10-Q/A 1 h93152ce10-qa.txt PIONEER CORPORATION OF AMERICA - JUNE 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 December 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. PIONEER CORPORATION OF AMERICA RESTATEMENT OF FINANCIAL INFORMATION In October 2001, based on an internal review, the Company became aware of derivative transactions that occurred during the second quarter of 2001 but were not recorded. A subsequent analysis determined that these transactions amounted to an unrealized loss of $29.8 million at June 30, 2001, which was not previously reflected in the consolidated financial statements. As a result of the above, the Company's unaudited consolidated condensed financial statements and related disclosures as of and for the three-month and six-month periods ended June 30, 2001 have been restated from amounts previously reported. The principal effects of these adjustments on the accompanying financial statements are set forth in Note 3 of the Notes to Consolidated Financial Statements. For purposes of this Form 10-Q/A, and in accordance with Rule 12B-15 under the Securities Exchange Act of 1934, as amended, each item of the 2001 second quarter Form 10-Q as filed on August 14, 2001 that was affected by the restatement has been amended and restated in its entirety. No attempt has been made in this Form 10-Q/A to modify or update other disclosures (excluding disclosures related to the status of the Chapter 11 proceedings) as presented in the original Form 10-Q except as required to reflect the effects of the restatement. In particular, and without limitation, in "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company has given certain information about the business environment applicable to the Company, the business outlook and certain forward looking information. This information has not been revised from the information provided in the Form 10-Q for the quarter ended June 30, 2001 because it was not affected by the restatement. For current information regarding the Company's business environment, outlook and this forward looking information, see the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 2001. Pioneer Corporation of America (the "Company") hereby amends Items 1, 2 and 3 of Part I in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (SEC File No. 33-98828) (the "10-Q") for the effect of the above-described matter. 2 PIONEER CORPORATION OF AMERICA TABLE OF CONTENTS PART I--FINANCIAL INFORMATION

Statements regarding the Company's ability to complete its bankruptcy reorganization proceedings timely, the outcome of the reorganization plan, the Company's ability to sustain current operations during the reorganization including its ability to maintain normal relationships with customers, the ability of the Company to establish normal terms and conditions with suppliers and vendors, costs of the reorganization process, the adequacy of financing arrangements during the reorganization period, future market prices, operating results, future operating efficiencies, cost savings and other statements which are not historical facts contained in this Quarterly Report on Form 10-Q are "forward looking statements" within the meaning of the Securities Litigation Reform Act. The words "expect", "project", "estimate", "believe", "anticipate", "plan", "intend", "could", "should", "may", "predict" and similar expressions are also intended to identify forward looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, the results of the bankruptcy proceedings, court decisions and actions, the negotiating positions of various constituencies, the results of negotiations, market factors, the effect of economic conditions, the ability of the Company to realize planned cost savings and other factors detailed in this and other filings with the Securities and Exchange Commission. Should one of more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially. 3 PART I --FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PIONEER CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS)

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

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

See notes to consolidated financial statements. 6 PIONEER CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ACCOUNTING POLICIES BASIS OF PRESENTATION AND MANAGEMENT PLANS GENERAL The consolidated balance sheet at June 30, 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 six 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"). All significant intercompany balances and transactions have been eliminated in consolidation. The Company is a wholly-owned subsidiary of Pioneer Companies, Inc. ("PCI"). Per share amounts presented in the tabulations in the notes to the consolidated financial statements are presented in whole dollars; all other dollar amounts in the tabulations in the notes to the consolidated 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. On July 31, 2001, PCI and each of its direct and indirect wholly-owned subsidiaries filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court in Houston, Texas. On the same day, a parallel filing under the Canadian Companies' Creditors Arrangements Act was filed in Superior Court in Montreal, Canada, by PCI's Canadian subsidiary, PCI Chemicals Canada Inc. The Company is managing its business as a debtor-in-possession pursuant to the Bankruptcy Code. Certain terms of the Company's proposed plan of reorganization, as amended (the "Proposed Plan"), were pre-negotiated between the Company and certain of its senior secured creditors. The Proposed Plan was confirmed by the United States Bankruptcy Court, Southern District of Texas, Houston Division on November 28, 2001. The reorganization proceedings are expected to be completed within the Company's fiscal year ending December 31, 2001. The Proposed Plan provides that, upon emergence, approximately $552 million of outstanding indebtedness (plus accrued interest) will be exchanged for $200 million of new debt and 97% of the common stock of the reorganized company. Unsecured creditors will hold the remaining 3% of the common stock of the reorganized company. All of the Company's current outstanding common stock and preferred stock will be cancelled, and the holders of those shares will not share in the value of the reorganized company. The accompanying unaudited consolidated financial statements have been prepared on the going-concern basis of accounting, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business. As a result of the Chapter 11 filing, such realization of assets and satisfaction of liabilities is subject to uncertainty. Further, implementation of the Proposed Plan will materially change the amounts reported in the consolidated financial statements. These financial statements do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that will be necessary as a consequence of implementing the Proposed Plan. The ability of the Company to continue as a going concern is dependent upon, among other things, emerging from the Chapter 11 proceedings, the ability to generate sufficient cash from operations and financing sources to meet obligations and ultimately, its return to 7 future profitable operations. Additionally, the accompanying unaudited condensed consolidated financial statements do not include any adjustments that would be required were the Company to be liquidated. Prior to the Company's filing for bankruptcy protection, the Company 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, approximately $600 million of debt outstanding under various agreements is classified as a current liability on the Company's consolidated balance sheet. Effective July 31, 2001, the Company entered into a debtor-in-possession financing agreement (the "DIP Facility") which, as approved by the Bankruptcy Court in August 2001, provides for up to $50 million of revolving borrowings as a source of liquidity during the reorganization. Availability under the DIP Facility was reduced by the remaining amounts outstanding under the pre-petition revolving credit facility. The DIP Facility matures on the earlier of September 24, 2002, or when a plan of reorganization becomes effective. The interest rates on borrowings under the DIP Facility are at 1 1/4% per annum in excess of the US prime rate as to US dollar loans and 2% per annum in excess of the Canadian prime rate as to Canadian dollar loans. The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts as well as certain disclosures. The Company's financial statements include amounts that are based on management's best estimates and judgements. Actual results could differ from those estimates. 2. DERIVATIVE INSTRUMENTS The Company adopted the accounting and reporting standards of Statement of Financial Accounting Standard 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138, and as interpreted by the Financial Accounting Standards Board's ("FASB") Derivatives Implementation Group ("DIG"), collectively hereafter referred to as "SFAS 133", as of January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires a company to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The change in the fair value of derivatives that are not hedges must be recognized currently as a gain or loss in the statement of operations. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is settled. Under hedge accounting, the ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based upon the contracts in effect at January 1, 2001, the adoption of SFAS 133 had no effect on the consolidated financial statements at that date. The Colorado River Commission ("CRC") supplies power to the Company's Henderson facility pursuant to three basic contracts covering hydro-generated power, power requirements in excess of hydro-power, and power transmission and supply balancing services. CRC is a state agency established in 1940 to manage federal hydro-power contracts with utilities and other customers, including the Company's Henderson facility, in Southern Nevada. Since the low cost hydro-power supplied by CRC does not entirely meet Henderson's power demands and those of its other customers, CRC purchases supplemental power from various sources and resells it to the Company and other customers. Effective as of March 13, 2001, the Company and CRC entered into a supplemental electric power supply services contract (the "supplemental power contract") under which CRC was to provide any needed electric power including that which exceeded the power provided to the Company's Henderson facility from hydroelectric sources. CRC maintains it has entered into various derivative positions, as defined by SFAS 133, under the supplemental power contract including forward purchases and sales of electricity as well as options that have been purchased or written for electric power. The Company maintains that CRC has engaged in speculative trading that was not in accordance with the supplemental power contract, that CRC did not obtain proper approval for most of the trades in accordance with procedures agreed upon by the Company and CRC and that the trades entered into by CRC purportedly on the Company's behalf were excessive in relation to the Company's electric power requirements. In October 2001, based on an internal review, management became aware of CRC's unauthorized trading activities in derivatives. A subsequent analysis determined that these transactions amounted to a net unrealized loss of $29.8 million for the three months ended June 30, 2001. The net unrealized loss is attributable to three forward purchase contracts and one option contract executed by CRC and approved by the Company. As a result of the above, the Company's unaudited consolidated condensed financial statements and related disclosures as of and for the three-month and six month periods ended June 30, 2001 have been restated from amounts previously reported. 8 The derivative positions include many types of contracts with varying strike prices and maturity dates (extending through 2006). The fair value of the derivative positions was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement, however, is necessary to interpret market data and develop the related estimates of fair value. Accordingly, the estimates for the fair value of the derivative positions are not necessarily indicative of the amounts that could currently be realized upon disposition of the derivative positions or the ultimate amount that would be paid or received when the positions are settled. The use of different market assumptions and/or estimation methodologies would result in different fair values. The fair value of the instruments will vary over time based upon market circumstances. Management of the Company believes that the market information, methodologies and assumptions used to fair value the derivative positions produces a reasonable estimation of the fair value of the derivative positions at June 30, 2001. Notional amounts, presented in the table below, represent the total purchase or sale price of the units of the commodity covered by the derivative in financial trades. It does not represent the price at which the derivative instrument could be bought or sold, which the fair value process determines. The information in the tables below presents the electricity futures and option positions outstanding as of June 30, 2001 ($ in thousands, except per mwh amounts, and volumes in megawatt hours ("mwh")).

3. RESTATEMENT ADJUSTMENTS As described in Note 2 to the Consolidated Financial Statements, the Company became aware of derivative transactions that were not being recorded subsequent to the issuance of its consolidated financial statements as of and for the periods ended June 30, 2001. The financial effects of recording these derivative positions are as follows: CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENTS OF OPERATIONS

4. SUPPLEMENTAL CASH FLOW INFORMATION Net effects of changes in operating assets and liabilities are as follows:

Following are supplemental disclosures of cash flow information:

5. INVENTORIES Inventories consist of the following:

10 6. 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. 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. 7. PCI CHEMICALS CANADA INC. - AS RESTATED 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 the Company. Summarized financial information of PCI Canada and the guarantors of these notes are as follows:

11 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. 8. UNUSUAL ITEMS 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 resulted in the termination of 55 employees, for which $1.9 million of accrued severance expense was recorded prior to March 31, 2001. Additionally, in connection with an organizational restructuring undertaken by the Company, $1.6 million of severance expense was accrued prior to March 31, 2001 relating to terminations of 19 employees at other locations, all whom were terminated prior to June 30, 2001. Severance payments of approximately $0.9 million were made during the six months ended June 30, 2001, resulting in accrued severance of $2.6 million at June 30, 2001. The $2.6 million of unusual charges recorded during the quarter ended June 30, 2001 are primarily comprised of professional fees related to the Company's financial reorganization. 9. LONG-TERM DEBT Long-term debt consisted of the following:

See Note 1 for discussion of the filings by PCI and its subsidiaries for protection under Chapter 11 of the U.S. Bankruptcy Code, and the filing by the Company's Canadian subsidiary under the Canadian Companies' Creditors Arrangements Act in Superior Court in Montreal. Effective December 15, 2000, the Company suspended payments of interest on the $200 million of 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 12 facilities. When the Company defaulted on the $200 million of 9 1/4 % Senior Secured Notes due June 15, 2007, it constituted an event of default under the indenture for the $175 million of 9 1/4% Senior Secured Notes due October 15, 2007. Accordingly, amounts outstanding under these agreements have been classified as a current liability at June 30, 2001. In September 1999, the Company entered into a $50 million three-year revolving credit facility (the "Revolving Facility") that provides for revolving loans in an aggregate amount up to $50 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 June 30, 2001 was $49.7 million, subject to a reserve of $5 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 June 30, 2001, there were letters of credit outstanding of $4.5 million and loans outstanding of $29.9 million. Based on the cross default provisions contained in the Revolving Facility agreement, the facility is currently in default, may be subject to a default rate of interest and is classified as a current liability at June 30, 2001. On July 31, 2001, the Company entered into a Ratification and Amendment Agreement that converted the Revolving Facility into the DIP Facility. The DIP Facility continues to provide for revolving loans in an aggregate amount of 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 interest rates on borrowings under the DIP Facility are at 1 1/4% per annum in excess of the US prime rate as to US dollar loans and 2% per annum in excess of the Canadian prime rate as to Canadian dollar loans. The reserve of $5 million under the Revolving Facility was replaced with a reserve of $1 million under the DIP Facility, which increased borrowing availability by $4 million. 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 June 30, 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 June 30, 2001, the Company did not meet this requirement and accordingly, additional new indebtedness, other than borrowing available under the Revolving Facility, was not allowed. 10. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but must be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the six months ended June 30, 2001 was $4.4 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As described in Note 3 to the Consolidated Financial Statements, the Company's consolidated financial statements as of and for the periods ended June 30, 2001 have been restated. The following discussion and analysis gives effect to that restatement and should be read in conjunction with the consolidated financial statements and the related notes thereto. LIQUIDITY AND CAPITAL RESOURCES On July 31, 2001, PCI and each of its direct and indirect wholly-owned subsidiaries filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court in Houston, Texas. On the same day, a parallel filing under the Canadian Companies' Creditors Arrangements Act was filed in Superior Court in 13 Montreal, Canada, by PCI's Canadian subsidiary. The Company is managing its business as a debtor-in-possession pursuant to the Bankruptcy Code. Certain terms of the Company's proposed plan of reorganization, as amended (the "Proposed Plan"), were pre-negotiated between the Company and certain of its senior secured creditors. The Proposed Plan was confirmed by the United States Bankruptcy Court, Southern District of Texas, Houston Division on November 28, 2001. The reorganization proceedings are expected to be completed within the Company's fiscal year ending December 31, 2001. The Proposed Plan provides that, upon consummation, approximately $552 million of outstanding indebtedness (plus accrued interest) will be exchanged for $200 million of new debt and 97% of the common stock of the reorganized company. Certain unsecured creditors will receive the remaining 3% of the common stock of the reorganized company. All of the Company's current outstanding common stock and preferred stock will be cancelled, and the holders of those shares will not share in the value of the reorganized company. As of the petition date, actions to collect pre-petition indebtedness are stayed, and other contractual obligations may not be enforced against the Company. In addition, the Company may reject executory contracts and lease obligations, and parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Substantially all liabilities as of the petition date are subject to compromise under the Proposed Plan. Prior to the Company's filing for protection under Chapter 11 of the U.S. Bankruptcy Code, the Company did not make scheduled interest and principal 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, approximately $600 million of debt outstanding under various agreements is classified as a current liability on the Company's consolidated balance sheet. Effective July 31, 2001, the Company entered into a $50 million debtor-in-possession financing agreement (the "DIP Facility") with an existing lender. The DIP Facility continues to provide for revolving loans in an aggregate amount of up to $50 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 terms of the DIP Facility provide the Company with $4 million more financing that was available under the previous revolving credit facility. The DIP Facility matures on the earlier of September 24, 2002, or when a plan of reorganization becomes effective. The interest rates on borrowings under the DIP Facility are at 1 1/4% per annum in excess of the US prime rate as to US dollar loans and 2% per annum in excess of the Canadian prime rate as to Canadian dollar loans. On July 31, 2001, unused available borrowing capacity under the DIP Facility was $9.9 million. The Company believes that the DIP Facility will provide adequate financing to meet the Company's working capital and operational needs during the reorganization. The sufficiency of the Company's liquidity and capital resources is dependent upon the Company's emerging from Chapter 11, the ability to comply with debtor-in-possession agreements, generating sufficient positive cash from operations and financing sources to meet obligations, and ultimately, its return to future profitable operations. Now that the Proposed Plan has been confirmed, Pioneer believes that Proposed Plan will be implemented in a timely manner. The Company's capital expenditures for fiscal 2001 are expected to approximate $15.0 million, primarily for environmental, safety and production replacement projects. Foreign Operations and Exchange Rate Fluctuations. The Company has operating activities in Canada and engages in export sales to various countries. International operations and exports to foreign markets are subject to a number of risks, including currency exchange rate fluctuations, trade barriers, exchange controls, political risks and risks of increases in duties, taxes and governmental royalties, as well as changes in laws and policies governing foreign-based companies. In addition, earnings of foreign subsidiaries and intracompany payments are subject to foreign taxation rules. A portion of the Company's sales and expenditures are denominated in Canadian dollars, and accordingly, the Company's results of operations and cash flows have been and may continue to be affected by fluctuations in the exchange rate between the United States dollar and the Canadian dollar. Currently, the Company is not engaged in forward foreign exchange contracts, but may enter into such hedging activities in the future. Net Cash Flows from Operating Activities. During the first six months of 2001, the Company generated cash of $3.1 million from operating activities. The cash flow was primarily attributable to changes in working capital. 14 Net Cash Flows from Investing Activities. Cash used in investing activities during the first six months of 2001 totaled $5.8 million, which was primarily due to capital expenditures. Net Cash Flows from Financing Activities. Cash inflows from financing activities during the first six months of 2001 totaled approximately $1.9 million due primarily to net borrowing under the Revolving Facility of $2.3 million, offset by scheduled debt payments made on two secured notes. Working Capital. The Company's working capital deficiency was $610.1 million at June 30, 2001 compared to a deficiency of $591.9 million at December 31, 2000. This $18.2 million increase in working capital deficiency was primarily due to an increase in accrued interest and the current portion of the derivative liability, offset by a decrease in accounts payable and an increase in accounts receivable. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Revenues. Revenues increased by $1.7 million, or approximately 2%, to $88.3 million for the three months ended June 30, 2001, as compared to the three months ended June 30, 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 facility. The average ECU price during the second quarter of 2001 was $359, a $36 increase from a year ago. 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 June 30, 2001 as compared to the same period in 2000. Cost of Sales. Cost of sales increased $0.4 million, or approximately 1%, for the three months ended June 30, 2001, as compared to the same period in 2000. The increase was primarily due to higher power costs, offset by lower sales volumes and a $1.2 million decrease due to the KNA sale. Gross Profit. Gross profit margin increased to 15% in 2001 from 13% in 2000 primarily due to the ECU pricing increase and the KNA sale. Change in Fair Value of Derivatives. Effective as of March 13, 2001, the Company and CRC entered into a supplemental electric power supply services contract (the "supplemental power contract") under which CRC was to provide any needed electric power including that which exceeded the power provided to the Company's Henderson facility from hydroelectric sources. CRC maintains that it has entered into various derivative positions, as defined by SFAS 133, under the supplemental power contract, including forward purchases and sales of electricity as well as options that have been purchased or written for electric power. The Company maintains that CRC has engaged in speculative trading that was not in accordance with the supplemental power contract, that CRC did not obtain proper approval for most of the trades in accordance with procedures agreed upon by both parties and that the trades entered into by CRC purportedly on the Company's behalf were excessive in relation to the Company's electric power requirements. In October 2001, based on an internal review, management became aware of CRC's unauthorized trading activities in derivatives. A subsequent analysis determined that these transactions amounted to an unrealized loss of $29.8 million for the three months ended June 30, 2001. The unrealized loss is the result of three forward purchase contracts and one option contract that were executed by CRC and approved by the Company. See further discussion in Note 2 to the Consolidated Financial Statements. Unusual Items. Unusual charges for the three months ended June 30, 2001 were primarily comprised of professional fees related to Pioneer's reorganization. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.8 million, or approximately 7%, for the three months ended June 30, 2001. This decrease was comprised of a $0.3 million decrease due to the KNA sale and cost savings resulting from the organizational restructuring. Interest Expense, Net. Interest expense, net increased in 2001 primarily as a result of decreased cash balances and higher variable interest rates in 2001 as compared to 2000 resulting from default interest rates being in effect on several of the debt instruments. 15 Other Income (Expense), Net. Other income, net for the quarter ended June 30, 2001 was primarily comprised of a foreign exchange loss. Other income in 2000 consisted primarily of a $3.3 million gain from the sale of certain excess property. Income Tax Expense (Benefit). Income tax expense for the quarter ended June 30, 2001 was $0.6 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 reorganization 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 June 30, 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 $2.6 million was recorded for the quarter ended June 30, 2000. Net Loss. Due to the factors described above, net loss for the three months ended June 30, 2001 was $44.9 million, compared to a net loss of $5.6 million for the same period in 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Revenues. Revenues increased by $7.8 million, or approximately 5%, to $176 million for the six months ended June 30, 2001, as compared to the six months ended June 30, 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 facility. The average ECU price during the six months ended June 30, 2001 was $366, a $52 increase from a year ago. In addition, the sale of the operations of KNA in 2000 resulted in a $1.9 million decrease in revenues for the six months ended June 30, 2001 as compared to the same period in 2000. Cost of Sales. Cost of sales increased $6.8 million, or approximately 5%, for the six months ended June 30, 2001, as compared to the same period in 2000. The increase was primarily due to higher power costs, offset by lower sales volumes and a $2.6 million decrease due to the KNA sale. Gross Profit. Gross profit margin was unchanged at 13% in 2001 and 2000. Change in Fair Value of Derivatives. In October 2001, based on an internal review, management became aware of CRC's unauthorized trading activities in derivatives. A subsequent analysis determined that these transactions amounted to a net unrealized loss of $29.8 million for the six months ended June 30, 2001. The net unrealized loss is the result of three forward purchase contracts and one option contract that were executed by CRC and approved by the Company. See further discussion in Note 2 to the Consolidated Financial Statements. Unusual Items. Unusual charges for the six months ended June 30, 2001 were primarily comprised of severance expense and professional fees related to Pioneer's restructuring. Unusual charges in 2000 included a $0.9 million loss related to the disposition of the Company's alum coagulant business at Antioch, California. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $1.4 million, or approximately 6%, for the six months ended June 30, 2001. This decrease was comprised of a $0.7 million decrease due to the KNA sale and cost savings resulting from an organizational restructuring. Interest Expense, Net. Interest expense, net increased in 2001 primarily as a result of decreased cash balances and higher variable interest rates in 2001 as compared to 2000 resulting from default interest rates being in effect on several of the debt instruments. Other Income, Net. Other income for the six months ended June 30, 2001 was primarily comprised of a sales tax refund of $0.5 million, a gain on asset sale of $0.1 million, with the remainder attributable to foreign exchange gain. In 2000, other income was primarily a $3.3 million gain from the sale of certain excess property. Income Tax Expense (Benefit). Income tax expense for the six months ended June 30, 2001 was $2.2 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 six months ended June 30, 2001 the Company recorded a valuation 16 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 $7 million was recorded for the six months ended June 30, 2000. Net Loss. Due to the factors described above, net loss for the six months ended June 30, 2001 was $64.5 million, compared to a net loss of $14.9 million for the same period in 2000. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but must be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the six months ended June 30, 2001 was $4.4 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company adopted the accounting and reporting standards of Statement of Financial Accounting Standard 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138, and as interpreted by the Financial Accounting Standards Board's ("FASB") Derivatives Implementation Group ("DIG"), collectively, hereafter referred to as "SFAS 133", as of January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires a company to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The change in the fair value of derivatives that are not hedges must be recognized currently as a gain or loss in the statement of operations. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is settled. Under hedge accounting, the ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based upon the contracts in effect at January 1, 2001, the adoption of SFAS 133 had no effect on the consolidated financial statements at that date. The Colorado River Commission ("CRC") supplies power to the Company's Henderson facility pursuant to three basic contracts covering hydro-generated power, power requirements in excess of hydro-power, and power transmission and supply balancing services. CRC is a state agency established in 1940 to manage federal hydro-power contracts with utilities and other customers, including the Company's Henderson facility, in Southern Nevada. Since the low cost hydro-power supplied by CRC does not entirely meet Henderson's power demands and those of its other customers, CRC purchases supplemental power from various sources and resells it to the Company and other customers. Effective as of March 13, 2001, the Company and CRC entered into a supplemental electric power supply services contract (the "supplemental power contract") under which CRC was to provide any needed electric power including that which exceeded the power provided to the Company's Henderson facility from hydroelectric sources. CRC maintains that it has entered into various derivative positions, as defined by SFAS 133, under the supplemental power contract including forward purchases and sales of electricity as well as options that have been purchased or written for electric power. The Company maintains that CRC has engaged in speculative trading that was not in accordance with the supplemental power contract, that CRC did not obtain proper approval for most of the trades in accordance with procedures agreed upon by the Company and CRC and that the trades entered into by CRC purportedly on the Company's behalf were excessive in relation to the Company's electric power requirements. In October 2001, based on an internal review, management became aware of CRC's unauthorized trading activities in derivatives. A subsequent analysis determined that these transactions amounted to a net unrealized loss of $29.8 million for the three months ended June 30, 2001. The net unrealized loss is the result of three forward purchase contracts and one option contract that CRC executed and were approved by the Company. 17 The derivative positions include many types of contracts with varying strike prices and maturity dates (extending through 2006). The fair value of the derivative positions was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement, however, is necessary to interpret market data and develop the related estimates of fair value. Accordingly, the estimates for the fair value of the derivative positions are not necessarily indicative of the amounts that could currently be realized upon disposition of the derivative positions or the ultimate amount that would be paid or received when the positions are settled. The use of different market assumptions and/or estimation methodologies would result in different fair values. The fair value of the instruments will vary over time based upon market circumstances. Management of the Company believes that the market information, methodologies and assumptions used to fair value the derivative positions produces a reasonable estimation of the fair value of the derivative positions at June 30, 2001. Notional amounts, presented in the following tables, represent the total purchase or sale price of the units of the commodity covered by the derivative in financial trades. It does not represent the price at which the derivative instrument could be bought or sold, which the fair value process determines. The information in the tables below presents the electricity futures and option positions outstanding as of June 30, 2001 ($ in thousands, except per mwh amounts, and volumes in megawatt hours ("mwh")). Electricity Futures Contracts: Contract volume (mwh) 910,675 Range of expirations (years) .50 to 5.00 Weighted average years until expiration 4.68 Weighted average contract price (per mwh) $ 51.74 Notional amount $ 47,120 Weighted average fair value (per mwh) $ 28.91 Unrealized (loss) $ (20,791) Electricity Option Contract: Notional amount $ 30,700 Term (years) 5.00 Strike price $ 50.00 Unrealized (loss) $ (8,972)

The information in the tables below presents the electricity futures and option positions outstanding as of June 30, 2001 allocated over the lives of the contracts ($ in thousands, except per mwh amounts, and volumes in megawatt hours ("mwh")):

18 Other than noted above, the Company's market risk disclosures set forth in PCI's Annual Report on Form 10-K for the year ended December 31, 2000 have not changed significantly through the six months ended June 30, 2001. 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 December 28, 2001 By: /s/ Philip J. Ablove ----------------------- Philip J. Ablove Executive Vice President and Chief Financial Officer 19

PIONEER CORP OF AMERICA 10-Q/A