-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqY5GbqSNyEj4qQUvaYtj8gTvBMMF8lqBOxHUF381u4iras+ELl9gKDIWta5m4yg uIbzCMkBkTZ/VJUhVSIdxg== 0000950129-96-002947.txt : 19961115 0000950129-96-002947.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950129-96-002947 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP CENTRAL INDEX KEY: 0000944649 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 061420850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-91702 FILM NUMBER: 96662533 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 PIONEER AMERICAS ACQUISITION CORP. - 9/30/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _______________ COMMISSION FILE NUMBER 33-98828 PIONEER AMERICAS ACQUISITION CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1420850 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4200 NATIONSBANK CENTER, 700 LOUISIANA STREET, HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 225-3831 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / On November 8, 1996, there were outstanding 1,000 shares of the Registrant's Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies, Inc. The Registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the reduced disclosure format permitted by General Instruction (H)(2) of Form 10-Q. 2 TABLE OF CONTENTS PART I--FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements / / Consolidated Balance Sheets--September 30, 1996 and December 31, 1995 3 / / Consolidated Statements of Operations--Three Months Ended September 30, 1996 and 1995, Nine Months Ended September 30, 1996 and Period From Inception Through September 30, 1995 5 / / Consolidated Statements of Cash Flows--Nine Months Ended September 30, 1996 and Period From Inception Through September 30, 1995 6 / / Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II-- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15
2 3 PART I --FINANCIAL INFORMATION PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- -------------- Assets Current assets: Cash and cash equivalents $ 15,211 $ 11,218 Accounts receivable, less allowance for doubtful accounts of $1,528 at September 30, 1996 and $1,424 at December 31, 1995 27,440 29,385 Due from parent 2,202 574 Inventories 14,820 13,004 Prepaid expenses 4,038 3,766 -------------- -------------- Total current assets 63,711 57,947 Property, plant and equipment: Land 5,043 1,711 Buildings and improvements 21,208 13,997 Machinery and equipment 76,802 67,587 Cylinders and tanks 4,541 4,503 Construction in progress 11,257 9,394 ------------- -------------- 118,851 97,192 Less accumulated depreciation (15,894) (7,795) ------------ ------------- 102,957 89,397 Other assets, net of accumulated amortization of $2,308 at September 30, 1996 and $1,068 at December 31, 1995 14,362 11,664 Excess cost over fair value of net assets acquired, net of accumulated amortization of $6,803 at September 30, 1996 and $3,311 at December 31, 1995 117,655 108,940 ------------ ----------- Total assets $ 298,685 $ 267,948 =========== ===========
See notes to consolidated financial statements. 3 4 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED BALANCE SHEETS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 20,186 $ 20,183 Accrued liabilities 29,060 23,877 Returnable deposits 3,488 3,437 Current portion of long-term debt 128 -- ----------- ------------- Total current liabilities 52,862 47,497 13 3/8% Mortgage Notes due 2005 135,000 135,000 Notes payable 14,683 -- Returnable deposits 3,275 3,281 Accrued pension and other employee benefits 13,857 13,573 Other long-term liabilities 15,179 13,170 Commitments and contingencies -- -- Stockholders' equity: Common stock, $.01 par value, authorized 1,000 shares, issued and outstanding 1,000 shares 1 1 Additional paid-in capital 53,457 49,652 Retained earnings 10,371 5,774 ----------- ------------- Total stockholders' equity 63,829 55,427 ----------- ------------- Total liabilities and stockholders' equity $ 298,685 $ 267,948 =========== =============
See notes to consolidated financial statements. 4 5 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY PERIOD PERIOD NINE FROM FROM THREE MONTHS ENDED MONTHS INCEPTION JANUARY 1 SEPTEMBER 30, ENDED THROUGH THROUGH -------------------------- SEPT. 30, SEPT. 30, APRIL 20, 1996 1995 1996 1995 1995 ------------ ----------- --------- ---------- -------------- Revenues $ 55,969 $ 59,248 $ 159,082 $ 95,653 $ 57,848 Costs and expenses: Cost of sales 41,341 39,970 115,083 64,871 37,400 Cost of sales-acquisition related inventory step up -- -- -- 1,671 -- Selling, general and administrative 8,109 8,093 22,425 13,449 7,047 Interest expense, net 4,460 4,690 13,218 8,326 1,665 -------- -------- --------- --------- ---------- Total costs and expenses 53,910 52,753 150,726 88,317 46,112 Minority interest 689 -- 912 -- -- Other income, net 398 45 491 394 (115) -------- -------- --------- --------- ---------- Income before income taxes and extraordinary item 3,146 6,540 9,759 7,730 11,621 Provision for income taxes 982 2,837 4,706 3,685 4,809 -------- -------- --------- --------- ---------- Income before extraordinary item 2,164 3,703 5,053 4,045 6,812 Extraordinary expense (net of income tax benefit of $2,140) -- -- -- -- (3,420) -------- -------- --------- --------- ---------- Net income $ 2,164 $ 3,703 $ 5,053 $ 4,045 $ 3,392 ========= ========= ========= ========= ========== Net income per share $ 2,164 $ 3,703 $ 5,053 $ 4,045 ========= ========= ========= ========= Weighted average number of shares of common stock outstanding 1 1 1 1 ========= ========= ========= =========
See notes to consolidated financial statements. 5 6 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANY PERIOD PERIOD NINE FROM FROM MONTHS INCEPTION JANUARY 1 ENDED THROUGH THROUGH SEPT. 30, SEPT. 30, APRIL 20, 1996 1995 1995 ------------ ------------ ------------ Operating activities: Net income $ 5,053 $ 4,045 $ 3,392 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,266 8,076 4,490 Minority interest owned by parent (577) -- -- Write-off of previous finance costs -- 255 1,282 Gain on disposal of property, plant and equipment -- -- 13 Equity in earnings of Basic Investments, Inc. and Victory Valley Land Company, L.P. -- -- (204) Future tax effects -- -- (2,086) Utilization of net operating loss carryforward ("NOL") 3,805 1,838 -- Changes in operating assets and liabilities (net of purchases of Kemira Water Treatment, Inc. and T.C. Products, Inc.): Accounts receivable 3,908 (4,321) (3,570) Inventories 122 1,254 (638) Due from parent (1,628) 828 -- Prepaid expenses (223) (844) 722 Other assets (2,518) (2,944) (1,342) Accounts payable (2,478) (2,539) 4,899 Accrued liabilities 4,231 12,487 (3,784) Returnable deposits 45 97 (259) Other long-term liabilities 420 590 (304) ---------- ----------- ---------- Net cash provided by operating activities 24,426 18,822 2,611 ---------- ----------- ---------- Investing activities: Purchase of T.C. Products, Inc. (5,459) -- -- Purchase of Kemira Water Treatment, Inc. (1,572) -- -- Purchase of Predecessor Company -- (152,318) -- Proceeds from the sale of property, plant and equipment -- -- 58 Purchases of property, plant and equipment (13,205) (7,239) (3,447) ---------- ---------- --------- Net cash used in investing activities (20,236) (159,557) (3,389) ---------- ---------- ---------
See notes to consolidated financial statements. 6 7 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (IN THOUSANDS)
PREDECESSOR COMPANY PERIOD PERIOD NINE FROM FROM MONTHS INCEPTION JANUARY 1, ENDED THROUGH THROUGH SEPT. 30, SEPT. 30, APRIL 20, 1996 1995 1995 ------------ ------------ ------------ Financing activities: Payments on long-term debt (33) (27,500) (103,971) Proceeds from borrowings on long-term debt -- 18,500 106,000 Proceeds from borrowings on 13 3/8% First Mortgage Notes due 2005 -- 135,000 -- Dividends paid to parent (456) -- -- Dividends paid on preferred stock and purchase stock put warrant -- -- (2,341) Proceeds from issuance of common stock -- 21,037 -- ----------- ---------- ----------- Net cash provided by (used in) financing activities (489) 147,037 (312) --------- ---------- ----------- Net increase (decrease) in cash 3,701 6,302 (1,090) Cash acquired in purchase 292 2,220 -- Cash at beginning of period 11,218 -- 3,310 --------- ------------ ----------- Cash at end of period $ 15,211 $ 8,522 $ 2,220 ========= ========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 9,269 $ 32 $ 3,067 Income taxes 3,664 1,051 1,852
See notes to consolidated financial statements. 7 8 PIONEER AMERICAS ACQUISITION CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (IN THOUSANDS)
PREDECESSOR COMPANY PERIOD PERIOD NINE FROM FROM MONTHS INCEPTION JANUARY 1, ENDED THROUGH THROUGH SEPT. 30, SEPT. 30, APRIL 20, 1996 1995 1995 ------------ ------------ ------------ Supplemental schedule of non-cash investing and financing activities: The allocation of the purchase price of the Acquisition is summarized as follows: Cash paid for Acquisition $ 152,318 Seller notes issued 11,463 NOL benefit recognized 13,600 Liabilities assumed 90,596 --------- Fair value of assets acquired $ 267,977 ========= The allocation of the purchase price of Kemira Water Treatment, Inc. is summarized as follows: Cash paid for purchase $ 1,572 Long-term note issued to seller 8,017 Liabilities assumed 2,167 ---------- Fair value of assets acquired $ 11,756 ========== The allocation of the purchase price of T.C. Products, Inc. is summarized as follows: Cash paid for purchase $ 5,459 Long-term notes issued to sellers 4,500 Liabilities assumed 3,994 ---------- Fair value of assets acquired $ 13,953 ==========
See notes to consolidated financial statements. 8 9 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Pioneer Americas Acquisition Corp. ("Pioneer") was incorporated in Delaware on March 6, 1995 ("Inception"). Pioneer is 100% owned by Pioneer Companies, Inc. ("PCI"). The consolidated financial statements include the accounts of Pioneer and its subsidiaries (collectively referred to as the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. On April 20, 1995, pursuant to a Stock Purchase Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and among PCI, Pioneer, and the holders of the outstanding common stock and other common equity interests (the "Sellers") of Pioneer Americas, Inc. (the "Predecessor Company"), Pioneer acquired all of such stock and interests (the "Acquisition") for a purchase price of approximately $176.5 million. The Acquisition has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to April 20, 1995 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of April 20, 1995. On February 2, 1996, the acquisition of Kemira Water Treatment, Inc. ("KWT"), including certain royalty and license agreements, from a subsidiary of Kemira Oy of Finland ("Kemira") was completed. The purchase price was approximately $9.6 million, of which $1.6 million was paid in cash and $8.0 million in a note issued to Kemira. The $8.0 million note bears an interest rate equal to LIBOR plus 1.2%. The principal on the note is payable in four equal installments on March 31, 2000, March 31, 2001, March 31, 2002 and December 31, 2002, and interest is payable annually on December 31. KWT produces specialty and commodity inorganic coagulants, including polyaluminum chloride, aluminum sulfate, sodium aluminate and ferric sulfate, at its plant in Savannah, Georgia for sale to the water treatment market in the eastern United States and the Caribbean. The purchase of KWT has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to February 2, 1996 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of February 2, 1996, and include the results of KWT subsequent to such date. KWT is wholly-owned by Kemwater North America Company ("Kemwater"), fifty percent of the common stock of which is held by PCI and fifty percent of the common stock of which is held by a subsidiary of Pioneer. The Company also owns all of the outstanding shares of Kemwater's preferred stock. Effective July 1, 1996, All-Pure Chemical Co. ("All-Pure"), an indirect wholly-owned subsidiary of Pioneer, acquired T.C. Products, Inc. ("T.C. Products") through the acquisition of its parent, T.C. Holdings, Inc., from its shareholders. Consideration for the acquisition consisted of net cash payments of $5,458,835 and All-Pure subordinated notes with an aggregate principal amount of $4,500,000 due July 31, 2001, subject to prepayment. The Company's existing cash balances were used to fund the cash portion of the purchase price. T.C. Products is the sole operating asset of T.C. Holdings, Inc. Following the acquisition T.C. Products continues to manufacture and package bleach and related products at its plant in Tacoma, Washington. The purchase of T.C. Products has been accounted for as a purchase transaction and, accordingly, the consolidated financial statements subsequent to July 1, 1996 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of July 1, 1996, and include the results of T.C. Products subsequent to such date. The financial statements required by the acquisition were filed with the Securities and Exchange Commission on Form 10-Q/A on October 11, 1996. Pro forma financial data for the three- and nine-months ended September 30, 1996 is omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The consolidated balance sheet as of September 30, 1996, the statements of operations for the three-month periods ended September 30, 1996 and 1995, the statements of operations for the nine months ended September 30, 1996 and the period from Inception through September 30, 1995, and the statements of cash flows for the nine months ended September 30, 1996 and the period from Inception through September 30, 1995 are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first nine months of 1996 are not necessarily indicative of results to be expected for the year ending December 31, 1996. 9 10 PIONEER AMERICAS ACQUISITION CORP., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) The consolidated balance sheet at December 31, 1995 is derived from the December 31, 1995 audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1995. PRO FORMA FINANCIAL DATA The following pro forma financial data presents the consolidated financial results of operations as if the Acquisition had occurred at the beginning of the period presented and does not purport to be indicative of either future results of operations or results that would have occurred had the Acquisition actually been made as of such date. PRO FORMA COMBINED SUMMARY FINANCIAL DATA (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1996 1995 ---------------- ------------------ ACTUAL PRO FORMA ---------------- ---------------- Revenues $ 159,082 $ 153,501 Income before extraordinary item 5,503 7,540 Extraordinary item, early extinguishment of debt (net of income tax benefit of $2,140) -- 3,420 Net income 5,503 4,120
2. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------------ ------------------ (IN THOUSANDS) Raw materials, supplies and parts $ 12,150 $ 9,849 Finished goods and work-in-process 2,670 3,155 --------------- --------------- $ 14,820 $ 13,004 =============== ==============
3. COMMITMENTS AND CONTINGENCIES The Company is subject to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and the notes thereto. This item will discuss and analyze the financial condition of the Company at September 30, 1996 and the results of operations of the Company for the three months and nine months ended September 30, 1996 in comparison with the combined operations of the Company and the Predecessor Company for the comparable 1995 periods. The following table sets forth certain operating data of the Company and the Predecessor Company for the periods indicated. For comparative purposes the Company's results of operations for the nine months ended September 30, 1995 include the Predecessor Company's operating results from January 1, 1995 through April 20, 1995. The Predecessor Company's operating results for the period exclude $1.0 million of transaction costs related to the Acquisition. The Company believes that this provides a meaningful basis for comparison.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 1996 1995 1996 1995 (1) ----------- --------- ----------- ----------- (IN THOUSANDS) Revenues $ 55,969 $ 59,248 $ 159,082 $ 153,501 Cost of sales 41,341 39,970 115,083 102,271 Cost of sales-acquisition related inventory step up -- -- -- 1,671 Selling, general and administrative expenses 8,109 8,093 22,425 20,496 Interest expense, net 4,460 4,690 13,218 9,991 Minority interest 689 -- 912 -- Other income, net 398 45 491 1,251 ----------- --------- ---------- ---------- Income before income taxes and extraordinary item 3,146 6,540 9,759 20,323 Provision for income taxes 982 2,837 4,706 8,494 ----------- --------- ---------- ---------- Net income before extraordinary item 2,164 3,703 5,053 11,829 Extraordinary expense (net of income tax benefit of $2,140) -- -- -- 3,420 ----------- --------- ---------- ---------- Net income $ 2,164 $ 3,703 $ 5,053 $ 8,409 =========== ========= ========== ==========
(1) Includes Predecessor Company from January 1, 1995 to April 20, 1995 11 12 RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues Revenues increased by $5.6 million or 4% to $159.1 million for the nine months ended September 30, 1996, principally as a result of revenues of acquired companies offsetting declines at the water treatment subsidiaries and higher chlor-alkali volumes offset by lower electrochemical unit ("ECU") prices. The average ECU price in the first nine months of 1996 decreased 4% from the first nine months of 1995 because a decrease in prices for caustic soda exceeded the increase in prices for chlorine. Cost of Sales Cost of sales increased by $11.1 million or 11% to $115.1 million for the nine months ended September 30, 1996 because of the inclusion of acquired companies. This increase is also attributable to higher volumes of ECUs sold and higher raw material prices, particularly electrolytic power which increased due to substantially higher natural gas prices, a major component of power costs at one plant. The combination of lower ECU prices and higher raw material costs were principal factors that resulted in a reduction of the gross profit margin in the 1996 period to 27.7% from 32.3%. Selling, General and Administrative Expense Selling, general and administrative expense increased by $1.9 million or 9% to $22.4 million during the 1996 period primarily due to increased goodwill amortization resulting from the Acquisition, additional accrued compensation pursuant to the Company's incentive compensation program and selling, general and administrative expenses at acquired companies. Interest Expense, Net Interest expense during the first nine months of 1996 increased to $13.2 million from $10.0 million for the 1995 period due to indebtedness incurred as a result of the Acquisition and in connection with the acquisitions during the 1996 period. Minority Interest Minority interest, resulting from an acquisition during 1996, arises from a 50% ownership interest in a subsidiary of Pioneer which is owned by a subsidiary of PCI outside of the Company's consolidated group. Other Income, Net Other income, net was $0.8 million lower in the first nine months of 1996 due to insurance proceeds recognized in the 1995 period. Income Before Income Taxes and Extraordinary Item As a result of the above, net income before income taxes and extraordinary item decreased $10.5 million to $9.8 million for the nine months ended September 30, 1996 from $20.3 million for the nine months ended September 30, 1995. Provision for Income Taxes Provision for income taxes was $4.7 million in 1996 as compared to $8.5 million in 1995 due to lower pre-tax income. Taxable income is higher than book income due to the non-deductibility of amortization of the excess cost over the fair value of the net assets acquired. A provision for income taxes is recorded on the income statement; however, federal income taxes payable are reduced due to the utilization of the net operating loss carryforward, resulting in additional paid-in capital. 12 13 RESULTS OF OPERATIONS--(CONTINUED) Extraordinary Expense An extraordinary expense of $3.4 million net of an income tax benefit of $2.1 million recorded during the first nine months of 1995 was due to costs incurred, and previously capitalized costs written off, pertaining to debt refinanced by the Predecessor Company in 1995 prior to the Acquisition. THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 Revenues Revenues decreased by $3.3 million or 6% to $56.0 million for the three months ended September 30, 1996, despite the inclusion of revenues of businesses acquired after September 30, 1995. This decrease resulted from decreases at the water treatment subsidiaries and lower chlor-alkali volumes offset to some extent by higher ECU prices. The average ECU price for the three months ended September 30, 1996 increased 7% from the three months ended September 30, 1995 as the increase in chlorine prices more than offset the decrease in caustic soda prices. Cost of Sales Cost of sales increased by $1.4 million or 3% to $41.3 million for the three months ended September 30, 1996. This increase is attributable to the inclusion of costs of the acquired companies, higher volumes sold and higher raw material prices, particularly electrolytic power which increased due to substantially higher natural gas prices. Selling, General and Administrative Expense Selling, general and administrative expense decreased slightly despite the inclusion of acquired companies principally because of a greater incentive plan accrual in the 1995 period. Interest Expense, Net Interest expense during the 1996 period increased somewhat despite more outstanding debt from the acquisitions as there was a step down in interest rates on the 13 3/8% First Mortgage Notes that occurred after September 30, 1995. Minority Interest Minority interest, resulting from an acquisition in 1996, arises from a 50% ownership interest in a subsidiary of Pioneer which is owned by a subsidiary of PCI outside of the Company's consolidated group. Income Before Income Taxes and Extraordinary Item As a result of the above, net income before income taxes and extraordinary item decreased $3.4 million to $3.1 million for the three months ended September 30, 1996 from $6.5 million for the three months ended September 30, 1995. Provision for Income Taxes Provision for income taxes was $1.0 million in 1996 as compared to $2.8 million in 1995 due to lower pre-tax income. Taxable income is higher than book income due to the non-deductibility of amortization of the excess cost over the fair value of the net assets acquired. A provision is recorded on the income statement; however, federal income taxes payable are reduced due to the utilization of the net operating loss carryforward, resulting in additional paid-in capital. 13 14 LIQUIDITY AND CAPITAL RESOURCES The Company incurred substantial indebtedness in connection with the Acquisition, the transaction with Kemira, and the acquisition of T.C. Products. As of September 30, 1996, the Company had outstanding indebtedness of approximately $149.7 million. The Company incurred $8.0 million of term debt concurrently with the acquisition of KWT, with principal payments due at various times beginning March 31, 2000 and with a final payment due December 31, 2002. The Company incurred an additional $4.5 million of term debt concurrently with the acquisition of T.C. Products, with principal due July 31, 2001, subject to prepayment. The Company has an available Credit Facility which provides a $30 million revolving line of credit, subject to borrowing base limitations that relate to the level of accounts receivable and inventory. As of September 30, 1996, the Company had $2.9 million of letters of credit outstanding and had, subject to certain restrictions (including borrowing base limitations), the ability to draw up to $18.1 million of additional secured indebtedness under the Credit Facility. The Company believes that cash flow from current and anticipated future levels of operations and, to a lesser extent, the availability under the Credit Facility, will be adequate to make the required payments of principal and interest on outstanding indebtedness, as well as to fund its foreseeable capital expenditures and working capital requirements. Annualized cash interest of $18.9 million will be payable on the Company's long-term debt. To the extent that the Company were to draw upon the commitments under the Credit Facility due to adverse business conditions or to finance acquisitions or for other corporate purposes, the Company's aggregate interest expense would be increased. The Company anticipates that capital expenditures for 1996, excluding acquisitions, will be approximately $16.0 million, including approximately $3.4 million for environmental compliance matters. The Company believes that forecasted capital expenditures will permit it to maintain its facilities on a basis competitive within the industry through improved efficiency and throughput and continuation of high operating rates. The Company's belief that it will generate sufficient cash flow for its requirements is based, among other things, on the assumptions that: (i) the Company's cash flow will be positive as a result of the continuing operating profitability of its business; (ii) the Company will invest in working capital in accordance with prior practices; and (iii) the Company will not incur any material capital expenditures in excess of its business plan. Net Cash Provided by Operating Activities. During the first nine months of 1996, the Company generated $24.4 million in cash from operating activities from profitability, depreciation, the utilization of the NOL and a decrease in working capital (excluding the effects of the purchases of KWT and T.C. Products). Net Cash Used in Investing Activities. Cash used in investing activities for the first nine months of 1996 was $20.2 million, primarily due to the purchases of KWT and T.C. Products by the Company and capital expenditures related to property, plant and equipment. Net Cash Provided by (Used in) Financing Activities. Cash used in financing activities in the first nine months of 1996 was $0.5 million, primarily due to a payment of dividends to PCI. The Company obtained approximately $147.0 million in cash through borrowings and the issuance of common stock from the Acquisition offset by the payment of dividends on Preferred Stock during the first nine months of 1995. 14 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended September 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PIONEER AMERICAS ACQUISITION CORP. November 13, 1996 By: /s/ Philip J. Ablove -------------------------------- Philip J. Ablove Vice President and Chief Financial Officer 15 16 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 15,211 0 27,440 1,528 14,820 63,711 118,851 (15,894) 298,685 52,862 149,683 0 0 1 63,828 298,685 159,082 159,082 115,083 115,083 0 75 13,218 9,759 4,706 5,053 0 0 0 5,053 5,053 5,053
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