-----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, WppUAluwTw4WxlipR8UIu/Aj6wDF8Apz3EfsrvrfbmohQlAO692WZOsdntUjpNaG q8UklPkVg+vv0HI6qUcgPQ== 0000950129-01-500017.txt : 20010416 0000950129-01-500017.hdr.sgml : 20010416 ACCESSION NUMBER: 0000950129-01-500017 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER CORP OF AMERICA 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-K405 SEC ACT: SEC FILE NUMBER: 033-91702 FILM NUMBER: 1602151 BUSINESS ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: STE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132253831 MAIL ADDRESS: STREET 1: 700 LOUISIANA ST STREET 2: SUITE 4200 CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER AMERICAS INC /TX DATE OF NAME CHANGE: 19990317 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER AMERICAS ACQUISITION CORP DATE OF NAME CHANGE: 19950428 10-K405 1 h85821ke10-k405.txt PIONEER CORPORATION OF AMERICA - DECEMBER 31, 2000 1 - -------------------------------------------------------------------------------- SEC 1344 (7-2000) PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF Previous INFORMATION CONTAINED IN THIS FORM ARE NOT REQUIRED TO versions RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB obsolete CONTROL NUMBER. - -------------------------------------------------------------------------------- ========================= OMB APPROVAL ------------------------- OMB Number: 3235-0058 ------------------------- Expires: January 31, 2002 ------------------------- Estimated average burden hours per response...2.50 ========================= SEC FILE NUMBER CUSIP NUMBER 33-98828 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 12b-25 NOTIFICATION OF LATE FILING (Check One): [X} Form 10-K [ ] Form 11-K [ ] Form 20-F [ ] Form 10-Q [ ] Form N-SAR For Period Ended: December 31, 2000 -------------------------------------------------------------- [ ] Transition Report on Form 10-K [ ] Transition Report on Form 20-F [ ] Transition Report on Form 11-K [ ] Transition Report on Form 10-Q [ ] Transition Report on Form N-SAR For the Transition Period Ended: ----------------------------------------------- - -------------------------------------------------------------------------------- Read Instruction (on back page) Before Preparing Form Please Print or Type. - -------------------------------------------------------------------------------- NOTHING IN THIS FORM SHALL BE CONSTRUED TO IMPLY THAT THE COMMISSION HAS VERIFIED ANY INFORMATION CONTAINED HEREIN. - -------------------------------------------------------------------------------- If the notification relates to a portion of the filing checked above, identify the Item(s) to which the notification relates: ---------------------- - ------------------------------------------------------------------------------ PART I REGISTRANT INFORMATION Full Name of Registrant Pioneer Corporation of America -------------------------------------------------- Former Name if Applicable Pioneer Americas, Inc. ------------------------------------------------ Address of principal executive office (Street and number) ---------------- 700 Louisiana Street, Suite 4300 -------------------------------------------------------------------------- City, state and zip code Houston, Texas 77002 ------------------------------------------------- PART II RULES 12b-25(b) AND (c) If the subject report could not be filed without unreasonable effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b), the following should be completed. (Check box if appropriate.) [ ] (a) The reasons described in reasonable detail in Part III of this form could not be eliminated without unreasonable effort or expense; (b) The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, 11-K, Form N-SAR, or portion thereof, [X] will be filed on or before the 15th calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q, or portion thereof will be filed on or before the fifth calendar day following the prescribed due date; and [ ] (c) The accountant's statement or other exhibit required by Rule 12b-25(c) has been attached if applicable. PART III NARRATIVE State below in reasonable detail the reasons why Forms 10-K, 10-KSB, 11-K, 20-F, 10-Q, 10-QSB, N-SAR or the transition report or portion thereof, could not be filed within the prescribed time period. (Attach extra sheets if needed.) As indicated in reports on Form 8-K filed on December 19, 2000, and January 8, 2001, the Registrant has defaulted in the payment of principal and interest that is due under outstanding credit obligations, and it is developing a financial restructuring plan. It has also entered into discussion with senior creditors, and its senior officers and other personnel have been required to devote time and attention to the due diligence efforts by representatives of the creditors. The structure of the Registrant's financial restructuring plan has been provided to such representatives, and discussions during the next two weeks will determine whether there is the basis for a successful restructuring. The significant uncertainties surrounding the basis of a restructuring plan and its implementation have delayed the final determination of the Registrant's asset carrying values and tax attributes. In addition, the Registrant's staff has devoted significant efforts to the development of the restructuring plan. As a result, the Registrant has been unable to complete the preparation of the annual report on Form 10-K for the year ended December 31, 2001, in a timely manner. 12b25-1 2 PART IV OTHER INFORMATION (1) Name and telephone number of person to contact in regard to this notification. Kent R. Stephenson 713 570-3257 - -------------------------------------------------------------------------------- (Name) (Area Code) (Telephone Number) (2) Have all other periodic reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act of 1940 during the preceding 12 months or for such shorter period that the registrant was required to file such report(s) been filed? If answer is no, identify report(s). [X] Yes [ ] No (3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof? [X] Yes [ ] No If so, attach an explanation of the anticipated change, both narratively and quantitatively, and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made. The Registrant's operating loss for the year ended December 31, 2000, was approximately $11.1 million, compared to an operating loss of $37.0 million for the prior year. Revenues in 2000 were $335.2 million, compared to 1999 revenues of $284.3 million. Cost of sales in 2000 increased to $304.4 million from $274.2 million in 1999, while selling, general and administrative expenses decreased to $41.9 million from $47.1 million. Sharply higher energy costs in 2000 hampered the expected earnings recovery from the results of historically low prices in 1999 for chlorine and caustic soda, the Registrant's principal products. Pioneer Corporation of America - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Charter) has caused this notification to be signed on its behalf by the undersigned thereunto duly authorized. Date: 04/02/2001 By: /s/ Kent R. Stephenson ------------------------ --------------------------------------------- Kent R. Stephenson, Vice President INSTRUCTION: The form may be signed by an executive officer of the registrant or by any other duly authorized representative. The name and title of the person signing the form shall be typed or printed beneath the signature. If the statement is signed on behalf of the registrant by an authorized representative (other than an executive officer), evidence of the representative's authority to sign on behalf of the registrant shall be filed with the form. ATTENTION INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001). GENERAL INSTRUCTIONS 1. This form is required by Rule 12b-25 (17 CFR 240.12b-25) of the General Rules and Regulations under the Securities Exchange Act of 1934. 2. One signed original and four conformed copies of this form and amendments thereto must be completed and filed with the Securities and Exchange Commission, Washington, D.C. 20549, in accordance with Rule 0-3 of the General Rules and Regulations under the Act. The information contained in or filed with the form will be made a matter of public record in the Commission files. 3. A manually signed copy of the form and amendments thereto shall be filed with each national securities exchange on which any class of securities of the registrant is registered. 4. Amendments to the notifications must also be filed on form 12b-25 but need not restate information that has been correctly furnished. The form shall be clearly identified as an amended notification. 5. Electronic filers. This form shall not be used by electronic filers unable to timely file a report solely due to electronic difficulties. Filers unable to submit a report within the time period prescribed due to difficulties in electronic filing should comply with either Rule 201 or Rule 202 of Regulation S-T (Section 232.201 or Section 232.202 of this chapter) or apply for an adjustment in filing date pursuant to Rule 13(b) of Regulation S-T (Section 232.13(b) of this Chapter). http://www.sec.gov/divisions/corpfin/forms/12b-25.htm Last update: 07/20/2000 12b25-2 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 33-98828 PIONEER CORPORATION OF AMERICA (Exact name of Registrant as specified in its charter) DELAWARE 06-1420850 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)
700 LOUISIANA STREET, SUITE 4300, HOUSTON, TEXAS 77002 (Address of principal executive offices) (Zip Code) (713) 570-3200 (Registrant's telephone number, including area code) --------------------- 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 9 1/4% SENIOR SECURED NOTES DUE OCTOBER 15, 2007 (Title of class)
On March 30, 2001, there were outstanding 1,000 shares of the Registrant's Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies, Inc. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X], No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X], No [ ]. DOCUMENTS INCORPORATED BY REFERENCE: NONE. The Registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, and is therefore filing this Form with the reduced disclosure format permitted by General Instruction (I)(2) of Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4 PIONEER CORPORATION OF AMERICA TABLE OF CONTENTS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 6 Item 4. Submission of Matters to a Vote of Security Holders......... 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 6 Item 6. Selected Financial Data..................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 6 Item 7a. Quantitative and Qualitative Market Risk Disclosures........ 7 Item 8. Financial Statements and Supplementary Data................. 7 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................... 32 PART III Item 10. Directors and Executive Officers of the Registrant.......... 32 Item 11. Executive Compensation...................................... 32 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 32 Item 13. Certain Relationships and Related Transactions.............. 32 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 32
5 PART I Unless the context otherwise requires, (i) the term "Pioneer" refers to Pioneer Corporation of America and its consolidated subsidiaries, (ii) the term "Company" refers to Pioneer Corporation of America, (iii) the term "Predecessor Company" refers to Pioneer and its subsidiaries as they existed on April 20, 1995, the date they were acquired by the Company, and (iv) the term "PCI" refers to Pioneer Companies, Inc., the parent company of Pioneer. Certain statements in this Form 10-K are "forward looking statements" within the meaning of the Securities Litigation Reform Act. Forward looking statements relate to matters that are not historical facts. Such statements involve risks and uncertainties, including, but not limited to, the Company's high financial leverage, the status and possible outcomes of restructuring efforts, global economic conditions, Company and industry production problems, competitive prices, the cyclical nature of the markets for many of the Company's products and raw materials, and other risks and uncertainties discussed in detail. Actual outcomes may vary materially from those indicated by the forward looking statements. ITEM 1. BUSINESS. Pioneer manufactures and markets chlorine and caustic soda and several related products. Pioneer conducts its primary business through its operating subsidiaries: Pioneer Americas, Inc. (formerly known as Pioneer Chlor-Alkali Company, Inc.) ("PAI"), and PCI Chemicals Canada Inc. ("PCI Canada"). In August 2000, Pioneer completed the disposal of substantially all of the assets of a former operating subsidiary, Kemwater North America Company ("KNA"). The Company is a wholly-owned subsidiary of PCI. PCI is a publicly-traded company which, prior to its acquisition of the Predecessor Company in 1995, was actively seeking acquisitions and had no operations. As of December 31, 2000, Interlaken Investment Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership") beneficially owned approximately 34.9% of the voting power of PCI and William R. Berkley (who may be deemed to beneficially own all shares of PCI common stock held by the Interlaken Partnership) beneficially owned approximately 59.8% of the voting power of PCI. Pioneer owns and operates five chlor-alkali plants in North America 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), as well as certain related product manufacturing facilities. Management believes that Pioneer is one of the six largest chlor-alkali producers in North America, with approximately 6% of North American production capacity. In addition to its chlor-alkali capacity, Pioneer manufactures hydrochloric acid, bleach, sodium chlorate and other products. Pioneer's five chlor-alkali production facilities are located in Becancour, Quebec; Tacoma, Washington; St. Gabriel, Louisiana; Henderson, Nevada; and Dalhousie, New Brunswick. The five facilities produce chlorine and caustic soda for sale in the merchant markets and for use as raw materials in the manufacture of downstream products. The Becancour and Henderson facilities also produce hydrochloric acid and bleach, and the Tacoma facility also produces hydrochloric acid and calcium chloride. The Dalhousie facility also produces sodium chlorate. During 2000, Pioneer's U.S. plants faced substantially higher energy costs and in March 2001, Pioneer announced a fifty percent curtailment in the capacity of the Tacoma plant due to an inability to obtain sufficient power at reasonable prices. Pioneer also operates three bleach production and chlorine repackaging facilities in California and Washington, and distributes these products to municipalities and selected commercial markets in the western United States through various distribution channels. All of the chlorine and caustic soda used as raw materials at these facilities is supplied by the Henderson and Tacoma chlor-alkali facilities. Additional production units at Cornwall, Ontario produce hydrochloric acid, bleach, chlorinated paraffins under the brand name Cereclor(R), and proprietary pulping additives, PSR 2000(R) and IMPAQT(R). On August 21, 2000, KNA sold its coagulant business and transferred to the buyer fixed assets, including a plant in Spokane, Washington, and certain technology-related assets and liabilities associated with the Spokane operations. The Company received cash of $0.9 million as payment for Spokane. On the same date, 1 6 an affiliate of the Company also sold its coagulant business to the same buyer, transferring assets and liabilities associated with a plant in Savannah, Georgia, except for a related party payable of $17 million for advances from the Company which were written off by the Company, and is reflected as a decrease in due from affiliates on the balance sheet and an increase in other expense on the income statement. This transaction did not have a material impact on the Company's cash flows. Also in 2000, a charge of $0.9 million was recorded, relating to the disposition of KNA's alum coagulant business at Antioch, California. The Company is a holding company with no operating assets or operations. As of December 31, 2000, Pioneer had outstanding $590.3 million of long-term debt, most of which is classified as current in the December 31, 2000 Consolidated Balance Sheet. See Note 10 to the Consolidated Financial Statements. $175.0 million of this debt was issued by PCI Canada in the form of 9 1/4% Senior Secured Notes due October 15, 2007. There are no restrictions on the ability of PCI Canada or the Company's other subsidiaries to pay dividends to or make other distributions to the Company or PCI Canada. Pioneer's debt agreements, including those related to PCI Canada's indebtedness, contain restrictions, which, among other things, could limit the ability of the Company to incur additional indebtedness, to acquire or dispose of assets or operations and to redeem shares of stock. See Note 10 to the Consolidated Financial Statements for summarized financial information on PCI Canada. Debt Restructuring In December 2000 the Company delayed making payments on various debt obligations due to lack of sufficient liquidity. As a result, at December 31, 2000 Pioneer was not in compliance with the terms of certain of its debt agreements. Accordingly, $586.3 million of debt outstanding under various agreements is classified as a current liability on the Company's consolidated balance sheet. Pioneer's cash flows and liquidity have been substantially reduced due to the steep decline in ECU prices in 1999 and extraordinarily high power costs in 2000. Decreased liquidity warranted the suspension of debt service in favor of funding ongoing operations. Pioneer is developing a comprehensive financial restructuring program for which it will solicit the consent of its lenders at the earliest practical time. Pioneer has held discussions with an informal committee of holders of the senior notes and term facilities, as well as other creditors, about a financial restructuring plan. The objective of the restructuring is to establish a capital structure that is consistent with Pioneer's cash flows throughout the industry cycle, and that affords Pioneer adequate funding of capital expenditures, working capital needs, and debt service requirements. The proposed restructuring may have to occur under the supervision of a United States Bankruptcy Court. While the Company believes that these discussions have been productive, there can be no assurances that an agreement on the proposed restructuring can be timely completed. The accompanying financial statements present the liabilities at face value. The debt restructuring could result in debt being paid at less than 100% of its face value and the carrying value of assets could be changed. The sufficiency of Pioneer's liquidity and capital resources is dependent upon the successful completion of the financial restructuring described above, generating sufficient positive cash flow from operations and obtaining financing as may be required. While Pioneer believes it will be able to complete a consensual restructuring during 2001, there can be no assurance that it will be successful in doing so. Pioneer is reviewing with its financial and legal advisors the financial alternatives available to Pioneer, including without limitation, the debt restructuring proposal described above and/or the filing of a petition under Chapter 11 of the United States Bankruptcy Code. 2 7 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, --------------------------------- 2000 1999 --------------- -------------- Revenues.......................................... $ 335,152 100% $284,312 100% Cost of sales..................................... 304,357 91 274,181 96 --------- --- -------- --- Gross profit...................................... 30,795 9 10,131 4 Selling, general and administrative expense....... 41,891 12 47,145 17 --------- --- -------- --- Operating loss.................................... (11,096) (3) (37,014) (13) Interest expense, net............................. (54,990) (17) (50,313) (18) Other income (expense), net....................... (13,812) 4 14,608 5 --------- --- -------- --- Loss before income taxes and extraordinary item... (79,898) (24) (72,719) (26) Income tax expense (benefit)...................... 33,102 (10) (24,779) 9 --------- --- -------- --- Net loss.......................................... $(113,000) (34)% $(47,940) (17)% ========= === ======== ===
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Revenues. Revenues increased by $50.8 million, or approximately 18%, to $335.2 million for the twelve months ended December 31, 2000, as compared to the same period in 1999. Pioneer's average ECU sales price for the year ended December 31, 2000 was $327, an increase of approximately 35% from the average 1999 sales price of $242. Sales volumes during the twelve months ended December 31, 2000 were similar to those during 1999. The sale of KNA resulted in a $7.6 million revenue decrease in 2000 as compared to 1999 due to the inclusion of only a partial year of operations in 2000. Cost of Sales. Cost of sales increased $30.2 million or approximately 11% in 2000, as compared to 1999. $10.9 million of this increase was due to the absence of the gain resulting from the modification of Pioneer's retiree health care benefits that occurred during the first quarter of 1999. The remaining increase in cost of sales was principally due to a $17.9 million increase in power costs and a $7.9 million increase in purchase-for-resale costs for product purchased from third parties and resold to Pioneer customers, offset by an $8.3 million decrease due to the inclusion of only a partial year of operations of KNA. Gross Profit. Gross profit margin increased to 9% in 2000 from 4% in 1999, primarily as a result of higher average ECU sales prices. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.3 million in 2000. Decreases related to overhead expense reductions and the absence of asset impairments recorded in 1999 were partially offset by an increase of $1.6 million due to the absence of the modification of Pioneer's retiree health care benefits referred to above. Interest Expense, Net. Interest expense, net increased $4.7 million to $55.0 million in 2000 primarily as a result of interest incurred on higher revolving credit balances and higher variable interest rates in 2000 as compared to 1999. Although Pioneer suspended payments of interest under various debt agreements in December 2000, all amounts owing were expensed and included in accrued liabilities, or, in the case of the revolving credit facility, added to the outstanding revolving credit facility balance, at December 31, 2000. Other Income(Expense), Net. Other expense in 2000 included a $17 million loss from the write off of a related party receivable in connection with an affiliate of the Company selling its coagulant business offset by a $3.3 million gain on the sale of excess property at the Henderson plant. In 1999, other income included a $12.0 million gain on the sale of Pioneer's 15% partnership interest in Saguaro Power Company. Income Taxes. Pioneer is required to record a valuation allowance for deferred tax assets when management believes it is more likely than not that the asset will not be realized. In 2000, based on the 3 8 uncertainty as to the effect of the Company's restructuring on the availability and use of Pioneer's net operating loss carryforwards ("NOLs"), and the level of historical taxable income and projections for future taxable income over the periods in which the NOLs are available for use, it was estimated that it is more likely than not that Pioneer will not realize the full benefit of the deferred tax assets relating to NOLs. Accordingly, Pioneer has recorded a valuation allowance of $61.9 million for the year ended December 31, 2000. Recent Accounting Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The adoption of SFAS 133 effective January 1, 2001, did not have a significant impact on the financial position, results of operations, or cash flows of the Company. Market Risk Disclosures The Company has certain long-term debt instruments that are subject to market risk. At December 31, 2000, approximately $210.6 million of the Company's debt had variable interest rates, including LIBOR and U.S. prime rate based loans. An increase in the market interest rates would increase the Company's interest expense and its cash requirements for interest payments. For example, an average increase of 0.25% in the variable interest rate would increase the Company's interest expense and payments by approximately $0.5 million. The Company's remaining debt instruments, totaling approximately $379.7 million at December 31, 2000, are at various fixed interest rates ranging from 8.0% to 9.25%, with the majority at 9.25%. The Company, through PCI Canada, operates in Canada and is subject to foreign currency exchange rate risk. Due to the significance of PCI Canada's U.S. dollar-denominated long-term debt (and related accrued interest payable) and certain other U.S. dollar-denominated assets and liabilities, the entity's functional accounting currency is the U.S. dollar. Certain other items within PCI Canada's working capital are denominated in Canadian dollars. An average change of 1% in the currency exchange rate would change total assets by approximately $0.3 million. Risk Factors ABILITY TO CONTINUE AS A GOING CONCERN IS DEPENDENT UPON RESTRUCTURING Since December 2000, Pioneer has not been in compliance with certain covenants of its senior notes and term facilities. Pioneer stopped making payments of interest under the senior notes and principal under the term facilities in December 2000. Due to cross default provisions in the revolving facility agreement, the revolving facility is currently in default also. As Pioneer is not in compliance with the terms of these debt agreements, the debt outstanding under these debt agreements is classified as a current liability on Pioneer's December 31, 2000 Consolidated Balance Sheet. DISRUPTION OF OPERATIONS DUE TO RESTRUCTURING Pioneer's restructuring efforts could adversely affect its relationship with its customers, suppliers and employees. Employees generally are not party to employment contracts. Due to uncertainty about Pioneer's financial condition, it may be difficult to retain or attract high quality employees. If Pioneer's relationships with its customers, suppliers and employees are adversely affected, its operations could be materially affected. Weakened operating results could adversely affect Pioneer's ability to complete the restructuring. FINANCIAL UNCERTAINTY Until the financial restructuring is completed, there is significant uncertainty regarding Pioneer. Until the uncertainty is removed and the new capital structure is in place, the reported financial information discussed in 4 9 this Annual Report on Form 10-K may not be indicative of operating results or financial condition. See Note 1 to the Consolidated Financial Statements included elsewhere herein. Forward Looking Statements Certain statements in this Form 10-K regarding future expectations of Pioneer's business and Pioneer's results of operations may be regarded as "forward looking statements" within the meaning of the Securities Litigation Reform Act. Such statements are subject to various risks, including Pioneer's high financial leverage, the outcome of financial restructuring efforts, the cyclical nature of the markets for many of Pioneer's products and raw materials and other risks discussed in detail. Actual outcomes may vary materially. ITEM 2. PROPERTIES. Facilities The following table sets forth certain information regarding Pioneer's principal production, distribution and storage facilities as of March 31, 2001. All property is owned by Pioneer unless otherwise indicated.
LOCATION MANUFACTURED PRODUCTS - -------- --------------------- Becancour, Quebec..................... Chlorine and caustic soda Hydrochloric acid Bleach Hydrogen Tacoma, Washington.................... Chlorine and caustic soda Hydrochloric acid Calcium chloride Hydrogen St. Gabriel, Louisiana................ Chlorine and caustic soda Hydrogen Henderson, Nevada..................... Chlorine and caustic soda Hydrochloric acid Bleach Hydrogen Dalhousie, New Brunswick.............. Chlorine and caustic soda Sodium chlorate Hydrogen Cornwall, Ontario*.................... Bleach Cereclor(R) chlorinated paraffin PSR 2000(R) pulping additive IMPAQT(R) pulping additive Tracy, California*.................... Bleach Chlorine repackaging Santa Fe Springs, California*......... Bleach Chlorine repackaging Tacoma, Washington.................... Bleach Chlorine repackaging Various*.............................. Distribution
- --------------- * Leased property Corporate headquarters for Pioneer is located in leased office space in Houston, Texas under a lease terminating in 2006. Pioneer also leases office space in Montreal, Quebec under a lease terminating in 2003 5 10 and owns a technology center in Mississauga, located on 1.2 acres of land in the Sheridan Park Research Center near Toronto, Ontario, which conducts applications research, particularly with respect to pulp and paper process technology. The acquisition of the chlor-alkali facility in Tacoma was financed with the proceeds of a nine and one-half year $100 million term facility provided to the Company (the "PCA Term Facility"), and with a portion of the proceeds of a $200 million offering of 9 1/4% Senior Secured Notes due 2007 issued by the Company (the "Senior Notes"). The Senior Notes and obligations outstanding under the PCA Term Facility are secured by first mortgages on PAI's Tacoma, St. Gabriel, and Henderson facilities. The acquisition of the PCI Canada facilities was financed with the proceeds of a nine and one-quarter year $83 million term facility provided to the Company (the "PCI Canada Term Facility"), and with the proceeds of a $175 million offering of 9 1/4% Senior Secured Notes due 2007 issued by PCI Canada (the "PCI Canada Senior Notes"). The PCI Canada Senior Notes and obligations outstanding under the PCI Canada Term Facility are secured by liens on and security interests in substantially all tangible and intangible property and assets used in PCI Canada's business in Canada. ITEM 3. LEGAL PROCEEDINGS. From time to time, Pioneer is involved in litigation relating to claims arising out of its operations in the normal course of its business. Pioneer maintains insurance coverage against potential claims in amounts which it believes to be adequate. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Pioneer's results of operations, cash flow or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of the Company's outstanding Common Stock, which is the Company's only class of equity securities, is owned by PCI. Pursuant to the terms of certain debt instruments, there are restrictions on the ability of Pioneer to transfer funds to PCI, resulting in limitations on PCI's ability to declare dividends on its Common Stock. See Note 10 to the Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K selected financial data is contained in Item 1 -- Business -- "Results of Operations". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K, management's narrative analysis of the results of operations is contained in Item 1 -- Business -- "Results of Operations". ITEM 7a. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES. This item is omitted in accordance with General Instruction (I)(2) of Form 10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K, market risk disclosures are contained in Item 1 -- Business -- "Results of Operations". 6 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index:
PAGE ---- (1) Consolidated financial statements: Report of Management........................................ 8 Independent Auditors' Report................................ 9 Consolidated Balance Sheets as of December 31, 2000 and 1999........................................................ 10 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......................... 11 Consolidated Statements of Stockholders' Equity (Deficiency in Assets) for the years ended December 31, 2000, 1999 and 1998........................................................ 12 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... 13 Notes to consolidated financial statements.................. 14 (2) Supplemental Schedule: Schedule II -- Valuation and Qualifying Accounts............ 37
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. 7 12 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. The accompanying consolidated financial statements have been prepared assuming that Pioneer will continue as a going concern. As discussed in Note 1, Pioneer is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern without a financial restructuring. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management maintains accounting systems which are supported by internal accounting controls that provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the benefits. An independent auditor performed an audit of Pioneer's financial statements for the purpose of determining that the statements are presented fairly in accordance with accounting principles generally accepted in the United States of America. The independent auditor is appointed by the Board of Directors and meets regularly with the Audit Committee of the Board. The Audit Committee of the Board of Directors is composed solely of outside directors. The Audit Committee meets periodically with Pioneer's senior officers and independent auditor to review the adequacy and reliability of Pioneer's accounting, financial reporting and internal controls. PHILIP J. ABLOVE Executive Vice President and Chief Financial Officer (Principal Financial Officer) PIERRE PRUD'HOMME Vice President, Controller (Principal Accounting Officer) April 11, 2001 8 13 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Pioneer Corporation of America We have audited the accompanying consolidated balance sheets of Pioneer Corporation of America and subsidiaries ("Pioneer") as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficiency in assets), and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of Pioneer's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Pioneer as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that Pioneer will continue as a going concern. As discussed in Note 1, Pioneer is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP Houston, Texas April 11, 2001 9 14 PIONEER CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------- 2000 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 5,000 $ 2,903 Accounts receivable, less allowance for doubtful accounts: 2000, $1,392; 1999, $1,592............................. 49,563 50,063 Inventories............................................ 25,067 23,130 Prepaid expenses....................................... 4,100 5,730 --------- --------- Total current assets.............................. 83,730 81,826 Property, plant, and equipment, at cost: Land................................................... 10,622 10,622 Buildings and improvements............................. 61,334 61,014 Machinery and equipment................................ 348,695 333,094 Construction in progress............................... 15,137 19,435 --------- --------- 435,788 424,165 Less accumulated depreciation.......................... (135,404) (103,096) --------- --------- 300,384 321,069 Due from affiliates......................................... 3,939 15,231 Other assets, net of accumulated amortization: 2000, $12,004; 1999, $8,956..................................... 25,418 66,965 Excess cost over the fair value of net assets acquired, net of accumulated amortization: 2000, $39,945; 1999, $32,095................................................... 179,560 192,464 --------- --------- Total assets...................................... $ 593,031 $ 677,555 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable.......................................... $ 43,738 $ 28,796 Accrued liabilities....................................... 43,847 30,716 Current portion of long-term debt......................... 586,252 2,609 --------- --------- Total current liabilities......................... 673,837 62,121 Long-term debt, less current maturities..................... 4,086 583,260 Accrued pension and other employee benefits................. 14,984 15,091 Other long-term liabilities................................. 12,256 16,140 Commitments and contingencies............................... -- -- Stockholder's equity (deficiency in assets): Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding................................. 1 1 Additional paid-in capital................................ 65,483 65,483 Retained deficit.......................................... (177,541) (64,541) Accumulated other comprehensive income.................... (76) -- --------- --------- Total stockholder's equity (deficiency in assets)......................................... (112,133) 943 --------- --------- Total liabilities and stockholder's equity (deficiency in assets).......................... $ 593,031 $ 677,555 ========= =========
See notes to consolidated financial statements. 10 15 PIONEER CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- -------- -------- Revenues.................................................... $ 335,152 $284,312 $361,280 Cost of sales............................................... 304,357 274,181 278,478 --------- -------- -------- Gross profit................................................ 30,795 10,131 82,802 Selling, general and administrative expenses................ 41,891 47,145 44,845 Unusual charges............................................. -- -- 1,385 --------- -------- -------- Operating income (loss)..................................... (11,096) (37,014) 36,572 Equity in net loss of unconsolidated subsidiaries........... -- -- (2,208) Interest expense, net....................................... (54,990) (50,313) (48,792) Other income, net........................................... (13,812) 14,608 759 --------- -------- -------- Loss before taxes........................................... (79,898) (72,719) (13,669) Income tax provision (benefit).............................. 33,102 (24,779) (3,357) --------- -------- -------- Net loss.................................................... $(113,000) $(47,940) $(10,312) ========= ======== ======== Loss per common share: Net loss.................................................. $(113,000) $(47,940) $(10,312) ========= ======== ========
See notes to consolidated financial statements. 11 16 PIONEER CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) (IN THOUSANDS)
NUMBER OF COMMON ADDITIONAL OTHER SHARES COMMON PAID-IN RETAINED COMPREHENSIVE OUTSTANDING STOCK CAPITAL DEFICIT LOSS TOTAL ----------- ------ ---------- --------- ------------- --------- Balance at January 1, 1998...... 1 $ 1 $66,169 $ (6,289) -- $ 59,881 Dividend paid to parent....... -- -- (686) -- -- (686) Net loss...................... -- -- -- (10,312) -- (10,312) -- --- ------- --------- ---- --------- Balance at December 31, 1998.... 1 1 65,483 (16,601) -- 48,883 Net loss...................... -- -- -- (47,940) -- (47,940) -- --- ------- --------- ---- --------- Balance at December 31, 1999.... 1 1 65,483 (64,541) -- 943 Comprehensive loss: Net loss................... -- -- -- (113,000) -- Other comprehensive loss, net of taxes: Additional minimum pension liability..... -- -- -- -- (76) Comprehensive loss.... -- -- -- -- -- (113,076) -- --- ------- --------- ---- --------- Balance at December 31, 2000.... 1 $ 1 $65,483 $(177,541) $(76) $(112,133) == === ======= ========= ==== =========
See notes to consolidated financial statements. 12 17 PIONEER CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- -------- -------- Operating activities: Net loss.................................................. $(113,000) $(47,940) $(10,312) Adjustments to reconcile net loss to net cash provided by operating activities: Reduction in post-retirement medical expense........... -- (12,530) -- Depreciation and amortization.......................... 49,649 51,435 47,675 Deferred tax expense (benefit)......................... 33,419 (24,763) (3,357) Foreign exchange gain (loss)........................... 636 (1,025) 78 Unusual charges........................................ -- -- 1,385 Loss (gain) on disposal of assets...................... 14,860 (10,199) 1,845 Equity in net loss of unconsolidated subsidiaries...... -- -- 2,208 Net effect of changes in operating assets and liabilities.......................................... 27,378 (6,576) (439) --------- -------- -------- Net cash flows from operating activities.......... 12,942 (51,598) 39,083 --------- -------- -------- Investing activities: Investments in and advances to unconsolidated subsidiaries........................................... -- -- (4,290) Capital expenditures, net................................. (18,697) (28,318) (33,596) Proceeds from disposal of assets.......................... 4,763 13,159 335 --------- -------- -------- Net cash flows from investing activities.......... (13,934) (15,159) (37,551) --------- -------- -------- Financing activities: Net proceeds under revolving credit arrangements.......... 6,418 21,163 -- Repayments of long-term debt.............................. (1,950) (2,666) (2,591) Debt issuance and related costs........................... -- (968) -- Dividends paid to parent.................................. -- -- (686) --------- -------- -------- Net cash flows from financing activities.......... 4,468 17,529 (3,277) --------- -------- -------- Effect of exchange rate changes on cash..................... (1,379) 1,538 (714) --------- -------- -------- Net increase (decrease) in cash............................. 2,097 (47,690) (2,459) Cash and cash equivalents at beginning of period............ 2,903 50,593 50,995 Cash acquired in acquisitions............................... -- -- 2,057 --------- -------- -------- Cash and cash equivalents at end of period.................. $ 5,000 $ 2,903 $ 50,593 ========= ======== ========
See notes to consolidated financial statements. 13 18 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Organization The consolidated financial statements include the accounts of Pioneer Corporation of America (the "Company") and its subsidiaries (collectively, "Pioneer"), Pioneer Americas, Inc. ("PAI"), and PCI Chemicals Canada Inc. ("PCI Canada"). The Company is a wholly-owned subsidiary of Pioneer Companies, Inc. ("PCI"). All significant intercompany balances and transactions have been eliminated in consolidation. In early 2000, Kemwater North America Company ("KNA") sold its alum coagulant business at Antioch, California and recorded a charge of $0.9 million. In August 2000, KNA disposed of its remaining assets (see Note 3). KNA had revenues of $2.4 million, $10 million and $23 million in 2000, 1999 and 1998, respectively. Pioneer operates in one industry segment, that being the production, marketing and selling of chlor-alkali and related products. Pioneer operates in one geographic area, North America. 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. The accompanying consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Pioneer has experienced net losses each of the four years in the period ended December 31, 2000. In December 2000, Pioneer delayed making payments on various debt obligations due to insufficient liquidity. As a result, at December 31, 2000 Pioneer was not in compliance with the terms of certain of its debt agreements and the maturity of the debt could be accelerated. Accordingly, $586.3 million of debt outstanding under various agreements is classified as a current liability on Pioneer's consolidated balance sheet. Pioneer is developing a comprehensive financial restructuring program for which it will solicit the consent of its lenders at the earliest practical time. The consolidated financial statements do not include any adjustments that may result from the resolution of these uncertainties. Pioneer has held discussions with an informal committee of holders of its outstanding senior notes and term facilities and their advisers, and representatives of its revolving credit lender about a financial restructuring program. Negotiations and discussions with the lenders regarding a restructuring agreement have recently begun. If a consensual agreement cannot be reached, the proposed restructuring may occur under the supervision of a United States Bankruptcy Court. While Pioneer believes that these discussions to date have been productive, there can be no assurance that an agreement on the proposed restructuring can be timely completed. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles," or "GAAP") 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 the estimates and judgments made in preparing these financial statements, which include assumptions made concerning the amounts owed to creditors and realizable values of assets. Management has reviewed Pioneer's long-lived assets and intangibles such as goodwill, to assess whether the events and changes in circumstances described above indicate that the carrying amount of the asset may not be recoverable. In making these estimates, management has utilized the assessments, calculations, and determinations made in preparing analyses utilized in determining operational improvements and in discussions with creditors, including estimates of overall enterprise value. Generally accepted accounting principles require that the amounts owed to Pioneer's creditors as of December 31, 2000 not be adjusted to reflect any proposed restructuring as Pioneer continues to be bound by 14 19 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the provisions of the original credit agreements. If a restructuring agreement is reached and implemented, the restructuring of debt could give rise to a gain that will be reported as income in 2001 at the time of plan implementation, in accordance with GAAP. The amount of such gain, if any, cannot be determined until the restructuring plan is finalized. Pioneer's ability to meet its ongoing liquidity requirements is dependent upon the successful completion of the financial restructuring described above, its ability to generate sufficient cash flow to meet its obligations on a timely basis and its ability to obtain other financing as may be required. While Pioneer believes it may be able to complete a consensual restructuring during 2001, there can be no assurance that it will be successful in doing so. Pioneer is reviewing with its financial and legal advisors the financial alternatives available to Pioneer, including without limitation the debt restructuring proposal described above and/or the filing of a petition under Chapter 11 of the United States Bankruptcy Code. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Inventories Inventories are valued at the lower of cost or market. Finished goods and work-in-process costs are recorded under the average cost method, which includes appropriate elements of material, labor and manufacturing overhead costs, while the first-in, first-out method is utilized for raw materials, supplies and parts. Pioneer enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by Pioneer are included in inventory. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Disposals are removed at carrying cost less accumulated depreciation with any resulting gain or loss reflected in operations. Depreciation is computed primarily under the straight-line method over the estimated remaining useful lives of the assets. Asset lives range from 5 to 15 years with a predominant life of 10 years, which include buildings and improvements with an average life of 15 years and machinery and equipment with an average life of 9 years. Other Assets Other assets include amounts for deferred financing costs, which are being amortized on a straight-line basis over the term of the related debt. Amortization of such costs using the interest method would not result in material differences in the amounts amortized during the periods presented. Amortization expense for other assets for the years ended December 31, 2000, 1999, and 1998 was approximately $4.5 million, $5.8 million, and $3.2 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 $219.5 million is amortized on a straight-line basis over 25 years. The carrying value of goodwill is reviewed annually and if this review indicates that such excess cost will not be recoverable, as determined based on the estimated future undiscounted cash flows of the entity acquired over the remaining amortization period, Pioneer's carrying 15 20 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value of goodwill will be reduced by the estimated deficit of discounted cash flows or the fair value of the related entity. Amortization expense for excess cost over the fair value of net assets acquired was approximately $9.0 million, $9.1 million and $8.9 million for the years ended December 31, 2000, 1999 and 1998, 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. Revenue Recognition Pioneer generates revenues through sales in the open market and long-term supply contracts. Revenue is recognized when the products are shipped and collection is reasonably assured. Pioneer classifies amounts billed to customers for shipping and handling as revenues, with the related shipping and handling costs included in cost of goods sold. Research and Development Expenditures Research and development expenditures are expensed as incurred. Such costs totaled $1.4 million in 2000, $1.5 million in 1999 and $1.4 million in 1998. 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. 3. DIVESTITURES In March 2000, KNA sold its coagulant business at Antioch, California, and recorded a $0.9 million loss on the sale. On August 21, 2000, the Company sold its coagulant business and transferred to the buyer fixed assets, including a plant in Spokane, Washington, and certain technology-related assets and liabilities associated with the Spokane operations. The Company received cash of $0.9 million as payment for Spokane. On the same date, an affiliate of the Company also sold its coagulant business to the same buyer, transferring assets and liabilities associated with a plant in Savannah, Georgia, except for a related party payable of $17 million for advances from the Company which were written off by the Company, and is reflected as a decrease in due from affiliates on the balance sheet and an increase in other expense on the income statement. This transaction did not have a material impact on the Company's cash flows. 16 21 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. SUPPLEMENTAL CASH FLOW INFORMATION The net effect of changes in operating assets and liabilities (net of acquisitions) are as follows:
2000 1999 1998 ------- ------- -------- Accounts receivable.................................... $ 522 $(3,005) $ 21,950 Due from affiliates.................................... (1,731) 1,280 (6,462) Inventories............................................ (2,225) 3,113 (2,712) Prepaid expenses....................................... 1,408 (2,087) 102 Other assets........................................... 6,012 (576) (4,393) Accounts payable....................................... 16,200 (2,885) (14,247) Accrued liabilities.................................... 13,239 (1,522) 1,532 Other long-term liabilities............................ (5,039) (2,443) 302 Accrued pension and other employee benefits............ (1,008) 1,549 3,489 ------- ------- -------- Net change in operating accounts....................... $27,378 $(6,576) $ (439) ======= ======= ========
Following is supplemental cash flow information:
2000 1999 1998 ------- ------- ------- Cash paid during the period for: Interest.............................................. $44,140 $50,531 $49,358 ======= ======= ======= Income taxes.......................................... $ 11 $ 126 $ 159 ======= ======= =======
5. INVENTORIES Inventories consisted of the following at December 31:
2000 1999 ------- ------- Raw materials, supplies and parts........................... $14,329 $16,822 Finished goods and work-in-process.......................... 9,391 5,350 Inventories under exchange agreements....................... 1,347 958 ------- ------- $25,067 $23,130 ======= =======
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES KNA and KWT Prior to September 1998, Pioneer indirectly owned a 50% interest in KNA which owned 100% of KWT, Inc. ("KWT"), an indirect subsidiary of PCI. In September 1998, KNA exchanged its ownership in KWT for the remaining 50% ownership in KNA held by PCI. No gain or loss was recognized on this exchange. Following this transaction, KNA's results of operations and financial position are included in the Company's consolidated financial statements. Below is a summary of selected items from the consolidated KNA statements of operations for the nine months ended September 30, 1998.
1998 ------- Revenues.................................................. $26,403 Gross loss................................................ (350) Net loss.................................................. (4,416)
17 22 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Investments in Basic Management, Inc. and The Landwell Company, L.P. Prior to June 2000 the Company, through its subsidiary PAI, was the record owner of approximately 32% of the common stock of Basic Management, Inc. ("BMI"), which owns and maintains the water and power distribution network within a Henderson, Nevada industrial complex. BMI is the general partner of and has a 50% interest in The LandWell Company, L.P. ("LandWell"), which is a large landowner in Henderson and Clark County, Nevada. Prior to June 2000 PAI also owned an approximate 21% limited partnership interest in LandWell. The remainder of the common stock of BMI and the partnership interests in LandWell is owned by other companies with facilities located in the same industrial complex. Pioneer's interests in BMI and LandWell, together with certain other California and Louisiana real estate interests, constituted assets that were held for the economic benefit of the previous owners of PAI. Dividends and distributions received by Pioneer on account of such interests were deposited in a separate cash account (the "Contingent Payment Account"), the balance of which was to be applied in satisfaction of certain obligations of such previous owners under environmental indemnity obligations in favor of Pioneer, provided that any amounts not so applied prior to April 20, 2015 were to be remitted to such persons. Pioneer's investment in BMI, LandWell and the California and Nevada real estate interests, following the equity method, was $18.0 million at December 31, 1999, and the balance in the Contingent Payment Account was $6.7 million on that date. Within Pioneer's balance sheet as of December 31, 1999, those assets were offset by liabilities of the same amount because the right of setoff existed, as Pioneer and the previous owners owed determinable amounts, Pioneer had the right to set off the amount owed by the previous owners, Pioneer intended to set off the amount and the setoff was enforceable by law. Effective in June 2000 Pioneer and the previous owners effected an agreement pursuant to which Pioneer agreed to transfer to the previous owners the record title to the interests in BMI, LandWell and the California and Louisiana real estate interests, as well as $800,000 of the cash balance in the Contingent Payment Account. The remaining $5.3 million balance in the Contingent Payment Account, which was determined as an amount adequate to pay for future environmental remediation costs that would be subject to the indemnity obligations of the previous owners, was retained by Pioneer, in exchange for the release of the indemnity obligations. This transaction resulted in a gain of $1.8 million. 7. OTHER ASSETS Other assets consist of the following at December 31:
2000 1999 ------- ------- Debt financing assets and organizational cost assets, net... $14,646 $17,110 Deferred tax asset.......................................... 2,833 33,630 Patents, trademarks and other intangibles, net.............. 3,605 6,406 Indemnification of environmental reserve.................... 2,367 7,777 Other....................................................... 1,967 2,042 ------- ------- Other assets, net......................................... $25,418 $66,965 ======= =======
18 23 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
2000 1999 ------- ------- Payroll, benefits and pension............................... $ 6,234 $ 6,213 Interest and bank fees...................................... 16,527 5,419 Other accrued liabilities................................... 21,086 19,084 ------- ------- Accrued liabilities....................................... $43,847 $30,716 ======= =======
9. EMPLOYEE BENEFITS Pension Plans Pioneer sponsors various non-contributory, defined benefit plans covering substantially all union and non-union employees of PAI and PCI Canada. Pension plan benefits are based primarily on participants' compensation and years of credited service. Annual pension costs and liabilities for Pioneer under its defined benefit plans are determined by actuaries using various methods and assumptions. Pioneer has agreed to contribute such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to its employees. Pioneer's present intent is to make annual contributions, which are actuarially computed, in amounts not more than the maximum nor less than the minimum allowable under the Internal Revenue Code. Plan assets at December 31, 2000 and 1999 consist primarily of fixed income investments and equity investments. 19 24 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information concerning the pension obligation, plan assets, amounts recognized in Pioneer's financial statements and underlying actuarial assumptions is stated below.
2000 1999 ------- ------- Change in Benefit Obligation: Projected benefit obligation, beginning of year........... $56,966 $55,011 Service cost.............................................. 2,766 3,042 Interest cost............................................. 4,187 3,850 Actuarial gains........................................... (270) (3,573) Benefits paid............................................. (1,491) (1,379) Plan amendments........................................... 928 15 ------- ------- Projected benefit obligation, end of year................. $63,086 $56,966 ======= ======= Change in Plan Assets: Market value of assets, beginning of year................. $49,591 $42,643 Actual return on plan assets.............................. 2,465 5,755 Employer contributions.................................... 3,412 2,600 Benefits paid............................................. (1,518) (1,407) ------- ------- Market value of assets, end of year....................... $53,950 $49,591 ======= ======= Development of net amount recognized: Funded status............................................. $(9,157) $(7,375) Actuarial gain............................................ (428) (1,829) Unrecognized prior service cost........................... 1,467 666 ------- ------- Net amount recognized..................................... $(8,118) $(8,538) ======= ======= Amounts Recognized in the Consolidated Balance Sheets: Accrued pension cost...................................... $(8,194) $(8,538) Accumulated other comprehensive income.................... 76 -- ------- ------- Net amount recognized..................................... $(8,118) $(8,538) ======= =======
2000 1999 1998 ------- ------- ------- Components of net periodic benefit cost: Service cost.......................................... $ 2,766 $ 3,042 $ 2,278 Interest cost......................................... 4,187 3,850 3,232 Expected return on plan assets........................ (4,109) (3,311) (3,020) Amortization of prior service cost.................... 126 127 49 ------- ------- ------- Net period benefit cost............................... $ 2,970 $ 3,708 $ 2,539 ======= ======= ======= Weighted-average assumptions as of December 31: Discount rate......................................... 7.5% 7.4% 6.8% Expected return on plan assets........................ 8.0% 8.0% 8.0% Rate of compensation increase......................... 4.4% 4.0% 4.0%
Defined Contribution Plans Pioneer offers defined contribution plans under which employees generally contribute from 1% to 15% of their compensation. Pioneer also contributes funds to the plans in the amount of 50% of employee contributions up to 4% to 6% of employee compensation, depending on the plan. Aggregate expense of Pioneer with respect to such plans was $1.2 million, $1.5 million and $0.7 million in 2000, 1999 and 1998, respectively. 20 25 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Post-Retirement Benefits Other Than Pensions Effective January 1, 1999, Pioneer modified its retiree health care benefits plan. Employees retiring on or after January 1, 1999 will not receive company-paid retiree medical benefits. Eligible employees who retired prior to January 1, 1999 will continue to receive certain company-paid health care benefits. Pioneer provides certain life insurance benefits for qualifying retired employees who reached normal retirement age while working for Pioneer. Information concerning the plan obligation, the funded status, amounts recognized in Pioneer's financial statements and underlying actuarial assumptions is stated below.
2000 1999 ------- -------- Change in Benefit Obligation: Accumulated post-retirement benefit obligation, beginning of year................................................ $ 6,151 $ 28,396 Service cost.............................................. 122 99 Interest cost............................................. 579 499 Actuarial gain............................................ (39) (1,644) Benefits paid............................................. (260) (325) Plan curtailment.......................................... -- (20,874) ------- -------- Accumulated post-retirement benefit obligation, end of year................................................... $ 6,553 $ 6,151 ======= ======== Funded status............................................. $(6,553) $ (6,151) Unrecognized net loss..................................... 68 146 ------- -------- Accrued benefit cost...................................... $(6,485) $ (6,005) ======= ========
2000 1999 1998 ---- ---- ------ Components of net periodic benefit cost: Service cost.............................................. $122 $ 99 $ 535 Interest cost............................................. 579 499 776 Amortization of net loss.................................. 37 4 283 ---- ---- ------ Net period benefit cost................................... $738 $602 $1,594 ==== ==== ====== Weighted-average assumptions as of December 31: Discount rate............................................. 7.6% 8.0% 6.8%
The weighted-average annual assumed health care trend rate is assumed to be 9% for 2000. 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... $ 119 $ (101) Effect on post-retirement benefit obligation.............. 1,291 (1,134)
21 26 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
2000 1999 --------- -------- Revolving credit facility; variable interest rates based on U.S. prime rate plus 1/2% and Canadian prime rate plus 1 1/4%.................................................... $ 27,581 $ 21,163 9 1/4% Senior Secured Notes, due June 15, 2007.............. 200,000 200,000 9 1/4% Senior Secured Notes, due October 15, 2007........... 175,000 175,000 June 1997 term facility, due in quarterly installments of $250 with the balance due 2006; variable interest rate based on LIBOR or base rate............................... 96,750 97,500 November 1997 term facility, due in quarterly installments of $250 with the balance due 2006; variable interest rate based on LIBOR or base rate............................... 80,000 80,750 Other notes, maturing in various years through 2014, with various installments, at various interest rates........... 11,007 11,456 --------- -------- Total.................................................. 590,338 585,869 Current maturities of long-term debt........................ (586,252) (2,609) --------- -------- Long-term debt, less current maturities................ $ 4,086 $583,260 ========= ========
Contractual long-term debt maturities (which reflect $0.5 million in 2001 of principal payments due in 2000 on the term loans that were not made) are as follows: $8.2 million in 2001; $30.2 million in 2002; $2.7 million in 2003; $2.7 million in 2004; $2.7 million in 2005; and $543.8 million thereafter. As part of the acquisition of the Tacoma plant in June 1997, Pioneer issued and sold $200 million of 9 1/4% Senior Secured Notes due June 15, 2007. Interest is payable semi-annually on June 15 and December 15. Effective December 15, 2000, Pioneer suspended payments of interest on the notes which, after a 30 day grace period, created a default under the indenture. Accordingly, the amount of the notes outstanding has been classified as a current liability at December 31, 2000. As part of the acquisition of the Tacoma plant in June 1997, Pioneer also entered into a nine and one-half year $100 million term facility, due in quarterly installments of $250,000 with the balance due in 2006. Pioneer did not make a principal payment that was due on December 28, 2000, which created an event of default under the terms of the facility. Accordingly, the default interest rate is in effect and the amount of outstanding under the facility has been classified as a current liability at December 31, 2000. As part of the acquisition of the PCI Canada assets in November 1997, Pioneer issued and sold $175 million of 9 1/4% Senior Secured Notes due October 15, 2007. Interest is payable semi-annually on April 15 and October 15. When Pioneer defaulted on the $200 million 9 1/4 % Senior Secured Notes due June 15, 2007, it constituted an event of default under the indenture for the $175 million 9 1/4% Senior Secured Notes due October 15, 2007. Accordingly, the amount of the notes outstanding has been classified as a current liability at December 31, 2000. As part of the acquisition of the PCI Canada assets in November 1997, Pioneer also entered into a nine and one-quarter year $83 million term facility, due in quarterly installments of $250,000 with the balance due in 2006. Pioneer did not make a principal payment that was due on December 28, 2000, which created an event of default under the terms of the facility. Accordingly, the default interest rate is in effect and the amount outstanding under the facility has been classified as a current liability at December 31, 2000. 22 27 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pioneer may prepay the June 1997 term facility and the November 1997 term facility without penalty or premium. The Senior Secured Notes due June 15, 2007, and the Senior Secured Notes due October 15, 2007, are senior obligations of Pioneer, ranking pari passu with all existing and future senior indebtedness of Pioneer. These notes and both term facilities are fully and unconditionally guaranteed on a joint and several basis by all of the Company's direct and indirect wholly-owned subsidiaries and are secured by first mortgage liens on certain manufacturing facilities. The senior notes are redeemable at a premium at Pioneer's option starting in 2002. Upon change of control, as defined in the agreement, Pioneer is required to offer to purchase all the senior notes for 101% of the principal due. In September 1999, PCA entered into a $50.0 million three-year revolving credit facility with Congress Financial Corporation (Southwest) (the "Revolving Facility") that replaced an existing $50.0 million revolving facility (the "Bank Credit Facility"). The Revolving Facility provides for revolving loans in an aggregate amount up to $50.0 million, subject to borrowing base limitations related to the level of accounts receivable and inventory, which, together with certain other collateral, secure borrowings under the facility. The total borrowing base at December 31, 2000 of $45.8 million was subject to a reserve of $5.0 million until the ratio of EBITDA to fixed charges, as defined in the Revolving Facility, exceeds 1.15:1 for a period of two consecutive quarters. As of December 31, 2000, there were letters of credit outstanding of $3.5 million and loans outstanding of $27.6 million. Based on the cross default provisions contained in the Revolving Facility agreement, the facility is currently in default, may be subject to the default rate of interest and is classified as a current liability at December 31, 2000. Pioneer's long-term debt agreements contain various restrictions, which, among other things, limit the ability of Pioneer to incur additional indebtedness and to acquire or dispose of assets or operations. The Company is restricted in paying dividends to PCI and making certain other defined cash investments to the sum of $5.0 million plus 50% of the cumulative consolidated net income of the Company since June 1997. As of December 31, 2000, no additional distributions were allowable under the debt covenants. The Company's ability to incur additional new indebtedness is restricted by a covenant requiring an interest coverage ratio of at least 2.0 to 1.0 for the prior four fiscal quarters. As of December 31, 2000, the Company did not meet this requirement and accordingly, additional new indebtedness, other than borrowing available under the Revolving Facility, is not allowed. 23 28 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company is a holding company with no operating assets or operations. PCI Canada is the issuer of the $175.0 million 9 1/4% Senior Secured Notes, due October 15, 2007. These notes are fully and unconditionally guaranteed on a joint and several basis by the Company and the Company's other direct and indirect wholly-owned subsidiaries. Together, PCI Canada and the subsidiary note guarantors comprise all of the direct and indirect subsidiaries of Pioneer. Summarized financial information of PCI Canada and the guarantors of these notes are as follows:
PCI NOTE INTERCOMPANY CONSOLIDATED CANADA GUARANTORS ELIMINATIONS COMPANY -------- ---------- ------------ ------------ As of December 31, 2000: Current assets....................... $ 21,976 $ 61,754 $ -- $ 83,730 Non-current assets................... 196,832 353,817 (41,348) 509,301 Current liabilities.................. 217,136 456,701 -- 673,837 Non-current liabilities.............. 4,932 67,742 (41,348) 31,326 For Year Ended December 31, 2000: Revenues............................. $132,819 $ 286,489 $(84,156) $ 335,152 Gross profit......................... 22,668 8,352 (225) 30,795 Net loss............................. (3,914) (108,861) (225) (113,000) As of December 31, 1999: Current assets....................... $ 29,854 $ 51,972 $ -- $ 81,826 Non-current assets................... 225,859 392,996 (23,126) 595,729 Current liabilities.................. 24,571 37,550 -- 62,121 Non-current liabilities.............. 215,993 421,624 (23,126) 614,491 For Year Ended December 31, 1999: Revenues............................. $113,790 $ 172,324 $ (1,802) $ 284,312 Gross profit (loss).................. 14,959 (4,755) (73) 10,131 Net loss............................. (16,334) (31,533) (73) (47,940)
Separate financial statements of PCI Canada and the guarantors of the PCI Canada notes are not included as management does not believe this information would be material to investors or lenders. 11. FINANCIAL INSTRUMENTS Concentration of Credit Risk Pioneer manufactures and sells its products to companies in diverse industries. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Pioneer's sales are primarily to customers throughout the United States and in eastern Canada. Credit losses relating to these customers have been immaterial. Pioneer maintains cash deposits with major banks, which generally may exceed federally insured limits. Pioneer periodically assesses the financial condition of the institutions and believes that any risk of loss is minimal. Investments It is the policy of Pioneer to invest its excess cash in securities whose value is not subject to market fluctuations such as master notes of issuers rated at the time of such investment at least "A-2" or the equivalent thereof by Standard & Poors or at least "P-2" or the equivalent thereof by Moody's or any bank or financial institution party to the Revolving Facility. 24 29 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair Value of Financial Instruments In preparing disclosures about the fair value of financial instruments, Pioneer has assumed that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses because of the short maturities of those instruments. The fair values of long-term debt instruments are estimated based upon quoted market values (if applicable), or based on debt with similar terms and remaining maturities. Considerable judgment is required in developing these estimates and, accordingly, no assurance can be given that the estimated values presented herein are indicative of the amounts that would be realized in a free market exchange. Pioneer held no derivative financial instruments as of December 31, 2000 and 1999. At December 31, 2000, the fair market value of all of Pioneer's financial instruments approximated the book value with the exceptions of the 9 1/4% Senior Notes due June 15, 2007 and the 9 1/4% Senior Notes due October 15, 2007, which had a book value of $200.0 million and $175.0 million, respectively and a fair value, based upon quoted market prices, of $36.0 million and $40.3 million, respectively. 12. GEOGRAPHIC INFORMATION Financial information relating to Pioneer by geographical area is as follows. Revenues are attributed to countries based on destination.
2000 1999 1998 -------- -------- -------- REVENUES United States........................................ $243,048 $195,424 $268,186 Canada............................................... 90,387 84,274 87,614 Other................................................ 1,717 4,614 5,480 -------- -------- -------- Consolidated......................................... $335,152 $284,312 $361,280 ======== ======== ======== LONG-LIVED ASSETS United States........................................ $356,356 $337,573 $406,328 Canada............................................... 146,174 186,514 175,655
No individual customer constituted 10% or more of the total revenues in 2000, 1999 or 1998. 13. UNUSUAL CHARGES During 1998, the Company disposed of its pool chemicals business. This disposal included the sale of certain packaging and transportation equipment for bottled bleach and hydrochloric acid. Pioneer recognized a $1.8 million loss from the disposal of assets plus an unusual charge of approximately $1.0 million related to closing Pioneer's facility at City of Industry, California. Unusual charges in 1998 also include approximately $0.4 million related to the consolidation and downsizing of certain administrative functions. Substantially all accrued unusual charges were expended by December 31, 1998. 14. INTEREST EXPENSE, NET Interest expense, net consisted of the following for the indicated periods:
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------- ------- Interest expense........................................ $55,249 $51,230 $50,136 Interest income......................................... (259) (917) (1,344) ------- ------- ------- Interest expense, net................................... $54,990 $50,313 $48,792 ======= ======= =======
25 30 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Capitalized interest was $0.3 million in 1999. No interest was capitalized in 2000 or 1998. 15. COMMITMENTS AND CONTINGENCIES Letters of Credit At December 31, 2000, Pioneer had letters of credit and performance bonds outstanding of approximately $3.5 million and $1.8 million, respectively. These letters of credit and performance bonds were issued for the benefit of customers under sales agreements securing delivery of products sold and state environmental agencies as required for manufacturers in the state. The letters of credit expire at various dates in 2001. No amounts were drawn on the letters of credit at December 31, 2000. Purchase Commitments Pioneer has various purchase commitments related to its operations. Pioneer has committed to purchase salt used in its production processes under contracts which continue through the year 2004 with rates similar to prevailing market rates. Pioneer 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, 2000 are as follows:
SALT-TONS ELECTRICITY-MWH --------- --------------- 2001........................................................ 1,414 333,540 2002........................................................ 612 395,940 2003........................................................ 447 395,940 2004........................................................ 67 395,940 2005........................................................ -- 395,940 Thereafter.................................................. -- 1,111,840 ----- --------- Total commitment quantities....................... 2,540 3,029,140 ===== =========
During the years ended December 31, 2000, 1999, and 1998 all required purchase quantities under the above commitments were consumed during normal operations. Operating Leases Pioneer leases certain manufacturing and distribution facilities, computer equipment, and administrative offices under non-cancelable leases. Minimum future rental payments on such leases with terms in excess of one year in effect at December 31, 2000 are as follows: 2001....................................................... $12,905 2002....................................................... 8,992 2003....................................................... 6,379 2004....................................................... 3,985 2005....................................................... 1,708 Thereafter................................................. 967 ------- Total minimum obligations........................ $34,936 =======
Lease expense charged to operations for the years ended December 31, 2000, 1999, and 1998 was approximately $20.0 million, $17.3 million and $18.6 million, respectively. 26 31 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Litigation Pioneer is party to various legal proceedings and potential claims arising in the ordinary course of its businesses. In the opinion of management, Pioneer has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect Pioneer's operations or financial position. 16. INCOME TAXES For financial reporting purposes, deferred income taxes are determined utilizing an asset and liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting basis and tax basis of the assets and liabilities, and the ultimate realization of any deferred tax asset resulting from such differences. The Company considers all foreign earnings as being permanently invested in that country. Components of income (loss) before income taxes and income taxes are as follows:
2000 1999 1998 -------- -------- -------- Income (loss) before taxes and extraordinary item: U.S. .............................................. $(73,298) $(52,045) $(23,242) Foreign............................................ (6,600) (20,674) 9,573 -------- -------- -------- Total...................................... $(79,898) $(72,719) $(13,669) ======== ======== ======== Deferred income tax provision (benefit): U.S. .............................................. $ 34,802 $(16,582) $ (7,314) Foreign............................................ (2,686) (6,973) 4,374 State.............................................. 986 (1,224) (417) -------- -------- -------- Total deferred............................. 33,102 (24,779) (3,357) -------- -------- -------- Total income tax provision (benefit)....... $ 33,102 $(24,779) $ (3,357) ======== ======== ========
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:
2000 1999 -------- -------- Deferred tax liabilities: Tax versus book basis -- property, plant and equipment.... $(33,092) $(24,655) -------- -------- Total deferred tax liabilities.................... (33,092) (24,655) -------- -------- Deferred tax assets: Post-employment benefits.................................. 5,532 3,972 Environmental reserve..................................... 3,178 4,656 Equity in partnership..................................... 4,082 4,082 Tax credit carryovers..................................... 3,037 1,006 Other deferred assets..................................... 711 1,170 Net operating loss carryforward ("NOLs") of PCI........... 83,081 48,823 -------- -------- Total deferred tax assets......................... 99,621 63,709 Valuation allowance for deferred tax assets................. (61,899) -- -------- -------- Net deferred tax assets..................................... 37,722 63,709 -------- -------- Net deferred taxes.......................................... $ 4,630 $ 39,054 ======== ========
27 32 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense for the periods presented is as follows:
2000 1999 1998 ------------------ ------------------ ----------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- -------- ------- ------- ------- Tax at U.S. statutory rates... $(27,964) (35)% $(24,452) (35)% $(4,784) (35)% State and foreign income taxes, net of federal tax benefit..................... (2,683) (3) (2,109) (2) (1,004) (7) Amortization of non-deductible goodwill.................... 1,850 2 1,782 3 2,431 18 Valuation allowance........... 61,899 77 -- -- -- -- -------- --- -------- --- ------- --- $ 33,102 41% $(24,779) (34)% $(3,357) (24)% ======== === ======== === ======= ===
At December 31, 2000, PCI had available to it on a consolidated tax return basis approximately $224 million of U.S. NOLs which expire in 2009 through 2020 and $20 million of foreign NOLs expiring in 2004 through 2008. The NOLs are 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 NOLs are 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 NOLs are reflected by the Company for financial reporting purposes. In assessing the value of the deferred tax assets, management considers whether it is more likely than not that all of the deferred tax assets will be realized. Projected future income tax planning strategies and the expected reversal of deferred tax liabilities are considered in making this assessment. In 2000, based on the uncertainties as to the effect of the financial restructuring on the NOLs and the level of historical taxable income and projections for future taxable income over the periods in which the NOLs are available for use, it was estimated that it is more likely than not that Pioneer will not realize the full benefits of deferred tax assets. Accordingly, a valuation allowance of $61.9 million has been recorded as of December 31, 2000. 17. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL Pioneer's operations are subject to extensive environmental laws and regulations related to protection of the environment, including those applicable to waste management, discharge of materials into the air and water, clean-up liability from historical waste disposal practices, and employee health and safety. At several of Pioneer's facilities, investigations or remediation is underway and at some of these locations regulatory agencies are considering whether additional actions are necessary to protect or remediate surface or groundwater resources. Pioneer could be required to incur additional costs to construct and operate remediation systems in the future. In addition, at several of its facilities Pioneer is in the process of replacing or closing ponds for the collection of wastewater. Pioneer plans to spend approximately $1.5 million during the next three years on improvements to discontinue the use of three chlor-alkali waste water disposal ponds at the Henderson plant, replacing them with systems to recycle wastewater. Pioneer believes that it is in substantial compliance with existing governmental regulations. Pioneer's Henderson plant is located within what is known as the "Basic Complex." Soil and groundwater contamination have been identified within and adjoining the Basic Complex, including land owned by Pioneer. A groundwater treatment system was installed at the facility in 1983 and, pursuant to a Consent Agreement with the Nevada Division of Environmental Protection, studies are being conducted to further evaluate soil 28 33 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and groundwater contamination at the facility and other properties within the Basic Complex and to determine whether additional remediation will be necessary with respect to Pioneer's property. In connection with the October 1988 acquisition of the chlor-alkali business by the Company's predecessor (the "Predecessor Company"), ICI Delaware Holdings, Inc. and ICI Americas, Inc. (such companies or their successors, the "ZENECA Companies") agreed to indemnify the Predecessor Company for certain environmental liabilities (the "ZENECA Indemnity"), including liabilities associated with operations at Pioneer's plant located in Henderson, Nevada (the "Henderson Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor Company for environmental costs which arise from or relate to pre-acquisition actions which involved disposal, discharge, or release of materials resulting from non-chlor-alkali manufacturing operations at the Henderson Plant and at other properties within the same industrial complex. Payments under the indemnity cannot exceed approximately $65 million. Due to the change in ownership resulting from the acquisition of the Predecessor Company by the Company (the "Pioneer Acquisition"), the ZENECA Indemnity terminated on April 20, 1999. The ZENECA Indemnity continues to cover those claims as to which proper notice was given to the ZENECA Companies and certain other conditions had been satisfied. Management believes that proper notice was provided to the ZENECA Companies with respect to outstanding claims under the ZENECA Indemnity, but the amount of such claims has not yet been determined given the ongoing nature of the environmental work at Henderson. Pioneer believes that the ZENECA Companies will continue to honor their obligations under the ZENECA Indemnity for claims properly presented by Pioneer. It is possible, however, that disputes could arise between the parties and that Pioneer would have to subject its claims for clean-up expenses, which could be substantial, to the contractually established arbitration process. In the opinion of management, any environmental liability in excess of the amount indemnified and accrued on the consolidated balance sheet would not have a material adverse affect on the consolidated financial statements. In the agreement relating to the Pioneer Acquisition, the sellers agreed to indemnify Pioneer for certain environmental liabilities that result from certain discharges of hazardous materials, or violations of environmental laws, arising prior to April 20, 1995 (the "Closing Date") from or relating to Company plant sites or arising before or after the Closing Date with respect to certain environmental liabilities relating to assets held by Pioneer for the benefit of the sellers (the "Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity will generally be payable as follows: (i) out of certain reserves established on the Predecessor Company's balance sheet at December 31, 1994; (ii) either by offset against the amounts payable under the notes issued to the sellers or from deposit account balances held by Pioneer (see Note 5); and (iii) in certain circumstances and subject to specified limitations, out of the personal assets of the sellers. Pioneer was required to reimburse the sellers for amounts paid under the Sellers' Indemnity with amounts recovered under the ZENECA Indemnity or from other third parties. In 1999 disputes arose between the Company and the sellers as to the proper scope of the indemnity. During June 2000, the Company and the sellers effected an agreement, pursuant to which the Company, in exchange for cash and other consideration, relieved the sellers from their environmental indemnity obligations and agreed to transfer to the sellers the record title to the Contingent Payment Properties and the $800,000 remaining cash balance in the Contingent Payment Account that was determined to be in excess of anticipated environmental liability. The cash balance in the Contingent Payment Account at the time of this transaction was $6.1 million. This cash balance was not previously reflected on the Company's balance sheet since a right of setoff existed. This transaction resulted in a gain of $1.8 million. 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 29 34 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) viability of other parties. Charges made against income for recurring environmental matters, included in "cost of sales" on the statements of operations, totaled approximately $2.7 million, $2.8 million and $3.4 million for the year ended December 31, 2000, 1999, and 1998, respectively. Capital expenditures for environmental-related matters at existing facilities approximated $1.8 million, $1.2 million and $2.5 million for the year ended December 31, 2000, 1999, and 1998, respectively. Future environmental-related capital expenditures will depend upon regulatory requirements, as well as timing related to obtaining necessary permits and approvals. Estimates of future environmental restoration and remediation costs are inherently imprecise due to currently unknown factors such as the magnitude of possible contamination, the timing and extent of such restoration and remediation, the extent to which such costs are recoverable from third parties, and the extent to which environmental laws and regulations may change in the future. The Predecessor Company established a reserve at the time of its acquisition of the Henderson, Nevada and St. Gabriel, Louisiana facilities with respect to potential remediation costs relating to matters not covered by the ZENECA Indemnity, consisting primarily of remediation costs that may be incurred by Pioneer for chlor-alkali-related remediation of the 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 $5.9 million, is recorded in Pioneer's consolidated balance sheets at December 31, 2000. However, complete analysis and study has not been completed, and therefore, additional charges may be recorded in the event a decision for closure is made. In 1994, the Predecessor Company recorded an additional $3.2 million environmental reserve related to pre-closing actions at sites that are the responsibility of the ZENECA Companies. In June 2000, based on the results of a third party environmental analysis, the $3.2 million environmental reserve and offsetting receivable discussed below were adjusted to the discounted future cash flows for estimated environmental remediation, which was $2 million. The $2 million and $3.2 million reserve is recorded in Pioneer's consolidated balance sheets at December 31, 2000 and 1999, respectively. Other assets include an account receivable of the same amount from the ZENECA Companies. Pioneer believes it will be reimbursed by the ZENECA Companies for substantially all of such costs that are incurred at the Henderson Plant and other properties within the same industrial complex. Additionally, certain other environmental matters exist which have been assumed directly by the ZENECA Companies. No assurance can be given that actual costs will not exceed accrued amounts. The imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes respecting site cleanup costs, or a determination that Pioneer is potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated by Pioneer to be required for such matters. Further, there can be no assurance that additional environmental matters will not arise in the future. 18. RELATED PARTY TRANSACTIONS On December 28, 1999, Pioneer sold its 15% partnership interest in Saguaro Power Company ("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. Pioneer's interest in Saguaro was accounted for using the cost method of accounting. Prior to this sale, Pioneer sold certain products and services to and purchased steam from Saguaro at market prices. Transactions with Saguaro prior to the sale were as follows:
1999 1998 ------ ------ Sales to Saguaro............................................ $ 874 $ 778 Purchases from Saguaro...................................... 1,585 1,284 Partnership cash distribution from Saguaro (included in other income, net)........................................ 1,020 975
Accounts receivable from and accounts payable to Saguaro are not significant to Pioneer's consolidated balance sheet. 30 35 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pioneer is a party to an agreement with BMI for the delivery of Pioneer's water to the Henderson production facility. The agreement provides for the delivery of a minimum of eight million gallons of water per day. The agreement expires on December 31, 2014, unless terminated earlier in accordance with the provisions of the agreement. In addition, BMI owns the power facilities which transmit electricity to the Henderson facility. For the year ended December 31, 2000, 1999 and 1998, for its services BMI charged operating expenses to Pioneer of approximately $1.5 million, $1.6 million and $1.3 million, respectively. During 1999, Pioneer entered into arrangements with an affiliate of Strategic Distribution, Inc. ("Strategic") pursuant to which Strategic's affiliate provides procurement, handling and data management of maintenance, repair and operating supplies at Pioneer's facilities in Henderson, Nevada and St. Gabriel, Louisiana. William R. Berkley, Chairman of the Board of Pioneer, owns approximately twenty-three percent of Strategic's common stock, and serves as chairman of the board of directors of the company. Andrew R. Bursky, a Pioneer director, is a director of Strategic, and Jack Nusbaum, a Pioneer director, is also a director of Strategic. The Strategic affiliate was paid $4.0 million and $2.5 million for the years ended December 31, 2000 and 1999, respectively, for services rendered to Pioneer under the agreement. 19. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The adoption of SFAS 133 effective January 1, 2001 did not have a significant impact on the financial position, results of operations, or cash flows of the Company. 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- YEAR ENDED DECEMBER 31, 2000 Revenues................................... $ 81,687 $ 86,584 $ 86,224 $ 80,657 Operating income (loss).................... (730) 914 (6,169) (5,111) Loss before taxes.......................... (13,704) (8,200) (37,906) (20,088) Net loss................................... (9,292) (5,565) (23,410) (74,733) Loss per common share...................... (9,292) (5,565) (23,410) (74,733) YEAR ENDED DECEMBER 31, 1999 Revenues................................... $ 68,039 $ 65,997 $ 71,571 $ 78,705 Operating income (loss).................... 4,882 (13,987) (11,979) (15,930) Loss before taxes.......................... (8,042) (26,212) (22,204) (16,261) Net loss................................... (5,711) (17,696) (13,939) (10,594) Loss per common share...................... (5,711) (17,696) (13,939) (10,594)
22. SUBSEQUENT EVENT In March 2001, Pioneer announced a fifty percent curtailment in the capacity of the Tacoma plant due to an inability to obtain sufficient power at reasonable prices. The primary cost related to the Tacoma curtailment is severance expense, which management expects to be approximately $1.9 million. Management has reviewed Tacoma's long-lived assets and goodwill to assess whether the assets are impaired in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Based on the results of this analysis, management believes that the Tacoma long-lived assets and goodwill are not impaired. 31 36 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 8 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 8 hereof. (3) Exhibits The exhibits indicated by an asterisk (*) are incorporated by reference. The exhibits indicated by a plus sign (+) each constitute a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by and among the Company, PCI and the Sellers parties thereto (incorporated by reference to Exhibit 2 to PCI's Current Report on Form 8-K filed on May 5, 1995). 2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by and between OCC Tacoma, Inc. and PCI (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed on July 1, 1997). 2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997, between PCI Chemicals Canada Inc. ("PCI Canada"), PCI Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
32 37
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of October 31, 1997, between PCI Canada, PCI Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to Pioneer's Current Report on Form 8-K filed on November 17, 1997). 3.1* -- Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 6, 1995 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)). 3.2* -- By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4, as amended (file no. 33-98828)). 4.1* -- Indenture, dated as of June 17, 1997, by and among the Company, the Subsidiary Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $200,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed on July 1, 1997). 4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (Tacoma, Washington) (incorporated by reference to Exhibit 4.2(a) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (St. Gabriel, Louisiana) (incorporated by reference to Exhibit 4.2(b) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (Henderson, Nevada) (incorporated by reference to Exhibit 4.2(c) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among the Company, various financial institutions as Lenders, DLJ Capital Funding, inc., as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent and Bank of America Illinois, as the Administrative Agent (the "Pioneer Term Loan Agreement") (incorporated by reference to Exhibit 4.3(a) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of the Lenders, guaranteeing the obligations of one another under the Pioneer Term Loan Agreement (incorporated by reference to Exhibit 4.3(b) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.4* -- Security Agreement, dated as of June 17, 1997, among PAI and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)).
33 38
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 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* -- Intercreditor and Collateral Agency Agreement, dated as of June 17, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, the Company and PAI (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.7* -- Indenture, dated as of October 30, 1997, by and among PCI Canada, the Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $175,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees (incorporated by reference to Exhibit 4.1 to PCI Canada's Registration Statement on Form S-4, as amended (file No. 333-41221)). 4.8* -- Deed of Hypothec, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.2 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.9* -- Affiliate Security Agreement, dated as of October 30, 1997, among PCI Canada, Pioneer Licensing, Inc. and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.3 to PCI Canada's Registration Statement on Form S-4, as amended (file No. 333-41221)). 4.10* -- Borrower (Canadian) Security Agreement, dated as of October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.4 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(c)* -- Demand Debenture (New Brunswick), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(c) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.12(a)* -- Demand Pledge Agreement (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.12(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)).
34 39
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.12(c)* -- Demand Pledge Agreement (New Brunswick), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(c) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.13* -- Subsidiary Security Agreement, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.7 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.14(a)* -- Term Loan Agreement, dated as of October 30, 1997, among the Company, various financial institutions, as Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, Salomon Brothers Holding Company, Inc, as the Documentation Agent, Bank of America National Trust and Savings Association, as the Administrative Agent and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.8(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.14(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and among PCI Canada, the Guarantors identified therein and the Initial Purchasers identified therein (incorporated by reference to Exhibit 4.8(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.15* -- Consent and Amendment No. 1, dated November 5, 1997, to Loan and Security Agreement, dated June 17, 1997, among the Company, Bank of America National Trust and Savings Association, as Agent and Lender and the other Lenders party thereto (incorporated by reference to Exhibit 4.9 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.16* -- Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997, by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America National Trust and Savings Association, as Agent, PCI Canada and the Company (incorporated by reference to Exhibit 4.10 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.17* -- Amended and Restated Loan and Security Agreement by and among Congress Financial Corporation (Southwest) as U.S. Lender, Congress Financial Corporation (Canada) as Canadian Lender, and Congress Financial Corporation (Southwest) as Agent for Lenders and Pioneer Chlor Alkali Company, Inc., All-Pure Chemical Co., Kemwater North America Company, PCI Chemicals Canada Inc./PCI Chimie Canada Inc., PCI Carolina, Inc. and T.C. Products, Inc., as Borrowers and the Company, Imperial West Chemical Co., Black Mountain Power Company, T.C. Holdings, Inc., Pioneer Licensing, Inc. and Pioneer (East), Inc., as Guarantors, dated as of September 24, 1999 (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10.1* -- Contingent Payment Agreement, dated as of April 20, 1995, by and among the Company, PCI and the Sellers party thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 5, 1995). 10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and among the Company, PCI and the Subsidiary Guarantors (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)).
35 40
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)). 10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.5*+ -- 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). 10.6*+ -- 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). 10.7*+ -- Non-Qualified Stock Option Agreement, dated May 15, 1997, between PCI and Andrew M. Bursky (incorporated by reference to Exhibit 10.11 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 21 -- Subsidiaries of the Company.
(b) Reports on Form 8-K. On December 19, 2000, the Company filed a report on Form 8-K. Under Item 5 of the report ("Other Events"), the Company reported that PCI had issued a press release announcing that the Company was delaying the payment of interest due on December 15, 2000, on outstanding 9 1/4% Senior Secured Notes due June 2007. The press release also disclosed that the Company had entered into discussions with an institutional investor with respect to a three-year credit facility of up to $35 million subject to specified conditions. It was stated that if the new financing was consummated within thirty days, Pioneer would be able to pay the delayed interest payment within the grace period allowed by the Notes, and that necessary consents would be sought from the holders of the Company's senior indebtedness. Further, the Company disclosed that if the financing was not arranged or if the necessary consents were not obtained, the Company would seek a restructuring of the senior indebtedness. In a subsequent Form 8-K filed on January 8, 2001, the Company reported that a subsequent press release had been issued, announcing that principal payments due on additional indebtedness had not been paid, that the discussions with respect to a new credit facility had been terminated, and that the Company was developing a more comprehensive financial restructuring program. (c) Financial Statement Schedule. Filed herewith as a financial statement schedule is Schedule II with respect to Valuation and Qualifying Accounts for the Company. All other schedules have been omitted because they are not applicable, not required or the required information is included in the financial statements or notes thereto. 36 41 SCHEDULE II PIONEER CORPORATION OF AMERICA VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD - ----------- ---------- ---------- --------- ---------- ---------- Year Ended December 31, 2000: Allowance for doubtful accounts....... $1,592 $ 93 $ $(293)(A) $1,392 Year Ended December 31, 1999: Allowance for doubtful accounts....... $2,017 $320 $ -- $(745)(A) $1,592 Year Ended December 31, 1998: Allowance for doubtful accounts....... $2,002 $135 $ -- $(120)(A) $2,017
- --------------- (A) Uncollectable accounts written off, net of recoveries. 37 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ MICHAEL J. FERRIS ---------------------------------- Michael J. Ferris President and Chief Executive Officer April 11, 2001 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 April 11, 2001 - ----------------------------------------------------- Officer and Director (Michael J. Ferris) /s/ PHILIP J. ABLOVE Executive Vice President and April 11, 2001 - ----------------------------------------------------- Chief Financial Officer and (Philip J. Ablove) Director (Principal Financial Officer) /s/ PIERRE PRUD'HOMME Vice President, Controller April 11, 2001 - ----------------------------------------------------- (Principal Accounting Officer) (Pierre Prud'homme) /s/ WILLIAM R. BERKLEY Chairman of the Board April 11, 2001 - ----------------------------------------------------- (William R. Berkley) /s/ ANDREW M. BURSKY Director April 11, 2001 - ----------------------------------------------------- (Andrew M. Bursky) /s/ DONALD J. DONAHUE Director April 11, 2001 - ----------------------------------------------------- (Donald J. Donahue) /s/ RICHARD C. KELLOGG, JR Director April 11, 2001 - ----------------------------------------------------- (Richard C. Kellogg, Jr.) /s/ JOHN R. KENNEDY Director April 11, 2001 - ----------------------------------------------------- (John R. Kennedy) /s/ JACK H. NUSBAUM Director April 11, 2001 - ----------------------------------------------------- (Jack H. Nusbaum) /s/ THOMAS H. SCHNITZIUS Director April 11, 2001 - ----------------------------------------------------- (Thomas H. Schnitzius)
38 43 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1* -- Stock Purchase Agreement, dated as of March 24, 1995, by and among the Company, PCI and the Sellers parties thereto (incorporated by reference to Exhibit 2 to PCI's Current Report on Form 8-K filed on May 5, 1995). 2.2* -- Asset Purchase Agreement, dated as of May 14, 1997, by and between OCC Tacoma, Inc. and PCI (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed on July 1, 1997). 2.3(a)* -- Asset Purchase Agreement, dated as of September 22, 1997, between PCI Chemicals Canada Inc. ("PCI Canada"), PCI Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 2.3(b)* -- First Amendment to Asset Purchase Agreement, dated as of October 31, 1997, between PCI Canada, PCI Carolina, Inc. and PCI and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to Pioneer's Current Report on Form 8-K filed on November 17, 1997). 3.1* -- Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 6, 1995 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)). 3.2* -- By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4, as amended (file no. 33-98828)). 4.1* -- Indenture, dated as of June 17, 1997, by and among the Company, the Subsidiary Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $200,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed on July 1, 1997). 4.2(a)* -- Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (Tacoma, Washington) (incorporated by reference to Exhibit 4.2(a) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.2(b)* -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (St. Gabriel, Louisiana) (incorporated by reference to Exhibit 4.2(b) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.2(c)* -- Mortgage, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement by PAI (Henderson, Nevada) (incorporated by reference to Exhibit 4.2(c) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.3(a)* -- Term Loan Agreement, dated as of June 17, 1997, among the Company, various financial institutions as Lenders, DLJ Capital Funding, inc., as the Syndication Agent, Salomon Brothers Holding Company Inc, as the Documentation Agent and Bank of America Illinois, as the Administrative Agent (the "Pioneer Term Loan Agreement") (incorporated by reference to Exhibit 4.3(a) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)).
44
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.3(b)* -- Subsidiary Guaranty, dated June 17, 1997, executed by each of the Subsidiaries party thereto, as guarantor, respectively, in favor of the Lenders, guaranteeing the obligations of one another under the Pioneer Term Loan Agreement (incorporated by reference to Exhibit 4.3(b) to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.4* -- Security Agreement, dated as of June 17, 1997, among PAI and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.5* -- Stock Pledge Agreement, dated as of June 17, 1997, among Pioneer and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5 to Pioneer's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.6* -- Intercreditor and Collateral Agency Agreement, dated as of June 17, 1997 by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America Illinois, as Agent, the Company and PAI (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-4, as amended (file no. 333-30683)). 4.7* -- Indenture, dated as of October 30, 1997, by and among PCI Canada, the Guarantors defined therein and United States Trust Company of New York, as Trustee, relating to $175,000,000 principal amount of 9 1/4% Series A Senior Notes due 2007, including form of Note and Guarantees (incorporated by reference to Exhibit 4.1 to PCI Canada's Registration Statement on Form S-4, as amended (file No. 333-41221)). 4.8* -- Deed of Hypothec, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.2 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.9* -- Affiliate Security Agreement, dated as of October 30, 1997, among PCI Canada, Pioneer Licensing, Inc. and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.3 to PCI Canada's Registration Statement on Form S-4, as amended (file No. 333-41221)). 4.10* -- Borrower (Canadian) Security Agreement, dated as of October 30, 1997, between PCI Canada and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.4 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(a)* -- Demand Debenture (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(b)* -- Demand Debenture (Quebec), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.11(c)* -- Demand Debenture (New Brunswick), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.5(c) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)).
45
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.12(a)* -- Demand Pledge Agreement (Ontario), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.12(b)* -- Demand Pledge Agreement (Quebec), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.12(c)* -- Demand Pledge Agreement (New Brunswick), dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.6(c) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.13* -- Subsidiary Security Agreement, dated as of October 30, 1997, by PCI Canada in favor of United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.7 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.14(a)* -- Term Loan Agreement, dated as of October 30, 1997, among the Company, various financial institutions, as Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, Salomon Brothers Holding Company, Inc, as the Documentation Agent, Bank of America National Trust and Savings Association, as the Administrative Agent and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 4.8(a) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.14(b)* -- Affiliate Guaranty, dated as of October 30, 1997, by and among PCI Canada, the Guarantors identified therein and the Initial Purchasers identified therein (incorporated by reference to Exhibit 4.8(b) to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.15* -- Consent and Amendment No. 1, dated November 5, 1997, to Loan and Security Agreement, dated June 17, 1997, among the Company, Bank of America National Trust and Savings Association, as Agent and Lender and the other Lenders party thereto (incorporated by reference to Exhibit 4.9 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.16* -- Intercreditor and Collateral Agency Agreement, dated as of October 30, 1997, by and among United States Trust Company of New York, as Trustee and Collateral Agent, Bank of America National Trust and Savings Association, as Agent, PCI Canada and the Company (incorporated by reference to Exhibit 4.10 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 4.17* -- Amended and Restated Loan and Security Agreement by and among Congress Financial Corporation (Southwest) as U.S. Lender, Congress Financial Corporation (Canada) as Canadian Lender, and Congress Financial Corporation (Southwest) as Agent for Lenders and Pioneer Chlor Alkali Company, Inc., All-Pure Chemical Co., Kemwater North America Company, PCI Chemicals Canada Inc./PCI Chimie Canada Inc., PCI Carolina, Inc. and T.C. Products, Inc., as Borrowers and the Company, Imperial West Chemical Co., Black Mountain Power Company, T.C. Holdings, Inc., Pioneer Licensing, Inc. and Pioneer (East), Inc., as Guarantors, dated as of September 24, 1999 (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
46
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.1* -- Contingent Payment Agreement, dated as of April 20, 1995, by and among the Company, PCI and the Sellers party thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 5, 1995). 10.2* -- Tax Sharing Agreement, dated as of April 20, 1995, by and among the Company, PCI and the Subsidiary Guarantors (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)). 10.3*+ -- Pioneer Companies, Inc. 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4, as amended (file No. 33-98828)). 10.4*+ -- Pioneer Companies, Inc. Key Executive Stock Grant Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.5*+ -- 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). 10.6*+ -- 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). 10.7*+ -- Non-Qualified Stock Option Agreement, dated May 15, 1997, between PCI and Andrew M. Bursky (incorporated by reference to Exhibit 10.11 to PCI Canada's Registration Statement on Form S-4, as amended (file no. 333-41221)). 21 -- Subsidiaries of the Company.
EX-21 2 h85821kex21.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 PIONEER CORPORATION OF AMERICA SUBSIDIARIES
Name of Company Jurisdiction - --------------- ------------ Pioneer Corporation of America Delaware Imperial West Chemical. Co. Nevada Kemwater North America Company Delaware PCI Chemicals Canada Inc. New Brunswick Pioneer Americas, Inc. Delaware Pioneer (East), Inc. Delaware Pioneer Licensing, Inc. Delaware
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