-----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, HbSUYQlDMprKdu0iByGOAOVqnxofSy3TdfbH/tqoMyac7/jT8F5a+XDKyndnnwZ4 MOcZYhE0sSjwwk0GEVaJgw== 0000950129-99-003619.txt : 19990813 0000950129-99-003619.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950129-99-003619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS INC /TX CENTRAL INDEX KEY: 0000944649 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 061420850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-91702 FILM NUMBER: 99685875 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP DATE OF NAME CHANGE: 19950428 10-Q 1 PIONEER AMERICAS, INC. - DATED JUNE 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 33-98828 PIONEER AMERICAS, INC. (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.) 4300 BANK OF AMERICA CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 570-3200 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] On August 9, 1999, 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. 2 TABLE OF CONTENTS PART I--FINANCIAL INFORMATION
Page ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets--June 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations--Three Months Ended June 30, 1999 and 1998 4 and Six Months Ended June 30, 1999 and 1998 Consolidated Statements of Cash Flows--Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 PART II--OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10
Certain statements in this Form 10-Q regarding future expectations of the Company's business and the Company's results of operations may be regarded as "forward looking statements" within the meaning of the Securities Litigation Reform Act. Such statements are subject to various risks, including the Company's high financial leverage, the cyclical nature of the markets for many of the Company's products and raw materials and other risks. Actual outcomes may vary materially. 2 3 PART I --FINANCIAL INFORMATION PIONEER AMERICAS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31, 1999 1998 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 10,972 $ 50,593 Accounts receivable, less allowance for doubtful accounts of $1,758 at June 30, 1999 and $2,017 at December 31, 1998 41,102 46,145 Inventories 27,751 26,360 Prepaid expenses 4,261 2,759 --------- --------- Total current assets 84,086 125,857 Property, plant and equipment: Land 10,622 10,727 Buildings and improvements 59,822 60,520 Machinery and equipment 310,050 306,989 Construction in progress 35,836 28,348 --------- --------- 416,330 406,584 Less accumulated depreciation (88,332) (72,525) --------- --------- 327,998 334,059 Due from affiliates 14,723 16,512 Other assets, net of accumulated amortization of $9,069 at June 30, 1999 and $6,152 at December 31, 1998 60,589 48,327 Excess cost over fair value of net assets acquired, net of accumulated amortization of $27,522 at June 30, 1999 and $22,950 at December 31, 1998 197,037 201,609 --------- --------- Total assets $ 684,433 $ 726,364 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 30,626 $ 30,825 Accrued liabilities 26,060 31,384 Current portion of long-term debt 2,707 2,684 --------- --------- Total current liabilities 59,393 64,893 Long-term debt, less current portion 563,332 564,689 Accrued pension and other employee benefits 14,463 25,836 Other long-term liabilities 21,769 22,063 Commitments and contingencies Stockholder's equity: Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding 1 1 Additional paid-in capital 65,483 65,483 Retained deficit (40,008) (16,601) --------- --------- Total stockholder's equity 25,476 48,883 --------- --------- Total liabilities and stockholder's equity $ 684,433 $ 726,364 ========= =========
See notes to consolidated financial statements. 3 4 PIONEER AMERICAS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- --------------------------- 1999 1998 1999 1998 -------- -------- --------- --------- Revenues $ 65,997 $ 96,028 $ 134,036 $ 190,647 Cost of sales 68,588 70,835 122,338 135,783 -------- -------- --------- --------- Gross profit (loss) (2,591) 25,193 11,698 54,864 Selling, general and administrative expenses 11,396 12,132 20,803 24,312 Unusual charges -- 231 -- 231 -------- -------- --------- --------- Operating income (loss) (13,987) 12,830 (9,105) 30,321 Equity in net loss of unconsolidated subsidiaries -- (1,005) -- (2,141) Interest expense, net (12,254) (11,794) (24,171) (24,242) Other income (expense), net 29 (326) (978) 2,763 -------- -------- --------- --------- Income (loss) before taxes (26,212) (295) (34,254) 6,701 Income tax provision (benefit) (8,516) (152) (10,847) 3,224 -------- -------- --------- --------- Net income (loss) $(17,696) $ (143) $ (23,407) $ 3,477 ======== ======== ========= ========= Earnings per common share: Net income (loss) $(17,696) $ (143) $ (23,407) $ 3,477 ======== ======== ========= ========= Weighted average number of common shares outstanding 1 1 1 1 ======== ======== ========= =========
See notes to consolidated financial statements. 4 5 PIONEER AMERICAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ----------------------- 1999 1998 -------- -------- Operating activities: Net income (loss) $(23,407) $ 3,477 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 25,870 23,152 Equity in net loss of unconsolidated subsidiaries -- 2,141 Net change in deferred taxes (11,208) (386) Reduction in post-retirement medical expense (12,530) -- Loss on disposals of assets 1,061 -- Foreign exchange loss (769) 597 Net effect of changes in operating assets and liabilities (net of acquisitions) (2,867) (11,299) -------- -------- Net cash flows from operating activities (23,850) 17,682 -------- -------- Investing activities: Investment in and advances to unconsolidated subsidiaries -- (4,629) Capital expenditures (16,704) (12,912) Proceeds received from disposals of assets 1,145 -- -------- -------- Net cash flows from investing activities (15,559) (17,541) -------- -------- Financing activities: Payments on long-term debt (1,334) (1,293) Dividends to parent -- (454) -------- -------- Net cash flows from financing activities (1,334) (1,747) -------- -------- Effect of exchange rate changes on cash 1,122 (756) -------- -------- Net decrease in cash (39,621) (2,362) Cash at beginning of period 50,593 50,995 -------- -------- Cash at end of period $ 10,972 $ 48,633 ======== ========
See notes to consolidated financial statements. 5 6 PIONEER AMERICAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The consolidated balance sheet as of June 30, 1999 and the consolidated statements of operations and cash flows for all periods presented are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first six months of 1999 are not necessarily indicative of results to be expected for the year ending December 31, 1999. The consolidated financial statements include the accounts of Pioneer Americas, Inc. ("Pioneer") and its consolidated subsidiaries (collectively referred to as the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the tabulations in the notes to the financial statements are stated in thousands of dollars unless otherwise indicated. The consolidated balance sheet at December 31, 1998 is derived from the December 31, 1998 audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1998. 2. SUPPLEMENTAL CASH FLOW INFORMATION Net effect of changes in operating assets and liabilities are as follows:
SIX MONTHS ENDED JUNE 30, ---------------------- 1999 1998 ------- -------- Accounts receivable $ 5,799 $ 7,640 Due from affiliates 1,789 (3,238) Inventories (1,456) (3,010) Prepaid expenses (1,044) 805 Other assets (706) (3,841) Accounts payable (838) (17,235) Accrued liabilities (5,911) 4,456 Other long-term liabilities (500) 3,124 ------- -------- Net change in operating accounts $(2,867) $(11,299) ======= ========
Following are supplemental disclosures of cash flow information:
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 ------- ------- Cash payments for: Interest $25,331 $25,046 Income taxes 168 123
Non-cash investing activity: In March 1999, the Company's subsidiary, Kemwater North America Company ("KNA"), sold certain fixed assets. Proceeds received included cash plus a $2.5 million note receivable. 6 7 3. INVENTORIES Inventories consist of the following:
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Raw materials, supplies and parts $16,965 $17,014 Finished goods and work-in-process 8,165 9,045 Inventories under exchange agreements 2,621 301 ------- ------- $27,751 $26,360 ======= =======
4. COMMITMENTS AND CONTINGENCIES The Company and its operations are subject to extensive United States and Canadian federal, state, provincial and local laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the release or disposal of regulated materials. The operation of any chemical manufacturing plant and the distribution of chemical products entail certain obligations under current environmental laws. Present or future laws may affect the Company's capital and operating costs relating to compliance, may impose cleanup requirements with respect to site contamination resulting from past, present or future spills and releases and may affect the markets for the Company's products. The Company believes that its operations are currently in general compliance with environmental laws and regulations, the violation of which could result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. There can be no assurance, however, that material costs will not be incurred as a result of instances of noncompliance or new regulatory requirements. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification agreements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. The Company is subject to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters, and management does not believe that they will materially affect the Company's operations or financial position. 5. PCI CHEMICALS CANADA INC. Pioneer is a holding company with no operating assets or operations. A subsidiary of Pioneer, PCI Chemicals Canada Inc. ("PCICC"), has outstanding $175.0 million of 9 1/4% Senior Secured Notes, due October 15, 2007. These notes are fully and unconditionally guaranteed on a joint and several basis by Pioneer and Pioneer's other direct and indirect wholly-owned subsidiaries. Together, PCICC and the subsidiary note guarantors comprise all of the direct and indirect subsidiaries of Pioneer. Summarized financial information of PCICC and the guarantors of these notes are as follows:
NOTE CONSOLIDATED NOTE CONSOLIDATED PCICC GUARANTORS COMPANY PCICC GUARANTORS COMPANY ------------- ------------- ------------- ------------- ------------- -------------- AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1998 ----------------------------------------------- ----------------------------------------------- Current assets $ 22,481 $ 61,605 $ 84,086 $ 29,962 $ 95,895 $ 125,857 Non-current assets 187,958 412,389 600,347 191,004 409,503 600,507 Current liabilities 21,433 37,960 59,393 22,103 42,790 64,893 Non-current liabilities 181,433 418,131 599,564 185,031 427,557 612,588
FOR THE THREE MONTHS ENDED JUNE 30, 1999 FOR THE THREE MONTHS ENDED JUNE 30, 1998 ----------------------------------------------- ----------------------------------------------- Revenues $ 24,818 $ 41,179 $ 65,997 $ 33,540 $ 62,488 $ 96,028 Gross profit (loss) 499 (3,090) (2,591) 8,595 16,598 25,193 Net income (loss) (4,551) (13,145) (17,696) 384 (527) (143)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 FOR THE SIX MONTHS ENDED JUNE 30, 1998 ----------------------------------------------- ----------------------------------------------- Revenues $ 51,224 $ 82,812 $ 134,036 $ 68,447 $ 122,200 $ 190,647 Gross profit 4,711 6,987 11,698 20,360 34,504 54,864 Net income (loss) (6,260) (17,147) (23,407) 3,250 227 3,477
7 8 Separate financial statements of PCICC and the guarantors of the PCICC notes are not included as management has determined that separate financial statements of these entities are not material to investors. 6. ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company is required to adopt the provisions of SFAS No. 133 in 2001. Management is currently evaluating the impact of SFAS No. 133 on its financial statements and related disclosures. 7. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 Revenues. Revenues decreased by $30.0 million or approximately 31% to $66.0 million for the three months ended June 30, 1999, as compared to the three months ended June 30, 1998. The decrease in revenues was primarily attributable to lower electrochemical unit ("ECU") prices. ECU prices were approximately 34% lower during the second quarter of 1999, versus the second quarter of 1998. Total revenues at the Company's downstream operations decreased $1.4 million, or approximately 11%, primarily as a result of the disposal of the Company's household bleach bottling operations during the third quarter of 1998 and the disposal of the pool chemicals business in the fourth quarter of 1998. These businesses were considered non-strategic, and the Company retained supply agreements with the purchasers. Partially offsetting the decreases caused by the two disposals was a revenue increase related to KNA. KNA became a wholly-owned subsidiary of the Company on September 30, 1998, and its results are included in the Company's consolidated financial statements since that date. Cost of Sales. Cost of sales decreased $2.2 million or approximately 3%, for the three months ended June 30, 1999, as compared to the same period in 1998, which was partially due to the decreased sales at the downstream operations. Gross Profit (Loss). During the second quarter of 1999 Pioneer incurred a gross loss on revenues as a result of the lower ECU sales prices. The 1999 margin was a negative 4%, as compared to the gross profit margin of 26% in the same period of 1998. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.7 million, or approximately 6%, for the three months ended June 30, 1999. Within this net decrease was a decrease of $1.3 million related to the absence of incentive compensation accruals during 1999 (due to lower operating results), offset by an increase of $0.5 million of expenses related to the inclusion of KNA in the 1999 consolidated results. Unusual Charges. 1998 unusual charges of $0.2 million related to the consolidation and downsizing of certain administrative functions of the downstream subsidiaries. Interest Expense, Net. Interest expense, net increased by $0.5 million in 1999 as a result of decreased interest income. Interest income was lower due to a reduction in cash balances in 1999. Offsetting this fluctuation was a small decrease in gross interest expense in 1999 compared to 1998 as a result of scheduled debt repayments. Net Loss. Due to the factors described above, net loss for the three months ended June 30, 1999 was $17.7 million, compared to a net loss of $0.1 million for the same period in 1998. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Revenues. Revenues decreased by $56.6 million or approximately 30% to $134.0 million for the six months ended June 30, 1999, as compared to the six months ended June 30, 1998. ECU prices were approximately 35% lower during the first half of 1999, versus the same period in 1998. In 1998, production and sales volumes were negatively impacted by three failed transformers at one plant. 8 9 Total revenues at the Company's downstream operations were fairly constant between the two periods. The decreases caused by disposals of the Company's household bleach operations and the pool chemicals business were offset by the increase created by the consolidation of KNA. Cost of Sales. Cost of sales decreased $13.4 million or approximately 10%, for the six months ended June 30, 1999, as compared to the same period in 1998. $10.9 million of this decrease was due to the modification of the Company's retiree health care benefits. Benefits under the plan to current retirees were not impacted, but current employees will no longer receive benefits under this plan. The remaining decrease in cost of sales was principally due to lower cost of sales at the downstream subsidiaries as a result of the disposed operations discussed above, offset by the increase from the inclusion of KNA in 1999. Gross Profit. Gross profit margin decreased to 9% in 1999 from 29% in 1998, primarily as a result of the ECU pricing decrease discussed above. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $3.5 million, or approximately 14%, for the six months ended June 30, 1999. $1.6 million of this decrease was due to the modification of the Company's retiree health care benefits discussed above. $3.1 million of the decrease is related to no "pay-for-performance" award accruals being made in 1999. The inclusion of KNA in the 1999 consolidated results increased selling, general and administrative expenses by $1.0 million, partially offsetting these decreases. Equity in Net Loss of Unconsolidated Subsidiaries. Equity in net loss of unconsolidated subsidiaries represented the Company's 50% ownership in KNA prior to September 30, 1998. Before September 30, 1998, Pioneer owned 50% of KNA, which owned 100% of KWT, Inc. ("KWT"). The remaining 50% of KNA was owned indirectly by Pioneer's parent, Pioneer Companies, Inc. ("PCI"). On September 30, 1998, KNA exchanged its ownership in KWT for the remaining 50% of KNA held by PCI. No gain or loss was recognized on this exchange. Following this transaction, KNA's results of operations are reflected in the consolidated results of operations of the Company. Interest Expense, Net. Interest expense, net decreased slightly in 1999 as a result of slightly lower debt levels in 1999 (due to scheduled debt repayments) plus lower interest rates in 1999. Offsetting the interest expense decrease was a decrease in interest income due to lower cash balances in 1999. Other Income (Expense), Net. Other income (expense), net decreased from an income amount of $2.8 million for the six months ended June 30, 1998 to an expense of $1.0 million for the six months ended June 30, 1999. The 1999 expense amount was primarily the loss from the sale of the iron chlorides business. 1998's other income included a gain from the settlement of a lawsuit, an insurance recovery and a state franchise tax refund. Net Income (Loss). Due to the factors described above, there was a net loss for the six months ended June 30, 1999 of $23.4 million, compared to net income of $3.5 million for the same period in 1998. 9 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PIONEER AMERICAS, INC. August 12, 1999 By: /s/ Philip J. Ablove ------------------------------- Philip J. Ablove Vice President and Chief Financial Officer 10 11 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedule.
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 10,972 0 42,860 1,758 27,751 84,086 416,330 88,332 684,433 59,393 563,332 0 0 1 25,475 684,433 134,036 134,036 122,338 122,338 20,803 0 24,171 (34,254) (10,847) (23,407) 0 0 0 (23,407) (23,407.00) (23,407.00)
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