,044) 25,791 $(0.24) Cumulative effect of change in accounting principle........................ $(12,112) 25,791 $(0.47) -------- ------ ------ Total............................... $(20,560) 25,791 $(0.80) ======== ====== ====== Options....................................... -- Restricted stock.............................. -- Diluted earnings per share calculation: Continuing operations......................... $ (2,404) 25,791 $(0.09) Discontinued operations....................... $ (6,044) 25,791 $(0.24) Cumulative effect of change in accounting principle........................ $(12,112) 25,791 $(0.47) -------- ------ ------ Total............................... $(20,560) 25,791 $(0.80) ======== ====== ======
NOTE 3 -- COMPREHENSIVE INCOME SFAS 130, "Reporting Comprehensive Income" establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. The Company's foreign currency translation adjustments, which are excluded from 6 7 net income, are included in comprehensive income. The following table reports comprehensive income for the three months ended March 31, 2000 and 1999.
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 ------ -------- (DOLLARS IN THOUSANDS) Net income (loss).................................... $2,058 $(20,560) Other comprehensive expense: Foreign currency translation adjustments........... (46) (962) ------ -------- Other comprehensive expense.......................... (46) (962) ------ -------- Comprehensive income (loss).......................... $2,012 $(21,522) ====== ========
NOTE 4 -- NET CAPITAL As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD") is subject to the Securities and Exchange Commission's ("SEC") regulations and operating guidelines which, among other things, requires PFD to maintain a specified amount of net capital. Net capital may fluctuate on a daily basis. PFD's net capital, as computed under Rule 15c3-1, was $1,003,324 at March 31, 2000, which exceeded required net capital of $250,000 by $753,324. PFD is exempt from the reserve requirements of Rule 15c3-3, since its U.S. broker-dealer transactions are limited to the purchase, sale and redemption of redeemable securities of registered investment companies. All customer funds are promptly transmitted and all securities received in connection with activities as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or securities for, or owe money or securities to, customers. NOTE 5 -- NOTES PAYABLE Notes payable of the Company consist of the following:
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ (DOLLARS IN THOUSANDS) Revolving Credit Agreement.................................. $15,000 $40,000 Senior note payable to a commercial lender, principal payable on August 15, 2004, interest payable at 8.95%..... 20,000 20,000 Note payable to a bank, interest and principal payable monthly at the one-month Warsaw Bank rate plus 1.75% through August 2002....................................... 250 275 Project financing, guaranteed by OPIC, payable in semiannual installments of $620,000 through December 15, 2003, interest payable at 9.95%................................. 4,960 4,960 ------- ------- 40,210 65,235 ------- ------- Less: Current portion....................................... (16,343) (1,343) ------- ------- $23,867 $63,892 ======= =======
7 8 Maturities of notes payable at March 31, 2000, or each of the next five years and thereafter are as follows (dollars in thousands): 4/1/00-3/31/01.............................................. $16,343 4/1/01-3/31/02.............................................. 1,343 4/1/02-3/31/03.............................................. 1,284 4/1/03-3/31/04.............................................. 1,240 4/1/04-3/31/05.............................................. 20,000 Thereafter.................................................. -- ------- $40,210 =======
At March 31, 2000, the Company had $8 million of debt attributable to its discontinued gold mining operations. Scheduled debt service for the remainder of 2000 is expected to aggregate $3.9 million, of which $3.3 million represents principal payments. In 1996, the Company entered into an agreement with a syndicate of commercial banks for a senior credit facility that has been amended from time to time (the "Credit Facility"). Under the Credit Facility, the Company may borrow up to $55 million for general corporate purposes (the "Corporate Revolver"). The Corporate Revolver is payable in full in March 2001. The Credit Facility requires that the Company meet certain financial covenants including covenants that require the Company to maintain certain minimum ratios with respect to debt to cash flow and interest payments to cash flow, and a minimum tangible net worth, all as defined in the Credit Facility. As of March 31, 2000, the Company was in compliance with all applicable covenants and had $15 million outstanding under the Corporate Revolver. Subsequent to March 31, 2000, the Company paid off the $15 million in Corporate Revolver borrowings. In January 2000, the Company unwound $20 million of overhedged swaps and recognized $33,000 of income on the transaction. As of March 31, 2000, the Company had a five-year interest rate swap agreement with a member of the Company's banking syndicate which has effectively fixed the interest rate on notional amounts totaling $15 million. Under the agreement, the Company will pay the bank a weighted average fixed rate of 6.90% on the notional principal. The bank will pay the Company interest on the notional principal at the current variable rate stated under the swap agreement. The Company has incurred approximately $49,000 and $401,000 of interest expense on its swap agreements during the three months ended March 31, 2000 and 1999, respectively. At March 31, 2000, the fair value of the outstanding swap was an obligation of $82,000, compared to a book value of $0. If the Company were to terminate the swap agreement, it would be required to pay an amount approximating fair value at the time of termination. For the three months ended March 31, 2000 and 1999, the weighted average interest rate on the borrowings under the Credit Facility and Note Agreement was 9.68% and 8.31%, respectively. NOTE 6 -- DISCONTINUED OPERATIONS In the second quarter of 1999, the Company reflected the gold mining segment as a discontinued operation. The gold mining segment consists of Pioneer Goldfields Ltd. ("PGL"), and its 90% owned Ghanaian operating subsidiary, Teberebie Goldfields Ltd. ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah Mining Company," the Company's majority owned (95%) Russian subsidiary. The Company engaged the services of an investment banking firm to sell PGL, including its African exploration rights and its interest in TGL. The Company continues to actively negotiate a possible sale, although it can provide no assurance that a sale will occur. Regardless of whether a sale is consummated or not, it is proceeding with an orderly closure of the mine. All mining operations ceased at the end of 1999, and all processing activities will be completed by the end of the first half of 2000. The Company also reflected its powdered metals business as a discontinued operation in the second quarter of 1999. 8 9 The following is an unaudited summary of losses from operations of the gold mining and powdered metals segments for the three months ended March 31, 2000 and 1999, respectively:
THREE MONTHS ENDED MARCH 31, 2000 ----------------------------- NET INCOME EARNINGS/(LOSS) /(LOSS) PER SHARE ---------- --------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Loss from operations of discontinued gold mining segment................................................. $ -- $ -- ------- ------ Total loss from discontinued operations................... $ -- $ -- ======= ======
THREE MONTHS ENDED MARCH 31, 1999 ----------------------------- NET INCOME EARNINGS/(LOSS) /(LOSS) PER SHARE ---------- --------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Loss from operations of discontinued gold mining segment, net of taxes of ($175).................................. $(5,923) $(0.23) Loss from operations of discontinued powdered metals business, net of taxes of ($24)......................... (121) (0.01) ------- ------ Total losses from discontinued operations....... $(6,044) $(0.24) ======= ======
The following is an unaudited summary of the results of discontinued gold mining operations for the three months ended March 31, 2000 and 1999, respectively:
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 ------------------ ------------------ (AMOUNTS (AMOUNTS IN THOUSANDS) IN THOUSANDS) Revenues from gold mining activities.............. $11,131 $19,976 ------- ------- Loss before income taxes and minority interest.... -- (6,671) Income tax benefit................................ -- (175) ------- ------- Loss before minority interest..................... -- (6,496) Minority interest................................. -- (573) ------- ------- Loss from discontinued gold mining operations..... $ -- $(5,923) ======= =======
The results of discontinued gold mining operations for the three months ended March 31, 1999 included an allocation of directly attributable corporate interest expenses of $305,000. No corporate interest expense was allocated for the three months ended March 31, 2000. Interest had been previously allocated based upon the intercompany financing provided to the gold mining operations. NOTE 7 -- TIMBER OPERATIONS The timber segment's operating results included both income from U.S. tax benefits of approximately $15.1 million and the application of those tax benefits to reduce the carrying value of the Company's timber assets. The income, which is reflected on the Consolidated Statements of Operations as a credit to tax expense, represented realization in the U.S. of previously unrecognized foreign losses. In connection with the realization of the income tax benefits, the Company recorded a corresponding reduction in the carrying value of timber equipment and facilities and deferred development costs. The tax benefits were largely collected in April 2000 and used to repay bank debt. NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" the Company presents segment information using the management approach. The management approach is based on the way that management organizes the segments within a Company for making operating decisions and assessing performance. The Company's operating segments are organized around services and products provided, as well as geographic regions. The intersegment transactions are for management services and the secondment of employees. These transactions are generally priced on a cost or cost plus basis. 9 10 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2000 NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED) The following details selected financial data by business segment and geographic region (dollars in thousands):
PIONEER -SUBTOTAL- INTERNATIONAL FINANCIAL SERVICES PIONEER PIONEER ------------------------------------ INTERNATIONAL INVESTMENT CZECH FINANCIAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES ---------- ------- ------- -------- ----- ------------- Three months ended March 31, 2000: Gross revenues and sales.......... $ 52,935 $ 2,077 $ 3,198 $1,087 $ -- $ 6,362 ======== ======= ======= ====== ===== ======= Intersegment eliminations......... $ (256) $ -- $ -- $ (3) $ -- $ (3) ======== ======= ======= ====== ===== ======= Net revenues and sales............ $ 52,679 $ 2,077 $ 3,198 $1,084 $ -- $ 6,359 ======== ======= ======= ====== ===== ======= Income (loss) before income taxes minority interest and cumulative effect of accounting change..... $ 11,020 $ 657 $(1,400) $ 234 $(171) $ (680) ======== ======= ======= ====== ===== ======= Income taxes (benefits)........... $ 3,548 $ 632 $ 125 $ (87) $ (60) $ 610 ======== ======= ======= ====== ===== ======= Minority interest................. $ -- $ 441 $ -- $ -- $ 441 ======== ======= ======= ====== ===== ======= Net income (loss)................. $ 7,472 $ (416) $(1,525) $ 321 $(111) $(1,731) ======== ======= ======= ====== ===== ======= Depreciation and amortization..... $ 3,326 $ 272 $ 132 $ 21 $ -- $ 425 ======== ======= ======= ====== ===== ======= Interest expense.................. $ -- $ -- $ 15 $ -- $ -- $ 15 ======== ======= ======= ====== ===== ======= Capital expenditures.............. $ 1,279 $ 166 $ -- $ 6 $ -- $ 172 ======== ======= ======= ====== ===== ======= Gross identifiable assets at March 31, 2000........................ $183,655 $42,332 $ 5,591 $1,912 $ -- $49,835 ======== ======= ======= ====== ===== ======= Intersegment eliminations......... $(74,466) $ (97) $ -- $ (5) $ -- $ (102) ======== ======= ======= ====== ===== ======= Net identifiable assets at March 31, 2000........................ $109,189 $42,235 $ 5,591 $1,907 $ -- $49,733 ======== ======= ======= ====== ===== ======= PIONEER GLOBAL INVESTMENTS --------------------------------------- CENT. & EAST. -SUBTOTAL- REAL U.S. EUROPE PIONEER ESTATE VENTURE VENTURE RUSSIAN GLOBAL SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER TOTAL -------- ------- ------- -------- ----------- ------- -------- Three months ended March 31, 2000: Gross revenues and sales.......... $ 469 $ -- $ 280 $ -- $ 749 $ 1,363 $ 61,409 ======= ======= ======= ======== ======== ======= ======== Intersegment eliminations......... $ -- $ (141) $ -- $ (141) $(1,363) $ (1,763) ======= ======= ======= ======== ======== ======= ======== Net revenues and sales............ $ 469 $ -- $ 139 $ -- $ 608 $ -- $ 59,646 ======= ======= ======= ======== ======== ======= ======== Income (loss) before income taxes minority interest and cumulative effect of accounting change..... $ (794) $ -- $ (215) $(17,354) $(18,363) $(1,930) $ (9,953) ======= ======= ======= ======== ======== ======= ======== Income taxes (benefits)........... $ (292) $ -- $ (25) $(15,397) $(15,714) $ (611) $(12,167) ======= ======= ======= ======== ======== ======= ======== Minority interest................. $ -- $ -- $ (285) $ -- $ (285) $ -- $ 156 ======= ======= ======= ======== ======== ======= ======== Net income (loss)................. $ (502) $ -- $ 95 $ (1,957) $ (2,364) $(1,319) $ 2,058 ======= ======= ======= ======== ======== ======= ======== Depreciation and amortization..... $ 31 $ -- $ 4 $ 757 $ 792 $ 22 $ 4,565 ======= ======= ======= ======== ======== ======= ======== Interest expense.................. $ 2 $ -- $ -- $ 248 $ 250 $ 1,602 $ 1,867 ======= ======= ======= ======== ======== ======= ======== Capital expenditures.............. $ -- $ -- $ (3) $ 429 $ 426 $ -- $ 1,877 ======= ======= ======= ======== ======== ======= ======== Gross identifiable assets at March 31, 2000........................ $ 1,570 $ -- $52,032 $ 37,315 $ 90,917 $11,162 $335,569 ======= ======= ======= ======== ======== ======= ======== Intersegment eliminations......... $ -- $ -- $ (419) $ -- $ (419) $(3,195) $(78,182) ======= ======= ======= ======== ======== ======= ======== Net identifiable assets at March 31, 2000........................ $ 1,570 $ -- $51,613 $ 37,315 $ 90,498 $ 7,967 $257,387 ======= ======= ======= ======== ======== ======= ========
10 11 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 2000
PIONEER -SUBTOTAL- INTERNATIONAL FINANCIAL SERVICES PIONEER PIONEER ------------------------------------ INTER- INVESTMENT CZECH FINANCIAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES ---------- ------- ------- -------- ----- ---------- Three months ended March 31, 1999: Gross revenues and sales......... $ 51,073 $ 3,275 $ 3,823 $ 360 $ -- $ 7,458 ========= ======= ======= ===== ===== ======= Intersegment eliminations........ $ (1,395) $ (68) $ -- $ -- $ -- $ (68) ========= ======= ======= ===== ===== ======= Net revenues and sales........... $ 49,678 $ 3,207 $ 3,823 $ 360 $ -- $ 7,390 ========= ======= ======= ===== ===== ======= Income (loss) before income taxes, minority interest and cumulative effect of accounting change......................... $ 12,605 $ (427) $(2,830) $(293) $(212) $(3,762) ========= ======= ======= ===== ===== ======= Income taxes (benefits).......... $ 4,474 $ (283) $ (24) $ (68) $ (70) $ (445) ========= ======= ======= ===== ===== ======= Minority interest................ $ -- $ 26 $ (37) $ -- $ -- $ (11) ========= ======= ======= ===== ===== ======= Net income (loss) from continuing operations before cumulative effect of accounting change.... $ 8,131 $ (170) $(2,769) $(225) $(142) $(3,306) ========= ======= ======= ===== ===== ======= Cumulative effect of change in accounting principle........... $ (205) $ (521) $ -- $ (14) $ -- $ (535) ========= ======= ======= ===== ===== ======= Net income (loss)................ $ 7,926 $ (691) $(2,769) $(239) $(142) $(3,841) ========= ======= ======= ===== ===== ======= Depreciation and amortization.... $ 3,213 $ 547 $ 285 $ 32 $ -- $ 864 ========= ======= ======= ===== ===== ======= Interest expense................. $ -- $ 10 $ 17 $ -- $ -- $ 27 ========= ======= ======= ===== ===== ======= Capital expenditures............. $ 965 $ 111 $ -- $ -- $ -- $ 111 ========= ======= ======= ===== ===== ======= Gross identifiable assets at March 31, 1999................. $ 209,381 $45,466 $10,352 $ 646 $ -- $56,464 ========= ======= ======= ===== ===== ======= Intersegment eliminations........ $(111,802) $ (265) $ -- $ -- $ -- $ (265) ========= ======= ======= ===== ===== ======= Net identifiable assets at March 31, 1999....................... $ 97,579 $45,201 $10,352 $ 646 $ -- $56,199 ========= ======= ======= ===== ===== ======= PIONEER GLOBAL INVESTMENTS ---------------------------------------- CENT. & -SUBTOTAL- REAL U.S. EAST. PIONEER ESTATE VENTURE VENTURE RUSSIAN GLOBAL SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER TOTAL -------- -------- ------- -------- ----------- ------- --------- Three months ended March 31, 1999: Gross revenues and sales......... $ 354 $ 129 $ 208 $ -- $ 691 $ 3,994 $ 63,216 ======= ======== ======= ======== ======== ======= ========= Intersegment eliminations........ $ -- $ -- $ -- $ -- $ -- $(3,994) $ (5,457) ======= ======== ======= ======== ======== ======= ========= Net revenues and sales........... $ 354 $ 129 $ 208 $ -- $ 691 $ -- $ 57,759 ======= ======== ======= ======== ======== ======= ========= Income (loss) before income taxes, minority interest and cumulative effect of accounting change......................... $(1,346) $ (4,158) $ (316) $ (1,005) $ (6,825) $(2,531) $ (513) ======= ======== ======= ======== ======== ======= ========= Income taxes (benefits).......... $ (367) $ (1,892) $ (4) $ (204) $ (2,467) $ (887) $ 675 ======= ======== ======= ======== ======== ======= ========= Minority interest................ $ -- $ 1,373 $ (146) $ -- $ 1,227 $ -- $ 1,216 ======= ======== ======= ======== ======== ======= ========= Net income (loss) from continuing operations before cumulative effect of accounting change.... $ (979) $ (3,639) $ (166) $ (801) $ (5,585) $(1,644) $ (2,404) ======= ======== ======= ======== ======== ======= ========= Cumulative effect of change in accounting principle........... $ (115) $ (183) $ (382) $(10,692) $(11,372) $ -- $ (12,112) ======= ======== ======= ======== ======== ======= ========= Net income (loss)................ $(1,094) $ (3,822) $ (548) $(11,493) $(16,957) $(1,644) $ (14,516) ======= ======== ======= ======== ======== ======= ========= Depreciation and amortization.... $ 37 $ 45 $ 75 $ 545 $ 702 $ 32 $ 4,811 ======= ======== ======= ======== ======== ======= ========= Interest expense................. $ 2 $ 203 $ -- $ 364 $ 569 $ 1,631 $ 2,227 ======= ======== ======= ======== ======== ======= ========= Capital expenditures............. $ -- $ -- $ 70 $ 720 $ 790 $ 3 $ 1,869 ======= ======== ======= ======== ======== ======= ========= Gross identifiable assets at March 31, 1999................. $ 4,736 $ 25,343 $50,357 $ 44,789 $125,225 $14,277 $ 405,347 ======= ======== ======= ======== ======== ======= ========= Intersegment eliminations........ $ (274) $(24,193) $ -- $ -- $(24,467) $(6,132) $(142,666) ======= ======== ======= ======== ======== ======= ========= Net identifiable assets at March 31, 1999....................... $ 4,462 $ 1,150 $50,357 $ 44,789 $100,758 $ 8,145 $ 262,681 ======= ======== ======= ======== ======== ======= =========
11 12 ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The consolidated financial statements of The Pioneer Group, Inc. (the "Company") include the Company's three strategic business units. Pioneer Investment Management includes the investment management, marketing, distribution and servicing of the Company's mutual funds based in the United States and offshore funds based in Ireland. This business unit also provides investment management services for institutional investors. Pioneer International Financial Services includes the Company's investment management and financial services businesses in Poland, the Czech Republic, Russia and India. Pioneer Global Investments includes the Company's worldwide venture capital, real estate and timber operations. The Company is in the process of disposing of its gold mining operations and, as such, has reported these as discontinued operations. Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in three sections: Results of Operations, Liquidity and Capital Resources-General and Future Operating Results. The Board of Directors engaged the services of two investment banking firms to provide advice on enhancing shareholder value. At a special meeting of the Board held on March 2, 2000, the investment bankers presented their evaluations of several alternatives to the Board. The Board determined to authorize the bankers to actively explore strategic alternatives, including a possible sale of the Company. Subsequently, numerous third parties expressed interest in the form of non-binding proposals, and after executing the appropriate confidentiality agreements, several have now completed due diligence. Management currently is in detailed discussions with firms who have expressed the most interest. As a result of this process, as well as the proxy contest initiated by a dissident shareholder, the Company's results from operations reflect several unusual and temporary items. For example, mutual fund sales have slowed and redemptions have increased while many of the intermediaries who sell the Company's fund shares await the outcome of this process. The Company's most valuable assets are its relationships with clients and the employees who provide these clients with services. Accordingly, the Company increased its advertising and other sales promotional expenses and entered into various employee retention arrangements to maintain the value of these assets. Finally, these events have resulted in higher temporary legal, proxy solicitation, and other related expenses. Substantially all of these effects have been reflected in the Pioneer Investment Management segment. RESULTS OF OPERATIONS CONSOLIDATED OPERATIONS In the first quarter of 2000, the Company had net income from continuing operations of $2.1 million, or $0.08 per share. During the first quarter of 1999, the Company reported losses from continuing operations of $2.4 million, or $0.09 per share, losses from gold mining and powdered metals operations of $6.1 million, or $0.24 per share, and the impact of the write-off of unamortized capitalized start-up costs of $12.1 million, or $0.47 per share, as a result of the required change in accounting principle. Revenues from continuing operations were $59.6 million in the first quarter of 2000 compared to $57.8 million in the first quarter of 1999. First quarter 1999 results from continuing operations also included a one-time loss of $3.4 million, or $0.13 per share, related to the Company's sale of its U.S. venture capital operations. Worldwide assets under management were approximately $24.4 billion at March 31, 2000, compared to $24.5 billion at December 31, 1999. 12 13 The following table details revenues and net income (loss) by business segment for the three months ended March 31, 2000, and 1999, respectively. REVENUES AND NET INCOME (LOSS) (DOLLARS IN MILLIONS)
REVENUES NET INCOME (LOSS) ---------------- ----------------- THREE MONTHS THREE MONTHS ENDED MARCH 31, ENDED MARCH 31, ---------------- ----------------- BUSINESS SEGMENT 2000 1999 2000 1999 - ---------------- ------ ------ ------ ------- Pioneer Investment Management: Mutual Funds and Institutional Accounts.................. $52.7 $49.6 $ 7.5 $ 8.1 ----- ----- ----- ------ Pioneer International Financial Services: Russia................................................... 2.1 3.3 (0.4) (0.2) Central and Eastern Europe............................... 4.3 4.2 (1.2) (3.0) Asia..................................................... -- -- (0.1) (0.1) ----- ----- ----- ------ 6.4 7.5 (1.7) (3.3) ----- ----- ----- ------ Pioneer Global Investments: Venture Capital.......................................... 0.1 0.3 0.1 (3.8) Real Estate.............................................. 0.4 0.4 (0.5) (1.0) Timber................................................... -- -- (2.0) (0.8) ----- ----- ----- ------ 0.5 0.7 (2.4) (5.6) ----- ----- ----- ------ Interest Expense and Other Expenses........................ -- -- (1.3) (1.6) ----- ----- ----- ------ Total From Continued Operations.......................... $59.6 $57.8 $ 2.1 $ (2.4) ----- ----- ----- ------ Discontinued Operations.................................... -- -- -- (6.1) ----- ----- ----- ------ Cumulative Effect of Change in Accounting Principle (Start-up Costs)........................................... -- -- -- (12.1) ----- ----- ----- ------ Totals........................................... $59.6 $57.8 $ 2.1 $(20.6) ===== ===== ===== ======
PIONEER INVESTMENT MANAGEMENT Pioneer Investment Management ("PIM") had first quarter net income of $7.5 million compared to net income of $8.1 million in the first quarter of 1999. The earnings decline was attributable to higher labor expenses incurred to retain key sales and investment management employees as the Company explored strategic alternatives, and higher advertising and selling expenses, including those associated with the launch of two new mutual funds. PIM's assets under management at March 31, 2000 were approximately $24.0 billion compared to $24.1 billion at December 31, 1999. In the first quarter of 2000, sales of U.S. registered mutual funds (including reinvested dividends) were $770 million, compared to $950 million in the first quarter of 1999. Net redemptions were $1.0 billion, compared to $50 million in the first quarter of 1999. Revenues of $52.7 million in the first quarter of 2000 increased by $3.1 million, or 6%. Management fee revenues of $37.1 million increased by $3.8 million, reflecting both higher average assets under management ($23.4 billion for the first quarter 2000 compared to $22.7 billion for the first quarter 1999) and a 4.1 basis point increase in average management fees earned in the quarter. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees decreased slightly by $0.9 million to $12.8 million, as increased shareholder service fees partially offset lower distribution fees. During March 2000, the Company reallowed 100% of its share of Class A share commissions to brokers and dealers as an incentive to increase sales. The Company anticipates continuing this reallowance program through the second quarter of 2000. 13 14 Costs and expenses increased by $4.8 million in the first quarter of 2000 to $41.7 million. The expense increase resulted from higher payroll costs ($2.9 million) due to normal merit pay increases and higher headcount, coupled with special retention bonuses associated with the Company's strategic evaluation process. Other expenses also increased by $1.9 million. A portion of this increase related to distribution costs ($0.8 million) for special advertising during the Company's strategic evaluation process. The remainder of the increase was largely due to higher legal and space-related expenses. PIM's effective tax rate for the first quarter of 2000 was 32% compared to 35% in the first quarter of 1999. The improvement was due to increased profitability at Pioneer Management Ireland Limited, which is taxed at a lower effective rate. PIONEER INTERNATIONAL FINANCIAL SERVICES During the first quarter of 2000, Pioneer International Financial Services ("PIFS") lost $1.7 million on revenues of $6.4 million compared to a loss of $3.3 million in the first quarter of 1999 on revenues of $7.5 million. Absent losses of the Company's Polish pension subsidiary ($1.2 million), Central and Eastern European operations posted break-even results for the quarter. PIFS's first quarter 2000 Russian losses ($0.4 million) related to a U.S. tax provision that was required due to a repatriation of earnings ($5.7 million). Absent the tax provision, local Russian operations reported break-even results for the quarter. Regarding PIFS's first quarter 1999 loss of $3.3 million, $2.2 million related to the Company's pension subsidiary. In April 1999, the Company sold 30% of its Polish pension company subsidiary to Nationwide Global Holdings, Inc. for $20 million. In addition, the Company deconsolidated the Polish pension company as control is shared with Nationwide and has accounted for its investment in the pension company under the equity method retroactive to January 1, 1999. Given the results of the Company's Polish pension company subsidiary and the likely consolidation of the participants in the industry, the Company is currently exploring strategic alternatives, which could include a sale of this subsidiary. PIONEER GLOBAL INVESTMENTS Pioneer Global Investments lost $2.4 million in the first quarter of 2000 on revenues of $0.5 million. The Company's Central and Eastern European venture capital operations posted slightly profitable results in the first quarter of 2000. In contrast, the Company's worldwide venture capital operations lost $3.8 million in the first quarter of 1999, of which $3.4 million represents a one-time loss realized on the sale of U.S. venture capital operations. In March 1999, the Company sold its direct investments and indirect interests of its U.S. venture capital business for $34.9 million. The Company's real estate services operations reported losses of $0.5 million in the first quarter of 2000 and $1.0 million in the first quarter of 1999. The improvement of $0.5 million reflects higher revenues and lower costs associated with the closing of the Polish Real Estate Fund. Most of the first quarter 2000 losses were caused by the delay in closing the PBO Property Fund. Timber Business The results of the timber business are substantially attributable to the operations of Forest-Starma, the 100% owned principal operating subsidiary of the Company's wholly owned subsidiary, Pioneer Forest, Inc. Forest-Starma harvests timber under a 49-year lease comprising 390,100 hectares (approximately 964,000 acres) in the Khabarovsk Territory of Russia. Forest-Starma has developed a modern logging camp, including a harbor, from which it exports timber to markets in the Pacific Rim. While Forest-Starma harvests timber and incurs the resulting operating expenses throughout the year, it typically ships timber from mid-April through December. As a result, Forest-Starma has incurred, and expects to continue to incur, operating losses from fixed costs in the first quarter of the Company's fiscal year. There were no shipments in the first quarters of 2000 or 1999. Variable costs incurred to produce timber are 14 15 capitalized in inventory and charged to operations when shipped. The following table summarizes production statistics for the three months ended March 31, 2000 and 1999:
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 ---------- ---------- Total cubic meters produced.......................... 65,200 85,600 Average costs of production (per cubic meter)........ $ 47 $ 44
Results of Operations In the first quarter of 2000, the timber business lost $2.0 million compared with a loss of $0.8 million in the first quarter of 1999. The decline resulted principally from additional charges associated with usage of spare parts inventories to maintain timber production equipment. The timber segment's operating results also included both income from U.S. tax benefits of approximately $15.1 million and the application of those tax benefits to reduce the carrying value of the Company's timber assets. The income, which is reflected on the Consolidated Statements of Operations as a credit to tax expense, represented realization in the U.S. of previously unrecognized foreign losses. In connection with the realization of the income tax benefits, the Company recorded a corresponding reduction in the carrying value of timber equipment and facilities and deferred development costs. The tax benefits were largely collected in April 2000 and used to repay bank debt. Liquidity and Capital Resources Forest-Starma had $5 million of external debt as of March 31, 2000. Scheduled debt service for the remainder of 2000 is expected to aggregate $1.7 million. Recent Developments The Company is actively exploring strategic alternatives with respect to its interest in the timber business. DISCONTINUED OPERATIONS Gold Mining During the second quarter of 1999, the Company reflected the gold mining segment as a discontinued operation. The gold mining segment consists of Pioneer Goldfields Limited ("PGL"), and its 90%-owned Ghanaian operating subsidiary, Teberebie Goldfields Limited ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), the Company's majority owned (95%) Russian subsidiary. The Company has engaged the services of an investment banking firm to sell PGL, including its African exploration rights and its ownership interest in TGL. An offering document, which incorporated a new mine plan and revised reserve estimates, was circulated in the second quarter of 1999 to a select group of potential buyers. Several of these potential buyers began conducting due diligence efforts during the third quarter of 1999. The Company is now conducting what it believes to be final negotiations with potential purchasers. Whether or not the Company consummates a sale, it has proceeded with an orderly closure of the Teberebie mine. Mining operations ceased at the end of the 1999, and all processing activities will be completed by the end of the first half of 2000. The accompanying consolidated financial statements reflect management's estimates of the costs of winding down the gold mining operations. The Company, however, may record gains or incur additional losses in either a sales transaction or closure scenario as details, timing, and other events unfold. There can be no assurance that the Company can successfully negotiate a sales transaction and consummate that transaction or close the mine in accordance with management's estimates. 15 16 Powdered Metals Losses in the first quarter of 1999 were $0.1 million. In the second quarter of 1999, the Company decided to dispose of its powdered metals operations. At the end of the third quarter of 1999, the Company sold for nominal value the powdered metals operations. OTHER The Company had net interest expense and other expenses of $1.3 million in the first quarter of 2000 compared to $1.6 million in the first quarter of 1999. The decrease resulted principally from lower interest expense as the Company has paid down its revolving credit agreement. LIQUIDITY AND CAPITAL RESOURCES -- GENERAL Liquid assets consisting of cash and marketable securities decreased by $3.4 million in the first quarter of 2000 to $37.3 million. Cash provided from ongoing operations, combined with tax refunds received in the quarter, were used to pay down the Company's Corporate Revolver by $25 million. In May 2000, the Company completed the pay-off of the remaining balance of the Corporate Revolver. The Company believes that it is in sound financial condition, that it has sufficient liquidity from operations and financing facilities to cover short-term commitments and contingencies and that it has adequate capital resources to provide for long-term commitments. FUTURE OPERATING RESULTS From time to time, management may make forward-looking statements in this Quarterly Report, in other documents that we file with the Securities and Exchange Commission (including those documents incorporated by reference into the Form 10-K), in press releases or in other public discussions. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for these statements. For this purpose, a forward-looking statement is any statement that is not a statement of historical fact. Forward-looking statements include those about our plans or strategies for our domestic and international financial services and global investment businesses, our anticipated revenue growth, changes we expect in the amount or composition of our assets under management, our anticipated expenses, our liquidity and capital resources and our expectations about market conditions. You can identify forward-looking statements by the words "may," "believes," "anticipates," "plans," "expects," "estimates" and similar expressions. Our forward-looking statements are based on currently available information and management's expectations of future results but necessarily involve certain assumptions. We caution readers that our assumptions involve substantial risks and uncertainties. Consequently, any forward-looking statement could turn out to be wrong. Many factors could cause actual results to differ materially from our expectations. Below we describe some of the important factors that could affect our revenues or results of operations. We hired two investment banks to review strategic alternatives that would maximize shareholder value, including the possible sale of the Company. Also, Lens Investment Management, LLC filed a proxy statement on Schedule 14A for the purpose of soliciting proxies for the election of its five nominees to the Company's Board of Directors to replace five of our directors. The news of these events has created uncertainty for our stockholders and employees. During these times of uncertainty, we are subject to the risks of reduced investor confidence, redemptions in our mutual funds, loss of business opportunities, and difficulty in hiring and retaining quality employees. In fact, mutual fund sales have slowed and redemptions have increased. Additionally, the Company has incurred significant expenses in connection with this process. We cannot guarantee that the uncertainties will not have further adverse effects on our financial condition and financial results. A significant portion of our revenues comes from investment management fees and underwriting and shareholder services fees. Our success in the investment management and mutual fund share distribution businesses results primarily from good investment performance. If our investments perform well, we tend to 16 17 see higher sales of shares and lower redemptions of shares. Sales of shares result in increased assets under management, which, in turn, generate higher management fees. Good performance also attracts institutional accounts. On the other hand, relatively poor performance tends to cause decreased sales and increased redemptions and the loss of institutional accounts. As a result, we see a corresponding decrease in our revenues. In addition, economic and market conditions that are beyond our control can impact investment performance. Also, five of our mutual funds (including the two largest funds) have management fees that depend upon the funds' performance relative to the performance of established stock indexes. As a result, management fee revenues may be subject to unexpected volatility. The mutual fund industry is intensely competitive and continues to go through substantial consolidation. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments, but also with other financial service products. Many of our competitors have more products and product lines to offer, substantially greater assets under management, better financial resources and higher name recognition than we do. As a result, we could be at a disadvantage as we try to market our products to the same customers that our competitors are targeting. Our domestic investment management business is primarily dependent upon the contractual relationships between our U.S. mutual funds and our management company. If any of these agreements were terminated (for any reason, including a change of control of the Company) or not renewed on similarly favorable terms, our revenues and our investment management business would suffer greatly. The performance of a particular mutual fund depends in large part on the ability of its portfolio manager. Our ability to attract and retain talented portfolio managers and other key personnel is critical to our success in the investment management business. We cannot guarantee that we will be able to market our products successfully or maintain long-term relationships with our clients if we do not employ top quality personnel. The investment management business is subject to periodic shifts depending on market conditions and investor preferences. Firms like ours tend to focus on certain asset classes and certain management styles. Shifting trends in the investment management industry tend to favor firms that manage particular types of assets or use particular management styles. As a result, firms need to be able to adapt to these shifts in order to remain competitive. Historically, we have focused on "value" investing. We cannot guarantee that we will be successful as we broaden our asset classes and management styles in order to adapt to market demands. Our investment management operation is subject to extensive regulation in the United States, including regulation by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. Also, we are subject to the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies. If we do not comply with applicable laws or regulations, we could suffer fines, suspension of personnel or other sanctions. Certain changes in laws or regulations or in government policies could have a material adverse effect on our business. We have several operations and investments outside of the United States, including the timber operations in the Russian Far East and the financial services operations in Eastern and Central Europe. Many factors unique to these foreign locations can have negative effects on our operations and investments there. Some of these factors are exchange controls, currency fluctuations, taxation, political and economic instability, ineffective regulatory oversight and laws or policies of the particular countries in which we have operations. We cannot guarantee that we will be able to obtain permits, authorizations, regulatory approvals or agreements to implement plans at our foreign projects in a manner or within time frames that make these plans economically feasible. Also, we do not know whether applicable laws or the governing political authorities in the relevant locations will change unfavorably or whether any such changes will cost us material amounts of money or effort. The commercial feasibility of Forest-Starma depends on a number of factors that we cannot control. Some of these factors are the price of timber, weather conditions, political instability in Russia and the strength of the Japanese and Korean economies, which are the primary markets for Forest-Starma's timber. 17 18 We continue to actively negotiate a possible sale of our gold mining operations, although we can provide no assurance that a sale will occur. If for any reason a sale is not consummated, our financial results and financial condition may be materially adversely affected. PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K (a) Exhibits The Exhibits filed with this Quarterly Report on Form 10-Q are listed on the "Exhibit Index" below and incorporated by reference herein. (b) Reports filed on Form 8-K. None. SIGNATURES It is the opinion of management that the financial information contained in this report reflects all adjustments necessary to a fair statement of results for the period report, but such results are not necessarily indicative of results to be expected for the year due to the effect that stock market fluctuations may have on assets under management. All accounting policies have been applied consistently with those of prior periods. Such financial information is subject to year-end adjustments and annual audit by independent public accountants. 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 thereunto duly authorized. Dated: May 11, 2000 THE PIONEER GROUP, INC. /s/ ERIC W. RECKARD ------------------------------------ Eric W. Reckard, Executive Vice President Chief Financial Officer and Treasurer 18 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------------- ------------------------------------------------------------ 27.00 Financial Data Schedule.
19 EX-27.00 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1.00000 33,925 3,343 55,416 0 7,061 8,769 88,683 (34,951) 275,657 98,500 23,867 0 0 2,681 88,251 275,657 0 59,646 0 52,749 (317) 15,300 1,867 (10,109) (12,167) 2,058 0 0 0 2,058 0.080 0.080
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