<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
AMENDMENT NO.1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 20, 1995
PIONEER COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 1-9859 06-1215192
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
165 Mason Street, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-629-3088
Not applicable
(Former name or former address, if changed from last report)
<PAGE>2
Pioneer Companies, Inc. ("PCI" or the "Company") filed a Form 8-K dated
April 20, 1995 reporting its acquisition of all of the outstanding stock and
other common equity interests of Pioneer Americas, Inc., a Delaware
corporation ("Pioneer").
The Company is amending Item 7(a) of the Form 8-K reporting the above-
referenced transaction. In accordance with Item 7(b)(2) of Form 8-K, the
Company is also filing pro forma financial information giving effect to the
acquisition of Pioneer, within 60 days of the required filing date of the Form
8-K reporting the above-referenced transaction.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Independent Auditors' Reports
Consolidated Balance Sheets at
December 31, 1994 and 1993 and
March 31, 1995 (Unaudited)
Consolidated Statements of Operations
for the Years Ended December 31, 1994,
1993 and 1992 and for the Three Month Periods
Ended March 31, 1995 and 1994 (Unaudited)
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1994, 1993 and 1992 and for the Three Month
Period Ended March 31, 1995 (Unaudited)
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1994, 1993
and 1992 and for the Three Month Periods
Ended March 31, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1994,
1993 and 1992 and for the Three Month Periods
Ended March 31, 1995 and 1994 (Unaudited)
(b) Pro Forma Financial Information
Pro forma financial information, including an Unaudited Pro Forma
Combined Balance Sheet as of March 31, 1995 and Unaudited Pro Forma Combined
Income Statements, for the year ended December 31, 1994 and for the quarter
ended March 31, 1995, and Notes to the foregoing are filed herewith.
<PAGE>3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer
Americas, Inc. (the "Company"), as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule II. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. The financial statements of certain of the
Company's investments (as described in Note 3) have been audited by other
auditors whose reports have been furnished to us; insofar as our opinion on the
consolidated financial statements relates to data included for these
investments, it is based solely on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Pioneer Americas,
Inc., at December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.
Ernst & Young LLP
Houston, Texas
February 28, 1995
(except for Note 14, as to which the
date is April 20, 1995)
<PAGE>4
INDEPENDENT AUDITORS' REPORT
Board of Directors
Basic Investments, Inc.
Henderson, Nevada
We have audited the accompanying combined balance sheets of Basic Investments,
Inc. and affiliates (the Company) as of December 31, 1994 and 1993, and the
related combined statements of income, equity and cash flows for each of the
two years then ended, and the seven month period ended December 31, 1992. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Basic
Investments, Inc. and affiliates as of December 31, 1994 and 1993, and the
results of its combined operations and cash flows for each of the two years
then ended, and the seven month period ended December 31, 1992, in conformity
with generally accepted accounting principles.
Piercy, Bowler, Taylor & Kern
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
A PROFESSIONAL CORPORATION
Las Vegas, Nevada
January 30, 1995
<PAGE>5
PIONEER AMERICAS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
March 31 -----------------------------
1995 1994 1993
- ------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash................................................... $972,318 $ 3,310,156 $ 1,768,983
Accounts receivable, less allowance for doubtful
accounts of $2,037,451 and $520,703 at December 31,
1994 and 1993, and $2,017,269 at March 31, 1995
(Note 7)............................................... 28,099,933 26,169,548 20,141,727
Inventories (Notes 2 and 6)............................ 13,131,766 12,236,534 8,146,545
Due from affiliates (Notes 3 and 10)................... - - 181,435
Income taxes receivable (Note 8)....................... - - 2,738,037
Prepaid expenses....................................... 1,282,973 1,845,165 1,832,350
------------- -------------- --------------
Total current assets................................... 43,486,990 43,561,403 34,809,077
Property, plant, and equipment, at cost (Note 6):
Land................................................... 11,203,341 11,203,341 11,662,341
Buildings and improvements............................. 14,155,170 13,890,455 13,177,599
Machinery and equipment................................ 108,474,992 107,856,712 103,440,833
Cylinders and tanks.................................... 4,337,038 4,337,038 4,186,309
Construction in progress............................... 4,856,022 3,392,132 2,541,029
------------- -------------- --------------
143,026,563 140,679,678 135,008,111
Less accumulated depreciation.......................... (59,144,014) (56,267,113) (45,709,157)
------------- -------------- --------------
83,882,549 84,412,565 89,298,954
Investment in Victory Valley Land Company, L.P. (VVLC)
(Notes 3 and 6)........................................ 1,955,095 1,611,642 1,581,859
Investment in Basic Investments, Inc. (BII) (Notes 3
and 6)................................................. 15,573,042 15,704,620 15,551,126
Other assets, net of accumulated amortization of
$11,301,753 and $9,692,711 at December 31, 1994 and
1993, and $11,838,737 at March 31, 1995 (Notes 6
and 9)................................................. 9,157,868 9,196,765 6,879,162
Goodwill, net of accumulated amortization of $2,722,117
and $2,090,004 at December 31, 1994 and 1993, and
$2,890,855 at March 31, 1995........................... 9,875,426 10,044,164 10,518,233
------------- -------------- --------------
Total assets........................................... $163,930,970 $ 164,531,159 $ 158,638,411
============= ============== ==============
</TABLE>
See accompanying notes.
<PAGE>6
PIONEER AMERICAS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
March 31 -----------------------------
1995 1994 1993
- ------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable...................................... $14,732,998 $ 13,103,491 $ 9,641,249
Accrued liabilities (Note 4).......................... 12,076,521 16,547,849 13,086,689
Returnable deposits................................... 3,289,043 3,422,938 1,189,203
Future tax effects (Note 8)........................... 2,781,438 2,781,438 2,846,726
Current maturities of long-term debt (Note 6)......... 3,842,289 12,056,377 13,565,820
------------- -------------- --------------
Total current liabilities............................. 36,722,289 47,912,093 40,329,687
Long-term debt, less current maturities (Note 6)...... 46,500,000 36,757,350 47,016,144
Returnable deposits................................... 3,619,289 3,788,013 3,788,013
Accrued pension and other employee benefits (Note 5).. 11,139,497 10,794,336 10,007,493
Future tax effects (Note 8)........................... 19,798,852 19,798,852 21,560,590
Other long-term liabilities (Note 9).................. 12,599,299 13,327,071 9,088,266
Commitments and contingencies (Note 7)
Redeemable preferred stock (Note 11):
Redeemable cumulative preferred stock, $100 par value:
Authorized shares-100,000
Issued and outstanding shares-50,000.................. 5,000,000 6,600,000 6,200,000
Less amount assigned to common stock warrant less
accretion of $622,225 and $522,669, and $647,114,
respectively, in 1994 and 1993, and $647,114 at
March 31, 1995........................................ (348,441) (373,330) (472,886)
------------- -------------- --------------
Total redeemable preferred stock...................... 4,651,559 6,226,670 5,727,114
Redeemable stock put warrants (Notes 6 and 12)........ 2,183,576 2,824,571 1,400,000
Stockholders' equity (Note 13):
Common stock, $.01 par value:
Authorized shares-3,000,000
Issued and outstanding shares-1,509,343 and
1,452,716, respectively, in 1994 and 1993, and
1,509,343 at March 31, 1995........................... 15,093 15,093 14,527
Additional paid-in capital............................ 4,186,348 4,186,348 4,027,788
Retained earnings..................................... 22,515,168 18,900,762 15,678,789
------------- -------------- --------------
Total stockholders' equity............................ 26,716,609 23,102,203 19,721,104
------------- -------------- --------------
Total liabilities and stockholders' equity............ $163,930,970 $ 164,531,159 $ 158,638,411
============= ============== ==============
</TABLE>
See accompanying notes.
<PAGE>7
PIONEER AMERICAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
-------------------------- --------------------------------------------
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
------------ ------------- -------------- -------------- --------------
Revenues:
Net sales....................... $47,842,100 $34,227,476 $ 167,216,665 $ 151,190,621 $ 157,400,608
Cost and expenses:
Cost of sales................... 30,628,103 29,911,142 134,556,395 131,711,353 126,149,235
Selling, general, and
administrative.................. 5,241,344 4,524,564 22,528,789 21,849,833 22,601,756
Interest........................ 1,374,757 1,561,396 6,406,600 7,551,027 8,188,722
------------ ------------- -------------- -------------- --------------
Total cost and
expenses........................ 37,244,204 35,997,102 163,491,784 161,112,213 156,939,713
Other income from settlement of
litigation and insurance claims,
net (Note 7).................... - - 3,325,730 8,360,468 2,754,869
Other income (expense), net
(Notes 3 and 10)................ 779,377 (646,532) 1,337,465 2,102,631 1,130,337
------------ ------------- -------------- -------------- --------------
Income (loss) before income
taxes and extraordinary item.... 11,377,273 (2,416,158) 8,388,076 541,507 4,346,101
Provision (benefit) for income
taxes (Note 8):
Current......................... 4,253,300 (357,019) 4,497,976 (1,237,371) 1,793,112
Future effects.................. - (511,268) (1,256,000) 1,723,070 (28,500)
------------ ------------- -------------- -------------- --------------
4,253,300 (868,287) 3,241,976 485,699 1,764,612
------------ ------------- -------------- -------------- --------------
Income (loss) before
extraordinary item.............. 7,123,973 (1,547,871) 5,146,100 55,808 2,581,489
Extraordinary item, early
extinguishment of debt (net of
income tax benefit of
$2,074,000) (Note 14)........... 3,384,678 - - - -
------------ ------------- -------------- -------------- --------------
Net income (loss)............... 3,739,295 (1,547,871) 5,146,100 55,808 2,581,489
Accretion of dividends on
preferred stock and adjustment
to redeemable stock put
warrants (Note 11).............. (124,889) (100,000) (1,824,571) (400,000) (400,000)
------------ ------------- -------------- -------------- --------------
Net income (loss) applicable to
common stock.................... $3,614,406 $(1,647,871) $ 3,321,529 $ (344,192) $ 2,181,489
============ ============= ============== ============== ==============
</TABLE>
See accompanying notes.
<PAGE>8
PIONEER AMERICAS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of
Common Additional
Shares Common Paid-In Retained
Outstanding Stock Capital Earnings Total
----------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991........... 1,444,444 $14,444 $3,985,555 $14,040,604 $18,040,603
Common stock issuance.................. 8,272 83 42,233 - 42,316
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid......... - - - (499,556) (499,556)
Net income for the year ended
December 31, 1992...................... - - - 2,581,489 2,581,489
----------- ------- ---------- ------------ ------------
Balance at December 31, 1992........... 1,452,716 14,527 4,027,788 16,122,537 20,164,852
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid......... - - - (499,556) (499,556)
Net income for the year ended
December 31, 1993...................... - - - 55,808 55,808
----------- ------- ---------- ------------ ------------
Balance at December 31, 1993........... 1,452,716 14,527 4,027,788 15,678,789 19,721,104
Common stock issuance (Note 13)........ 56,627 566 158,560 - 159,126
Adjust carrying value of stock warrants
(Note 12).............................. - - - (1,424,571) (1,424,571)
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid......... - - - (499,556) (499,556)
Net income for the year ended
December 31, 1994...................... - - - 5,146,100 5,146,100
----------- ------- ---------- ------------ ------------
Balance at December 31, 1994........... 1,509,343 15,093 4,186,348 18,900,762 23,102,203
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid......... - - - (124,889) (124,889)
Net income for the quarter ended
March 31, 1995......................... - - - 3,739,295 3,739,295
----------- ------- ---------- ------------ ------------
Balance at March 31, 1995 (unaudited).. 1,509,343 $15,093 $4,186,348 $22,515,168 $26,716,609
=========== ======= ========== ============ ============
</TABLE>
See accompanying notes.
<PAGE>9
PIONEER AMERICAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
-------------------------------------------------------------------
1995 1994 1994 1993 1992
------------ ------------- ------------- --------------------------
(Unaudited)
Operating activities
<S> <C> <C> <C> <C> <C>
Net income............................. $3,739,295 $(1,547,871) $ 5,146,100 $ 55,808 $2,581,489
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 3,690,972 3,225,956 13,594,903 13,446,297 12,992,123
Provision for bad debts................ 38,700 51,101 1,234,545 1,100,106 1,364,515
Write-off of previous finance costs.... 1,187,052 - - - -
(Gain)/loss on disposal of
property, plant, and equipment......... 13,389 - (4,107) (45,888) 72,440
Provision for SARS..................... - 968,400 968,400 - -
Equity in (earnings) of BII and
VVLC................................... (211,875) (38,665) (183,277) (1,148,669) (26,330)
Future tax effects..................... (677,262) (511,268) (1,256,000) 1,723,070 (28,500)
Changes in operating assets and
liabilities:
Accounts receivable.................... (2,646,647) (432,479) (4,888,955) 4,032,334 2,855,596
Due from affiliates.................... - (302,236) 535,098 613,482 (716,060)
Receivable from insurance
carriers and agents.................... - 81,280 (101,238) 101,320 (197,908)
Income taxes receivable................ - (357,019) 2,738,037 (1,299,351) (919,398)
Inventories............................ (895,232) 241,554 (876,233) 743,658 (276,202)
Prepaid expenses....................... 562,192 338,783 (370,541) 446,679 1,052,918
Other assets........................... (1,806,579) (91,282) (305,425) (397,878) 139,791
Accounts payable....................... 2,306,769 (1,665,187) 861,932 (3,138,402) 142,128
Accrued liabilities.................... (4,471,327) (47,147) 3,783,455 1,155,461 518,930
Returnable deposits.................... (302,619) (16,830) (323,458) 208,360 (298,192)
Other long-term liabilities............ (51,674) 6,150 1,078,805 (93,108) (1,322,798)
Accrued pension and other
employee benefits...................... 345,161 312,273 786,843 674,359 870,055
------------ ------------- ------------- --------------------------
Total adjustments...................... (2,918,980) 1,763,384 17,272,784 18,121,830 16,223,108
------------ ------------- ------------- --------------------------
Net cash provided by
operating activities................... 820,315 215,513 22,418,884 18,177,638 18,804,597
Investing activities
Capital expenditures................... (2,404,426) (566,158) (5,680,851) (5,888,487) (6,651,680)
Proceeds from sale of property, plant,
and equipment.......................... 57,541 - 693,936 204,149 24,564
Additions to other assets.............. - - - - (558,267)
------------ ------------- ------------- --------------------------
Net cash used in investing activities.. (2,346,885) (566,158) (4,986,915) (5,684,338) (7,185,383)
</TABLE>
See accompanying notes.
<PAGE>10
PIONEER AMERICAS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
-------------------------------------------------------------------
1995 1994 1994 1993 1992
------------- ------------ ------------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Financing activities
Payments on long-term debt............ (97,771,438) (9,100,000) (99,960,677) (14,543,988) (89,343,815)
Proceeds from borrowings.............. 99,300,000 9,800,000 83,900,000 2,700,000 77,300,000
Dividends paid on preferred stock and
purchase of stock put warrants........ (2,339,830) - - - -
Proceeds from issuance of common
stock................................. - 69,264 169,881 - 42,316
------------- ------------ ------------- --------------------------
Net cash provided by (used in) financ-
ing activities........................ (811,268) 769,264 (15,890,796) (11,843,988) (12,001,499)
------------- ------------ ------------- --------------------------
Net increase/(decrease) in cash....... (2,337,838) 418,619 1,541,173 649,312 (382,285)
Cash at beginning of period........... 3,310,156 1,768,983 1,768,983 1,119,671 1,501,956
------------- ------------ ------------- --------------------------
Cash at end of period................. $972,318 $2,187,602 $ 3,310,156 $ 1,768,983 $1,119,671
============= ============ ============= ==========================
Supplemental disclosures:
Cash paid during the year for:
Interest.............................. $2,351,767 $842,170 $ 4,482,452 $ 5,870,957 $7,773,715
============= ============ ============= ==========================
Income taxes.......................... $1,309,882 $- $ 3,730,432 $ - $2,712,510
============= ============ ============= ==========================
Supplemental schedule of noncash investing and financing activi-
ties:
The Company purchased all of the issued and outstanding
stock of GPS Pool Supply, Inc., for $3,492,339: 1994
------------
Fair value of net assets acquired............................... $ 3,336,339
Goodwill........................................................ 156,000
Cash paid for capital stock..................................... (238,000)
------------
Note balance.................................................... $ 3,254,339
============
</TABLE>
See accompanying notes.
<PAGE>11
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
DECEMBER 31, 1994
1. Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
On October 25, 1988, Pioneer Americas, Inc. (the "Company"), formerly Pioneer
Chlor Alkali Investments, Inc., through its subsidiary, Pioneer Chlor Alkali
Holdings, Inc. ("Holdings"), acquired 100% of the issued and outstanding common
stock of Stauffer Chlor Alkali Company ("Stauffer") in a purchase transaction.
Concurrent with the purchase, the name of Stauffer was changed to Pioneer Chlor
Alkali Company, Inc. ("PCAC"), and Holdings was merged into PCAC. PCAC is a
Delaware corporation and is wholly owned by the Company. PCAC operates two
chlor alkali plants in Henderson, Nevada, and St. Gabriel, Louisiana. Primary
products manufactured are chlorine, caustic soda and hydrochloric acid.
In March 1990, the Company acquired All-Pure Chemical Co., Inc. (All-Pure), a
California corporation which operates plants in California and Washington. The
primary business is the blending and distribution of chlorine and caustic-based
products.
In October 1990, the Company acquired 100% of the issued and outstanding
common stock of Imperial West Chemical Co. (Imperial West) in a purchase
transaction. Imperial West operates six plants in California, Washington, and
Oregon which primarily manufacture bleach and ferrous/ferric chloride. Imperial
West is a Nevada corporation and is wholly owned by the Company.
In May 1994, the Company acquired GPS Pool Supply, Inc. (GPS), a California
corporation which manufactures and distributes bleach for pool water treatment.
The acquisition has been accounted for as a purchase at a purchase price of
approximately $3.5 million which has been assigned to the net assets acquired
based on the fair value of such assets and liabilities at the date of
acquisition. As a result of the purchase, goodwill of approximately $156,000
was recorded by the Company. Accordingly, the consolidated results of
operations for 1994 include GPS since the date of acquisition. The pro forma
unaudited results of operations for the years ended December 31, 1994 and 1993
assume the acquisition of GPS had been consummated as of January 1 of the
respective years, and are as follows:
1994 1993
- ---------------------------- -------- ---------
(in 000's)
Net sales................... $170,454 $161,487
Income (loss) before taxes.. 7,792 (303)
Net income (loss)........... 4,661 (619)
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation. Additionally, redeemable preferred stock and redeemable
stock put warrants have been reclassified from stockholders' equity to a
separate component of the balance sheet.
Inventories
Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are calculated under the average cost method, which
includes appropriate elements of material, labor, and manufacturing overhead
costs, while the first-in, first-out method is utilized for raw materials,
supplies, and parts.
Property, Plant, and Equipment
Depreciation for financial reporting purposes is computed primarily under the
straight-line method over the estimated remaining useful lives of the assets.
<PAGE>12
1. Organization and Summary of Significant Accounting Policies (continued)
Other Assets
Other assets include amounts for organization costs, deferred financing
costs, noncompete agreements, permits, licenses, and customer lists obtained in
conjunction with the All-Pure/GPS and Imperial West acquisitions which are
being amortized on a straight-line basis over their estimated useful lives. The
PCAC deferred financing costs are being amortized on a straight-line basis over
the term of the related debt. Amortization expense for other assets was
$1,690,000, $2,120,000, and $1,857,000 for the years ending December 31, 1994,
1993, and 1992, respectively, and $537,000 and $557,000 for the unaudited
three-month periods ended March 31, 1995 and 1994, respectively.
Goodwill
Excess cost over the fair value of net assets acquired (or goodwill) related
to the All-Pure, Imperial West, and GPS acquisitions of approximately
$12,766,000 is amortized on a straight-line basis over 20 years. The carrying
value of goodwill is reviewed if the facts and circumstances suggest that it
may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill would be reduced by the estimated shortfall of cash flows.
Amortization expense for goodwill was approximately $632,000, $637,000, and
$644,000 for the years ending December 31, 1994, 1993, and 1992, respectively,
and $169,000 and $158,000 for the unaudited three-month periods ended March 31,
1995 and 1994, respectively.
Pension Plans
PCAC has two defined-benefit plans covering substantially all PCAC salaried
and union employees. Plan assets are comprised of investments in short-term
securities funds. Annual pension costs are actuarially determined. The funding
policy is to fund pension costs as accrued for all plans. Benefits are based on
years of service and the employees' compensation during the last five years of
employment.
The Company's subsidiaries also sponsor defined-contribution savings plans
covering substantially all employees. Employees may contribute certain
percentages of their base pay based upon the plan, with subsidiaries providing
a discretionary contribution not to exceed the limits established by the
Internal Revenue Service.
Concentration of Credit Risk
The Company manufactures and sells chlorine and caustic-based products to
companies in diverse industries. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. The Company's sales are primarily to customers in the
Western and Southeastern regions of the United States. Credit losses relating
to these customers have been within management's expectations.
Net sales of Pioneer include sales to a major customer of approximately
$18,728,000, $19,287,000, and $17,654,220 in 1994, 1993, and 1992,
respectively.
Environmental Expenditures
Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation
and clean-up obligations are either known or considered
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>13
1. Organization and Summary of Significant Accounting Policies (continued)
probable and the related costs can be reasonably estimated. Other environmental
expenditures, that are principally maintenance or preventative in nature, are
recorded when expended and are expensed or capitalized as appropriate.
Income Taxes
The Company and its subsidiaries file a consolidated tax return. State income
taxes are included in income taxes payable.
Future Tax Effects
Future tax effects are computed under the provisions of SFAS No. 109
("Accounting for Income Taxes") and result from temporary differences in the
recognition of expenses for financial reporting and tax purposes, differences
in methods of computing depreciation for financial statement and tax purposes,
and differences in the financial statement basis and tax basis of assets and
liabilities acquired.
Returnable Deposits
Customers are required to pay a security deposit on All-Pure and GPS
cylinders, tanks, and containers. These deposits are refunded to the customer
upon the termination of service and return of cylinders, tanks, and containers.
2. Inventories
Inventories consist of the following:
December 31
March 31 ----------------------
1995 1994 1993
- ----------- ----------- ----------
(Unaudited)
Raw materials, supplies, and parts.. $5,882,362 $9,111,306 $5,749,725
Finished goods and work-in-process.. 7,249,404 3,125,228 2,396,820
----------- ----------- ----------
$13,131,766 $12,236,534 $8,146,545
=========== =========== ==========
3. Investment in Basic Investments, Inc. (BII) and Victory Valley Land Company,
L.P. (VVLC)
The Company, through its subsidiary PCAC, owns approximately 32% of the
common stock of BII, which owns and maintains the water and power distribution
network within the Henderson, Nevada industrial complex and which is a large
landowner in Clark County, Nevada. The remainder of the common stock of BII is
owned by other companies located in the industrial complex. The investment in
BII is accounted for under the equity method after adjustment to reflect PCAC's
basis.
VVLC was formed on September 30, 1992 as a limited partnership under the laws
of the state of Delaware. The purpose of the business is to receive and hold
the lands, water rights, and other assets contributed by the partners for
investment. A wholly owned subsidiary of BII, acting as general partner with a
50% interest in VVLC, contributed all rights, title, and interest in and to
certain land to VVLC. PCAC, with an approximately 21.0% limited partnership
interest, has assigned certain water rights to VVLC. The investment in VVLC is
accounted for under the equity method.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>14
3. Investment in Basic Investments, Inc. (BII) and Victory Valley Land Company,
L.P. (VVLC) (continued)
The BII financial information includes the accounts of VVLC. The following is
a summary of financial information pertaining to BII and VVLC:
<TABLE>
<CAPTION>
December 31
March 31 -----------------------
1995 BII 1994 1993
- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets.............................. $8,114,551 $ 4,921,809 $ 5,877,716
Land development costs and water rights..... 2,504,686 2,745,631 1,770,446
Property and equipment...................... 6,696,537 5,869,226 3,895,466
Notes receivable............................ 8,970,804 6,224,995 6,152,601
Other assets................................ 7,166,897 8,296,247 565,211
----------- ----------- -----------
Total assets................................ $33,453,475 $28,057,908 $18,261,440
=========== =========== ===========
Liabilities................................. $19,502,326 $15,384,623 $ 6,139,366
Shareholders' equity:
Common stock................................ 1,070 1,070 1,070
Limited partner's capital................... 4,682,839 3,873,571 3,803,398
Retained earnings........................... 9,267,240 8,798,644 8,317,606
----------- ----------- -----------
Total shareholders' equity.................. 13,951,149 12,673,285 12,122,074
----------- ----------- -----------
Total liabilities and shareholders' equity.. $33,453,475 $28,057,908 $18,261,440
=========== =========== ===========
</TABLE>
Three months
ended March 31 Year ended December 31
----------------------- -------------------------
BII 1995 1994 1994 1993
----------- ----------- ------------ ------------
(Unaudited)
Revenues............. $2,710,279 $1,347,647 $ 5,658,763 $17,347,124
Costs and expenses... 1,194,692 1,188,696 4,833,883 4,611,428
----------- ----------- ------------ ------------
Income before taxes.. 1,515,587 158,951 824,880 12,735,696
Income tax expense... (237,723) (45,241) (273,669) (2,951,842)
----------- ----------- ------------ ------------
Net income........... $1,277,864 $113,710 $551,211 $ 9,783,854
=========== =========== ============ ============
The following is a summary of the impact of the investments on the Company's
statements of operations:
<TABLE>
<CAPTION>
Three months
ended March 31 Year ended December 31
---------------- --------------------------------
1995 1994 1994 1993 1992
-------- ------- -------- ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Equity in earnings...................... $211,875 $38,665 $183,277 $ 3,320,053 $ 150,166
Adjustment to reflect PCAC's basis...... - - - (2,171,384) (123,836)
-------- ------- -------- ------------ ----------
Net impact on Statements of Operations.. $211,875 $38,665 $183,277 $ 1,148,669 $ 26,330
======== ======= ======== ============ ==========
</TABLE>
The Company's retained earnings balances at December 31, 1994 and 1993
include, before effect of PCAC's basis adjustment, approximately $3,313,000 and
$3,140,000, respectively, and $3,670,000 (unaudited) at March 31, 1995 of
undistributed earnings of BII and VVLC. The difference between the
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>15
3. Investment in Basic Investments, Inc. (BII) and Victory Valley Land Company,
L.P. (VVLC) (continued)
recorded investment amounts of BII and VVLC and PCAC's share of net assets is
due to PCAC's basis differences of the land and water rights at the purchase
date.
PCAC is a party to an agreement negotiated on an arms-length basis with BII
for the delivery of the Company's water to the Henderson production facility.
The agreement provides for the delivery of a minimum of eight million gallons
of water per day. The agreement expires on December 31, 2014, unless terminated
earlier in accordance with the provisions of the agreement. For the years ended
December 31, 1994, 1993, and 1992, BII charged expenses to PCAC of
approximately $511,000, $601,000, and $344,000, respectively. At December 31,
1994 and 1993, net receivables from BII were $374,000 and $200,000,
respectively, and $(67,000) (unaudited) at March 31, 1995.
4. Accrued Liabilities
Accrued liabilities consist of the following:
December 31
March 31 -----------------------
1995 1994 1993
- ----------- ----------- -----------
(Unaudited)
Exchanges payable............... $1,750,210 $ 1,492,081 $ 3,716,081
Payroll, benefits, and pension.. 1,553,575 4,298,741 2,031,640
Interest and bank fees.......... 414,575 2,453,971 1,683,116
Other accrued liabilities....... 8,358,161 8,303,056 5,655,852
----------- ----------- -----------
$12,076,521 $16,547,849 $13,086,689
=========== =========== ===========
Exchange payables result from exchange product transactions which are entered
into between the Company and other producers that manufacture homogeneous
products, whereby other producers ship product on behalf of the Company to its
customers. These exchanges, which are recorded as payables, generally are
settled by the Company's shipment of product to such producers' customers.
5. Pension and Other Employee Benefits
Annual pension costs and liabilities for PCAC under its two defined-benefit
plans are determined by actuaries using various methods and assumptions. For
purposes of determining annual expenses and funding contributions, the
following assumptions were used for the years ended December 31:
1994 1993 1992
----- ----- -----
Rate of return on plan assets.. 8.0% 8.0% 8.0%
Discount rate.................. 7.5% 8.0% 8.0%
Annual compensation increase... 5.0% 5.0% 5.0%
Pension expense was comprised of:
<TABLE>
<CAPTION> December 31
--------------------------------
1994 1993 1992
<S> <C> <C> <C>
----------- ---------- ----------
Service cost.................................. $ 570,734 $ 665,368 $ 671,625
Interest cost................................. 770,441 700,259 616,222
Return on plan assets......................... (537,433) (429,589) (334,939)
Amortization of prior service cost and other.. 225,240 32,179 33,183
----------- ---------- ----------
$1,028,982 $968,217 $986,091
=========== ========== ==========
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>16
5. Pension and Other Employee Benefits (continued)
The actuarial present value of accumulated benefit obligations is:
December 31
---------------------
1994 1993
---------- ----------
Vested..... $7,919,404 $5,558,337
Nonvested.. 1,443,498 1,349,637
---------- ----------
$9,362,902 $6,907,974
========== ==========
The reconciliation of the funded status of the plans is:
</TABLE>
<TABLE>
<CAPTION>
December 31
-------------------------
1994 1993
<S> <C> <C>
------------ ------------
Projected benefit obligation........................... $11,420,092 $10,070,089
Plan assets at fair value.............................. 7,339,718 6,332,461
------------ ------------
Projected benefit obligation in excess of plan assets.. 4,080,374 3,737,628
Unrecognized gain...................................... 592,454 1,532,408
Unrecognized prior service cost........................ (16,573) (817,764)
------------ ------------
Pension obligation..................................... 4,656,255 4,452,272
Long-term portion of pension obligation................ 4,303,134 4,303,134
------------ ------------
Current accrued pension cost........................... $ 353,121 $ 149,138
============ ============
</TABLE>
PCAC also contributed approximately $-0-, $-0-, and $185,000 to the
defined-contribution savings plans for the years ended December 31, 1994, 1993,
and 1992, respectively. All-Pure and Imperial West established
defined-contribution plans during 1992 with employer contributions charged
against income of approximately $-0- and $-0-, respectively, in 1994; $11,000
and $-0-, respectively, in 1993; and $86,000 and $45,000, respectively, in
1992.
In addition to providing pension benefits, PCAC provides certain health care
and life insurance benefits for retired employees. Substantially all of PCAC's
employees may become eligible for those benefits if they reach normal
retirement age while working for PCAC.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>17
5. Pension and Other Employee Benefits (continued)
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
December
-----------------------------
1994 1993
<S> <C> <C>
-------------- --------------
Accumulated postretirement benefit obligation:
Retirees.................................................................. $ (1,843,353) $ (700,835)
Fully eligible active plan participants................................... (2,102,718) (2,241,999)
Other active plan participants............................................ (3,757,943) (3,127,473)
-------------- --------------
(7,704,014) (6,070,307)
Unrecognized net (gain) or loss........................................... 827,762 (41,752)
Unrecognized transition obligation........................................ 385,050 407,700
-------------- --------------
Accrued postretirement benefit cost....................................... $ (6,491,202) $ (5,704,359)
============== ==============
Net periodic postretirement benefit cost include the following components:
Service cost.............................................................. $ 323,999 $ 256,033
Interest cost............................................................. 518,392 432,034
Amortization of transition obligation over 20 years....................... 32,356 22,650
-------------- --------------
Net periodic postretirement benefit cost.................................. $ 874,747 $ 710,717
============== ==============
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 10.5% for 1995 (same
as the rate previously assumed for in 1993) and is assumed to decrease
gradually to 6% for 2010 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
For example, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1994 and 1993 by $633,000 and $535,000,
respectively, and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for 1994 and 1993 by $82,000 and
$72,000, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 8.0% at December 31, 1994 and
1993, respectively.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>18
6. Long-Term Debt
<TABLE>
<CAPTION>
December 31
March 31 ---------------------------
1995 1994 1993
- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Long-term debt with a bank, due in quarterly installments with additional
principal reductions, due semiannually in reverse order of maturities, equal
to 70% of net cash flows, as defined, with a final payment due September
30, 1996, interest due quarterly at the bank's base rate plus 2%. The
additional principal reductions were approximately $9,918,938 and
$6,418,731 during 1994 and 1993, respectively.................................. $- $16,887,161 $26,806,099
Revolving credit loan with a bank with principal reductions at 50% of net
cash flows, as defined, after repayment of the long-term debt, with a final
amount due September 30, 1996, limited to a borrowing base as defined,
less outstanding letters of credit, interest due quarterly at the bank's base
rate plus 1.5%................................................................. - 7,600,000 11,200,000
Subordinated debt with a financial institution, due in installments of $122,847
on the fifth day of each April and October, which started in October 1994,
through October 1996 and installments of $4,147,743 starting in April
1997 with a final payment due October 19, 1998, interest due quarterly at
a rate of 14.5%, secured by receivables, inventory, property, plant, and
equipment, and other assets.................................................... - 18,059,768 17,205,208
Unsecured note payable, original face value of $8,825,055, with a contract
interest rate at the average 30-59 GMAC rate, due in eight installments of
$1,000,000, due each August 29, with the remaining balance due on
August 29, 1996, with an effective interest rate of 15%, net of unamortized
discount of $417,000 and $702,002 at December 31, 1994 and 1993,
respectively................................................................... 3,407,507 3,407,507 4,123,019
Unsecured noninterest-bearing, long-term debt, original face value of
$6,500,000, payable in six annual installments of $1,000,000 and a final
payment of $500,000 subject to certain reductions as provided in the
purchase agreement with the prior owner of PCAC, beginning October 26,
1989, with an effective interest rate of 15%, net of unamortized discount
of $65,218 and $252,363 at December 31, 1994 and 1993, respectively............ 434,782 434,782 1,247,638
Promissory note, original face value of $3,254,339, with a contractual interest
rate of 7% per annum. Principal and interest payments are due quarterly
which began September 20, 1994 and will continue until May 27, 1996............ - 2,424,509 -
Term debt with a bank, final maturity date of August 31, 1995 with a
continuation option available to extend final maturity date to March 20,
2000, with an effective interest rate of Prime plus 1.5% or LIBOR plus
2.5%. (Note 14)................................................................ 38,000,000 - -
Revolving credit loan with a bank with principal reduction at 100% of net
cash flows, as defined after repayment of the long-term debt, with a final
amount due August 31, 1995, limited to a borrowing base as defined, less
outstanding letters of credit, interest due quarterly at the bank's base rate
plus 1.5%. (Note 14)........................................................... 8,500,000 - -
------------ ------------- -------------
50,342,289 48,813,727 60,581,964
Less current maturities........................................................ (3,842,289) (12,056,377) (13,565,820)
------------ ------------- -------------
$46,500,000 $36,757,350 $47,016,144
============ ============= =============
</TABLE>
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>19
6. Long-Term Debt (continued)
As of December 31, 1994 the amended loan agreements with the above financial
institutions include restrictions regarding capital expenditures, the borrowing
of additional money, the formation or acquisition of subsidiaries, the signing
of long-term leases, the maintenance of certain financial ratios, and other
reporting and disclosure requirements regarding monthly operating results of
the Company's subsidiaries. Also, unless otherwise consented in writing by the
lender, the Company may not declare or pay any dividends other than subsidiary
dividends to the parent in order to cover certain expenditures at specified
maximum amounts, as defined. The Company's subsidiaries were in compliance with
all the above amended requirements.
The amended loan agreement relating to the long-term debt with a bank
requires the Company within ten calendar days after receipt to make a mandatory
prepayment equal to 95% of any extraordinary income received by the Company on
or after January 1, 1993. Such payments shall be applied first to accrued and
unpaid interest due and payable as of the date of payment, then to the
differential between principal payments under the former loan agreement and the
amended loan agreement through September 30, 1994, then to scheduled principal
installments under the amended loan agreement in inverse order of their
maturity. Extraordinary income is defined as income which does not constitute
operating income derived from normal and customary operations of the Company,
such as settlements or jury awards in litigation proceedings and settlements or
judges' awards in any arbitration proceedings (described in Note 7), sale of
assets other than inventory, and insurance proceeds which are treated as income
under generally accepted accounting principles. In determining extraordinary
income, provisions for taxes and offsets for amounts owed to the source of
payment are to be deducted from the cash received.
The long-term debt and revolving credit loan are secured by receivables,
inventory, property, plant, and equipment, other assets, and PCAC stock. At
December 31, 1994 and 1993, the borrowing base, as defined, under the revolving
credit loan was approximately $17,500,000 and $11,300,000, respectively.
Effective December 20, 1990, the Company entered into an interest rate swap
agreement with a bank. Under the terms of the agreement, which expired on
December 20, 1993, the Company converted the variable rate related to the term
loan to a fixed rate of 9.85%. The effect of this agreement was to increase
interest expense by approximately $586,000 and $711,000 for the years ended
December 31, 1993 and 1992.
In a separate agreement, a group of banks receive additional bank fees
totaling 5.0% of adjusted net income, as defined. The fee is payable annually
through September 30, 1996.
As of December 31, 1994, the five-year debt maturity, excluding the
additional principal reductions equal to 70% of available cash flows, and any
mandatory prepayments related to extraordinary income received by the Company
is as follows:
1995.. $12,056,377
1996.. 19,677,674
1997.. 8,539,838
1998.. 8,539,838
1999.. -
-----------
$48,813,727
===========
The Company issued warrants to a financial institution that financed previous
acquisitions. As of December 31, 1994, the instruments are detachable from the
debt and contain puts that require redemption for cash or conversion into
common stock under certain conditions. See Note 12 for additional disclosure.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>20
6. Long-Term Debt (continued)
During 1993, $2,205,208 of interest on the subordinated debt was not paid and
is reflected as additional principal due to a financial institution in
accordance with the terms of the related debt agreement.
The Company's debt instruments outstanding at December 31, 1994 do not have
readily ascertainable market values; however, the carrying values are
considered to approximate their respective fair values.
7. Commitments and Contingencies
Letters of Credit
At December 31, 1994 and 1993, net letters of credit and performance bonds
outstanding were approximately $8,790,088 and $3,875,000, respectively. These
letters of credit and performance bonds were issued for the benefit of
customers under sales agreements securing delivery of products sold, a power
company as a deposit for the supply of electricity, and a state environmental
agency as required for manufacturers in the state. The letters of credit expire
at various dates in 1995 and 1996. No amounts were drawn on the letters of
credit at December 31, 1994 and 1993.
Purchase Commitments
PCAC has committed to purchase electrical power and transmission services for
its chlor alkali plants through September 30, 2017. At the current base price,
allocated capacity, and allocated energy per the contract terms, this
commitment would approximate $10,040,000 for the year ending December 31, 1995;
$2,546,322 for each of the years 1996 through 2000; $1,260,690 for each of the
years 2001 through 2008; and $1,016,531 for each of the years 2009 through
2017. The allocated capacity is subject to adjustment for other priority users.
PCAC purchased approximately $27,200,000, $27,000,000, and $23,200,000 in
electrical power and transmission services for the years ended December 31,
1994, 1993, and 1992, respectively, and $5,500,000 and $6,700,000 for the
unaudited three-month periods ended March 31, 1995 and 1994, respectively.
In addition, PCAC has committed to purchase salt used in the production
process under contracts which continue through December 31, 1998. Based on the
contracts terms, a minimum of 555,000 tons of salt are to be purchased in 1995;
442,000 tons in 1996 and 1997; 442,000 tons in 1998; and 279,000 tons in 1999.
The future minimum salt commitments are as follows:
1995.. $ 5,588,000
1996.. 4,172,000
1997.. 4,305,000
1998.. 2,377,000
1999.. 1,753,000
------------
$ 18,195,000
============
PCAC purchased approximately $8,600,000, $9,100,000, and $9,000,000 of salt
for the years ended December 31, 1994, 1993, and 1992, respectively, and
$2,400,000 and $2,200,000 for the unaudited three-month periods ended March 31,
1995 and 1994, respectively. These amounts are included in cost of sales.
Operating Leases
The Company and its subsidiaries lease certain of its manufacturing and
distribution facilities, computer equipment, and administrative offices under
noncancelable leases. Minimum future rental payments on such leases with terms
in excess of one year in effect at December 31, 1994 are:
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>21
7. Commitments and Contingencies (continued)
1995....................... $ 7,416,000
1996....................... 6,291,000
1997....................... 5,589,000
1998....................... 4,556,000
1999....................... 3,906,000
Thereafter................. 1,712,000
------------
Total minimum obligations.. $ 29,470,000
============
Lease expense charged to operations for the years ended December 31, 1994,
1993, and 1992 was approximately $8,400,000, $8,400,000, and $8,200,000,
respectively, and $2,100,000 and $1,800,000 for the unaudited three-month
periods ended March 31, 1995 and 1994, respectively.
Sales Commitments
PCAC has sales contracts with Customers which require PCAC to sell and the
Customers to purchase amounts of chlorine and caustic soda of not less than the
percentage of the Customers' use of chlorine and caustic soda supplied by PCAC
in the 12-month period ended July 31, 1987 (base period). PCAC supplied
approximately 91,000 tons of chlorine and 21,000 tons of caustic soda in the
base period. The contracts, which expire from July 31, 1993 through December
31, 1997, state that the sales price will not be less than PCAC's standard cost
as calculated based on 1987 amounts and adjusted thereafter for price changes
for raw materials and changes in other costs as reflected in the producer price
index.
PCAC also has numerous other long-term sales commitments with customers which
will expire at various dates from 1995 through 1999. Under the terms of all
sales commitments, PCAC is committed to providing chlorine, caustic soda, and
hydrochloric acid. Based upon current operating rates of the customers, it is
estimated that PCAC will provide the following amounts:
Tons
-------
1995.. 185,000
1996.. 182,000
1997.. 163,000
1998.. 93,000
1999.. -
-------
623,000
=======
Litigation
PCAC was a party to arbitration proceedings regarding claims against the
entity from which Holdings acquired Stauffer in 1988. The arbitration resulted
from pricing differences related to subsequent product purchases from PCAC.
Arbitration of this claim was finalized on April 20, 1993 for $7,830,468 in
favor of PCAC and is reflected in the consolidated statement of operations for
1993.
During the year ended December 31, 1991, PCAC incurred $6.8 million in claims
and expenses in connection with a chlorine release which occurred at one of its
plants. PCAC believed the losses related to the release were covered under the
insurance policies that were in effect at the time of the release. However,
PCAC's primary carrier denied liability on the basis of policy exclusions. PCAC
believed the positions of its
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>22
7. Commitments and Contingencies (continued)
insurers were contrary to coverage provided by the policies. As a result of the
release and the aforesaid, a number of potentially significant lawsuits
resulted and settlements have arisen:
PCAC filed suit in 1991 against the insurance agents involved in the
acquisition of the insurance policy from the primary carrier as well as for
fraudulent representations made as to the terms of the insurance policy. PCAC
settled its claims against the insurance agents for $1,600,000 in December 1992
and $50,000 in March 1993. PCAC took a nonsuit, without prejudice, of its
remaining claims against the primary insurance carrier. The primary carrier
filed a counterclaim against PCAC alleging PCAC acted in bad faith in filing
suit against it. In December 1994, PCAC agreed to pay the primary insurance
carrier $200,000 in settlement of the counterclaim.
PCAC filed suit during 1991 against the first-level excess carrier
responsible for secondary comprehensive general liability coverage to recover
under the policy in effect at the date of the release. This litigation was
settled in December 1992. In accordance with the settlement, the insurance
company paid PCAC $2,050,000 relating to claims paid by PCAC prior to November
1, 1992 and agreed to pay PCAC (a) upon proof of same $100,000 relative to
claims and expenses incurred after July 31, 1992 but prior to November 1, 1992
and (b) all claims after November 1, 1992 until an aggregate total of
$3,800,000 has been paid. As of February 28, 1995, approximately $610,000 of
the $3,800,000 is available to pay claims which are still outstanding. It is
not known at this time whether or not this amount will be sufficient to pay all
claims. It is the opinion of management, based on advice of counsel, that the
ultimate resolution of this contingency, to the extent not previously provided
for, will not have a material effect on the financial condition of the Company.
PCAC was involved in a lawsuit against an insurance company to recover under
its policy for both property damage and business interruption losses. The
insurance company denied coverage on the grounds that PCAC's damages were not
caused by an accident. In September 1994, this suit was settled in
consideration of payment to PCAC of approximately $5.9 million, which amount is
included in 1994 earnings, net of legal costs and $500,000 for liabilities
incurred which will be paid at a future date. As part of this settlement, PCAC
agreed to assign to the insurance company the claims PCAC had against another
insurer as well as agreed to forego any further claims resulting from the 1991
chlorine release.
PCAC filed suit in 1991 against an insurance company for failure to provide
coverage under a boiler and machinery policy of insurance. By judgment signed
March 1, 1993, the trial court ruled that PCAC did not have a valid claim
against the insurance company. However, on March 31, 1994, the Court of Civil
Appeals entered an order which (1) reversed the trial court and rendered a
decision that the insurance policy provided coverage for the chlorine release;
(2) remanded the case for a determination of PCAC's damages and certain other
claims asserted by PCAC relating to alleged violations of the Texas Insurance
Code; and (3) affirmed the trial court's ruling that PCAC had no basis to
recover its investigative costs. As part of the September 1994 settlement
agreement discussed in the paragraph above, the Company assigned all rights and
claims PCAC may have against the insurance company with respect to recovery of
any and all losses or damages PCAC suffered as a result of the May 6, 1991
chlorine leak.
PCAC and Imperial West were also involved in a personal injury suit filed by
a former employee. The former employee was seeking damages in excess of
$6,250,000. By mutual release entered into by and between the former employee
and the Company, this suit was settled in consideration of the payment of
$1,000 to the former employee.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>23
7. Commitments and Contingencies (continued)
During 1993, Imperial West was awarded $1.38 million as the result of a
breach of contract claim it asserted against the lessor of one of Imperial
West's plants. The judgment has been appealed and the financial statements do
not include any receivables for the gain that could result from the judgment.
The lessor subsequently filed suit alleging that Imperial West is required to
remediate alleged contamination prior to the termination of the lease in July
1995. The parties have agreed to settle that action under terms which will
require Imperial West to pay the lessor $900,000 upon the termination of the
lease, and the lessor will transfer title to the property to Imperial West. In
addition, Imperial West has agreed to indemnify the lessor against any future
environmental liability with respect to the property. The settlement did not
affect the appeal pending with respect to the breach of contract judgment.
Certain insurers have agreed to pay a portion of Imperial West's defense costs
in connection with the lawsuit. Imperial West is pursuing a claim for
contribution from the insurers with respect to the cost incurred in settling
the action.
In October 1994, the trustee in the bankruptcy of a company which was a
customer of PCAC filed suit against PCAC, seeking the recovery of up to $2.2
million in payments made to PCAC on a basis which the trustee alleges were
preferential to other creditors' claims. Management has been advised by counsel
that the range of any loss which may be incurred as the result of the suit will
be substantially below the amount claimed, and PCAC is vigorously contesting
the action.
The Company and its subsidiaries are parties to other legal proceedings and
potential claims arising in the ordinary course of their businesses. In the
opinion of management, the Company and its subsidiaries have adequate legal
defense 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.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
December 31
-----------------------
1994 1993
----------- -----------
Deferred tax liabilities:
Tax over book depreciation................... $19,964,000 $20,858,000
Investment in BII and VVLC................... 6,509,000 6,200,000
Other-net.................................... 5,585,000 6,514,000
----------- -----------
Total deferred tax liabilities............... 32,058,000 33,572,000
----------- -----------
Deferred tax assets:
OPEB obligation.............................. 2,499,000 2,161,000
Pension liability............................ 1,885,000 1,626,000
Bad debt provision........................... 784,000 193,000
Other accrued liabilities.................... 4,310,000 4,011,000
Alternative minimum tax credit............... - 1,174,000
----------- -----------
Total deferred tax assets.................... 9,478,000 9,165,000
Valuation allowance for deferred tax assets.. - -
----------- -----------
Net deferred tax assets...................... 9,478,000 9,165,000
----------- -----------
Net deferred tax liabilities................. $22,580,000 $24,407,000
=========== ===========
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>24
8. Income Taxes (continued)
Significant components of the provision (benefit) for income taxes are as
follows:
Years ended December 31
---------------------------------------
1994 1993 1992
------------- ------------- -----------
Current:
Federal......... $3,930,000 $(1,152,000) $1,697,000
State........... 568,000 (85,000) 96,000
------------- ------------- -----------
Total current... 4,498,000 (1,237,000) 1,793,000
------------- ------------- -----------
Deferred:
Federal......... (1,010,000) 1,592,000 (84,000)
State........... (246,000) 131,000 56,000
------------- ------------- -----------
Total deferred.. (1,256,000) 1,723,000 (28,000)
------------- ------------- -----------
$3,242,000 $ 486,000 $1,765,000
============= ============= ===========
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is presented below. Other-net increase to income
tax expense is primarily due to amortization of goodwill, which is not
deductible for income tax purposes:
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------------
1994 1993 1992
------------------- ---------------- -------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
----------- ------- -------- ------- ----------- -------
Tax at U.S. statutory rates........ $2,936,000 35% $184,000 34% $1,478,000 34%
State income taxes, net of
federal tax benefit................ 321,000 4 46,000 9 152,000 4
Foreign sales corporation benefit.. - - - - (145,000) (3)
Adjustment of previously
provided taxes..................... (285,000) (3) - - - -
Other-net.......................... 270,000 3 256,000 47 280,000 6
----------- ------- -------- ------- ----------- -------
$3,242,000 39% $486,000 90% $1,765,000 41%
=========== ======= ======== ======= =========== =======
</TABLE>
9. Other Long-Term Liabilities-Environmental
The Company's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those
applicable to waste management, discharge of pollutants into the air and water,
clean-up liability from historical waste disposal practices, and employee
health and safety. The Company believes that it is in substantial compliance
with existing governmental regulations.
In connection with the acquisition of the chlor alkali business in October
1988, ICI and ICI Americas (the seller) agreed to indemnify the Company for
certain environmental liabilities associated with operations at the Henderson
plant (the "ZENECA Indemnity"). In general, ICI and ICI Americas agreed to
indemnify the Company from environmental costs which arise from or relate to
pre-closing actions which involved disposal, discharge, or release of materials
resulting from non-chlor alkali manufacturing operations at the Henderson plant
and at other properties within the same industrial complex owned by Basic
Investments, Inc. ("BII"). The ZENECA Indemnity will terminate if (i) certain
existing stockholders of the Company cease to own more than 50% of the voting
capital stock of the Company, (ii) the Company ceases to own,
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>25
9. Other Long-Term Liabilities-Environmental (continued)
directly or indirectly, any voting capital stock of BII, or (iii) with respect
to all or part of the Henderson plant site, at such time as the Company
stockholders do not own the majority of voting capital stock of an entity that
owns such property. If the stockholders cease to own more than 50% of the
common stock, the ZENECA Indemnity will expire four years after such change in
control but no later than April 2001, or on the date of such change in control
if it occurs after April 2001. If the Company ceases to own directly or
indirectly any of the voting capital stock of BII, the indemnity terminates
with respect to property owned by BII. The ZENECA Indemnity will continue to
cover claims after expiration of the indemnity provided that proper notice is
given prior to such expiration, and either the successors to ICI and ICI
Americas have assumed control of such claims or the Company, unless it is
contesting the legal requirements that gave rise to the claims, has commenced
removal, remedial or maintenance work in accordance with the terms of the
agreement. Payments under the indemnity cannot exceed approximately $65
million.
Liabilities are recorded when site restoration and environmental remediation
and clean-up obligations are either known or considered probable and are
reasonably determinable. The liabilities are based upon all available facts,
existing technology, past experience, and cost-sharing arrangements, including
the viability of other parties. Charges made against income for recurring
environmental matters, included in "cost of sales" on the statements of
operations, totaled approximately $1,781,000, $2,329,000, and $1,848,000 in
1994, 1993, and 1992, respectively. Capital expenditures for environmental
related matters at existing facilities approximated $543,000, $1,073,000, and
$874,000 in 1994, 1993, and 1992, respectively. Future environmental related
capital expenditures will depend upon regulatory requirements, as well as
timing related to obtaining necessary permits and approvals.
Estimates of future environmental restoration and remediation costs are
inherently imprecise due to currently unknown factors such as the magnitude of
possible contamination, the timing and extent of such restoration and
remediation, the extent to which such costs are recoverable from third parties,
and the extent to which environmental laws and regulations may change in the
future. The Company established a reserve of approximately $9 million at the
time of the acquisition of the Henderson and St. Gabriel facilities with
respect to potential remediation costs relating to matters not covered by the
ZENECA Indemnity, consisting primarily of remediation costs that may be
incurred by Pioneer for chlor alkali-related remediation of the Henderson and
St. Gabriel facilities. The recorded accrual includes certain amounts related
to anticipated closure and post closure actions that may be required when
operation of the present chlor-alkali plants cease. However, a complete
analysis and study have not been completed and therefore additional future
charges may be recorded at the time a decision for closure is made.
In 1994, the Company recorded an additional $3,200,000 environmental reserve
related to preclosing actions at sites that are the responsibility of ZENECA.
Other assets include an account receivable of the same amount from ZENECA.
Certain other environmental matters exist for which the Company has not
determined the specific strategy for or cost of remediation. It is possible
that additional costs, depending on the final choice of remediation strategies,
may be incurred in the future. As additional information becomes available,
changes in the estimates of liabilities will be recorded. If such costs are
incurred, additional annual operating and maintenance costs may also be
required. The Company believes it will be reimbursed by ZENECA for
substantially all of such costs. Additionally, certain other environmental
matters exist which have been assumed directly by ZENECA. No assurance can be
given that actual costs will not exceed accrued amounts or the amounts
currently estimated. The imposition of more stringent standards or requirements
under environmental laws or regulations, new developments or changes respecting
site cleanup costs, or a
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>26
9. Other Long-Term Liabilities-Environmental (continued)
determination that the Company is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by the Company to be required for such matters.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
10. Related Party Transactions
During 1992, PCAC acquired a 15% partnership interest in Saguaro Power
Company, a cogeneration plant located in Henderson, Nevada, through its wholly
owned subsidiary, Black Mountain Power Company. PCAC sells certain services to
and purchases steam from Saguaro Power Company at market prices. Balances with
this affiliate are as follows:
December 31
--------------------------------
1994 1993 1992
---------- ---------- ----------
Sales to Saguaro........ $1,285,552 $1,154,115 $ 641,190
Purchases from Saguaro.. 2,096,735 1,454,797 1,343,945
Due from Saguaro........ 116,089 212,237 230,745
Due to Saguaro.......... 186,038 296,768 515,737
PCAC received distributions of partnership income from this affiliate of
$1,290,000, $655,950, and $915,000 in 1994, 1993, and 1992 which are included
in other income. Also, reimbursable expenses of $650,000 and $90,000 were
received for 1993 and 1992, respectively.
PCAC was committed to sell liquid caustic soda to a related entity. During
the years ended December 31, 1993 and 1992, such sales totaled approximately $2
million and $6 million, respectively. This related entity filed for bankruptcy
in April 1993 and, subsequent to the filing, is no longer doing business with
PCAC. In addition to the $1,300,000 written off during 1992, the Company
charged an additional $1,100,000 against income in 1993 related to 1993 sales
as the receivable was deemed uncollectible. The Company received certain
transfers from this related entity that have been challenged as preferences. As
of December 31, 1994 the Company has established a reserve related to such
transactions.
11. Redeemable Preferred Stock
In the event of any liquidation, dissolution or winding up of the affairs of
the Company, the holders of redeemable preferred stock shall be entitled to be
paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock. No dividends or distributions shall be
paid to holders of any class of equity security which has rights junior to the
redeemable preferred stock except upon consent of the holder of redeemable
preferred stock. The holder of redeemable preferred stock is also entitled to
receive cumulative dividends, if and when declared by the Company, at an annual
rate of 8% per annum. No dividends were paid during 1994 and 1993 and future
dividends will not be made until permitted by the lenders. The carrying value
of the redeemable preferred stock, which includes the accretion of accumulated
and unpaid dividends as of December 31, 1994 and 1993, is $6,600,000 and
$6,200,000, respectively. The preferred stockholder has no voting rights except
for the right to elect one director of the Company. In the event that the
Company defaults upon its acquisition debt and such debt is accelerated, then
the preferred stockholder would be entitled to elect a majority of the Board of
Directors. The Company has the right and option to redeem any and all of the
redeemable preferred stock at a redemption price of $100 per share plus
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>27
11. Redeemable Preferred Stock (continued)
any dividends declared or accrued but unpaid by October 31, 1998. In the event
that the Company has not redeemed the preferred stock by October 31, 1998, a
majority of the shares of preferred stock then outstanding shall have the right
to elect a majority of the Board of Directors of the Company. The redeemable
preferred stock was recorded at a value on the date of issuance which was
estimated by allocating the proceeds from issuance between the preferred stock
and the detachable common stock warrants. The excess of the redemption value
over the carrying value is being accreted by periodic charges to retained
earnings over the life of the issue.
12. Stock Warrants and Appreciation Rights
The Company has issued 111,111 warrants to a bank which are detachable from
the related debt. Each warrant entitles the lender to purchase a share of
common stock at $.01 par value and may be exercised at any time until the
expiration date of October 31, 1998. No warrants have been exercised at
December 31, 1994.
The Company has also granted the holder of these warrants the right and
option to sell to the Company and to require the Company to purchase all or any
part of the warrants or the common stock acquired pursuant to the exercise of
the warrants. This option may be exercised any time prior to November 1, 1998
at an exercise price equal to the greatest of the current market value, the net
book value, or a computation based on net income. In the event the Company does
not have available cash to purchase the warrants or common stock, the Company
shall give a promissory note in the amount of the obligation owed. Such
promissory note shall mature on October 25, 1996. Any excess of the redemption
value over the carrying value is being accreted by periodic charges to retained
earnings over the term of the option.
During 1990, the Company issued to debtholder an additional 187,359 warrants
which are detachable from the related debt. The warrant entitles the
subordinated debtholder to purchase a share of nonvoting common stock any time
beginning after October 19, 1994, but before the expiration date of October 19,
2000. The exercise price at the time the agreement was entered into was $12 per
warrant. These warrants include a put option which requires the Company to
purchase any or all warrants or the common stock acquired pursuant to the
exercise of the warrants at an amount equal to the greater of the net book
value, current market value, or the net book value less the price of the
warrants. No warrants have been exercised at December 31, 1994.
During 1990, the Company issued to subordinated debtholder Stock Appreciation
Rights (SAR's). The SAR's entitle the holder of the SARS to the right and
option to receive the benefits of any appreciation in the value of 93,680
shares of the Company's common stock calculated on a fully diluted basis over a
Base Share Value. The Base Share Value was originally valued at $12 per share.
The exercise period for the SARS commenced on October 19, 1994 and expires on
October 19, 2000. During 1993, the Company issued additional SAR's equivalent
to 100,000 common shares with exercise rights commencing on October 19, 1994
and expiring on October 19, 2000.
In September 1994, the Company's debtholder amended and modified the warrant
and SAR's Agreement, whereas the Company has the right and option at any time
during the terms of these Agreements to prepay the debt held by the debtholder.
In addition, if this prepayment option is exercised, the Company will have the
right and option to purchase from the debtholder 128,199 of the warrants for
total consideration of $640,995 and the SAR's for $968,400. Based upon such
Agreement in 1994, the Company has adjusted
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>28
12. Stock Warrants and Appreciation Rights (continued)
the carrying value of the warrants and SAR's to $17 per share, resulting in an
increase to redeemable stock put warrants of $1,424,571, through a reduction to
retained earnings and a charge to other expense of $968,400 related to the
SAR's.
13. Stock Options
The Company has a stock option plan in effect for key employees which allowed
the Company to grant options for 100,000 shares of common stock.
The following table summarizes the activity relating to the Company's stock
option plan:
Three
months Year ended December 31
ended -------------------------
March 31
1995 1994 1993 1992
- ----------- --------- ------ --------
(Unaudited)
Outstanding at beginning of period.. 23,088 92,352 80,808 92,352
Granted............................. - - 11,544 -
Exercised........................... - (56,627) - (5,772)
Expired............................. - (12,637) - (5,772)
----------- --------- ------ --------
Outstanding at end of period........ 23,088 23,088 92,352 80,808
=========== ========= ====== ========
Options exercised during 1994 and 1992 were exercised at $3 per share. The
remaining options outstanding are exercisable at prices of either $6 or $9 per
share.
14. Subsequent Events
On March 20, 1995, the Company entered into a new credit agreement (the
"agreement") with The Bank of Nova Scotia as agent (the "Bank") to borrow funds
that were used to pay off certain existing debt totaling approximately $46.4
million, including the long-term debt with a bank, the revolving credit loan
with a bank, the subordinated debt with a financial institution, and a
promissory note and to extinguish bank fees previously payable through
September 30, 1996. The refinancing also permitted Pioneer to repurchase
certain warrants and stock appreciation rights held by the subordinated
debtholder upon favorable terms. The new term loan and revolving loan were
funded on March 22, 1995 in the amount of approximately $38.0 million and
approximately $14.9 million, respectively. The agreement had a final maturity
date of August 31, 1995 with a continuation option available to extend the
final maturity date to March 20, 2000. Costs and expenses incurred in
connection with the refinancing were approximately $7.3 million, including a
write-off of $1.6 million in existing financing costs. Approximately $5.5
million of such costs have been recorded as an extraordinary item in the
consolidated statement of operations.
On April 20, 1995, the holders of the outstanding common stock and other
common equity interests of the Company consummated a transaction under a Stock
Purchase Agreement dated as of March 24, 1995 with Pioneer Americas Acquisition
Corp. ("New Pioneer"), a wholly owned subsidiary of Pioneer Companies, Inc.
("PCI"). Subject to the terms and conditions set forth therein, New Pioneer
acquired all of such stock and interests of the Company, including shares
issued upon exercise of warrants. Fees and expenses incurred with respect to
the sale of the Company were approximately $3.9 million. Concurrently with the
acquisition, New Pioneer issued and sold $135.0 million of Senior Notes
guaranteed by the Company. In addition, the Company entered into a new bank
revolving credit facility (the "Bank Credit Facility") with Bank of America
Illinois, providing for borrowings up to $30 million. The proceeds from the
Senior Notes and the borrowing under the Bank Credit Facility were partially
used to retire indebtedness entered into on
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>29
14. Subsequent Events (continued)
March 20, 1995 in the amount of approximately $51 million and redeem preferred
stock totaling $5 million. Fees and expenses paid with respect to the issuance
of the Senior Notes and obtaining the Bank Credit Facility were approximately
$4.6 million and $200,000, respectively.
The Acquisition of the common stock of the Company from the Sellers will
cause the ZENECA Indemnity to terminate on April 20, 1999, four years after
consummation of the Acquisition, including ZENECA's indemnity obligation with
respect to property owned by Basic Investments or its affiliates and with
respect to property owned by the Company at Henderson, Nevada. The ZENECA
Indemnity will continue to cover claims after the expiration of the term of the
indemnity provided that, prior to the expiration of the indemnity, proper
notice to the ZENECA Companies is given and either the ZENECA Companies have
assumed control of such claims or the Company is contesting the legal
requirements that gave rise to such claims, or has commenced removal, remedial
or maintenance work with respect to such claims, or has commenced an
investigation which results in the commencement of such work within ninety
days. The Company believes that ZENECA will continue to honor its obligations
under the ZENECA Indemnity for claims properly presented by the Company. It is
possible, however, that disputes could arise between the parties concerning the
effect of contractual language and that the Company would have to subject its
claims for clean-up expenses, which could be substantial, to the contractually
established arbitration process.
PIONEER AMERICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Information related to the three-month periods ended and at March 31, 1995 or
1994 is unaudited.)
<PAGE>30
PIONEER COMPANIES, INC.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") of Pioneer Companies, Inc. (the "Company") is based on
the historical consolidated financial statements of the Company and its
subsidiaries included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and upon the historical consolidated
financial statements of Pioneer Americas, Inc. and its subsidiaries included
in the Company's Current Report on Form 8-K dated April 20, 1995 (the "8-K
Report"). The Pro Forma Financial Information has been prepared to illustrate
the effects of the acquisition described in Item 2 of the 8-K Report and the
related financing transactions described therein (together, the
"Acquisition"). Terms used in this Amendment and in the Pro Forma Financial
Information that are defined in the 8-K Report are used herein as so defined,
unless otherwise defined herein.
The pro forma consolidated income statements for the year ended December 31,
1994 and the quarter ended March 31, 1995 give effect to the Acquisition as if
it had occurred on January 1 of the respective periods. The pro forma
consolidated balance sheet as of March 31, 1995 has been prepared as if the
Acquisition had occurred on that date. The Pro Forma Financial Information
excludes certain real estate assets, consisting of the Excess Land and
Pioneer's interests in Basic Investments and Victory Valley, since the value
of such assets will accrue to the Sellers under the Contingent Payment
Agreement. All share and per share information has been retroactively
restated to reflect the one-for-four reverse stock split of the Company's
Class A and Class B Common Stock, effective April 27, 1995. The Pro Forma
Financial Information is not necessarily indicative of either future results
of operations or the results that might have occurred if the Acquisition had
been consummated on the indicated dates.
The Acquisition will be accounted for using the purchase method of accounting.
The total purchase cost of the Acquisition will be allocated to the Company's
assets and liabilities based upon their respective fair values. The pro forma
adjustments reflected in the Pro Forma Financial Information are based upon
information available as of the date hereof, while the actual adjustments will
be based upon ultimate appraisals, evaluations and estimates of fair value at
the time of closing of the Acquisition. Accordingly, there can be no
assurance that the actual adjustments will not differ significantly from the
pro forma adjustments reflected in the Pro Forma Financial Information.
<PAGE>31
Pioneer Companies, Inc.
Pro Forma Combined Balance Sheet
March 31, 1995
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
As included in Pro Forma Adjustments
Pioneer Pro Forma
the Company's
Americas, Inc. Debit Credit Combined
Assets Report on Form 10Q
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 458 $ 972 $ 2,112 (a) $ $ 3,542
Accounts receivable, less allowance
for doubtful accounts 28,100 28,100
Inventories 13,132 1,587 (b) 14,719
Prepaid expenses and other
current assets 1,283 288 (c) 1,571
__________________________________________________________________________________
Total Current Assets 458 43,487 3,987 _ 47,932
Property, plant and equipment, net 20 83,882 10,000 (e) 10,396 (d) 83,506
Investment in Victory Valley Land
Company, L.P. and Basic Investments,
Inc. 17,528 17,528 (d) -
Deferred Tax Asset - -
Other assets,net 600 9,158 5,100 (f) 4,136 (g) 10,722
Excess of Cost over fair value of net
assets acquired 9,875 112,663 (f) 9,875 (g) 112,663
________________________________________________________________________________
Total Assets $ 1,078 $163,930 $131,750 $ 41,935 $254,823
________________________________________________________________________________
________________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 432 $ 14,733 $ 270 (a) $ 2,334 (f) $ 17,229
Accrued liabilities 12,077 12,077
Returnable deposits 3,287 3,287
Future tax affects 2,782 2,782
Current maturities of long-term debt 3,842 3,842 (h)
________________________________________________________________________________
Total Current Liabilities 432 36,721 4,112 2,334 35,375
Long-term debt, less current
maturities 46,500 46,500 (h)
Returnable deposits 3,621 3,621
Bank credit facility 9,000 (i) 9,000
Senior notes 135,000 (j) 135,000
Seller notes 10,000 (k) 10,000
Accrued pension and other employee
benefits 11,139 11,139
Future tax effects 19,799 16,446 (l) 4,000 (e) -
7,988 (d) 635 (b)
Other long-term liabilities 12,596 12,596
________________________________________________________________________________
Total Liabilities 432 130,376 75,046 160,969 216,731
Redeemable preferred stock 4,652 4,652 (m) -
Redeemable stock put warrants 2,184 2,184 (m) -
Stockholders' equity
Preferred stock $.01 par value,
authorized 10,000,000 shares; none
issued
Common stock $.01 par value,
Class A authorized 46,000,000
shares, issued and outstanding
3,792,165 at March 31, 1995 and
7,769,438 Pro Forma 38 15 15 (m) 40 (n) 78
Class B authorized 4,000,000
shares, issued and outstanding 769,354,
convertible share-for-share into
Class A shares 8 8
Additional paid-in capital 1,905 4,188 4,188 (m) 20,960 (n) 39,311
16,446 (l)
Retained earnings (deficit) (1,305) 22,515 22,515 (m) (1,305)
________________________________________________________________________________
Total stockholders' equity 646 33,554 33,554 37,446 38,092
________________________________________________________________________________
Total liabilities and stockholders' equity $ 1,078 $163,930 $108,600 $198,415 $254,823
________________________________________________________________________________
_______________________________________________________________________________
</TABLE>
Notes to the Pro Forma Combined Balance Sheet
as of March 31, 1995
<PAGE>32
Pioneer Companies, Inc.
Notes to the Pro Forma Combined Balance Sheet
March 31, 1995
(unaudited)
(a) Represents the cash remaining from the financings described in (i),
(j), (k), and (n) below, net of the transaction costs and accrued
expenses.
(b) Represents the adjustment to fair value acquired inventory (raw
materials at estimated current replacement costs and work in process
and finished goods at estimated selling prices less the sum of the
costs of disposal, reasonable profit for the selling effort and, if
appropriate, estimated costs to complete) and reflect related
deferred taxes.
(c) Represents the prepayment of title insurance premiums.
(d) Represents the exclusion of certain real estate assets subject to
the Contingent Payment Agreement and exclusion of related deferred
tax liabilities.
(e) Represents the adjustment to fair value acquired plant, property and
equipment at estimated current replacement cost and reflect related
deferred taxes.
(f) Represents excess purchase price and deferred financing costs.
(g) Represents the elimination of historical goodwill and certain other
intangible assets.
(h) Represents the retirement of existing debt.
(i) Represents borrowings under the Bank Credit Facility.
(j) Represents issuance of the Senior Notes.
(k) Represents the issuance of the Seller Notes.
(l) Represents the elimination of deferred taxes resulting from the
contribution by the Company of a portion of the Company's net
operating loss carryforward in accordance with a tax sharing
agreement between the Company and New Pioneer. Due to the Company's
quasi-reorganization in 1992, the utilization of the
<PAGE>33
Company's net operating loss carryforward results in an increase in additional
paid-in capital.
(m) Represents the elimination of historical preferred and stockholders'
equity.
(n) Represents the investment of equity, provided by a $15 million
investment by the Interlaken Partnership and by a $6 million
investment constituting the Management Purchase.
<PAGE>34
<TABLE> <CAPTION>
Pioneer Companies, Inc.
Pro Forma Combined Income Statement
For the Year Ended December 31, 1994
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
As included in
the Company's Pro Forma Adjustments
Pioneer Pro Forma
Report on Form
Americas, Inc. Debit Credit Combined
10-K
Revenues $ $ 167,217 $ $ $ 167,217
Cost of sales 134,556 1,429 (a) 135,985
Selling, general and administrative 155 22,529 5,117 (a) 2,490(g) 23,897
expenses 580(b)
834(b)
Interest expense (income) (15) 6,407 19,686 (d) 6,407(c) 19,671
Other income from settlement of litigation
and insurance claims, net 3,326 3,326
Other income, net 1,337 183 (e) 968(b) 2,122
________________________________________________________________________________
Earnings (loss) before income taxes (140) 8,388 26,415 11,279 (6,888)
Provision for income taxes 3,242 _ 3,242(f) _
________________________________________________________________________________
Net income (loss) $ (140) $ 5,146 $ 26,415 $ 14,521 $ (6,888)
________________________________________________________________________________
________________________________________________________________________________
Per Share Data
Average number of shares of common stock 8,300
Net loss per share $ (0.83)
</TABLE>
See Notes to the Pro Forma Combined Income Statement
for the Year Ended December 31, 1994
<PAGE>35
Pioneer Companies, Inc.
Notes to the Pro Forma Combined Income Statement
for the Year Ended December 31, 1994
(unaudited)
(a) Represents purchase accounting adjustments to conform to Accounting
Principles Board Opinion No. 16, "Business Combinations" relating to
the amortization of the excess of cost over net assets acquired
($4,609,000), depreciation on step up of plant, property and
equipment ($1,429,000) and the amortization of deferred financing
fees ($508,000). Excess of cost over fair value of net assets
acquired is amortized on a straight line basis over periods of up to
25 years, depreciation over 10 years and financing costs over the
life of the loans.
(b) Represents $580,000 of costs related to a 1994 financing effort.
Represents $834,000 and $968,000 of non-interest financing costs
associated with indebtedness which has been repaid.
(c) Represents elimination of interest expense as a result of the
repayment of existing indebtedness.
(d) Represents interest payable on (i) the Bank Credit Facility assuming
initial borrowings of $9 million thereunder on the Closing Date and
an initial interest rate of 9%, (ii) the Senior Notes assuming an
interest rate of 13.375% and (iii) the Seller Notes assuming an
interest rate of 8%.
(e) Represents the elimination of Pioneer Americas, Inc. equity interest
in the net earnings of Basic Investments, Inc. and Victory Valley
Land Company, L.L.P.
(f) Represents the elimination of provision for income taxes.
(g) Represents the elimination of amortization of historical goodwill
and certain other intangible assets.
<PAGE>36
<TABLE> <CAPTION>
Pioneer Companies, Inc.
Pro Forma Combined Income Statement
for the Three Months Ended March 31, 1995
(in thousands, except per share data)
(unaudited)
<C>
<S> <C> <C>
As included
in the
Company's Pro Forma Adjustments
Report on Pioneer Pro Forma
Form 10-K Americas, Inc. Debit Credit Combined
Revenues $ _ $ 47,842 $ $ $ 47,842
Cost of sales _ 30,628 357 (a) 30,985
Selling,
general and administrative expenses 152 5,242 1,279 (a) 706 (f) 5,967
Interest expense 1,375 4,917 (c) 1,375 (b) 4,917
Other income, net _ 780 285 (d) _ 495
_________________________________________________________________________
Earnings (loss) before extraordinary item and
income taxes (152) 11,377 6,838 2,081 6,468
Provision for income taxes _ 4,253 _ 1,204 (e) 3,049
_________________________________________________________________________
Earnings (loss) before extraordinary item (152) 7,124 6,838 3,285 3,419
Extraordinary item, early extinguishment
of debt (net of income tax benefitof $2,074) _ 3,385 _ 110 (e) 3,275
_________________________________________________________________________
Net income (loss) $ (152) $ 3,739 $ 6,838 $ 3,395 $ 144
_________________________________________________________________________
_________________________________________________________________________
Per Share Data
Average number of shares of common stock
outstanding 8,523
Earnings before extraordinary item $ 0.40
Extraordinary item $ 0.38
Net income per share $ 0.02
</TABLE>
See Notes to the Pro Forma Combined Income
Statement for the Three Months Ended March 31, 1995
<PAGE>37
Pioneer Companies, Inc.
Notes to the Pro Forma Combined Income Statement
For the Three Months Ended March 31, 1995
(unaudited)
(a) Represents purchase accounting adjustments to conform to Accounting
Principles Board Opinion No. 16, "Business Combinations" relating to
the amortization of the excess of cost over net assets acquired
($1,151,000), depreciation on step up of plant, property and
equipment ($357,000) and the amortization of deferred financing fees
($128,000). Excess of cost over fair value of net assets acquired
is amortized on a straight line basis over periods of up to 25
years, depreciation over 10 years and financing costs over the life
of the loans.
(b) Represents elimination of interest expense as a result of the
repayment of existing indebtedness.
(c) Represents interest payable on (i) the Bank Credit Facility assuming
initial borrowings of $9 million thereunder on the Closing Date and
an initial interest rate of 9%, (ii) the Senior Notes assuming an
interest rate of 13.375% and (iii) the Seller Notes assuming an
interest rate of 8%.
(d) Represents the elimination of Pioneer Americas, Inc. equity interest
in the net earnings of Basic Investments, Inc. and Victory Valley
Land Company, L.L.P.
(e) Represents the adjustment to the provision for income taxes.
(f) Represents the elimination of amortization of historical goodwill
and certain other intangible assets.
<PAGE>38
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 COMPANIES, INC.
By: /s/ George T. Henning, Jr.
Name: George T. Henning, Jr.
Title: Chief Financial Officer and
Treasurer
Date: June 29, 1995
