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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-98828
PIONEER AMERICAS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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DELAWARE 06-1420850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS
(713) 570-3200 77002
(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: 9 1/4% SENIOR SECURED NOTES DUE JUNE 15, 2007
GUARANTY OF:
9 1/4% SENIOR SECURED NOTES DUE OCTOBER 15, 2007
(Title of class)
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On March 10, 1998, there were outstanding 1,000 shares of the Registrant's
Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies,
Inc.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
Documents incorporated by reference: NONE.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(I)(1)(a) AND (b) OF FORM 10-K, AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION (I)(2) OF FORM 10-K.
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PIONEER AMERICAS ACQUISITION CORP.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997
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PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 8. Financial Statements and Supplementary Data................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 37
Item 13. Certain Relationships and Related Transactions.............. 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 38
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PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Americas Acquisition Corp., (ii) the terms "Pioneer Americas" and
"Predecessor Company" refer to Pioneer Americas, Inc. and its subsidiaries,
(iii) the term "Company" means Pioneer and its subsidiaries and (iv) the term
"PCI" refers to Pioneer Companies, Inc., the parent company of Pioneer.
Certain statements in this Form 10-K regarding future expectations of the
Company's business and the Company's results of operations may be regarded as
"forward looking statements" within the meaning of the Securities Litigation
Reform Act. Such statements are subject to various risks, including the
Company's high financial leverage, the cyclical nature of the markets for many
of the Company's products and raw materials and other risks discussed in detail.
Actual outcomes may vary materially.
ITEM 1. BUSINESS.
The Company manufactures and markets chlorine and caustic soda and several
related downstream water treatment products. Pioneer conducts its primary
business through its operating subsidiaries: Pioneer Chlor Alkali Company, Inc.
("PCAC"), All-Pure Chemical Co. ("All-Pure") (including T.C. Products, Inc.) and
PCI Chemicals Canada Inc. and PCI Carolina, Inc. (together "PCI Canada")
(following the October 1997 acquisition of substantially all of the assets and
properties of the North American chlor-alkali business of ICI Canada Inc. and
ICI Americas Inc.).
On April 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 24, 1995 (the "Pioneer Acquisition Agreement"), by and among PCI, Pioneer
and the holders of the outstanding common stock and other common equity
interests of Pioneer Americas, Inc. (the "Sellers"), Pioneer acquired all of
such stock and interests (the "Pioneer Acquisition").
On June 17, 1997, the Company expanded its presence in the western United
States with the acquisition of a chlor-alkali production facility and related
business (the "Tacoma Facility") located in Tacoma, Washington (the "Tacoma
Acquisition"). The transaction involved the acquisition of the Tacoma Facility
by PCAC from OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental
Chemical Corporation ("OxyChem"), for a purchase price consisting of (i) $97.0
million, paid in cash, (ii) 55,000 shares of Convertible Redeemable Preferred
Stock, par value $.01 per share, of PCI (the "PCI Preferred Stock"), having a
liquidation preference of $100 per share, and (iii) the assumption of certain
obligations related to the acquired chlor-alkali business. The Tacoma Facility
has an aggregate production capacity of 225,000 electrochemical units ("ECUs",
each consisting of 1 ton of chlorine and 1.1 tons of caustic soda).
On October 31, 1997, the Company expanded into eastern Canadian and eastern
United States chlor-alkali markets with the acquisition of the North American
chlor-alkali business of ICI Canada, Inc. ("ICI Canada") and ICI Americas, Inc.
("ICI Americas") pursuant to an Asset Purchase Agreement among the Company and
its newly-formed subsidiaries, PCI Chemicals Canada Inc. and PCI Carolina, Inc.,
and Imperial Chemical Industries PLC ("ICI") and its subsidiaries, ICI Canada
and ICI Americas. The purchase price for such acquisition (the "PCI Canada
Acquisition") consisted of approximately $235.6 million, paid in cash, and the
assumption of certain obligations related to the acquired chlor-alkali business.
Headquartered in Montreal, Quebec, PCI Canada is now a leading eastern North
American merchant chlor-alkali manufacturer, serving primarily the pulp and
paper industry.
The Company now owns and operates five chlor-alkali production facilities
with aggregate production capacity of approximately 950,000 ECUs. Management
believes the Company's competitive position has been significantly strengthened
by the recent acquisitions, providing the Company with low-cost, well-maintained
and efficient production plants. Approximately 60% of the Company's sources of
electricity is hydro-power based, the cheapest source in North America. In
addition, over 22% of the Company's ECU capacity employs membrane cell
technology, the most efficient available technology. Management believes that
the Company is one of the six largest chlor-alkali producers in North America,
with approximately 6% of North American production capacity.
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Chlorine and caustic soda are co-products, concurrently produced in a ratio
of 1 to 1.1, respectively, through electrolysis of salt water. In addition to
its chlor-alkali capacity, the Company manufactures hydrochloric acid, bleach,
sodium chlorate and other products.
Pioneer is a wholly-owned subsidiary of PCI. PCI is a publicly-traded
company, which prior to the Pioneer Acquisition was actively seeking
acquisitions and had no operations. As of December 31, 1997, the Interlaken
Investment Partners, L.P., a Delaware limited partnership (the "Interlaken
Partnership") beneficially owned approximately 34.9% of the voting power of PCI
and William R. Berkley (who may be deemed to beneficially own all shares of PCI
common stock held by the Interlaken Partnership) beneficially owned
approximately 59.9% of the voting power of PCI.
In February 1996 PCI formed a new company, Kemwater North America Company
("Kemwater"), to continue the business activities previously conducted by
Pioneer's subsidiary, Imperial West Chemical Co. ("Imperial West"), and to
operate the business acquired through the acquisition of KWT, Inc. ("KWT") from
a subsidiary of Kemira Oy of Finland ("Kemira"). Fifty percent of the common
stock of Kemwater is held by a subsidiary of Pioneer and fifty percent of the
common stock of Kemwater is owned by a subsidiary of PCI. A subsidiary of
Pioneer also owns all of the outstanding shares of Kemwater's preferred stock.
Fifty percent of the results of Kemwater's operations are included in the
Company's equity in net loss of unconsolidated subsidiaries.
PCAC. PCAC owns and operates three chlor-alkali production facilities,
located in St. Gabriel, Louisiana, Henderson, Nevada and Tacoma, Washington. The
facilities in St. Gabriel and Henderson were acquired by the Predecessor Company
from Stauffer Chlor Alkali Company, Inc. in 1988. The three facilities produce
chlorine and caustic soda for sale in the merchant markets and for use as raw
materials by PCAC, All-Pure and Kemwater in the manufacture of downstream
products. The Henderson facility also produces hydrochloric acid, and the Tacoma
Facility also produces hydrochloric acid and calcium chloride. PCAC also has an
indirect 15% equity interest in Saguaro Power Company L.P. ("Saguaro Power"),
which owns and operates a 90-megawatt cogeneration facility located on
approximately six acres of the Henderson property.
All-Pure. All-Pure manufactures bleach, repackages chlorine and
hydrochloric acid and distributes these products along with caustic soda and
related products to municipalities, swimming pool supply distributors and
selected commercial and retail markets in the western United States. Effective
July 1, 1996, All-Pure acquired T.C. Products, Inc. ("T.C. Products") through
the acquisition of its parent, T.C. Holdings, Inc., from its shareholders. T.C.
Products continues to manufacture and package bleach and related products at its
plant in Tacoma, Washington. The acquisition of T.C. Products was accounted for
as a purchase transaction and, accordingly, the Company's consolidated financial
statements subsequent to July 1, 1996 reflect the purchase price, including
transaction costs, allocated to tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values as of July 1, 1996,
and include the results of T.C. Products subsequent to such date. All-Pure
purchases all of its chlorine and caustic soda and a substantial portion of its
hydrochloric acid from PCAC. Because bleach contains a high percentage of water,
freight costs and logistics are an important competitive factor. All-Pure's
production plants and distribution facilities are strategically located in or
near most of the largest population centers of the West Coast. In 1997, an
unusual charge of $1.0 million was recorded, relating to the closure of certain
of All-Pure's plants and the consolidation of their operations to other
locations.
PCI Canada. PCI Canada operates two chlor-alkali production facilities, at
Becancour, Quebec and Dalhousie, New Brunswick, with aggregate production
capacity of approximately 376,000 ECUs, as well as additional downstream
production units at Cornwall, Ontario. The Becancour facility also produces
hydrochloric acid and bleach, and the Dalhousie facility also produces sodium
chlorate. The Cornwall facility produces hydrochloric acid, bleach, chlorinated
paraffins under the brand name Cereclor(R), and a proprietary pulping additive,
PSR 2000(R). PCI Chemicals Canada, Inc.'s affiliate, PCI Carolina, Inc., owns a
downstream production unit at Charlotte, North Carolina, which produces a
proprietary pulping additive, IMPAQT(R). PCI Carolina, Inc. also purchases the
chlor-alkali products manufactured by PCI Chemicals Canada, Inc. for sale to
customers in the United States. PCI Chemicals Canada, Inc. and PCI Carolina,
Inc. also provide hydrogen
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peroxide and bleaching enzymes to customers pursuant to a hydrogen peroxide
resale agreement for eastern Canada and a bleaching enzyme resale agreement for
North America.
FINANCIAL COVENANTS
Pioneer is a holding company with no operating assets or independent
operations. As of December 31, 1997, the Company had outstanding $569.7 million
of long-term debt, $175.0 million of which was issued by PCI Chemicals Canada,
Inc. ("PCICCI"), a subsidiary of Pioneer, in the form of 9 1/4% Senior Secured
Notes Due October 15, 2007. There are no restrictions on the ability of PCICCI
or Pioneer's other subsidiaries to pay dividends to or make other distributions
to Pioneer or PCICCI. The Company's debt agreements, including those relating to
PCICCI's indebtedness, contain restrictions, which, among other things, could
limit the ability of the Company to incur additional indebtedness, to acquire or
dispose of assets or operations and to redeem shares of stock. See Note 12 to
the Consolidated Financial Statements included in Item 8 -- Financial Statements
and Supplementary Data for summarized financial information on PCICCI.
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
indicated (dollars in thousands and percentage of revenues):
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YEAR ENDED DECEMBER 31,
--------------------------------
1997(1) 1996(2)
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Revenues............................................ $241,716 100% $183,326 100%
Cost of sales....................................... 178,793 74 126,739 69
-------- --- -------- ---
Gross profit........................................ 62,923 26 56,587 31
Selling, general and administrative expense......... 27,976 12 23,528 13
Unusual charges..................................... 2,028 1 -- --
-------- --- -------- ---
Operating income.................................... 32,919 13 33,059 18
Equity in net loss of unconsolidated subsidiaries... (6,657) (2) (2,607) (1)
Interest expense, net............................... (26,993) (11) (17,290) (9)
Other income, net................................... 2,904 1 1,684 --
-------- --- -------- ---
Income before income taxes and extraordinary item... 2,173 1 14,846 8
Income tax provision................................ 3,002 1 6,735 4
-------- --- -------- ---
Income (loss) before extraordinary item............. (829) -- 8,111 4
Extraordinary item, net of income tax benefit....... (18,658) (8) -- --
-------- --- -------- ---
Net income (loss)......................... $(19,487) (8)% $ 8,111 4%
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(1) On June 17, 1997 the Tacoma Facility was acquired and, accordingly, the
results of operations for the year ended December 31, 1997 include its
results of operations from the date of acquisition through December 31,
1997. On October 31, 1997 PCI Canada was acquired and, accordingly, the
results of operations for the year ended December 31, 1997 include its
results of operations from the date of acquisition through December 31,
1997.
(2) All-Pure acquired T.C. Products in July 1996 and, accordingly, the results
of operations for the year ended December 31, 1996 includes its results of
operations since the acquisition date. To continue the business activities
previously conducted by Imperial West, Kemwater was formed by PCI in
connection with the acquisition of KWT in February 1996. Accordingly, the
results of operations for the year ended December 31, 1996 include the
results of operations of Imperial West only for the month of January 1996.
Fifty percent of Kemwater's results of operations are included as equity in
net loss of unconsolidated subsidiaries since the acquisition of KWT.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Revenues increased by $58.4 million, or approximately 32% to $241.7 million
for 1997, as compared to 1996. $27.7 million of this increase was due to the PCI
Canada Acquisition, effective October 31, 1997.
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Revenues for PCAC increased $32.6 million or approximately 25% to $162.2
million. The increase in revenues was primarily attributable to the additional
sales volumes from PCAC's Tacoma Facility that was acquired on June 17, 1997.
Partially offsetting this increase were lower sales volumes from PCAC's
Henderson and St. Gabriel plants and lower ECU pricing. Average ECU prices at
PCAC decreased approximately 3%, or $11 per ton. Caustic soda prices fell
approximately 22% or $46 per ton, while chlorine pricing rose 25%, or
approximately $40 per ton. Caustic soda sales volume from these two plants
decreased due to a reduction in exchange activity and lower production rates.
The Henderson plant had lower production rates in late 1997 because of a failed
transformer and a lack of railcar availability due to the Union Pacific
transportation problems experienced in the western United States. Revenues for
All-Pure increased $0.5 million in 1997 versus 1996, due to the inclusion of
T.C. Products results for the full year of 1997, whereas 1996 results only
included this entity since its acquisition date of July 1, 1996. Offsetting the
T.C. Products increase was a net sales decrease of $4.2 million for the
remainder of All-Pure, caused by competitive pressures, which negatively
impacted both sales prices and sales volumes. Offsetting the overall revenue
increase was a $2.4 million decrease as a result of the transfer of Imperial
West operations to Kemwater in 1996.
Cost of Sales
Cost of sales increased $52.1 million, or 41% in 1997 versus 1996. PCI
Canada accounted for $18.5 million of this increase. PCAC's cost of sales
increased $32.2 million, or approximately 33%, primarily the result of the
Tacoma Acquisition and higher electrical costs. For All-Pure, cost of sales
increased $3.6 million, or approximately 9%, due to the inclusion of T.C.
Products results for the full year, offset by a decrease of $0.7 million due to
lower sales volume. Offsetting these increases was a $2.2 million decrease as a
result of the transfer of Imperial West operations to Kemwater in 1996.
Gross Profit
Gross profit margin decreased to 26% in 1997 from 31% in 1996 as a result
of revenues and cost of sales fluctuations described above.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased by $4.4 million, or
19%, to $28.0 million. This increase was primarily due to the acquisitions
during 1997 and additional "pay-for-performance" awards at PCAC. PCI Canada's
expenses were $2.7 million for the two months of its activities after they were
acquired. PCAC's expenses increased somewhat as a result of the Tacoma
Acquisition, while the July 1996 T.C. Products acquisition added to All-Pure's
expenses for the full year of 1997.
Unusual Charges
Unusual charges include a $1.0 million charge related to the closure of
certain of All-Pure's plants and the consolidation of their operations to other
locations, plus a $1.0 million charge related to a receivable from KWT.
Equity in Net Loss of Unconsolidated Subsidiaries
Equity in net loss of unconsolidated subsidiaries represents the Company's
50% ownership in Kemwater. Kemwater's net loss in 1997 increased as a result of
worsening operating results from raw material cost increases and sales
competition. In addition, during the fourth quarter Kemwater recorded a reserve
to reduce the carrying values of certain of its assets, based upon management's
expectations of net realizable value.
Interest Expense, Net
Interest expense, net increased $9.7 million to $27.0 million in 1997 from
$17.3 million in 1996. This increase was the result of the debt incurred for the
PCI Canada Acquisition and the debt incurred for the Tacoma Acquisition,
partially offset by lower interest expense from refinancing $135.0 million of
13 3/8% First Mortgage Notes with 9 1/4% Senior Notes.
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Other Income, Net
Other income, net, during 1997 includes a $0.7 million accrual for a
business interruption insurance claim at PCAC's Henderson plant.
Income Before Taxes and Extraordinary Item
As a result of the above, income before income taxes and extraordinary item
decreased $12.6 million to $2.2 million versus $14.8 million in 1996.
Extraordinary Loss from Early Extinguishment of Debt
During the second quarter of 1997, the Company recognized an $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid on the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
Net Income (Loss)
Due to the factors described above, the net loss for 1997 was $19.5
million, compared to net income of $8.1 million in 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth
guidance on how to measure an impairment of long-lived assets and when to
recognize such an impairment. The adoption of this standard did not have a
material impact on the Company's financial position or results from operations.
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS No. 128") during 1997. SFAS No. 128 establishes new
standards for computing and presenting earnings per share. The standard also
requires the restatement of all prior period earnings per share information
presented. The adoption of SFAS No. 128 did not have a material effect on the
Company's earnings per share computations or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and displaying of comprehensive income and its
components. SFAS No. 130 is not expected to have a material effect on the
Company's financial statements when it is adopted during 1998.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and establishes standards for the way that public business
enterprises report information about operating segments. Under the current
accounting policies, the Company operates in one business segment. Following the
guidance of the new standard, operating segments will generally be defined
following the bases used internally for evaluating segment performance and
resource allocation decisions. SFAS No. 131 also requires various disclosures
about international operations. The statement will have no effect on the
Company's results of operations or financial position, but management is
currently evaluating what, if any, additional disclosures may be required upon
adoption during the fourth quarter of 1998.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and standardizes the disclosure requirements for
pensions and other postretirement benefits. The statement will have no effect on
the Company's results of
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operations or financial position, but management is currently evaluating what,
if any, additional disclosures may be required when it is adopted in 1998.
ITEM 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's
principal production, distribution and storage facilities as of February 28,
1998. All property is leased unless otherwise indicated.
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LOCATION MANUFACTURED PRODUCTS, TYPE OF FACILITY
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PCAC Facilities
St. Gabriel, Louisiana*..................... Chlorine and caustic soda
Hydrogen
Henderson, Nevada*.......................... Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Tacoma, Washington*......................... Chlorine and caustic soda
Calcium chloride
Hydrochloric acid
Hydrogen
Various..................................... Caustic soda storage terminals
PCI Canada Facilities
Becancour, Quebec*.......................... Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Dalhousie, New Brunswick*................... Chlorine and caustic soda
Sodium chlorate
Hydrogen
Cornwall, Ontario........................... Bleach
Hydrochloric acid
Cereclor(R) chlorinated paraffin
PSR 2000(R) pulping additive
IMPAQT(R) pulping additive
Charlotte, North Carolina................... IMPAQT(R) pulping additive
Various..................................... Caustic soda terminals
All-Pure Facilities
Tracy, California........................... Bleach
Chlorine repackaging
Hydrochloric acid repackaging
Santa Fe Springs, California................ Bleach
Chlorine repackaging
Tacoma, Washington*......................... Bleach
City of Industry, California................ Bleach
Chlorine repackaging
Hydrochloric acid repackaging
Dry chemical repackaging
Various..................................... Distribution
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* Owned property
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Corporate headquarters for Pioneer and PCAC are located in leased office
space in Houston, Texas under a lease terminating in 2002. All-Pure's corporate
headquarters are in leased office space in Walnut Creek, California under a
lease terminating in 2002. PCI Canada's corporate headquarters are in leased
office space in Montreal, Quebec under a lease terminating in 2003. PCI Canada
also owns a technology center in Mississauga, located on 1.2 acres of land in
the Sheridan Park Research Center near Toronto, Ontario, which conducts
applications research, particularly with respect to pulp and paper process
technology.
The Tacoma Acquisition was financed with the proceeds of a nine and
one-half year $100 million term facility provided to PAAC (the "PAAC Term
Facility"), and with a portion of the proceeds of a $200 million offering of
9 1/4% Senior Secured Notes due 2007 issued by PAAC (the "PAAC Senior Notes").
The PAAC Senior Notes and obligations outstanding under the PAAC Term Facility
are secured by first mortgages on PCAC's St. Gabriel, Henderson and Tacoma
facilities. The PCI Canada Acquisition was financed with the proceeds of a nine
and one-quarter year $83 million term facility provided to Pioneer Americas (the
"PAI Term Facility"), and with the proceeds of a $175 million offering of 9 1/4%
Senior Secured Notes due 2007 issued by PCI Canada (the "PCI Canada Senior
Notes"). The PCI Canada Senior Notes and obligations outstanding under the PAI
Term Facility are secured by liens on and security interests in substantially
all tangible and intangible property and assets used in PCI Canada's business in
Canada.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in amounts which it
believes to be adequate. In the opinion of management, uninsured losses, if any,
resulting from these matters will not have a material adverse effect on the
Company's results of operations, cash flow or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of Pioneer's outstanding Common Stock, which is Pioneer's only class of
equity securities, is owned by PCI.
No cash dividends have been declared with respect to PCI's Common Stock
during the two most recent fiscal years. Pursuant to the terms of certain debt
instruments, there are restrictions on the ability of PAAC to transfer funds to
Pioneer, resulting in limitations on Pioneer's ability to declare dividends on
its Common Stock. See Item 1 -- Business -- "Financial Covenants" and Note 11 to
the Consolidated Financial Statements included in Item 8 -- Financial Statements
and Supplementary Data.
ITEM 6. SELECTED FINANCIAL DATA.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K,
management's narrative analysis of the results of operations is contained in
Item 1 -- Business -- "Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K,
management's narrative analysis of the results of operations is contained in
Item 1 -- Business -- "Results of Operations."
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
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(1) Consolidated financial statements, Pioneer Americas
Acquisition Corp. and subsidiaries:
Report of Deloitte & Touche LLP, independent
auditors, dated February 17, 1998................... 12
Report of Ernst & Young LLP, independent auditors,
dated June 26, 1995................................. 13
Report of Management................................. 14
Consolidated balance sheets as of December 31, 1997
and 1996............................................ 15
Consolidated statements of operations for the years
ended December 31, 1997 and 1996 and the period from
March 6, 1995 ("Inception") through December 31,
1995 and Predecessor Company for the period from
January 1, 1995 through April 20, 1995.............. 16
Consolidated statements of stockholders' equity for
the years ended December 31, 1997 and 1996 and the
period from Inception through December 31, 1995 and
Predecessor Company for the period from January 1,
1995 through April 20, 1995......................... 17
Consolidated statements of cash flows for the years
ended December 31, 1997 and 1996 and the period from
Inception through December 31, 1995 and Predecessor
Company for the period from January 1, 1995 through
April 20, 1995...................................... 18
Notes to consolidated financial statements........... 19
(2) Supplemental Schedules:
Schedule II -- Valuation and Qualifying
Accounts -- Pioneer Americas Acquisition Corp....... 44
Schedule II -- Valuation and Qualifying
Accounts -- Pioneer Americas, Inc................... 45
</TABLE>
All schedules, except the ones listed above, have been omitted because
they are either not applicable, not required, or the information called
for therein appears in the consolidated financial statements or notes thereto.
11
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pioneer Americas Acquisition Corp.
We have audited the accompanying consolidated balance sheets of Pioneer
Americas Acquisition Corp. and its subsidiaries (the "Company"), as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended December 31,
1997 and 1996 and the period from March 6, 1995 ("Inception") through December
31, 1995. Our audits also included the consolidated financial statement schedule
of the Company listed in the Index at Item 8. 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.
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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1996, and the results of their operations and their cash flows for the
years ended December 31, 1997 and 1996 and the period from Inception through
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 17, 1998
12
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor
Company") for the period from January 1, 1995 through April 20, 1995. Our audit
also included the related financial statement schedule II. These financial
statements and schedule are the responsibility of the Predecessor Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of the Predecessor Company for the period from January 1, 1995
through April 20, 1995, 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
June 26, 1995
13
<PAGE> 14
REPORT OF MANAGEMENT
Management is responsible for the preparation and content of the financial
statements and other information included in this annual report. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of events and transactions that should be included. The
financial statements reflect management's judgments and estimates as to the
effects of events and transactions that are accounted for or disclosed.
Management maintains accounting systems that are supported by internal
accounting controls that provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with management's
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal accounting controls should not exceed the benefits.
An independent auditor performed an audit of the Company's financial
statements for the purpose of determining that the statements are presented
fairly in accordance with generally accepted accounting principles. The
independent auditors are appointed by the Board of Directors and meet regularly
with the Audit Committee of the Board. The Audit Committee of the Board of
Directors is composed solely of outside directors. The Audit Committee meets
periodically with the Company's senior officers and independent auditors to
review the adequacy and reliability of the Company's accounting, financial
reporting and internal controls.
Philip J. Ablove
Vice President And Chief Financial
Officer
Principal Financial Officer
John R. Beaver
Controller
Principal Accounting Officer
March 10, 1998
14
<PAGE> 15
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 50,995 $ 14,417
Accounts receivable, less allowance for doubtful accounts:
1997, $2,002; 1996, $1,311............................. 65,189 18,830
Due from parent........................................... 2,810 2,547
Inventories............................................... 22,625 6,247
Prepaid expenses.......................................... 1,372 1,156
-------- --------
Total current assets.............................. 142,991 43,197
Property, plant, and equipment, at cost:
Land................................................... 9,092 3,735
Buildings and improvements............................. 55,589 17,062
Machinery and equipment................................ 263,838 76,244
Construction in progress............................... 31,836 11,871
-------- --------
360,355 108,912
Less accumulated depreciation.......................... (34,130) (16,429)
-------- --------
326,225 92,483
Investment in and advances to unconsolidated subsidiary..... 28,551 28,586
Other assets, net of accumulated amortization: 1997, $2,990;
1996, $2,458.............................................. 48,560 19,621
Excess cost over the fair value of net assets acquired, net
of accumulated amortization: 1997, $13,319; 1996,
$7,556.................................................... 201,032 107,123
-------- --------
Total assets...................................... $747,359 $291,010
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 45,711 $ 17,221
Accrued liabilities....................................... 33,745 22,514
Current portion of long-term debt......................... 2,570 128
-------- --------
Total current liabilities......................... 82,026 39,863
Long-term debt, less current maturities..................... 567,160 141,629
Accrued pension and other employee benefits................. 21,068 14,100
Other long-term liabilities................................. 17,224 21,095
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 66,169 61,124
Retained earnings (deficit)............................... (6,289) 13,198
-------- --------
Total stockholder's equity........................ 59,881 74,323
-------- --------
Total liabilities and stockholder's equity........ $747,359 $291,010
======== ========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 16
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD FROM PERIOD FROM
YEAR ENDED INCEPTION JANUARY 1, 1995
DECEMBER 31, THROUGH THROUGH
-------------------- DECEMBER 31, APRIL 20,
1997 1996 1995 1995
-------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Revenues.................................. $241,716 $183,326 $142,908 $57,848
Cost of sales............................. 178,793 126,739 98,175 37,400
-------- -------- -------- -------
Gross profit.............................. 62,923 56,587 44,733 20,448
Selling, general and administrative
expenses................................ 27,976 23,528 19,836 7,047
Unusual charges........................... 2,028 -- -- --
-------- -------- -------- -------
Operating income.......................... 32,919 33,059 24,897 13,401
Equity in net loss of unconsolidated
subsidiaries............................ (6,657) (2,607) -- --
Interest expense, net..................... (26,993) (17,290) (12,905) (1,665)
Other income (expense), net............... 2,904 1,684 637 (115)
-------- -------- -------- -------
Income before taxes and extraordinary
item.................................... 2,173 14,846 12,629 11,621
Income tax provision...................... 3,002 6,735 6,208 4,809
-------- -------- -------- -------
Income (loss) before extraordinary item... (829) 8,111 6,421 6,812
Extraordinary item, early extinguishment
of debt (net of income tax benefit of
$12,439 in 1997 and $2,140 in 1995)..... (18,658) -- -- (3,420)
-------- -------- -------- -------
Net income (loss)............... $(19,487) $ 8,111 $ 6,421 $ 3,392
======== ======== ======== =======
Earnings per common share:
Income (loss) before extraordinary
item................................. $ (829) $ 8,111 $ 6,421
Extraordinary item, net of income tax
benefit.............................. (18,658) -- --
-------- -------- --------
Net income (loss)....................... $(19,487) $ 8,111 $ 6,421
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
COMMON ADDITIONAL RETAINED
SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
PIONEER AMERICAS ACQUISITION CORP.
Balance at Pioneer Acquisition....... 1 $ 1 $46,062 $ -- $ 46,063
Recognition of the NOL benefit..... -- -- 3,590 -- 3,590
Dividend paid to parent............ -- -- -- (647) (647)
Net income......................... -- -- -- 6,421 6,421
----- --- ------- -------- --------
Balance at December 31, 1995......... 1 1 49,652 5,774 55,427
Recognition of the NOL benefit..... -- -- 11,472 -- 11,472
Dividend paid to parent............ -- -- -- (687) (687)
Net income......................... -- -- -- 8,111 8,111
----- --- ------- -------- --------
Balance at December 31, 1996......... 1 1 61,124 13,198 74,323
Capital contribution by parent..... -- -- 5,500 -- 5,500
Dividend paid to parent............ -- -- (455) -- (455)
Net loss........................... -- -- -- (19,487) (19,487)
----- --- ------- -------- --------
Balance at December 31, 1997......... 1 $ 1 $66,169 $ (6,289) $ 59,881
===== === ======= ======== ========
PREDECESSOR COMPANY
Balance at January 1, 1995........... 1,509 $15 $ 4,186 $ 18,901 $ 23,102
Accretion of excess redemption
value
of redeemable preferred stock
over
carrying value and amount of
dividends not declared or
paid.......................... -- -- -- (124) (124)
Net income......................... -- -- -- 3,392 3,392
----- --- ------- -------- --------
Balance at April 20, 1995............ 1,509 $15 $ 4,186 $ 22,169 $ 26,370
===== === ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
PIONEER AMERICAS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1, 1995
YEAR ENDED DECEMBER 31, THROUGH THROUGH
----------------------- DECEMBER 31, APRIL 20,
1997 1996 1995 1995
---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................ $ (19,487) $ 8,111 $ 6,421 $ 3,392
Adjustments to reconcile net income to
net cash provided by operating
activities:
Extraordinary item, net of tax......... 18,658 -- -- 3,420
Depreciation and amortization.......... 24,975 15,695 12,274 4,490
Net change in deferred taxes........... 9,746 4,339 3,590 (2,086)
Foreign exchange loss.................. 783 -- -- --
Unusual charges........................ 2,028 -- -- --
Equity in net loss of unconsolidated
subsidiaries........................ 6,657 2,607 -- --
Other, net............................. -- -- -- (191)
Net effect of changes in operating
assets
and liabilities (net of
acquisitions)..................... (8,622) 1,701 6,003 (6,414)
--------- -------- --------- ---------
Net cash flows from operating
activities................... 34,738 32,453 28,288 2,611
--------- -------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions of businesses............... (332,571) (5,459) (152,318) --
Investment in and advances to
unconsolidated subsidiaries............ (7,638) (6,645) -- --
Capital expenditures, net................ (20,385) (17,121) (13,556) (3,389)
--------- -------- --------- ---------
Net cash flows from investing
activities................... (360,594) (29,225) (165,874) (3,389)
--------- -------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt............. 558,000 -- 153,500 106,000
Repayments on long-term debt............. (163,042) (70) (27,269) (103,971)
Debt issuance and related costs.......... (32,069) -- -- --
Dividends paid to parent................. (455) (687) (647) --
Dividends paid on preferred stock and
purchase of stock put warrant.......... -- -- -- (2,341)
Proceeds from issuance of common stock... -- -- 21,000 --
--------- -------- --------- ---------
Net cash flows from financing
activities............................. 362,434 (757) 146,584 (312)
--------- -------- --------- ---------
Net increase (decrease) in cash.......... 36,578 2,471 8,998 (1,090)
Cash at beginning of period.............. 14,417 11,218 -- 3,310
Cash acquired in acquisitions............ -- 728 2,220 --
--------- -------- --------- ---------
Cash at end of period.................... $ 50,995 $ 14,417 $ 11,218 $ 2,220
========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
PIONEER AMERICAS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Pioneer Americas Acquisition Corp. ("Pioneer") is a Delaware corporation
formed on March 6, 1995 ("Inception"). Pioneer is 100% owned by Pioneer
Companies, Inc. ("PCI").
On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. ("Pioneer
Americas" or the "Predecessor Company") for approximately $177 million, which
included cash paid of $152.3 million, long-term debt issued by PCI of $11.5
million, and net operating loss ("NOL") benefit recognized of $13.6 million (the
"Pioneer Acquisition"). Pioneer Americas manufactured chlorine, caustic soda and
related products used in a variety of applications including water treatment,
plastics, detergents, and agricultural chemicals. The Pioneer Acquisition was
accounted for as a purchase; accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon their fair market value
and the operations of the Predecessor Company were included in the consolidated
financial statements from the date acquired. The Pioneer Acquisition resulted in
$112 million of excess cost over the fair value of the net assets acquired,
which is being amortized on a straight line basis over 25 years.
See note 3 for a description of subsequent acquisitions.
The consolidated financial statements include the accounts of Pioneer and
its consolidated subsidiaries (the "Company"), including Pioneer Americas,
Pioneer Chlor Alkali Co., Inc. ("PCAC"), All-Pure Chemical Company, Inc.
("All-Pure"), and PCI Chemicals Canada, Inc. and PCI Carolinas (together "PCI
Canada"). All significant intercompany balances and transactions have been
eliminated in consolidation. All dollar amounts in tabulations in the notes to
the consolidated financial statements are stated in thousands of dollars unless
otherwise indicated. Amounts presented in the notes to the consolidated
financial statements for the Company from Inception through December 31, 1995,
are included under the caption "1995."
Amounts presented in the notes to the consolidated financial statements for
the Predecessor Company are based upon its historical accounting basis for the
periods presented. Such amounts do not include effects of the purchase of the
Predecessor Company by Pioneer. Amounts presented in the notes to the
consolidated financial statements for the Predecessor Company for the period
from January 1, 1995 through April 20, 1995 are included under the captions
"Predecessor Company, 1995."
The Company operates in one industry segment and two geographic areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
All highly liquid investments with an initial maturity of three months or
less when purchased are considered to be cash equivalents.
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. The Company enters into agreements with other companies to
exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to
or payable by the Company are included in inventory.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are recorded at cost. Disposals are removed
at carrying cost less accumulated depreciation with any resulting gain or loss
reflected in operations.
19
<PAGE> 20
Depreciation for financial reporting purposes is computed primarily under
the straight-line method over the estimated remaining useful lives of the
assets. Asset lives range from 5 to 15 years with a predominant life of 10
years, which include buildings and improvements with an average life of 15 years
and machinery and equipment with an average life of 9 years.
OTHER ASSETS
Other assets include amounts for deferred financing costs which are being
amortized on a straight-line basis over the term of the related debt.
Amortization of such costs using the interest method would not result in
material differences in the amounts amortized during the periods presented.
Amortization expense for other assets for the years ended December 31, 1997,
1996, and the period from Inception through December 31, 1995 was approximately
$1.7 million, $1.3 million, and $1.1 million, respectively.
The Predecessor Company's amortization expense for other assets was
approximately $0.8 million for the period from January 1, 1995 through April 20,
1995.
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
Excess cost over the fair value of net assets acquired of approximately
$214.4 million is amortized on a straight-line basis over periods of up to 25
years. The carrying value of excess cost over the fair value of net assets
acquired is reviewed annually and if this review indicates that such excess cost
will not be recoverable, as determined based on the estimated future
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of excess cost over the fair value of net
assets acquired will be reduced by the estimated deficit of discounted cash
flows or the fair value of the related entity. Amortization expense for excess
cost over the fair value of net assets acquired was approximately $5.8 million
and $4.7 million for the years ended December 31, 1997 and 1996, respectively,
and $3.3 million for the period from Inception to December 31, 1995.
The Predecessor Company's excess cost over the fair value of net assets
acquired of approximately $12.8 million and was amortized on a straight-line
basis over 20 years. Amortization expense was approximately $0.2 million for the
period from January 1, 1995 through April 20, 1995.
ENVIRONMENTAL EXPENDITURES
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost. Ongoing environmental compliance cost, including maintenance
and monitoring costs, are charged to operations as incurred.
PER SHARE INFORMATION
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share." The Company's capital structure only includes
common stock outstanding. Weighted average number of shares outstanding was one
thousand shares for the years ended December 31, 1997 and 1996 and the period
from Inception through December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts have been reclassified in prior years to conform to the
current year presentation. All reclassifications have been applied consistently
for the periods presented.
20
<PAGE> 21
3. ACQUISITIONS
Pioneer acquired a chlor-alkali plant in Tacoma, Washington (the "Tacoma
Facility") in June 1997. Consideration given for the facility was $97.0 million,
55,000 shares of PCI's convertible redeemable preferred stock, par value $.01
per share, and the assumption of certain obligations related to the acquired
business. In November 1997, Pioneer acquired substantially all of the assets and
properties of the North American chlor-alkali business of ICI Canada, Inc. and
ICI Americas, Inc. (the "PCI Canada Acquisition") for $235.6 million and the
assumption of certain obligations related to the acquired chlor-alkali business.
Both of these acquisitions were accounted for using the purchase method;
accordingly, the purchase prices were allocated to the assets acquired and
liabilities assumed based upon their fair market value and the operations for
the acquired companies were included in the consolidated financial statements
from the date acquired. The Tacoma Facility acquisition and the PCI Canada
Acquisition resulted in $22.8 million and $77.0 million, respectively, of excess
cost over the fair value of the net assets acquired, which is being amortized on
a straight-line basis over 25 years.
In February 1996, Pioneer acquired an interest in Kemwater North America
Company ("Kemwater") for $0.3 million of cash and a contribution of the assets
and liabilities of its subsidiary Imperial West Chemical Co. ("Imperial West").
Kemwater was formed to conduct the operations of Imperial West and KWT, Inc.
(acquired by PCI in February 1996). Kemwater, which manufactures and supplies
iron chlorides that are used to remove solids from water streams and to control
hydrogen sulfide emissions by the potable and waste water markets, is owned 50%
by Pioneer and 50% by PCI. Since it does not own a controlling interest in
Kemwater, Pioneer accounts for Kemwater using the equity method. In the 1997 and
1996 consolidated financial statements, Pioneer's investment in Kemwater is
presented as "Investment in and advances to unconsolidated subsidiaries" and its
equity in the loss of Kemwater is shown as "Equity in net loss of unconsolidated
subsidiaries." In the 1995 consolidated statement of operations of Pioneer,
Imperial West is consolidated and includes the following: total revenues of
$23.7 million and net loss of $0.6 million. The acquisition did not have a
material impact on Pioneer's financial statements, and therefore pro forma
information is not presented.
Pioneer acquired T.C. Products in July 1996 for $10.0 million. T.C.
Products manufactures bleach and related products. This acquisition was
accounted for using the purchase method; accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based upon their fair
market value and the operations for the acquired company were included in the
consolidated financial statements from the date acquired. The acquisition
resulted in $7.0 million of excess cost over the fair value of the net assets
acquired, which is being amortized on a straight line basis over 25 years.
The following presents the pro forma effect of the PCI Canada Acquisition,
the acquisition of the Tacoma Facility, and the acquisition of T.C. Products and
related financing transactions on the historical results of operations for the
years ended December 31, 1997 and 1996, respectively, as if the transactions had
occurred on January 1, 1996. The effects of variations, if any, to the purchase
price allocations will not materially impact the pro forma financial data
depicted.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $413,826 $431,485
Operating income............................................ 73,808 93,446
Net income (loss)........................................... (6,915) 28,052
Earnings (loss) per share................................... (6,915) 28,052
</TABLE>
21
<PAGE> 22
4. SUPPLEMENTAL CASH FLOW INFORMATION
The net effect of changes in operating assets and liabilities (net of
acquisitions) is as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
-------- ------- ------- -----------
<S> <C> <C> <C> <C>
Accounts receivable...................... $(21,095) $ 5,228 $ 940 $(3,570)
Due from parent.......................... (263) (1,973) 111 --
Inventories.............................. (2,206) 3,151 1,541 (638)
Prepaid expenses......................... (2,125) 76 (1,404) 722
Other assets............................. 6,598 (1,254) (3,104) (3,480)
Accounts payable......................... 5,449 (4,168) (1,030) 4,899
Accrued liabilities...................... 8,052 (4,656) 8,543 (4,043)
Other long-term liabilities.............. (3,684) 4,770 (71) (726)
Accrued pension and other employee
benefits............................... 652 527 477 422
-------- ------- ------- -------
Net change in operating
accounts..................... $ (8,622) $ 1,701 $ 6,003 $(6,414)
======== ======= ======= =======
</TABLE>
Following is supplemental cash flow information:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
-------- ------- -------- -----------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest.............................. $ 28,272 $18,297 $ 8,288 $ 3,067
======== ======= ======== =======
Income taxes.......................... $ 543 $ 3,556 $ 1,707 $ 1,852
======== ======= ======== =======
Investing activities of acquisitions
during the period:
Cash paid for acquisition............. $332,571 $ 5,459 $152,318 $ --
Long-term debt issued................. -- 4,500 -- --
Liabilities assumed................... 21,519 3,994 90,596 --
Contribution by parent................ 5,500 -- 11,463 --
NOL benefit recognized................ -- -- 13,600 --
-------- ------- -------- -------
Fair value of assets acquired......... $359,590 $13,953 $267,977 $ --
======== ======= ======== =======
</TABLE>
Included in the above table are the acquisitions of PCI Canada and the
Tacoma Facility in 1997; T.C. Products in 1996; and Pioneer Americas, Inc. in
1995.
Non-cash investing and financing activities:
In December 1997, the Company purchased a hydrochloric acid
manufacturing facility that it had been previously leasing in Henderson,
Nevada for $5.9 million, which was financed with a mortgage note.
Consideration given during the Tacoma Acquisition included 55,000
shares of PCI redeemable preferred stock. PCI then contributed this
interest in the Tacoma Facility to the Company.
Shareholders' equity increased by $11.5 million and $3.6 million in
1996 and 1995, respectively, due to recognizing the benefit of the net
operating loss carryforward.
22
<PAGE> 23
5. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials, supplies and parts........................... $18,314 $ 7,512
Finished goods and work-in-process.......................... 7,188 2,668
Inventories under exchange agreements....................... (2,877) (3,933)
------- -------
$22,625 $ 6,247
======= =======
</TABLE>
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
KEMWATER
Pioneer and PCI each own a 50% interest in Kemwater, which was formed in
February 1996 to continue the business activities previously conducted by
Pioneer's subsidiary, Imperial West, and to operate the business acquired by PCI
through the acquisition of KWT, Inc. Pioneer's investment in and advances to
Kemwater aggregated $28.6 million at December 31, 1997 and 1996. Advances to
Kemwater are primarily for purchase of product and to fund Kemwater's current
operations and capital requirements. During 1997, Kemwater established a $3.3
million reserve related to the reduction in carrying value of certain assets to
their net realizable values. Following is a summary of selected items from
Kemwater's balance sheets at December 31, 1997 and 1996 and operations for the
year ended December 31, 1997 and for the eleven months ended December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Current assets.............................................. $ 8,342 $13,004
Non-current assets.......................................... 28,681 32,224
Current liabilities......................................... 4,945 7,294
Non-current liabilities..................................... 39,032 40,498
Revenues.................................................... 38,959 36,142
Gross profit (loss)......................................... (78) 1,865
Net loss.................................................... (13,314) (5,214)
</TABLE>
BASIC INVESTMENTS, INC. AND VICTORY VALLEY LAND COMPANY, L.P.
The Company owns approximately 32% of the common stock of Basic
Investments, Inc. ("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. Prior to
the Pioneer Acquisition, the investment in BII was accounted for by the
Predecessor Company under the equity method after adjustment to reflect PCAC's
basis.
PCAC has an approximate 21% limited partnership interest in Victory Valley
Land Company, L.P. ("VVLC"). The purpose of VVLC's business is to receive, hold
and develop 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 assigned certain water rights to VVLC.
Prior to the Pioneer Acquisition, the investment in VVLC was accounted for by
the Predecessor Company under the equity method.
The Company's interests in BII and in VVLC (referred to as the "Basic
Ownership") constitute assets that are held for the economic benefit of the
previous owners of Pioneer Americas for a period of 20 years. Dividends and
distributions received by the Company on account of the Basic Ownership
(including amounts payable as a result of sales of land or other assets owned by
BII or VVLC) are deposited into a deposit account and may be used to satisfy
certain obligations of the sellers under environmental and other obligations in
favor of the Company. After payment or provision for payment of such
obligations, amounts received by the Company subsequent to April 20, 1995 on
account of the Basic Ownership will be remitted to the sellers at the
23
<PAGE> 24
end of the 20-year period. The sellers also have certain rights during such
period with respect to determinations affecting the Basic Ownership, including
the right (subject to certain limited conditions) to direct the sales or
disposition of interests constituting the Basic Ownership and the right (with
certain limited exceptions) to vote the interests constituting the Basic
Ownership, notwithstanding the ownership of such interests by the Company. The
Company's investment in Basic Ownership, following the equity method, was $17.1
million and $16.7 million at December 31, 1997 and 1996, respectively, and the
balance in the related deposit account was $5.8 million and $2.3 million at
December 31, 1997 and 1996, respectively. Within the Company's balance sheets,
these assets are offset by liabilities of the same amount because the right of
setoff exists, as the Company and the sellers owe determinable amounts, the
Company has the right to set off the amount owed by the sellers, the Company
intends to set off the amount and the setoff is enforceable by law.
7. OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Debt financing assets and organizational costs, net......... $19,256 $ 4,362
Deferred tax asset.......................................... 18,316 9,424
Patents, trademarks and other intangibles, net.............. 4,046 7
Indemnification of environmental reserve.................... 3,160 3,160
Investments................................................. 981 250
Other....................................................... 2,801 2,418
------- -------
Other assets, net................................. $48,560 $19,621
======= =======
</TABLE>
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Payroll, benefits, and pension.............................. $ 7,262 $ 2,371
Interest and bank fees...................................... 4,668 4,595
Returnable deposits......................................... 3,074 3,238
Income taxes................................................ 3,822 2,237
Other accrued liabilities................................... 14,919 10,073
------- -------
Accrued liabilities............................... $33,745 $22,514
======= =======
</TABLE>
9. EMPLOYEE BENEFITS
PENSION PLANS
The Company sponsors various non-contributory defined benefit plans
covering substantially all union and non-union employees at PCAC and PCI Canada.
Pension plan benefits are based primarily on participants' compensation and
years of credited service. Annual pension costs and liabilities for the Company
under its defined-benefit plans are determined by actuaries using various
methods and assumptions. The Company has agreed to contribute such amounts as
are necessary to provide assets sufficient to meet the benefits to be paid to
its employees. The Company's present intent is to make annual contributions,
which are actuarially computed, in amounts not more than the maximum nor less
than the minimum allowable under the Internal Revenue Code. For purposes of
determining annual expenses and funding contributions, the following assumptions
were used for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rate of return on plan assets............................... 8.0% 8.0% 8.0%
Discount rate............................................... 7.3% 7.5% 7.5%
Annual compensation increase................................ 4.0% 4.0% 4.0%
</TABLE>
24
<PAGE> 25
Pension expense for all plans was comprised of:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
------- ------- ----- -----------
<S> <C> <C> <C> <C>
Service cost on benefits earned during the year... $ 994 $ 597 $ 410 $ 178
Interest cost on projected benefit obligation..... 1,596 892 566 260
Return on plan assets............................. (2,334) (1,132) (394) (149)
Net amortization and deferral..................... 944 462 56 (7)
------- ------- ----- -----
Total pension expense................... $ 1,200 $ 819 $ 638 $ 282
======= ======= ===== =====
</TABLE>
The funded status of the pension plans for which assets exceed accumulated
benefits and the plan for which accumulated benefits exceed assets as of the
actuarial valuation dates of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
ACCUMULATED ASSETS ACCUMULATED ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefits
based on service to date and present
pay levels:
Vested benefit obligation............. $ 11,759 $ 21,352 $ 3,823 $ 6,122
Non-vested benefit obligation......... 604 268 212 389
-------- -------- ------- -------
Accumulated benefit obligation........ $ 12,363 $ 21,620 $ 4,035 $ 6,511
Plan assets at fair value............. (11,147) (27,947) (3,318) (6,963)
-------- -------- ------- -------
Accumulated benefit obligation in
excess (less than) plan assets..... 1,216 (6,327) 717 (452)
Additional amounts related to
projected salary increases......... 3,250 9,557 737 1,815
-------- -------- ------- -------
Total projected benefit obligation in
excess of plan assets.............. 4,466 3,230 1,454 1,363
Unrecognized loss (gain).............. 838 (3,063) 236 1,254
Unrecognized prior service cost....... (103) -- (372) 220
-------- -------- ------- -------
Pension obligation............ $ 5,201 $ 167 $ 1,318 $ 2,837
======== ======== ======= =======
</TABLE>
Plan assets at December 31, 1997 and 1996 consist primarily of fixed income
investments and equity investments.
DEFINED CONTRIBUTION PLANS
The Company offers defined-contributions plans for its employees with the
employees generally contributing from 1% to 15% of their compensation. The
Company also contributes funds to the plans in the amount of 50% of employee
contributions up to 4% to 6% of employee compensation, depending on the plan.
Aggregate expense by the Company to such plans was $0.4 million, $0.4 million
and $0.2 million in 1997, 1996 and 1995, respectively. Aggregate expense by the
Predecessor Company for such plans was $0.1 million for the period from January
1, 1995 through April 20, 1995.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for qualifying retired employees who
reach normal retirement age while working for the Company.
25
<PAGE> 26
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................. $ 5,264 $ 3,737
Fully eligible active plan participants................... 2,606 1,483
Other active plan participants............................ 12,802 4,986
------- -------
20,672 10,206
Unrecognized net gain....................................... (4,495) (125)
------- -------
Accrued post-retirement benefit cost...................... $16,177 $10,081
======= =======
</TABLE>
Net periodic post-retirement benefit cost for the periods presented
includes the following components:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
------ ------ ---- -----------
<S> <C> <C> <C> <C>
Service cost.................................. $ 664 $ 369 $243 $109
Interest cost................................. 1,095 693 449 176
Amortization of transition obligation over 20
years....................................... 114 -- 15 8
Other components.............................. -- -- 48 --
------ ------ ---- ----
Net periodic post-retirement benefit
cost.............................. $1,873 $1,062 $755 $293
====== ====== ==== ====
</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 10.0% for 1997 (the
same as the rate previously assumed for 1996 and 1995) and is assumed to
decrease gradually to 5% for 2013 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 post-
retirement benefit obligation as of December 31, 1997 and 1996 by $4.6 million
and $0.8 million, respectively, and the aggregate of the service and interest
cost components of the net periodic post-retirement benefit cost for 1997, 1996
and 1995 by $0.4 million, $0.1 million and $0.1 million, respectively.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.25% at December 31, 1997 and 7.5% at
December 31, 1996 and 1995.
As a result of the Pioneer Acquisition, the unrecognized net loss and
unrecognized transition obligation amounts as of that date were recognized.
10. BANK CREDIT FACILITY
In November 1997, the Company entered into an amended credit agreement
which provides for a five-year Bank Credit Facility with Bank of America,
Illinois ("BAI"). The Company may borrow up to $65.0 million, subject to certain
borrowing base limitations. At December 31, 1997, no amounts were outstanding
under the Bank Credit Facility. The revolving loans bear interest at a rate
equal to, at the Company's option, (i) the reference rate set by the lenders or
(ii) the LIBOR Base Rate. The Bank Credit Facility requires the Company to pay a
fee equal to one half of one percent per annum on the total unused balance.
Indebtedness outstanding under the Bank Credit Facility is collateralized by a
security interest in all of the inventory, accounts receivable and certain other
assets of the Company. Up to $20 million of the Borrowing Base, as defined by
the Bank Credit Facility, can be utilized for letters of credit. The Borrowing
Base at December 31, 1997 was approximately $54.3 million. After consideration
of applicable outstanding letters of credit of approximately $2.9 million, the
unused availability of the Borrowing Base was approximately $51.4 million at
December 31, 1997. The Company also had performance bonds outstanding of
approximately $3.1 million at December 31, 1997. 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
26
<PAGE> 27
deposit for the supply of electricity, and state environmental agencies as
required for manufacturers in the state. The letters of credit expire at various
dates in 1998. No amounts were drawn on the letters of credit at December 31,
1997.
The Bank Credit Facility contains restrictive covenants with respect to,
among other things, (i) maintenance of certain financial ratios and (ii)
limitations on the ability to incur additional indebtedness, to acquire or
dispose of assets or operations and to pay dividends or redeem shares of stock.
11. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
9 1/4% Senior Secured Notes, due June 15, 2007.............. $200,000
9 1/4% Senior Secured Notes, due October 15, 2007........... 175,000
June 1997 term facility, due in quarterly installments of
$250 with the balance due 2006; variable interest rate
based on LIBOR or an alternate base rate; weighted average
interest rate at December 31, 1997 of 8.4%................ 99,500
November 1997 term facility, due in quarterly installments
of $250 with the balance due 2006; variable interest rate
based on LIBOR or alternate base rate; weighted average
interest rate at December 31, 1997 of 8.8%................ 82,750
13 3/8% First Mortgage Notes, due 2005...................... -- $135,000
Other notes, maturing in years through 2014, with various
installments, at various interest rates................... 12,480 6,757
-------- --------
Total............................................. 569,730 141,757
Current maturities of long-term debt........................ (2,570) (128)
-------- --------
Long-term debt.................................... $567,160 $141,629
======== ========
</TABLE>
Long-term debt matures as follows: $2.6 million in 1998; $2.6 million in
1999: $2.6 million in 2000; $7.1 million in 2001; $2.7 million in 2002; and
$552.1 million thereafter.
As part of the acquisition of the Tacoma Facility in June 1997, the Company
issued and sold $200.0 million of 9 1/4% Senior Secured Notes due June 15, 2007,
entered into a nine and one-half year $100.0 million Term Facility and entered
into the $35.0 million Revolving Facility (which was subsequently amended during
the PCI Canada Acquisition). Concurrent with this, the Company purchased all of
its existing 13 3/8% First Mortgage Notes due 2005.
As part of the PCI Canada Acquisition in November 1997, a subsidiary of the
Company, PCI Chemicals Canada, Inc. ("PCICCI") issued and sold $175.0 million of
9 1/4% Senior Secured Notes due October 15, 2007 (see note 12). The Company also
entered into a nine and one-quarter year $83.0 million Term Facility and entered
into the $65.0 million Amended Revolving Facility (see note 10).
The Senior Secured Notes due June 15, 2007, and the Senior Secured Notes
due October 15, 2007 are senior obligations of the Company, ranking pari passu
with all existing and future senior indebtedness of the Company. These notes and
both term facilities are fully and unconditionally guaranteed on a joint and
several basis by all of PAAC's direct and indirect wholly-owned subsidiaries and
are secured by first mortgage liens on certain manufacturing facilities.
The senior notes are redeemable at the Company's option starting in 2002.
Before 2001, the Company may redeem a maximum of 35% of each series at 109.25%
of the principal amount due with funds from a public offering of common stock of
PCI (to the extent such funds are contributed to the Company). Upon a change of
control, as defined in the indenture, the Company is required to offer to
purchase the two series of Senior Notes for 101% of the principal due.
27
<PAGE> 28
The Company's long-term debt contains various restrictions on the Company,
which, among other things, limit the ability of Pioneer to incur additional
indebtedness, to acquire or dispose of assets or operations and to pay dividends
or redeem shares of stock.
12. PCI CHEMICALS CANADA, INC.
Pioneer is a holding company with no operating assets or operations.
Summarized financial information of PCICCI, the issuer of the $175.0 million of
9 1/4% Senior Secured Notes, due October 15, 2007, and the guarantors of these
notes are as follows:
<TABLE>
<CAPTION>
NOTE CONSOLIDATED
PCICCI GUARANTORS COMPANY
-------- ---------- ------------
<S> <C> <C> <C>
As of December 31, 1997:
Current assets.................................. $ 39,211 $103,780 $142,991
Non-current assets.............................. 187,009 417,359 604,368
Current liabilities............................. 24,465 57,561 82,026
Non-current liabilities......................... 193,121 412,331 605,452
For the period ended December 31, 1997 (PCICCI's
information includes the results of its
operations
since October 31, 1997, date of acquisition):
Revenues........................................ $ 24,660 $217,056 $241,716
Gross profit.................................... 8,003 54,920 62,923
Income (loss) before extraordinary item......... 2,174 (3,003) (829)
Net income (loss)............................... 2,174 (21,661) (19,487)
</TABLE>
Separate financial statements of the PCICCI and the guarantors of the
PCICCI notes are not included as PAAC and its subsidiaries (other than PCICCI)
have fully and unconditionally guaranteed the notes on a joint and several basis
and management has determined that separate financial statements of these
entities are not material to investors.
13. FINANCIAL INSTRUMENTS
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 immaterial.
The Company maintains cash deposits with major banks, which from time to
time may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
INVESTMENTS
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as master notes of issuers rated at the time of such investment of at least
"A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent
thereof by Moody's or any bank or financial institution party to the Company's
Bank Credit Facility.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of long-term debt instruments are estimated based upon quoted
market values (if applicable), or on the
28
<PAGE> 29
current interest rates available to the Company for debt with similar terms and
remaining maturities. Considerable judgment is required in developing these
estimates and, accordingly, no assurance can be given that the estimated values
presented herein are indicative of the amounts that would be realized in a free
market exchange. The Company held no derivative financial instruments as of
December 31, 1997 and 1996.
At December 31, 1997, the fair market value of all the Company's financial
instruments approximated the book value with the exceptions of the 9 1/4% Senior
Notes due June 15, 2007, and the 9 1/4% Senior Notes due October 15, 2007, which
had a book value of $200,000 and $175,000, respectively and a fair value based
upon current quoted market price of $201,500 and $175,875, respectively.
14. SEGMENT INFORMATION
As a result of the acquisition of PCI Canada in October 1997, the Company
began operating in two geographical areas, the U.S. and Canada. Selected
geographic region information is presented as follows for 1997:
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
------------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers............. $230,168 $ 11,548 $241,716
Intracompany transfers among regions............. 20 13,112 13,132
Operating income................................. 26,868 6,051 32,919
Identifiable assets.............................. 532,398 214,961 747,359
</TABLE>
The Company accounts for intracompany transfers among regions at amounts
similar to those in transactions with outside affiliates.
During 1997 and 1996, sales to an individual customer in the amounts of
$27.7 million and $23.5 million, respectively, exceeded 10% of the consolidated
revenues. No individual customer constituted 10% or more of the total revenues
in 1995. Net sales of the Predecessor Company included sales to a major customer
of approximately $7.5 million for the period from January 1, 1995 through April
20, 1995.
15. UNUSUAL CHARGES AND EXTRAORDINARY LOSSES
Unusual charges include a $1.0 million charge related to the closure of
certain of All-Pure's plants and the consolidation of their operations to other
locations, plus a $1.0 million charge related to a receivable from KWT, Inc.
During the second quarter of 1997, the Company recognized an $18.7 million
extraordinary loss as a result of the early extinguishment of the 13 3/8% First
Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium
paid on the face value of the notes and the write-off of debt placement fees
related to the notes (net of tax benefit of $12.4 million).
16. INTEREST EXPENSE, NET
Interest expense, net consisted of the following for the indicated periods:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Interest expense.......................... $28,195 $17,999 $13,112 $1,772
Interest income........................... (1,202) (709) (207) (107)
------- ------- ------- ------
Interest expense, net..................... $26,993 $17,290 $12,905 $1,665
======= ======= ======= ======
</TABLE>
No interest costs were capitalized in any of the above periods.
29
<PAGE> 30
17. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has various purchase commitments related to its operations. The
Company has committed to purchase salt used in its production processes under
contracts which continue through the year 2003 with rates similar to prevailing
market rates. The Company also has various commitments related to the purchase
of electricity, which continue through the year 2008, at rates similar to
prevailing market rates. Required purchase quantities on commitments in excess
of one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
SALT - TONS ELECTRICITY - MWH
----------- -----------------
<S> <C> <C>
1998.................................................... 947.5 1,371.5
1999.................................................... 947.5 1,371.5
2000.................................................... 947.5 1,371.5
2001.................................................... 611.0 543.5
2002.................................................... 225.0 44.0
Thereafter.............................................. 225.0 264.0
------- -------
Total purchase commitments.................... 3,903.5 4,966.0
======= =======
</TABLE>
OPERATING LEASES
The Company leases certain 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, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $14,536
1999........................................................ 12,411
2000........................................................ 9,878
2001........................................................ 7,611
2002........................................................ 4,679
Thereafter.................................................. 1,637
-------
Total minimum obligations......................... $50,752
=======
</TABLE>
Lease expense charged to operations for the years ended December 31, 1997
and 1996 and for the period from Inception through December 31, 1995 was
approximately $14.0 million, $7.8 million and $6.3 million, respectively. Lease
expense charged to the Predecessor Company's operations for the period from
January 1, 1995 through April 20, was approximately $3.3 million.
LITIGATION
The Company is party to various legal proceedings and potential claims
arising in the ordinary course of its business. In the opinion of management,
the Company has adequate legal defenses and/or insurance coverage with respect
to these matters and management does not believe that they will materially
affect the Company's operations or financial position.
18. INCOME TAXES
The Company files a consolidated tax return with PCI and prepares its
income tax provision pursuant to a tax sharing agreement with PCI. Such
agreement has the effect of presenting the Company's income tax provision on a
separate return basis.
For financial reporting purposes, deferred income taxes are determined
utilizing an asset and liability approach. This method gives consideration to
the future tax consequences associated with differences between the financial
accounting basis and tax basis of the assets and liabilities, and the ultimate
realization of any
30
<PAGE> 31
deferred tax asset resulting from such differences. The Company considers all
foreign earnings as being permanently invested in that country.
Significant components of income before income taxes and extraordinary item
and income taxes are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Income before taxes and extraordinary item:
U.S........................................ $(1,302) $14,846 $12,629 $11,621
Foreign.................................... 3,475 -- -- --
------- ------- ------- -------
Total.............................. $ 2,173 $14,846 $12,629 $11,621
======= ======= ======= =======
Current income tax provision:
U.S........................................ $ -- $ 614 $ 799 $ 5,938
Foreign.................................... 617 -- -- --
State...................................... 1,066 1,528 1,830 957
------- ------- ------- -------
Total current...................... 1,683 2,142 2,629 6,895
------- ------- ------- -------
Deferred income tax provision:
U.S........................................ $ 1,437 $ 5,032 $ 4,180 $(1,816)
Foreign.................................... 684 -- -- --
State...................................... (802) (439) (601) (270)
------- ------- ------- -------
Total deferred..................... 1,319 4,593 3,579 (2,086)
------- ------- ------- -------
Total income tax provision......... $ 3,002 $ 6,735 $ 6,208 $ 4,809
======= ======= ======= =======
</TABLE>
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
deferred tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax over book basis -- property, plant and equipment...... $(16,901) $(20,006)
Other -- net.............................................. (543) (399)
-------- --------
Total deferred tax liabilities.................... (17,444) (20,405)
-------- --------
Deferred tax assets:
Post employment benefits.................................. 8,421 5,552
Alternative minimum tax credit carryover.................. 671 671
Allowance for doubtful accounts........................... 780 511
Other accrued liabilities................................. 1,342 6,165
Net operating loss carryforward of PCI.................... 23,861 14,391
-------- --------
Total deferred tax assets......................... 35,075 27,290
Valuation allowance for deferred tax assets................. -- --
Net deferred tax assets..................................... 35,075 27,290
-------- --------
Net deferred taxes................................ $ 17,631 $ 6,885
======== ========
</TABLE>
31
<PAGE> 32
The reconciliations of income tax computed at the U.S. federal statutory
tax rates to income tax expense for the periods presented are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
----------------
1997 1996 1995 1995
---------------- ---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates... $ 761 35% $5,196 35% $4,420 35% $4,068 35%
State and foreign income
taxes, net of federal tax
benefits.................... 289 13 708 5 799 6 407 3
Amortization of excess cost
over the fair value of net
assets acquired............. 2,033 93 1,591 10 1,159 9 69 1
Other, net.................... (81) (3) (760) (5) (170) (1) 265 2
------ --- ------ -- ------ -- ------ --
$3,002 138% $6,735 45% $6,208 49% $4,809 41%
====== === ====== == ====== == ====== ==
</TABLE>
At December 31, 1997, PCI had available to it on a consolidated tax return
basis approximately $47.1 million of NOL for income tax purposes which expires
in 2003 through 2010. The NOL is available for offset against future taxable
income generated during the carryforward period. A tax sharing agreement
provides that the Company will be liable to PCI for its separate tax liability
only to the extent the consolidated group has a tax liability. However as long
as PCI's NOL is available to the consolidated group to reduce taxable income,
the Company's tax liability to PCI will be substantially reduced. As a result of
the tax sharing agreement, the NOL is reflected by the Company for financial
reporting purposes.
Since the Company had no operations before the Pioneer Acquisition, it had
no means to generate taxable income; accordingly, the Company established a
valuation allowance equal to the full amount of the NOL at Inception. Concurrent
with the Pioneer Acquisition, the Company estimated that approximately $13.6
million of the NOL would be utilized; as a result, the valuation allowance was
reduced by that amount as part of the purchase price allocation. The Company's
taxable income for 1995 exceeded its estimate; the Company, therefore,
recognized an additional $3.6 of NOL in 1995. Since it has continued to generate
more taxable income than it originally expected, the Company eliminated the
valuation allowance in 1996, thereby recognizing the remaining $11.5 million of
the NOL. A portion of the Company's NOL originated before it was reorganized in
1995; accordingly, any recognition of the NOL is recorded as an increase in the
Company's paid-in capital rather than as a reduction in the provision for income
taxes. Thus, the reduction of the valuation allowance for the NOL in 1996 and
1995 had no effect on the Company's provision for income taxes or net income.
Any NOL generated after the 1995 reorganization, if deemed to be realizable,
will be used to reduce the Company's provision for income taxes.
19. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL
The Company's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those applicable
to waste management, discharge of materials into the air and water, clean-up
liability from historical waste disposal practices, and employee health and
safety. At several of the Company's facilities, investigations or remediations
are underway and at some of these locations regulatory agencies are considering
whether additional actions are necessary to protect or remediate surface or
groundwater resources. The Company could be required to incur additional costs
to construct and operate remediation systems in the future. In addition, at
several of its facilities, the Company is in the process of replacing or closing
ponds for the collection of wastewater. The Company plans to spend approximately
$1.2 million during the next fifteen years for closure of eight chlor-alkali
waste water disposal ponds at the Henderson plant. The Company believes that it
is in substantial compliance with existing governmental regulations.
PCAC's Henderson plant is located within what is known as the "Basic
Complex." Soil and groundwater contamination have been identified within and
adjoining the Basic Complex, including land owned by PCAC.
32
<PAGE> 33
A groundwater treatment system was installed at the facility in 1983 and,
pursuant to a Consent Agreement with the Nevada Division of Environmental
Protection, a study is being conducted to further evaluate soil and groundwater
contamination at the facility and other properties within the Basic Complex and
to determine whether additional remediation will be necessary with respect to
PCAC's property.
In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities (the "ZENECA Indemnity"), including liabilities associated with
operations at the Company's plant located in Henderson, Nevada (the "Henderson
Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor
Company for environmental costs which arise from or relate to pre-acquisition
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. Payments under the
indemnity cannot exceed approximately $65 million.
Due to the change in ownership resulting from the Pioneer Acquisition, the
ZENECA Indemnity will terminate on April 20, 1999. 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 the Company has taken certain other actions. The
Company believes that the ZENECA Companies will continue to honor their
obligations under the ZENECA Indemnity for claims properly presented by the
Company. It is possible, however, that disputes could arise between the parties
and that the Company would have to subject its claims for clean-up expenses,
which could be substantial, to the contractually established arbitration
process. In the opinion of management, any environmental liability in excess of
the amount indemnified and accrued on the consolidated balance sheet, if any,
would not have a material adverse affect on the consolidated financial
statements.
In the agreement relating to the Pioneer Acquisition, the sellers agreed to
indemnify the Company for certain environmental liabilities that result from
certain discharges of hazardous materials, or violations of environmental laws,
arising prior to April 20, 1995 (the "Closing Date") from or relating to the
Pioneer Americas plant sites or arising before or after the Closing Date with
respect to certain environmental liabilities relating to assets held by the
Company for the benefit of the sellers ("Sellers' Indemnity"). Amounts payable
pursuant to the Sellers' Indemnity will generally be payable as follows: (i) out
of certain reserves established on the Predecessor Company's balance sheet at
December 31, 1994; (ii) either by offset against the amounts payable under the
notes issued to the sellers or from deposit account balances held by the
Company, and (iii) in certain circumstances and subject to specified
limitations, out of the personal assets of the sellers. Subject to certain
exceptions and limitations set forth in the Pioneer Acquisition Agreement, a
claim notice with respect to amounts payable pursuant to the Sellers' Indemnity
must generally be given within 15 years of the Closing Date. Pioneer is required
to reimburse the sellers for amounts paid under the Sellers' Indemnity with
amounts recovered under the ZENECA Indemnity or from other third parties.
Pioneer and the sellers agreed that they will cooperate in matters relating to
the ZENECA Indemnity.
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost. Ongoing environmental compliance cost, including maintenance
and monitoring costs, are charged to operations as incurred. 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 $2.1 million, $1.7
million and $1.2 million for the periods ended December 31, 1997, 1996 and 1995,
respectively, and $0.4 million for the Predecessor Company for the period from
January 1, 1995 through April 20, 1995. Capital expenditures for
environmental-related matters at existing facilities approximated $3.9 million,
$4.3 million and $2.2 million for the periods ended December 31, 1997, 1996 and
1995, respectively, and $0.2 million for the Predecessor Company for the period
from January 1, 1995 through April 20, 1995. Future environmental-related
capital expenditures will depend upon regulatory requirements, as well as timing
related to obtaining necessary permits and approvals.
33
<PAGE> 34
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 Predecessor Company established a reserve at the time of its
acquisition of its Henderson, Nevada and St. Gabriel, Louisiana 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 the Company for chlor-alkali-related remediation of the Henderson and St.
Gabriel facilities. The recorded accrual included certain amounts related to
anticipated closure and post-closure actions that may be required in the event
that operation of the present chlor-alkali plants ceases. Such accrual in the
amount of $7.0 million is recorded in the Company's consolidated balance sheets
at December 31, 1997. However, complete analysis and study has not been
completed and therefore additional future charges may be recorded at the time a
decision for closure is made.
In 1994, the Predecessor Company recorded an additional $3.2 million
environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies. Such accrual is recorded in the
Company's consolidated balance sheets at December 31, 1997 and 1996. Other
assets include an account receivable of the same amount from the ZENECA
Companies. The Company believes it will be reimbursed by the ZENECA Companies
for substantially all of such costs that are incurred at the Henderson Plant and
other properties within the same industrial complex. Additionally, certain other
environmental matters exist which have been assumed directly by the ZENECA
Companies. 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 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.
20. RELATED PARTY TRANSACTIONS
The Company has a 15% partnership interest in Saguaro Power Company
("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The
Company's interest in Saguaro is accounted for using the cost method of
accounting. The Company sells certain products and services to and purchases
steam from Saguaro at market prices. Transactions with Saguaro are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1997 1996 1995 1995
------ ------ ------ -----------
<S> <C> <C> <C> <C>
Sales to Saguaro............................. $ 856 $1,005 $ 754 $353
Purchases from Saguaro....................... 1,352 1,840 1,388 616
Partnership distribution from Saguaro
(included in other income)................. 1,033 735 637 --
</TABLE>
Accounts receivable from and accounts payable to Saguaro are at the
Company's normal trade terms and are generally not significant to the Company's
consolidated balance sheet.
The Company 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 1997,
1996 and 1995, BII charged expenses to the Company of approximately $0.3
million, $0.2 million and $0.2 million, respectively. For the period from
January 1, 1995 through April 20, 1995, BII charged expenses to the Predecessor
Company of approximately $0.2 million.
As a result of the acquisition of PCI Canada, the Company obtained a
one-third interest in Canso Chemicals Limited, a Nova Scotia company ("Canso").
Canso operates a caustic soda storage and transfer facility. The Company's
interest in Canso is accounted for using the equity method of accounting. The
34
<PAGE> 35
Company sold product totaling $1.6 million to Canso during 1997. Amounts due the
Company from Canso totaled $0.9 million at December 31, 1997.
The Company sells certain products to Kemwater at market prices. Sales to
Kemwater totaled $8.7 million and $8.8 million during the years ended December
31, 1997 and 1996, respectively. Kemwater provides transportation services to
the Company at market prices which totaled $1.8 million for each of the years
ended December 31, 1997 and 1996.
Upon consummation of the Pioneer Acquisition, Interlaken Capital, Inc., an
entity controlled by Mr. William R. Berkley, Chairman of the board of PCI,
received a fee of approximately $1.6 million from the Company in connection with
financial advisory services with respect to the Pioneer Acquisition and related
financings. The firm was also paid a fee of $0.3 million plus reimbursement of
reasonable out-of-pocket expenses, for services rendered in connection with the
KWT transaction. The firm was paid a fee of approximately $1.3 million, plus
reimbursement of out-of-pocket expenses, for services rendered in connection
with the acquisition of the Tacoma Facility. The firm was paid a fee of
approximately $2.36 million, plus reimbursement of reasonable out-of-pocket
expenses, for services rendered in connection with the acquisition of PCI
Canada.
21. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and displaying of comprehensive income and its
components. SFAS No. 130 is not expected to have a material effect on the
Company's financial statements when it is adopted during 1998.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
("SFAS No. 131"). SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and establishes standards for the way that public business
enterprises report information about operating segments in interim and annual
financial statements. Under the current accounting policies, the Company
operates in one business segment. Following the guidance of the new standard,
operating segments will generally be defined following the bases used internally
for evaluating segment performance and resource allocation decisions. SFAS No.
131 also requires various disclosures about international operations. The
statement will have no effect on the Company's financial position or results of
operations, but management is currently evaluating what, if any, additional
disclosures may be required upon adoption during the fourth quarter of 1998.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," ("SFAS No. 132"). SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997 and standardizes the disclosure requirements
for pensions and other postretirement benefits. The statement will have no
effect on the Company's financial position or results of operations, but
management is currently evaluating what, if any, additional disclosures may be
required when it is adopted in 1998.
35
<PAGE> 36
22. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- ------- -------
<S> <C> <C> <C> <C>
FOR YEAR ENDED DECEMBER 31, 1997
Revenues........................................... $38,743 $ 46,088 $65,242 $91,643
Operating income................................... 3,570 3,321 11,048 14,980
Income (loss) before taxes and extraordinary
item............................................. (1,712) (2,172) 3,965 2,092
Extraordinary item, net of income tax benefit...... -- (18,658) -- --
Net income (loss).................................. (1,890) (20,341) 1,875 869
Earnings per common share:
Income (loss) before extraordinary item.......... $(1,890) $ (1,683) $ 1,875 $ 869
Extraordinary item, net of income tax benefit.... -- (18,658) -- --
------- -------- ------- -------
Net income (loss)........................ $(1,890) $(20,341) $ 1,875 $ 869
======= ======== ======= =======
FOR YEAR ENDED DECEMBER 31, 1996
Revenues........................................... $44,292 $ 47,671 $48,872 $42,491
Operating income................................... 7,405 7,840 7,848 9,966
Income before taxes................................ 3,440 3,338 3,145 4,923
Net income......................................... 1,412 1,479 2,164 3,056
Earnings per common share.......................... 1,412 1,479 2,164 3,056
------- -------- ------- -------
</TABLE>
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.
37
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) LIST OF DOCUMENTS FILED.
(1) The financial statements filed as part of this report are listed in the
Index to Financial Statements under Item 8 on page 11 hereof.
(2) Additional financial information and schedules included pursuant to the
requirements of Form 10-K are listed in the Index to Financial Statements under
Item 8 on page 11 hereof.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference.
The exhibits indicated by a plus sign (+) each constitute a management contract
or arrangement required to be filed as an exhibit pursuant to the requirements
of Item 14(c) of Form 10-K.
38
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by
and among Pioneer, PCI and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to PCI's Current
Report on Form 8-K filed on May 5, 1995).
2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by
and between OCC Tacoma, Inc. and PCI (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on July 1, 1997).
2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997,
between PCI Chemicals Canada Inc. ("PCICC"), PCI
Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated
by reference to Exhibit 2 to Pioneer's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCICC, PCI Carolina, Inc. and
Pioneer and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on November 17, 1997).
3.1* -- Certificate of Incorporation of Pioneer filed with the
Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
3.2* -- By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 33-98828)).
4.1* -- Indenture, dated as of June 17, 1997, by and among
Pioneer, the Subsidiary Guarantors defined therein and
United States Trust Company of New York, as Trustee,
relating to $200,000,000 principal amount of 9 1/4%
Series A Senior Notes due 2007, including form of Note
and Guarantees (incorporated by reference to Exhibit 2 to
Pioneer's Current Report on Form 8-K filed on July 1,
1997).
4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington) (incorporated by reference to
Exhibit 4.2(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana) (incorporated by reference to
Exhibit 4.2(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada) (incorporated by reference to Exhibit
4.2(c) to Pioneer's Registration Statement on Form S-4,
as amended (file no. 333-30683)).
4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among
Pioneer, various financial institutions as Lenders, DLJ
Capital Funding, inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Pioneer Term Loan Agreement") (incorporated by
reference to Exhibit 4.3(a) to Pioneer's Registration
Statement on Form S-4, as amended (file no. 333-30683)).
4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Pioneer Term Loan
Agreement (incorporated by reference to Exhibit 4.3(b) to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.4* -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.4 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.5* -- Stock Pledge Agreement, dated as of June 17, 1997, among
Pioneer Americas and United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5 to Pioneer's Registration Statement on Form
S-4, as amended (file no. 333-30683)).
4.6(a)* -- Loan and Security Agreement, dated as of June 17, 1997,
by and among Pioneer, Bank of America Illinois, as Agent
and Lender and the other Lenders party thereto (the
"Revolving Loan Agreement") (incorporated by reference to
Exhibit 4.6(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(b)* -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders,
guaranteeing the obligations of one another under the
Revolving Loan Agreement (incorporated by reference to
Exhibit 4.6(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(c)* -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders
(incorporated by reference to Exhibit 4.6(c) to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.7* -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1977 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, Pioneer, Pioneer Americas and
PCAC (incorporated by reference to Exhibit 4.7 to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
4.8* -- Indenture, dated as of October 30, 1997, by and among
PCICC, the Guarantors defined therein and United States
Trust Company of New York, as Trustee, relating to
$175,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees
(incorporated by reference to Exhibit 4.1 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.9* -- Deed of Hypothec, dated as of October 30, 1997, by PCICC
in favor of United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.2 to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.10* -- Affiliate Security Agreement, dated as of October 30,
1997, among PCICC, PCI Licensing, Inc. and United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.3 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.11* -- Borrower (Canadian) Security Agreement, dated as of
October 30, 1997, between PCICC and United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.4 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.12(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(a) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(b) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(c)* -- Demand Debenture (New Brunswick), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(c) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(a)* -- Demand Pledge Agreement (Ontario), dated as of October
30, 1997, by PCICC in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(a) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.13(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.6(b) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(c)* -- Demand Pledge Agreement (New Brunswick), dated as of
October 30, 1997, by PCICC in favor of United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.6(c) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.14* -- Subsidiary Security Agreement, dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.7 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.15(a)* -- Term Loan Agreement, dated as of October 30, 1997, among
Pioneer, Pioneer Americas, various financial
institutions, as Lenders, DLJ Capital Funding, Inc., as
the Syndication Agent, Salomon Brothers Holding Company,
Inc, as the Documentation Agent, Bank of America National
Trust and Savings Association, as the Administrative
Agent and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.8(a) to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.15(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and
among PCICC, the Guarantors identified therein and the
Initial Purchasers identified therein (incorporated by
reference to Exhibit 4.8(b) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.16* -- Consent and Amendment No. 1, dated November 5, 1997, to
Loan and Security Agreement, dated June 17, 1997, among
Pioneer, Bank of America National Trust and Savings
Association, as Agent and Lender and the other Lenders
party thereto (incorporated by reference to Exhibit 4.9
to PCICC's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.17* -- Intercreditor and Collateral Agency Agreement, dated as
of October 30, 1997, by and among United States Trust
Company of New York, as Trustee and Collateral Agent,
Bank of America National Trust and Savings Association,
as Agent, PCICC, Pioneer and Pioneer Americas
(incorporated by reference to Exhibit 4.10 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
10.1* -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PCI and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PCI and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.5*+ -- Pioneer Chlor Alkali Company, Inc. Supplemental
Retirement Plan (incorporated by reference to Exhibit
10.5 to Pioneer's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.6*+ -- Employment Agreement, dated April 20, 1995, between PCI
and Richard C. Kellogg, Jr. (incorporated by reference to
Exhibit 10.1 to PCI's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 (file no. 1-9859)).
10.7*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated
by reference to Exhibit 10.8 to Pioneer's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.8*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.9*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Kent R. Stephenson
(incorporated by reference to Exhibit 10.10 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.10*+ -- Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.10 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1996).
10.11*+ -- Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.11 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1996).
10.12*+ -- Non-Qualified Stock Option Agreement, dated January 4,
1997, between Pioneer Companies, Inc. and Michael J.
Ferris (incorporated by reference to Exhibit 10.12 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.13*+ -- Non-Qualified Stock Option Agreement, dated May 15, 1997,
between Pioneer and Andrew M. Bursky (incorporated by
reference to Exhibit 10.11 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
27 -- Financial Data Schedule.
</TABLE>
42
<PAGE> 43
(B) REPORTS ON FORM 8-K.
On November 17, 1997, Pioneer filed a report on Form 8-K, reporting under
Item 2, "Acquisition or Disposition of Assets," the completion of the
acquisition of the forest products business of ICI Canada and ICI Americas by
PCI Canada on November 5, 1997, but with effect as of October 31, 1997. Included
with the filing with respect to the acquired business were audited financial
statements for the years ended December 31, 1996, 1995 and 1994 and unaudited
financial statements for the nine months ended September 30, 1997 and 1996.
Included with respect to the Company were a pro forma balance sheet as of
September 30, 1997 and pro forma statements of operations for the nine months
ended September 30, 1997 and 1996 and the year ended December 31, 1996.
(C) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts. All other schedules have been
omitted because they are not applicable, not required, or the required
information is included in the financial statements or notes thereto.
43
<PAGE> 44
SCHEDULE II
PIONEER AMERICAS ACQUISITION CORP.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts.... $1,311 $123 $ 604(B) $ (36)(A) $2,002
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts.... 1,424 -- -- (113)(A) 1,311
PERIOD FROM MARCH 6, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995:
Allowance for doubtful accounts.... -- 138 1,416(C) (130)(A) 1,424
</TABLE>
- ---------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established in 1997 in connection with the acquisition of
PCI Canada.
(C) Allowance balance established on April 20, 1995 in connection with the
acquisition of Pioneer Americas, Inc.
44
<PAGE> 45
SCHEDULE II
PIONEER AMERICAS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PERIOD FROM JANUARY 1, 1995 THROUGH APRIL
20, 1995:
Allowance for doubtful accounts.......... $2,038 $47 $-- $(169)(A) $1,916
</TABLE>
- ---------------
(A) Uncollectible accounts written off, net of recoveries.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PIONEER AMERICAS ACQUISITION CORP.
By: /s/ MICHAEL J. FERRIS
----------------------------------
Michael J. Ferris,
President and Chief Executive
Officer
March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL J. FERRIS President and Chief Executive March 25, 1998
- ----------------------------------------------------- Officer (Principal
(Michael J. Ferris) Executive Officer) and
Director
/s/ PHILIP J. ABLOVE Vice President and Chief March 25, 1998
- ----------------------------------------------------- Financial Officer and
(Philip J. Ablove) Director (Principal
Financial Officer)
/s/ JOHN R. BEAVER Controller (Principal March 25, 1998
- ----------------------------------------------------- Accounting Officer)
(John R. Beaver)
/s/ WILLIAM R. BERKLEY Chairman of the Board March 25, 1998
- -----------------------------------------------------
(William R. Berkley)
/s/ ANDREW M. BURSKY Director March 25, 1998
- -----------------------------------------------------
(Andrew M. Bursky)
/s/ DONALD J. DONAHUE Director March 25, 1998
- -----------------------------------------------------
(Donald J. Donahue)
/s/ RICHARD C. KELLOGG, JR. Director March 25, 1998
- -----------------------------------------------------
(Richard C. Kellogg, Jr.)
/s/ JACK H. NUSBAUM Director March 25, 1998
- -----------------------------------------------------
(Jack H. Nusbaum)
/s/ THOMAS H. SCHNITZIUS Director March 25, 1998
- -----------------------------------------------------
(Thomas H. Schnitzius)
</TABLE>
46
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by
and among Pioneer, PCI and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to PCI's Current
Report on Form 8-K filed on May 5, 1995).
2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by
and between OCC Tacoma, Inc. and PCI (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on July 1, 1997).
2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997,
between PCI Chemicals Canada Inc. ("PCICC"), PCI
Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated
by reference to Exhibit 2 to Pioneer's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCICC, PCI Carolina, Inc. and
Pioneer and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on November 17, 1997).
3.1* -- Certificate of Incorporation of Pioneer filed with the
Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
3.2* -- By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 33-98828)).
4.1* -- Indenture, dated as of June 17, 1997, by and among
Pioneer, the Subsidiary Guarantors defined therein and
United States Trust Company of New York, as Trustee,
relating to $200,000,000 principal amount of 9 1/4%
Series A Senior Notes due 2007, including form of Note
and Guarantees (incorporated by reference to Exhibit 2 to
Pioneer's Current Report on Form 8-K filed on July 1,
1997).
4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington) (incorporated by reference to
Exhibit 4.2(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana) (incorporated by reference to
Exhibit 4.2(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada) (incorporated by reference to Exhibit
4.2(c) to Pioneer's Registration Statement on Form S-4,
as amended (file no. 333-30683)).
4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among
Pioneer, various financial institutions as Lenders, DLJ
Capital Funding, inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Pioneer Term Loan Agreement") (incorporated by
reference to Exhibit 4.3(a) to Pioneer's Registration
Statement on Form S-4, as amended (file no. 333-30683)).
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Pioneer Term Loan
Agreement (incorporated by reference to Exhibit 4.3(b) to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
4.4* -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.4 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.5* -- Stock Pledge Agreement, dated as of June 17, 1997, among
Pioneer Americas and United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5 to Pioneer's Registration Statement on Form
S-4, as amended (file no. 333-30683)).
4.6(a)* -- Loan and Security Agreement, dated as of June 17, 1997,
by and among Pioneer, Bank of America Illinois, as Agent
and Lender and the other Lenders party thereto (the
"Revolving Loan Agreement") (incorporated by reference to
Exhibit 4.6(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(b)* -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders,
guaranteeing the obligations of one another under the
Revolving Loan Agreement (incorporated by reference to
Exhibit 4.6(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(c)* -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders
(incorporated by reference to Exhibit 4.6(c) to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.7* -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1977 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, Pioneer, Pioneer Americas and
PCAC (incorporated by reference to Exhibit 4.7 to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
4.8* -- Indenture, dated as of October 30, 1997, by and among
PCICC, the Guarantors defined therein and United States
Trust Company of New York, as Trustee, relating to
$175,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees
(incorporated by reference to Exhibit 4.1 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.9* -- Deed of Hypothec, dated as of October 30, 1997, by PCICC
in favor of United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.2 to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.10* -- Affiliate Security Agreement, dated as of October 30,
1997, among PCICC, PCI Licensing, Inc. and United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.3 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.11* -- Borrower (Canadian) Security Agreement, dated as of
October 30, 1997, between PCICC and United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.4 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(a) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(b) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(c)* -- Demand Debenture (New Brunswick), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(c) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(a)* -- Demand Pledge Agreement (Ontario), dated as of October
30, 1997, by PCICC in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(a) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.13(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.6(b) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(c)* -- Demand Pledge Agreement (New Brunswick), dated as of
October 30, 1997, by PCICC in favor of United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.6(c) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.14* -- Subsidiary Security Agreement, dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.7 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.15(a)* -- Term Loan Agreement, dated as of October 30, 1997, among
Pioneer, Pioneer Americas, various financial
institutions, as Lenders, DLJ Capital Funding, Inc., as
the Syndication Agent, Salomon Brothers Holding Company,
Inc, as the Documentation Agent, Bank of America National
Trust and Savings Association, as the Administrative
Agent and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.8(a) to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.15(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and
among PCICC, the Guarantors identified therein and the
Initial Purchasers identified therein (incorporated by
reference to Exhibit 4.8(b) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.16* -- Consent and Amendment No. 1, dated November 5, 1997, to
Loan and Security Agreement, dated June 17, 1997, among
Pioneer, Bank of America National Trust and Savings
Association, as Agent and Lender and the other Lenders
party thereto (incorporated by reference to Exhibit 4.9
to PCICC's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.17* -- Intercreditor and Collateral Agency Agreement, dated as
of October 30, 1997, by and among United States Trust
Company of New York, as Trustee and Collateral Agent,
Bank of America National Trust and Savings Association,
as Agent, PCICC, Pioneer and Pioneer Americas
(incorporated by reference to Exhibit 4.10 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
10.1* -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PCI and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PCI and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.5*+ -- Pioneer Chlor Alkali Company, Inc. Supplemental
Retirement Plan (incorporated by reference to Exhibit
10.5 to Pioneer's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.6*+ -- Employment Agreement, dated April 20, 1995, between PCI
and Richard C. Kellogg, Jr. (incorporated by reference to
Exhibit 10.1 to PCI's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 (file no. 1-9859)).
10.7*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and James E. Glattly (incorporated
by reference to Exhibit 10.8 to Pioneer's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.8*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Verrill M. Norwood, Jr.
(incorporated by reference to Exhibit 10.9 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.9*+ -- Employment Agreement, dated April 20, 1995, between
Pioneer Americas, Inc. and Kent R. Stephenson
(incorporated by reference to Exhibit 10.10 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.10*+ -- Executive Employment Agreement, dated January 4, 1997,
between Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.10 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1996).
10.11*+ -- Stock Purchase Agreement, dated January 4, 1997, between
Pioneer Companies, Inc. and Michael J. Ferris
(incorporated by reference to Exhibit 10.11 to Pioneer's
Annual Report on Form 10-K for the year ended December
31, 1996).
10.12*+ -- Non-Qualified Stock Option Agreement, dated January 4,
1997, between Pioneer Companies, Inc. and Michael J.
Ferris (incorporated by reference to Exhibit 10.12 to
Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.13*+ -- Non-Qualified Stock Option Agreement, dated May 15, 1997,
between Pioneer and Andrew M. Bursky (incorporated by
reference to Exhibit 10.11 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
27 -- Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 50,995
<SECURITIES> 0
<RECEIVABLES> 67,191
<ALLOWANCES> 2,002
<INVENTORY> 22,625
<CURRENT-ASSETS> 142,991
<PP&E> 360,355
<DEPRECIATION> 34,130
<TOTAL-ASSETS> 747,359
<CURRENT-LIABILITIES> 82,026
<BONDS> 567,160
0
0
<COMMON> 1
<OTHER-SE> 59,880
<TOTAL-LIABILITY-AND-EQUITY> 747,359
<SALES> 241,716
<TOTAL-REVENUES> 241,716
<CGS> 178,793
<TOTAL-COSTS> 178,793
<OTHER-EXPENSES> 30,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,993
<INCOME-PRETAX> 2,173
<INCOME-TAX> 3,002
<INCOME-CONTINUING> (829)
<DISCONTINUED> 0
<EXTRAORDINARY> (18,658)
<CHANGES> 0
<NET-INCOME> (19,487)
<EPS-PRIMARY> (19,487)
<EPS-DILUTED> (19,487)
</TABLE>
