10-Q 1 h87372e10-q.txt PIONEER CORPORATION OF AMERICA - MARCH 31, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------- ----------- COMMISSION FILE NUMBER 33-98828 PIONEER CORPORATION OF AMERICA (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1420850 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 700 LOUISIANA STREET, SUITE 4300, HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 570-3200 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] On May 1, 2001, there were outstanding 1,000 shares of the Registrant's Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies, Inc. The Registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the reduced disclosure format permitted by General Instruction (H)(2) of Form 10-Q. 2 PIONEER CORPORATION OF AMERICA TABLE OF CONTENTS PART I--FINANCIAL INFORMATION

Page ---- Item 1. Consolidated Financial Statements 3 Consolidated Balance Sheets --March ~~September 30~~31, ~~2000~~2001 and December 31, ~~1999~~2000 3 Consolidated Statements of Operations - -Three Months Ended ~~September~~March 3031, ~~2000~~2001 and ~~1999 and Nine Months Ended September 30,~~ 2000 ~~and 1999~~ 4 Consolidated Statements of Cash Flows -~~Nine~~-Three Months Ended ~~September~~March 3031, ~~2000~~2001 and ~~1999~~2000 5 Notes to Consolidated Financial Statements 6 PART II - -OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 1011

Certain statements in this Form 10-Q regarding future expectations of the Company's business and the Company's results of operations may be regarded as "forward looking statements" within the meaning of the Securities Litigation Reform Act. Such statements are subject to various risks, including the Company's high financial leverage, the cyclical nature of the markets for many of the Company's products and raw materials and other risks. Actual outcomes may vary materially. 2 3 PART I --FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PIONEER CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS)

~~SEPTEMBER~~MARCH 3031, DECEMBER 31, 2001 2000 ~~1999~~ ---------~~---~~ ------------- ASSETS Current assets: Cash and cash equivalents $ 34,~~855~~110 $ 25,~~903~~000 Accounts receivable, net of allowance for doubtful accounts of $1,~~335~~048 at ~~September~~March 3031, ~~2000~~2001 and $1,~~592~~392 at December 31, ~~1999~~2000 4853,~~482~~716 5049,~~063~~563 Inventories 2523,~~144~~092 2325,~~130~~067 Prepaid expenses 42,~~618~~429 52,~~730~~302 ---------~~---~~ ------------- Total current assets 8283,~~099~~347 81,~~826~~932 Property, plant and equipment: Land 10,622 10,622 Buildings and improvements 61,~~248~~334 61,~~014~~334 Machinery and equipment ~~341~~349,~~069~~594 ~~333~~348,~~094~~695 Construction in progress 1716,~~003~~550 1915,~~435~~137 ---------~~---~~ ------------- ~~429~~438,~~942~~100 ~~424~~435,~~165~~788 Less: accumulated depreciation (~~126~~144,~~827~~122) (~~103~~135,~~096~~404) ---------~~---~~ ------------- ~~303~~293,~~115~~978 ~~321~~300,~~069~~384 Due from affiliates 34,~~792~~267 153,~~231~~939 Other assets, net of accumulated amortization of $1013,~~765~~400 at ~~September~~March 3031, ~~2000~~2001 and $812,~~956~~004 at December 31, ~~1999~~2000 8024,~~873~~508 6627,~~965~~216 Excess cost over fair value of net assets acquired, net of accumulated amortization of $3742,~~754~~137 at ~~September~~March 3031, ~~2000~~2001 and $3239,~~095~~945 at December 31, ~~1999~~2000 ~~181~~177,~~750~~368 ~~192~~179,~~464~~560 ---------~~---~~ ------------- Total assets $ ~~651~~583,~~629~~468 $ ~~677~~593,~~555~~031 =========~~===~~ ============= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable $ 3235,~~725~~287 $ 2843,~~796~~738 Accrued liabilities 3858,~~981~~031 3043,~~716~~847 Current portion of long-term debt 7590,~~109~~559 2586,~~609~~252 ---------~~---~~ ------------- Total current liabilities 78683,~~815~~877 62673,~~121~~837 Long-term debt, less current portion ~~582~~3,~~401~~862 ~~583~~4,~~260~~086 Accrued pension and other employee benefits 15,~~270~~360 1514,~~091~~984 Other long-term liabilities 12,~~470~~076 1612,~~140~~257 Commitments and contingencies (~~see~~ Note 4) Stockholder's equity ~~(deficiency in assets)~~: Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding 1 1 Additional paid-in capital 65,483 65,483 Retained deficit (~~102~~197,~~811~~115) (64177,541) Accumulated other comprehensive income (76) (76) ---------~~---~~ ------------- Total stockholder's equity (deficiency in assets) (37131,~~327~~707) ~~943~~(112,133) ---------~~---~~ ------------- Total liabilities and stockholder's equity (deficiency in assets) $ ~~651~~583,~~629~~468 $ ~~677~~593,~~555~~031 =========~~===~~ =============

See notes to consolidated financial statements. 3 4 PIONEER CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS ENDED SEPTEMBER 30~~31, ~~SEPTEMBER 30,~~ --------------------~~----------~~ ~~------------------------------~~2001 2000 ~~1999 2000 1999~~ --------~~----~~ --------~~----~~ ~~------------ ------------~~ Revenues $ 8687,~~224~~731 $ 7181,~~571~~687 ~~$ 254,495 $ 205,607~~ Cost of sales 8377,~~029~~119 7170,~~781~~717 ~~228,690 194,119~~ --------~~----~~ --------~~----~~ ~~------------ ------------~~ Gross profit ~~(loss) 3~~10,~~195~~612 ~~(210) 25~~10,~~805~~970 ~~11,488~~ Selling, general and administrative expenses 910,~~364~~242 1110,~~769~~828 ~~31,790~~Unusual 32charges 4,~~572~~262 ~~------------~~872 --------~~----~~ --------~~----~~ ~~------------~~ Operating loss (63,~~169~~892) (~~11,979~~730) ~~(5,985) (21,084)~~ Interest expense, net (1415,~~579~~447) (1213,~~806~~102) ~~(40,607) (36,977)~~ Other income ~~(expense)~~, net ~~(17,158) 2,581 (13,218)~~ 1,~~603~~303 ~~------------~~128 --------~~----~~ --------~~----~~ ~~------------~~ Loss before taxes (3718,~~906~~036) (2213,~~204~~704) ~~(59,810) (56,458)~~ Income tax ~~benefit~~provision (~~14,496~~benefit) (81,~~265)~~538 (214,~~543~~412) ~~(19,112)~~ --------~~----~~ --------~~----~~ ~~------------ ------------~~ Net loss $ (2319,~~410~~574) $ (139,~~939~~292) ~~$ (38,267) $ (37,346)~~ ========~~====~~ ========~~====~~ ~~============ ============~~ Net loss per share $ (2319,~~410~~574) $ (139,~~939~~292) ~~$ (38,267) $ (37,346)~~ ========~~====~~ ========~~====~~ ~~============ ============~~ Weighted average number of common shares outstanding 1 1 ~~1 1~~ ========~~====~~ ========~~==== ============ ============~~

See notes to consolidated financial statements. 4 5 PIONEER CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, --------------------~~----------~~ 2001 2000 ~~1999~~ --------~~----~~ --------~~----~~ Operating activities: Net loss $ (3819,~~266~~574) $ (379,~~346~~292) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 3712,~~454~~317 3812,~~737~~387 Net change in deferred taxes ~~(21~~1,~~449)~~699 (184,~~847~~590) ~~Reduction in post-retirement medical expense --~~ (~~12,530~~Gain) ~~Loss~~loss on disposal of assets ~~14,859 1,061 Loss~~ (~~gain~~119) ~~from~~872 ~~foreign~~Foreign exchange ~~rate~~(gain) ~~fluctuations~~loss ~~768~~ (~~769~~548) 25 Net effect of changes in operating assets and liabilities 133,~~935~~528 32,~~947~~195 --------~~----~~ --------~~----~~ Net cash flows from operating activities ~~7,301~~ (252,~~747~~697) 1,597 --------~~----~~ --------~~----~~ Investing activities: Capital expenditures (122,~~746~~313) (233,~~513~~802) ~~Net~~Proceeds ~~proceeds~~ received from disposals of assets ~~4,825~~119 ~~1,145~~529 --------~~----~~ --------~~----~~ Net cash flows from investing activities (72,~~921~~194) (223,~~368~~273) --------~~----~~ --------~~----~~ Financing activities: Net proceeds under revolving credit arrangements 4,~~997~~307 35,~~315~~538 ~~Repayments~~Payments on long-term debt (~~1,855~~224) (~~2,004~~589) --------~~----~~ --------~~----~~ Net cash flows from financing activities 34,~~142~~083 14,~~311~~949 -------- -------- Effect of exchange rate ~~changes~~ on cash (~~1,570~~82) ~~1,148~~(173) --------~~----~~ --------~~----~~ Net ~~increase~~change ~~(decrease)~~ in cash ~~952~~and cash equivalents (~~45,656~~890) 3,100 Cash and cash equivalents at beginning of period 5,000 2,903 ~~50,593~~ --------~~----~~ --------~~----~~ Cash and cash equivalents at end of period $ 34,~~855~~110 $ 46,~~937~~003 ========~~====~~ ========~~====~~

See notes to consolidated financial statements. 5 6 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION INTERIM FINANCIAL INFORMATION: The consolidated balance sheet at March 31, 2001 and the consolidated statements of operations and cash flows for the periods presented are unaudited and reflect all adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. Operating results for the first three months of 2001 are not necessarily indicative of results to be expected for the year ending December 31, 2001. The consolidated financial statements include the accounts of Pioneer Corporation of America ("Pioneer") and its consolidated subsidiaries (collectively referred to as the "Company"). Pioneer is a wholly-owned subsidiary of Pioneer Companies, Inc. ("PCI"). 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. Certain amounts have been reclassified in prior years to conform to the current year presentation. The consolidated balance sheet at December 31, 2000 is derived from the December 31, 2000 audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"), since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2000. LIQUIDITY: The accompanying consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced net losses each of the four years in the period ended December 31, 2000 and in the quarter ended March 31, 2001. In December 2000, Pioneer delayed making payments on various debt obligations due to insufficient liquidity. As a result, the Company is not in compliance with the terms of certain of its debt agreements. Accordingly, $591 million of debt outstanding under various agreements is classified as a current liability on the Company's consolidated balance sheet. The Company is developing a comprehensive financial restructuring program for which it will solicit the consent of its lenders at the earliest practical time. The consolidated financial statements do not include any adjustments that may result from the resolution of these uncertainties. The Company has held discussions with an informal committee of holders of its outstanding senior notes and term facilities and their advisers, and representatives of its revolving credit lender about a financial restructuring program. Negotiations and discussions with the lenders regarding a restructuring agreement are ongoing. If a consensual agreement cannot be reached, the proposed restructuring may occur under the supervision of a United States Bankruptcy Court. While the Company believes that the discussions have been productive, there can be no assurance that an agreement on the proposed restructuring can be timely completed. GAAP requires that the amounts owed to the Company's creditors as of March 31, 2001 not be adjusted to reflect any proposed restructuring as the Company continues to be bound by the provisions of the original credit agreements. The Company's ability to meet its ongoing liquidity requirements is dependent upon the successful completion of the financial restructuring described above, its ability to generate sufficient cash flow to meet its obligations on a timely basis and its ability to obtain other financing as may be required. While the Company believes it will be able to complete a consensual restructuring during 2001, there can be no assurance that it will be successful in doing so. The Company is reviewing with its financial and legal advisors the financial alternatives available to the Company, including without limitation the debt restructuring proposal described above and/or the filing of a petition under Chapter 11 of the United States Bankruptcy Code. 6 7 2. SUPPLEMENTAL CASH FLOW INFORMATION Net effects of changes in operating assets and liabilities are as follows:

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, --------------------~~----------~~ 2001 2000 ~~1999~~ --------~~----~~ --------~~----~~ Accounts receivable $ 1(4,~~545~~396) $ 2,~~564~~052 Due from affiliates (~~1,584~~329) ~~1,786~~(446) Inventories 1,624 (21,~~344~~405) ~~397~~ Prepaid expenses ~~1,402~~578 ~~(1,747)~~510 Other assets ~~6,266~~ (~~2,932~~385) 825 Accounts payable 5(7,~~352~~513) (~~140~~2,526) Accrued liabilities 813,~~754~~511 54,~~667~~562 Other long-term liabilities ~~(5,456)~~438 (1,~~648~~377) --------~~----~~ --------~~----~~ Net change in operating assets and liabilities $ 133,~~935~~528 $ 32,~~947~~195 ========~~====~~ ========~~====~~

Following are supplemental disclosures of cash flow information:

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ---------------------~~--------~~ 2001 2000 ~~1999~~ ---------~~---~~ ---------~~---~~ Cash payments for: Interest $ ~~33,196~~988 $ 294,~~442~~862 Income taxes 1120 ~~178~~59

3. INVENTORIES Inventories consist of the following:

~~SEPTEMBER~~MARCH 3031, DECEMBER 31, 2001 2000 ~~1999~~ ---------~~---~~ ------------ Raw materials, supplies and parts $ 1413,~~118~~988 $ 1614,~~822~~329 Finished goods and work-in-process 89,~~165~~653 59,~~350~~391 Inventories under exchange agreements 2(549) 1,~~861~~347 ~~958~~ ---------~~---~~ ------------ $ 2523,~~144~~092 $ 2325,~~130~~067 =========~~===~~ ============

4. COMMITMENTS AND CONTINGENCIES The Company and its operations are subject to extensive United States and Canadian federal, state, provincial and local laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the release or disposal of regulated materials. The operation of any chemical manufacturing plant and the distribution of chemical products entail certain obligations under current environmental laws. Present or future laws may affect the Company's capital and operating costs relating to compliance, may impose cleanup requirements with respect to site contamination resulting from past, present or future spills and releases and may affect the markets for the Company's products. The Company believes that its operations are currently in general compliance with environmental laws and regulations, the violation of which could result in a material adverse effect on the Company's business, properties or results of operations on a consolidated basis. There can be no assurance, however, that material costs will not be incurred as a result of instances of noncompliance or new regulatory requirements. The Company relies on indemnification from the previous owners in connection with certain environmental liabilities at its chlor-alkali plants and other facilities. There can be no assurance, however, that such indemnification agreements will be adequate to protect the Company from environmental liabilities at these sites or that such third parties will perform their obligations under the respective indemnification arrangements, in which case the Company would be required to incur significant expenses for environmental liabilities, which would have a material adverse effect on the Company. 7 8 The Company is subject to various legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage with respect to these matters and management does not believe that they will materially affect the Company's operations or financial position. 5. PCI CHEMICALS CANADA INC. Pioneer is a holding company with no operating assets or operations. PCI Chemicals Canada Inc. ("PCI Canada"), a subsidiary of Pioneer, has outstanding $175.0 million of 9 1/4% Senior Secured Notes, due October 15, 2007. These notes are fully and unconditionally guaranteed on a joint and several basis by Pioneer and Pioneer's other direct and indirect wholly-owned subsidiaries. Together, PCI Canada and the subsidiary note guarantors comprise all of the direct and indirect subsidiaries of Pioneer. Summarized financial information of PCI Canada and the guarantors of these notes are as follows:

PCI NOTE ~~CONSOLIDATED~~INTERCOMPANY ~~PCI NOTE~~ CONSOLIDATED CANADA GUARANTORS ~~COMPANY~~ELIMINATIONS ~~CANADA GUARANTORS~~ COMPANY ---------~~---~~ ------------ -~~-----------~~ ------------ -~~-----------~~ ------------- AS OF ~~SEPTEMBER~~MARCH 3031, ~~2000~~2001: ASCurrent OFassets ~~DECEMBER~~$ 3118,809 ~~1999~~$ 64,538 $ -- $ 83,347 Non-current assets 196,570 349,321 (45,770) 500,121 Current liabilities 213,319 470,558 --~~-----------------------------------------~~ 683,877 Non-~~---------------------------------------------~~current ~~Current~~liabilities ~~assets~~4,913 72,155 (45,770) 31,298 FOR THE THREE MONTHS ENDED MARCH 31, 2001: Revenues $ 1836,~~249~~889 $ 6371,~~850~~897 $ 82(21,~~099~~055) $ 2287,~~073~~731 Gross profit 9,754 469 389 10,612 Net income (loss) 407 (20,370) 389 (19,574) AS OF DECEMBER 31, 2000: Current assets $ 21,976 $ 59,~~753~~956 $ -- $ 81,~~826~~932 Non-current assets ~~153~~196,~~930~~832 ~~415~~355,~~600~~615 ~~569~~(41,~~530~~348) ~~186~~511,~~584~~099 ~~409~~Current liabilities 217,~~503~~136 ~~595~~456,~~729~~701 ~~Current~~-- 673,837 Non-current liabilities 284,~~038~~932 5067,~~777~~743 78(41,~~815~~348) 2331,~~961~~327 38FOR THE THREE MONTHS ENDED MARCH 31,~~160~~ 622000: Revenues $ 31,~~121~~892 ~~Non-current~~$ ~~liabilities~~66,703 ~~147~~$ (16,~~226~~908) ~~462~~$ 81,~~915~~687 ~~610~~Gross profit 5,~~141~~232 ~~184~~5,~~565~~872 ~~429~~(134) 10,~~926~~970 ~~614~~Net loss (1,~~491~~763) (7,395) (134) (9,292)

Separate financial statements of PCI Canada and the guarantors of the PCI Canada notes are not included as management believes that separate financial statements of these entities are not material to investors. 6. UNUSUAL CHARGES In March 2001, the Company announced a fifty percent curtailment in the capacity of its Tacoma plant due to an inability to obtain sufficient power at reasonable prices. The Tacoma curtailment will result in the termination of 55 employees, for which $1.9 million of severance expense was recorded during the quarter ended March 31, 2001. Additionally, in connection with an organizational restructuring undertaken by the Company, $1.6 million of severance expense has been accrued relating to terminations of 19 employees at other locations, 18 of whom were terminated prior to March 31, 2001. Severance payments of approximately $0.3 million were made during the first quarter of 2001. The remaining $0.8 million of unusual charges is primarily comprised of professional fees related to the financial restructuring. 8 9 7. LONG-TERM DEBT Long-term debt consisted of the following:

~~FOR~~MARCH ~~THE THREE MONTHS ENDED SEPTEMBER 30~~31, ~~2000~~DECEMBER ~~FOR THE THREE MONTHS ENDED SEPTEMBER 30~~31, ~~1999~~2001 2000 --------- ------------- Revolving credit facility; variable interest rates based on U.S. .......... prime rate plus 1/2% and Canadian prime rate plus 1 1/4% ............... $ 31,888 $ 27,581 9 1/4% Senior Secured Notes, due June 15, 2007 ............................ 200,000 200,000 9 1/4% Senior Secured Notes, due October 15, 2007 ......................... 175,000 175,000 June 1997 term facility, due in quarterly installments of $250 with the balance due 2006; variable interest rate based on LIBOR or base rate .............................................................. 96,750 96,750 November 1997 term facility, due in quarterly installments of $250 with the balance due 2006; variable interest rate based on LIBOR or base rate ........................................................... 80,000 80,000 Other notes, maturing in various years through 2014, with various installments, at various interest rates ................................ 10,783 11,007 --------- ------------- Total ........................................................... 594,421 590,338 Current maturities of long-~~------~~term debt ...................................... (590,559) (586,252) --------- ------------- Long-~~------------------------~~term ~~Revenues $ 35~~debt,~~194~~ $less ~~51,030~~current $maturities ~~86,224~~......................... $ 273,~~420~~862 $ 444,~~151~~086 $========= ~~71,571 Gross profit (loss) 6,077 (2,882) 3,195 2,657 (2,867) (210) Net loss (259) (23,151) (23,410) (1,996) (11,943) (13,939)~~=============

Effective December 15, 2000, the Company suspended payments of interest on the $200 million Senior Secured Notes which, after a 30 day grace period, created a default under the indenture. Additionally, the Company did not make principal payments under its $100 million term facility and the $83 million term facility that were due on December 28, 2000, which created an event of default under the terms of the facilities. Accordingly, the default interest rate is in effect for the term facilities. When the Company defaulted on the $200 million 9 1/4 % Senior Secured Notes due June 15, 2007, it constituted an event of default under the indenture for the $175 million 9 1/4% Senior Secured Notes due October 15, 2007. Accordingly, amounts outstanding under these agreements have been classified as a current liability at March 31, 2001. In September 1999, the Company entered into a $50.0 million three-year revolving credit facility (the "Revolving Facility") that provides for revolving loans in an aggregate amount up to $50.0 million, subject to borrowing base limitations related to the level of accounts receivable and inventory, which, together with certain other collateral, secure borrowings under the facility. The borrowing base at March 31, 2001 was $49.5 million, subject to a reserve of $5.0 million until the ratio of EBITDA to fixed charges, as defined in the Revolving Facility, exceeds 1.15:1 for a period of two consecutive quarters. As of March 31, 2001, there were letters of credit outstanding of $3.4 million and loans outstanding of $31.9 million. Based on the cross default provisions contained in the Revolving Facility agreement, the facility is currently in default, may be subject to the default rate of interest and is classified as a current liability at March 31, 2001. The Company's long-term debt agreements contain various restrictions which, among other things, limit the ability of the Company to incur additional indebtedness and to acquire or dispose of assets or operations. The Company is restricted in paying dividends to PCI and providing cash to the unrestricted subsidiaries, as defined, to the sum of $5.0 million plus 50% of the cumulative consolidated net income of the Company since June 1997. As of March 31, 2001, no additional distributions were allowable under the debt covenants. The Company's ability to incur additional new indebtedness is restricted by a covenant requiring an interest coverage ratio of at least 2.0 to 1.0 for the prior four fiscal quarters. As of March 31, 2001, the Company did not meet this requirement and accordingly, additional new indebtedness, other than borrowing available under the Revolving Facility, is not allowed. It is unlikely that the Company will be in compliance with these covenants in the near future. 8. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenues. Revenues increased by $6.0 million, or approximately 7%, to $87.7 million for the three months ended March 31, 2001, as compared to the three months ended March 31, 2000. The increase in revenues was primarily attributable to higher electrochemical unit ("ECU") prices partially offset by lower sales volumes, particularly at the Tacoma chlor-alkali 9 10 facility. In addition, the sale of the operations of Kemwater North America Company ("KNA") in 2000 resulted in a $0.9 million decrease in revenues for the three months ended March 31, 2001 as compared to the same period in 2000. Cost of Sales. Cost of sales increased $6.4 million, or approximately 9%, for the three months ended March 31, 2001, as compared to the same period in 2000. The increase was primarily due to higher power costs, offset by a $1.4 million decrease due to the KNA sale. Gross Profit. Gross profit margin decreased to 12% in 2001 from 13% in 2000 primarily as a result of the cost of sales increase discussed above, partially offset by the ECU pricing increase. Unusual Charges. Unusual charges for the three months ended March 31, 2001 were primarily comprised of severance expense related to the Tacoma curtailment and the Company's organizational restructuring. Unusual charges for the three months ended March 31, 2000 consisted of a $0.9 million loss related to the disposition of the Company's alum coagulant business in Antioch, California. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.6 million, or approximately 5%, for the three months ended March 31, 2001. This decrease included a $0.3 million decrease due to the KNA sale. Interest Expense, Net. Interest expense, net increased in 2001 primarily as a result of interest incurred on increased revolving credit balances and higher variable interest rates in 2001 as compared to 2000 resulting from the default interest rates being in effect on several of the debt instruments. Other Income, Net. Other income for the quarter ended March 31, 2001 included a foreign exchange gain of $0.7 million, and a sales tax refund of $0.5 million and a gain on asset sale of $0.1 million. Income Tax Expense (Benefit). Income tax expense for the quarter ended March 31, 2001 was $1.5 million, reflecting foreign tax expense on the income of the Company's Canadian operations. Due to recurring losses of the Company's U.S. operations and uncertainty as to the effect of the Company's restructuring on the availability and use of its U.S. net operating loss carryforwards, a 100% valuation allowance amounting to $61.9 million was recorded in connection with the Company's U.S. deferred tax assets at December 31, 2000. During the quarter ended March 31, 2001 the Company recorded a valuation allowance in an amount equal to the benefit from income taxes generated by the losses from its U.S. operations. An income tax benefit of $4.4 million was recorded for the quarter ended March 31, 2000. Net Loss. Due to the factors described above, net loss for the three months ended March 31, 2001 was $19.6 million, compared to a net loss of $9.3 million for the same period in 2000. 10 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K On January 8, 2001, Pioneer filed a report on Form 8-K. Under Item 5, "Other Events," the Company reported the issuance of a press release on January 5, 2001, that announced the failure to make certain debt payments, the commencement of efforts to develop a financial restructuring program, and the hiring of a financial advisor and special restructuring counsel. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PIONEER CORPORATION OF AMERICA May 15, 2001 By: /s/ Philip J. Ablove --------------------------- Philip J. Ablove Executive Vice President and Chief Financial Officer 11

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------- ----------------------------------------------- Revenues $ 98,503 $ 155,992 $ 254,495 $ 78,644 $ 126,963 $ 205,607 Gross profit 15,440 10,365 25,805 7,368 4,120 11,488 Net loss (3,739) (34,528) (38,267) (8,256) (29,090) (37,346)

EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule

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