<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-98828
PIONEER CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1420850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 LOUISIANA STREET, SUITE 4300, HOUSTON, 77002
TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
(713) 570-3200
(Registrant's telephone number, including area code)
PIONEER AMERICAS, INC.
(Former name of registrant)
Securities registered pursuant to Section 12(b) of the Act: NONE.
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(g) of the Act: 9 1/4% SENIOR SECURED NOTES DUE JUNE 15, 2007
9 1/4% SENIOR SECURED NOTES DUE OCTOBER 15, 2007
(Title of class)
</TABLE>
On March 23, 2000, there were outstanding 1,000 shares of the Registrant's
Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies,
Inc.
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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<PAGE> 2
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6. Selected Financial Data..................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6
Item 7a. Quantitative and Qualitative Market Risk Disclosures........ 6
Item 8. Financial Statements and Supplementary Data................. 7
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 31
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 31
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 31
</TABLE>
i
<PAGE> 3
PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Corporation of America and its consolidated subsidiaries, (ii) the term
"Company" refers to Pioneer Corporation of America, (iii) the term "Predecessor
Company" refers to Pioneer and its subsidiaries as they existed on April 20,
1995, the date they were acquired by the Company, 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
Pioneer's business and Pioneer'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 Pioneer's
high financial leverage, the cyclical nature of the markets for many of
Pioneer's products and raw materials and other risks discussed in detail. Actual
outcomes may vary materially.
ITEM 1. BUSINESS.
Pioneer manufactures and markets chlorine and caustic soda and several
related products. Pioneer conducts its primary business through its operating
subsidiaries: Pioneer Americas, Inc. (formerly known as Pioneer Chlor-Alkali
Company, Inc.) ("PAI"), PCI Chemicals Canada Inc. ("PCI Canada"), and Kemwater
North America Company ("KNA").
On April 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 24, 1995 (the "Pioneer Acquisition Agreement"), by and among PCI, the
Company and the holders of the outstanding common stock and other common equity
interests of the Predecessor Company (the "Sellers"), Pioneer acquired all of
such stock and interests (the "Pioneer Acquisition").
Pioneer owns and operates five chlor-alkali production facilities with
aggregate production capacity of approximately 950,000 electrochemical units
("ECUs", each consisting of 1 ton of chlorine and 1.1 tons of caustic soda).
Approximately 60% of Pioneer's source of electricity, a major raw material in
chlor-alkali production, is hydro-power based, currently the cheapest source in
North America. In addition, over 22% of Pioneer's ECU capacity employs membrane
cell technology, the most efficient available technology. Management believes
that Pioneer is one of the six largest chlor-alkali producers in North America,
with approximately 6% of North American production capacity. In addition to its
chlor-alkali capacity, Pioneer manufactures hydrochloric acid, bleach, sodium
chlorate and other products.
The Company 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, 1999, 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 59.8% of the voting power of PCI.
Pioneer's five chlor-alkali production facilities are located in Becancour,
Quebec; Tacoma, Washington; St. Gabriel, Louisiana; Henderson, Nevada; and
Dalhousie, New Brunswick. The five facilities produce chlorine and caustic soda
for sale in the merchant markets and for use as raw materials in the manufacture
of downstream products. The Becancour and Henderson facilities also produce
hydrochloric acid and bleach, and the Tacoma facility also produces hydrochloric
acid and calcium chloride. The Dalhousie facility also produces sodium chlorate.
Pioneer also operates three bleach production and chlorine and hydrochloric
acid repackaging facilities in California and Washington, and distributes these
products to municipalities and selected commercial markets in the western United
States through various distribution channels. All of the chlorine and caustic
soda used as raw materials at these facilities is supplied by the Tacoma and
Henderson chlor-alkali facilities. Because bleach contains a high percentage of
water, freight costs and logistics are an important competitive factor. The
facilities are strategically located in or near most of the large population
centers of the West Coast. Additional
1
<PAGE> 4
production units at Cornwall, Ontario produce hydrochloric acid, bleach,
chlorinated paraffins under the brand name Cereclor(R), and proprietary pulping
additives, PSR 2000(R) and IMPAQT(R).
In 1997, an unusual charge of $1.0 million was recorded, relating to the
closure of certain bleach production and repackaging plants and the
consolidation of their operations into other locations. In 1998, an unusual
charge of $0.4 million was recorded, relating to the consolidation and
downsizing of certain administrative functions. In December 1998, Pioneer sold
its pool chemicals business, resulting in a $1.8 million loss from disposal of
assets plus an unusual charge of approximately $1.0 million related to closing
Pioneer's facility at City of Industry, California. Substantially all unusual
charges were paid by December 31, 1998.
KNA manufactures and supplies polyaluminum chlorides to certain potable and
waste water markets in the United States. The products are used primarily to
remove solids from waste water streams and to control hydrogen sulfide
emissions. KNA also manufactures and markets aluminum sulfate to the waste water
and pulp and paper industries. In early 1999, KNA sold its iron chlorides
business, which is located in the western U.S. This disposal resulted in a
pretax loss of approximately $0.9 million. Pioneer is also currently negotiating
either a sale or restructuring of the remaining business of KNA. No material
gain or loss is expected from the completion of such transactions.
The Company is a holding company with no operating assets or operations. As
of December 31, 1999, Pioneer had outstanding $585.9 million of long-term debt,
$175.0 million of which was issued by PCI Canada in the form of 9 1/4% Senior
Secured Notes due October 15, 2007. There are no restrictions on the ability of
PCI Canada or the Company's other subsidiaries to pay dividends to or make other
distributions to the Company or PCI Canada. Pioneer's debt agreements, including
those related to PCI Canada'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 9 to the Consolidated Financial Statements included in Item
8 -- Financial Statements and Supplementary Data for summarized financial
information on PCI Canada.
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
indicated (dollars in thousands and percentage of revenues):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C> <C> <C>
Revenues.......................................... $284,312 100% $361,280 100%
Cost of sales..................................... 274,181 96 278,478 77
-------- --- -------- ---
Gross profit...................................... 10,131 4 82,802 23
Selling, general and administrative expense....... 47,145 17 44,845 13
Unusual charges................................... -- -- 1,385 --
-------- --- -------- ---
Operating income (loss)........................... (37,014) (13) 36,572 10
Equity in net loss of unconsolidated
subsidiaries.................................... -- -- (2,208) (1)
Interest expense, net............................. (50,313) (18) (48,792) (13)
Other income, net................................. 14,608 5 759 --
-------- --- -------- ---
Loss before income taxes and extraordinary item... (72,719) (26) (13,669) (4)
Income tax benefit................................ (24,779) 9 (3,357) 1
-------- --- -------- ---
Net loss................................ $(47,940) (17)% $(10,312) (3)%
======== === ======== ===
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues decreased by $77.0 million, or approximately 21%, to
$284.3 million for the twelve months ended December 31, 1999, as compared to the
same period in 1998. The decrease in revenues was
2
<PAGE> 5
primarily due to lower ECU prices. Pioneer's average ECU sales price for the
year ended December 31, 1999 was $242, a decrease of approximately 28% from the
average 1998 sales price of $336.
The remaining revenue decrease was primarily due to the disposal of
Pioneer's household bleach bottling business during the third quarter of 1998
and the disposal of the pool chemicals business in the fourth quarter of 1998.
These businesses were considered non-strategic, and Pioneer retained long-term
supply agreements with the purchasers.
Cost of Sales. Cost of sales decreased $4.3 million or approximately 2% in
1999, as compared to 1998. $10.9 million of this decrease was due to the
modification of Pioneer's retiree health care benefits. Benefits to current
retirees under the plan were not impacted, but current employees will no longer
receive benefits under this plan following retirement. This decrease was offset
by sales volume increases for chlorine and caustic soda in 1999 as compared to
1998.
Gross Profit. Gross profit margin decreased to 4% in 1999 from 23% in 1998,
primarily as a result of lower average ECU sales prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $2.3 million in 1999. This reduction was due
to a modification of Pioneer's retiree health care benefits discussed above, the
absence of incentive compensation accruals made in 1998 and various overhead
expense reductions, partially offset by increases in 1999 due to asset
impairments included in depreciation and amortization.
Interest Expense, Net. Interest expense, net increased $1.5 million to
$50.3 million in 1999 as a result of decreased interest income due to lower
average cash balances and interest expense incurred on revolving credit balances
in 1999.
Other Income. Other income in 1999 included a $12.0 million gain on the
sale of Pioneer's 15% partnership interest in Saguaro Power Company.
Net Loss. Net loss for the twelve months ended December 31, 1999 was $47.9
million, compared to a net loss of $10.3 million for the same period in 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging activities.
Pioneer is required to adopt the provisions of SFAS No. 133 in the first quarter
of 2001. Management does not believe that adoption of SFAS No. 133 will have a
material effect on Pioneer's financial position or results of operations.
MARKET RISK DISCLOSURES
The Company has certain long-term debt instruments that are subject to
market risk. At December 31, 1999, approximately $205.7 million of the Company's
debt had variable interest rates, including LIBOR and U.S. prime rate based
loans. An increase in the market interest rates would increase the Company's
interest expense and its cash requirements for interest payments. For example,
an average increase of 0.25% in the variable interest rate would increase the
Company's interest expense and payments by approximately $0.5 million. The
Company's remaining debt instruments, totaling approximately $380.2 million at
December 31, 1999, are at various fixed interest rates ranging from 8.0% to
9.25%, with the majority at 9.25%.
The Company, through PCI Canada, operates in Canada and is subject to
foreign currency exchange rate risk. Due to the significance of PCI Canada's
U.S. dollar-denominated long-term debt (and related accrued interest payable)
and certain other U.S. dollar-denominated assets and liabilities, the entity's
functional accounting currency is the U.S. dollar. Certain other items within
PCI Canada's working capital are denominated in Canadian dollars. An average
change of 1% in the currency exchange rate would change total assets by $0.5
million.
3
<PAGE> 6
ITEM 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding Pioneer's
principal production, distribution and storage facilities as of March 1, 2000.
All property is owned by Pioneer unless otherwise indicated.
<TABLE>
<CAPTION>
LOCATION MANUFACTURED PRODUCTS
- -------- ---------------------
<S> <C>
Becancour, Quebec....................... Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Tacoma, Washington...................... Chlorine and caustic soda
Hydrochloric acid
Calcium chloride
Hydrogen
St. Gabriel, Louisiana.................. Chlorine and caustic soda
Hydrogen
Henderson, Nevada....................... Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Dalhousie, New Brunswick................ Chlorine and caustic soda
Sodium chlorate
Hydrogen
Bleach
Cornwall, Ontario*...................... Bleach
Cereclor(R) chlorinated
paraffin
PSR 2000(R) pulping additive
IMPAQT(R) pulping additive
Tracy, California*...................... Bleach
Chlorine repackaging
Santa Fe Springs, California*........... Bleach
Chlorine repackaging
Tacoma, Washington...................... Bleach
Chlorine repackaging
Antioch, California..................... Aluminum sulfate
Spokane, Washington*.................... Polyaluminum chlorides
Aluminum sulfate
Various*................................ Distribution
</TABLE>
- ---------------
* Leased property
Corporate headquarters for Pioneer is located in leased office space in
Houston, Texas under a lease terminating in 2006. Pioneer also leases office
space in Montreal, Quebec under a lease terminating in 2003 and 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.
4
<PAGE> 7
The acquisition of the chlor-alkali facility in Tacoma was financed with
the proceeds of a nine and one-half year $100 million term facility provided to
the Company (the "PCA 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 the
Company (the "Senior Notes"). The Senior Notes and obligations outstanding under
the PCA Term Facility are secured by first mortgages on PAI's Tacoma, St.
Gabriel and Henderson facilities. The acquisition of the PCI Canada facilities
was financed with the proceeds of a nine and one-quarter year $83 million term
facility provided to the Company (the "PCI Canada 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 PCI Canada 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, Pioneer is involved in litigation relating to claims
arising out of its operations in the normal course of its business. Pioneer
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
Pioneer'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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the Company's outstanding Common Stock, which is the Company's only
class of equity securities, is owned by PCI.
Pursuant to the terms of certain debt instruments, there are restrictions
on the ability of Pioneer to transfer funds to PCI, resulting in limitations on
PCI's ability to declare dividends on its Common Stock. See Note 9 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, selected
financial data is contained in Item 1 -- Business -- "Results of Operations".
5
<PAGE> 8
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".
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
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, market risk
disclosures are contained in Item 1 -- Business -- "Results of Operations".
6
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Consolidated financial statements:
Independent Auditors' Report...................... 8
Report of Management.............................. 9
Consolidated Balance Sheets as of December 31,
1999 and 1998................................... 10
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997.... 11
Consolidated Statements of Stockholders Equity for
the years ended December 31, 1999, 1998 and
1997............................................ 12
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997.... 13
Notes to consolidated financial statements........ 14
(2) Supplemental Schedule:
Schedule II -- Valuation and Qualifying
Accounts........................................ 36
</TABLE>
All schedules, except the one 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.
7
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Pioneer Corporation of America
We have audited the accompanying consolidated balance sheets of Pioneer
Corporation of America (formerly Pioneer Americas, Inc.) and subsidiaries (the
"Company"), as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such 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 4, 2000
8
<PAGE> 11
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 which 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 Pioneer's financial statements
for the purpose of determining that the statements are presented fairly in
accordance with generally accepted accounting principles. The independent
auditor is appointed by the Board of Directors and meets 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 Pioneer's senior officers and independent auditor to review the adequacy
and reliability of Pioneer's accounting, financial reporting and internal
controls.
PHILIP J. ABLOVE
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
JOHN R. BEAVER
Vice President, Controller
(Principal Accounting Officer)
February 4, 2000
9
<PAGE> 12
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,903 $ 50,593
Accounts receivable, less allowance for doubtful accounts:
1999, $1,592; 1998, $2,017............................. 50,063 46,145
Inventories............................................... 23,130 26,360
Prepaid expenses.......................................... 5,730 2,759
--------- --------
Total current assets.............................. 81,826 125,857
Property, plant, and equipment, at cost:
Land................................................... 10,622 10,727
Buildings and improvements............................. 61,014 60,520
Machinery and equipment................................ 333,094 306,989
Construction in progress............................... 19,435 28,348
--------- --------
424,165 406,584
Less accumulated depreciation.......................... (103,096) (72,525)
--------- --------
321,069 334,059
Due from affiliates......................................... 15,231 16,512
Other assets, net of accumulated amortization: 1999, $8,956;
1998, $6,152.............................................. 66,965 48,327
Excess cost over the fair value of net assets acquired, net
of accumulated amortization: 1999, $32,095; 1998,
$22,950................................................... 192,464 201,609
--------- --------
Total assets...................................... $ 677,555 $726,364
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 28,796 $ 30,825
Accrued liabilities....................................... 30,716 31,384
Current portion of long-term debt......................... 2,609 2,684
--------- --------
Total current liabilities......................... 62,121 64,893
Long-term debt, less current maturities..................... 583,260 564,689
Accrued pension and other employee benefits................. 15,091 25,836
Other long-term liabilities................................. 16,140 22,063
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 65,483 65,483
Retained deficit.......................................... (64,541) (16,601)
--------- --------
Total stockholder's equity........................ 943 48,883
--------- --------
Total liabilities and stockholder's equity........ $ 677,555 $726,364
========= ========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 13
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $284,312 $361,280 $241,716
Cost of sales............................................... 274,181 278,478 178,793
-------- -------- --------
Gross profit................................................ 10,131 82,802 62,923
Selling, general and administrative expenses................ 47,145 44,845 27,976
Unusual charges............................................. -- 1,385 2,028
-------- -------- --------
Operating income (loss)..................................... (37,014) 36,572 32,919
Equity in net loss of unconsolidated subsidiaries........... -- (2,208) (6,657)
Interest expense, net....................................... (50,313) (48,792) (26,993)
Other income, net........................................... 14,608 759 2,904
-------- -------- --------
Income (loss) before taxes and extraordinary item........... (72,719) (13,669) 2,173
Income tax provision (benefit).............................. (24,779) (3,357) 3,002
-------- -------- --------
Loss before extraordinary item.............................. (47,940) (10,312) (829)
Extraordinary item, early extinguishment of debt (net of
income tax benefit of $12,439)............................ -- -- (18,658)
-------- -------- --------
Net loss.......................................... $(47,940) $(10,312) $(19,487)
======== ======== ========
Loss per common share:
Loss before extraordinary item............................ $(47,940) $(10,312) $ (829)
Extraordinary item, net of income tax benefit............. -- -- (18,658)
-------- -------- --------
Net loss.......................................... $(47,940) $(10,312) $(19,487)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 14
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S 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>
Balance at January 1, 1997............... 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
Dividend paid to parent................ -- -- (686) -- (686)
Net loss............................... -- -- -- (10,312) (10,312)
-- --- ------- -------- --------
Balance at December 31, 1998............. 1 $ 1 $65,483 $(16,601) $ 48,883
Net loss............................... -- -- -- (47,940) (47,940)
-- --- ------- -------- --------
Balance at December 31, 1999............. 1 $ 1 $65,483 $(64,541) $ 943
== === ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 15
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(47,940) $(10,312) $ (19,487)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Reduction in post-retirement medical expense.............. (12,530) -- --
Extraordinary item, net of tax............................ -- -- 18,658
Depreciation and amortization............................. 51,435 47,675 24,975
Net change in deferred taxes.............................. (24,763) (3,357) 9,746
Foreign exchange gain (loss).............................. (1,025) 78 783
Unusual charges........................................... -- 1,385 2,028
Loss (gain) on disposal of assets......................... (10,199) 1,845 --
Equity in net loss of unconsolidated subsidiaries......... -- 2,208 6,657
Net effect of changes in operating assets and liabilities
(net of acquisitions).................................. (6,576) (439) (9,638)
-------- -------- ---------
Net cash flows from operating activities.................... (51,598) 39,083 33,722
-------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions of businesses................................ -- -- (332,571)
Investments in and advances to unconsolidated
subsidiaries........................................... -- (4,290) (6,622)
Capital expenditures, net................................. (28,318) (33,596) (20,385)
Proceeds from disposal of assets.......................... 13,159 335 --
-------- -------- ---------
Net cash flows from investing activities.................... (15,159) (37,551) (359,578)
-------- -------- ---------
FINANCING ACTIVITIES:
Net proceeds under revolving credit arrangements.......... 21,163 -- --
Proceeds from long-term debt.............................. -- -- 558,000
Repayments of long-term debt.............................. (2,666) (2,591) (163,042)
Debt issuance and related costs........................... (968) -- (32,069)
Dividends paid to parent.................................. -- (686) (455)
-------- -------- ---------
Net cash flows from financing activities.................... 17,529 (3,277) 362,434
-------- -------- ---------
Effect of exchange rate changes on cash..................... 1,538 (714) --
-------- -------- ---------
Net increase (decrease) in cash............................. (47,690) (2,459) 36,578
Cash and cash equivalents at beginning of period............ 50,593 50,995 14,417
Cash acquired in acquisitions............................... -- 2,057 --
-------- -------- ---------
Cash and cash equivalents at end of period.................. $ 2,903 $ 50,593 $ 50,995
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 16
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The consolidated financial statements include the accounts of Pioneer
Corporation of America (the "Company") and its subsidiaries (collectively,
"Pioneer"), Pioneer Americas, Inc. ("PAI"), PCI Chemicals Canada Inc. ("PCI
Canada"), and Kemwater North America Company ("KNA"). The Company is a
wholly-owned subsidiary of Pioneer Companies, Inc. ("PCI").
All significant intercompany balances and transactions have been eliminated
in consolidation. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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. Dollar amounts, other than per share amounts, in
tabulations in the notes to the consolidated financial statements are stated in
thousands of dollars unless otherwise indicated.
Following the guidance of Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure About Segments of an Enterprise and Related
Information," Pioneer operates in one industry segment, that being the
production, marketing and selling of chlor-alkali and related products. Pioneer
operates in two geographic areas, the United States and Canada.
Cash and Cash Equivalents
All highly liquid investments with a 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 recorded 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. Pioneer 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
Pioneer 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.
Depreciation 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, 1999,
1998, and 1997 was approximately $5.8 million, $3.2 million, and $1.7 million,
respectively.
14
<PAGE> 17
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excess Cost Over The Fair Value of Net Assets Acquired
Excess cost over the fair value of net assets acquired ("goodwill") of
approximately $224.6 million is amortized on a straight-line basis over 25
years. The carrying value of goodwill 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, Pioneer's carrying value of goodwill 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 $9.1 million, $8.9 million and $5.8
million for the years ended December 31, 1999, 1998 and 1997, respectively.
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 costs, including maintenance
and monitoring costs, are charged to operations as incurred.
Research and Development Expenditures
Research and development expenditures are expensed as incurred. Such costs
totaled $1.5 million in 1999, $1.4 million in 1998 and zero in 1997.
Foreign Currency Translation
Following SFAS No. 52, "Foreign Currency Translation," the functional
accounting currency for PCI Canada is the U.S. dollar; accordingly, gains and
losses resulting from balance sheet translations are included in the
consolidated statement of operations.
Reclassifications
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.
2. ACQUISITIONS
In June 1997, Pioneer acquired a chlor-alkali production facility and
related business (the "Tacoma Facility") located in Tacoma, Washington (the
"Tacoma Acquisition"). Consideration given for the Tacoma Acquisition was $97.0
million, 55,000 shares of the convertible redeemable preferred stock, par value
$.01 per share of PCI and the assumption of certain obligations related to the
acquired business. In November 1997, the Company 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 Acquisition and the PCI
Canada Acquisition resulted in approximately $25.7 million and $79.1 million,
respectively, of goodwill which is being amortized on a straight-line basis over
25 years.
15
<PAGE> 18
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents the unaudited pro forma effect of the above
acquisitions and related financing transactions on the historical results of
operations for the year ended December 31, 1997.
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Revenues.................................................. $413,826
Operating income.......................................... 73,808
Net loss.................................................. (6,915)
Loss per share -- basic and diluted....................... (6,915)
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
The net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Accounts receivable................................... $(3,005) $ 21,950 $(21,095)
Due from affiliates................................... 1,280 (6,462) (1,279)
Inventories........................................... 3,113 (2,712) (2,206)
Prepaid expenses...................................... (2,087) 102 (2,125)
Other assets.......................................... (576) (4,393) 6,598
Accounts payable...................................... (2,885) (14,247) 5,449
Accrued liabilities................................... (1,522) 1,532 8,052
Other long-term liabilities........................... (2,443) 302 (3,684)
Accrued pension and other employee benefits........... 1,549 3,489 652
------- -------- --------
Net change in operating accounts...................... $(6,576) $ (439) $ (9,638)
======= ======== ========
</TABLE>
Following is supplemental cash flow information:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Cash paid during the period for:
Interest............................................. $50,531 $49,358 $ 28,272
======= ======= ========
Income taxes......................................... $ 126 $ 159 $ 543
======= ======= ========
Investing activities of acquisitions during the period:
Cash paid for acquisition............................ $ -- $ -- $332,571
Liabilities assumed.................................. -- -- 21,519
Contribution by parent............................... -- -- 5,500
------- ------- --------
Fair value of assets acquired........................ $ -- $ -- $359,590
======= ======= ========
</TABLE>
Included in the above table are the PCI Canada Acquisition and the Tacoma
Acquisition in 1997.
Non-cash investing and financing activities:
In December 1997, Pioneer purchased a hydrochloric acid manufacturing
facility that it previously had been leasing in Henderson, Nevada for $5.9
million, which was financed with a mortgage note.
Consideration given during the Tacoma Acquisition in 1997 included 55,000
shares of PCI redeemable preferred stock. PCI then contributed this interest in
the Tacoma Facility to the Company.
16
<PAGE> 19
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials, supplies and parts........................... $16,822 $17,014
Finished goods and work-in-process.......................... 5,350 9,045
Inventories under exchange agreements....................... 958 301
------- -------
$23,130 $26,360
======= =======
</TABLE>
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
KNA and KWT
Prior to September 1998, Pioneer indirectly owned a 50% interest in KNA
which owned 100% of KWT Inc. ("KWT"). Pioneer's investment in and advances to
KNA aggregated $28.6 million at December 31, 1997. During 1997, KWT established
a $3.3 million reserve related to the reduction in carrying value of certain
assets to their net realizable values. In September 1998, KNA exchanged its
ownership in KWT for the remaining 50% ownership in KNA held by PCI. No gain or
loss was recognized on this exchange. Following this transaction, KNA's results
of operations and financial position are included in the Company's consolidated
financial statements. Below is a summary of selected items from the consolidated
KNA statements of operations for the nine months ended September 30, 1998 and
for the year ended December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Revenues.................................................... $26,403 $ 38,959
Gross loss.................................................. (350) (78)
Net loss.................................................... (4,416) (13,314)
</TABLE>
Investments in Basic Management, Inc. and The Landwell Company, L.P.
Pioneer, through its subsidiary PAI, owns approximately 32% of the common
stock of Basic Management, Inc. ("BMI"), which owns and maintains the water and
power distribution network within a Henderson, Nevada industrial complex and
which is a large landowner in Clark County, Nevada. The remainder of the common
stock of BMI is owned by other companies located in the same industrial complex.
PAI has an approximate 21% limited partnership interest in The Landwell
Company, L.P. ("Landwell"). The purpose of Landwell'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 BMI, acting as general
partner with a 50% interest in Landwell, contributed all rights, title and
interest in and to certain land to Landwell. PAI assigned certain water rights
to Landwell.
Pioneer's interests in BMI and in Landwell (referred to as the "Basic
Ownership") constitute assets that are held for the economic benefit of the
previous owners of PAI through April 20, 2015. Dividends and distributions
received by Pioneer on account of the Basic Ownership (including amounts payable
as a result of sales of land or other assets owned by BMI or Landwell) are
deposited into a separate cash account and may be used to satisfy certain
obligations of the sellers under environmental and other obligations in favor of
Pioneer. After payment or provision for payment of such obligations, amounts
received by Pioneer subsequent to April 20, 1995 on account of the Basic
Ownership will be remitted to the sellers at the 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
17
<PAGE> 20
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
constituting the Basic Ownership, notwithstanding the ownership of such
interests by Pioneer. Pioneer's investment in the Basic Ownership, following the
equity method, is $18.0 million and $17.7 million at December 31, 1999 and 1998,
respectively and the balance in the related separate cash account is $6.7
million and $5.7 million at December 31, 1999 and 1998, respectively. Within
Pioneer's balance sheets, these assets are offset by liabilities of the same
amount because the right of setoff exists, as Pioneer and the sellers owe
determinable amounts, Pioneer 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.
6. OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Debt financing assets and organizational cost assets, net... $17,110 $18,683
Deferred tax asset.......................................... 33,630 18,525
Patents, trademarks and other intangibles, net.............. 3,115 3,959
Indemnification of environmental reserve.................... 7,777 3,160
Other....................................................... 5,333 4,000
------- -------
Other assets, net................................. $66,965 $48,327
======= =======
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Payroll, benefits and pension............................... $ 6,213 $ 7,729
Interest and bank fees...................................... 5,419 5,363
Returnable deposits......................................... 1,914 2,531
Power....................................................... 1,836 1,928
Freight..................................................... 2,598 1,345
Other accrued liabilities................................... 12,736 12,488
------- -------
Accrued liabilities............................... $30,716 $31,384
======= =======
</TABLE>
8. EMPLOYEE BENEFITS
Pension Plans
Pioneer sponsors various non-contributory, defined benefit plans covering
substantially all union and non-union employees of PAI and PCI Canada. Pension
plan benefits are based primarily on participants' compensation and years of
credited service. Annual pension costs and liabilities for Pioneer under its
defined benefit plans are determined by actuaries using various methods and
assumptions. Pioneer has agreed to contribute such amounts as are necessary to
provide assets sufficient to meet the benefits to be paid to its employees.
Pioneer'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. Plan assets at December 31, 1999 and
1998 consist primarily of fixed income investments and equity investments.
18
<PAGE> 21
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information concerning the pension obligation, plan assets, amounts
recognized in Pioneer's financial statements and underlying actuarial
assumptions is stated below.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year............. $ 55,011 $ 44,299
Service cost................................................ 3,042 2,278
Interest cost............................................... 3,850 3,232
Actuarial gains (losses).................................... (3,672) 5,557
Benefits paid............................................... (1,379) (1,079)
Plan amendments............................................. 15 724
-------- --------
Projected benefit obligation, end of year................... $ 56,867 $ 55,011
======== ========
CHANGE IN PLAN ASSETS:
Market value of assets, beginning of year................... $ 42,643 $ 38,617
Actual return on plan assets................................ 2,489 3,268
Employer contributions...................................... 2,600 1,863
Benefits paid............................................... (1,407) (1,105)
-------- --------
Market value of assets, end of year......................... $ 46,325 $ 42,643
======== ========
DEVELOPMENT OF NET AMOUNT RECOGNIZED:
Funded status............................................... $(10,672) $(12,368)
Actuarial loss.............................................. 1,386 4,148
Unrecognized prior service cost............................. 666 778
-------- --------
Net amount recognized....................................... $ (8,620) $ (7,442)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS:
Accrued pension cost........................................ $ (8,620) $ (7,442)
-------- --------
Net amount recognized....................................... $ (8,620) $ (7,442)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.......................................... $ 3,042 $ 2,278 $ 994
Interest cost......................................... 3,850 3,232 1,596
Expected return on plan assets........................ (3,311) (3,020) (2,334)
Amortization of prior service cost.................... 127 49 49
Amortization of net loss.............................. -- -- 895
------- ------- -------
Net period benefit cost............................... $ 3,708 $ 2,539 $ 1,200
======= ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate......................................... 7.4% 6.8% 7.3%
Expected return on plan assets........................ 8.0% 8.0% 8.0%
Rate of compensation increase......................... 4.0% 4.0% 4.0%
</TABLE>
Defined Contribution Plans
Pioneer offers defined contribution plans under which employees generally
contribute from 1% to 15% of their compensation. Pioneer 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 of Pioneer with
respect to such plans was $0.7 million, $0.7 million and $0.5 million in 1999,
1998 and 1997, respectively.
19
<PAGE> 22
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Post-Retirement Benefits Other Than Pensions
Effective January 1, 1999, Pioneer modified its retiree health care
benefits plan. Employees retiring on or after January 1, 1999 will not receive
company-paid retiree medical benefits. Eligible employees who retired prior to
January 1, 1999 will continue to receive certain company-paid health care
benefits. Pioneer provides certain life insurance benefits for qualifying
retired employees who reached normal retirement age while working for Pioneer.
Information concerning the plan obligation, the funded status, amounts
recognized in Pioneer's financial statements and underlying actuarial
assumptions is stated below.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Accumulated post-retirement benefit obligation, beginning of
year...................................................... $ 28,396 $ 20,532
Service cost................................................ 99 535
Interest cost............................................... 499 776
Actuarial gains (losses).................................... (1,644) 6,828
Benefits paid............................................... (325) (275)
Plan curtailment............................................ (20,874) --
-------- --------
Accumulated post-retirement benefit obligation, end of
year...................................................... $ 6,151 $ 28,396
======== ========
Funded status............................................... $ (6,151) $(28,396)
Unrecognized net loss....................................... 146 8,718
-------- --------
Accrued benefit cost........................................ $ (6,005) $(19,678)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ------ ------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost............................................. $ 99 $ 535 $ 664
Interest cost............................................ 499 776 1,095
Amortization of net loss................................. -- 283 114
---- ------ ------
Net period benefit cost.................................. $598 $1,594 $1,873
==== ====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate............................................ 8.0% 6.8% 7.3%
</TABLE>
The weighted-average annual assumed health care trend rate is assumed to be
7.6% for 1999. The rate is assumed to decrease gradually to 4.5% in 2013 and
remain level thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-percentage-point
change in assumed health care trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components... $ 104 $ (84)
Effect on post-retirement benefit obligation.............. 1,351 (1,097)
</TABLE>
20
<PAGE> 23
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revolving credit facility; variable interest rates based on
U.S. prime rate plus 1 1/2% and Canadian prime rate plus
1 1/4%.................................................... $ 21,163 $ --
9 1/4% Senior Secured Notes, due June 15, 2007.............. 200,000 200,000
9 1/4% Senior Secured Notes, due October 15, 2007........... 175,000 175,000
June 1997 term facility, due in quarterly installments of
$250 with the balance due 2006; variable interest rate
based on LIBOR or base rate............................... 97,500 98,500
November 1997 term facility, due in quarterly installments
of $250 with the balance due 2006; variable interest rate
based on LIBOR or base rate............................... 80,750 81,750
Other notes, maturing in various years through 2014, with
various installments, at various interest rates........... 11,456 12,123
-------- --------
Total............................................. 585,869 567,373
Current maturities of long-term debt........................ (2,609) (2,684)
-------- --------
Long-term debt, less current maturities........... $583,260 $564,689
======== ========
</TABLE>
Long-term debt matures as follows: $2.6 million in 2000; $7.2 million in
2001; $23.9 million in 2002; $2.8 million in 2003; $2.8 million in 2004; and
$546.7 million thereafter.
In September 1999, the Company entered into a $50.0 million three-year
revolving credit facility with Congress Financial Corporation (Southwest) (the
"Revolving Facility") that replaced an existing $50.0 million revolving facility
(the "Bank Credit Facility"). The Revolving Facility provides for revolving
loans in an aggregate amount up to $50.0 million, subject to borrowing base
limitations related to the level of accounts receivable and inventory, which,
together with certain other collateral, secure borrowings under the facility.
The total borrowing base at December 31, 1999 of $45.9 million was subject to a
reserve of $5.0 million until Pioneer's ratio of interest to fixed charges, as
defined in the Revolving Facility, exceeds 1.15:1 for a period of two
consecutive quarters. As of December 31, 1999, there were letters of credit
outstanding of $5.2 million and loans outstanding of $21.2 million.
As part of the Tacoma Acquisition in June 1997, Pioneer 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 a $35.0
million revolving facility (which was subsequently amended in connection with
the PCI Canada Acquisition). Concurrent with this, the Company purchased all of
its then-existing 13 3/8% First Mortgage Notes due 2005.
As part of the PCI Canada Acquisition in November 1997, Pioneer issued and
sold $175.0 million of 9 1/4% Senior Secured Notes due October 15, 2007, entered
into a nine and one-quarter year $83.0 million term facility, and entered into
an amendment to the revolving facility discussed above.
The Senior Secured Notes due June 15, 2007, and the Senior Secured Notes
due October 15, 2007, are senior obligations of Pioneer, ranking pari passu with
all existing and future senior indebtedness of Pioneer. These notes and both
term facilities are fully and unconditionally guaranteed on a joint and several
basis by all of the Company's direct and indirect wholly-owned subsidiaries and
are secured by first mortgage liens on certain manufacturing facilities.
21
<PAGE> 24
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The senior notes are redeemable at a premium at Pioneer's option starting
in 2002. Before 2001, Pioneer 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 Pioneer (to the extent such funds are contributed to the issuer). Upon
change of control, as defined in the agreement, Pioneer is required to offer to
purchase all the senior notes for 101% of the principal due.
Pioneer may prepay the June 1997 term facility and the November 1997 term
facility. Any prepayment is subject to a premium of 1% to 3% during the first
three years of the facility.
Pioneer's long-term debt agreements contain various restrictions on the
Company, which, among other things, limit the ability of Pioneer to incur
additional indebtedness and to acquire or dispose of assets or operations.
The Company is restricted in paying dividends to PCI and making certain
other defined cash investments to the sum of $5.0 million plus 50% of the
cumulative consolidated net income of the Company since June 1997. As of
December 31, 1999, no additional distributions were allowable under the debt
covenants. The Company's ability to incur additional new indebtedness is
restricted by a covenant requiring an interest coverage ratio of at least 2.0 to
1.0 for the prior four fiscal quarters. As of December 31, 1999, the Company did
not meet this requirement and accordingly, additional new indebtedness, other
than borrowing available under the Revolving Facility, is not allowed.
The Company is a holding company with no operating assets or operations.
PCI Canada is the issuer of the $175.0 million 9 1/4% Senior Secured Notes, due
October 15, 2007. These notes are fully and unconditionally guaranteed on a
joint and several basis by the Company and the Company's other direct and
indirect wholly-owned subsidiaries. Together, PCI Canada and the subsidiary note
guarantors comprise all of the direct and indirect subsidiaries of Pioneer.
Summarized financial information of PCI Canada and the guarantors of these notes
are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------ ------------------------------------
PCI NOTE CONSOLIDATED PCI NOTE CONSOLIDATED
CANADA GUARANTORS COMPANY CANADA GUARANTORS COMPANY
-------- ---------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............. $ 22,073 $ 59,753 $ 81,826 $ 29,962 $ 95,895 $125,857
Non-current assets......... 186,584 409,145 595,729 191,004 409,503 600,507
Current liabilities........ 23,961 38,160 62,121 22,103 42,790 64,893
Non-current liabilities.... 184,565 429,926 614,491 185,031 427,557 612,588
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $107,554 $176,758 $284,312 $129,740 $231,540 $361,280
Gross profit (loss)........ 10,550 (419) 10,131 37,693 45,109 82,802
Net income (loss).......... (13,701) (34,239) (47,940) 5,198 (15,510) (10,312)
</TABLE>
Separate financial statements of PCI Canada and the guarantors of the PCI
Canada notes are not included as management believes that separate financial
statements of these entities are not material to investors.
10. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Pioneer manufactures and sells its products to companies in diverse
industries. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
22
<PAGE> 25
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pioneer's sales are primarily to customers throughout the United States and in
eastern Canada. Credit losses relating to these customers have been immaterial.
Pioneer maintains cash deposits with major banks, which generally may
exceed federally insured limits. Pioneer periodically assesses the financial
condition of the institutions and believes that any risk of loss is minimal.
Investments
It is the policy of Pioneer to invest its excess cash in securities whose
value is not subject to market fluctuations such as master notes of issuers
rated at the time of such investment at least "A-2" or the equivalent thereof by
Standard & Poors or at least "P-2" or the equivalent thereof by Moody's or any
bank or financial institution party to the Revolving Facility.
Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Pioneer 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 current interest rates available to
Pioneer 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. Pioneer held no
derivative financial instruments as of December 31, 1999 and 1998.
At December 31, 1999, the fair market value of all of Pioneer'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 $200.0 million and $175.0 million, respectively and a fair
value, based upon quoted market prices, of $158.0 million and $134.8 million,
respectively.
11. GEOGRAPHIC INFORMATION
Financial information relating to Pioneer by geographical area is as
follows. Revenues are attributed to countries based on destination.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
United States........................................ $198,694 $268,186 $219,558
Canada............................................... 81,004 87,614 16,398
Other................................................ 4,614 5,480 5,760
-------- -------- --------
Consolidated......................................... $284,312 $361,280 $241,716
======== ======== ========
LONG-LIVED ASSETS
United States........................................ $337,573 $406,328 $401,853
Canada............................................... 186,514 175,655 187,009
</TABLE>
During 1997, sales to an individual customer in the amount of $27.7 million
exceeded 10% of consolidated revenues. No individual customer constituted 10% or
more of the total revenues in 1998 or 1999.
23
<PAGE> 26
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. UNUSUAL CHARGES AND EXTRAORDINARY LOSSES
During 1998, the Company disposed if its pool chemicals business. This
disposal included the sale of certain packaging and transportation equipment for
bottled bleach and hydrochloric acid. Pioneer recognized a $1.8 million loss
from the disposal of assets plus an unusual charge of approximately $1.0 million
related to closing Pioneer's facility at City of Industry, California. Unusual
charges in 1998 also include approximately $0.4 million related to the
consolidation and downsizing of certain administrative functions.
Unusual charges in 1997 include a $1.0 million charge related to the
closure of certain of PAI's plants and the consolidation of their operations to
other locations.
Substantially all accrued unusual charges were expended by December 31,
1998.
During the second quarter of 1997, Pioneer recognized an $18.7 million
extraordinary loss as a result of the early extinguishment of its then-existing
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).
13. INTEREST EXPENSE, NET
Interest expense, net consisted of the following for the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest expense........................................ $51,230 $50,136 $28,195
Interest income......................................... (917) (1,344) (1,202)
------- ------- -------
Interest expense, net................................... $50,313 $48,792 $26,993
======= ======= =======
</TABLE>
Capitalized interest was $0.3 million in 1999. No interest was capitalized
in 1998 or 1997.
14. COMMITMENTS AND CONTINGENCIES
Letters of Credit
At December 31, 1999, Pioneer had letters of credit and performance bonds
outstanding of approximately $5.2 million and $3.4 million, respectively. These
letters of credit and performance bonds were issued for the benefit of:
customers under sales agreements securing delivery of products sold and state
environmental agencies as required for manufacturers in the state. The letters
of credit expire at various dates in 2000. No amounts were drawn on the letters
of credit at December 31, 1999.
Purchase Commitments
Pioneer has various purchase commitments related to its operations. Pioneer
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. Pioneer also has various commitments related to the purchase of
electricity, which
24
<PAGE> 27
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continue through the year 2008 at rates similar to prevailing market rates.
Required purchase quantities of commitments in excess of one year at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
SALT-TONS ELECTRICITY-MWH
--------- ---------------
<S> <C> <C>
2000........................................................ 894 899,000
2001........................................................ 225 395,000
2002........................................................ 225 122,000
2003........................................................ 225 122,000
2004........................................................ -- 122,000
Thereafter.................................................. -- 1,165,000
----- ---------
Total commitment quantities....................... 1,569 2,825,000
===== =========
</TABLE>
During the years ended December 31, 1999, 1998, and 1997 all required
purchase quantities under the above commitments were consumed during normal
operations.
Operating Leases
Pioneer leases certain manufacturing and distribution facilities, computer
equipment, and administrative offices under non-cancelable leases. Minimum
future rental payments on such leases with terms in excess of one year in effect
at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000....................................................... $14,984
2001....................................................... 11,925
2002....................................................... 7,825
2003....................................................... 4,830
2004....................................................... 2,681
Thereafter................................................. 1,836
-------
Total minimum obligations........................ $44,081
=======
</TABLE>
Lease expense charged to operations for the years ended December 31, 1999,
1998, and 1997 was approximately $17.3 million, $18.6 million and $14.0 million,
respectively.
Litigation
Pioneer is party to various legal proceedings and potential claims arising
in the ordinary course of its businesses. In the opinion of management, Pioneer
has adequate legal defenses and/or insurance coverage with respect to these
matters and management does not believe that they will materially affect
Pioneer's operations or financial position.
15. INCOME TAXES
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 deferred tax asset resulting from such differences. The
Company considers all foreign earnings as being permanently invested in that
country.
25
<PAGE> 28
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of loss before income taxes and extraordinary item
and income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Income (loss) before taxes and extraordinary item:
U.S. ............................................... $(52,045) $(23,242) $(1,302)
Foreign............................................. (20,674) 9,573 3,475
-------- -------- -------
Total....................................... $(72,719) $(13,669) $ 2,173
======== ======== =======
Current income tax provision:
U.S. ............................................... $ -- $ -- $ --
Foreign............................................. -- -- 617
State............................................... -- -- 1,066
-------- -------- -------
Total current............................... -- -- 1,683
-------- -------- -------
Deferred income tax provision (benefit):
U.S. ............................................... $(16,582) $ (7,314) $ 1,437
Foreign............................................. (6,973) 4,374 684
State............................................... (1,224) (417) (802)
-------- -------- -------
Total deferred.............................. (24,779) (3,357) 1,319
-------- -------- -------
Total income tax provision (benefit)........ $(24,779) $ (3,357) $ 3,002
======== ======== =======
</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>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax versus book basis -- property, plant and equipment...... $(24,655) $(29,590)
Other -- net.............................................. -- (236)
-------- --------
Total deferred tax liabilities.................... (24,655) (29,826)
-------- --------
Deferred tax assets:
Post-employment benefits.................................. 3,972 7,200
Environmental reserve..................................... 4,656 3,126
Equity in partnership..................................... 4,082 4,082
Alternative minimum tax credit carryover.................. 1,006 1,806
Allowance for doubtful accounts........................... 889 1,035
Other accrued liabilities................................. 281 432
Net operating loss ("NOL") carryforward of PCI............ 48,823 26,419
-------- --------
Total deferred tax assets......................... 63,709 44,100
Valuation allowance for deferred tax assets................. -- --
-------- --------
Net deferred tax assets..................................... 63,709 44,100
-------- --------
Net deferred taxes.......................................... $ 39,054 $ 14,274
======== ========
</TABLE>
26
<PAGE> 29
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense for the periods presented is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates..... $(24,452) (35)% $(4,784) (35)% $ 761 35%
State and foreign income taxes,
net of federal tax benefit.... (2,109) (2) (1,004) (7) 289 13
Amortization of non-deductible
goodwill...................... 1,782 3 2,431 18 2,033 93
Other -- net.................... -- -- -- -- (81) (3)
-------- --- ------- --- ------ ---
$(24,779) (34)% $(3,357) (24)% $3,002 138%
======== === ======= === ====== ===
</TABLE>
At December 31, 1999, PCI had available to it on a consolidated tax return
basis approximately $149 million of NOL which expires in 2009 through 2019 and
$18 million of foreign NOL which expires in 2013 and 2014. 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.
16. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL
Pioneer'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 Pioneer's facilities, investigations or remediation is
underway and at some of these locations regulatory agencies are considering
whether additional actions are necessary to protect or remediate surface or
groundwater resources. Pioneer could be required to incur additional costs to
construct and operate remediation systems in the future. In addition, at several
of its facilities Pioneer is in the process of replacing or closing ponds for
the collection of wastewater. Pioneer plans to spend approximately $3.0 million
during the next three years on improvements to discontinue the use of three
chlor-alkali waste water disposal ponds at the Henderson plant, replacing them
with systems to recycle wastewater. Pioneer believes that it is in substantial
compliance with existing governmental regulations.
Pioneer'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 Pioneer. A groundwater
treatment system was installed at the facility in 1983 and, pursuant to a
Consent Agreement with the Nevada Division of Environmental Protection, studies
are 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 Pioneer's
property.
In connection with the October 1988 acquisition of the chlor-alkali
business by the Company's predecessor (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 Pioneer'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
27
<PAGE> 30
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 acquisition of the
Predecessor Company by the Company (the "Pioneer Acquisition"), the ZENECA
Indemnity terminated on April 20, 1999. The ZENECA Indemnity continues to cover
those claims as to which proper notice was given to the ZENECA Companies and
certain other conditions had been satisfied. Management believes that proper
notice was provided to the ZENECA Companies with respect to outstanding claims
under the ZENECA Indemnity, but the amount of such claims has not yet been
determined given the ongoing nature of the environmental work at Henderson.
Pioneer believes that the ZENECA Companies will continue to honor their
obligations under the ZENECA Indemnity for claims properly presented by Pioneer.
It is possible, however, that disputes could arise between the parties and that
Pioneer 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 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 Pioneer 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 Company plant
sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to assets held by Pioneer for the benefit of
the sellers (the "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 Pioneer (see Note 5); 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.
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 and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. 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 $2.8 million, $3.4 million and $2.1 million
for the year ended December 31, 1999, 1998, and 1997, respectively. Capital
expenditures for environmental-related matters at existing facilities
approximated $1.2 million, $2.5 million and $4.1 million for the year ended
December 31, 1999, 1998, and 1997, respectively. Future environmental-related
capital expenditures will depend upon regulatory requirements, as well as timing
related to obtaining necessary permits and approvals.
Estimates of future environmental restoration and remediation costs are
inherently imprecise due to currently unknown factors such as the magnitude of
possible contamination, the timing and extent of such restoration and
remediation, the extent to which such costs are recoverable from third parties,
and the extent to which environmental laws and regulations may change in the
future. The Predecessor Company established a reserve at the time of its
acquisition of the 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 Pioneer for chlor-alkali-related remediation of the
28
<PAGE> 31
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $5.2 million, is recorded in Pioneer's
consolidated balance sheets at December 31, 1999. However, complete analysis and
study has not been completed, and therefore, additional charges may be recorded
in the event 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 Pioneer's
consolidated balance sheets at December 31, 1999 and 1998. Other assets include
an account receivable of the same amount from the ZENECA Companies. Pioneer
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. 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 Pioneer is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by Pioneer to be required for such matters. Further,
there can be no assurance that additional environmental matters will not arise
in the future.
17. RELATED PARTY TRANSACTIONS
On December 28,1999, Pioneer sold its 15% partnership interest in Saguaro
Power Company ("Saguaro"), which owns a cogeneration plant located in Henderson,
Nevada. Pioneer's interest in Saguaro was accounted for using the cost method of
accounting. Pioneer sells certain products and services to and purchases steam
from Saguaro at market prices. Transactions with Saguaro were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Sales to Saguaro........................................... $ 874 $ 778 $ 856
Purchases from Saguaro..................................... 1,585 1,284 1,352
Partnership cash distribution from Saguaro (included in
other income)............................................ 1,020 975 1,033
</TABLE>
Accounts receivable from and accounts payable to Saguaro are not
significant to Pioneer's consolidated balance sheet.
Pioneer is a party to an agreement with BMI for the delivery of Pioneer'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. In addition, BMI owns the power facilities which
transmit electricity to the Henderson facility. For the year ended December 31,
1999, 1998 and 1997, for its services BMI charged operating expenses to Pioneer
of approximately $1.6 million, $1.3 million and $1.1 million, respectively.
Interlaken Capital, Inc., an entity controlled by William R. Berkley,
Chairman of the Board of Pioneer and PCI, was paid a fee of approximately $1.3
million, plus reimbursement of reasonable out-of-pocket expenses, for services
rendered in connection with the acquisition of the Tacoma Facility in 1997. The
firm was paid a fee of approximately $2.4 million, plus reimbursement of
reasonable out-of-pocket expenses, for services rendered in connection with the
PCI Canada Acquisition in 1997.
During 1999, Pioneer entered into agreements with an affiliate of Strategic
Distribution, Inc. ("Strategic") pursuant to which Strategic's affiliate
provides procurement, handling and dates management of maintenance, repair and
operating supplies at Pioneer's facilities in Henderson, Nevada and St. Gabriel,
29
<PAGE> 32
PIONEER CORPORATION OF AMERICA
(FORMERLY PIONEER AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Louisiana. William R. Berkley, Chairman of the Board of Pioneer and PCI, owns
approximately twenty-five percent of Strategic's common stock, and serves as a
director of the company. Andrew R. Bursky, a director of Pioneer and PCI, is a
director and chairman of the board of Strategic, and Jack Nusbaum, a director of
Pioneer and PCI, is also a director of Strategic. During 1999, the Strategic
affiliate was paid a total of $2.5 million for services rendered to Pioneer
under the agreement
18. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
Pioneer is required to adopt the provisions of SFAS No. 133 in the first quarter
of 2001. Management does not believe the adoption of SFAS No. 133 will have a
material effect on Pioneer's financial position or results of operations.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenues.................................. $68,039 $ 65,997 $ 71,571 $ 78,705
Operating income (loss)................... 4,882 (13,987) (11,979) (15,930)
Loss before taxes and extraordinary
item................................... (8,042) (26,212) (22,204) (16,261)
Net loss.................................. (5,711) (17,696) (13,939) (10,594)
Loss per common share..................... (5,711) (17,696) (13,939) (10,594)
FOR YEAR ENDED DECEMBER 31, 1998(1)
Revenues.................................. $94,619 $ 96,028 $ 93,083 $ 77,550
Operating income (loss)................... 17,491 12,830 8,464 (2,213)
Income (loss) before taxes and
extraordinary item..................... 6,996 (295) (5,409) (14,961)
Net income (loss)......................... 3,620 (143) (4,337) (9,452)
Earnings (loss) per common share.......... 3,620 (143) (4,337) (9,452)
</TABLE>
- ---------------
(1) Prior to September 30, 1998, Pioneer indirectly owned 50% of KNA which owned
100% of KWT. The remaining 50% of KNA was owned indirectly by PCI. Through
that date Pioneer accounted for its interest in KNA using the equity method.
Pioneer's equity in the companies' results of operations was shown as
"Equity in net loss of unconsolidated subsidiaries." On September 30, 1998,
KNA exchanged its ownership in KWT for the remaining 50% of KNA held by PCI.
No gain or loss was recognized on this exchange. Following this transaction,
KNA's results of operations are included in the Company's consolidated
financial statements.
30
<PAGE> 33
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.
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 7 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 7 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 compensatory plan or arrangement required to be filed as an exhibit pursuant
to the requirements of Item 14(c) of Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by
and among the Company, 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 the Company'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. ("PCI Canada"), PCI
Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated
by reference to Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCI Canada, 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 Current Report on
Form 8-K filed on November 17, 1997).
3.1* -- Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4, as amended
(file no. 33-98828)).
3.2* -- By-laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company'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 the
Company, 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
the Company'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 PAI
(Tacoma, Washington) (incorporated by reference to
Exhibit 4.2(a) to the Company'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 PAI
(St. Gabriel, Louisiana) (incorporated by reference to
Exhibit 4.2(b) to the Company'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 PAI
(Henderson, Nevada) (incorporated by reference to Exhibit
4.2(c) to the Company'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 the
Company, 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 the Company'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
the Company's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.4* -- Security Agreement, dated as of June 17, 1997, among PAI
and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.4 to the Company'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 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)).
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.6* -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1997 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, the Company and PAI
(incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
4.7* -- Indenture, dated as of October 30, 1997, by and among PCI
Canada, 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 PCI Canada's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.8* -- Deed of Hypothec, dated as of October 30, 1997, by PCI
Canada in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.2 to PCI Canada's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.9* -- Affiliate Security Agreement, dated as of October 30,
1997, among PCI Canada, Pioneer Licensing, Inc. and
United States Trust Company of New York, as Collateral
Agent (incorporated by reference to Exhibit 4.3 to PCI
Canada's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
4.10* -- Borrower (Canadian) Security Agreement, dated as of
October 30, 1997, between PCI Canada and United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.4 to PCI Canada's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.11(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997,
by PCI Canada in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(a) to PCI Canada's Registration Statement
on Form S-4, as amended (file no. 333-41221)).
4.11(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997,
by PCI Canada in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(b) to PCI Canada's Registration Statement
on Form S-4, as amended (file no. 333-41221)).
4.11(c)* -- Demand Debenture (New Brunswick), dated as of October 30,
1997, by PCI Canada in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.5(c) to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(a)* -- Demand Pledge Agreement (Ontario), dated as of October
30, 1997, by PCI Canada in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(a) to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30,
1997, by PCI Canada in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(b) to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(c)* -- Demand Pledge Agreement (New Brunswick), dated as of
October 30, 1997, by PCI Canada in favor of United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.6(c) to PCI
Canada's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.13* -- Subsidiary Security Agreement, dated as of October 30,
1997, by PCI Canada in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.7 to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.14(a)* -- Term Loan Agreement, dated as of October 30, 1997, among
the Company, 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 PCI
Canada's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
4.14(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and
among PCI Canada, the Guarantors identified therein and
the Initial Purchasers identified therein (incorporated
by reference to Exhibit 4.8(b) to PCI Canada's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.15* -- Consent and Amendment No. 1, dated November 5, 1997, to
Loan and Security Agreement, dated June 17, 1997, among
the Company, 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 PCI Canada's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.16* -- 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, PCI Canada and the Company (incorporated by
reference to Exhibit 4.10 to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.17* -- Amended and Restated Loan and Security Agreement by and
among Congress Financial Corporation (Southwest) as U.S.
Lender, Congress Financial Corporation (Canada) as
Canadian Lender, and Congress Financial Corporation
(Southwest) as Agent for Lenders and Pioneer Chlor Alkali
Company, Inc., All-Pure Chemical Co., Kemwater North
America Company, PCI Chemicals Canada Inc./PCI Chimie
Canada Inc., PCI Carolina, Inc. and T.C. Products, Inc.,
as Borrowers and the Company, Imperial West Chemical Co.,
Black Mountain Power Company, T.C. Holdings, Inc.,
Pioneer Licensing, Inc. and Pioneer (East), Inc., as
Guarantors, dated as of September 24, 1999 (incorporated
by reference to Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999.
10.1* -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among the Company, PCI and the Sellers party
thereto (incorporated by reference to Exhibit 10.2 to the
Company'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 the Company, PCI and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the
Company'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 the
Company's Registration Statement on Form S-4, as amended
(file No. 33-98828)).
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
10.5*+ -- 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)).
10.6*+ -- Executive Employment Agreement, dated January 4, 1997,
between PCI and Michael J. Ferris (incorporated by
reference to Exhibit 10.10 to PCI's Annual Report on Form
10-K for the year ended December 31, 1996).
10.7*+ -- Stock Purchase Agreement, dated January 4, 1997, between
PCI and Michael J. Ferris (incorporated by reference to
Exhibit 10.11 to PCI's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.8*+ -- Non-Qualified Stock Option Agreement, dated January 4,
1997, between PCI and Michael J. Ferris (incorporated by
reference to Exhibit 10.12 to PCI's Annual Report on Form
10-K for the year ended December 31, 1996).
10.9*+ -- Non-Qualified Stock Option Agreement, dated May 15, 1997,
between PCI and Andrew M. Bursky (incorporated by
reference to Exhibit 10.11 to PCI Canada's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
(c) Financial Statement Schedule.
Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts for the Company. 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.
35
<PAGE> 38
SCHEDULE II
PIONEER CORPORATION OF AMERICA
(FORMERLY 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>
Year Ended December 31, 1999:
Allowance for doubtful accounts.......... $2,017 $320 $ -- $(745)(A) $1,592
Year Ended December 31, 1998:
Allowance for doubtful accounts.......... 2,002 135 -- $(120)(A) $2,017
Year Ended December 31, 1997:
Allowance for doubtful accounts.......... 1,311 123 604(B) (413)(A) 2,002
</TABLE>
- ---------------
(A) Uncollectable accounts written off, net of recoveries.
(B) Allowance balance established in 1997 in connection with the acquisition of
PCI Canada.
36
<PAGE> 39
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.
By: /s/ MICHAEL J. FERRIS
----------------------------------
Michael J. Ferris
President and Chief Executive
Officer
March 29, 2000
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 29, 2000
- ----------------------------------------------------- Officer and Director
(Michael J. Ferris)
/s/ PHILIP J. ABLOVE Executive Vice President and March 29, 2000
- ----------------------------------------------------- Chief Financial Officer and
(Philip J. Ablove) Director (Principal Financial
Officer)
/s/ JOHN R. BEAVER Vice President, Controller March 29, 2000
- ----------------------------------------------------- (Principal Accounting
(John R. Beaver) Officer)
/s/ WILLIAM R. BERKLEY Chairman of the Board March 29, 2000
- -----------------------------------------------------
(William R. Berkley)
/s/ ANDREW M. BURSKY Director March 29, 2000
- -----------------------------------------------------
(Andrew M. Bursky)
/s/ DONALD J. DONAHUE Director March 29, 2000
- -----------------------------------------------------
(Donald J. Donahue)
/s/ RICHARD C. KELLOGG, JR. Director March 29, 2000
- -----------------------------------------------------
(Richard C. Kellogg, Jr.)
/s/ JOHN R. KENNEDY Director March 29, 2000
- -----------------------------------------------------
(John R. Kennedy)
/s/ JACK H. NUSBAUM Director March 29, 2000
- -----------------------------------------------------
(Jack H. Nusbaum)
/s/ THOMAS H. SCHNITZIUS Director March 29, 2000
- -----------------------------------------------------
(Thomas H. Schnitzius)
</TABLE>
37
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,903
<SECURITIES> 0
<RECEIVABLES> 51,655
<ALLOWANCES> 1,592
<INVENTORY> 23,130
<CURRENT-ASSETS> 81,826
<PP&E> 424,165
<DEPRECIATION> 103,096
<TOTAL-ASSETS> 677,555
<CURRENT-LIABILITIES> 62,121
<BONDS> 583,260
0
0
<COMMON> 1
<OTHER-SE> 942
<TOTAL-LIABILITY-AND-EQUITY> 677,555
<SALES> 284,312
<TOTAL-REVENUES> 284,312
<CGS> 274,181
<TOTAL-COSTS> 274,181
<OTHER-EXPENSES> 47,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,313
<INCOME-PRETAX> (72,719)
<INCOME-TAX> (24,779)
<INCOME-CONTINUING> (47,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,940)
<EPS-BASIC> (47,940)
<EPS-DILUTED> (47,940)
</TABLE>
