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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1994 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 1-9859
PIONEER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1215192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Class A Common Stock, $.01 par value
(Title of class)
On March 22, 1996, there were outstanding 7,905,824 shares of the
Company's Class A Common Stock, $.01 par value. The aggregate market value of
the Company's voting stock held by non-affiliates of the Company is
$17,216,220, based on the closing price for the Class A Common Stock in
consolidated trading on March 22, 1996.
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. [ ]
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:
Portions of the proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934 in connection with the Company's 1996 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Annual Report on
Form 10-K.
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PIONEER COMPANIES, INC.
Table of Contents
Form 10-K for the Period
Ended December 31, 1995
PART I PAGE
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Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 4.1 Executive Officers of the Registrant 13
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 59
PART III
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Item 10. Directors and Executive Officers of the Registrant 59
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners and
Management 59
Item 13. Certain Relationships and Related Transactions 60
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. 60
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PART I
Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Companies, Inc., formerly known as GEV Corporation, (ii) the term
"PAAC" refers to Pioneer Americas Acquisition Corp. a wholly-owned subsidiary
of Pioneer, (iii) the terms "Pioneer Americas" and "Predecessor Company" refer
to Pioneer Americas, Inc. and its subsidiaries, and (iv) the term "Company"
means Pioneer and its consolidated subsidiaries.
Item 1. BUSINESS.
At the annual shareholders meeting held on March 31, 1995, the change of
the name of GEV Corporation ("GEV") to Pioneer Companies, Inc. was approved,
subject to the consummation of the acquisition described below.
THE ACQUISITION
On April 20, 1995 (the "Closing Date"), pursuant to a Stock Purchase
Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and
among Pioneer, PAAC and the holders of the outstanding common stock and other
common equity interests of Pioneer Americas, Inc. (the "Sellers"), PAAC
acquired all of such stock and interests (the "Acquisition") for a purchase
price equal to the sum of approximately (i) $102 million, paid in cash, (ii)
$11.5 million aggregate principal amount of subordinated promissory notes of
Pioneer (the "Seller Notes") and (iii) certain amounts payable after the
closing based upon earnings or proceeds attributable to certain of the
Company's direct and indirect real estate holdings which are not necessary for
the Company's chlor-alkali business. In addition, as further consideration for
the Acquisition, PAAC paid approximately $51.7 million to retire all
outstanding indebtedness of Pioneer Americas and $5 million to redeem the
outstanding preferred stock of Pioneer Americas, Inc.
In connection with the consummation of the Acquisition, (i) PAAC issued and
sold $135 million in principal amount of 13 3/8% Senior Notes due 2005 ("the
Senior Notes"), (ii) Pioneer issued and sold the Seller Notes in exchange for
certain of the outstanding shares of Pioneer Americas Inc., which Pioneer
contributed to PAAC, (iii) Pioneer issued and sold to Interlaken Investment
Partners, L.P., a Delaware limited partnership (the "Interlaken Partnership"),
Class A Common Stock of Pioneer for an aggregate purchase price of $15 million
(the "Interlaken Partnership Purchase"), the proceeds of which were contributed
to PAAC, (iv) Pioneer issued and sold to Richard C. Kellogg, Jr. and Frans G.J.
Speets, directors and executive officers of Pioneer Americas, and to certain
other employees of Pioneer Americas (collectively, the "Management Investors"),
Class A Common Stock of Pioneer for an aggregate purchase price of $6 million
(the "Management Purchase"), the proceeds of which were contributed to PAAC, and
(v) Pioneer Americas entered into a new bank revolving credit facility (the
"Bank Credit Facility") with Bank of America Illinois, providing for borrowings
of up to $30 million. The net proceeds of the sale of the Senior Notes, the
Interlaken Partnership Purchase, the Management Purchase and a borrowing under
the Bank Credit Facility were used to pay the cash portion of the purchase price
of the Acquisition, to retire the outstanding Pioneer Americas indebtedness and
to redeem the outstanding preferred stock of Pioneer Americas, Inc.
GENERAL
Following the filing on February 4, 1991, of an involuntary bankruptcy
petition against a significant subsidiary, on February 11, 1991, GEV and each
of what were then its operating subsidiaries (collectively, the "Debtors")
filed voluntary petitions seeking reorganization under Chapter 11 of the U.S.
Bankruptcy Code. On February 11, 1992, the Debtors filed two amended plans of
reorganization (the "Plans"). One plan (the "Joint Plan") covered GEV and its
dairy subsidiaries, as well as Good Foods Acquisition Corp. (the "Reorganized
Operating Subsidiaries"), and the other covered SEFCO Holdings, Inc., the
operating assets of which had been sold in June 1991. A confirmation order was
entered with respect to the Plans on June 9, 1992, and on July 9, 1992, after
the confirmation process became fully effective, GEV and its Reorganized
Operating Subsidiaries emerged from bankruptcy.
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Through various pre- and post-petition agreements, GEV and the Reorganized
Operating Subsidiaries granted to the then lending bank group security
interests in all the assets and property of the Reorganized Operating
Subsidiaries. As a result of that and the confirmation of the Joint Plan, GEV
no longer exercised significant influence over the operating and financing
decisions of the Reorganized Operating Subsidiaries, and on December 31, 1991
GEV changed its method of accounting and unconsolidated the subsidiaries in its
year-end financial statements for all periods presented.
Prior to the Acquisition, GEV, which is now known as Pioneer, was actively
seeking acquisitions and had no other operations. As of December 31, 1995,
Pioneer had a net operating loss carryforward ("NOL") which it believes is
approximately $63.1 million and is available to offset future taxable income.
As of December 31, 1995, and as a result of the consummation of the Interlaken
Partnership Purchase and the Management Purchase, the Interlaken Partnership
beneficially owned approximately 35.7% of the voting power of Pioneer, William
R. Berkley (who may be deemed to beneficially own all shares of Pioneer common
stock held by the Interlaken Partnership) beneficially owned approximately
61.1% of the voting power of Pioneer and the Management Investors beneficially
owned approximately 14.3% of the voting power of Pioneer.
OPERATIONS
Following its formation in 1988, Pioneer Americas acquired two
chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali
Company, Inc. Pioneer Americas subsequently acquired several businesses
engaged in municipal, industrial and commercial water treatment. During 1995
Pioneer Americas conducted its primary business through its operating
subsidiaries: Pioneer Chlor Alkali Company, Inc. ("PCAC"), Imperial West
Chemical Co. ("Imperial West"), and All-Pure Chemical Co. ("All-Pure"), which,
effective in March 1995, succeeded by merger to Pioneer Americas' GPS Pool
Supply, Inc. ("GPS") operations. In 1995, PCAC accounted for 59% of the
Company's total revenues, and Imperial West and All-Pure/GPS accounted for 16%
and 25%, respectively, of the Company's total revenues, net of intercompany
eliminations.
On February 2, 1996, Imperial West participated in the acquisition of
Kemira Water Treatment, Inc. ("KWT") from a subsidiary of Kemira Oy of Finland
("Kemira"). KWT produces specialty and commodity inorganic coagulants,
including polyaluminum chloride, aluminum sulfate, sodium aluminate and ferric
sulfate, at its plant in Savannah, Georgia for sale to the water treatment
market in the eastern United States and the Caribbean. The combined operations
of Imperial West and KWT are now conducted by a new company, Kemwater North
America Company ("Kemwater"), fifty percent of the common stock of which is
held by a subsidiary of PAAC and fifty percent of the common stock of which is
owned by another subsidiary of the Company. A subsidiary of PAAC also owns all
of the outstanding shares of Kemwater's preferred stock.
PCAC. PCAC owns and operates two chlor-alkali production facilities,
located in St. Gabriel, Louisiana and Henderson, Nevada. These facilities,
which are the largest ones operated by the Company, produce chlorine and
caustic soda for sale in the merchant markets and for use as raw materials by
PCAC, Imperial West and All-Pure in the manufacture of downstream products. The
Henderson facility also produces hydrochloric acid. PCAC also has an indirect
15% equity interest in Saguaro Power Company L.P. ("Saguaro Power"), which owns
and operates a 90-megawatt cogeneration facility located on approximately six
acres of the Henderson property.
All-Pure. All-Pure manufactures bleach, repackages chlorine and
hydrochloric acid and distributes these products along with caustic soda and
related products to municipalities, swimming pool supply distributors and
selected commercial and retail markets in the western United States. All-Pure
purchases all of its chlorine and caustic soda and a substantial portion of its
hydrochloric acid from PCAC. Because bleach contains a high percentage of
water, freight costs and logistics are an important competitive factor.
All-Pure's production plants and distribution facilities are strategically
located in or near most of the largest population centers of the West Coast.
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Kemwater. The Imperial West operations now conducted by Kemwater involve
manufacturing and supplying iron chlorides to the potable and waste water
markets in the western United States, and polyaluminum chloride to the same
markets in the eastern United States. The products are used primarily to
remove solids from waste water streams and to control hydrogen sulfide
emissions. Kemwater also manufactures and markets aluminum sulfate to the waste
water and pulp and paper industries and in the western U.S. is a manufacturer
of bleach for municipal water disinfection. Kemwater will be adding
polyaluminum chloride production capacity to its western plants, and ferric
chloride production capacity to the KWT plant in Savannah, Georgia. Kemwater
has exclusive licenses to use Kemira's existing and future advanced water
treatment technology in the development and sale of products and services for
the potable water, waste water and industrial water treatment markets in the
United States (other than the northeastern U.S.) and the Caribbean, and
nonexclusive access to the use of the technology for the Canadian and Mexican
markets, with an option to acquire an exclusive license for those markets in
the future. During 1995 Imperial West purchased all of its chlorine and
caustic soda requirements and a substantial portion of its hydrochloric acid
requirements from PCAC, and it is anticipated that in the future PCAC will
continue to provide Kemwater with a substantial amount of its raw materials.
The following tables set forth, for the periods indicated, certain sales
and operating data regarding the Company's principal operating subsidiaries:
Production Volumes (thousands of tons)
Year Ended December 31,
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1995 1994 1993 1992 1991
------ ------- ------ ------ -------
PCAC:
Chlorine . . . . . . . . . . . . . . . . . . . . . . 327.9 321.1 313.4 300.8 283.3
Caustic soda . . . . . . . . . . . . . . . . . . . . 362.5 352.6 347.9 334.2 311.9
Hydrochloric acid . . . . . . . . . . . . . . . . . 126.6 123.0 125.5 124.7 94.9
All-Pure/GPS(1):
Bleach (gallons in millions) . . . . . . . . . . . . 31.1 28.4 19.2 22.5 16.8
Repackaged chlorine . . . . . . . . . . . . . . . . 28.6 27.6 27.9 26.2 25.6
Imperial West:
Iron chlorides . . . . . . . . . . . . . . . . . . . 62.2 65.1 65.0 65.8 64.2
Aluminum sulfate . . . . . . . . . . . . . . . . . . 30.5 37.8 35.3 33.5 43.7
Average Net Sales Prices
Year Ended December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ------ ------ -------
PCAC:
ECU(2) . . . . . . . . . . . . . . . . . . . . . . . $ 414 $ 327 $ 275 $ 315 $ 344
Hydrochloric acid (per ton) . . . . . . . . . . . . 50 54 60 29 33
All-Pure/GPS:
Bleach (per gallon) . . . . . . . . . . . . . . . . 0.84 0.81 1.13 0.96 0.96
Repackaged chlorine (per ton) . . . . . . . . . . . 498 464 371 361 352
Imperial West:
Iron chlorides (per ton) . . . . . . . . . . . . . . 226 214 170 149 151
Aluminum sulfate (per ton) . . . . . . . . . . . . . 95 94 97 98 102
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(1) GPS was acquired in May 1994 and the production volumes and average net
sales prices shown reflect GPS operations since that date.
(2) Chlorine and caustic soda are co-products, concurrently produced in a
ratio of 1 to 1.1, respectively, through electrolysis of salt water. An
electrochemical unit ("ECU") consists of 1 ton of chlorine and 1.1 tons of
caustic soda.
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COMPETITION
The chlor-alkali industry is highly competitive. Most of the Company's
competitors are larger and have greater financial resources than the Company.
Many of the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources and numerous regional
companies that specialize in a smaller number of chemical products. While a
significant portion of the Company's business is based upon widely available
technology, the difficulty in obtaining permits for the production of
chlor-alkali and chlor-alkali related products is a barrier to entry. The
Company's ability to compete effectively depends on its ability to maintain
competitive prices and to provide reliable and responsive service to its
customers.
The United States chlor-alkali industry is currently dominated by two
producers, Occidental Chemical Corp. and The Dow Chemical Company, each with
approximately one quarter of United States capacity. The remaining capacity is
held by approximately 15 companies. Approximately 70% of United States
chlor-alkali capacity is located on the Gulf Coast in Texas and Louisiana. The
Company has approximately 3% of United States chlor-alkali capacity. The
Company believes it has a strong regional presence with respect to many of its
products in the markets it serves.
Competitors in the chlor-alkali related industries in which the Company
operates are numerous and the industry is highly fragmented. The Company
believes that Kemwater is the largest producer of iron chlorides in the region
of the United States west of the Rocky Mountains and that All-Pure is the
largest supplier of chlorine and bleach for water treatment purposes in such
region.
EMPLOYEES
As of December 31, 1995, the Company had 692 employees. Approximately 94
of the Company's employees at its Henderson, Nevada plant are covered by
collective bargaining agreements with the United Steelworkers of America and
the International Association of Machinists and Aerospace Workers that are in
effect until March 1997. Approximately 83 of the Company's employees at
All-Pure's City of Industry facility are covered by collective bargaining
agreements with the Steel, Paper House, Chemical Drivers and Helpers Union and
the International Chemical Workers Union that are in effect until September
1997 and January 1998, respectively. The Company's employees at other
production facilities are not covered by union contracts or collective
bargaining agreements. The Company considers its relationship with its
employees to be good and it has not experienced any strikes or work stoppages.
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ENVIRONMENTAL REGULATION
Air Quality. The Company's operations are subject to the Federal Clean
Air Act and the amendments to that act which were adopted by Congress in 1990.
The Company will be subject to some of the additional environmental regulations
adopted by the federal EPA and state environmental agencies to implement the
Clean Air Act Amendments of 1990. Among the requirements that are potentially
applicable to the Company are those that require the EPA to establish hazardous
air pollutant emissions requirements for chlorine production facilities.
Although the Company cannot estimate the cost of complying with these
requirements until the implementing regulations are proposed, at this time the
Company does not believe that such requirements will have a material adverse
effect on it.
Most of the Company's plants manufacture or use chlorine, which is in
gaseous form if released into the air. Chlorine gas in relatively low
concentrations can irritate the eyes, nose and skin and in large quantities or
high concentrations can cause permanent injury or death. In 1991, there was an
accidental release of approximately 42 tons of chlorine from PCAC's Henderson
facility. In response, local emergency authorities evacuated areas in and
around the City of Henderson. PCAC has resolved substantially all of the
personal injury, property damage and regulatory claims relating to this
release. There was a release of about 10 tons of chlorine from PCAC's St.
Gabriel facility in 1992 and another release in 1994 of less than one ton of
chlorine, and in 1995 there was a release of less than ten pounds of chlorine
from All-Pure's Santa Fe Springs, California facility. These releases were
controlled by plant personnel with the assistance of local emergency response
personnel, and there were no material claims against PCAC or All-Pure as a
result of these incidents. The Company maintains systems to detect emissions of
chlorine at its plants, and the St. Gabriel and Henderson plants are members of
their local industrial emergency response networks. The Company believes that
its insurance coverage is adequate with respect to costs that might be incurred
in connection with any future release, although there can be no assurance that
the Company will not incur substantial expenditures that are not covered by
insurance if a release does occur in the future.
Water Quality. The Company maintains waste water discharge permits for
many of its facilities pursuant to the Federal Water Pollution Control Act of
1972, as amended, and comparable state laws. Where required, the Company has
also applied for permits to discharge stormwater under such laws. In order to
meet the discharge requirements applicable to stormwater, it will be necessary
to modify surface drainage or make other changes at certain plants. The Company
plans to spend an additional $2.2 million by the end of 1997 for modifications
to the stormwater sewer system at PCAC's Henderson plant. The Company believes
that the costs associated with stormwater discharge at Henderson and its other
plants will not have a material adverse effect on the Company's financial
condition, liquidity or operating results. The various states in which the
Company operates also have water pollution control statutes and regulatory
programs which include groundwater, as well as surface water, protection
provisions. The requirements of these laws vary and are generally implemented
through a state regulatory agency. These water protection programs typically
require site discharge permits, and spill notification, prevention and
corrective action plans. At several of the Company's facilities, investigations
or remediations are underway and at some of these locations regulatory agencies
are considering whether additional actions are necessary to protect or
remediate surface or groundwater resources, and the Company could be required
to incur additional costs to construct and operate remediation systems in the
future. In addition, at several of its facilities, the Company is in the
process of replacing or closing ponds for the collection of wastewater. The
Company plans to spend approximately $1.5 million during the next fifteen years
for closure of eight chlor-alkali waste water disposal ponds at the Henderson
plant.
Hazardous and Solid Wastes. The Company's manufacturing facilities
generate hazardous and non-hazardous solid wastes which are subject to the
requirements of the federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statues. Under the 1984 amendments to RCRA, the EPA
promulgated regulations banning the land disposal of certain hazardous wastes
unless the wastes meet defined treatment or disposal standards, including
certain mercury-containing wastes generated by PCAC's St. Gabriel plant. In
response to these regulations, the St. Gabriel plant has substantially reduced
the quantity of wastes that are subject to the land ban. The remaining waste is
currently sent to commercial disposal sites in Canada and the United States.
The Company is installing an in-plant treatment system that will reduce the
level of mercury in its wastes below the hazardous classification. The
Company's disposal costs could increase substantially if its present disposal
sites become unavailable due to capacity or regulatory restrictions and the
in-plant treatment system fails to perform as expected.
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The Company presently believes, however, that its current disposal
arrangements, together with the new treatment system, will allow the Company to
continue to dispose of land-banned wastes with no material adverse effect on
it.
Superfund. In the ordinary course of the Company's operations, substances
are generated that fall within the definition of "hazardous substances," and
the Company is the owner or operator of several sites at which hazardous
substances have been released into soil or groundwater. Under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known
as the "Superfund" law, regulatory agencies or third parties may incur costs to
investigate or remediate such conditions and seek reimbursement from the
Company for such costs. However, no investigations or remedial activities are
currently being conducted under CERCLA by third parties at any of the Company's
facilities. Such activities are being carried out at certain facilities under
the other statutory authorities discussed above.
INDEMNITIES
ZENECA Indemnity. PCAC's Henderson plant is located within what is known
as the "Basic Complex." Soil and groundwater contamination have been
identified within and adjoining the Basic Complex, including land owned by
PCAC. A groundwater treatment system has been installed at the facility and
pursuant to a Consent Agreement with the Nevada Division of Environmental
Protection, a study is being conducted to further evaluate soil and groundwater
contamination at the facility and other properties within the Basic Complex and
to determine whether additional remediation will be necessary with respect to
PCAC's property.
In connection with the 1988 acquisition of the Henderson and St. Gabriel
facilities by Pioneer Americas, the sellers agreed to indemnify Pioneer
Americas with respect to, among other things, certain environmental liabilities
associated with historical operations at the Henderson site. ZENECA Delaware
Holdings, Inc. and ZENECA, Inc. (collectively, the "ZENECA Companies") have
assumed the indemnity obligations. In general, Pioneer Americas is indemnified
against environmental costs which arise from or relate to pre-closing actions
which involved disposal, discharge or release of materials resulting from the
former agricultural chemical and other non-chlor-alkali manufacturing
operations at the Henderson plant. The ZENECA Companies are also responsible
for costs arising out of the pre-closing actions of Basic Investments and
pre-closing actions at the Basic Complex and for other pre-closing
environmental liabilities arising at other off-site locations. Under the ZENECA
indemnity, Pioneer Americas may only recover indemnified amounts for
environmental work to the extent that such work is required to comply with
environmental laws or is reasonably required to prevent an interruption in the
production of chlor-alkali products. The indemnity also covers certain claims
by non-governmental third parties, provided notice of such claims is given to
the ZENECA Companies not later than four years after the Acquisition. Pioneer
Americas is responsible for environmental costs relating to the chlor-alkali
manufacturing operations at the Henderson plant, both pre- and
post-acquisition, for certain actions taken without ZENECA's consent and for
certain operating and maintenance costs of a groundwater treatment system at
the facility. In addition, subject to certain exceptions, Pioneer Americas has
a contractual duty not to take any action that could reasonably be expected to
increase materially the obligations of the ZENECA Companies under the
indemnity.
Payments for environmental liabilities under the ZENECA indemnity,
together with other non-environmental liabilities for which the ZENECA
Companies have agreed to indemnify Pioneer Americas, cannot exceed
approximately $65 million. To date, Pioneer Americas has been reimbursed for
approximately $12 million of costs covered by the indemnity, but the ZENECA
Companies may have directly incurred additional costs that would further reduce
the total amount remaining under the indemnity. In 1994, Pioneer Americas
recorded an additional $3.2 million environmental reserve related to preclosing
actions at sites that are the responsibility of ZENECA. At the same time a
receivable was recorded from ZENECA for the same amount. It is the Company's
policy to record such amounts when a liability can be reasonably estimated. No
additional amounts were recorded in 1995.
The acquisition of the common stock of Pioneer Americas from the Sellers
will cause the ZENECA indemnity to terminate on April 20, 1999. The indemnity
will continue to cover claims after the expiration of the term of the indemnity
provided that, prior to its expiration, proper notice to the ZENECA Companies
is given and either the ZENECA Companies have assumed control of such claims or
the Company is contesting the legal requirements that
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gave rise to such claims, or has commenced removal, remedial or maintenance
work with respect to such claims, or has commenced an investigation which
results in the commencement of such work within ninety days. The Company
believes that the ZENECA Companies will continue to honor their obligations
under the indemnity for claims properly presented by the Company. It is
possible, however, that disputes could arise between the parties concerning the
effect of contractual language and that the Company would have to subject its
claims for clean-up expenses, which could be substantial, to the
contractually-established arbitration process.
Sellers' Indemnity. In the Acquisition Agreement, the Sellers agreed
to indemnify the Company for certain environmental liabilities that result from
certain discharges of hazardous materials, or violations of environmental laws,
arising prior to the Closing Date from or relating to the Pioneer Americas
plant sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties (as
described in the next paragraph). Amounts payable pursuant to the Sellers'
Indemnity will generally be payable as follows: (i) out of certain reserves
established on Pioneer Americas' balance sheet at December 31, 1994; (ii)
either by offset against the amounts payable under the Seller Notes or from
amounts received in connection with the Contingent Payment Properties; and
(iii) in certain circumstances and subject to specified limitations, out of the
personal assets of the Sellers. The Company is required to reimburse the
Sellers with amounts recovered under the ZENECA indemnity or from other third
parties. The Company and the Sellers have agreed that they will cooperate in
matters relating to the ZENECA indemnity. The Company has also agreed to
indemnify the Sellers for certain environmental liabilities that may arise
after the Closing Date. The Company owns an equity interest of approximately
32% in Basic Investments, Inc., a Nevada corporation ("Basic Investments").
Through its subsidiaries, Basic Investments owns certain undeveloped land in
the Las Vegas/Clark County, Nevada area and is, through a subsidiary, the
general partner of Victory Valley Land Company, L.P., a Delaware limited
partnership ("Victory Valley"), that owns additional undeveloped land in such
area as well as an option to acquire the remainder of the undeveloped land
owned by Basic Investments. Basic Investments also owns and maintains the water
and power distribution network within the Basic Complex. The Company contracts
with subsidiaries of Basic Investments for the delivery of the Company's water
to the Company's plant site and transmission of the Company's power within the
Henderson site. Pricing for the services provided is on an arm's-length basis.
The Company owns a 21% limited partnership interest in Victory Valley, and
Basic Investments owns an indirect 50% partnership interest in Victory Valley.
The Company has a combined interest in Victory Valley of approximately 37%
through its own direct interest and its partial ownership of Basic Investments.
The Company also owns certain real property adjoining the sites of the
Henderson, St. Gabriel and Mojave plants that is not used in the businesses
conducted at such sites. Such property, comprising approximately 900 acres in
the aggregate, is referred to herein as the "Excess Land." In accordance with
the terms of the Acquisition, the Company's interests in Basic Investments,
Victory Valley and the Excess Land (collectively, the "Contingent Payment
Properties") are being held for the benefit of the Sellers until April 20,
2015. The Company will not receive any of the economic benefits from the
Contingent Payment Properties, except that certain environmental and other
indemnification obligations of the Sellers to the Company may be satisfied from
proceeds of or payments on account of such investments and except to the extent
that such investments are owned by the Company at the end of such 20-year
period.
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Item 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's
principal production and distribution facilities as of March 25, 1996. All
property is leased unless otherwise indicated.
Type of Facility Location
---------------- --------
Chlor-alkali plants St. Gabriel, Louisiana*
Henderson, Nevada*
Bleach plants Antioch, California*
Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Chlorine and hydrochloric acid repackaging Santa Fe Springs, California
Tracy, California
Kalama, Washington
City of Industry, California
Marysville, California
Iron chloride plants Mojave, California*
Pittsburg, California*
Aluminum sulfate plants Antioch, California*
Spokane, Washington
Savannah, Georgia
Polyaluminum chloride plant Savannah, Georgia
Sodium aluminate plant Savannah, Georgia
Caustic soda terminals Tampa, Florida
Memphis, Tennessee
Wilmington, California
Tracy, California
Antioch, California*
Aluminum sulfate and sulfuric acid terminal Albany, Oregon
Distribution centers Fresno, California
Spokane, Washington
- ---------------
* Owned property
10
11
The Company's corporate headquarters are located in leased office space in
Houston, Texas under a lease terminating in 2002.
In accordance with the terms of an Exchange and Registration Rights
Agreement (the "Exchange Agreement") which Pioneer entered into at the time of
the Acquisition, on January 23, 1996, Pioneer exchanged $135.0 million of its
13 3/8% First Mortgage Notes due 2005 (the "Mortgage Notes") for all of the
outstanding Senior Notes. The Mortgage Notes and obligations outstanding under
the Bank Credit Facility are secured by first mortgages on PCAC's St. Gabriel
and Henderson facilities.
PCAC FACILITIES
St. Gabriel, Louisiana. PCAC's St. Gabriel plant is located on a
100-acre site near Baton Rouge, Louisiana. Approximately 228 acres adjoining
the site are available to the Company for future industrial development, and
approximately 400 acres adjoining the site constitute Excess Land. The plant
was completed in 1970 and is situated on the Mississippi River with river
frontage and deepwater docking, loading and unloading facilities. Annual
production capacity at St. Gabriel is 182,000 tons of chlorine and 200,200 tons
of caustic soda.
Henderson, Nevada. PCAC's Henderson plant is located on a 374-acre site
near Las Vegas, Nevada. Approximately 70 acres are developed and used for
production facilities, and approximately 60 acres adjoining the site constitute
Excess Land. The original plant, which began operation in 1942, was upgraded
and rebuilt in 1976-1977. Annual production capacity at the plant is 140,000
tons of chlorine, 154,000 tons of caustic soda, 130,000 tons of hydrochloric
acid and 5,100 tons of bleach. The Henderson plant is part of an industrial
complex shared with three other manufacturing companies. Common facilities and
property are owned and managed by subsidiaries of Basic Investments, which
provide common services to the four site companies. Basic Investments'
facilities include extensive water and high voltage power distribution systems,
railroad facilities and access roads.
ALL-PURE FACILITIES
Tracy, California. The Tracy plant includes a 168,000 ton per year
bleach production facility and a chlorine repackaging facility on a 15-acre
tract. The land at the facility is leased under a lease expiring in the year
2000. All-Pure's corporate office is located in separate leased offices in
Tracy.
Santa Fe Springs, California. The Santa Fe Springs plant includes a
275,000 ton per year bleach production plant and a chlorine repackaging
facility on a 4.5-acre tract. The land at the facility is leased under a lease
expiring in 1998 with a five-year renewal option.
Kalama, Washington. The Kalama plant includes a 41,000 ton per year
bleach production facility and a chlorine repackaging facility on a three-acre
tract. The land at the facility is leased under a month-to-month lease; an
alternative site for the facility has been located in Kalama, although the
final terms of the lease have not yet been negotiated.
Marysville, California. The Marysville plant includes a chlorine and
sulfur dioxide repackaging facility and a 5,000 ton per year bleach production
facility on a 10-acre tract. The land is leased under a lease expiring in the
year 2000.
Fresno, California. The Fresno facility consists of an approximately
10,000 square foot warehouse. All product shipped from the warehouse is
transferred from the Tracy, California production facility for distribution to
customers. The land at the facility is leased under a lease expiring in 2001.
City of Industry, California. The City of Industry plant includes a
307,500 tons per year bleach production facility and chlorine, hydrochloric
acid and dry chemical repackaging facilities on a five-acre tract. The facility
includes a 96,000 square foot warehouse. The land at the facility is leased
under a lease expiring in 1998 with options to extend until 2008.
11
12
KEMWATER FACILITIES
Antioch, California. Production facilities at the Antioch facility
include a 30,000 ton per year aluminum sulfate plant and a 12,500 ton per year
bleach plant. Caustic soda and sulfuric acid are terminaled and distributed
from the location. The site also serves as corporate headquarters for
Kemwater. The 22-acre company-owned site has deepwater access and rail
service.
Mojave, California. The Mojave facility, which was constructed in 1988 and
1989, includes a 130,000 ton per year iron chlorides production facility that
is located on approximately eight acres of a 30-acre company-owned tract.
Approximately 444 acres of adjoining land constitute Excess Land. The plant
consists of two separate, identical production trains and has rail service.
The facility also terminals caustic soda, sulfuric acid and hydrochloric acid
for distribution.
Pittsburg, California. The Pittsburg plant has a 30,000 ton per year iron
chlorides production facility. During 1995, Imperial West acquired the 10-acre
rail served site, which was previously leased.
Spokane, Washington. The Spokane facility has a 30,000 ton per year
aluminum sulfate plant located on 4 acres. Sulfuric acid purchased from third
parties is also distributed from the location. The land at the site is leased
under a lease that can be terminated by either party with 30 days' notice.
Albany, Oregon. Aluminum sulfate, which is manufactured in Spokane,
Washington, is distributed from the Albany terminal. Sulfuric acid purchased
from third parties is also distributed from the terminal, primarily to pulp and
paper customers in central and southern Oregon. The land at the site is leased
under a lease with an indefinite term, with cancellation by either party on 30
days' notice.
Savannah, Georgia. Production facilities at Savannah include a 45,000 ton
per year polyaluminum chloride plant, a 25,000 ton per year aluminum sulfate
plant, a 15,000 ton per year sodium aluminate plant, and a 18,000 ton per year
ferric sulfate granule dissolving plant. The two acre site is leased under a
lease expiring in 2005, subject to options to extend the lease until 2015.
12
13
Item 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in amounts which
it believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters will not have a material adverse effect on
the Company's results of operations, cash flow or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1995 to a vote of
holders of Pioneer's Common Stock.
Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and current offices of the executive officers of the
Company, who are to serve until the next annual meeting of the Board of
Directors to be held in 1996, are set forth below.
Name and Age Office
------------ ------
Richard C. Kellogg, Jr. (44) President
Paul J. Kienholz (65) President and Chief Operating Officer
of Pioneer Americas, Inc.
Philip J. Ablove (55) Vice President and Chief Financial Officer
Jerry B. Bradley (50) Vice President, Human Resources
of Pioneer Americas, Inc.
James E. Glattly (49) Vice President, Sales and Marketing
of Pioneer Americas, Inc.
Verrill M. Norwood (64) Vice President, Environmental, Health
and Safety of Pioneer Americas, Inc.
Kent R. Stephenson (46) Vice President, General Counsel
and Secretary
Frank B. Belliss (42) President of Kemwater North America
Company
Ronald E. Ciora (54) President of All-Pure Chemical Co.
Richard C. Kellogg, Jr. has served as President and a director of Pioneer
since the closing of the Acquisition on April 20, 1995. In October 1988 he was
a co-founder of Pioneer Americas Inc. and he has served as Chairman of the
Board and a director of that company since October 1988. Mr. Kellogg is also a
director of Basic Investments, Inc., a corporation in which Pioneer holds an
equity interest of approximately 32%. From 1983 to 1993, Mr. Kellogg served as
Vice President of Trans Marketing Houston, Inc. ("TMHI"), a company that he
co-founded and which was involved in the international trading of refined
petroleum products and chemicals. TMHI filed for bankruptcy in April 1993 and a
liquidation plan was approved by the federal bankruptcy court in December 1993.
Paul J. Kienholz has served as President and Chief Operating Officer of
Pioneer Americas, Inc. since 1988. Mr. Kienholz was employed by PPG
Industries, Inc. from 1959 to 1988, where he served in various capacities,
including Director, Chlor-Alkali Products.
Philip J. Ablove has served as Vice President and Chief Financial Officer
of the Company since March 1996. He has been a consultant and an officer and
director specializing in high growth or financially distressed companies since
1983. In a consulting role, he served as Acting Chief Financial Officer of
Pioneer from October 1995 to March 1996, and he has been a director of Pioneer
since January 1991. He was President and Chief Executive Officer of GEV
Corporation from January 1991 to July 1992 after serving as a consultant to GEV
Corporation from October 1990 to January 1991. From June 1988 until June 1990,
he was a director and officer of Ironstone Group,
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Inc., a publicly-held holding company with interests in wholesale plumbing
distribution and oil and gas exploration and production, which filed a petition
in January 1991 for reorganization under federal bankruptcy law. From July
1988 to June 1990, Mr. Ablove was also Executive Vice President and a director
of Iron-Oak Supply Corporation, a subsidiary of Ironstone, which filed a
bankruptcy petition in January 1991.
Jerry B. Bradley has served as Vice President, Human Resources of Pioneer
Americas, Inc. since October 1995. From May 1993 to October 1995, Mr. Bradley
was President of Tandem Partners, Inc., a human resources consulting firm. From
1978 to 1993 he was employed by Occidental Chemical Corporation, where he
served as Vice President, Human Resources from 1978 to 1993.
James E. Glattly has served as Vice President, Sales and Marketing of
Pioneer Americas, Inc. since 1988. Prior to joining Pioneer Americas, Inc., he
was employed by Occidental Chemical Corporation from 1985 to 1988 and from 1974
to 1983, where he served in various capacities, including Western Regional
Manager and various other sales positions. From 1983 to 1985 Mr. Glattly served
as General Manager of HCI Chemical.
Verrill M. Norwood has served as Vice President, Environmental, Health and
Safety of Pioneer Americas, Inc. since 1990. Prior to joining Pioneer Americas,
Mr. Norwood was employed by Olin Corporation from 1973 to 1990, where he served
as Vice President, Environmental Affairs from 1978 to 1990.
Kent R. Stephenson has served as Vice President, General Counsel and
Secretary of Pioneer since June 1995, and as Vice President, General Counsel
and Secretary of Pioneer Americas, Inc. since 1993. Prior to joining Pioneer
Americas, he was employed by Zapata Corporation, a publicly-traded gas services
company, from 1978 to 1993. Mr. Stephenson served as Senior Vice President,
General Counsel and Secretary of Zapata from 1987 to 1993.
Frank B. Belliss has served as President of Kemwater North America Company
since February 1996. He served as President of Imperial West from February
1994 to February 1996. Mr. Belliss was Vice President and General Manager of
Imperial West for more than five years prior to February 1994.
Ronald E. Ciora has served as President of All-Pure since November 1995.
For more than five years prior thereto, he was President and Chief Executive
Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries,
Inc., which are companies engaged in chemical distribution, chlorine
repackaging and bleach manufacturing.
14
15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On March 31, 1995, Pioneer's stockholders approved a one-for-four reverse
stock split which was effective on April 27, 1995 (the "Reverse Stock Split").
The number of authorized shares remained at 46.0 million for Class A Common
Stock and 4.0 million for Class B Common Stock, and the par value of the Common
Stock was unchanged. Unless the context otherwise requires, all references in
this Report to Common Stock share and per share amounts reflect the Reverse
Stock Split.
Since May 19, 1995, Pioneer's Class A Common Stock has been traded on the
NASDAQ National Market under the symbol "PIONA". Prior to that date it was
traded on the NASD OTC Bulletin Board. There is no established trading market
for Pioneer's Class B Common Stock. The price range for the Class A Common
Stock, as adjusted to reflect the Reverse Stock Split, for each quarterly
period for the last two fiscal years is shown in the following table:
High Low
---- ---
1995
----
Fourth Quarter $ 8.63 $ 5.25
Third Quarter 9.38 5.00
Second Quarter 12.00 3.75
First Quarter 6.50 1.25
1994
----
Fourth Quarter 1.88 0.50
Third Quarter 2.25 1.50
Second Quarter 3.00 1.75
First Quarter 2.75 1.00
Information set forth in the table with respect to periods prior to May 19,
1995, is derived from high and low bid and ask prices, and is not indicative of
actual trading prices. For periods after that date, prices are as reported in
the consolidated transaction reporting system.
As of March 22, 1996, there were approximately 230 holders of record of
the Class A Common Stock and there were two holders of record of the Class B
Common Stock.
No dividends have been declared with respect to Pioneer's Common Stock
during the two most recent fiscal years. Pursuant to the terms of the indenture
with respect to the outstanding 13-3/8% First Mortgage Notes issued by PAAC,
prior to April 1, 1997, dividends on PAAC's stock cannot be paid in amounts in
excess of those necessary to enable Pioneer to pay interest on the $11.5 million
principal amount of its outstanding Seller Notes and for certain other limited
purposes. It is anticipated that as a result of such restriction, no dividends
on Pioneer's Common Stock will be declared during such period.
15
16
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of the
Predecessor Company for the years ended December 31, 1994, 1993, 1992, and
1991. The data should be read in conjunction with the Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data. The
table also sets forth the financial condition of the Company at December 31,
1995 and the results of operations of the Company for the year ended December
31, 1995. For comparative purposes the Predecessor Company's operating results
from January 1, 1995 through April 20, 1995 are also presented. The following
table should also be read in conjunction with Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.
PREDECESSOR COMPANY
--------------------------------------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, APRIL 20, -----------------------------------------------
1995 (1) 1995 1994(2) 1993 1992 1991
---------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . $142,908 $ 57,848 $167,217 $151,191 $157,401 $162,454
Costs and expenses:
Cost of sales . . . . . . . . 98,175 37,400 134,556 131,711 126,149 128,592
Selling, general and
administrative expenses . . 20,765 7,047 22,529 21,850 22,602 19,521
Interest expense, net . . . . 13,540 1,665 6,407 7,551 8,189 9,950
Other income (expense) from
settlement of litigation and
insurance claims, net . . . . . -- -- 3,326 8,360 2,755 (4,517)
Other income (expense) . . . . . 637 (115) 1,337 2,103 1,130 (77)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary items . . . . 11,065 11,621 8,388 542 4,346 (203)
Provision for (benefit from)
income taxes . . . . . . . . . 5,579 4,809 3,242 486 1,765 (283)
-------- -------- -------- -------- -------- --------
Income before extraordinary
item . . . . . . . . . . . . . 5,486 6,812 5,146 56 2,581 80
Extraordinary item, net of
applicable tax . . . . . . . . -- 3,420 -- -- -- --
-------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . $ 5,486 $ 3,392 $ 5,146 $ 56 $ 2,581 $ 80
======== ======== ======== ======== ======== ========
Net income per share . . . . . . $ 0.75
========
OTHER FINANCIAL DATA:
Capital expenditures . . . . . . $ 13,556 $ 3,447 $ 5,681 $ 5,888 $ 6,652 $ 7,313
Depreciation and amortization . . 12,274 4,490 13,595 13,446 12,992 11,953
EBITDA(3) . . . . . . . . . . . . 36,879 17,776 28,390 21,539 25,527 21,700
BALANCE SHEET DATA:
Total assets . . . . . . . . . . $267,300 $166,998 $164,531 $158,638 $170,638 $184,799
Total debt, redeemable preferred
stock and redeemable stock put
warrants . . . . . . . . . . . 146,463 57,677 57,865 67,709 76,848 88,393
Common stockholders' equity . . . 44,475 26,370 23,102 19,721 20,165 21,374
(See footnotes)
16
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(1) The results of operations include the results of operations of Pioneer
Americas since its acquisition.
(2) GPS was acquired in May 1994 and therefore the results of operations for
the year ended December 31, 1994 include the results of operations from
the date of acquisition in May 1994 through December 31, 1994. GPS
generated third party sales during such partial period of $9.4 million.
(3) EBITDA is defined as earnings before interest, income taxes, depreciation,
amortization and extraordinary item and is presented because the Company
believes that it provides useful information regarding its ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other combined income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of the
Company's profitability or liquidity.
The following table sets forth selected historical financial data of the
Company for the years ended December 31, 1994, 1993, 1992, and 1991. The data
should be read in conjunction with the Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data.
GEV CORPORATION
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991
------ ------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
General and administrative expenses . . . . . . $ 155 $ 505 $ 560 $ 1,543
Equity in earnings of unconsolidated -- -- -- 1,490
subsidiaries . . . . . . . . . . . . . . . .
Bankruptcy costs . . . . . . . . . . . . . . . -- -- 377 5,093
Reduction in carrying value of investment in
unconsolidated subsidiaries . . . . . . . . -- -- -- 15,196
Interest (income) expense, net . . . . . . . . (15) 15 9 865
------ ------ ------- --------
Loss before income taxes and extraordinary item (140) (520) (946) (21,207)
Extraordinary item(1) . . . . . . . . . . . . . -- -- 34,698 --
------ ------ ------- --------
Net income (loss) . . . . . . . . . . . . . . . $ (140) $ (520) $33,752 (2) $(21,207)
====== ====== ======= ========
Net income (loss) per share . . . . . . . . . . $ (.03) $ (.15) $ 11.11 $ (8.00)
====== ====== ======= ========
Average number of shares of common stock
outstanding . . . . . . . . . . . . . . . 4,323 3,419 3,037 2,650
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . $ 912 $ 217 $ 283 $ 89,566
Long-term obligations . . . . . . . . . . . . . -- -- 478 --
Liabilities subject to compromise . . . . . . . -- -- -- 122,042
Stockholders' equity (deficiency) . . . . . . . 762 (223) (355) (35,550)
(1) Represents gain on settlement of pre-petition liabilities.
(2) The 1992 period included an extraordinary gain from the settlement of
pre-petition liabilities totaling $34,698, or $11.43 per share.
17
18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company, through its subsidiaries, manufactures chlorine, caustic soda
and several related downstream water treatment products, principally
hydrochloric acid, bleach, iron chlorides and aluminum sulfate. The Company's
products are used in a variety of applications including water treatment,
plastics, detergents and agricultural chemicals. During 1995 the Company's
operating subsidiaries were PCAC, Imperial West and All-Pure (including GPS,
acquired in May 1994).
The chlorine and caustic soda markets in which the Company competes are
cyclical markets that are sensitive to relative changes in supply and demand,
which are in turn affected by general economic conditions. Over the last five
years the PVC (polyvinyl chloride) market has experienced steady growth.
However, the use of chlorine as a bleaching agent in the pulp and paper
industry and as a feedstock in the production of CFCs (chlorofluorocarbons) has
been reduced significantly due to regulatory pressures. As a result of these
factors and a general economic recession in the early 1990s, the North American
chlor-alkali industry experienced declining prices, as ECU prices fell by over
52% from the fourth quarter of 1989 to the second quarter of 1993. After a
significant improvement in domestic economic growth, in early 1994 chlor-alkali
markets experienced increased levels of demand. In addition, little new
capacity had been added during this time, resulting in greater capacity
utilization and higher domestic and export prices for chlor-alkali products.
These conditions continued in 1995. The increase in demand enabled the
Company and the industry in general to increase selling prices significantly at
a time when operating costs generally did not increase. For example, from
January 1994 through December 1995, the Company increased its average selling
prices by 38%, from $283 to $391 per ECU.
Large quantities of chlorine are not typically stored on- or off-site.
Chlor-alkali production rates are therefore typically based on short-term
chlorine demand (typically, one month). However, chlor-alkali plants do not
achieve cost efficiencies if production rates are often cycled up and down. The
desirability of maintaining steady production rates is made difficult by the
cyclical nature of the chlor-alkali business, which is at times exacerbated by
the fact that the price and demand curves for chlorine differ from those of its
co-product, caustic soda. Peak and trough demand for chlorine and caustic soda
rarely coincide and caustic soda demand tends to trail chlorine demand into and
out of economic growth cycles.
To achieve operating efficiencies and to mitigate the effects of
cyclicality on the Company's business, the Company has pursued a strategy of
converting chlorine and caustic soda into products that are used in markets
with steady demand, particularly water treatment chemicals. In pursuit of this
strategy, the Company acquired Imperial West and All-Pure in 1990, GPS in
1994, and KWT in February 1996, each of which is a major manufacturer and
distributor, primarily in the western United States, of water treatment
chemicals such as iron chlorides, aluminum sulfate, repackaged chlorine and
bleach. The success of this strategy is reflected in the Company's increased
capacity utilization rates for chlorine and caustic soda over the last five
years, from 93% of capacity in 1990 to approximately 102% in 1994. The capacity
utilization decreased in 1995 to approximately 92% due primarily to the planned
shutdown for maintenance at the St. Gabriel facility. Gross profit margins for
downstream sales vary from gross profit margins of chlor-alkali sales; the
difference depends on where the chlor-alkali industry is in its cycle.
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19
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
indicated:
PRO FORMA (1) PREDECESSOR COMPANY
---------------------- ------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993
------ ------ ------
% OF % OF % OF
$'000S REVENUES $'000S REVENUES $'000S REVENUES
-------- ---------- -------- ---------- -------- ----------
Revenues:
PCAC $ 118,298 58.9% $ 88,907 53.2% $ 81,393 53.8%
Imperial West 32,909 16.4 30,438 18.2 27,679 18.3
All-Pure and GPS(2) 49,549 24.7 47,872 28.6 42,119 27.9
--------- ------ -------- ----- -------- -----
Total revenues 200,756 100.0 167,217 100.0 151,191 100.0
Costs and expenses:
Cost of sales 135,575 67.5 134,556 80.5 131,711 87.1
Selling, general and
administrative expense 27,812 13.9 22,529 13.5 21,850 14.4
Interest expense, net 15,205 7.6 6,407 3.8 7,551 5.0
Other income from settlement of
litigation and insurance claims,
net -- -- 3,326 2.0 8,360 5.5
Other income, net 1,494 0.8 1,337 0.8 2,103 1.4
--------- ------ -------- ----- -------- -----
Income before income taxes
and extraordinary item 23,658 11.8 8,388 5.0 542 0.4
Provision for income taxes 10,388 5.2 3,242 1.9 486 0.3
--------- ------ -------- ----- -------- -----
Net income before
extraordinary item 13,270 6.6 5,146 3.1 56 0.1
Extraordinary item, net of
applicable tax (3,420) (1.7) -- -- -- --
--------- ------ -------- ----- -------- -----
Net income $ 9,850 4.9% $ 5,146 3.1% $ 56 0.1%
========= ====== ======== ===== ======== =====
- ---------------
(1) The pro forma results of operations, which combine the Company's operating
results for the year ended December 31, 1995 and the Predecessor Company's
operating results from January 1, 1995 through April 20, 1995, are
provided for comparative purposes. The Predecessor Company's operating
results exclude approximately $1.0 million of transaction costs related to
the Acquisition. The Company believes that this provides a meaningful
basis for comparison. The Company and the Predecessor Company have
different asset bases and the effects on operating results of these
differences are discussed below.
(2) GPS was acquired in May 1994 and therefore the results of operations for
the year ended December 31, 1994 include the results of operations from
the date of acquisition in May 1994 through December 31, 1994. GPS
generated third party sales during such partial period of $9.4 million.
19
20
PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Revenues increased by $33.5 million or 20% to $200.7 million for the 1995
period. This increase was primarily due to a $29.4 million increase in
chlor-alkali sales, a result of industry-wide strengthening of ECU prices. The
average ECU price during the 1995 period increased 27% over the same period in
1994.
Gross Profit
Gross profit was essentially flat but increased as a percentage of revenues
to 32.5% in 1995 from 19.5% in 1994 due to a combination of increased revenues
and lower raw material costs which offset higher transportation and other
expenses and an Acquisition related inventory step-up.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $5.3 million or
23% to $27.8 million for the year ended December 31, 1995. This increase was
primarily the result of the impact of an acquisition by the Predecessor Company
in May 1994, additional compensation pursuant to the Company's incentive
compensation program, and increased amortization as a result of the
Acquisition.
Interest Expense, net
Interest expense increased by $8.8 million or 137% to $15.2 million for
1995 from $6.4 million for 1994. This increase was a result of debt incurred in
connection with the Acquisition.
Income Before Taxes and Extraordinary Item
As a result of the above, net income before taxes and extraordinary item
increased by $15.3 million or 182% to $23.7 million of income for the year
ended December 31, 1995 from $8.4 million for the year ended December 31, 1994.
Provision for Income Taxes
Provision for income taxes increased $7.1 million to $10.4 million for the
year ended December 31, 1995 from $3.2 million for the comparable 1994 period
due to higher income. Taxable income is higher than book income due to the
non-deductibility of amortization of the excess cost over the fair value of
the net assets acquired. A provision is recorded on the income statement;
however, federal income taxes payable are reduced due to the utilization of the
net operating loss carryfoward.
Extraordinary Item
An extraordinary item of $3.4 million net of an income tax benefit of $2.1
million recorded during the 1995 period was due to costs incurred, and
previously capitalized costs written off, pertaining to debt refinanced by the
Predecessor Company in the 1995 period prior to the Acquisition.
Net Income
As a result of the forgoing, net income increased 91% to $9.9 million.
20
21
PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Revenues
Revenues during 1994 increased by $16.0 million or 10.6% to $167.2
million. The increase was primarily attributable to significantly higher
selling prices and moderately higher sales volumes for chlorine due to an
industry-wide increase in chlorine demand, partially offset by slightly lower
selling prices and volumes for caustic soda. In addition, All-Pure/GPS
revenues increased by $5.8 million or 13.7% primarily as a result of the
contribution of $9.4 million of revenues by GPS from the date of its
acquisition in May 1994 through December 31, 1994.
Gross Profit
Gross profit increased by $13.2 million or 67.7% to $32.7 million in 1994.
Gross margin increased to 19.5% for 1994 from 12.9% for 1993. The increase in
gross profit and gross margin was primarily attributable to the increase in
revenues at PCAC related to higher prices, lower costs of power, and lower
per-unit fixed costs due to the higher throughput which increased by
approximately 7,700 tons in 1994 due to increased efficiencies. These factors
were offset by the inability of All-Pure to pass on approximately $2.7 million
of increased ECU prices and other raw material costs to its customers in a
timely manner due to the terms of existing contracts and market conditions.
Selling, General and Administrative
Selling, general and administrative expenses increased slightly in 1994
but decreased to 13.5% of revenues from 14.4% in 1993.
Interest Expense
Interest expense in 1994 decreased $1.1 million from $7.6 million in 1993
as a result of reduction in debt offset by increases in interest rates, which
were tied to the prime rate.
Other Income from Settlement of Litigation and Insurance Claims, net
Other income from settlements of litigation and insurance claims decreased
by $5.0 million to $3.3 million in 1994 from $8.4 million in 1993. In 1994 the
Company received a $5.9 million insurance recovery relating to the 1991
chlorine release at the Henderson facility, of which $3.3 million was
recognized as other income, $2.1 million was recognized as reimbursement of
current costs and $0.5 million was accrued for future liabilities. In 1993 the
Company received a $7.8 million arbitration settlement from the prior owner of
the Company's Henderson and St. Gabriel plants relating to disputes over supply
and sales contracts.
Other Income, net
Other income decreased by $0.8 million to $1.3 million in 1994. The
decrease was primarily attributable to a charge for the revaluation of stock
appreciation rights ("SAR's") issued to certain of the Company's lenders in
1990.
Provision for Income Taxes
Provision for income taxes was $3.2 million in 1994 as compared to $0.5
million in 1993 due to an increase in pre-tax income partially offset by a
lower effective tax rate which includes an adjustment of previously provided
taxes.
Net Income
As a result of the foregoing, net income was $5.1 million in 1994 as
compared to $0.1 million in 1993.
21
22
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred substantial indebtedness in connection with the
Acquisition. As of December 31, 1995, the Company had outstanding indebtedness
of approximately $146.5 million.
Concurrently with the Acquisition, the Bank Credit Facility became
available to Pioneer Americas, Inc. The Bank Credit Facility provides a $30
million revolving line of credit, subject to borrowing base limitations that
relate to the level of accounts receivable and inventory of Pioneer Americas,
Inc. and its subsidiaries, PCAC, Imperial West and All-Pure ("Subsidiary
Guarantors"). As of December 31, 1995, the Subsidiary Guarantors had $2.9
million of letters of credit outstanding and had, subject to certain
restrictions (including borrowing base limitations), the ability to draw up to
$27.1 million of additional secured indebtedness under the Bank Credit Facility
through 1998. The Bank Credit Facility is secured by the accounts receivable
and inventory of the Subsidiary Guarantors, and the guarantee of PCAC issued in
connection therewith is secured by first mortgage liens on PCAC's St. Gabriel,
Louisiana and Henderson, Nevada plants pari passu with PAAC's outstanding
13 3/8% First Mortgage Notes ( the "Mortgage Notes."). The only financial
coverage ratio requirements included in either the indenture with respect to the
Mortgage Notes or the Bank Credit Facility are those which require a
calculation of a consolidated cash flow coverage ratio and an interest coverage
ratio. The indenture requires that, on a pro forma basis, the Company's
consolidated cash flow coverage ratio for the most recently ended four full
fiscal quarters immediately preceding the date on which indebtedness is
incurred, calculated on a pro forma basis as if indebtedness was incurred on
the first day of such four full fiscal quarter period, would be at least 2.75
to 1.0. Dividends may not be paid unless, among other tests, PAAC could incur
$1.00 of additional indebtedness. The Bank Credit Facility requires an interest
coverage ratio of 1:00 to 1:00. PAAC and Pioneer Americas are in compliance
with the financial coverage ratio requirements.
The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the Bank
Credit Facility, will be adequate to make the required payments of principal
and interest on outstanding indebtedness, as well as to fund its foreseeable
capital expenditures and working capital requirements. Annual cash interest of
$19.0 million will be payable on the Mortgage Notes and on the Seller Notes.
The Company anticipates that capital expenditures for 1996 will be
approximately $16.0 million, including approximately $3.4 million for
environmental compliance matters. The Company believes that forecasted capital
expenditures will permit it to maintain its facilities on a basis competitive
within the industry through improved efficiency and throughput and continuation
of high operating rates. To the extent that the Company were to draw upon the
commitments under the Bank Credit Facility due to adverse business conditions
or to finance acquisitions or for other corporate purposes, the Company's
aggregate interest expense would be increased.
The Company's belief that it will generate sufficient cash flow for its
requirements is based, among other things, on the assumptions that: (i) the
Company's cash flow will be strong for several years as a result of continued
high ECU prices; (ii) the Company will invest in working capital in accordance
with prior practices; (iii) the Company will not incur any material capital
expenditures in excess of its business plan. Based on its analysis of
industry trends, management expects that current ECU prices, which are at
historically high levels, will continue at such levels during the next several
years, which, together with established low cash ECU production costs, should
result in cash inflows significantly greater than those experienced previously.
Pioneer's source of funds for payment of principal and interest on the
Seller Notes will be provided by dividends from PAAC. PAAC is restricted in
paying such dividends to 50% of the cumulative consolidated net income of PAAC
for the period subsequent to January 1, 1995, and is required to meet a
consolidated cash flow coverage ratio test of at least 2.75 to 1.0 for the
prior four fiscal quarters. Payment of dividends by PAAC to Pioneer should not
impair PAAC's liquidity if the tests are met.
Working Capital. The Company had working capital of $11.0 million at
December 31, 1995, as compared to a working capital deficiency of the
Predecessor Company of $4.4 million at December 31, 1994, primarily due to
higher cash balances and receivables as a result of higher volumes and prices
associated with ECU sales. Also, $12.1 million of current maturities of
long-term debt was included in current liabilities in 1994.
22
23
Net Cash Used in Investing Activities. Cash used in investing activities
for 1995 was $169.0 million, an increase of $164.3 million from that used by the
Predecessor Company in 1994. This increase was due primarily to the purchase
of the Predecessor Company by Pioneer for $152.3 million and an increase in
capital spending of $11.3 million for equipment replacement, operation
improvements and environmental compliance.
Cash used in investing activities by the Predecessor Company for 1994 was
$5.0 million, a decrease of $0.7 million from 1993. This decrease was mainly a
result of the 1994 sale of certain land located near PCAC's Henderson facility
for approximately $0.7 million. Capital spending, which was for equipment
replacement, operations improvements and environmental compliance, totaled $5.7
million in 1994 and $5.9 million in 1993.
Net Cash Provided by (Used in) Financing Activities. Cash provided by
financing activities in 1995 was $146.7 million compared to cash used in
financing activities by the Predecessor Company in 1994 of $15.9 million. The
difference is primarily due to the borrowings on the Mortgage Notes of $135.0
million and the issuance of $21.0 million of common stock during 1995 as
compared to net repayments on debt in 1994. Cash used in financing activities
in 1994 was $15.9 million, an increase of $4.1 million from 1993. The
difference is primarily a result of an increase in the amount of debt repaid in
1994.
SFAS 121
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," (SFAS 121) which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed. The Company
will adopt SFAS 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
SFAS 123
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) in October 1995.
SFAS No. 123, which is effective for fiscal years beginning after December 15,
1995, allows companies either to (i) continue to measure compensation cost
based on the "intrinsic value" method prescribed by Accounting Principles Board
Opinion No. 25 (APB No. 25) or (ii) adopt a "fair value" method of accounting
for all employee stock-based compensation; provided, however, that in either
case companies will be required to significantly expand disclosures related to
stock-based employee compensation arrangements (including the pro forma amount
of net income and earnings per share as if the new "fair value" method were
adopted, for those companies choosing to retain the "intrinsic value" method of
APB No. 25.) The accounting requirements for companies choosing to adopt SFAS
No. 123 apply to all stock-based awards granted, modified or settled in cash in
fiscal years beginning after December 15, 1995. The pro forma disclosure
requirements for companies electing to continue to apply APB No. 25 include,
for comparative purposes, the effects of all stock-based awards granted in
fiscal years beginning after December 15, 1994. The Company has elected to
continue utilizing the accounting prescribed by APB No. 25 for stock issued to
employees and therefore the impact on the Company of this change in accounting
principle will be only to increase disclosure requirements.
23
24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index:
PAGE
----
(1) Consolidated financial statements, Pioneer Companies, Inc. and
subsidiary companies:
Report of Deloitte & Touche LLP, independent public accountants,
dated March 22, 1996................................................. 25
Report of Ernst & Young LLP, independent auditors, dated
June 26, 1995........................................................ 26
Report of Piercy, Bowler, Taylor & Kern, independent public
accountants, dated January 30, 1995.................................. 27
Consolidated balance sheets---December 31, 1995 and 1994 and
Predecessor Company at December 31, 1994 ............................ 28
Consolidated statements of operations for the years ended December
31, 1995, 1994 and 1993 and Predecessor Company Period
from January 1, 1995 through April 20, 1995 and Years
Ended December 31, 1994 and 1993.................................... 30
Consolidated statements of stockholders' equity (deficiency) for the
years ended December 31, 1995, 1994 and 1993 and Predecessor
Company Period from January 1, 1995 through April 20, 1995
and Years Ended December 31, 1994 and 1993 .......................... 31
Consolidated statements of cash flows for the years ended December 31,
1995, 1994 and 1993 and Predecessor Company Period from
January 1, 1995 through April 20, 1995 and Years Ended
December 31, 1994 and 1993.......................................... 32
Notes to consolidated financial statements ............................... 35
(2) Supplemental Schedule:
Schedule II - Valuation and Qualifying Accounts .......................... 63
All schedules, except the one listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.
24
25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pioneer Companies, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. (the "Company"), as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years then ended. Our audits
also included the financial statement schedule II. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pioneer Companies, Inc., at December 31, 1995 and 1994, and the consolidated
results of its operations, changes in stockholders' equity (deficiency) and
cash flows for each of the three years then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 22, 1996
25
26
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Americas, Inc.
We have audited the accompanying consolidated balance sheet of Pioneer
Americas, Inc. (the "Company"), as of December 31, 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from January 1, 1995 through April 20, 1995 and for each of the
two years in the period ended December 31, 1994. Our audits also included the
related financial statement schedule II. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits. The financial statements of certain of the Company's investments
(as described in Note 4) have been audited by other auditors whose reports have
been furnished to us; insofar as our opinion on the consolidated financial
statements relates to data included for these investments, it is based solely
on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Pioneer Americas,
Inc., at December 31, 1994 and the consolidated results of its operations and
its cash flows for the period from January 1, 1995 through April 20, 1995 and
each of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
June 26, 1995
26
27
INDEPENDENT AUDITORS' REPORT
Board of Directors
Basic Investments, Inc.
Henderson, Nevada
We have audited the accompanying combined balance sheets of Basic Investments,
Inc. and affiliates (the Company) as of December 31, 1994 and the related
combined statements of income, equity and cash flows for each of the two years
in the period ended December 31, 1994. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Basic
Investments, Inc. and affiliates as of December 31, 1994 and the results of its
combined operations and cash flows for each of the two years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
PIERCY, BOWLER, TAYLOR & KERN
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
A PROFESSIONAL CORPORATION
Las Vegas, Nevada
January 30, 1995
27
28
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
PREDECESSOR
DECEMBER 31, COMPANY
------------------------- DECEMBER 31,
1995 1994 1994
-------- -------- ------------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,276 $ 880 $ 3,310
Accounts receivable, less allowance for doubtful accounts of
$1,424 at December 31, 1995 and $2,038 at
December 31, 1994 (Predecessor Company) . . . . . . . . . 29,238 -- 26,170
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 13,004 -- 12,236
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 3,781 -- 1,845
-------- ----- --------
Total current assets . . . . . . . . . . . . . . . . . 57,299 880 43,561
Property, plant, and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,711 -- 11,203
Buildings and improvements . . . . . . . . . . . . . . . . . 13,997 -- 13,891
Machinery and equipment . . . . . . . . . . . . . . . . . . 67,587 71 107,857
Cylinders and tanks . . . . . . . . . . . . . . . . . . . . 4,503 -- 4,337
Construction in progress . . . . . . . . . . . . . . . . . . 9,394 -- 3,392
-------- ----- --------
97,192 71 140,680
Less accumulated depreciation . . . . . . . . . . . . . . . (7,795) (39) (56,267)
-------- ----- --------
89,397 32 84,413
Investment in Victory Valley Land Company, L.P. ("VVLC") . . . . -- -- 1,612
Investment in Basic Investments, Inc. ("BII") . . . . . . . . . . -- -- 15,704
Other assets, net of accumulated amortization of $1,168
at December 31, 1995 and $11,302 at December 31, 1994
(Predecessor Company) . . . . . . . . . . . . . . . . . . . . 11,664 -- 9,197
Excess cost over the fair value of net assets acquired, net of
accumulated amortization of $3,311 at December 31, 1995
and $2,722 at December 31, 1994 (Predecessor Company) . . . . 108,940 -- 10,044
-------- ----- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $267,300 $ 912 $164,531
======== ===== ========
See notes to consolidated financial statements.
28
29
PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
PREDECESSOR
DECEMBER 31, COMPANY
------------------------- DECEMBER 31,
1995 1994 1994
-------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 18,793 $ 20 $ 13,103
Accrued liabilities . . . . . . . . . . . . . . . . . . 24,108 130 19,330
Returnable deposits . . . . . . . . . . . . . . . . . . 3,437 -- 3,423
Current maturities of long-term debt . . . . . . . . . . -- -- 12,056
-------- -------- --------
Total current liabilities . . . . . . . . . . . . . 46,338 150 47,912
Bank Credit Facility . . . . . . . . . . . . . . . . . . . . -- -- --
13-3/8% First Mortgage Notes due 2005 . . . . . . . . . . . . 135,000 -- --
Seller Notes . . . . . . . . . . . . . . . . . . . . . . . . 11,463 -- --
Long-term debt, less current maturities . . . . . . . . . . . -- -- 36,757
Returnable deposits . . . . . . . . . . . . . . . . . . . . . 3,281 -- 3,788
Accrued pension and other employee benefits . . . . . . . . . 13,573 -- 10,794
Future tax effects . . . . . . . . . . . . . . . . . . . . . -- -- 19,799
Other long-term liabilities . . . . . . . . . . . . . . . . . 13,170 -- 13,327
Commitments and contingencies
Redeemable preferred stock . . . . . . . . . . . . . . . . . -- -- 6,227
Redeemable stock put warrants . . . . . . . . . . . . . . . . -- -- 2,825
Stockholders' equity:
Preferred stock: $.01 par value, authorized 10,000,000
shares, none issued
Common stock:
Class A, $.01 par value, authorized 46,000,000 shares,
issued and outstanding 7,883,593 at December 31,
1995 and 3,768,499 at December 31, 1994 . . . . . . 79 38 --
Class B, $.01 par value, authorized 4,000,000 shares,
issued and outstanding 655,199 at December 31,
1995 and 769,354 at December 31, 1994, convertible
share-for-share into Class A shares . . . . . . . . 7 8 --
Common stock, $.01 par value, authorized 3,000,000
shares, issued and outstanding 1,509,343 at
December 31, 1994 . . . . . . . . . . . . . . . . . . -- -- 15
Additional paid-in capital . . . . . . . . . . . . . . . 40,056 1,869 4,186
Retained earnings (deficit) . . . . . . . . . . . . . . 4,333 (1,153) 18,901
-------- -------- --------
Total stockholders' equity . . . . . . . . . . . . 44,475 762 23,102
-------- -------- --------
Total liabilities and stockholders' equity . . . . $267,300 $ 912 $164,531
======== ======== ========
See notes to consolidated financial statements.
29
30
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY
----------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
Net sales . . . . . . . . . . . . . . $142,908 $ -- $ -- $ 57,848 $167,217 $151,191
Costs and expenses:
Cost of sales . . . . . . . . . . 96,504 -- -- 37,400 134,556 131,711
Cost of sales--acquisition
related inventory step-up . . . 1,671 -- -- -- -- --
Selling, general and
administrative . . . . . . . . 20,765 155 505 7,047 22,529 21,850
Interest expense, net . . . . . . 13,540 (15) 15 1,665 6,407 7,551
-------- -------- -------- -------- -------- --------
Total costs and expenses . . 132,480 140 520 46,112 163,492 161,112
Other income from the settlement of
litigation and insurance claims, net -- -- -- -- 3,326 8,360
Other income, net . . . . . . . . . . . 637 -- -- (115) 1,337 2,103
-------- -------- -------- -------- -------- --------
Income (loss) before taxes and
extraordinary item . . . . . . . . . 11,065 (140) (520) 11,621 8,388 542
Income tax provision . . . . . . . . . 5,579 -- -- 4,809 3,242 486
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item . . . . . . . . . . . . . . . 5,486 (140) (520) 6,812 5,146 56
Extraordinary item . . . . . . . . . . -- -- -- (3,420) -- --
-------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . . 5,486 (140) (520) 3,392 5,146 56
Accretion of dividends on preferred
stock and adjustment to redeemable
stock put warrants . . . . . . . . . -- -- -- -- (1,824) (400)
-------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common stock . . . . . . . . . . . . $ 5,486 $ (140) $ (520) $ 3,392 $ 3,322 $ (344)
======== ======== ======== ======== ======== ========
Net income (loss) per share . . . . . . $ .75 $ (.03) $ (.15)
======== ======== ========
Weighted average number of shares of
common stock outstanding . . . . . . 7,337 4,323 3,419
======== ======== ========
See notes to consolidated financial statements.
30
31
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
COMMON STOCK
ISSUED AND OUTSTANDING ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- -------- -------- --------
PREDECESSOR COMPANY
Balance at December 31, 1992 . . . . . 1,453 $ 14 $ 4,028 $ 16,123 $ 20,165
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid . . -- -- -- (500) (500)
Net income . . . . . . . . . . . . . -- -- -- 56 56
-------- -------- -------- -------- --------
Balance at December 31, 1993 . . . . . 1,453 14 4,028 15,679 19,721
Common Stock issuance . . . . . . . 56 1 158 -- 159
Adjust carrying value of stock
warrants . . . . . . . . . . . . . -- -- -- (1,424) (1,424)
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid . . -- -- -- (500) (500)
Net income . . . . . . . . . . . . . -- -- -- 5,146 5,146
-------- -------- -------- -------- --------
Balance at December 31, 1994 . . . . . 1,509 15 4,186 18,901 23,102
Accretion of excess redemption value
of redeemable preferred stock over
carrying value and amount of
dividends not declared or paid . . -- -- -- (124) (124)
Net income . . . . . . . . . . . . . -- -- -- 3,392 3,392
-------- -------- -------- -------- --------
Balance at April 20, 1995 . . . . . . . 1,509 $ 15 $ 4,186 $ 22,169 $ 26,370
======== ======== ======== ======== ========
COMMON STOCK ISSUED AND OUTSTANDING
----------------------------------------
CLASS A CLASS B ADDITIONAL RETAINED
------------------- ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
-------- -------- -------- -------- ---------- ---------
PIONEER COMPANIES, INC.
Balance at December 31, 1992 . . . . . 2,650 $ 27 769 $ 8 $ 101 $ (493)
Net loss . . . . . . . . . . . . . . -- -- -- -- -- (520)
Forgiveness of indebtedness . . . . . -- -- -- -- 653 --
-------- -------- -------- -------- -------- --------
Balance at December 31, 1993 . . . . . 2,650 27 769 8 754 (1,013)
Private placement . . . . . . . . . . 1,102 11 -- -- 1,092 --
Net loss . . . . . . . . . . . . . . -- -- -- -- -- (140)
Stock issued to non-employee Directors 16 -- -- -- 23 --
-------- -------- -------- -------- -------- --------
Balance at December 31, 1994 . . . . . 3,768 38 769 8 1,869 (1,153)
Private placement . . . . . . . . . . 24 1 -- -- 36 --
Stock issued to Interlaken Investment
Partners, L.P. . . . . . . . . . . 2,841 28 -- -- 14,972 --
Stock issued to certain employees and
directors of the Predecessor Company 1,136 11 -- -- 5,989 --
Conversion of Class B shares into Class A
shares . . . . . . . . . . . . . . 114 1 (114) (1) -- --
Utilization of the NOL . . . . . . . -- -- -- -- 17,190 --
Net income . . . . . . . . . . . . . -- -- -- -- -- 5,486
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 . . . . . 7,883 $ 79 655 $ 7 $ 40,056 $ 4,333
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
31
32
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- ------- --------
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . $ 5,486 $ (140) $ (520) $ 3,392 $ 5,146 $ 56
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization . . . 12,274 6 8 4,490 13,595 13,446
Provision for bad debts . . . . . . 138 -- -- 47 1,235 1,100
Write-off of previous finance
costs . . . . . . . . . . . . . . -- -- -- 1,282 -- --
Loss (Gain) on disposal of
property, plant and equipment . . -- -- -- 13 (4) (46)
Provision for SAR's . . . . . . . . -- -- -- -- 968 --
Equity in earnings of BII and
VVLC . . . . . . . . . . . . . . -- -- -- (204) (183) (1,149)
Future tax effects . . . . . . . . . -- -- -- (2,086) (1,256) 1,723
Utilization of NOL . . . . . . . . . 3,590 -- -- -- -- --
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable . . . . . . 1,866 -- -- (3,617) (4,889) 4,032
Due from affiliates . . . . . . -- -- -- -- 535 613
Receivable from insurance
carriers and agents . . . . . -- -- -- -- (102) 102
Income taxes receivable . . . . -- -- -- -- 2,738 (1,299)
Inventories . . . . . . . . . . 1,541 -- -- (638) (876) 744
Prepaid expenses . . . . . . . (1,416) -- -- 722 (371) 447
Other assets . . . . . . . . . (3,104) 24 -- (1,342) (305) (398)
Accounts payable . . . . . . . (2,464) -- -- 4,899 862 (3,138)
Accrued liabilities . . . . . . 8,931 (291) 204 (3,784) 3,783 1,156
Returnable deposits . . . . . . (234) -- -- (259) (323) 208
Other long-term liabilities . . (71) -- -- (726) 1,079 (93)
Accrued pension and other
employee benefits . . . . . . 477 -- -- 422 787 674
-------- -------- -------- -------- ------- --------
Total adjustments . . . . 21,528 (261) 212 (781) 17,273 18,122
-------- -------- -------- -------- ------- --------
Net cash provided by (used in)
operating activities . . . . . . . . . 27,014 (401) (308) 2,611 22,419 18,178
INVESTING ACTIVITIES:
Purchase of Predecessor Company (152,318) -- -- -- -- --
Capital expenditures . . . . . . . . (13,556) -- -- (3,447) (5,681) (5,889)
Proceeds from sale of property,
plant and equipment . . . . . . . -- -- -- 58 694 204
-------- -------- -------- -------- ------- --------
Net cash used in investing activities . . (165,874) -- -- ( 3,389) (4,987) (5,685)
======== ======== ======== ======== ======= ========
See notes to consolidated financial statements.
32
33
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Payments on revolving credit
facility . . . . . . . . . . (18,500) -- -- -- -- --
Borrowings on revolving credit
facility . . . . . . . . . . 18,500 -- -- -- -- --
Borrowings on 13 3/8% First
Mortgage Notes due 2005 . . . 135,000 -- -- -- -- --
Payments on long-term debt . . . (9,000) -- -- (103,971) (99,961) (14,544)
Proceeds from borrowings on
long-term debt . . . . . . . -- -- -- 106,000 83,900 2,700
Proceeds from borrowings on loan
payable to unconsolidated
subsidiary . . . . . . . . . -- 75 175 -- -- --
Dividends paid on preferred stock
and purchase stock put warrant -- -- -- (2,341) -- --
Proceeds from private placement
of Class A Common Stock . . . 21,036 1,102 -- -- -- --
Proceeds from issuance of
common stock . . . . . . . . -- -- -- -- 170 --
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities . . . . . . . 147,036 1,177 175 (312) (15,891) (11,844)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash . . . 8,176 776 (133) (1,090) 1,541 649
Cash acquired in acquisition . . . . 2,220 -- -- -- -- --
Cash at beginning of period . . . . . 880 104 237 3,310 1,769 1,120
-------- -------- -------- -------- -------- --------
Cash at end of period . . . . . . . . $ 11,276 $ 880 $ 104 $ 2,220 $ 3,310 $ 1,769
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
33
34
PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
PREDECESSOR COMPANY
----------------------------------
PERIOD
FROM
JANUARY 1,
1995
YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
-------------------------------- APRIL 20, -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . $ 8,704 $ -- $ -- $ 3,067 $ 4,482 $ 5,871
======== ======== ======== ======== ======== ========
Income taxes . . . . . . . . . . $ 1,707 $ -- $ -- $ 1,852 $ 3,730 $ --
======== ======== ======== ======== ======== ========
Supplemental schedule of non-cash
investing and financing activities:
The allocation of the purchase
price is summarized as follows:
Fair value of assets acquired . $267,977
Cash paid for acquisition . . . (152,318)
Seller Notes issued . . . . . . (11,463)
NOL benefit recognized . . . . (13,600)
--------
Liabilities assumed . . . . . . $ 90,596
========
In May 1994, the Predecessor
Company purchased all of the
issued and outstanding stock of
GPS Pool Supply, Inc. for
$3,492 summarized as follows:
Fair value of net assets
acquired . . . . . . . . . . $ 3,336
Goodwill . . . . . . . . . . . 156
Cash paid for capital stock . . (238)
--------
Note balance . . . . . . . . . $ 3,254
========
See notes to consolidated financial statements.
34
35
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
At the annual shareholders meeting held on March 31, 1995, the change of
GEV Corporation's name to Pioneer Companies, Inc. ("Pioneer") was approved
subject to the consummation of the acquisition described below. The consolidated
financial statements include the accounts of Pioneer and its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. All dollar amounts in the tabulations in the notes
to the financial statements are stated in thousands of dollars unless otherwise
indicated.
On April 20, 1995, the Company purchased Pioneer Americas, Inc. ("Pioneer
Americas" or the "Predecessor Company") which, through its subsidiaries,
manufactures chlorine, caustic soda and related products used in a variety of
applications including water treatment, plastics, detergents and agricultural
chemicals. Prior to April 20, 1995 the Company, which had previously sold its
businesses, was actively seeking acquisitions and had no other operations.
Share and per share information has been retroactively restated to reflect
the one-for-four reverse stock split of Pioneer's Class A and Class B Common
Stock, effective April 27, 1995. Income (loss) per common share is computed
using the weighted average number of Class A and Class B common shares
outstanding during the period.
BASIS OF PRESENTATION EFFECTIVE APRIL 20, 1995
On April 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 24, 1995 (the "Acquisition Agreement"), by and among Pioneer, Pioneer
Americas Acquisition Corp. ("PAAC"), and the holders of the outstanding common
stock and other common equity interests (the "Sellers") of the Predecessor
Company, PAAC acquired all of such stock and interests (the "Acquisition") for
a purchase price equal to the sum of approximately (i) $102.0 million, paid in
cash, (ii) $11.5 million aggregate principal amount of subordinated promissory
notes of Pioneer (the "Seller Notes") and (iii) certain amounts payable
pursuant to a Contingent Payment Agreement among Pioneer, PAAC and the Sellers
("Contingent Payment Agreement") after the closing based upon earnings or
proceeds attributable to certain of Pioneer Americas' direct and indirect real
estate holdings ("Contingent Payment Properties") which are not necessary for
Pioneer Americas' business. In addition, as further consideration for the
Acquisition, PAAC paid approximately $51.7 million to retire all outstanding
indebtedness of the Predecessor Company, $5.0 million to redeem Predecessor
Company outstanding preferred stock and $6.3 million of fees and expenses for
a total purchase price of $176.5 million.
In connection with the consummation of the Acquisition, (i) PAAC issued
and sold $135.0 million aggregate principal amount of 13-3/8% First Mortgage
Notes (the "Initial Offering" or "Mortgage Notes"), (ii) Pioneer issued the
Seller Notes in exchange for certain of the outstanding shares of Pioneer
Americas, Inc., which Pioneer contributed to PAAC, (iii) Pioneer issued and
sold to Interlaken Investment Partners, L.P., a Delaware limited partnership
(the "Interlaken Partnership"), 2,840,909 shares of Class A Common Stock of
Pioneer for an aggregate purchase price of $15.0 million (the "Interlaken
Partnership Purchase"), the proceeds of which were contributed to PAAC, (iv)
Pioneer issued and sold to certain employees and directors of the Predecessor
Company (collectively, the "Management Investors"), 1,136,363 shares of Class
A Common Stock of Pioneer for an aggregate purchase price of $6.0 million (the
"Management Purchase"), the proceeds of which were contributed to PAAC, and
(v) Pioneer Americas entered into
35
36
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
a new bank revolving credit facility (the "Bank Credit Facility") providing
for borrowings of up to $30.0 million. The net proceeds of the Initial
Offering, the Interlaken Partnership Purchase, the Management Purchase and a
borrowing under the Bank Credit Facility were used to pay the cash portion of
the purchase price of the Acquisition, to retire the outstanding Predecessor
Company indebtedness, to redeem the Predecessor Company's outstanding preferred
stock and to pay certain transaction costs associated with the Acquisition.
The Acquisition has been accounted for by the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the net assets acquired of approximately $112.0 million will be amortized on a
straight-line basis over periods of up to 25 years. The purchase price
allocation is based on estimates of the fair value of the net assets acquired
and liabilities assumed and is subject to adjustment as additional information
becomes available.
The following pro forma financial data presents the consolidated financial
results of operations as if the Acquisition, the Initial Offering, the
Interlaken Partnership Purchase, the Management Purchase and the borrowing
under the Bank Credit Facility had occurred at the beginning of the periods
presented and does not purport to be indicative of either future results of
operations or results that would have occurred had the Acquisition actually
been made as of such dates.
PRO FORMA COMBINED SUMMARY STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
--------- ---------
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,756 $ 167,217
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 17,825 17,311
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . 19,226 18,967
Income (loss) before income taxes and extraordinary item . . . . . . 17,824 (5,839)
Income (loss) before extraordinary item . . . . . . . . . . . . . . . 10,263 (5,839)
Extraordinary item, early extinguishment of debt (net of income tax
benefit of $2,140) . . . . . . . . . . . . . . . . . . . . . . . . (3,420) --
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,843 $ (5,839)
========= =========
Weighted average number of shares of common stock outstanding 8,535 8,344
PER SHARE DATA:
Income (loss) before extraordinary item . . . . . . . . . . . . . . . $ 1.20 $ (0.70)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . (0.40) --
--------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ (0.70)
========= =========
The pro forma combined summary statements of operations reflect the
inclusion of the Predecessor Company's results of operations for the period
from January 1, 1995 through April 20, 1995 and for the year ended December 31,
1994 as applicable, adjusted for: depreciation and amortization on property,
plant and equipment valuation increases of $0.3 million and $0.8 million, excess
cost over the fair value of net assets acquired and financing cost of $1.5
million and $5.1 million, interest expense on financing in connection with the
Acquisition of $5.8 million and $19.0 million, adjustment of the income tax
provision of $2.8 million and $3.2 million; and
36
37
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
elimination of historical interest expense of $1.7 million and $6.4 million,
amortization of excess cost over fair value of net assets acquired and
amortization of organization costs of $1.2 million and $2.2 million and equity
income from certain real estate investments of $0.2 million and $0.2 million.
The December 31, 1994 pro forma information also reflects the elimination of
the expense related to special appreciation rights granted to a subordinated
debt holder of $1.0 million and bank fees of $1.4 million.
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 calculated under the average cost method, which
includes appropriate elements of material, labor, and manufacturing overhead
costs, while the first-in, first-out method is utilized for raw materials,
supplies, and parts. The results of operations for the year ended December 31,
1995 include the effects of an increase of $1.7 million to cost of sales due to
the step-up in value of inventory in connection with the Acquisition.
PROPERTY, PLANT, AND EQUIPMENT
Depreciation for financial reporting purposes is computed primarily under
the straight-line method over the estimated remaining useful lives of the
assets.
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 expense for other assets for the year ended December 31, 1995 was
approximately $1.1 million.
Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, noncompete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure
Chemical Co. ("APC"), GPS Pool Supply, Inc. ("GPS") and Imperial West Chemical
Co. ("Imperial West") which were being amortized on a straight-line basis over
their estimated useful lives. The Predecessor Company's deferred financing
costs were being amortized on a straight-line basis over the term of the
related debt. Amortization expense for other assets was approximately $0.8
million for the period from January 1, 1995 through April 20, 1995 and $1.7
million and $2.1 million for each of the years ending December 31, 1994 and
1993.
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
Excess cost over the fair value of net assets acquired of approximately
$112 million is amortized on a straight-line basis over periods of up to 25
years. The carrying value of excess cost over the fair value of net assets
acquired
37
38
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is reviewed annually and if this review indicates that such excess cost will
not be recoverable, as determined based on the undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of excess cost over the fair value of net assets acquired will be reduced
by the estimated shortfall of cash flows. Amortization expense for excess cost
over the fair value of net assets acquired was approximately $3.3 million for
the year ended December 31, 1995.
The Predecessor Company's excess cost over the fair value of net assets
acquired or goodwill related to the All-Pure, Imperial West, and GPS
acquisitions of approximately $12.8 million was amortized on a straight-line
basis over 20 years. Amortization expense for goodwill was approximately $0.2
million for the period from January 1, 1995 through April 20, 1995 and $0.6
million for each of the years ending December 31, 1994 and 1993.
CONCENTRATION OF CREDIT RISK
The Company manufactures and sells chlorine and caustic-based products to
companies in diverse industries. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. The Company's sales are primarily to customers in the
western and southeastern regions of the United States. Credit losses relating
to these customers have been within management's expectations.
Net sales of the Predecessor Company included sales to a major customer of
approximately $7.5 million for the period from January 1, 1995 through April
20, 1995 and $18.7 million and $19.3 million in 1994 and 1993, respectively.
ENVIRONMENTAL EXPENDITURES
Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation
and clean-up obligations are either known or considered probable and the
related costs can be reasonably estimated. Other environmental expenditures,
that are principally maintenance or preventative in nature, are recorded when
expended and are expensed or capitalized as appropriate.
RETURNABLE DEPOSITS
Customers are required to pay a security deposit on All-Pure cylinders,
tanks, and containers. These deposits are refunded to the customer upon the
termination of service and return of cylinders, tanks, and containers.
INCOME TAXES
Pioneer files a consolidated tax return. Pioneer has entered into a tax
sharing agreement with PAAC whereby PAAC will make tax sharing payments to
Pioneer with respect to federal cash income taxes reflecting the consolidated
cash tax liability of Pioneer. State income taxes are included in income taxes
payable.
FUTURE TAX EFFECTS
Future tax effects, including effects of the Company's tax sharing
agreement, are computed under the provisions of SFAS No. 109 ("Accounting for
Income Taxes") and result from temporary differences in the recognition of
expenses for financial reporting and tax purposes. Temporary differences
include differences in methods of computing depreciation for financial
statement and tax purposes and differences in the financial statement basis and
tax basis of assets and liabilities acquired.
38
39
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE INFORMATION
Income per common share is computed using the weighted average number of
common shares outstanding during the period.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's assets and liabilities which are
considered to be financial instruments approximate their value. The estimated
fair value for the Company's long-term debt which approximates its fair value
as of December 31, 1995 was determined by the Company using appropriate
valuation methodologies and information available to management at that time.
Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values are indicative
of the amounts that would be realized in a free market exchange. The Company
held no derivative financial instruments as of December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK OPTIONS
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) in October 1995.
SFAS No. 123, which is effective for fiscal years beginning after December 15,
1995, allows companies either to (i) continue to measure compensation cost
based on the "intrinsic value" method prescribed by Accounting Principles Board
Opinion No. 25 (APB No. 25) or (ii) adopt a "fair value" method of accounting
for all employee stock-based compensation; provided, however, that in either
case companies will be required to significantly expand disclosures related to
stock-based employee compensation arrangements (including the pro forma amount
of net income and earnings per share as if the new "fair value" method were
adopted, for those companies choosing to retain the "intrinsic value" method of
APB No. 25.) The accounting requirements for companies choosing to adopt SFAS
No. 123 apply to all stock-based awards granted, modified or settled in cash in
fiscal years beginning after December 15, 1995. The pro forma disclosure
requirements for companies electing to continue to apply APB No. 25 include,
for comparative purposes, the effects of all stock-based awards granted in
fiscal years beginning after December 15, 1994. The Company has elected to
continue utilizing the accounting for stock issued to employees prescribed by
APB No. 25 and therefore the impact on the Company of this change in accounting
principle will only be to increase its disclosure requirements.
3. INVENTORIES
Inventories consist of the following:
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
(IN THOUSANDS)
Raw materials, supplies, and parts . . . . . . . . . . . . . . . . . . . . . $ 9,849 $ 9,111
Finished goods and work-in-process . . . . . . . . . . . . . . . . . . . . . 3,155 3,125
------------ -----------
$ 13,004 $ 12,236
============ ===========
39
40
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
4. INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
COMPANY, L.P. (VVLC)
The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of BII, which owns and
maintains the water and power distribution network within the Henderson, Nevada
industrial complex and which is a large landowner in Clark County, Nevada. The
remainder of the common stock of BII is owned by other companies located in the
industrial complex. The investment in BII is accounted for under the equity
method after adjustment to reflect PCAC's basis.
PCAC has an approximate 21% limited partnership interest in VVLC. The
purpose of VVLC's business is to receive and hold the lands, water rights, and
other assets contributed by the partners for investment. A wholly owned
subsidiary of BII, acting as general partner with a 50% interest in VVLC,
contributed all rights, title, and interest in and to certain land to VVLC.
PCAC assigned certain water rights to VVLC. The investment in VVLC was
accounted for by the Predecessor Company under the equity method.
The Company's interests in BII and in VVLC (referred to as the Basic
Ownership) constitute assets that, pursuant to the Acquisition Agreement and
the Contingent Payment Agreement, will be held for the economic benefit of the
Sellers for a period of 20 years. Dividends and distributions received by the
Company on account of the Basic Ownership (including amounts payable as a
result of sales of land or other assets owned by BII or VVLC) are deposited
into the Contingent Payment Account and used to satisfy certain obligations of
the Sellers under environmental and other obligations in favor of the Company.
After payment or provision for payment of such obligations in accordance with
the provisions of the Contingent Payment Agreement, amounts received by the
Company subsequent to April 20, 1995 on account of the Basic Ownership will be
remitted to the Sellers under the Contingent Payment Agreement for such 20-year
period. The Sellers also have certain rights during such period with respect
to determinations affecting the Basic Ownership, including the right (subject
to certain conditions) to direct the sales or disposition of interests
constituting the Basic Ownership and the right (with certain exceptions) to
vote the interests constituting the Basic Ownership, notwithstanding the
ownership of such interests by the Company. As the Sellers maintain the
economic benefit of the Basic Ownership, the Company has not maintained these
balances in its financial statements since the Acquisition.
The BII financial information includes the accounts of VVLC. The following
is a summary of financial information pertaining to BII and VVLC for the
Predecessor Company:
DECEMBER 31,
1994
------------
(IN THOUSANDS)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,922
Land development costs and water rights . . . . . . . . . . . . . . . . . . . . . 2,746
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,869
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,225
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,296
--------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,058
========
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,385
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Limited partner's capital . . . . . . . . . . . . . . . . . . . . . . . . . 3,873
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,799
--------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 12,673
--------
Total liabilities and shareholders' equity . . . . . . . . . . . $ 28,058
========
40
41
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
4. INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
COMPANY, L.P. (VVLC) (CONTINUED)
DECEMBER 31,
------------------------------
1994 1993
------------- -------------
(IN THOUSANDS)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,659 $ 17,347
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,834 4,611
------------ ------------
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825 12,736
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (274) (2,952)
------------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 551 $ 9,784
============ ============
The following is a summary of the impact of the investments on the
Predecessor Company's statements of operations:
DECEMBER 31,
-----------------------------
1994 1993
------------- ------------
(IN THOUSANDS)
Equity in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 183 3,320
Adjustment to reflect PCAC's basis . . . . . . . . . . . . . . . . . . . . . $ -- (2,171)
------------ ------------
Net impact on statements of operations . . . . . . . . . . . . . . . . $ 183 $ 1,149
============ ============
The Predecessor Company's retained earnings balance at April 20, 1995 and
December 31, 1994 included, before giving effect to PCAC's basis adjustment,
approximately $3.8 million and $3.3 million, respectively, of undistributed
earnings of BII and VVLC. The difference between the recorded investment
amounts of BII and VVLC and PCAC's share of net assets is due to PCAC's basis
differences of the land and water rights.
PCAC is a party to an agreement negotiated on an arms-length basis with
BII for the delivery of the Company's water to the Henderson production
facility. The agreement provides for the delivery of a minimum of eight million
gallons of water per day. The agreement expires on December 31, 2014, unless
terminated earlier in accordance with the provisions of the agreement. For the
period from April 21, 1995, through December 31, 1995, BII charged expenses to
PCAC of approximately $0.2 million. For the period from January 1, 1995 through
April 20, 1995 and the years ended December 31, 1994 and 1993, BII charged
expenses to the Predecessor Company of approximately $0.2 million, $0.5 million
and $0.6 million, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
Exchanges payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,217 $ 1,492
Payroll, benefits, and pension . . . . . . . . . . . . . . . . . . . . . . . . 5,371 4,299
Interest and bank fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,172 2,454
Future tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,782
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,348 8,303
----------- ----------
$ 24,108 $ 19,330
=========== ==========
41
42
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
5. ACCRUED LIABILITIES (CONTINUED)
Exchanges payable result from product exchange transactions which are
entered into between the Company and other producers that manufacture
homogeneous products, whereby other producers ship product on behalf of the
Company to its customers. These exchanges, which are recorded as payables,
generally are settled by the Company's shipment of product to such producers'
customers.
6. PENSION AND OTHER EMPLOYEE BENEFITS
Annual pension costs and liabilities for PCAC under its two
defined-benefit plans are determined by actuaries using various methods and
assumptions. For purposes of determining annual expenses and funding
contributions, the following assumptions were used for the years ended December
31:
1995 1994 1993
---- ---- ----
Rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 8.0% 8.0%
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5% 7.5% 8.0%
Annual compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0% 5.0% 5.0%
Pension expense was comprised of:
PREDECESSOR COMPANY,
-----------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, ---------------------
1995 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
Service cost . . . . . . . . . . . . . . . . . . $ 410 $ 178 $ 571 $ 665
Interest cost . . . . . . . . . . . . . . . . . . 566 260 770 700
Return on plan assets . . . . . . . . . . . . . . (394) (149) (537) (429)
Amortization of prior service cost and other . . 56 (7) 225 32
----- ----- ------- -----
Total pension expense . . . . . . . . . . . . $ 638 $ 282 $ 1,029 $ 968
===== ===== ======= =====
The actuarial present value of the accumulated benefit obligation is:
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,488 $ 7,919
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513 1,444
------------- ------------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ 10,001 $ 9,363
============= ============
42
43
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The reconciliation of the funded status of the plans is:
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,200 $ 11,420
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,293 7,340
------------- ------------
Projected benefit obligation in excess of plan assets . . . . . . . . . . . . . 4,907 4,080
Unrecognized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 592
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . (202) (16)
-------------- ------------
Pension obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,890 $ 4,656
Long-term portion of pension obligation . . . . . . . . . . . . . . . . . . . . 3,984 4,303
------------- ------------
Current accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . 906 353
============= ============
Subsidiaries of the Company offer defined-contribution plans for their
employees with employees contributing from 1% to 15% of their compensation.
Employer contributions are discretionary. PCAC contributed approximately $0.2
million to defined-contribution plans for the year ended December 31, 1995.
PCAC also contributed approximately $0.1 million, $-0-, and $-0- to
defined-contribution plans for the period from January 1, 1995 through April
20, 1995 and the years ended December 31, 1994 and 1993 respectively. All-Pure
and Imperial West made no employer contributions to their respective
defined-contribution plans for the year ended December 31, 1995, the period
from January 1, 1995 through April 20, 1995 and for the years ended December
31, 1994 and 1993.
43
44
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
In addition to providing pension benefits, PCAC provides certain health
care and life insurance benefits for retired employees. Substantially all of
PCAC's employees may become eligible for those benefits if they reach normal
retirement age while working for PCAC.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's balance sheet:
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
Accumulated post-retirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,669 $ 1,843
Fully eligible active plan participants . . . . . . . . . . . . . . . . . 1,380 2,102
Other active plan participants . . . . . . . . . . . . . . . . . . . . . . 4,169 3,758
------------- ------------
9,218 7,703
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 828
Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . -- 385
------------- ------------
Accrued post-retirement benefit cost . . . . . . . . . . . . . . . . . . . . . $ 9,218 $ 6,490
============= ============
Net periodic post-retirement benefit cost includes the following
components:
PREDECESSOR COMPANY
--------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, -------------------
1995 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
Service cost . . . . . . . . . . . . . . . . . . . . . $ 243 $ 109 $ 324 $ 256
Interest cost . . . . . . . . . . . . . . . . . . . . . 449 176 519 432
Amortization of transition obligation over 20 years . . 15 8 32 23
Other components . . . . . . . . . . . . . . . . . . . 48 -- -- --
----- ----- ----- ----
Net periodic post-retirement benefit cost . . . . . $ 755 $ 293 $ 875 711
===== ===== ===== ====
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) is 10.0% for 1995
(the same as the rate previously assumed for 1994) and is assumed to decrease
gradually to 6% for 2010 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
For example, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1995 and 1994 by $0.7 million and $0.6
million, respectively, and the aggregate of the service and interest cost
components of the net periodic post-retirement benefit cost for 1995 and 1994
by $0.1 million.
44
45
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% at December 31, 1995 and 1994.
As a result of the Acquisition, the unrecognized net loss and unrecognized
transition obligation were recognized.
7. BANK CREDIT FACILITY
In April 1995, Pioneer Americas entered into a credit agreement which
provides for a three-year Bank Credit Facility with Bank of America, Illinois
("BAI"). Pioneer Americas may borrow up to $30.0 million, subject to certain
borrowing base limitations. At December 31, 1995, no amounts were outstanding
under the Bank Credit Facility. The revolving loans bear interest at a rate
equal to, at Pioneer Americas' option, (i) the reference rate set by BAI or
(ii) the LIBOR Base Rate. The Bank Credit Facility requires Pioneer Americas to
pay a fee equal to one half of one percent per annum on the total unused
balance. Indebtedness outstanding under the Bank Credit Facility is
collateralized by a security interest in all of Pioneer Americas' inventory,
accounts receivable and certain other assets. Up to $10.0 million of the
Borrowing Base, as defined by the Bank Credit Facility, can be utilized for
letters of credit. The Borrowing Base at December 31, 1995 was approximately
$30.0 million. After consideration of the outstanding letters of credit of
approximately $2.9 million, the unused availability of the Borrowing Base was
approximately $27.1 million at December 31, 1995.
The Bank Credit Facility contains restrictive covenants that, among other
things and under certain conditions, limit the ability of Pioneer Americas to
incur additional indebtedness, to acquire or dispose of assets or operations
and to pay dividends or redeem shares of stock.
8. 13 3/8% FIRST MORTGAGE NOTES DUE 2005
In April 1995, PAAC issued and sold $135.0 million of Senior Notes.
Interest is payable on April 1 and October 1 of each year. The Senior Notes
were senior secured obligations of PAAC, ranking senior in right of payment to
all subordinated indebtedness of PAAC and pari passu in right of payment with
each other and with all existing and future senior indebtedness, including
indebtedness under the Bank Credit Facility. On September 14, 1995, the
obligations of PAAC under the Senior Notes were secured with first mortgage
liens on certain manufacturing facilities.
PAAC filed a registration statement with the Securities and Exchange
Commission relating to PAAC's offer to exchange (the "Exchange Offer") up to
$135.0 million aggregate principal amount of new 13 3/8% First Mortgage Notes
due 2005 (the "Mortgage Notes") for up to $135.0 million aggregate principal
amount of its outstanding Senior Notes. The Exchange Offer was completed on
January 23, 1996. The Mortgage Notes are freely transferable subject to certain
provisions and are otherwise identical to the Senior Notes. Since the
registration statement was not declared effective by August 13, 1995 and the
Exchange Offer was not consummated by September 12, 1995, the interest rate
borne by the Senior Notes was increased by 25 basis points per annum for the
90-day period following August 13, 1995. Such interest rate increased by an
additional 25 basis points per annum on November 11, 1995. The Mortgage Notes
bear the 13 3/8% interest rate originally borne by the Senior Notes.
45
46
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
8. 13 3/8% FIRST MORTGAGE NOTES DUE 2005 (CONTINUED)
The Mortgage Notes are redeemable at PAAC's option on and after April 1,
2000. In addition, PAAC may also redeem at its option at any time prior to
April 1, 1998 up to $35.0 million of the Mortgage Notes at 113% of the
principal amount thereof with funds raised in a public offering of common stock
of PAAC or of common stock of Pioneer to the extent such proceeds are
contributed to PAAC. Upon a change of control, as defined in the Mortgage
Notes' indenture, PAAC will be required to offer to repurchase the Mortgage
Notes at a purchase price equal to 101%.
The Mortgage Notes contain restrictive covenants that, among other things
and under certain conditions, limit the ability of PAAC to incur additional
indebtedness, to acquire or dispose of assets or operations and to pay
dividends or redeem shares of stock.
9. SELLER NOTES
At the Closing of the Acquisition, the Company delivered to the Sellers,
Seller Notes in the aggregate principal amount of $11.5 million, after
adjustments resulting from terms and conditions defined in the Acquisition
Agreement. Interest on the Seller Notes is payable at a rate of 8% per annum
on a quarterly basis. The principal is payable in five equal annual
installments commencing on April 20, 2001.
46
47
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
10. PREDECESSOR COMPANY LONG-TERM DEBT
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
Long-term debt with a bank, due in quarterly installments with additional principal
reductions, due semiannually, equal to 70% of net cash flows, as defined, with a
final payment due September 30, 1996, interest due quarterly at the bank's base
rate plus 2%. The additional principal reductions were approximately $9.9 million
during 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,887
Revolving credit loan with a bank with principal reductions at 50% of net cash flows, as
defined, after repayment of the long-term debt, with a final amount due September 30,
1996, limited to a borrowing base as defined, less outstanding letters of credit, interest
due quarterly at the bank's base rate plus 1.5%. . . . . . . . . . . . . . . . . . . . . . . 7,600
Subordinated debt with a financial institution, due in installments of $122,847 on the fifth
day of each April and October, from October 1994 through October 1996
and installments of $4,147,743 starting in April 1997 with a final payment due October
19, 1998, interest due quarterly at a rate of 14.5%, secured by receivables, inventory,
property, plant, and equipment, and other assets. . . . . . . . . . . . . . . . . . . . . . 18,060
Unsecured note payable, original face value of $8,825,055, with a contract interest rate at
the average 30-59 day GMAC rate, due in eight installments of $1.0 million due each August
29, with the remaining balance due on August 29, 1996, with an effective interest rate of
15%, net of unamortized discount of $0.4 million at December 31, 1994. . . . . . . . . . . 3,407
Unsecured noninterest-bearing, long-term debt, original face value of $6.5 million, payable in
six annual installments of $1.0 million and a final payment of $0.5 million subject to certain
reductions as provided in the purchase agreement with the prior owner of PCAC,
beginning October 26, 1989, with an effective interest rate of 15%, net of unamortized
discount of $0.1, million at December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . 435
Promissory note, original face value of $3,254,339, with a contractual interest rate of 7%
per annum with installments of principal and interest due quarterly from
September 20, 1994 until May 27, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,425
---------
48,814
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,057)
---------
$ 36,757
=========
As of December 31, 1994 the amended loan agreements reflecting the above
debt included restrictions regarding capital expenditures, the borrowing of
additional money, the formation or acquisition of subsidiaries, the signing of
long-term leases, the maintenance of certain financial ratios, and other
reporting and disclosure requirements regarding monthly operating results of
the Predecessor Company's subsidiaries. Also, unless otherwise consented in
writing by the lender, the Predecessor Company could not declare or pay any
47
48
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PREDECESSOR COMPANY LONG-TERM DEBT (CONTINUED)
dividends other than subsidiary dividends to the parent in order to cover
certain expenditures at specified maximum amounts, as defined. The Predecessor
Company's subsidiaries were in compliance with all the above requirements after
obtaining amendments.
The amended loan agreement relating to the long-term debt with a bank
required the Predecessor Company within ten calendar days after receipt to make
a mandatory prepayment equal to 95% of any extraordinary income received by the
Company on or after January 1, 1993. Such payments were to be applied first to
accrued and unpaid interest due and payable as of the date of payment, then to
the differential between principal payments under the former loan agreement and
the amended loan agreement through September 30, 1994, then to scheduled
principal installments under the amended loan agreement in inverse order of
their maturity. Extraordinary income was defined as income which did not
constitute operating income derived from normal and customary operations of the
Predecessor Company, such as settlements or jury awards in litigation
proceedings and settlements or judges' awards in any arbitration proceedings,
sale of assets other than inventory, and insurance proceeds which were treated
as income under generally accepted accounting principles. In determining
extraordinary income, provisions for taxes and offsets for amounts owed to the
source of payment were to be deducted from the cash received.
The long-term debt and revolving credit loan were secured by receivables,
inventory, property, plant, and equipment, other assets, and PCAC stock. At
December 31, 1994 the borrowing base, as defined, under the revolving credit
loan was approximately $17.5 million.
In a separate agreement, a group of banks received additional bank fees
totaling 5.0% of adjusted net income, as defined. The fee was payable annually
through September 30, 1996.
The Predecessor Company issued warrants to a financial institution that
financed previous acquisitions. As of December 31, 1994, the instruments were
detachable from the debt and contained puts that required redemption for cash
or conversion into common stock of the Predecessor Company under certain
conditions.
11. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
At December 31, 1995 the Company had letters of credit and performance
bonds outstanding of approximately $2.9 million and $6.5 million respectively.
These letters of credit and performance bonds were issued for the benefit of:
(i) customers under sales agreements securing delivery of products sold, (ii) a
power company as a deposit for the supply of electricity, and (iii) a state
environmental agency as required for manufacturers in the state. The letters
of credit expire at various dates in 1996 and 1997. No amounts were drawn on
the letters of credit at December 31, 1995.
PURCHASE COMMITMENTS
PCAC has committed to purchase electrical power and transmission services
for its chlor-alkali plants through September 30, 2017. At the current base
price, allocated capacity, and allocated energy per the contract terms, this
commitment would approximate $26.7 million for each of the years 1996 through
1998; $28.5 million for the years 1999 and 2000; and $11 million for each of
the years 2001 through 2010. The allocated capacity is subject to adjustment
for other priority users. The Company purchased approximately $15.6 million
in electrical power and transmission services for the year ended December 31,
1995. The Predecessor Company purchased approximately
48
49
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$8.9 million, $27.2 million and $27.0 million in electrical power and
transmission services for the period from January 1, 1995 through April 20,
1995 and the years ended December 31, 1994 and 1993, respectively.
In addition, PCAC has committed to purchase salt used in the production
process under contracts which continue through December 31, 1998. Based on the
contract terms, a minimum of 600,527 tons of salt are to be purchased in 1996;
620,832 tons in 1997; and 631,832 tons in 1998. The future minimum salt
commitments are as follows (in thousands):
1996 . . . . . . . . . . . . . . . . . . . $ 10,474
1997 . . . . . . . . . . . . . . . . . . . 11,621
1998 . . . . . . . . . . . . . . . . . . . 7,048
-------------
$ 29,143
=============
The Company purchased approximately $6.0 million of salt for the year ended
December 31, 1995. The Predecessor Company purchased approximately $2.8
million, $8.6 million and $9.1 million of salt for the period from January 1,
1995 through April 20, 1995 and the years ended December 31, 1994 and 1993,
respectively.
OPERATING LEASES
The Company and its subsidiaries lease certain manufacturing and
distribution facilities, computer equipment, and administrative offices under
noncancelable leases. Minimum future rental payments on such leases with terms
in excess of one year in effect at December 31, 1995 are as follows (in
thousands):
1996 . . . . . . . . . . . . . . . . . . . $ 9,640
1997 . . . . . . . . . . . . . . . . . . . 9,229
1998 . . . . . . . . . . . . . . . . . . . 8,605
1999 . . . . . . . . . . . . . . . . . . . 7,626
2000 . . . . . . . . . . . . . . . . . . . 4,840
Thereafter . . . . . . . . . . . . . . . . 253
-------------
Total minimum obligations . . . . . . . . . $ 40,193
=============
Lease expense charged to operations for the year ended December 31, 1995
was approximately $6.3 million. Lease expense charged to the Predecessor
Company's operations for the period from January 1, 1995 through April 20, 1995
and the years ended December 31, 1994 and 1993 was approximately $3.3 million,
$8.4 million and $8.4 million, respectively.
49
50
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SALES COMMITMENTS
PCAC has a sales contract with a customer which requires PCAC to sell and
the customer to purchase amounts of chlorine and caustic soda of not less than
the percentage of the customer's use of chlorine and caustic soda supplied by
PCAC in the 12-month period ended July 31, 1987 (base period). The contract,
which expires on December 31, 1997, states that the sales price will not be
less than PCAC's standard cost as calculated based on 1987 amounts and adjusted
thereafter for price changes for raw materials and changes in other costs as
reflected in the producer price index.
LITIGATION
Pioneer Americas settled litigation with an insurance company in December
1992 relating to claims resulting from a chlorine release in 1991. In
accordance with the settlement, the insurance company reimbursed Pioneer
Americas $2.1 million relating to claims paid by Pioneer Americas prior to
November 1, 1992 and agreed to pay Pioneer Americas (a) upon proof of same,
$100,000 relative to claims and expenses incurred after July 31, 1992 but prior
to November 1, 1992 and (b) all claims after November 1, 1992 until an
aggregate total of $3.8 million had been paid. As of April 20, 1995, a total of
approximately $3.8 million in claims had been paid.
During 1993, Imperial West was awarded $1.38 million as the result of a
breach of contract claim it asserted against the lessor of one of the Imperial
West plants. Appeals of the judgment were upheld and the award together with
interest was paid in January 1996. The consolidated financial statements at
December 31, 1995 included a receivable for the award. The lessor also filed
suit alleging that Imperial West was required to remediate alleged
contamination prior to the termination of the lease in July 1995. The parties
settled that action under terms pursuant to which (i) Imperial West paid the
lessor $900,000 upon the termination of the lease in July 1995, and (ii) the
lessor transferred title to the property to Imperial West. In addition,
Imperial West agreed to indemnify the lessor against any future environmental
liability with respect to the property. The settlement did not affect the
appeal pending with respect to the breach of contract judgment. Certain
insurers paid a portion of Imperial West's defense costs in connection with the
subsequent lawsuit by the lessor.
In October 1994, the trustee in the bankruptcy of a company which was a
customer of PCAC filed suit against PCAC, seeking the recovery of up to $2.2
million in payments made to PCAC on a basis which the trustee alleges was
preferential to other creditors' claims. Management has been advised by counsel
that the range of any loss which may be incurred as the result of the suit will
be substantially below the amount claimed, and PCAC is vigorously contesting
the action. The Company has established a reserve consistent with its estimate
of its liability related to such transactions.
Pioneer and its subsidiaries are parties to other legal proceedings and
potential claims arising in the ordinary course of their businesses. In the
opinion of management, Pioneer and its subsidiaries have adequate legal defenses
and/or insurance coverage with respect to these matters and management does not
believe that they will materially affect the Company's operations or financial
position.
50
51
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES
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:
PREDECESSOR
COMPANY
-------------
DECEMBER 31,
------------------------------
1995 1994
------------- -------------
(IN THOUSANDS)
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . . . . . . . . . . . . . . $ 22,063 $ 19,964
Investment in BII and VVLC . . . . . . . . . . . . . . . . . . . . . . . -- 6,509
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435 5,585
------------ ------------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . 23,498 32,058
------------ ------------
Deferred tax assets:
OPEB obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,761 2,499
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,030 1,885
Bad debt provision . . . . . . . . . . . . . . . . . . . . . . . . . . . 569 784
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 6,530 4,310
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . 22,091 --
------------ ------------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 34,981 9,478
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . 11,483 --
------------ ------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,498 9,478
------------ ------------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 22,580
============= ============
Significant components of the provision for income taxes are as follows:
PREDECESSOR COMPANY
----------------------------------------
PERIOD FROM
JANUARY 1,
1995 YEAR ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, -----------------------
1995 1995 1994 1993
------- ------- ------- -------
(IN THOUSANDS)
Current:
Federal . . . . . . . . . . . . . . . . . . $ 715 $ 5,938 $ 3,930 $ (1,152)
State . . . . . . . . . . . . . . . . . . . 1,701 957 568 (85)
------- ------- ------- --------
Total current 2,416 6,895 4,498 (1,237)
------- ------- ------- --------
Deferred:
Federal . . . . . . . . . . . . . . . . . . 3,764 (1,816) (1,010) 1,592
State . . . . . . . . . . . . . . . . . . . (601) (270) (246) 131
------- ------- ------- --------
Total deferred 3,163 (2,086) (1,256) 1,723
------- ------- ------- --------
$ 5,579 $ 4,809 $ 3,242 $ 486
======= ======= ======= ========
51
52
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is presented below:
PREDECESSOR COMPANY
------------------------------------------------------
PERIOD FROM
JANUARY 1, 1995
THROUGH YEAR ENDED DECEMBER 31,
APRIL 20, -----------------------------------
1995 1995 1994 1993
------ ------ ------ ------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- -------
(in thousands) (in thousands) (in thousands) (in thousands)
Tax at U.S. statutory rates . . . $3,872 35% $4,068 35% $ 2,936 35% $ 184 34%
State income taxes, net of
federal tax benefit . . . . . . 723 7 407 3 321 4 46 9
Amortization of excess cost over
the fair value of net assets
acquired . . . . . . . . . . . . 1,159 10 69 1 221 2 223 41
Adjustment of previously
provided taxes . . . . . . . . . -- -- -- -- (285) (3) -- --
Other--net . . . . . . . . . . . . (175) (2) 265 2 49 1 33 6
------- --- ------- --- ------- --- ------ ---
$ 5,579 50% $ 4,809 41% $ 3,242 39% $ 486 90%
======= === ======= === ======= === ====== ===
At December 31, 1995, Pioneer had available to it on a consolidated tax
return basis approximately $63.1 million of net operating loss carryforward
("NOL") for income tax purposes (expiring 2003 to 2010). The NOL is available
for offset against future taxable income if generated during the carryforward
period.
The Internal Revenue Code limits the amount of a corporation's NOL that may
be used each year to offset future income after an "ownership change" (as
defined). Pioneer does not believe that either the reorganization resulting from
certain previous Chapter 11 proceedings or the Acquisition resulted in an
ownership change.
Upon adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," Pioneer established a deferred tax asset based
upon the future utilization of the NOL. However, since Pioneer had no operating
subsidiaries at December 31, 1994 with which to generate taxable income, a 100%
valuation reserve was recorded against this asset. Due to the reorganization,
any future utilization of this NOL by Pioneer will be recognized as an
increase to additional paid-in capital. Approximately $13.6 million was
recognized as an increase to additional paid-in capital at April 20, 1995. An
additional $3.6 million was recognized as an increase to additional paid-in
capital for the period from April 21, 1995 through December 31, 1995. During
1995 the valuation allowance was reduced by $17.2 million.
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL
The Company's operations are subject to extensive environmental laws
and regulations related to protection of the environment, including those
applicable to waste management, discharge of pollutants into the air and water,
clean-up liability from historical waste disposal practices, and employee
health and safety. The Company believes that it is in substantial compliance
with existing governmental regulations.
52
53
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL (CONTINUED)
In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities (the "ZENECA Indemnity"), including liabilities associated with
operations at the Company's plant located in Henderson, Nevada (the "Henderson
Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor
Company from environmental costs which arise from or relate to pre-closing
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, the ZENECA
Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue
to cover claims after the expiration of the term of the indemnity provided
that, prior to the expiration of the indemnity, proper notice to the ZENECA
Companies is given and the Company has taken certain other actions. The Company
believes that the ZENECA Companies will continue to honor their obligations
under the ZENECA Indemnity for claims properly presented by the Company. It is
possible, however, that disputes could arise between the parties and that the
Company would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually established arbitration process.
In the Acquisition Agreement, the Sellers agreed to indemnify the Company
for certain environmental liabilities that result from certain discharges of
hazardous materials, or violations of environmental laws, arising prior to
April 20, 1995 (the "Closing Date") from or relating to the Pioneer plant sites
or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties
("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity
will generally be payable as follows: (i) out of certain reserves established
on Pioneer Americas' balance sheet at December 31, 1994; (ii) either by offset
against the amounts payable under the Seller Notes or from amounts held
pursuant to the Contingent Payment Agreement, and (iii) in certain
circumstances and subject to specified limitations, out of the personal assets
of the Sellers. Subject to certain exceptions and limitations set forth in the
Acquisition Agreement, a claim notice with respect to amounts payable pursuant
to the Sellers' Indemnity must generally be given within 15 years of the
Closing Date. Pioneer is required to reimburse the Sellers for amounts paid
under the Sellers' Indemnity with amounts recovered under the ZENECA Indemnity
or from other third parties. Pioneer and the Sellers have agreed that they will
cooperate in matters relating to the ZENECA Indemnity.
Liabilities related to environmental matters are recorded when site
restoration and environmental remediation and clean-up obligations are either
known or considered probable and are reasonably determinable. The liabilities
are based upon all available facts, existing technology, past experience and
cost-sharing arrangements, including the viability of other parties. Charges
made against income for recurring environmental matters, included in "cost of
sales" on the statements of operations, totaled approximately $1.2 million for
the year ended December 31, 1995 and $0.4 million, $1.8 million and $2.3
million for the Predecessor Company for the period from January 1, 1995 through
April 20, 1995 and the years ended December 31, 1994 and 1993, respectively.
Capital expenditures for environmental-related matters at existing facilities
approximated $2.2 million for the year ended December 31, 1995 and $0.2
million, $0.5 million and $1.1 million for the Predecessor Company for the
period from January 1, 1995 through April 20, 1995 and the years ended December
31, 1994 and 1993, respectively. Future environmental-related capital
expenditures will depend upon regulatory requirements, as well as timing
related to obtaining necessary permits and approvals.
53
54
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL (CONTINUED)
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 of approximately $9.0
million at the time of its acquisition of its Henderson, Nevada and St.
Gabriel, Louisiana facilities with respect to potential remediation costs
relating to matters not covered by the ZENECA Indemnity, consisting primarily
of remediation costs that may be incurred by Pioneer for chlor-alkali-related
remediation of the Henderson and St. Gabriel facilities. The recorded accrual
includes certain amounts related to anticipated closure and post-closure
actions that may be required when operation of the present chlor-alkali plants
ceases. However, complete analysis and study has not been completed and
therefore additional future charges may be recorded at the time a decision for
closure is made.
In 1994, the Predecessor Company recorded an additional $3.2 million
environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies. Other assets include an account
receivable of the same amount from the ZENECA Companies. Certain other
environmental matters exist for which the Company has not determined the
specific strategy for or cost of remediation. It is possible that additional
costs, depending on the final choice of remediation strategies, may be incurred
in the future. As additional information becomes available, changes in the
estimates of liabilities will be recorded. If such costs are incurred,
additional annual operating and maintenance costs may also be required. The
Company believes it will be reimbursed by the ZENECA Companies for
substantially all of such costs that are incurred at the Henderson Plant and
other properties within the same industrial complex. Additionally, certain
other environmental matters exist which have been assumed directly by the
ZENECA Companies. No assurance can be given that actual costs will not exceed
accrued amounts or the amounts currently estimated. The imposition of more
stringent standards or requirements under environmental laws or regulations,
new developments or changes respecting site cleanup costs, or a determination
that the Company is potentially responsible for the release of hazardous
substances at other sites could result in expenditures in excess of amounts
currently estimated by the Company to be required for such matters. Further,
there can be no assurance that additional environmental matters will not arise
in the future.
14. RELATED PARTY TRANSACTIONS
The Company has a 15% partnership interest in Saguaro Power Company
("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The
Company sells certain products and services to and purchases steam from Saguaro
at market prices. Balances with Saguaro are as follows:
PREDECESSOR COMPANY
---------------------------------------
PERIOD FROM
JANUARY 1,
1995
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, APRIL 20, ---------------------
1995 1995 1994 1993
------ ------ ------ ------
(IN THOUSANDS)
Sales to Saguaro . . . . . . . . . . . . . . . $ 754 $ 353 $ 1,286 $ 1,154
Purchases from Saguaro . . . . . . . . . . . . 1,388 616 2,096 1,455
Due from Saguaro . . . . . . . . . . . . . . . 131 169 117 212
Due to Saguaro . . . . . . . . . . . . . . . . 135 372 186 297
The Company received distributions of partnership income from this
affiliate of $0.6 million for the year ended December 31, 1995 which are
included in other income, net. The Predecessor Company received distributions
of partnership income from this affiliate of $-0-, $1.3 million and $0.7
million for the period from January through April 20, 1995 and
54
55
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
the years ended December 31, 1994 and 1993, which are included in other income,
net. Also, reimbursable expenses of $0.6 million were received for 1993.
PCAC was committed to sell liquid caustic soda to a related entity. During
the year ended December 31, 1993 such sales totaled approximately $2.0 million.
This related entity filed for bankruptcy in April 1993 and, subsequent to the
filing, no longer did business with PCAC. PCAC charged an additional $1.1
million against income in 1993 related to 1993 sales as the receivable was
deemed uncollectible. PCAC received certain transfers from this related entity
that have been challenged as preferences. As of December 31, 1995 the Company
has established a reserve related to such transactions.
15. REDEEMABLE PREFERRED STOCK
In the event of any liquidation, dissolution or winding up of the affairs
of the Predecessor Company, the holders of redeemable preferred stock were
entitled to be paid first out of the assets of the Predecessor Company
available for distribution to holders of the Predecessor Company's capital
stock. No dividends or distributions were to be paid to holders of any class of
equity security which had rights junior to the redeemable preferred stock
except upon consent of the holder of redeemable preferred stock. The holder of
redeemable preferred stock was also entitled to receive cumulative dividends,
if and when declared by the Predecessor Company, at an annual rate of 8% per
annum. No dividends were paid during 1994 and 1993. The carrying value of the
redeemable preferred stock, which included the accretion of accumulated and
unpaid dividends, was $6.6 million as of December 31, 1994. All accumulated and
unpaid dividends on the redeemable preferred stock were paid on March 22, 1995.
The preferred stock was redeemed for $5.0 million in conjunction with the
Acquisition on April 20, 1995.
16. STOCK WARRANTS AND APPRECIATION RIGHTS
The Predecessor Company issued 111,111 warrants to a bank which were
detachable from the related debt. Each warrant entitled the lender to purchase
a share of common stock of Pioneer Americas, Inc. at $.01 par value to be
exercised at any time until the expiration date of October 31, 1998. No
warrants had been exercised at December 31, 1994.
The Predecessor Company had also granted the holder of these warrants the
right and option to sell to the Predecessor Company and to require the
Predecessor Company to purchase all or any part of the warrants or the common
stock acquired pursuant to the exercise of the warrants. This option could have
been exercised any time prior to November 1, 1998 at an exercise price equal to
the greatest of the current market value, the net book value, or a computation
based on net income. In the event the Predecessor Company did not have
available cash to purchase the warrants or common stock, the Predecessor
Company would have given a promissory note in the amount of the obligation
owed. Such promissory note would have matured on October 25, 1996. Any excess
of the redemption value over the carrying value was accreted by periodic
charges to retained earnings over the term of the option.
During 1990, the Predecessor Company issued to a subordinated debtholder
an additional 187,359 warrants which were detachable from the related debt.
Each warrant entitled the debtholder to purchase a share of nonvoting common
stock any time beginning after October 19, 1994, but before the expiration date
of October 19, 2000. The
55
56
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. STOCK WARRANTS AND APPRECIATION RIGHTS (CONTINUED)
exercise price at the time the agreement was entered into was $12 per warrant.
These warrants included a put option which required the Predecessor Company to
purchase any or all warrants or the common stock acquired pursuant to the
exercise of the warrants at an amount equal to the greater of the net book
value, current market value, or the net book value less the price of the
warrants. No warrants had been exercised at December 31, 1994.
During 1990, the Predecessor Company issued Stock Appreciation Rights
(SAR's) to a subordinated debtholder. The SAR's entitled the holder of the
SAR's to the right and option to receive the benefits of any appreciation in
the value of 93,680 shares of the Predecessor Company's common stock calculated
on a fully diluted basis over a Base Share Value. The Base Share Value was
originally valued at $12 per share. The exercise period for the SAR's commenced
on October 19, 1994 and was to expire on October 19, 2000. During 1993, the
Predecessor Company issued additional SAR's equivalent to 100,000 common shares
with exercise rights commencing on October 19, 1994 and which were to expire on
October 19, 2000.
In September 1994, the Predecessor Company and the debtholder amended and
modified the warrant and SAR's Agreement, providing the Predecessor Company
with the right and option at any time during the term of the agreement to
prepay the debt held by the debtholder. In addition, if this prepayment option
was exercised, the Predecessor Company would have the right and option to
purchase from the debtholder 128,199 of the warrants for total consideration of
$0.6 million and the SAR's for $1.0 million. Based upon such agreement, in 1994
the Predecessor Company adjusted the carrying value of the warrants and SAR's
to $17 per share, resulting in an increase to redeemable stock put warrants of
$1.4 million, through a reduction to retained earnings and a charge to other
expense of $1.0 million related to the SAR's. On March 22, 1995, the debt was
prepaid, 128,199 of the warrants were repurchased and all SAR's were
repurchased.
17. STOCK OPTIONS
The Company has a stock option plan in effect for executives and
non-executives. The following table summarizes the activity relating to the
plan:
Year ended
December 31, 1995
-------------------------------
Executives Non-executives
---------- --------------
Outstanding at beginning of the period . . . . . . . . . . . . . . . . . . . -- --
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,076 69,800
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,400
----------- -------------
Outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . . . 398,076 59,400
=========== =============
56
57
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK OPTIONS (CONTINUED)
The Predecessor Company had a stock option plan in effect for key
employees which allowed the Predecessor Company to grant options for 100,000
shares of common stock of Pioneer Americas, Inc.
The following table summarizes the activity relating to the Predecessor
Company's stock option plan:
PREDECESSOR COMPANY
---------------------------------------
PERIOD FROM
JANUARY 1,
1995
THROUGH YEAR ENDED DECEMBER 31,
APRIL 20, ------------------------
1995 1994 1993
------- -------- --------
Outstanding at beginning of the period . . . . . . . . . . . . 23,088 92,352 80,808
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 11,544
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (56,627) --
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12,637) --
------- -------- --------
Outstanding at end of period . . . . . . . . . . . . . . . . . 23,088 23,088 92,352
======= ======== ========
Options exercised during 1994 were exercised at $3 per share. The remaining
options outstanding were exercisable at prices of either $6 or $9 per share.
18. SUBSEQUENT EVENTS
On February 2, 1996, subsidiaries of the Company completed the acquisition
of Kemira Water Treatment, Inc. ("KWT"), from a subsidiary of Kemira Oy of
Finland ("Kemira"). KWT produces specialty and commodity inorganic coagulants,
including polyaluminum chloride, aluminum sulfate, sodium aluminate and ferric
sulfate, at its plant in Savannah, Georgia for sale to the water treatment
market in the eastern United States and the Caribbean.
KWT is now owned by Kemwater North America Company ("Kemwater"), which was
formed through a subsidiary of Pioneer, Pioneer Water Technologies, Inc., in
combination with Imperial West. The combined businesses of KWT and IWC, the
latter of which produces ferric and ferrous chloride and aluminum sulfate for
sale to the water treatment market in the western United States, will be
carried out in the name of Kemwater. Kemwater will be adding ferric chloride
capacity to the Savannah plant, and production capacity for polyaluminum
chloride, sold under the trade name PAX, will be added to the western
operations.
As a part of the transaction, Kemwater also acquired exclusive licenses to
use Kemira's existing and future advanced water treatment technology in the
development and sale of products and services for the potable water, waste
water and industrial water treatment markets in the United States (other than
the northeastern U.S.) and the Caribbean. Kemwater has nonexclusive access to
the use of the technology for the Canadian and Mexican markets, with an option
to acquire an exclusive license for those markets in the future.
Kemwater also entered into product supply agreements with subsidiaries of
Kemira, to ensure a continuing supply of granulated ferric sulfate and dry
aluminum sulfate, which are used as raw materials.
57
58
PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1995 1995 1995 1994
------ -------- -------- -------
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 36,405 $ 59,248 $47,255
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . -- 24,901 39,972 31,631
Cost of sales--acquisition related inventory
step-up . . . . . . . . . . . . . . . . . . . . -- 1,671 -- --
Selling, general and administrative . . . . . . . 152 5,558 8,446 6,609
Interest expense, net . . . . . . . . . . . . . . -- 3,817 4,923 4,805
Other Income -- 349 45 243
------ -------- -------- -------
Income (loss) before tax . . . . . . . . . . . . . . . (152) 807 5,952 4,453
Income tax provision . . . . . . . . . . . . . . . . . -- 628 2,509 2,442
------ -------- -------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ (152) $ 179 $ 3,443 $ 2,011
====== ======== ======== =======
Net income (loss) per share . . . . . . . . . . . . . . $ (.03) $ .02 $ .40 $ .24
====== ======== ======== =======
Average number of shares of common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . 4,546 7,665 8,539 8,539
====== ======== ======== =======
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994 1994 1994 1994
------ ------ ------ -------
General and administrative expense, net . . . . . . . . $ (26) $ (93) $ (109) $ 73
Interest income . . . . . . . . . . . . . . . . . . . . 5 5 5
------ ------ ------ -------
Net income (loss) . . . . . . . . . . . . . . . $ (26) $ (88) $ (104) $ 78
====== ====== ====== =======
Income (loss) per share: $ (.01) $ (.02) $ (.02) $ .02
====== ====== ====== =======
Average number of shares of common stock outstanding. . 3,623 4,538 4,542 4,546
====== ====== ====== =======
58
59
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Deloitte & Touche LLP has acted as independent accountants of the Company
for many years. Following the Acquisition it was determined that Deloitte &
Touche LLP would continue to act as independent accountants of the Company and
its consolidated subsidiaries.
Ernst & Young LLP had been the independent accountants for Pioneer
Americas and its consolidated subsidiaries prior to its dismissal, effective
October 16, 1995. The reports of Ernst & Young LLP on the financial statements
of Pioneer Americas for the fiscal years ended December 31, 1994 and 1993 did
not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the financial statements of Pioneer Americas
for each of the two fiscal years ended December 31, 1994, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to the
matter in their report.
Ernst & Young LLP furnished a letter addressed to the Securities and
Exchange Commission stating that it agreed with the above statements. A copy of
that letter, dated March 29, 1996, is filed as an exhibit to this Annual Report.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in Pioneer's definitive proxy statement relating to the
1996 Annual Meeting of Stockholders of Pioneer (the "1996 Proxy Statement") to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation
S-K under the Securities Act of 1933, as amended, and the Exchange Act
("Regulation S-K"), or if the 1996 Proxy Statement is not so filed within 120
days after December 31, 1995, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4.1 of Part I of this report under
the caption "Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
59
60
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after December 31, 1995, such information will be included in an amendment to
this report filed not later than the end of such period.
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 __ 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 24 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* Stock Purchase Agreement, dated as of March 24, 1995, by and
among Pioneer, PAAC and the Sellers parties thereto
(incorporated by reference to Exhibit 2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
3.1(a)* Third Restated Certificate of Incorporation of Pioneer filed
with Secretary of State of Delaware on May 21, 1993
(incorporated by reference to Exhibit 3.1 to Pioneer's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.1(b) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995.
3.1(c) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995.
3.2* By-laws of Pioneer (incorporated by reference to Exhibit 3.2
to Pioneer's Annual Report on Form 10-K for the year ended
December 31, 1988).
4.1(a)* Indenture, dated as of April 1, 1995, by and among PAAC, the
Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
Trust Company, as trustee, relating to $135,000,000 principal
amount of 13 3/8% Senior Notes due 2005, including form of
Senior Note and Guarantee (incorporated by reference to
Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
60
61
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1(b)* First Supplemental Indenture, dated as of September 14, 1995,
by and among PAAC, the Subsidiary Guarantors parties thereto
and United States Trust Company of New York, as trustee,
relating to $135,000,000 principal amount of notes renamed 13
3/8% First Mortgage Notes due 2005 (incorporated by reference
to Exhibit 4.1(b) to the Registration Statement on Form S-4
(file no. 33-98828) filed by PAAC on October 30, 1995).
4.1(c)* Mortgage, Assignment of Leases and Rents, Security Agreement,
Fixture Filing and Financing Statement by Pioneer Chlor Alkali
Company, Inc. (St. Gabriel, Louisiana) (incorporated by
reference to Exhibit 4.2(a) to the Registration Statement in
Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(d)* Deed of Trust, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement by Pioneer
Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
by reference to Exhibit 4.2(b) to the Registration Statement
on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
1995).
4.1(e)* Intercreditor and Collateral Agency Agreement, dated as of
September 14, 1995, by and among United States Trust Company
of New York, as Trustee and Collateral Agent, Bank of America
Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
Chlor Alkali Company, Inc. (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-4 (file
no. 33-98828) filed by PAAC on October 30, 1995).
4.2(a)* Loan and Security Agreement, dated as of April 12, 1995, by
and among Pioneer Americas, Inc. and certain Subsidiary
Guarantors, the lenders party thereto and Bank of America
Illinois, as Agent (incorporated by reference to Exhibit
4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
4.2(b)* Master Corporate Guaranty, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as guarantor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders, guaranteeing the
obligations of one another under the Bank Credit Agreement
(incorporated by reference to Exhibit 4.2(b) to Pioneer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
4.2(c)* Master Security Agreement, dated April 12, 1995, executed by
each of the Subsidiary Guarantors party thereto, as debtor,
respectively, in favor of Bank of America Illinois, as Agent,
for the ratable benefit of the lenders (incorporated by
reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
4.3* Form of Seller Note issued to the Sellers party to the Stock
Acquisition Agreement dated as of March 24, 1995 (incorporated
by reference to Exhibit 4.1 to Pioneer's Current Report on
Form 8-K filed on May 5, 1995).
4.4* Registration Rights Agreement, dated as of April 20, 1995, by
and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
Speets and certain other stockholders of Pioneer,
(incorporated by reference to Exhibit 4.2 to Pioneer's Current
Report on Form 8-K filed on May 5, 1995).
10.1* Shareholders Agreement, dated as of April 20, 1995, by and
between William R. Berkley and Richard C. Kellogg, Jr.
(incorporated by reference to Exhibit 10.1 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
61
62
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.2* Contingent Payment Agreement, dated as of April 20, 1995, by
and among Pioneer, PAAC and the Sellers party thereto
(incorporated by reference to Exhibit 10.2 to Pioneer's
Current Report on Form 8-K filed on May 5, 1995).
10.3* Tax Sharing Agreement, dated as of April 20, 1995, by and
among Pioneer, PAAC and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form S-4 (file no. 33-98828) filed by PAAC on
October 30, 1995).
10.4*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Registration
Statement on Form S-4 (file no. 33-98828) filed by PAAC on
October 30, 1995).
10.5+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan.
10.6*+ Employment Agreement, dated April 20, 1995, between the
Pioneer and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to Pioneer's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).
10.7+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz.
10.8+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and James E. Glattly.
10.9+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Verrill M. Norwood, Jr.
10.10+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Kent R. Stephenson.
10.11+ Employment Agreement, Dated April 20, 1995, between Pioneer
Americas, Inc. and Frank B. Belliss.
16 Letter from Ernst & Young LLP regarding change in independent
accountants.
21 Subsidiaries of Pioneer.
24 Powers of Attorney.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
Pioneer did not file any reports on Form 8-K during the quarter ended
December 31, 1995.
(c) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts. All other schedules have been
omitted because they are not applicable or not required or the required
information is included in the financial statements or notes thereto.
62
63
SCHEDULE II
PIONEER COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSE ADDITIONS DEDUCTIONS PERIOD
----------- --------- --------- ---------- ----------- ----------
PERIOD FROM JANUARY 1, 1995 THROUGH
DECEMBER 31, 1995:
Allowance for doubtful accounts . . . $-- $138 $1,416(A) $(130)(B) $1,424
___________
(A) Allowance balance established on April 20, 1995 for the acquisition of
Pioneer Americas, Inc.
(B) Uncollectible accounts written off, net of recoveries.
63
64
SCHEDULE II
PIONEER AMERICAS, INC.
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, 1993:
Allowance for doubtful accounts . . . . $ 572 $ 1,100 $ -- $ (1,151)(A) $ 521
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts . . . . 521 1,235 300(B) (18)(A) 2,038
PERIOD FROM JANUARY 1, 1995 THROUGH APRIL 20,
1995:
Allowance for doubtful accounts . . . . 2,038 47 -- (169)(A) 1,916
___________
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance balance established in May 1994 for the acquisition of GPS.
64
65
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/ RICHARD C. KELLOGG, JR.
________________________________
Richard C. Kellogg, Jr., President
April 1, 1996
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/ RICHARD C. KELLOGG, JR. President (Principal Executive Officer) April 1, 1996
___________________________ and Director
(Richard C. Kellogg, Jr.)
/s/ PHILIP J. ABLOVE Vice President and Chief Financial Officer April 1, 1996
__________________________ and Director (Principal Financial
(Philip J. Ablove) and Accounting Officer)
/s/ WILLIAM R. BERKLEY* Chairman of the Board April 1, 1996
____________________________
(William R. Berkley)
/s/ ANDREW M. BURSKY* Director April 1, 1996
____________________________
(Andrew M. Bursky)
Director April 1, 1996
____________________________
(George H. Conrades)
65
66
/s/ DONALD J. DONAHUE* Director April 1, 1996
- ---------------------------
(Donald J. Donahue)
/s/ JACK H. NUSBAUM* Director April 1, 1996
- ---------------------------
(Jack H. Nusbaum)
/s/ THOMAS H. SCHNITZIUS* Director April 1, 1996
- ---------------------------
(Thomas H. Schnitzius)
*By: /s/ KENT R. STEPHENSON
----------------------
(Kent R. Stephenson,
Attorney-in-Fact)
66
67
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1(b) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 20,
1995.
3.1(c) Amendment to Third Restated Certificate of Incorporation of
Pioneer filed with Secretary of State of Delaware on April 27,
1995.
10.5+ Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
Plan.
10.7+ Employment Agreement, dated November 1, 1992, and First
Amendment to Employment Agreement, dated as of April 20, 1995,
between Pioneer Chlor Alkali Company, Inc. and Paul J.
Kienholz.
10.8+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and James E. Glattly.
10.9+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Verrill M. Norwood, Jr.
10.10+ Employment Agreement, dated April 20, 1995, between Pioneer
Americas, Inc. and Kent R. Stephenson.
10.11+ Employment Agreement, Dated April 20, 1995, between Pioneer
Americas, Inc. and Frank B. Belliss.
16 Letter from Ernst & Young LLP regarding change in independent
accountants.
21 Subsidiaries of Pioneer.
24 Powers of Attorney.
27 Financial Data Schedule.