[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1994
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-98828
PIONEER AMERICAS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1420850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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4300 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS
(713) 570-3200 77002
(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
9 1/4% SENIOR SECURED NOTES DUE JUNE 15, 2007
On March 19, 1999, there were outstanding 1,000 shares of the Registrant's Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies, Inc.
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.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
PART I
PAGE
----
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7a. Quantitative and Qualitative Market Risk Disclosures........ 9
Item 8. Financial Statements and Supplementary Data................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 36
Item 11. Executive Compensation...................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 36
Item 13. Certain Relationships and Related Transactions.............. 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 36
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PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to Pioneer Americas, Inc., (ii) the term "Predecessor Company" refers to Pioneer and its subsidiaries as it existed on April 20, 1995, (iii) the term "Company" means Pioneer and its subsidiaries and (iv) the term "PCI" refers to Pioneer Companies, Inc., the parent company of Pioneer.
Prior to September 1998, Pioneer was named Pioneer Americas Acquisition Corp. In September 1998, Pioneer merged with its subsidiary, Pioneer Americas, Inc. and changed its name to Pioneer Americas, Inc.
Certain statements in this Form 10-K regarding future expectations of the Company's business and the Company's results of operations may be regarded as "forward looking statements" within the meaning of the Securities Litigation Reform Act. Such statements are subject to various risks, including the Company's high financial leverage, the cyclical nature of the markets for many of the Company's products and raw materials and other risks discussed in detail. Actual outcomes may vary materially.
ITEM 1. BUSINESS.
The Company manufactures and markets chlorine and caustic soda and several related downstream water treatment products. Pioneer conducts its primary business through its operating subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), All-Pure Chemical Co. ("All-Pure"), Kemwater North America Company ("KNA") and PCI Chemicals Canada Inc. and PCI Carolina, Inc. (together "PCI Canada").
On April 20, 1995, pursuant to a stock purchase agreement, dated as of March 24, 1995, by and among PCI, Pioneer 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").
On June 17, 1997, the Company expanded its presence in the western United States with the acquisition of a chlor-alkali production facility and related business (the "Tacoma Facility") located in Tacoma, Washington (the "Tacoma Acquisition"). The transaction involved the acquisition of the Tacoma Facility by PCAC from OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of Occidental Chemical Corporation ("OxyChem"), for a purchase price consisting of (i) $97.0 million, paid in cash, (ii) 55,000 shares of Convertible Redeemable Preferred Stock, par value $.01 per share, of PCI (the "PCI Preferred Stock"), having a liquidation preference of $100 per share, and (iii) the assumption of certain obligations related to the acquired chlor-alkali business.
On October 31, 1997, the Company expanded into eastern Canadian and eastern United States chlor-alkali markets with the acquisition of the North American chlor-alkali business of ICI Canada, Inc. ("ICI Canada") and ICI Americas, Inc. ("ICI Americas") pursuant to an asset purchase agreement among the Company and its newly-formed subsidiaries, PCI Chemicals Canada Inc. and PCI Carolina, Inc., and Imperial Chemical Industries PLC ("ICI") and its subsidiaries, ICI Canada and ICI Americas. The purchase price for such acquisition (the "PCI Canada Acquisition") consisted of approximately $235.6 million, paid in cash, and the assumption of certain obligations related to the acquired chlor-alkali business. Headquartered in Montreal, Quebec, PCI Canada is now a leading eastern North American merchant chlor-alkali manufacturer, serving primarily the pulp and paper industry.
The Company now owns and operates five chlor-alkali production facilities with aggregate production capacity of approximately 950,000 electrochemical units ("ECUs", each consisting of 1 ton of chlorine and 1.1 tons of caustic soda). Approximately 60% of the Company's sources 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 the Company's ECU capacity employs membrane cell technology, the most efficient available technology. Management believes that the Company is one of the six largest chlor-alkali producers in North America, with approximately 6% of North American production capacity.
In addition to its chlor-alkali capacity, the Company manufactures hydrochloric acid, bleach, sodium chlorate and other products.
Pioneer is a wholly-owned subsidiary of PCI. PCI is a publicly-traded company, which prior to the Pioneer Acquisition was actively seeking acquisitions and had no operations. As of December 31, 1998, 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.
PCAC. PCAC owns and operates three chlor-alkali production facilities, located in St. Gabriel, Louisiana, Henderson, Nevada and Tacoma, Washington. The facilities in St. Gabriel and Henderson were acquired by the Predecessor Company in 1988. The three facilities produce chlorine and caustic soda for sale in the merchant markets and for use as raw materials by PCAC, All-Pure and Kemwater in the manufacture of downstream products. The Henderson facility also produces hydrochloric acid and bleach, and the Tacoma Facility produces hydrochloric acid and calcium chloride. PCAC also has an indirect 15% equity interest in Saguaro Power Company L.P. ("Saguaro Power"), which owns and operates a 90-megawatt cogeneration facility located on approximately six acres of the Henderson property.
PCI Canada. PCI Canada operates two chlor-alkali production facilities, at Becancour, Quebec and Dalhousie, New Brunswick, as well as additional downstream production units at Cornwall, Ontario. The Becancour facility also produces hydrochloric acid and bleach, and the Dalhousie facility also produces sodium chlorate. The Cornwall facility produces hydrochloric acid, bleach, chlorinated paraffins under the brand name Cereclor(R), and proprietary pulping additives, PSR 2000(R) and IMPAQT(R). PCI Carolina, Inc. an affiliate of PCI Chemicals Canada Inc. ("PCICC"), purchases chlor-alkali products manufactured by PCICC for sale to customers in the United States. PCICC and PCI Carolina, Inc. also provide hydrogen peroxide and bleaching enzymes to customers pursuant to a hydrogen peroxide resale agreement for eastern Canada and a bleaching enzyme resale agreement for North America.
All-Pure. All-Pure manufactures bleach, repackages chlorine and hydrochloric acid and distributes these products along with caustic soda and related products to municipalities and selected commercial markets in the western United States. All-Pure purchases all of its chlorine and caustic soda and a substantial portion of its hydrochloric acid from PCAC. Because bleach contains a high percentage of water, freight costs and logistics are an important competitive factor. All-Pure's production plants and distribution facilities are strategically located in or near most of the largest population centers of the West Coast. In 1997, an unusual charge of $1.0 million was recorded, relating to the closure of certain of All-Pure's plants and the consolidation of their operations into other locations. In 1998, an unusual charge of $0.4 million was recorded, relating to the consolidation and downsizing of certain administrative functions at All-Pure. In December 1998, All-Pure sold its pool chemicals business, resulting in a $1.8 million loss from the disposal of assets plus an unusual charge of approximately $1.0 million related to closing the Company's facility at City of Industry, California. Substantially all unusual charges were paid by December 31, 1998.
KNA. KNA manufactures and supplies polyaluminum chlorides to certain potable and waste water markets in the western 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. A substantial amount of the chlorine and caustic soda used as raw materials by KNA is purchased from PCAC. In early 1999, KNA sold its iron chlorides business, which is located in the western U.S. This disposal resulted in a pre-tax loss of less than $0.8 million.
Prior to September 30, 1998, Pioneer indirectly owned 50% of KNA which owned 100% of KWT, Inc. ("KWT"). The remaining 50% of KNA was owned indirectly by PCI. Through that date Pioneer accounted for its interest in these companies using the equity method. Pioneer's investment in KNA was presented as "Investment in and advances to unconsolidated subsidiaries" and its equity in the company's 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 50% of 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.
Pioneer is a holding company with no operating assets or operations. As of December 31, 1998, the Company had outstanding $567.4 million of long-term debt, $175.0 million of which was issued by PCICC in the form of 9 1/4% Senior Secured Notes Due October 15, 2007. There are no restrictions on the ability of PCICC or Pioneer's other subsidiaries to pay dividends to or make other distributions to Pioneer or PCICC. The Company's debt agreements, including those relating to PCICC'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 11 to the Consolidated Financial Statements included in Item 8 -- Financial Statements and Supplementary Data for summarized financial information of PCICC.
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods indicated (dollars in thousands and percentage of revenues):
YEAR ENDED DECEMBER 31,
---------------------------------
1998(2) 1997(1)
-------------- --------------
Revenues.......................................... $361,280 100% $241,716 100%
Cost of sales..................................... 278,478 77 178,793 74
-------- --- -------- ---
Gross profit...................................... 82,802 23 62,923 26
Selling, general and administrative expenses...... 44,845 13 27,976 12
Unusual charges................................... 1,385 -- 2,028 1
-------- --- -------- ---
Operating income.................................. 36,572 10 32,919 13
Equity in net loss of unconsolidated
subsidiaries.................................... (2,208) (1) (6,657) (2)
Interest expense, net............................. (48,792) (13) (26,993) (11)
Other income, net................................. 759 -- 2,904 1
-------- --- -------- ---
Income (loss) before income taxes and
extraordinary item.............................. (13,669) (4) 2,173 1
Income tax provision (benefit).................... (3,357) (1) 3,002 1
-------- --- -------- ---
Loss before extraordinary item.................... (10,312) (3) (829) --
Extraordinary item, net of income tax benefit..... -- -- (18,658) (8)
-------- --- -------- ---
Net loss.......................................... $(10,312) (3)% $(19,487) (8)%
======== === ======== ===
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(1) The Tacoma Facility was acquired on June 17, 1997 and the business of PCI Canada was acquired on October 31, 1997. The results of operations for the year ended December 31, 1997 include the results of operations from the respective acquisition dates through December 31, 1997.
(2) 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 these companies 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.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Revenues increased $119.6 million, or approximately 49% to $361.3 million for the twelve months ended December 31, 1998, as compared to the same period in 1997. The acquisitions of the operations of PCI Canada in November 1997 and the Tacoma Facility in June 1997 accounted for this increase. Partially offsetting this increase were lower average ECU prices during the period, as compared to 1997. The Company's average ECU sales price for the year ended December 31, 1998 was $336, a decrease of
approximately 9% from the average 1997 sales price of $370. Also, production volumes were reduced by two factors. First, production and sales were hampered as a result of a lack of railcar availability in the western United States due to Union Pacific rail transportation problems. Second, production at the Company's Henderson plant fell in early 1998 because of three failed transformers, which are now fully operational. The acquisition of 100% of KNA in September 1998 and resulting consolidation of its results since that date increased reported revenues by $5.1 million. Revenues at the Company's other downstream operations decreased as the Company disposed of its packaged household bleach operations during the third quarter and its pool chemicals business in the fourth quarter of 1998. Also, competitive conditions and adverse weather conditions during the early portions of the year resulted in revenue decreases in the downstream businesses.
Cost of Sales
Cost of sales increased $99.7 million, or 56% in 1998, as compared to 1997. The primary reason for this increase was the additional sales volume from the acquired operations. In addition, unit production costs were higher during 1998. This was principally due to a 3% increase in per unit power price in 1998 compared to 1997. Partially offsetting these increases was lower cost of sales at the previously existing downstream businesses due to lower sales volumes.
Gross Profit
Gross profit margin decreased slightly to approximately 23% in 1998 from 26% in 1997, primarily as a result of depressed ECU net sales prices, offset in part by the operating efficiencies of the acquired operations of PCI Canada and of the Tacoma Facility.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased $16.9 million in 1998, primarily as a result of the acquired operations.
Unusual Charges
Unusual charges in 1998 included approximately $1.0 million related to the disposition of All-Pure's pool chemicals business at City of Industry, California. Also, a charge of approximately $0.4 million was taken for the consolidation and downsizing of certain administrative functions of All-Pure. Substantially all accrued unusual charges were expended by December 31, 1998.
Equity in net loss of unconsolidated subsidiaries
Equity in net loss of unconsolidated subsidiaries represented the Company's 50% ownership in KNA prior to September 30, 1998. Prior to September 30, 1998, Pioneer owned 50% of KNA which owned 100% of KWT. The remaining 50% of KNA was owned indirectly by PCI. On September 30, 1998, KNA exchanged its ownership in KWT for the remaining 50% of KNA held by PCI. No gain or loss was recognized on this exchange. Following this transaction, KNA's results of operations are reflected in the consolidated results of the Company. The decrease in the Company's reported equity in net loss of unconsolidated subsidiaries is primarily due to the inclusion of only nine months of equity in KNA's consolidated results of operations in 1998, versus twelve months being included in 1997. In addition, during 1997 KWT recorded a reserve to reduce the carrying values of certain of its assets, based upon management's expectations of net realizable value.
Interest Expense, Net
Interest expense, net increased $21.8 million to $48.8 million in 1998 as a direct result of the debt incurred for the acquisitions of the Tacoma Facility and the business of PCI Canada. Partially offsetting this was lower interest expense from refinancing the $135.0 million of 13 3/8% First Mortgage Notes at substantially lower interest rates in June 1997.
Other Income, Net
Other income, net in 1998 included the receipt of cash dividends of $1.0 million from the Company's 15% partnership interest in Saguaro Power Company, a gain from the settlement of a lawsuit for approximately $0.7 million, a gain from a business interruption insurance claim at the Henderson plant related to the failed transformers and a state franchise tax refund. Offsetting this was a $1.8 million loss on disposal of All-Pure's pool chemical business.
Extraordinary Item from Early Extinguishment of Debt
During 1997, the Company recognized an $18.7 million extraordinary item (net of tax benefit of $12.4 million) from early extinguishment of the 13 3/8% First Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium paid on the face value of the notes and the write-off of debt placement fees related to the notes.
Net Loss
Net loss for the twelve months ended December 31, 1998 was $10.3 million, compared to a net loss of $19.5 million for the same period in 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides a framework for determining the accounting treatment of costs incurred to obtain or develop computer software. The Company is required to adopt the provisions of SOP 98-1 beginning in 1999, without adjustment to previously reported amounts.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which requires immediate expensing of certain organization costs and start-up costs. The Company is required to adopt the provisions of SOP 98-5 in 1999.
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. The Company is required to adopt the provisions of SFAS No. 133 in the third quarter of 1999.
Management does not believe the adoption of the above-mentioned accounting changes will have a material effect on the Company's financial statements.
ITEM 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's principal production, distribution and storage facilities as of March 23, 1999. All property is leased unless otherwise indicated.
LOCATION MANUFACTURED PRODUCTS, TYPE OF FACILITY
-------- ---------------------------------------
PCAC Facilities
St. Gabriel, Louisiana*....................... Chlorine and caustic soda
Hydrogen
Henderson, Nevada*............................ Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Tacoma, Washington*........................... Chlorine and caustic soda
Calcium chloride
Hydrochloric acid
Hydrogen
Various....................................... Caustic soda storage terminals
PCI Canada Facilities Becancour, Quebec*......... Chlorine and caustic soda
Hydrochloric acid
Bleach
Hydrogen
Dalhousie, New Brunswick*..................... Chlorine and caustic soda
Sodium chlorate
Hydrogen
Cornwall, Ontario............................. Bleach
Hydrochloric acid
Cereclor(R) chlorinated paraffin
PSR 2000(R) pulping additive
IMPAQT(R) pulping additive
Various....................................... Caustic soda terminals
All-Pure Facilities Tracy, California............ Bleach
Chlorine repackaging
Hydrochloric acid repackaging
Santa Fe Springs, California.................. Bleach
Chlorine repackaging
Tacoma, Washington*........................... Bleach
Chlorine repackaging
Various....................................... Distribution
KNA Facilities Antioch, California*.............. Aluminum sulfate
Spokane, Washington........................... Aluminum sulfate
Polyaluminum chlorides
Various....................................... Distribution
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* Owned property
Corporate headquarters for Pioneer and PCAC are located in leased office space in Houston, Texas under a lease terminating in 2002. PCI Canada's corporate headquarters are in leased office space in Montreal, Quebec under a lease terminating in 2003. PCI Canada also owns a technology center in Mississauga, located on 1.2 acres of land in the Sheridan Park Research Center near Toronto, Ontario, which conducts applications research, particularly with respect to pulp and paper process technology. All-Pure has its corporate headquarters in leased office space in Walnut Creek, California under a lease terminating in 2002. KNA has its corporate headquarters in leased office space in Ventura, California under a lease terminating in 1999.
The Tacoma Acquisition was financed with the proceeds of a nine and one-half year $100 million term facility provided to Pioneer (the "Pioneer 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 Pioneer (the "Pioneer Senior Notes"). The Pioneer Senior Notes and obligations outstanding under the Pioneer Term Facility are secured by first mortgages on PCAC's St. Gabriel, Henderson and Tacoma facilities. The PCI Canada Acquisition was financed with the proceeds of a nine and one-quarter year $83 million term facility provided to Pioneer (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, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential claims in amounts which it believes to be adequate. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Company's results of operations, cash flow or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This item is omitted in accordance with General Instruction (I)(2) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of Pioneer's outstanding Common Stock, which is Pioneer's only class of equity securities, is owned by PCI.
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 10 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.
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, management's narrative analysis of the results of operations is contained in Item 1 -- Business -- "Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
PAGE
----
(1) Consolidated financial statements, Pioneer Americas,
Inc. and subsidiaries:
Report of Deloitte & Touche LLP, independent
auditors.............................................. 11
Report of Management................................... 12
Consolidated balance sheets as of December 31, 1998 and
1997.................................................. 13
Consolidated statements of operations for the years
ended December 31, 1998, 1997 and 1996................ 14
Consolidated statements of stockholder's equity for the
years ended December 31, 1998, 1997 and 1996.......... 15
Consolidated statements of cash flows of the Company
for the years ended December 31, 1998, 1997 and
1996.................................................. 16
Notes to consolidated financial statements............. 17
(2) Supplemental Schedules:
Schedule II -- Valuation and Qualifying
Accounts -- Pioneer Americas, Inc..................... 41
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All schedules, except the ones listed above, have been omitted because they are either not applicable, not required, or the information called for therein appears in the consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pioneer Americas, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer Americas, Inc. (formerly Pioneer Americas Acquisition Corp.) and subsidiaries (the "Company"), as of December 31, 1998 and 1997, 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, 1998. Our audits also included the consolidated financial statement schedule of the Company listed in the Index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 3, 1999
(March 29, 1999 as to Note 22)
REPORT OF MANAGEMENT
Management is responsible for the preparation and content of the financial statements and other information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. The financial statements reflect management's judgments and estimates as to the effects of events and transactions that are accounted for or disclosed.
Management maintains accounting systems that are supported by internal accounting controls that provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the benefits.
An independent auditor performed an audit of the Company's financial statements for the purpose of determining that the statements are presented fairly in accordance with generally accepted accounting principles. The independent auditor is appointed by the Board of Directors and meet regularly with the Audit Committee of the Board. The Audit Committee of the Board of Directors is composed solely of outside directors. The Audit Committee meets periodically with the Company's senior officers and independent auditor to review the adequacy and reliability of the Company's accounting, financial reporting and internal controls.
Philip J. Ablove Vice President and Chief Financial Officer Principal Financial Officer
John R. Beaver Controller Principal Accounting Officer
February 3, 1999
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
-------------------
1998 1997
-------- --------
Current assets:
Cash...................................................... $ 50,593 $ 50,995
Accounts receivable, less allowance for doubtful accounts:
1998, $2,017; 1997, $2,002............................. 46,145 65,189
Inventories............................................... 26,360 22,625
Prepaid expenses.......................................... 2,759 1,372
-------- --------
Total current assets.............................. 125,857 140,181
Property, plant, and equipment, at cost:
Land................................................... 10,727 9,092
Buildings and improvements............................. 60,520 55,589
Machinery and equipment................................ 306,989 263,838
Construction in progress............................... 28,348 31,836
-------- --------
406,584 360,355
Less accumulated depreciation.......................... (72,525) (34,130)
-------- --------
334,059 326,225
Investment in and advances to unconsolidated subsidiaries... -- 28,551
Due from affiliates......................................... 16,512 2,810
Other assets, net of accumulated amortization: 1998, $6,152;
1997, $2,990.............................................. 48,327 48,560
Excess cost over the fair value of net assets acquired, net
of accumulated amortization: 1998, $22,950; 1997,
$13,319................................................... 201,609 201,032
-------- --------
Total assets...................................... $726,364 $747,359
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 30,825 $ 45,711
Accrued liabilities....................................... 31,384 33,745
Current portion of long-term debt......................... 2,684 2,570
-------- --------
Total current liabilities......................... 64,893 82,026
Long-term debt, less current maturities..................... 564,689 567,160
Accrued pension and other employee benefits................. 25,836 21,068
Other long-term liabilities................................. 22,063 17,224
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 66,169
Retained deficit.......................................... (16,601) (6,289)
-------- --------
Total stockholder's equity........................ 48,883 59,881
-------- --------
Total liabilities and stockholder's equity........ $726,364 $747,359
======== ========
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See notes to consolidated financial statements.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
Revenues.................................................... $361,280 $241,716 $183,326
Cost of sales............................................... 278,478 178,793 126,739
-------- -------- --------
Gross profit................................................ 82,802 62,923 56,587
Selling, general and administrative expenses................ 44,845 27,976 23,528
Unusual charges............................................. 1,385 2,028 --
-------- -------- --------
Operating income............................................ 36,572 32,919 33,059
Equity in net loss of unconsolidated subsidiaries........... (2,208) (6,657) (2,607)
Interest expense, net....................................... (48,792) (26,993) (17,290)
Other income, net........................................... 759 2,904 1,684
-------- -------- --------
Income (loss) before taxes and extraordinary item........... (13,669) 2,173 14,846
Income tax provision (benefit).............................. (3,357) 3,002 6,735
-------- -------- --------
Income (loss) before extraordinary item..................... (10,312) (829) 8,111
Extraordinary item, early extinguishment of debt (net of
income tax benefit of $12,439 in 1997).................... -- (18,658) --
-------- -------- --------
Net income (loss)........................................... $(10,312) $(19,487) $ 8,111
======== ======== ========
Earnings (loss) per common share:
Income (loss) before extraordinary item................... $(10,312) $ (829) $ 8,111
Extraordinary item, net of income tax benefit............. -- (18,658) --
-------- -------- --------
Net income (loss)......................................... $(10,312) $(19,487) $ 8,111
======== ======== ========
|
See notes to consolidated financial statements.
PIONEER AMERICAS ACQUISITION CORP.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
NUMBER OF
COMMON ADDITIONAL RETAINED
SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- --------- --------
Balance at January 1, 1996.............. 1 $1 $49,652 $ 5,774 $ 55,427
Recognition of the NOL benefit........ -- -- 11,472 -- 11,472
Dividend paid to parent............... -- -- -- (687) (687)
Net income............................ -- -- -- 8,111 8,111
-- -- ------- -------- --------
Balance at December 31, 1996............ 1 $1 $61,124 $ 13,198 $ 74,323
Capital contribution by parent........ -- -- 5,500 -- 5,500
Dividend paid to parent............... -- -- (455) -- (455)
Net loss.............................. -- -- -- (19,487) (19,487)
-- -- ------- -------- --------
Balance at December 31, 1997............ 1 $1 $66,169 $ (6,289) $ 59,881
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
== == ======= ======== ========
|
See notes to consolidated financial statements.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- --------- --------
Operating activities:
Net income (loss)......................................... $(10,312) $ (19,487) $ 8,111
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item, net of tax......................... -- 18,658 --
Depreciation and amortization.......................... 47,675 24,975 15,695
Net change in deferred taxes........................... (3,357) 9,746 4,339
Foreign exchange loss.................................. 78 783 --
Unusual charges........................................ 1,385 2,028 --
Loss on disposal of business........................... 1,845 -- --
Equity in net loss of unconsolidated subsidiaries...... 2,208 6,657 2,607
Net effect of changes in operating assets and
liabilities (net of acquisitions).................... (439) (9,638) 1,701
-------- --------- --------
Net cash flows from operating activities.......... 39,083 33,722 32,453
-------- --------- --------
Investing activities:
Acquisitions of businesses................................ -- (332,571) (5,459)
Investment in and advances to unconsolidated
subsidiaries........................................... (4,290) (6,622) (6,645)
Capital expenditures...................................... (33,596) (20,385) (17,121)
Proceeds from disposal of assets.......................... 335 -- --
-------- --------- --------
Net cash flows from investing activities.......... (37,551) (359,578) (29,225)
-------- --------- --------
Financing activities:
Proceeds from long-term debt.............................. -- 558,000 --
Repayments on long-term debt.............................. (2,591) (163,042) (70)
Debt issuance and related costs........................... -- (32,069) --
Dividends paid to parent.................................. (686) (455) (687)
-------- --------- --------
Net cash flows from financing activities.......... (3,277) 362,434 (757)
-------- --------- --------
Effect of exchange rate changes on cash..................... (714) -- --
Net increase (decrease) in cash............................. (2,459) 36,578 2,471
Cash at beginning of period................................. 50,995 14,417 11,218
Cash acquired in acquisitions............................... 2,057 -- 728
-------- --------- --------
Cash at end of period....................................... $ 50,593 $ 50,995 $ 14,417
======== ========= ========
|
See notes to consolidated financial statements.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
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 Americas, Inc. ("Pioneer") (formerly Pioneer Americas Acquisition Corp.) and its subsidiaries (the "Company"), including Pioneer Chlor Alkali Co., Inc. ("PCAC"), PCI Chemicals Canada Inc. and PCI Carolinas, Inc. (together "PCI Canada"), Kemwater North America Company ("KNA") and All-Pure Chemical Co. ("All-Pure"). Pioneer is owned 100% by Pioneer Companies, Inc. ("PCI").
All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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," the Company operates in one industry segment, that being the production, marketing and selling of chlor-alkali and related products. The Company operates in two geographic areas.
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 calculated under the average cost method, which includes appropriate elements of material, labor and manufacturing overhead costs, while the first-in, first-out method is utilized for raw materials, supplies and parts. The Company enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by the Company are included in inventory and appropriate receivables or payables are also recorded.
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
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets for the year ended December 31, 1998, 1997 and 1996 was approximately $3.2 million, $1.7 million, and $1.3 million, respectively.
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, the Company'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 $8.9 million, $5.8 million and $4.7 million for the year ended December 31, 1998, 1997 and 1996, 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 $1.4 million in 1998 and zero in 1997 and 1996.
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, the Company 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 PCI's convertible redeemable preferred stock, par value $.01 per share and the assumption of certain obligations related to the acquired business. In November 1997, 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.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pioneer acquired T.C. Products, Inc. in July 1996 for $10.0 million. T.C. Products, Inc. manufactures bleach and related products. The acquisition was accounted for using the purchase method; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their fair market value and the operations of the acquired company was included in the consolidated financial statements from the date acquired. The acquisition resulted in $6.9 million of goodwill which is being amortized on a straight line basis over 25 years.
The following presents the unaudited pro forma effect of the above acquisitions and related financing transactions on the historical results of operations for the years ended December 31, 1997 and 1996, respectively, as if the transactions had occurred on January 1, 1996.
1997 1996
-------- --------
Revenues............................................... $413,826 $431,485
Operating income....................................... 73,808 93,446
Net income (loss)...................................... (6,915) 28,052
Earnings (loss) per share.............................. (6,915) 28,052
|
In addition to the above acquisitions, in February 1996, Pioneer acquired an interest in KNA and KWT, Inc. ("KWT") (together "Kemwater") for $0.3 million of cash and a contribution of certain assets and liabilities. Kemwater was formed to conduct the operations of Imperial West Chemical Co. (an existing subsidiary of the Company) and KWT, a newly acquired subsidiary of KNA. KNA and KWT manufacture and market coagulant and flocculent water treatment products. Following this acquisition Pioneer owned 50% of KNA which owned 100% of KWT. The remaining 50% of KNA was owned indirectly by PCI. Since it did not own a controlling interest in Kemwater, Pioneer accounted for its interests in these companies using the equity method. Pioneer's investment in Kemwater was presented as "Investment in and advances to unconsolidated subsidiaries" and its equity in the companies' results of operations was shown as "Equity in net loss of unconsolidated subsidiaries."
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.
3. SUPPLEMENTAL CASH FLOW INFORMATION
The net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
1998 1997 1996
-------- -------- -------
Accounts receivable................................... $ 21,950 $(21,095) $ 5,228
Due from affiliates................................... (6,462) (1,279) (1,973)
Inventories........................................... (2,712) (2,206) 3,151
Prepaid expenses...................................... 102 (2,125) 76
Other assets.......................................... (4,393) 6,598 (1,254)
Accounts payable...................................... (14,247) 5,449 (4,168)
Accrued liabilities................................... 1,532 8,052 (4,656)
Other long-term liabilities........................... 302 (3,684) 4,770
Accrued pension and other employee benefits........... 3,489 652 527
-------- -------- -------
Net change in operating assets and liabilities........ $ (439) $ (9,638) $ 1,701
======== ======== =======
|
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is supplemental cash flow information:
1998 1997 1996
------- -------- -------
Cash paid during the period for:
Interest............................................. $49,358 $ 28,272 $18,297
======= ======== =======
Income taxes......................................... $ 159 $ 543 $ 3,556
======= ======== =======
Investing activities of acquisitions during the period:
Cash paid for acquisition............................ $ -- $332,571 $ 5,459
Long-term debt issued................................ -- -- 4,500
Liabilities assumed.................................. -- 21,519 3,994
Contribution by parent............................... -- 5,500 --
------- -------- -------
Fair value of assets acquired........................ $ -- $359,590 $13,953
======= ======== =======
|
Included in the above table are the acquisitions of PCI Canada and the Tacoma Facility in 1997 and T.C. Products, Inc. in 1996.
Non-cash investing and financing activities:
In September 1998, KNA exchanged its ownership in KWT for the remaining 50% ownership in KNA held by PCI. The Company had previously indirectly owned a 50% interest in KNA.
In December 1997, the Company purchased a hydrochloric acid manufacturing facility that it had been previously leasing in Henderson, Nevada for $5.9 million, which was financed with a mortgage note.
Consideration given during the Tacoma Acquisition in June 1997 included 55,000 shares of PCI redeemable preferred stock. PCI then contributed this interest in the Tacoma Facility to the Company.
Shareholders' equity increased by $11.5 million in 1996 due to recognizing the benefit of the net operating loss carryforward.
4. INVENTORIES
Inventories consisted of the following at December 31:
1998 1997
------- -------
Raw materials, supplies and parts........................... $17,014 $18,314
Finished goods and work-in-process.......................... 9,045 7,188
Inventories under exchange agreements....................... 301 (2,877)
------- -------
$26,360 $22,625
======= =======
|
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. 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
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
summary of selected items from the consolidated Kemwater balance sheet at December 31, 1997 and from the consolidated statements of operations for the nine months ended September 30, 1998 and the year ended December 31, 1997.
1998 1997
------- --------
Current assets.............................................. $ -- $ 8,342
Non-current assets.......................................... -- 28,681
Current liabilities......................................... -- 4,945
Non-current liabilities..................................... -- 39,032
Revenues.................................................... 26,403 38,959
Gross loss.................................................. (350) (78)
Net loss.................................................... (4,416) (13,314)
|
Basic Investments, Inc. and Victory Valley Land Company, L.P.
The Company, through its subsidiary PCAC, owns approximately 32% of the common stock of Basic Investments, Inc. ("BII"), 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 BII is owned by other companies located in the same industrial complex.
PCAC has an approximate 21% limited partnership interest in Victory Valley Land Company, L.P. ("VVLC"). The purpose of VVLC's business is to receive, hold and develop the lands, water rights, and other assets contributed by the partners for investment. A wholly owned subsidiary of BII, acting as general partner with a 50% interest in VVLC, contributed all rights, title, and interest in and to certain land to VVLC. PCAC assigned certain water rights to VVLC.
The Company's interests in BII and in VVLC (referred to as the "Basic Ownership") constitute assets that are held for the economic benefit of the previous owners of Pioneer for a period of 20 years from April 1995. Dividends and distributions received by the Company on account of the Basic Ownership (including amounts payable as a result of sales of land or other assets owned by BII or VVLC) are deposited into a deposit account and may be used to satisfy certain obligations of the sellers under environmental and other obligations in favor of the Company. After payment or provision for payment of such obligations, amounts received by the Company subsequent to April 20, 1995 on account of the Basic Ownership will be remitted to the sellers at the end of the 20-year period. The sellers also have certain rights during such period with respect to determinations affecting the Basic Ownership, including the right (subject to certain limited conditions) to direct the sales or disposition of interests constituting the Basic Ownership and the right (with certain limited exceptions) to vote the interests constituting the Basic Ownership, notwithstanding the ownership of such interests by the Company. The Company's investment in Basic Ownership, following the equity method, is $17.7 million and $17.1 million at December 31, 1998 and 1997, respectively and the balance in the related deposit account is $5.7 million and $5.8 million at December 31, 1998 and 1997, respectively. Within the Company's balance sheets, these assets are offset by liabilities of the same amount because the right of setoff exists, as the Company and the sellers owe determinable amounts, the Company has the right to set off the amount owed by the sellers, the Company intends to set off the amount and the setoff is enforceable by law.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
Other assets consist of the following at December 31:
1998 1997
------- -------
Debt financing assets, net of accumulated amortization of
$2,984 in 1998 and $652 in 1997........................... $18,683 $19,256
Deferred tax asset.......................................... 18,525 18,316
Patents, trademarks and other intangibles, net of
accumulated amortization of $3,168 in 1998 and $2,338 in
1997...................................................... 4,634 5,819
Indemnification of environmental reserve.................... 3,160 3,160
Other....................................................... 3,325 2,009
------- -------
Other assets, net......................................... $48,327 $48,560
======= =======
|
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1998 1997
------- -------
Payroll, benefits, and pension.............................. $ 7,729 $ 7,262
Interest and bank fees...................................... 5,363 4,668
Returnable deposits......................................... 2,531 3,073
Power....................................................... 1,928 1,699
Freight..................................................... 1,345 1,484
Income taxes................................................ -- 3,822
Other accrued liabilities................................... 12,488 11,737
------- -------
Accrued liabilities....................................... $31,384 $33,745
======= =======
|
8. EMPLOYEE BENEFITS
Pension Plans
The Company sponsors various non-contributory, defined benefit plans covering substantially all union and non-union employees of PCAC and PCI Canada. Pension plan benefits are based primarily on participants' compensation and years of credited service. Annual pension costs and liabilities for the Company under its defined benefit plans are determined by actuaries using various methods and assumptions. The Company has agreed to contribute such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to its employees. The Company's present intent is to make annual contributions, which are actuarially computed, in amounts not more than the maximum nor less than the minimum allowable under the Internal Revenue Code. Plan assets at December 31, 1998 and 1997 consist primarily of fixed income investments and equity investments.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information concerning the pension obligation, plan assets, amounts recognized in the Company's financial statements and underlying actuarial assumptions is stated below.
1998 1997
-------- -------
Change in Benefit Obligation:
Projected benefit obligation, beginning of year........... $ 44,299 $13,098
Service cost.............................................. 2,278 994
Interest cost............................................. 3,232 1,596
Actuarial gains........................................... 5,557 1,076
Benefits paid............................................. (1,079) (821)
Acquisitions.............................................. -- 28,356
Plan amendments........................................... 724 --
-------- -------
Projected benefit obligation, end of year................. $ 55,011 $44,299
======== =======
Change in Plan Assets:
Market value of assets, beginning of year................. $ 38,617 $10,281
Actual return on plan assets.............................. 3,268 2,334
Employer contributions.................................... 1,863 275
Benefits paid............................................. (1,105) (691)
Acquisitions.............................................. -- 26,418
-------- -------
Market value of assets, end of year....................... $ 42,643 $38,617
======== =======
Funded status............................................. $(12,368) $(5,682)
Unrecognized net loss..................................... 4,148 138
Unrecognized prior service cost........................... 778 103
-------- -------
Accrued pension cost...................................... $ (7,442) $(5,441)
======== =======
|
1998 1997 1996
------ ------- ----
Components of net periodic benefit cost:
Service cost.............................................. $2,278 $ 994 $597
Interest cost............................................. 3,232 1,596 892
Expected return on plan assets............................ (3,020) (2,334) (699)
Amortization of prior service cost........................ 49 49 49
Amortization of net loss.................................. -- 895 (20)
------ ------- ----
Net period benefit cost................................... $2,539 $ 1,200 $819
====== ======= ====
Weighted-average assumptions as of December 31:
Discount rate............................................. 6.8% 7.3% 7.5%
Expected return on plan assets............................ 8.0% 8.0% 8.0%
Rate of compensation increase............................. 4.0% 4.0% 4.0%
|
Defined Contribution Plans
The Company offers defined-contributions plans for its employees with the employees generally contributing from 1% to 15% of their compensation. The Company also contributes funds to the plans in the amount of 50% of employee contributions up to 4% to 6% of employee compensation, depending on the plan. Aggregate expense by the Company to such plans was $0.6 million, $0.4 million and $0.4 million in 1998, 1997 and 1996, respectively.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Post-Retirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for qualifying retired employees who reached normal retirement age while working for the Company.
Information concerning the plan obligation, the funded status, amounts recognized in the Company's financial statements and underlying actuarial assumptions is stated below.
1998 1997
-------- --------
Change in Benefit Obligation:
Accumulated post-retirement benefit obligation, beginning
of year................................................ $ 20,532 $ 10,206
Service cost.............................................. 535 664
Interest cost............................................. 776 1,095
Actuarial gains........................................... 6,828 3,092
Benefits paid............................................. (275) (302)
Acquisitions.............................................. -- 5,777
-------- --------
Accumulated post-retirement benefit obligation, end of
year................................................... $ 28,396 $ 20,532
======== ========
Funded status............................................. $(28,396) $(20,532)
Unrecognized net loss..................................... 8,718 4,495
-------- --------
Accrued benefit cost...................................... $(19,678) $(16,037)
======== ========
|
1998 1997 1996
------ ------ ------
Components of net periodic benefit cost:
Service cost.............................................. $ 535 $ 664 $ 369
Interest cost............................................. 776 1,095 693
Amortization of net loss.................................. 283 114 --
------ ------ ------
Net period benefit cost................................... $1,594 $1,873 $1,062
====== ====== ======
Weighted-average assumptions as of December 31:
Discount rate............................................. 6.8% 7.3% 7.5%
|
The weighted-average annual assumed health care trend rate is assumed to be 9.5% 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:
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest cost components... $ 603 $ (505)
Effect on post-retirement benefit obligation.............. 3,964 (3,298)
|
See Note 22 for discussion of the subsequent event impacting the retiree health care and life insurance benefits.
9. BANK CREDIT FACILITY
In November 1997, the Company entered into an amended credit agreement which provides for a five-year Bank Credit Facility. The Company may borrow up to $65.0 million, subject to certain borrowing base limitations. At December 31, 1998, no loans were outstanding under the Bank Credit Facility. The revolving loans bear interest at a rate equal to, at the Company's option, (i) the reference rate of the lead lender or
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) the LIBOR Base Rate. The Bank Credit Facility requires the Company to pay a fee currently equal to one half of one percent per annum on the total unused balance. Indebtedness outstanding under the Bank Credit Facility is collateralized by a security interest in all of the inventory, accounts receivable and certain other assets of the Company. Up to $20 million of the Borrowing Base, as defined by the Bank Credit Facility, can be utilized for letters of credit. The Borrowing Base at December 31, 1997 was approximately $39.4 million. After consideration of applicable outstanding letters of credit of approximately $1.8 million, the unused availability of the Borrowing Base was approximately $37.6 million at December 31, 1997.
Borrowing under the Bank Credit Facility is subject to a requirement that Pioneer meet an interest coverage ratio covenant (as defined) of at least 1.1 to 1.0 for the prior twelve months. In addition, the Bank Credit Facility contains restrictive covenants with respect to, among other things, limitations on the ability to incur additional indebtedness, to acquire or dispose of assets or operations and to pay dividends or redeem shares of stock.
See Note 22 for discussion of the subsequent event regarding the amendment of the Bank Credit Facility.
10. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1998 1997
-------- --------
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............................... 98,500 99,500
November 1997 term facility, due in quarterly installments
of $250 with the balance due 2006; variable interest rate
based on LIBOR or base rate............................... 81,750 82,750
Other notes, maturing in years through 2014, with various
installments, at various interest rates................... 12,123 12,480
-------- --------
Total....................................................... 567,373 569,730
Current maturities of long-term debt........................ (2,684) (2,570)
-------- --------
Long-term debt.................................... $564,689 $567,160
======== ========
|
Long-term debt matures as follows: $2.7 million in 1999; $2.6 million in 2000: $7.2 million in 2001; $2.7 million in 2002; $2.8 million in 2003; and $549.4 million thereafter.
As part of the acquisition of the Tacoma Facility in June 1997, the Company issued and sold $200.0 million of 9 1/4% Senior Secured Notes due June 15, 2007, entered in 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 existing 13 3/8% First Mortgage Notes due 2005.
As part of the PCI Canada Acquisition in November 1997, a subsidiary of Pioneer, PCI Chemicals Canada Inc. ("PCICC") issued and sold $175.0 million of 9 1/4% Senior Secured Notes due October 15, 2007 (see note 11). The Company also entered into a nine and one-quarter year $83.0 million Term Facility and entered into the Bank Credit Facility.
The Senior Secured Notes due June 15, 2007, and the Senior Secured Notes due October 15, 2007 are senior obligations of the Company, ranking pari passu with all existing and future senior indebtedness of the
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. These notes and both term facilities are fully and unconditionally guaranteed on a joint and several basis by Pioneer and all of Pioneer's direct and indirect wholly-owned subsidiaries and are secured by first mortgage liens on certain manufacturing facilities.
The senior notes are redeemable at a premium at the Company's option starting in 2002. Before 2001, the Company may redeem a maximum of 35% of each series at 109.25% of the principal amount due with funds from a public offering of common stock of PCI (to the extent such funds are contributed to the Company). Upon change of control, as defined in the agreement, the Company is required to offer to purchase all of the senior notes for 101% of the principal due.
The Company 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.
The Company's long-term debt agreements contain various restrictions on the Company, which, among other things, limit the ability of the Company 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 Pioneer since June 1997. As of December 31, 1998, no additional distributions were allowable under the covenant. 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, 1998, the Company did not meet this requirement and accordingly, additional new indebtedness, other than borrowing available under the Bank Credit Facility, is not allowed.
11. PCI CHEMICALS CANADA INC.
Pioneer is a holding company with no operating assets or operations. PCICC 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 Pioneer and Pioneer's other direct and indirect wholly-owned subsidiaries. Together, PCICC and the subsidiary note guarantors comprise all of the direct and indirect subsidiaries of Pioneer. Summarized financial information of PCICC and the guarantors of these notes are as follows:
NOTE CONSOLIDATED NOTE CONSOLIDATED
PCICC GUARANTORS COMPANY PCICC GUARANTORS COMPANY
-------- ---------- ------------ -------- ---------- ------------
AS OF AS OF
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------ ------------------------------------
Current assets.......... $ 29,962 $ 95,895 $125,857 $ 27,952 $112,229 $140,181
Non-current assets...... 191,004 409,503 600,507 198,268 408,910 607,178
Current liabilities..... 22,103 42,790 64,893 24,465 57,561 82,026
Non-current
liabilities........... 185,031 427,557 612,588 193,121 412,331 605,452
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FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ -----------------------------
Revenues............... $129,740 $231,540 $361,280 $24,661 $217,055 $241,716
Gross profit........... 37,693 45,109 82,802 8,003 54,920 62,923
Net income (loss)...... 5,198 (15,510) (10,312) 2,720 (22,207) (19,487)
|
Separate financial statements of PCICC and the guarantors of the PCICC notes are not included as management has determined that separate financial statements of these entities are not material to investors.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
The Company 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. The Company's sales are primarily to customers throughout the United States and in eastern Canada. Credit losses relating to these customers have been immaterial.
The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that any risk of loss is minimal.
Investments
It is the policy of the Company 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 of at least "A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Company's Bank Credit Facility.
Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the Company has assumed that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses because of the short maturities of those instruments. The fair values of long-term debt instruments are estimated based upon quoted market values (if applicable), or on the current interest rates available to the Company for debt with similar terms and remaining maturities. Considerable judgment is required in developing these estimates and, accordingly, no assurance can be given that the estimated values presented herein are indicative of the amounts that would be realized in a free market exchange. The Company held no derivative financial instruments as of December 31, 1998 and 1997.
At December 31, 1998, the fair market value of all the Company's financial instruments approximated the book value with the exceptions of the 9 1/4% Senior Notes due June 15, 2007, and the 9 1/4% Senior Notes due October 15, 2007, which had a book value of $200.0 million and $175.0 million, respectively and a fair value based upon quoted market prices of $162.0 million and $140.0 million, respectively.
13. GEOGRAPHIC INFORMATION
Financial information relating to the Company by geographical area is as follows. Revenues are attributed to countries based on destination.
1998 1997 1996
-------- -------- --------
REVENUES
United States............................................. $268,186 $219,558 $178,554
Canada.................................................... 87,614 16,398 --
Other..................................................... 5,480 5,760 4,772
-------- -------- --------
Consolidated.............................................. $361,280 $241,716 $183,326
======== ======== ========
LONG-LIVED ASSETS
United States............................................. $406,328 $401,853
Canada.................................................... 175,655 187,009
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PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997 and 1996, sales to an individual customer in the amounts of $27.7 million and $23.5 million, respectively, exceeded 10% of the consolidated revenues. No individual customer constituted 10% or more of the total revenues in 1998.
14. UNUSUAL CHARGES AND EXTRAORDINARY LOSSES
During 1998, All-Pure disposed if its pool chemicals business. This disposal included the sale of certain packaging and transportation equipment for bottled bleach and hydrochloric acid. The Company recognized a $1.8 million loss from the disposal of assets plus an unusual charge of approximately $1.0 million related to closing the Company'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 of All-Pure.
Unusual charges in 1997 include a $1.0 million charge related to the closure of certain of All-Pure's plants and the consolidation of their operations to other locations, plus a $1.0 million charge related to a receivable from KWT.
Substantially all accrued charges were expended by December 31, 1998.
During the second quarter of 1997, the Company recognized an $18.7 million extraordinary loss as a result of the early extinguishment of the 13 3/8% First Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium paid on the face value of the notes and the write-off of debt placement fees related to the notes (net of tax benefit of $12.4 million).
15. INTEREST EXPENSE, NET
Interest expense, net consisted of the following for the indicated periods:
1998 1997 1996
------- ------- -------
Interest expense........................................ $50,136 $28,195 $17,999
Interest income......................................... (1,344) (1,202) (709)
------- ------- -------
Interest expense, net................................... $48,792 $26,993 $17,290
======= ======= =======
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No interest was capitalized in 1998, 1997 or 1996.
16. COMMITMENTS AND CONTINGENCIES
Letters of Credit
At December 31, 1998, the Company had letters of credit and performance
bonds outstanding of approximately $1.8 million and $2.2 million, respectively.
These letters of credit and performance bonds were issued for the benefit of:
customers under sales agreements securing delivery of products sold, a power
company as a deposit for the supply of electricity, and state environmental
agencies as required for manufacturers in the state. The letters of credit
expire at various dates in 1999. No amounts were drawn on the letters of credit
at December 31, 1998.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Commitments
The Company has various purchase commitments related to its operations. The Company has committed to purchase salt used in its production processes under contracts which continue through the year 2003 with rates similar to prevailing market rates. The Company also has various commitments related to the purchase of electricity, which continue through the year 2008 at rates similar to prevailing market rates. Required purchase quantities of commitments in excess of one year at December 31, 1998 are as follows:
SALT-TONS ELECTRICITY-MWH
--------- ---------------
1999........................................................ 804 1,291,000
2000........................................................ 693 851,000
2001........................................................ 467 397,000
2002........................................................ 225 122,000
2003........................................................ 225 122,000
Thereafter.................................................. -- 1,287,000
----- ---------
Total commitment quantities....................... 2,414 4,070,000
===== =========
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During the years ended December 31, 1998, 1997 and 1996 all required purchase quantities under the above commitments were consumed during normal operations.
Operating Leases
The Company leases certain manufacturing and distribution facilities, computer equipment, and administrative offices under noncancelable leases. Minimum future rental payments on such leases with terms in excess of one year in effect at December 31, 1998 are as follows:
1999................................................................... $13,023
2000................................................................... 10,586
2001................................................................... 6,507
2002................................................................... 3,898
2003................................................................... 1,868
Thereafter............................................................. 3,143
-------
Total minimum obligations.................................... $39,025
=======
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Lease expense charged to operations for the years ended December 31, 1998, 1997 and 1996 was approximately $18.6 million, $14.0 million and $7.8 million, respectively.
Litigation
The Company is party to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position.
17. INCOME TAXES
The Company files a consolidated tax return with PCI and prepares its income tax provision pursuant to a tax sharing agreement with PCI. Such agreement has the effect of presenting the Company's income tax provision on a separate return basis.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Significant components of income (loss) before income taxes and extraordinary item and income taxes are as follows:
1998 1997 1996
-------- ------- -------
Income (loss) before taxes and extraordinary item:
U.S. ..................................................... $(23,242) $(1,302) $14,846
Foreign................................................... 9,573 3,475 --
-------- ------- -------
Total............................................. $(13,669) $ 2,173 $14,846
======== ======= =======
Current income tax provision:
U.S. ..................................................... $ -- $ -- $ 614
Foreign................................................... -- 617 --
State..................................................... -- 1,066 1,528
-------- ------- -------
Total current..................................... -- 1,683 2,142
======== ======= =======
Deferred income tax provision (benefit):
U.S. ..................................................... $ (7,314) $ 1,437 $ 5,032
Foreign................................................... 4,374 684 --
State..................................................... (417) (802) (439)
-------- ------- -------
Total deferred.................................... -- 1,319 4,593
-------- ------- -------
Total income tax provision (benefit).............. $ (3,357) $ 3,002 $ 6,735
======== ======= =======
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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:
1998 1997
-------- --------
Deferred tax liabilities:
Tax versus book basis -- property, plant and equipment.... $(29,590) $(16,901)
Other -- net.............................................. (236) (543)
-------- --------
Total deferred tax liabilities.................... (29,826) (17,444)
-------- --------
Deferred tax assets:
Post employment benefits.................................. 7,200 8,421
Environmental reserve..................................... 3,126 2,421
Equity in partnership..................................... 4,082 4,082
Alternative minimum tax credit carryover.................. 1,806 671
Allowance for doubtful accounts........................... 1,035 780
Other accrued liabilities................................. 432 --
Net operating loss ("NOL") carryforward of PCI............ 26,419 18,700
-------- --------
Total deferred tax assets......................... 44,100 35,075
Valuation allowance for deferred tax assets................. -- --
-------- --------
Net deferred tax assets..................................... 44,100 35,075
-------- --------
Net deferred taxes.......................................... $ 14,274 $ 17,631
======== ========
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PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliations of income tax computed at the U.S. federal statutory tax rates to income tax expense for the periods presented are as follows:
1998 1997 1996
----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------- ------ -------
Tax at U.S. statutory rates..... $(4,784) (35)% $ 761 35% $5,196 35%
State and foreign income taxes,
net of federal tax benefits... (1,004) (7)% 289 13 708 5
Amortization of excess cost over
the fair value of net assets
acquired...................... 2,431 18% 2,033 93 1,591 10
Other, net...................... -- -- (81) (3) (760) (5)
------- ---- ------ --- ------ --
$(3,357) (24)% $3,002 138% $6,735 45%
======= ==== ====== === ====== ==
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At December 31, 1998, PCI had available to it on a consolidated tax return basis approximately $88.9 million of NOL for income tax purposes which expires in 2009 through 2018 and $6.8 million of foreign NOL which expires in 2013. 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.
18. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL
The Company's operations are subject to extensive environmental laws and regulations related to protection of the environment, including those applicable to waste management, discharge of materials into the air and water, clean-up liability from historical waste disposal practices, and employee health and safety. At several of the Company's facilities, investigations or remediations are underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources. The Company could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities, the Company is in the process of replacing or closing ponds for the collection of wastewater. The Company plans to spend approximately $1.4 million during the next fifteen years for closure of eight chlor-alkali waste water disposal ponds at the Henderson plant. The Company believes that it is in substantial compliance with existing governmental regulations.
PCAC's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by PCAC. A groundwater treatment system was installed at the facility in 1983 and, pursuant to a Consent Agreement with the Nevada Division of Environmental Protection, a study is being conducted to further evaluate soil and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to PCAC's property.
In connection with the October 1988 acquisition of the chlor-alkali business by a predecessor company to Pioneer (the "Predecessor Company"), ICI Delaware Holdings, Inc. and ICI Americas, Inc. (such companies or their successors, the "ZENECA Companies") agreed to indemnify the Predecessor Company for certain environmental liabilities (the "ZENECA Indemnity"), including liabilities associated with operations at the Company's plant located in Henderson, Nevada (the "Henderson Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor Company for environmental costs which arise
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
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 Pioneer (the "Pioneer Acquisition"), the ZENECA Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue to cover claims after the expiration of the term of the indemnity provided that, prior to the expiration of the indemnity, proper notice to the ZENECA Companies is given and the Company has taken certain other actions. Proper notice has been 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. The Company believes that the ZENECA Companies will continue to honor their obligations under the ZENECA Indemnity for claims properly presented by the Company. It is possible, however, that disputes could arise between the parties and that the Company would have to subject its claims for clean-up expenses, which could be substantial, to the contractually established arbitration process. In the opinion of management, any environmental liability in excess of the amount indemnified and accrued on the consolidated balance sheet, if any, would not have a material adverse affect on the consolidated financial statements.
In the agreement relating to the Pioneer Acquisition, the sellers agreed to indemnify the Company for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to April 20, 1995 (the "Closing Date") from or relating to the plant sites or arising before or after the Closing Date with respect to certain environmental liabilities relating to assets held by the Company for the benefit of the sellers (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 the Company, and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. Subject to certain exceptions and limitations set forth in the Pioneer Acquisition agreement, a claim notice with respect to amounts payable pursuant to the Sellers' Indemnity must generally be given within 15 years of the Closing Date. Pioneer is required to reimburse the sellers for amounts paid under the Sellers' Indemnity with amounts recovered under the ZENECA Indemnity or from other third parties.
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 $3.4 million, $2.1 million and $1.7 million for the year ended December 31, 1998, 1997 and 1996, respectively. Capital expenditures for environmental-related matters at existing facilities approximated $2.5 million, $3.9 million and $4.3 million for the year ended December 31, 1998, 1997 and 1996, 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 its Henderson, Nevada and St. Gabriel, Louisiana facilities with respect to potential remediation costs relating to matters not covered by the ZENECA Indemnity, consisting
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
primarily of remediation costs that may be incurred by the Company for chlor-alkali-related remediation of the Henderson and St. Gabriel facilities. The recorded accrual included certain amounts related to anticipated closure and post-closure actions that may be required in the event that operation of the present chlor-alkali plants ceases. Such accrual in the amount of $5.2 million is recorded in the Company's consolidated balance sheets at December 31, 1998. However, complete analysis and study has not been completed and therefore additional future charges may be recorded at the time a decision for closure is made.
In 1994, the Predecessor Company recorded an additional $3.2 million environmental reserve related to pre-closing actions at sites that are the responsibility of the ZENECA Companies. Such accrual is recorded in the Company's consolidated balance sheets at December 31, 1998 and 1997. Other assets include an account receivable of the same amount from the ZENECA Companies. The Company believes it will be reimbursed by the ZENECA Companies for substantially all of such costs that are incurred at the Henderson Plant and other properties within the same industrial complex. Additionally, certain other environmental matters exist which have been assumed directly by the ZENECA Companies. No assurance can be given that actual costs will not exceed accrued amounts. The imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes respecting site cleanup costs, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated by the Company to be required for such matters. Further, there can be no assurance that additional environmental matters will not arise in the future.
19. RELATED PARTY TRANSACTIONS
The Company has a 15% partnership interest in Saguaro Power Company ("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The Company's interest in Saguaro is accounted for using the cost method of accounting. The Company sells certain products and services to and purchases steam from Saguaro at market prices. Transactions with Saguaro are as follows:
1998 1997 1996
------ ------ ------
Sales to Saguaro........................................... $ 778 $ 856 $1,005
Purchases from Saguaro..................................... 1,284 1,352 1,840
Partnership cash distribution from Saguaro (included in
other income)............................................ 975 1,033 735
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Accounts receivable from and accounts payable to Saguaro are not significant to the Company's consolidated balance sheet.
The Company is a party to an agreement with BII for the delivery of the Company's water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions of the agreement. In addition, BII owns the power facilities which transmit electricity to the Henderson facility. For the year ended December 31, 1998, 1997 and 1996, for its services BII charged operating expenses to the Company of approximately $1.3 million, $1.1 million and $1.0 million, respectively.
Interlaken Capital, Inc., an entity controlled by Mr. William R. Berkley, Chairman of the Board of PCI and Pioneer, received a fee of approximately $0.3 million plus reimbursement of reasonable out-of-pocket expenses, for services rendered in connection with the KWT transaction in 1996. The firm 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.
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sells certain products to KNA and KWT. Prior to KNA's exchanging its ownership interest in KWT for the 50% ownership in KNA held by PCI (see Note 2), sales to KNA and KWT totaled $5.1 million for the nine months ended September 30, 1998 and $8.7 million and $8.8 million during the years ended December 31, 1997 and 1996, respectively. KNA also provided transportation services to the Company that totaled $0.4 million for the nine months ended September 30, 1998 and $1.8 million for each of the years ended December 31, 1997 and 1996.
20. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides a framework for determining the accounting treatment of costs incurred to obtain or develop computer software. The Company is required to adopt the provisions of SOP 98-1 beginning in 1999, without adjustment to previously reported amounts.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"), which requires immediate expensing of certain organization costs and start-up costs. The Company is required to adopt the provisions of SOP 98-5 in 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company is required to adopt the provisions of SFAS No. 133 in the third quarter of 1999.
Management does not believe the adoption of the above-mentioned accounting changes will have a material effect on the Company's financial statements.
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- ------- --------
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)
======= ======== ======= ========
FOR YEAR ENDED DECEMBER 31, 1997
Revenues........................................... $38,743 $ 46,088 $65,242 $ 91,643
Operating income................................... 3,570 3,321 11,048 14,980
Income (loss) before taxes and extraordinary
item............................................ (1,712) (2,172) 3,965 2,092
Extraordinary item, net of income tax benefit(2)... -- (18,658) -- --
Net income (loss).................................. (1,890) (20,341) 1,875 869
Earnings (loss) per common share:
Income (loss) before extraordinary item......... $(1,890) $ (1,683) $ 1,875 $ 869
Extraordinary item, net of income tax benefit... -- (18,658) -- --
------- -------- ------- --------
Net income (loss).......................... $(1,890) $(20,341) $ 1,875 $ 869
======= ======== ======= ========
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(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
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(2) During the second quarter of 1997, the Company recognized an $18.7 million extraordinary loss as a result of the early extinguishment of the 13 3/8% First Mortgage Notes. The extraordinary loss consisted primarily of the 20% premium paid on the face value of the notes and the write-off of debt placement fees related to the notes (net of tax benefit of $12.4 million).
22. SUBSEQUENT EVENTS
In January 1999, the Company modified its retiree health care benefit plan to curtail benefits offered thereunder. Benefits to current retirees were not impacted, but current employees will no longer receive benefits under this plan. The curtailment resulted in a 1999 expense reduction of approximately $12.5 million as a result of the reduction of the related long-term liability. The transaction will be recognized in the first quarter of 1999.
In March 1999, the Company modified its existing $65.0 million Bank Credit Facility (see Note 9) to $50.0 million (the "Amended Credit Facility"). Borrowing under the Amended Credit Facility will require a minimum interest coverage ratio of at least 0.7 to 1.0 (0.6 from October 1, 1999 to March 31, 2000) for the prior twelve months or on a year-to-date basis, whichever is higher (subject to a borrowing base limitation that relates to the level of accounts receivable). Failure to maintain a coverage ratio of 1.1 to 1.0 for fifteen consecutive months would constitute an event of default.
In March 1999, Kemwater disposed of its iron chlorides business, resulting in a pretax loss on the disposal of approximately $0.9 million.
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 10 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 10 hereof.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference. The exhibits indicated by a plus sign (+) each constitute a management contract or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by
and among Pioneer, PCI and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to PCI's Current
Report on Form 8-K filed on May 5, 1995).
2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by
and between OCC Tacoma, Inc. and PCI (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on July 1, 1997).
2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997,
between PCI Chemicals Canada Inc. ("PCICC"), PCI
Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated
by reference to Exhibit 2 to Pioneer's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCICC, PCI Carolina, Inc. and
Pioneer and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on November 17, 1997).
3.1* -- Certificate of Incorporation of Pioneer filed with the
Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
3.2* -- By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 33-98828)).
4.1* -- Indenture, dated as of June 17, 1997, by and among
Pioneer, the Subsidiary Guarantors defined therein and
United States Trust Company of New York, as Trustee,
relating to $200,000,000 principal amount of 9 1/4%
Series A Senior Notes due 2007, including form of Note
and Guarantees (incorporated by reference to Exhibit 2 to
Pioneer's Current Report on Form 8-K filed on July 1,
1997).
4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington) (incorporated by reference to
Exhibit 4.2(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana) (incorporated by reference to
Exhibit 4.2(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada) (incorporated by reference to Exhibit
4.2(c) to Pioneer's Registration Statement on Form S-4,
as amended (file no. 333-30683)).
4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among
Pioneer, various financial institutions as Lenders, DLJ
Capital Funding, inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Pioneer Term Loan Agreement") (incorporated by
reference to Exhibit 4.3(a) to Pioneer's Registration
Statement on Form S-4, as amended (file no. 333-30683)).
4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Pioneer Term Loan
Agreement (incorporated by reference to Exhibit 4.3(b) to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
4.4* -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.4 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.5* -- Stock Pledge Agreement, dated as of June 17, 1997, among
Pioneer 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)).
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.6(a)* -- Amended and Restated Loan and Security Agreement, dated
as of May 29, 1998, by and among Pioneer and PCICC and
Bank of America National Trust and Savings Association,
as Agent and Lender, Bank of America Canada, as Canadian
Funding Agent and as a Lender, Bank America Robertson
Stephens, as Arranger, and the other Lenders party
thereto (the "Revolving Loan Agreement") (incorporated by
reference to Exhibit 10 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
4.6(b)* -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders,
guaranteeing the obligations of one another under the
Revolving Loan Agreement (incorporated by reference to
Exhibit 4.6(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(c)* -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders
(incorporated by reference to Exhibit 4.6(c) to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.7* -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1997 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, Pioneer and PCAC
(incorporated by reference to Exhibit 4.7 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.8* -- Indenture, dated as of October 30, 1997, by and among
PCICC, the Guarantors defined therein and United States
Trust Company of New York, as Trustee, relating to
$175,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees
(incorporated by reference to Exhibit 4.1 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.9* -- Deed of Hypothec, dated as of October 30, 1997, by PCICC
in favor of United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.2 to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.10* -- Affiliate Security Agreement, dated as of October 30,
1997, among PCICC, Pioneer Licensing, Inc. and United
States Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.3 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.11* -- Borrower (Canadian) Security Agreement, dated as of
October 30, 1997, between PCICC and United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.4 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(a) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(b) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.12(c)* -- Demand Debenture (New Brunswick), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(c) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(a)* -- Demand Pledge Agreement (Ontario), dated as of October
30, 1997, by PCICC in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(a) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.13(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.6(b) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(c)* -- Demand Pledge Agreement (New Brunswick), dated as of
October 30, 1997, by PCICC in favor of United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.6(c) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.14* -- Subsidiary Security Agreement, dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.7 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.15(a)* -- Term Loan Agreement, dated as of October 30, 1997, among
Pioneer, various financial institutions, as Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent, Salomon
Brothers Holding Company, Inc, as the Documentation
Agent, Bank of America National Trust and Savings
Association, as the Administrative Agent and United
States Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.8(a) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.15(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and
among PCICC, the Guarantors identified therein and the
Initial Purchasers identified therein (incorporated by
reference to Exhibit 4.8(b) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.16* -- Consent and Amendment No. 1, dated November 5, 1997, to
Loan and Security Agreement, dated June 17, 1997, among
Pioneer, Bank of America National Trust and Savings
Association, as Agent and Lender and the other Lenders
party thereto (incorporated by reference to Exhibit 4.9
to PCICC's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
4.17* -- Intercreditor and Collateral Agency Agreement, dated as
of October 30, 1997, by and among United States Trust
Company of New York, as Trustee and Collateral Agent,
Bank of America National Trust and Savings Association,
as Agent, PCICC and Pioneer (incorporated by reference to
Exhibit 4.10 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
10.1* -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PCI and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PCI and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.5*+ -- 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 PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
27 -- Financial Data Schedule.
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(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended December 31, 1998.
(c) Financial Statement Schedule.
Filed herewith as a financial statement schedule is Schedule II with respect to Valuation and Qualifying Accounts. All other schedules have been omitted because they are not applicable, not required, or the required information is included in the financial statements or notes thereto.
SCHEDULE II
PIONEER AMERICAS, INC.
(FORMERLY PIONEER AMERICAS ACQUISITION CORP.)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO BALANCED AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- ---------- ---------- --------- ---------- -----------
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) (36)(A) 2,002
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts....... 1,424 -- -- (113)(A) 1,311
|
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established in 1997 in connection with the acquisition of PCI Canada.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PIONEER AMERICAS, INC.
By: /s/ MICHAEL J. FERRIS
----------------------------------
Michael J. Ferris
President and Chief Executive
Officer
March 30, 1999
|
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. FERRIS President and Chief Executive March 30, 1999
----------------------------------------------------- Officer and Director
Michael J. Ferris
/s/ PHILIP J. ABLOVE Vice President and Chief Financial March 30, 1999
----------------------------------------------------- Officer and Director (Principal
Philip J. Ablove Financial Officer)
/s/ JOHN R. BEAVER Controller March 30, 1999
----------------------------------------------------- (Principal Accounting Officer)
John R. Beaver
/s/ WILLIAM R. BERKLEY Chairman of the Board March 30, 1999
-----------------------------------------------------
William R. Berkley
/s/ ANDREW M. BURSKY Director March 30, 1999
-----------------------------------------------------
Andrew M. Bursky
/s/ DONALD J. DONAHUE Director March 30, 1999
-----------------------------------------------------
Donald J. Donahue
/s/ RICHARD C. KELLOGG, JR. Director March 30, 1999
-----------------------------------------------------
Richard C. Kellogg, Jr.
/s/ JOHN R. KENNEDY Director March 30, 1999
-----------------------------------------------------
John R. Kennedy
/s/ JACK H. NUSBAUM Director March 30, 1999
-----------------------------------------------------
Jack H. Nusbaum
/s/ THOMAS H. SCHNITZIUS Director March 30, 1999
-----------------------------------------------------
Thomas H. Schnitzius
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by
and among Pioneer, PCI and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to PCI's Current
Report on Form 8-K filed on May 5, 1995).
2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by
and between OCC Tacoma, Inc. and PCI (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on July 1, 1997).
2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997,
between PCI Chemicals Canada Inc. ("PCICC"), PCI
Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated
by reference to Exhibit 2 to Pioneer's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of
October 31, 1997, between PCICC, PCI Carolina, Inc. and
Pioneer and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by
reference to Exhibit 2 to Pioneer's Current Report on
Form 8-K filed on November 17, 1997).
3.1* -- Certificate of Incorporation of Pioneer filed with the
Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
3.2* -- By-laws of Pioneer (incorporated by reference to Exhibit
3.2 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 33-98828)).
4.1* -- Indenture, dated as of June 17, 1997, by and among
Pioneer, the Subsidiary Guarantors defined therein and
United States Trust Company of New York, as Trustee,
relating to $200,000,000 principal amount of 9 1/4%
Series A Senior Notes due 2007, including form of Note
and Guarantees (incorporated by reference to Exhibit 2 to
Pioneer's Current Report on Form 8-K filed on July 1,
1997).
4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Tacoma, Washington) (incorporated by reference to
Exhibit 4.2(a) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(St. Gabriel, Louisiana) (incorporated by reference to
Exhibit 4.2(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by PCAC
(Henderson, Nevada) (incorporated by reference to Exhibit
4.2(c) to Pioneer's Registration Statement on Form S-4,
as amended (file no. 333-30683)).
4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among
Pioneer, various financial institutions as Lenders, DLJ
Capital Funding, inc., as the Syndication Agent, Salomon
Brothers Holding Company Inc, as the Documentation Agent
and Bank of America Illinois, as the Administrative Agent
(the "Pioneer Term Loan Agreement") (incorporated by
reference to Exhibit 4.3(a) to Pioneer's Registration
Statement on Form S-4, as amended (file no. 333-30683)).
4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by
each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of the Lenders, guaranteeing the
obligations of one another under the Pioneer Term Loan
Agreement (incorporated by reference to Exhibit 4.3(b) to
Pioneer's Registration Statement on Form S-4, as amended
(file no. 333-30683)).
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.4* -- Security Agreement, dated as of June 17, 1997, among PCAC
and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.4 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.5* -- Stock Pledge Agreement, dated as of June 17, 1997, among
Pioneer and United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.5 to Pioneer's Registration Statement on Form S-4, as
amended (file no. 333-30683)).
4.6(a)* -- Amended and Restated Loan and Security Agreement, dated
as of May 29, 1998, by and among Pioneer and PCICC and
Bank of America National Trust and Savings Association,
as Agent and Lender, Bank of America Canada, as Canadian
Funding Agent and as a Lender, Bank America Robertson
Stephens, as Arranger, and the other Lenders party
thereto (the "Revolving Loan Agreement") (incorporated by
reference to Exhibit 10 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
4.6(b)* -- Master Corporate Guaranty, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders,
guaranteeing the obligations of one another under the
Revolving Loan Agreement (incorporated by reference to
Exhibit 4.6(b) to Pioneer's Registration Statement on
Form S-4, as amended (file no. 333-30683)).
4.6(c)* -- Master Security Agreement, dated June 17, 1997, executed
by each of the Subsidiaries party thereto, as guarantor,
respectively, in favor of Bank of Americas Illinois, as
Agent, for the ratable benefit of the Lenders
(incorporated by reference to Exhibit 4.6(c) to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.7* -- Intercreditor and Collateral Agency Agreement, dated as
of June 17, 1997 by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of
America Illinois, as Agent, Pioneer and PCAC
(incorporated by reference to Exhibit 4.7 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
333-30683)).
4.8* -- Indenture, dated as of October 30, 1997, by and among
PCICC, the Guarantors defined therein and United States
Trust Company of New York, as Trustee, relating to
$175,000,000 principal amount of 9 1/4% Series A Senior
Notes due 2007, including form of Note and Guarantees
(incorporated by reference to Exhibit 4.1 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.9* -- Deed of Hypothec, dated as of October 30, 1997, by PCICC
in favor of United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit
4.2 to PCICC's Registration Statement on Form S-4, as
amended (file no. 333-41221)).
4.10* -- Affiliate Security Agreement, dated as of October 30,
1997, among PCICC, Pioneer Licensing, Inc. and United
States Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.3 to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.11* -- Borrower (Canadian) Security Agreement, dated as of
October 30, 1997, between PCICC and United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.4 to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.12(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(a) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.12(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997,
by PCICC in favor of United States Trust Company of New
York, as Collateral Agent (incorporated by reference to
Exhibit 4.5(b) to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.12(c)* -- Demand Debenture (New Brunswick), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.5(c) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(a)* -- Demand Pledge Agreement (Ontario), dated as of October
30, 1997, by PCICC in favor of United States Trust
Company of New York, as Collateral Agent (incorporated by
reference to Exhibit 4.6(a) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.13(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.6(b) to PCICC's Registration Statement on
Form S-4, as amended (file no. 333-41221)).
4.13(c)* -- Demand Pledge Agreement (New Brunswick), dated as of
October 30, 1997, by PCICC in favor of United States
Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.6(c) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.14* -- Subsidiary Security Agreement, dated as of October 30,
1997, by PCICC in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference
to Exhibit 4.7 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
4.15(a)* -- Term Loan Agreement, dated as of October 30, 1997, among
Pioneer, various financial institutions, as Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent, Salomon
Brothers Holding Company, Inc, as the Documentation
Agent, Bank of America National Trust and Savings
Association, as the Administrative Agent and United
States Trust Company of New York, as Collateral Agent
(incorporated by reference to Exhibit 4.8(a) to PCICC's
Registration Statement on Form S-4, as amended (file no.
333-41221)).
4.15(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and
among PCICC, the Guarantors identified therein and the
Initial Purchasers identified therein (incorporated by
reference to Exhibit 4.8(b) to PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
4.16* -- Consent and Amendment No. 1, dated November 5, 1997, to
Loan and Security Agreement, dated June 17, 1997, among
Pioneer, Bank of America National Trust and Savings
Association, as Agent and Lender and the other Lenders
party thereto (incorporated by reference to Exhibit 4.9
to PCICC's Registration Statement on Form S-4, as amended
(file no. 333-41221)).
4.17* -- Intercreditor and Collateral Agency Agreement, dated as
of October 30, 1997, by and among United States Trust
Company of New York, as Trustee and Collateral Agent,
Bank of America National Trust and Savings Association,
as Agent, PCICC and Pioneer (incorporated by reference to
Exhibit 4.10 to PCICC's Registration Statement on Form
S-4, as amended (file no. 333-41221)).
10.1* -- Contingent Payment Agreement, dated as of April 20, 1995,
by and among Pioneer, PCI and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PCI and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Pioneer's
Registration Statement on Form S-4, as amended (file no.
33-98828)).
10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan
(incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.5*+ -- 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 PCICC's Registration
Statement on Form S-4, as amended (file no. 333-41221)).
27 -- Financial Data Schedule.
|
The exhibits indicated by an asterisk (*) are incorporated by reference. The exhibits indicated by a plus sign (+) each constitute a management contract or arrangement required to be filed as an exhibit pursuant to the requirements of
Item 14(c) of Form 10-K.
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 50,593 |
| SECURITIES | 0 |
| RECEIVABLES | 48,162 |
| ALLOWANCES | 2,017 |
| INVENTORY | 26,360 |
| CURRENT ASSETS | 125,857 |
| PP&E | 406,584 |
| DEPRECIATION | 72,525 |
| TOTAL ASSETS | 726,364 |
| CURRENT LIABILITIES | 64,893 |
| BONDS | 564,689 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1 |
| OTHER SE | 48,882 |
| TOTAL LIABILITY AND EQUITY | 726,364 |
| SALES | 361,280 |
| TOTAL REVENUES | 361,280 |
| CGS | 278,478 |
| TOTAL COSTS | 278,478 |
| OTHER EXPENSES | 46,230 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 48,792 |
| INCOME PRETAX | (13,669) |
| INCOME TAX | (3,357) |
| INCOME CONTINUING | (10,312) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (10,312) |
| EPS PRIMARY | (10,312.00) |
| EPS DILUTED | (10,312.00) |