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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 Commission File No. 000-31230 Pioneer Companies, Inc. (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    06-1215192(I.R.S. Employer Identification No.)700 Louisiana Street, Suite 4300,
Houston, Texas(Address of principal executive offices)
    
    77002(Zip code)
 Registrants telephone number, including area code:
(713) 570-3200 Securities registered pursuant to Section 12(b) of the Act: Title of each class
None
    
    Name of each exchange on which registered
Not applicable
 Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
(Title of class) 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 þ No o 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes o No þ 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 þ No o The aggregate market value of the voting stock held by non-affiliates of the registrant on
June 30, 2004, based on the last reported trading price of the registrants common stock on the OTC
Bulletin Board on that date, was $71.3 million. For purposes of the above statement only, all
directors, executive officers and 10% shareholders are deemed to be affiliates. There were 11,175,610 shares of the registrants common stock outstanding on March 22, 2005. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrants definitive proxy statement for the registrants 2005 Annual
Meeting of Stockholders are incorporated by reference into Part III of this report.




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TABLE OF CONTENTS Page No.PART IItem 1 Business
    
    
    1Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 4A. Executive Officers of the Registrant
    
    
    21PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    23Item 6. Selected Financial Data
    
    
    24Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    38Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    38Item 9A. Controls and Procedures
    
    
    39Item 9B. Other Information
    
    
    39PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    39Item 11. Executive Compensation
    
    
    39Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    39Item 13. Certain Relationships and Related Transactions
    
    
    39Item 14. Principal Accounting Fees and Services
    
    
    40PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    40Indemnity Agreement - David A. ScholesConsent of Independent Registered Public Accounting FirmCertification of Michael Y. McGovern Pursuant to Rule 13a-14(a)Certification of Gary L. Pittman Pursuant to Rule 13a-14(a)Certification of Michael Y. McGovern Pursuant to Section 1350Certification of Gary L. Pittman Pursuant to Section 1350Schedule II - Valuation and Qualifying Accounts




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PART I 
 Item 1.Business Overview Pioneer Companies, Inc. and its subsidiaries have manufactured and marketed chlorine, caustic
soda and related products in North America since 1988. We conduct our primary business through our
operating subsidiaries: PCI Chemicals Canada Company (which we refer to as PCI Canada) and Pioneer
Americas LLC (which we refer to as Pioneer Americas). Chlorine and caustic soda are commodity chemicals that are used in a wide variety of
applications and chemical processes. We believe they are the seventh and sixth most commonly
produced chemicals, respectively, in the United States, based on volume. Caustic soda and chlorine
are co-products, concurrently produced in a ratio of approximately 1.1 to 1 through the
electrolysis of salt water. An electrochemical unit, which we refer to as an ECU, consists of 1.1
tons of caustic soda and 1 ton of chlorine. Chlorine is used in 60% of all commercial chemistry, 85% of all pharmaceutical chemistry and
95% of all crop protection chemistry. More than 15,000 products, including water treatment
chemicals, plastics, detergents, pharmaceuticals, disinfectants and agricultural chemicals, are
manufactured with chlorine as a raw material. Chlorine is also used directly in water disinfection
applications. In the United States and Canada, chlorination is used to make public drinking water
safe to drink, and a significant portion of industrial and municipal wastewater is treated with
chlorine or chlorine derivatives to kill water-borne pathogens. Caustic soda is a versatile chemical alkali used in a diverse range of manufacturing
processes, including pulp and paper production, metal smelting and oil production and refining.
Caustic soda is combined with chlorine to produce bleach, which is used for water treatment and as
a cleaning disinfectant. Caustic soda is also used as an active ingredient in a wide variety of
other end-use products, including detergents, rayon and cellophane. We believe that our chlor-alkali production capacity represents approximately 5% of the
chlor-alkali industrys production capacity in the United States and Canada. We currently operate
the following production facilities that produce chlorine and caustic soda and related products.
Production capacity is stated in tons. ProductionLocation
    
    Manufactured Products
    
    CapacityBecancour, Quebec
    
    Chlorine
    
    
    340,000Caustic soda
    
    
    383,000Hydrochloric acid
    
    
    250,000Bleach
    
    
    236,000St. Gabriel, Louisiana
    
    Chlorine
    
    
    197,000Caustic soda
    
    
    216,700Henderson, Nevada
    
    Chlorine
    
    
    152,000Caustic soda
    
    
    167,200Hydrochloric acid
    
    
    130,000Bleach
    
    
    180,000Dalhousie, New Brunswick
    
    Chlorine
    
    
    36,000Caustic soda
    
    
    40,000Sodium chlorate
    
    
    22,000Cornwall, Ontario
    
    Hydrochloric acid
    
    
    14,700Cereclor(R) chlorinated paraffin
    
    
    9,800IMPAQT(R) pulping additive
    
    
    3,000Tracy, California
    
    Bleach
    
    
    233,000Santa Fe Springs, California
    
    Bleach
    
    
    233,000Tacoma, Washington
    
    Bleach
    
    
    90,000Calcium chloride
    
    
    8,800
 In December 2004 we began the process of moving the bleach production equipment at our
Cornwall, Ontario plant to the Becancour, Quebec plant. Following the March 2005 completion of the
equipment transfer, the bleach production capacity of the Becancour plant increased from 9,600 tons
to 236,000 tons, and we no longer produce bleach at the Cornwall plant. 1




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During 2001 we idled half of the production at our Tacoma, Washington chlor-alkali plant, and
in 2002 the plants remaining production capacity was idled. We had considered the possibility of
resuming chlor-alkali production operations at the facility, but in March 2004 it was determined
that as a result of our inability to identify and develop the significant long-term market base
that would be served by the plant, chlor-alkali production at the plant would not be resumed. We
have continued to use the plant site as a terminal to serve certain customers in the Pacific
Northwest and for the production of calcium chloride. We produce bleach at a separate facility in
Tacoma. Chlor-alkali manufacturers in the United States and Canada account for approximately 24% of
world chlor-alkali annual production capacity, with approximately 14.8 million tons of chlorine and
15.7 million tons of caustic soda production capacity. The Dow Chemical Company (Dow) and
Occidental Chemical Corporation (OxyChem) are the two largest chlor-alkali producers in North
America, together representing approximately 52% of U.S. and Canadian capacity. We believe that
percentage will increase to approximately 57% if OxyChem completes its recently-announced
acquisition of the chlor-alkali business of Vulcan Chemicals. Seventeen companies (including
Vulcan Chemicals) share the remaining capacity, and approximately 75% of the total capacity is
located on the Gulf Coast. The chlor-alkali industry in the United States and Canada is highly
competitive, and many of our competitors, including Dow and OxyChem, are substantially larger and
have greater financial resources than we do. While widely available technology is used in
chlor-alkali production, capital requirements, regulatory requirements and the difficulty of
obtaining permits for the production of chlor-alkali and chlor-alkali related products create some
obstacles to entry. Our ability to compete effectively depends on our ability to maintain a competitive cost
structure, to provide reliable and responsive service to our customers and to operate in a safe and
environmentally responsible manner. Our goal is to build long-term relationships with our customers
by meeting their product quality, delivery schedule and sales support needs. We believe that there
are some characteristics of our production capabilities that distinguish us from many of our
competitors, including the following:  
    our Becancour facility is a lower-cost production facility as a result of that
facilitys use of hydropower;
    our St. Gabriel facility has three pipelines that allow us to efficiently transport and
supply chlorine to customers in the area; and
    our Henderson facility is the only currently operating chlor-alkali production facility
in the western region of the United States, providing us with a strong regional presence
and transportation cost advantages. In 2004 approximately 202,000 tons (29%) of the chlorine and 81,000 tons (10%) of the caustic
soda that we produced at our chlor-alkali plants were used for our internal production of other
products, primarily bleach and hydrochloric acid. We sell our remaining production in the merchant
market. In contrast, many chlor-alkali companies use a large proportion of the chlorine that they
produce for the internal production of other chemical products. At times those companies treat the
caustic soda that they produce as a secondary product that they are willing to dispose of at a
discount, which affects the prices we are able to realize for sales of caustic soda. Our St. Gabriel and Dalhousie facilities use the mercury cell production process, which yields
low-salt caustic soda. In the past low-salt caustic soda has been considered a niche product that
is required by certain customers, but that is not currently the case, and many of our competitors
benefit from a greater use of the membrane production process. See  Technology below. Other competitive disadvantages that we face include relatively high power costs at our
Henderson and St. Gabriel facilities; our need to acquire salt from third-party producers, with
attendant availability, cost and transportation issues; our inability to spread our fixed costs
over a large manufacturing base; and our inability to serve some customers in Canada and the United
States without incurring significant transportation costs. The vinyl and aluminum industries use
significant amounts of chlorine and caustic soda production. While we do not sell large amounts of
our products to customers in either industry, conditions in those industries have a material effect
on the overall market supply of chlorine and caustic soda and the prices paid by our customers. See
 Marketing, Pricing, Production and Transportation  Marketing below. Much of the bleach that we produce at several of our plants is sold in bulk quantities for use
in municipal water treatment and as a disinfectant in food processing. We also supply bulk bleach
to consumer and commercial disinfectant and cleanser manufacturers. Hydrochloric acid has a variety
of industrial uses, including mining 2




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operations and the production of oil and gas, exotic metals, rocket fuel, computer hardware,
dyes, ink and solvents. Sodium chlorate is used in pulp and paper bleaching, and chlorinated
paraffin is used in plastics compounding and in cosmetics and lotions manufacturing. We produce
hydrogen as a by-product of the production of chlorine and caustic soda. Pipelines at the
Becancour, Henderson and St. Gabriel plants are used to transport hydrogen produced at those plants
directly to purchasers, and we also use hydrogen either as a raw material in the production of
hydrochloric acid or as a boiler fuel. We primarily use our own sales force to serve our markets, although we also sell some of our
products to distributors. We use one facility that we own and three leased terminal facilities to
store and distribute caustic soda and hydrochloric acid, and we use an additional fifteen transfer
facilities owned by third parties where rail shipments are transloaded to trucks for local
distribution. Recent Developments Equity Offering On December 6, 2004, we completed an underwritten public offering of 1.1 million shares of our
common stock. The net proceeds from the offering were approximately $22.1 million, after deducting
related expenses. We used all of the net proceeds of the offering to redeem and prepay a portion
of our outstanding senior secured indebtedness. The shares issued in the offering were a portion of
those included in a shelf registration statement that we filed with the Securities and Exchange
Commission and that was declared effective on September 16, 2004. Recent Trends in Product Prices and Costs In accordance with industry practice, we compare ECU prices on a netback basis, reporting and
analyzing prices without regard to the cost of transporting the products to customers to allow for
a comparable means of price comparisons between periods and with respect to our competitors. We
believe that during 2005 our average ECU netback will be greater than the 2004 average of $393, as
the demand for chlorine and caustic soda, as well as for bleach and hydrochloric acid (downstream
products that we produce), continues to be strong, and no production capacity additions in the
North American chlor-alkali industry are anticipated to occur during the year. We expect that our
operating margins will improve as a result of the higher ECU values, although natural gas prices
are still at relatively high levels and the prices we must pay for salt have also increased over
the last few months. Electricity purchases account for the largest percentage of our raw material
cost, and our plants at St. Gabriel and Henderson rely on power sources that primarily use natural
gas for the generation of electricity. High energy prices are also affecting the global positioning
of chlor-alkali production capacity, since production capacity and demand is increasing in Asia,
where access to lower-cost power is available. Cost-Reduction Measures Project STAR.During the first quarter of 2004 we engaged a consulting group to assist us in
an organizational efficiency project, which we refer to as Project STAR. The project has involved
the design, development and implementation of uniform and standardized systems, processes and
policies to improve our management, sales and marketing, production, process efficiency, logistics
and material management and information technology functions. The project has improved our
efficiency and our operating margins, so that we will be able to improve our cost competitiveness
with other North American chlor-alkali producers, most of which are larger, enjoy access to
lower-cost raw material and energy sources, and, because of the scale of their production
facilities, have significantly lower unit operating costs. We anticipate completing Project STAR by June 30, 2005, after incurring total employee
severance and benefit-related costs of approximately $3.7 million in connection with the project.
During 2004 $3.5 million of those costs were included in other items in our consolidated statements
of operations. A total of $2.1 million of such costs were paid during the year, resulting in a
liability balance at December 31, 2004, of $1.4 million. We also paid a total of $4.6 million in
consulting fees in connection with the project, which were included in our selling, general and
administrative expense in 2004. We currently anticipate that Project STAR will have the effect of improving our annual cost
structure by approximately $11.0 million. We expect that the project, which resulted in the
elimination of 128 employee and contract positions, will reduce our annual labor and benefits costs
by more than $8.0 million, and efficiency 3




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measures that have been identified are expected to result in additional annual cost savings of
approximately $3.0 million. Of the total anticipated savings, we believe that we realized savings
of approximately $5.7 million during 2004, primarily as a result of reductions in labor and
benefits costs, although as noted above we also incurred certain consulting fees in 2004 in
connection with the project. We anticipate that additional Project STAR initiatives will result in
future incremental cost reductions and efficiency improvements, as well as additional consulting
fees and severance costs, although of a lesser magnitude than those identified and incurred to
date. Realignment of Certain Canadian Operations.During the first quarter of 2005 we discontinued
the production of bleach at our plant in Cornwall, Ontario, and transferred the production assets
to our chlor-alkali plant in Becancour, Quebec. The transfer will result in the termination of 14
employees, resulting in severance costs of approximately $1.0 million, approximately half of which
was recognized during the fourth quarter of 2004. There will be a net elimination of nine employee
positions, after taking into account necessary additional staffing at the Becancour plant, and we
anticipate that the transfer will reduce our annual labor and benefits costs by approximately $1.5
million. We also expect to be able to realize the benefit of additional transportation and
production savings as a result of the move, although we have not yet quantified those savings. Benefit Costs.As part of a continuing effort to reduce our costs, the employee health care
plan that we provide to our U.S. employees was revised in 2003 to reduce the share of health care
costs that are borne by the company, and further reductions were effected for 2004 and 2005.
However, the reductions may be offset in part or whole by increased health care costs generally.
Effective February 29, 2004, benefits under our U.S. defined benefit pension plans were frozen, and
retirement benefits for current service of our U.S. employees are now provided through enhanced
contributions to our defined contribution pension plan. Marketing, Pricing, Production and Transportation Marketing Chlorine and caustic soda are commodity chemicals that we typically sell under contracts to
customers in the United States and Canada, although we occasionally export an immaterial amount of
caustic soda on a spot basis. Because chlorine and caustic soda are commodity chemicals, our sales
contracts often contain pricing that is determined on a quarterly basis by mutual agreement.
Contracts that we entered into during prior periods often contained meet or release clauses that
allow the customer to terminate the contract if we do not meet a better price that the customer is
offered by a competitor for future product purchases. In the current market environment we will
agree to such a contractual provision only if the pricing and volume provisions of a particular
account justify or limit our risk to adverse market conditions. Our contracts may also allow
either party to terminate the agreement if mutual agreement as to the applicable price for future
product purchases is not reached. Both the chlorine and caustic soda markets have been, and are
likely to continue to be, cyclical. Periods of high demand, high capacity utilization and
increasing operating margins tend to result in new plant investments and increased production until
supply exceeds demand, followed by a period of declining prices and declining capacity utilization
until the cycle is repeated. See Risks  Our operating results could be negatively affected
during economic downturns.... below. Approximately 29% of our 2004 revenues was derived from direct sales of products for use in
water treatment, approximately 23% resulted from sales for use in the pulp and paper industry and
approximately 8% was derived from sales for use by urethane producers. We rely heavily on repeat
customers, and our management and dedicated sales personnel are responsible for developing and
maintaining successful long-term relationships with our customers. We also sell certain products to
distributors, although we have reduced our reliance on the use of distributors over the course of
the last couple of years. No customer accounted for more than 10% of our total revenues in any of
our last three fiscal years. Pricing Our average ECU netback was $393 in 2004, compared to $382 in 2003 and $270 in 2002. For
purposes of determining our ECU netback, we use prices that we realize as a result of sales of
chlorine and caustic soda to our customers, and we do not include the value of chlorine and caustic
soda that is incorporated in other products that we manufacture and sell. During 2004 we used
approximately 29% of the chlorine and 10% of the caustic soda that we produced to manufacture other
products, primarily bleach and hydrochloric acid. 4




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Quarterly average ECU netbacks for 2004, 2003 and 2002 were as follows: 2004
    
    
    2003
    
    
    2002First Quarter
    
    $
    339
    
    
    $
    362
    
    
    $
    240Second Quarter
    
    
    354
    
    
    
    406
    
    
    
    225Third Quarter
    
    
    409
    
    
    
    392
    
    
    
    310Fourth Quarter
    
    
    480
    
    
    
    366
    
    
    
    317
 Increasing demand for chlorine since the beginning of 2004 and increasing demand for caustic
soda beginning in the second quarter of 2004 led us to announce price increases for those products
since January 1, 2004, as follows (stated on a per ton basis): Chlorine
    
    
    Caustic Soda2004:First Quarter
    
    $
    75
    
    
    $
    Second Quarter
    
    
    20
    
    
    
    95Third Quarter
    
    
    20
    
    
    
    110Fourth Quarter
    
    
    20
    
    
    
    502005:First Quarter
    
    
    20
    
    
    
    40
 All of the price increases that we announce are implemented when announced or as soon as
permitted by applicable contract terms. Our annual production capacity is approximately 1,500,000 tons of chlorine and caustic soda.
Most of the chlorine and caustic soda that we sell to customers is sold under contracts with
varying terms and conditions. As of January 1, 2005, we had contracts covering the anticipated sale
of an annual total of approximately 520,000 tons of chlorine and caustic soda (including equivalent
amounts that will be sold as bleach or hydrochloric acid), and that are subject to contractual
provisions that could restrict or eliminate our ability to increase the netback we will receive for
the amount of product that is sold under those contracts. Of the contracts that are subject to
such restrictions, contracts with respect to approximately 460,000 tons will expire over the course
of the next three years and the remainder will expire over the following five years. The prices that we realize for contract sales of chlorine and caustic soda during any quarter,
and thus our average ECU netback for the quarter, are different from the chlorine and caustic soda
contract prices that are reported by Chemical Market Associates, Inc. (commonly referred to as
CMAI), a leading industry observer. CMAIs reported monthly contract prices are based on the
assumption that price changes are implemented on the first day of the calendar quarter that follows
announced price changes, while we have a mix of pricing provisions that in some cases limits or
delays the implementation of price changes. CMAIs reported monthly contract prices also relate to
products that are produced and delivered in the U.S. Gulf Coast. While the majority of the demand
for North American chlor-alkali production does occur in the U.S. Gulf Coast region, only one of
our plants is located in that region, and regional supply and demand factors and logistical
considerations generally result in varying regional prices for our products. During the fourth quarter of 2004 our average ECU netback was $480, while the average ECU
netback quoted by CMAI for the same quarter was $640. In general, changes in our average ECU
netback and the related effect on our revenues and cash flow have lagged changes in our announced
prices and changes in the contract prices that are reported by CMAI, although the corresponding
benefit to us in a period of declining prices is of a somewhat lesser magnitude. The following
table illustrates the recent relationship between our average ECU netback and the monthly contract
price reported by CMAI: 5




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(LINE GRAPH) Our average ECU netback for the first two months of 2005 was approximately $546. Since part of
the benefit of our announced price increases has been delayed, we expect that our average ECU
netback will increase during the first six months of 2005, even in the absence of any further price
increases. Plant operating rates in the chlor-alkali industry are reportedly at near capacity, and
further increases in ECU prices during the remainder of 2005 could be announced if these conditions
continue. Production ECU production volumes at our chlor-alkali facilities and at all chlor-alkali industry
production facilities in the U.S. and Canada for 2004, 2003 and 2002 were as follows: % of ProductionECUs (in tons)
    
    
    Capacity2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Pioneer production volume(1)
    
    
    704,000
    
    
    
    671,000
    
    
    
    694,000
    
    
    
    97
    %
    
    
    93
    %
    
    
    96
    %Industry production volume(2)
    
    
    14,385,000
    
    
    
    13,890,000
    
    
    
    14,000,000
    
    
    
    97
    %
    
    
    84
    %
    
    
    89
    %
   (1)
    
    Excludes production volumes and capacities at our Tacoma facility. The facilitys
capacity was reduced by 50% in March 2001, and the facility was idled in March 2002. In
2002 the facilitys production volume was 15,000 ECUs.(2)
    
    Source: Chemical Market Associates, Inc. We also purchased 130,000 tons, 140,000 tons and 104,000 tons of caustic soda for resale in
2004, 2003 and 2002, respectively. Following the reduction and later termination of chlor-alkali
production in Tacoma, we met existing contractual commitments for caustic soda by purchasing
caustic soda from other producers. Those commitments have now terminated, and we anticipate a
reduced level of purchases for resale in future periods. Production rates for chlorine and caustic soda are generally based upon demand for chlorine,
because storage capacity for chlorine is both limited and expensive. When demand for chlorine is
high and operational capacity is expanded accordingly, an increase in the supply of both chlorine
and caustic soda occurs since chlorine and caustic soda are produced in a fixed ratio. As a result,
the price of caustic soda is often depressed, as there is insufficient demand for the increased
supply. This imbalance may have the short-term effect of limiting our operating profits because
declining margins in caustic soda may offset improving margins in chlorine. When demand for
chlorine declines to a level below plant operational capacity and available storage is filled,
production must be curtailed, even if demand for caustic soda has increased. This imbalance may
also have the short-term effect of limiting our operating profits because improving margins for
caustic soda may be offset by both declining margins in chlorine and the reduced production of both
products. Our railcars can, under certain circumstances, be used to provide additional storage
capacity. 6




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From time to time disruptions in transportation interrupt our ability to operate our plants,
by reducing our ability to obtain adequate amounts of salt, or by interrupting our ability to
transport our products to our customers. In January 2005 we reduced the operation of our
chlor-alkali plant in Henderson, Nevada when flooding in California and Utah disrupted rail
transportation of salt to the plant and the shipment of chlorine, caustic soda and hydrochloric
acid to our customers, as well as the shipment of chlorine and caustic soda to our bleach plants in
California. Also in January 2005, an apparently seasonal reduction in orders that would ordinarily
be supplied by our Becancour plant led us to reduce that plants operating rate for several days.
Our production losses at the Henderson and Becancour plants in January 2005 were approximately
9,500 ECUs. Transportation The chlorine that we produce is transported to our customers in railcars, and for customers
near our plant in St. Gabriel, Louisiana, by pipelines. We ship caustic soda by railcars, trucks,
ships or barges, and we ship our other products by railcars or trucks. We lease a fleet of
approximately 1,930 railcars, and use third-party transportation operators for truck and
water-borne distribution. We are increasing our ability to maintain inventory at leased terminal
space, and we now store inventory at two terminal locations for truck-load shipments to customers.
Another fifteen locations are used for the direct transfer of product from railcars to trucks for
distribution. The salt that we use for the production of chlorine and caustic soda is purchased from
suppliers and transported to our manufacturing facilities in railcars, trucks, ships or barges. Technology We use three different technologies in the production of chlor-alkali products through the
electrolysis of brine: diaphragm cell technology, mercury cell technology and membrane cell
technology. Diaphragm cell technology, which is used for approximately 60% of our production
capacity, employs a coated titanium anode, a steel cathode and an asbestos or asbestos/polymer
separator. While diaphragm cell technology consumes less power, it produces caustic soda with a
relatively higher salt content that requires evaporation with steam to reach a commercial
concentration. Mercury cell technology, which is used in approximately 31% of our production
capacity, employs a coated titanium anode and flowing mercury as a cathode. Mercury cell technology
produces higher-purity caustic soda that does not require evaporation, but it consumes relatively
more power and the mercury requires heightened handling and control practices. Membrane cell
technology, which is used in approximately 9% of our production capacity and is generally the most
efficient technology, employs a coated titanium anode, a nickel cathode and a fluorocarbon membrane
separator. As membrane cell technology produces higher-purity caustic soda than diaphragm cell
technology, and it requires lower power consumption and lower steam consumption, most new
chlor-alkali plants use that technology. SeeItem 2 Properties  Facilities below for information
regarding the use of these technologies by our chlor-alkali production facilities. Environmental Regulation U.S. Requirements General.Various federal, state and local laws and regulations governing the discharge of
materials into the environment, or otherwise relating to the protection of the environment, affect
our operations and costs. In particular, our activities in connection with the production of
chlor-alkali and chlor-alkali related products are subject to stringent environmental regulation.
As with the industry generally, compliance with existing and anticipated regulations affects our
overall cost of business. Areas affected include capital costs to construct, maintain and upgrade
equipment and facilities. Anticipated and existing regulations affect our capital expenditures and
earnings, and they may affect our competitive position to the extent that regulatory requirements
with respect to a particular production technology may give rise to costs that our competitors
might not bear. Environmental regulations have historically been subject to frequent change by
regulatory authorities, and we are unable to predict the ongoing cost to us of complying with these
laws and regulations or the future impact of such regulations on our operations. Violation of
federal or state environmental laws, regulations and permits can result in the imposition of
significant civil and criminal penalties, injunctions and construction bans or delays. A discharge
of chlorine or other hazardous substances into the environment could, to the extent such event is
not insured, subject us to substantial expense, including both the cost to comply with applicable
regulations and claims by neighboring landowners and other third parties for any personal injury
and property damage that might result. 7




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Air Emissions.Our U.S. operations are subject to the Federal Clean Air Act and comparable
state and local statutes. We believe that our operations are in substantial compliance with these
statutes in all states in which we operate. Amendments to the Federal Clean Air Act enacted in late 1990 require or will require most
industrial operations in the U.S. to incur capital expenditures in order to meet air emission
control standards developed by the Environmental Protection Agency (the EPA) and state
environmental agencies. Among the requirements that are applicable to us are those that require the
EPA to establish hazardous air pollutant emissions limitations and control technology requirements
for chlorine production facilities. In December 2003 the EPA issued hazardous air pollutant
emissions limitations for mercury-cell chlor-alkali facilities, which will apply to our St. Gabriel
facility. The new regulations provide a three-year period during which we must implement various
measures at the St. Gabriel facility, including installing additional emission monitoring systems,
adopting more stringent work practices and conducting more frequent operating and maintenance
checks and repairs. We anticipate that the total project cost associated with complying with the
new regulations will be approximately $2.3 million. Of that amount, we have spent approximately
$1.8 million over the last four years in anticipation of the new requirements. Environmental groups
challenged the new regulations, contending that the EPA should reconsider its rules and adopt new
standards that bar the use of mercury for chlorine production. The EPA has agreed to reconsider the
new rules, and the litigation has been held in abeyance while that process continues. In addition,
one national environmental group has suggested that we should voluntarily convert the St. Gabriel
facility to a non-mercury chlor-alkali process. See Technology above. As a result of voluntary air emissions monitoring that we conducted during October 2004, we
discovered that the carbon-based system that we use to remove mercury from the hydrogen gas stream
at our St. Gabriel facility was not effective, resulting in mercury vapor emissions that were above
the permit limits approved by the Louisiana Department of Environmental Quality (LDEQ). We
immediately reduced the plants operating rate in order to ensure that emissions were below the
permitted levels, and evaluated the materials and process changes that would be necessary to
address the problem. The installation of the necessary equipment was completed in late November,
and the plant returned to its full operating rate. Since that time emissions monitoring has
confirmed that air emissions are below the permit limits. LDEQ has issued a notice of violation to
us as a result of the permit exceedances. LDEQ has not yet issued a penalty proposal with respect
to the violation. Our 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. Over the last five years
there have been minor releases at our plants, none of which has had any known impact on human
health or the environment or resulted in any material claims against us. We maintain systems to
detect emissions of chlorine at our plants, and the St. Gabriel and Henderson facilities are
members of their local industrial emergency response networks. We believe that our 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 we will not incur substantial expenditures that
are not covered by insurance if a major release occurs in the future. Water.The Federal Water Pollution Control Act of 1972 (FWPCA) imposes restrictions and
strict controls regarding the discharge of pollutants into navigable waters. Permits must be
obtained to discharge pollutants into state and federal waters. The FWPCA imposes substantial
potential liability for the costs of removal, remediation and damages. We maintain wastewater
discharge permits for many of our facilities, where required pursuant to the FWPCA and comparable
state laws. We have also applied for all necessary permits to discharge storm water under such
laws. We believe that compliance with existing permits and foreseeable new permit requirements will
not have a material adverse effect on our financial condition or results of operations. Some states maintain groundwater and surface water protection programs that require permits
for discharges or operations that may impact groundwater or surface water conditions. The
requirements of these laws vary and are generally implemented through a state regulatory agency.
These water protection programs typically require site discharge permits, spill notification and
prevention and corrective action plans. During 2004 we spent $0.8 million to complete improvements
at our Henderson facility to discontinue the use of two chlor-alkali wastewater disposal ponds and
replace them with systems to recycle wastewater. The total project cost over the last three years
was $2.5 million. 8




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Solid Waste.We generate non-hazardous solid wastes that are subject to the requirements of
the Federal Resource Conservation and Recovery Act (RCRA) and comparable state statutes. The EPA
is considering the adoption of stricter disposal standards for non-hazardous wastes. RCRA also
governs the disposal of hazardous wastes. We are not currently required to comply with a
substantial portion of RCRAs requirements because many of our operations do not generate
quantities of hazardous wastes that exceed the threshold levels established under RCRA. However, it
is possible that additional wastes, which could include wastes currently generated during
operations, will in the future be designated as hazardous wastes. Hazardous wastes are subject to
more rigorous and costly disposal requirements than are non-hazardous wastes. Such changes in the
regulations could result in additional capital expenditures and operating expenses. The EPA has adopted regulations banning the land disposal of certain hazardous wastes unless
the wastes meet defined treatment or disposal standards. Our disposal costs could increase
substantially if our present disposal sites become unavailable due to capacity or regulatory
restrictions. We presently believe, however, that our current disposal arrangements will allow us
to continue to dispose of land-banned wastes with no material adverse effect on us. Hazardous Substances.The Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), also known as Superfund, imposes liability, without regard to fault or the
legality of the original act, on specified classes of persons that contributed to the release of a
hazardous substance into the environment. These persons include the owner or operator of the site
and companies that disposed or arranged for the disposal of the hazardous substances found at the
site. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the responsible classes
of persons the costs they incur. In the course of our ordinary operations, we may generate waste
that falls within CERCLAs definition of a hazardous substance. We may be jointly and severally
liable under CERCLA for all or part of the costs required to clean up sites at which such hazardous
substances have been disposed of or released into the environment. We currently own or lease, and have in the past owned or leased, properties at which hazardous
substances have been or are being handled. Although we have used operating and disposal practices
that were standard in the industry at the time, hazardous substances may have been disposed of or
released on or under the properties owned or leased by us or on or under other locations where
these wastes have been taken for disposal. In addition, many of these properties have been operated
by third parties whose treatment and disposal or release of hydrocarbons or other wastes were not
under our control. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA
and analogous state laws. Under such laws we could be required to remove or remediate previously
disposed wastes (including wastes disposed of or released by prior owners or operators), to clean
up contaminated property (including contaminated groundwater) or to perform remedial plugging
operations to prevent future contamination. However, no investigations or remedial activities are
currently being conducted under CERCLA by third parties at any of our facilities, with the
exception of the chlor-alkali facility that we previously operated in Tacoma, where the activities
are covered by an indemnity from the previous owner. See Indemnities  OxyChem Indemnity below.

Investigations and remedial activities are being carried out at certain facilities under the other
statutory authorities discussed above. Environmental Remediation.Contamination resulting from spills of hazardous substances is not
unusual within the chemical manufacturing industry. Historic spills and past operating practices
have resulted in soil and groundwater contamination at several of our facilities and at certain
sites where operations have been discontinued. We are currently addressing soil and/or groundwater
contamination at several sites through assessment, monitoring and remediation programs with
oversight by government agencies. In some cases we are conducting this work under administrative
orders. Our assessment of environmental obligations is based on an independent analysis of
environmental concerns at all of our plants that was conducted during 2003. The study was based on
scenario analysis to estimate the cost to remedy environmental concerns at our plant sites. For
each scenario, the study also used cost estimating techniques that included actual historical
costs, estimates prepared for us by consultants, estimates prepared by our engineers and other
published cost data available for similar projects completed at the same or other sites. The study included consideration of various factors, including, but not limited to, existing
knowledge of site conditions, flexibility in regulatory agency guidance, the use of various
alternative remediation technologies, post-acquisition contamination not covered under existing
environmental indemnity agreements and the inherent risk of 9




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disputes under some of the indemnity agreements due to passage of time. Based on the study, we
estimated our total environmental remediation liabilities to be $21.0 million, of which $3.2
million is subject to indemnity claims against a previous owner, as discussed below. As of December
31, 2004, our total estimated environmental liabilities were $20.3 million, based on the results of
the study and the costs that we have incurred since its completion. We base our environmental
reserves on undiscounted costs. While we believe that adequate accruals have been established to address all known remedial
obligations, in March 2005 we arranged for a new independent analysis of environmental concerns at
our plants. As a result of the new study we may need to adjust our accruals for environmental
obligations, and in any event there can be no guarantee that actual remedial costs or associated
liabilities will not exceed accrued amounts. At some of our locations, regulatory agencies are
considering whether additional actions are necessary to protect or remediate surface or groundwater
resources. We could be required to incur additional costs to construct and operate remediation
systems in the future. OSHA.We are also subject to the requirements of the Federal Occupational Safety and Health
Act (OSHA) and comparable state statutes that regulate the protection of the health and safety of
workers. In addition, the OSHA hazard communication standard requires that certain information be
maintained about hazardous materials used or produced in operations and that this information be
provided to employees, state and local government authorities and citizens. We believe that our
operations are in substantial compliance with OSHA requirements, including general industry
standards, record-keeping requirements and monitoring of occupational exposure to regulated
substances. Canadian Requirements General.Our Canadian facilities are governed by federal environmental laws administered by
Environment Canada and by provincial environmental laws enforced by administrative agencies. Many
of these laws are comparable to the U.S. laws described above. In particular, the Canadian
environmental laws generally provide for control or prohibition of pollution, for the issuance of
certificates of authority or certificates of authorization, which permit the operation of regulated
facilities and prescribe limits on the discharge of pollutants, and for penalties for the failure
to comply with applicable laws. These laws include the substantive areas of air pollution, water
pollution, solid and hazardous waste generation and disposal, toxic substances, petroleum storage
tanks, protection of surface and subsurface waters, and protection of other natural resources.
However, there is no Canadian law similar to CERCLA that would make a company liable for legal
off-site disposal. The Canadian Environmental Protection Act (the CEPA) is the primary federal statute that
governs environmental matters throughout the provinces. The federal Fisheries Act is the principal
federal water pollution control statute. This law would apply in the event of a spill of caustic
soda or another deleterious substance that adversely impacts marine life in a waterway. The
Becancour, Dalhousie and Cornwall facilities are all adjacent to major waterways and are therefore
subject to the requirements of this statute. The Chlor-Alkali Mercury Release Regulations and the
Chlor-Alkali Mercury Liquid Effluent Regulations, adopted under the CEPA, regulate the operation of
the Dalhousie facility. In particular, these regulations provide for the quantity of mercury a
chlor-alkali plant may release into the ambient air and the quantity of mercury that may be
released with liquid effluent. We believe we have operated and are currently operating in
compliance with these statutes. Canadian regulatory authorities have identified mercury
contamination in the waterway adjacent to the Dalhousie facility, but we believe that any liability
for the contamination would be subject to one of the indemnities discussed below. The primary provincial environmental laws include the Environmental Protection Act in the
province of Ontario, the Quebec Environment Quality Act in Quebec and the Clean Environment Act in
New Brunswick. In general, each of these acts regulates the discharge of a contaminant into the
natural environment if such discharge causes or is likely to cause an adverse effect. Indemnities ZENECA Indemnity.Our Henderson facility is located within what is known as the Black
Mountain Industrial Park. Soil and groundwater contamination have been identified on or under land
within and adjoining the Black Mountain Industrial Park, including land owned by us. A groundwater
treatment system has been installed at the facility and, pursuant to a consent agreement with the
Nevada Division of Environmental Protection, studies are being conducted to further evaluate soil
and groundwater contamination at the facility and other properties within 10




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the Black Mountain Industrial Park and to determine whether additional remediation will be
necessary with respect to our property. In connection with our 1988 acquisition of the St. Gabriel and Henderson facilities, the
sellers agreed to indemnify us 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
that benefit us. In general, we are indemnified against environmental costs that arise from or
relate to pre-closing actions that involved disposal, discharge or release of materials resulting
from the former agricultural chemical and other non-chlor-alkali manufacturing operations at the
Henderson facility. The ZENECA Companies are also responsible for costs arising out of the
pre-closing actions at the Black Mountain Industrial Park. Under the ZENECA Indemnity, we 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. We are responsible for environmental costs relating to the
chlor-alkali manufacturing operations at the Henderson facility, both pre- and post-acquisition,
for certain actions taken without the ZENECA Companies consent and for certain operation and
maintenance costs of the groundwater treatment system at the facility. Payments for environmental liabilities under the ZENECA Indemnity, together with other
non-environmental liabilities for which the ZENECA Companies agreed to indemnify us, are limited to
approximately $65 million. To date we have been reimbursed for approximately $12 million of costs
covered by the ZENECA Indemnity, but the ZENECA Companies may have directly incurred additional
costs that would further reduce the total amount remaining under the ZENECA Indemnity. We have
recorded an environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies, as well as a receivable from the ZENECA Companies for the
same amount. It is our policy to record such amounts when a liability can be reasonably estimated.
The timing of future cash flows for environmental work is uncertain, such that those cash flows do
not qualify for discounting under generally accepted accounting principles. As a result, the
environmental liabilities and related receivables are recorded at their undiscounted amounts of
$3.2 million at December 31, 2004. The environmental liabilities are included in our environmental
reserves, which are recorded as other long-term liabilities on our consolidated balance sheet. The ZENECA Indemnity expired in April 1999, but it continues to apply to claims to the extent
that, prior to the expiration of the indemnity, proper notice to the ZENECA Companies was given and
either the ZENECA Companies have assumed control of such claims or we were contesting the legal
requirements that gave rise to such claims, or had commenced removal, remedial or maintenance work
with respect to such claims, or commenced an investigation which resulted in the commencement of
such work within ninety days. Our management believes proper notice was provided to the ZENECA
Companies with respect to outstanding claims under the ZENECA Indemnity, but the amount of such
claims has not yet been determined given the ongoing nature of the environmental work at Henderson.
We believe that the ZENECA Companies will continue to honor their obligations under the ZENECA
Indemnity for claims properly presented by us. If disputes arise between the parties concerning the
effect of contractual language we would have to subject our claims for cleanup expenses, which
could be substantial, to the contractually-established arbitration process. OxyChem Indemnity.We acquired the chlor-alkali facility that we previously operated in
Tacoma from a subsidiary of OxyChem in June 1997. In connection with the acquisition, we received
an indemnification with respect to certain environmental matters. In general, OxyChem will
indemnify us against damages incurred for remediation of certain environmental conditions, for
certain environmental violations caused by pre-closing operations at the site and for certain
common law claims. The conditions subject to the indemnity are sites at which hazardous materials
have been released prior to closing as a result of pre-closing operations at the site. In addition,
OxyChem has agreed to indemnify us for certain costs relating to releases of hazardous materials
from pre-closing operations at the site into the adjacent Hylebos Waterway, site groundwater
containing certain volatile organic compounds that must be remediated under an RCRA permit, and
historical disposal areas on the embankment adjacent to the site for maximum periods of 24 or 30
years from the June 1997 acquisition date, depending upon the particular condition, after which we
will have full responsibility for any remaining liabilities with respect to such conditions.
OxyChem may obtain an early expiration date for certain conditions by obtaining a discharge of
liability or an approval letter from a governmental authority. At this time we cannot determine if
on-going and anticipated remediation work will be completed prior to the expiration of the
indemnity or if additional remedial requirements will be imposed thereafter. 11




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OxyChem has also agreed to indemnify us against certain other environmental conditions and
environmental violations caused by pre-closing operations that are identified after the closing.
Environmental conditions that are the subject of an administrative or court order before June 2007
will be covered by the indemnity up to certain dollar amounts and time limits. We have agreed to
indemnify OxyChem for environmental conditions and environmental violations identified after the
closing if (i) an order or agency action is not imposed within the relevant time frames or (ii)
applicable expiration dates or dollar limits are reached. On March 15, 2005, the U.S. District Court for the Western District of Washington entered a
consent decree relating to the remediation of the Hylebos Waterway in Tacoma. We are a party to
the decree by virtue of our current ownership of the Tacoma site. Additional remediation of the
site itself is ongoing. OxyChem has acknowledged its obligation to indemnify us against liability
with respect to the remediation activities, subject to the limitations included in the indemnity
agreement. We have reviewed the timeframes currently estimated for remediation of the known environmental
conditions associated with the plant and adjacent areas, including the Hylebos Waterway, and we
presently believe that we will have no material liability upon the termination of OxyChems
indemnity. However, the indemnity is subject to limitations as to dollar amount and duration, as
well as certain other conditions, and there can be no assurance that the indemnity will be adequate
to protect us, that remediation will proceed on the present schedule, that it will involve the
presently anticipated remedial methods, or that unanticipated conditions will not be identified. If
these or other changes occur, we could incur a material liability for which we are not insured or
indemnified. PCI Canada Acquisition Indemnity.In connection with our acquisition of the assets of PCI
Canada in 1997, Imperial Chemical Industrials PLC (ICI) and certain of its affiliates (together
the ICI Indemnitors) agreed to indemnify us for certain liabilities associated with environmental
matters arising from pre-closing operations of the Canadian facilities. In particular, the ICI
Indemnitors have agreed to retain unlimited responsibility for environmental liabilities associated
with the leased Cornwall site, liabilities arising out of the discharge of contaminants into rivers
and marine sediments and liabilities arising out of off-site disposal sites. The ICI Indemnitors
are also subject to a general environmental indemnity for other pre-closing environmental matters.
This general indemnity will terminate on October 31, 2007, and is subject to a limit of $25 million
(Cdn). We may not recover under the environmental indemnity until we have incurred cumulative costs
of $1 million (Cdn), at which point we may recover costs in excess of $1 million (Cdn). As of
December 31, 2004, we had not incurred any costs covered by the $25 million (Cdn) indemnity, and
currently we do not anticipate incurring any liabilities that will be recoverable under the
indemnity. With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors are responsible
under the general environmental indemnity for a portion of the costs incurred in any year during
the period ending on October 31, 2007, subject in any event to the $1 million (Cdn) threshold
mentioned above. The ICI Indemnitors will be responsible for 48% of any liabilities incurred during
the twelve months ending October 31, 2005, and the percentage of any costs that will be the
responsibility of the ICI Indemnitors declines by 16% each year thereafter. After October 31, 2007,
we will be responsible for all environmental liabilities at such facilities (other than liabilities
arising out of the discharge of contaminants into rivers and marine sediments and liabilities
arising out of off-site disposal sites). We have agreed to indemnify ICI for environmental
liabilities arising out of post-closing operations and for liabilities arising out of pre-closing
operations for which we are not indemnified by the ICI Indemnitors. In March 2003 we initiated arbitration proceedings to resolve a dispute with ICI regarding the
applicability of certain of ICIs covenants with respect to approximately $1.3 million of equipment
modification costs, most of which were capital expenditures that we made to achieve compliance with
air emissions standards at the Becancour facility. Those proceedings are still pending. We believe
that the indemnity provided by ICI will be adequate to address the known environmental liabilities
at the acquired facilities, and that residual liabilities, if any, incurred by us will not be
material. 12




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Risks Our operating results could be negatively affected during economic downturns and by declines in the
average selling prices of our products, particularly declines in the ECU netback. In addition,
contractual provisions in our customer contracts may prevent us from realizing the full extent of
strengthening ECU prices. The businesses of most of our customers are, to varying degrees, cyclical and have
historically experienced periodic downturns. These economic and industry downturns have been
characterized by diminished product demand, excess manufacturing capacity and, in most cases, lower
average selling prices. Therefore, any significant downturn in our customers markets or in global
or domestic economic conditions could result in a reduction in demand for our products and could
materially adversely affect our results of operations and financial condition. While demand for
both chlorine and caustic soda has strengthened during recent quarters, domestic economic
conditions could materially adversely affect demand for our products in the future. Although we sell only a small percentage of our products directly to customers abroad, to some
extent our financial performance is dependent upon economies beyond the United States and Canada.
Our customers sell a portion of their products abroad and we import caustic soda from overseas for
sales to domestic customers. As a result, our business is affected by general economic conditions
and other factors beyond the United States and Canada, including fluctuations in interest rates,
market demand, energy, salt and labor costs and other factors beyond our control. The demand for
our customers products, and therefore, our products, as well as the domestic supply of caustic
soda, is directly affected by such fluctuations. Our historical operating results reflect the
cyclical nature of the chemical industry. As discussed above, we experience cycles of fluctuating
supply and demand in our chlor-alkali products business, which results in changes in selling
prices. Periods of high demand, tight supply and increasing operating margins tend to result in
increased capacity and production until supply exceeds demand, generally followed by periods of
oversupply and declining prices. Beginning in mid-2002, a combination of higher demand and reduced
industry capacity resulted in an increase in ECU prices. Strong demand for chlorine in the first
quarter of 2003, principally from the vinyls sector, coupled with lower industry profitability due
to high energy costs, led to price increases for both chlorine and caustic soda effective on April
1, 2003. No further price increases were implemented in 2003 and the average ECU netback declined
during the latter half of 2003, as caustic soda prices declined because of soft demand and seasonal
plant shutdowns and curtailed production at some of our major customers. While demand for chlorine began increasing in the first quarter of 2004, leading us to
announce a price increase for that product, caustic soda demand continued to soften during that
quarter. However, demand for caustic soda also began increasing in the second quarter of the year,
and we announced additional price increases for both products during the remainder of 2004 and in
February 2005. When demand for chlorine is high and the industry operating rate increases as a result, an
increase in the supply of both chlorine and caustic soda occurs since chlorine and caustic soda are
produced in a fixed ratio. In that event the price of caustic soda may be depressed if there is
insufficient demand for the increased supply. This imbalance may have the short-term effect of
limiting our operating profits as declining margins in caustic soda may offset improving margins in
chlorine. When demand for chlorine declines to a level below plant operational capacity and
available storage is filled, production operations must be curtailed, even if demand for caustic
soda has increased. This imbalance may also have the short-term effect of limiting our operating
profits as improving margins in caustic soda may be offset by both declining margins in chlorine
and the reduced production of both products. When substantial imbalances occur, we will often be
forced to reduce prices or take actions that could have a material adverse effect on our results of
operations and financial condition. Most of our customers consider price one of the most significant factors when choosing among
the various suppliers of chlor-alkali products. We have limited ability to influence prices in this
large commodity market. Decreases in the average selling prices of our products could have a
material adverse effect on our profitability. While we strive to maintain or increase our
profitability by reducing costs through improving production efficiency, emphasizing higher margin
products, and controlling selling and administration expenses, these efforts are usually not
sufficient to offset fully the effect of any decline in ECU prices on operating results. Because of the cyclical nature of our business, our pricing or profitability in the future may
not be comparable to any particular historical period. The chlor-alkali industry may experience
adverse trends in the future, which could materially adversely affect our results of operations and
financial condition. 13




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Our profitability could be reduced by customer demand factors that are difficult to predict. Many of our contracts require us to meet the product requirements of our customers, and the
orders for our products can be affected by factors that impact our customers businesses, including
seasonal slowdowns or other events that cause a reduction in orders from an industry sector in
general or from a particular customer. For example, in late December 2004, an unexpected and
apparently seasonal reduction in orders that would ordinarily be supplied by our Becancour plant
led us to reduce the plants operating rate for a few days in January 2005. We find it difficult to predict developments of that nature, although we attempt to minimize
the difficulty by maintaining regular contact with customers and discussing their production plans
with them. Our operating results or financial condition may be materially adversely affected by
conditions affecting our customer base in the future. Higher energy prices can impair our ability to produce chlor-alkali products economically and
higher energy costs could materially adversely affect our results of operations and financial
condition. Energy costs comprise the largest component of the raw material costs associated with
producing chlor-alkali products. As a result, and because we have limited ability to influence
pricing, increases in the cost of energy could materially adversely affect our results of
operations and financial condition and may cause our production of chlor-alkali products to become
uneconomical. Increases in natural gas prices directly increase our cost of operations at our
facilities in St. Gabriel and Henderson, which procure their power from sources that rely on
natural gas to generate power. Natural gas-based power has generally been more costly than
hydropower and has experienced greater price volatility than hydropower. The current contract with
the provider of power to our Henderson facility terminates in 2006 and, in the absence of an
extension of the term, it will be necessary to seek an alternative arrangement for the purchase of
power for that Henderson facility. Any such arrangement might involve greater costs. To the extent our competitors are able to secure less expensive power than we are due to their
geographic location or otherwise, we may be at a competitive disadvantage. We are unable to predict
the future impact that energy prices may have on the results of our operations. See Marketing,
Pricing, Production and Transportation above. The restrictive terms of our indebtedness may limit our ability to grow and compete. Our operating flexibility is limited by covenants contained in our debt instruments, including
our Senior Notes and Revolver, that limit our ability to incur additional indebtedness, prepay or
modify debt instruments, create additional liens upon assets, guarantee any obligations, sell
assets and make dividend payments. The covenants contained in our debt instruments could limit our
ability to grow and compete. Our Revolver requires us to generate a specified amount of Lender-Defined EBITDA. If we were
unable to generate the necessary level of Lender-Defined EBITDA, our failure to do so would
constitute a default under the Revolver, unless the lender agrees to waive the default. A default,
if not waived, would have a material adverse effect on our business, financial condition and
results of operations. A default under our Revolver, which would also constitute a default under
our Senior Notes, would give the lender under the Revolver and the holders of the Senior Notes the
right to accelerate all indebtedness outstanding thereunder. This would cause us to suffer a rapid
loss of liquidity and we would lose the ability to operate on a day-to-day basis. In addition, the
lender under our Revolver may refuse to make further advances if a material adverse change in our
business, prospects, operations, results of operations, assets, liabilities or condition (financial
or otherwise) has occurred. SeeItem 7 Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources, in Part II of this report. Our Senior Secured Floating Rate Guaranteed Notes due 2006 (the Senior Guaranteed Notes) in
the aggregate principal amount of $43.2 million as of December 31, 2004, and Floating Rate Term
Notes due 2006 (the Senior Floating Notes) in the aggregate principal amount of $3.1 million as
of December 31, 2004, provide that, within 60 days after each calendar quarter through 2006,
Pioneer Americas is required to redeem and prepay the greater of (a) an amount determined on the
basis of Pioneer Americas net income before extraordinary items, net other income, interest,
income taxes, depreciation and amortization (Tranche A Notes EBITDA), and (b) an amount
determined on the basis of our excess cash flow and average liquidity, as defined. With respect to
Tranche A Notes EBITDA, the amount that is to be redeemed and prepaid is (i) $2.5 million of Senior
Guaranteed Notes and Senior Floating Notes (collectively, the Tranche A Notes) if Tranche A Notes
EBITDA for such calendar quarter is $20.0 million 14




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or more but less than $25.0 million, (ii) $5.0 million of Tranche A Notes if Tranche A Notes
EBITDA for such calendar quarter is $25.0 million or more but less than $30.0 million and (iii)
$7.5 million of Tranche A Notes if Tranche A Notes EBITDA for such calendar quarter is $30.0
million or more, in each case plus accrued and unpaid interest to the date of redemption and
prepayment. If our excess cash flow for specified periods through 2006, when multiplied by a
percentage determined by reference to our average liquidity for the applicable period, is greater
than the applicable principal amount above, then we must redeem and prepay the indicated principal
amount of Tranche A Notes. We must also apply the proceeds of certain equity offerings to the
redemption and prepayment of Tranche A Notes. In December 2004 we issued 1.1 million shares of our common stock in a public offering. Of
the $22.1 million in net proceeds of the offering, we applied a total of $1.3 million to the
prepayment of Senior Floating Notes in December 2004, and we applied the remainder to the
redemption of $21.1 million principal amount of Senior Guaranteed Notes in January 2005. As a
consequence of the applicable redemption and prepayment requirements, we will not be able to apply
any significant amount of our income from operations to the expansion of our business or otherwise
until we have redeemed and repaid the Tranche A Notes. In addition, we may be required to redeem
and prepay some or all of the Tranche A Notes as a result of non-cash transactions. We are not permitted to refinance the outstanding aggregate principal amount of the 10% Senior
Secured Guaranteed Notes due 2008 (the 10% Senior Secured Notes) before December 31, 2005.
Pursuant to the terms of the indenture governing those notes, we would be required to pay a 5%
redemption premium for any refinancing during 2006 and a 2.5% redemption premium for any
refinancing during 2007. Our cash flow from operations may not be sufficient to fund our capital needs in the future. Our ability to generate sufficient cash flow from operations in order to make scheduled
payments on our debt and to satisfy our other obligations depends on a range of economic,
competitive and business factors, many of which are outside our control. Our business may not
generate sufficient cash flow from operations to meet these demands. If we are unable to pay our
expenses and satisfy our debt obligations, we may need to refinance all or a portion of our
indebtedness, sell assets or raise additional equity. In addition, we may need to raise additional
capital or undertake additional financing in order to maintain and grow our operations in order to
remain competitive in our industry. As of December 31, 2004, we had approximately $202.8 million of indebtedness outstanding under
various loan agreements, including the Tranche A Notes that are due in December 2006 and the 10%
Senior Secured Notes that are due in December 2008. As of December 31, 2004, and February 28, 2005,
we had no borrowings outstanding under our Revolver, which expires in December 2006. The Revolver
has a $30 million commitment and a borrowing base restriction. If in the future we need access to
this amount of committed credit, it will be necessary to extend or replace our Revolver on or
before its expiration in 2006. If the cash that we generate from our operations is not sufficient
to repay the outstanding principal amounts, if any, of the Revolver and the Tranche A Notes when
they are due in December 2006, or the outstanding principal amount of the 10% Senior Secured Notes
when they are due in December 2008, it would be necessary to refinance the indebtedness, issue new
equity or sell assets. The terms of any new borrowings could impose significant additional burdens
on our financial condition and operating flexibility, and the issuance of new equity securities
could dilute the interests of our existing stockholders. The success of our future financing efforts may depend on many factors, including but not limited to:  
    the current and future outlook for the chlor-alkali industry;
    general economic and capital market conditions;
    the availability of credit from banks and other financial institutions;
    investor confidence in us and the market in which we operate;
    market expectations regarding our future earnings and probable cash flows;
    market perceptions of our ability to access capital markets on reasonable terms; and 15




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
    provisions of relevant tax and securities laws. We may not be able to refinance any of our indebtedness, raise equity on commercially
reasonable terms or at all, or sell assets, and any of such eventualities could cause us to default
on our obligations, impair our liquidity and restrict our ability to continue our operations as
currently conducted and to compete in the future. Our inability to generate sufficient cash flow to
satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms,
could materially adversely affect our results of operations and financial condition. Under those
circumstances, we would have to take appropriate action including restructuring or reorganizing all
or a portion of our indebtedness, deferring payments on our debt, selling assets, incurring
additional debt or issuing additional equity or taking other actions, including seeking protection
under Chapter 11 of the U.S. Bankruptcy Code and under Canadas Companies Creditors Arrangement
Act. See Recent Developments above and Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital Resources in Part II of this
report. We face risks from concentration of customer base. In 2004 approximately 23% of our revenues was generated by sales of products for use in the
pulp and paper industry and approximately 8% of our revenues was generated by sales of products for
use by urethane producers. Poor economic conditions affecting either industry could adversely
affect our customers in that industry and could therefore affect the collectability of amounts due
and reduce future demand for our products from such customers. Therefore, stress on either of these
industries could materially adversely affect our results of operations and financial condition. Future uncertainty regarding our financial condition could adversely impact our relationship with
our suppliers and customers. Our day-to-day operations involve trade credit with both our suppliers and our customers.
Future market conditions and other business factors, including any uncertainties with respect to
our future financial condition, could cause our suppliers and customers to restrict the terms on
which they do business with us. As a result, we could face liquidity and other issues that could
adversely affect our financial condition and results of operations. There can be no assurances with
respect to any actions that our suppliers or customers might take in this regard. We face competition from other chemical companies, which could adversely affect our revenues and
financial condition. The chlor-alkali industry in which we operate is highly competitive. We encounter competition
in price, delivery, service, performance, and product recognition and quality, depending on the
product involved. Many of our competitors are significantly larger than us and have greater
financial resources and lower debt-to-equity ratios than we do. Additionally, some of our
competitors have chlor-alkali manufacturing facilities that are larger and more cost-effective than
our facilities. Among our competitors are two of the worlds largest chemical companies, Dow and
OxyChem. Because of their greater financial resources and manufacturing economies of scale, these
and other larger companies in our industry may be better able to withstand severe price competition
and volatile market conditions. See Overview above. We have ongoing environmental costs and we may be exposed to environmental liabilities that are not
currently reserved for in our financial statements. The nature of our operations and products and the raw materials that we handle expose us to a
risk of liabilities or claims with respect to environmental matters. We have incurred and will
continue to incur significant costs and capital expenditures in complying with environmental laws
and regulations in the United States and Canada. The ultimate costs and timing of environmental liabilities are difficult to predict. Liability
under environmental laws relating to contaminated sites can be imposed retroactively and on a joint
and several basis. One liable party could be held responsible for all costs at a site, regardless
of fault, percentage of contribution to the site or the legality of the original disposal. We could
incur significant costs, including cleanup costs, natural resources damages, civil or criminal
fines and sanctions and third-party claims, as a result of past or future violations of, or
liabilities under, environmental laws. In addition, future events, such as changes to or more
rigorous enforcement of 16




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environmental laws, could require us to make additional expenditures, modify or curtail our
operations or install pollution control equipment. See Environmental Regulation  U.S.
Requirements and  Environmental Regulation  Canadian Requirements above and Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations, in Part II
of this report. In December 2003 the Environmental Protection Agency adopted hazardous air pollutant emissions
limitations for mercury-cell chlor-alkali facilities, which would apply to our St. Gabriel
facility. The new regulations would require us to implement various measures at the St. Gabriel
facility over a three-year period that are designed to reduce mercury emissions. The measures
include installing additional emission monitoring systems, adopting more stringent work practices
and conducting more frequent operating and maintenance checks and repairs, at a total estimated
cost to us of approximately $2.3 million. Of that amount, we have already spent approximately $1.8
million over the last four years in anticipation of the new requirements. Environmental groups have
challenged the new regulations, contending that the EPA should reconsider its rules and adopt new
standards that bar the use of mercury for chlorine production. In response, the EPA has decided to
reconsider the new regulations, although the timetable for the reconsideration has not yet been
established. Additionally, the Department of Environmental Quality of the State of Louisiana recently
initiated a program with goals of continual reduction in the use and release of mercury in the
state and the minimization of human exposure to mercury through improved communication, management,
research, collection, recycling and disposal. We could incur substantial capital expenditures
and/or expenses in meeting any new emissions limitations and standards that result from the EPAs
regulatory process or the State of Louisianas initiatives. We are entitled to indemnification in various degrees by third parties for particular
environmental costs and liabilities associated with real property that we have acquired. We could
incur significant costs if an indemnifying party is unable or unwilling to fulfill its obligation
to indemnify us, if any of such agreements is terminated or if the coverage limits under any of
such agreements is inadequate. See Indemnities above. Our facilities are subject to operating hazards that may disrupt our business. We are dependent upon the continued safe operation of our production facilities. Our
production facilities are subject to hazards associated with the manufacture, handling, storage and
transportation of chemical materials and products, including leaks and ruptures, chemical spills or
releases, pollution, explosions, fires, inclement weather, natural disasters, unscheduled downtime
and environmental hazards. From time to time in the past, incidents have occurred at our plants,
including hazardous chlorine releases, that have temporarily shut down or otherwise disrupted our
manufacturing, causing production delays and resulting in liability for injuries. In October and
November of 2004 we were required to reduce the operating rate at our St. Gabriel facility to
control mercury emissions while our environmental control processes were replaced. We believe our
operating and safety procedures are consistent in all material respects with those established by
the chemical industry as well as those recommended or required by federal, state and local
governmental authorities. However, we may experience these types of incidents in the future and
these incidents could result in production delays or otherwise could materially adversely affect
our results of operations and financial condition. We maintain general liability insurance and property and business interruption insurance with
coverage limits we believe are appropriate. However, because of the nature of industry hazards,
liabilities for pollution and other damages arising from a major occurrence may exceed our
insurance coverage or policy limits and adequate insurance many not be available at reasonable
rates in the future. Our executive officers and other key personnel are critical to our business, and they may not
remain with us in the future, which could hurt our business. Our success will depend to a significant extent on the continued service of our executive
officers and other key employees. If we lose the services of one or more of our executives or key
employees, our business and ability to implement our business objectives successfully could be
harmed, particularly if one or more of our executives or key employees decided to join a competitor
or otherwise compete directly with us. 17




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Labor disputes under our collective bargaining agreements may disrupt our business. As of December 31, 2004, approximately 49% of our employees are employed under the terms of
collective bargaining agreements. Three of our collective bargaining agreements will expire in 2006
and the remaining three agreements will be expiring in 2007. In the future we could be involved in
labor disputes in connection with the renegotiation of these agreements or otherwise that could
lead to strikes or work stoppages, and the resulting production delays could have a material
adverse effect on our business, financial condition or results of operations. The production and shipping of our products may be disrupted by various events. Since September 11, 2001, the chemical industry has responded to the issues surrounding the
terrorist attacks by starting new initiatives relating to the security of chemical industry
facilities. Chemical manufacturing facilities may be at an increased risk of future terrorist
attacks. Additionally, federal, state and local governments have begun a regulatory process that
could lead to new regulations impacting the security of chemical industry facilities. Our business
or our customers businesses could be adversely affected due to the cost of complying with new
regulations. We ship a large portion of the hazardous chemicals that we produce by railcar, and the rail
transportation system in the United States and Canada is subject to various hazards that are beyond
our control, such as derailments, weather-related delays or disruptions resulting from labor
disputes. The U.S. transportation system is currently the subject of intensified examination as a
result of recent chlorine tankcar derailments and the risk of terrorist activities. While the
derailments did not involve our product shipments, the procedures that may be adopted to deal with
transportation risks may make the distribution of our products more difficult and expensive. The
implementation of any such procedures could have a material adverse effect on our business,
financial condition or results of operations. We are exposed to the financial effects of currency translation, which are subject to economic
forces beyond our control. A portion of our sales and expenditures are denominated in Canadian dollars, and accordingly,
our results of operations and cash flows are affected by fluctuations in the exchange rate between
the U.S. dollar and the Canadian dollar. Future changes in the relative value of the U.S. dollar
against the Canadian dollar will impact our financial condition and results of operations. SeeItem
7, Managements Discussion and Analysis of Financial Condition and Results of Operations, in Part
II of this report. Availability of our net operating loss carryforward may be limited by the Internal Revenue Code,
which could adversely affect our after-tax cash flows in future periods. As of December 31, 2004, we had approximately $306.1 million of net operating loss
carryforward (NOL) for U.S. and Canadian income tax purposes. U.S. NOL in the amount of $199.5
million (the Predecessor Company NOL), which expires from 2009 to 2021, was generated prior to
our emergence from bankruptcy on December 31, 2001. The remaining $79.1 million of U.S. NOL (the
Successor Company NOL) was generated in 2002 through 2004 and will expire in 2022 through 2024.
An additional $27.5 million of Canadian NOL generated in 2002 and 2003 expires in 2009 and 2010. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership
change (generally defined as a greater than 50% change (by value) in its equity ownership over a
three-year period), the corporations ability to use its pre-change NOL and other pre-change tax
attributes against its post-change income is limited (the Section 382 Limitation). As a result of
our emergence from bankruptcy and changes in the ownership of our common stock in 2001, our
utilization of the $199.5 million of Predecessor Company NOL is subject to the Section 382
Limitation, and our ability to use it to offset future taxable income will be materially
restricted. Our use of the $79.1 million of Successor Company NOL may also be subject to the
Section 382 Limitation as a result of changes in the ownership of our common stock. While we
cannot quantify the amount of Successor Company NOL that would be available on an annual basis to
offset future taxable income as a result of the application of the Section 382 Limitation, our
after-tax cash flow would be adversely affected by reason of its application. See also The
concentrated ownership of our common stock may have the effect of delaying or preventing a change
of control of our company. The Section 382 Limitation does not apply to our utilization of the
$27.5 million of Canadian NOL. 18




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We are dependent upon a limited number of key suppliers. The production of chlor-alkali products principally requires electricity, salt and water as
raw materials, and if the supply of such materials were limited or a significant supplier failed to
meet its obligations under our current supply arrangements, we could be forced to incur increased
costs which could have a material adverse effect on our financial condition, results of operations
or cash flows. The concentrated ownership of our common stock may have the effect of delaying or preventing a
change of control of our company. As of February 25, 2005, based on information that we have obtained from filings with the
Securities and Exchange Commission, Kingdon Capital Management, LLC, Fidelity Management & Research
Company, Merrill Lynch and Co., Inc., Philip J. Hampleman and Ardsley Advisory Partners and Remy W.
Trafelet and Trafelet & Company, LLC, owned approximately 8.1%, 7.9%, 7.8%, 6.0% and 5.3%,
respectively, of the outstanding shares of our common stock. As a result, these beneficial owners,
if they were to act together, could be in a position to significantly influence the outcome of
matters requiring a stockholder vote, including the election of directors, the adoption or
amendment of provisions in our certificate of incorporation or bylaws and the approval of mergers
and other significant corporate transactions. This concentrated ownership of our common stock may
have the effect of bringing about, delaying or preventing a change of control of our company. Employees As of December 31, 2004, we had 550 employees, 267 of whom are covered by collective
bargaining agreements. Sixty of our employees at our Henderson, Nevada facility are covered by
collective bargaining agreements with the United Steelworkers of America and with the International
Association of Machinists and Aerospace Workers that are in effect until March 2007. At our
Becancour facility, 120 employees are covered by collective bargaining agreements with the
Communication, Energy and Paperworkers Union that are in effect until April 30, 2006, and 26
employees at our Cornwall facility are represented by the United Steelworkers Union, with a
collective bargaining agreement that expires in October 2006. Forty-seven of our employees at the
Dalhousie, New Brunswick plant are covered by a collective bargaining agreement with the
Communication, Energy and Paperworkers Union of Canada that is in effect until May 2007. Eight
employees at our Tacoma bleach facility are covered by a collective bargaining agreement with the
Teamsters Union that is in effect until January 2006, and six employees at our Tacoma terminal
facility are represented by the Chemical Workers Union, with a collective bargaining agreement that
expires in June 2005. Our employees at other production facilities are not covered by union
contracts or collective bargaining agreements. We consider our relationship with our employees to
be satisfactory, and we have not experienced any strikes or work stoppages. Financial Information about Geographic Areas For financial information about our geographic areas of operation, please see the table in
Note 10 of our consolidated financial statements, which presents revenues attributable to each of
our geographic areas for the years ended December 31, 2004, 2003 and 2002 and assets attributable
to each of our geographic areas as of December 31, 2004 and 2003. Access to Filings Access to our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K and amendments to those reports filed with or furnished to the Securities and Exchange
Commission pursuant to Section 13(a) of the Exchange Act, as well as reports filed electronically
pursuant to Section 16(a) of the Exchange Act, may be obtained through our Internet web site
(http://www.piona.com). These reports may be viewed and printed at no cost as soon as reasonably
practicable after we have electronically filed such material with the Securities and Exchange
Commission. The contents of our Internet web site are not, and shall not be deemed to be,
incorporated into this report. 19




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Item 2.Properties Facilities The following provides certain information with respect to our production facilities and other
locations: Becancour, Quebec.The Becancour facility is located on a 100-acre site in an industrial park
on the deep-water St. Lawrence Seaway. The facility was constructed in 1975, with additions in 1979
and 1997. Annual production capacity is 340,000 tons of chlorine, 383,000 tons of caustic soda and
250,000 tons of hydrochloric acid. The sites bleach production facility is now capable of
producing 236,000 tons of bleach per year, following the transfer of the bleach production facility
that was located at our Cornwall site. Approximately 82% of the Becancour facilitys chlor-alkali
production is based on diaphragm cell technology, and more efficient membrane cell technology
accounts for the remaining approximately 18% of production. St. Gabriel, Louisiana.The St. Gabriel facility is located on a 100-acre site near Baton
Rouge, Louisiana. Approximately 228 acres adjoining the site are available to us for future
industrial development. The St. Gabriel facility 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 the St. Gabriel facility is 197,000 tons of chlorine and 216,700 tons
of caustic soda, using mercury cell technology. Henderson, Nevada.The Henderson facility is located on a 374-acre site near Las Vegas,
Nevada. Approximately 70 acres are developed and used for production facilities. The Henderson
facility, which began operation in 1942 and was upgraded and rebuilt in 1976-1977, uses diaphragm
cell technology. Annual production capacity at the Henderson facility is 152,000 tons of chlorine,
167,200 tons of caustic soda and 130,000 tons of hydrochloric acid. In addition, the facility is
capable of producing 180,000 tons of bleach per year. The Henderson facility is part of an
industrial complex shared with three other manufacturing companies. Common facilities and property
are owned and managed by subsidiaries of Basic Management, Inc. (BMI), which provide common
services to the four site companies. BMIs facilities include extensive water and high voltage
power distribution systems and access roads. In 2004 we engaged a real estate broker in connection
with the possible sale of approximately 60 acres of vacant land located at our facility, and we are
also seeking a buyer for up to 750 annual acre-feet of our Colorado River water rights. The assets
have a nominal book value. The proceeds from any such sales must be applied to mandatory
redemptions and prepayments of the Tranche A Notes. Dalhousie, New Brunswick.The Dalhousie facility is located on a 36-acre site along the north
shore of New Brunswick on the Restigouche River. The Dalhousie facility consists of a mercury cell
chlor-alkali plant built in 1963 and expanded in 1971 and a sodium chlorate plant built in 1992.
Annual production capacity is 36,000 tons of chlorine, 40,000 tons of caustic soda and 22,000 tons
of sodium chlorate. Cornwall, Ontario.The Cornwall units are located on portions of a 36-acre site on the St.
Lawrence River in Cornwall, Ontario, which portions are leased under a lease expiring in the year
2007, with two five-year renewal options. The facilitys bleach plant was recently transferred to
the Becancour facility. The facilities that remain at Cornwall consist of a Cereclor(R) chlorinated
paraffin plant capable of producing 9,800 tons per year and an IMPAQT(R) pulping additive plant
capable of producing 3,000 tons per year. The Cornwall plant also produces up to 14,700 tons per
year of by-product hydrochloric acid. Tracy, California.The Tracy facility includes a bleach production plant capable of producing
233,000 tons per year and a chlorine repackaging plant on a 15-acre tract. The land at the facility
is leased under a lease expiring in the year 2010, with two five-year renewal options. Santa Fe Springs, California.The Santa Fe Springs facility includes a bleach production
plant capable of producing 233,000 tons per year and a chlorine repackaging plant on a 4.5-acre
tract. The land at the facility is leased under a lease expiring in 2008. Tacoma, Washington.The Tacoma bleach facility serves the Pacific Northwest market. The
bleach production facility, which has an annual production capacity of 90,000 tons, and a chlorine
repackaging facility are located on a five-acre company-owned site in Tacoma, Washington. A
separate site in Tacoma is now used as a terminal facility and for the manufacture of calcium
chloride. That 31-acre site on the Hylebos Waterway was previously used for the production of
chlorine and caustic soda. 20




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Other Facilities.Our corporate headquarters is located in leased office space in Houston,
Texas, under a lease terminating in 2011. We also lease office space in Montreal, Quebec under a
lease that terminates in 2011 and that provides us with a cancellation option exercisable in 2008.
In addition, we lease three terminal facilities to store and distribute caustic soda and
hydrochloric acid, and we use an additional fifteen transfer facilities owned by third parties
where rail shipments are transloaded to trucks for local distribution. 
 Item 3.Legal Proceedings From time to time and currently, we are involved in litigation relating to claims arising out
of our operations in the normal course of our business. We maintain insurance coverage against
potential claims in amounts that we believe to be adequate. 
 Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted during the fourth quarter of 2004 to a vote of security holders. 
 Item 4A.Executive Officers of the Registrant The names, ages and current offices of our executive officers, each of whom is to serve until
the officers successor is elected or appointed and qualified or until the officers death,
resignation or removal by the Board of Directors, are set forth below. Name
    
    Age
    
    OfficeMichael Y. McGovern
    
    
    53
    
    
    Director, President and Chief Executive OfficerDavid A. Scholes
    
    
    59
    
    
    Director, Vice President, ManufacturingJerry Bradley
    
    
    59
    
    
    Vice President, Human ResourcesRonald E. Ciora
    
    
    63
    
    
    Vice President, Sales and MarketingMichael Mazzarello
    
    
    50
    
    
    Vice President, Logistics and Materials ManagementCarl Monticone
    
    
    33
    
    
    Vice President and ControllerGary L. Pittman
    
    
    49
    
    
    Vice President and Chief Financial OfficerKent R. Stephenson
    
    
    55
    
    
    Vice President, General Counsel and Secretary
 Michael Y. McGovern has served as our President and Chief Executive Officer since September
2002. He has been a director of Pioneer since December 31, 2001. From April 2001 until January
2003, he was President and Chief Executive Officer and a director of Coho Energy, Inc., a
publicly-held oil and gas exploitation, exploration and development company. In February 2002 Coho
Energy, Inc. filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. From
1998 to March 2000, Mr. McGovern was Managing Director of Pembrook Capital Corporation, a privately
held company involved in providing advisory services to distressed or constrained energy companies,
and from July 1993 to October 1997, he was Chairman and Chief Executive Officer of Edisto Resources
Corporation and Convest Energy Corporation, publicly-held oil and gas exploration and development
companies. Mr. McGovern also serves as a director of GEO Specialty Chemicals, Inc., a specialty
chemicals manufacturer. David A. Scholes has served as our Vice President, Manufacturing since March 2001, and he was
elected as a director of Pioneer on March 9, 2005. He was our Vice President, Manufacturing  U.S.
from November 1999 to March 2001, and Vice President  Manufacturing of a predecessor of Pioneer
Americas from January 1997 to November 1999. Prior to that time, he was manager of Occidental
Chemical Corporations Houston chemical complex. Mr. Scholes was an executive officer of Pioneer in
July 2001 when the petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code was
filed. Jerry Bradley has served as our Vice President, Human Resources 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. Ronald E. Ciora has served as our Vice President, Sales and Marketing since February 2004.
From August 2003 to February 2004, he was our Vice President, Caustic Soda; from August 2001 to
August 2003, he was our Vice President, Western Regional Sales and Marketing; and from November
1999 to August 2001, he was our Vice President, Bleach and Packaged Chlorine. From November 1995 to
December 1999, he served as President of All- 21




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Pure Chemical Co., Inc., a separate Pioneer subsidiary engaged in the production and sale of
bleach and repackaged chlorine in the western U.S. before it was merged into Pioneer Americas LLC. Michael Mazzarello has served as our Vice President, Logistics and Materials Management since
May 2003. From July 1999 to May 2003 he was our Director of Procurement, and from October 1997 to
July 1999 he was our Procurement Manager. From 1982 to 1997
Mr.  Mazzarello held various management
positions with ICI Canada Inc. prior to our purchase of that companys chlor-alkali business in
1997. Carl
Monticone has served as our Vice President and Controller since August  2004. From April
2003 to August 2004 he was our Treasurer and from 1998 to 2003 he was our Accounting and Reporting
Manager. From 1994 to 1997 Mr. Monticone held various accounting positions with ICI Canada Inc. Gary L. Pittman has served as our Vice President and Chief Financial Officer since December
2002, and as our Treasurer since August 2004. From April 2000, to September 2002, he was Vice
President and Chief Financial Officer of Coho Energy, Inc. In February 2002 Coho Energy, Inc. filed
a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. From August 1999 to
March 2000, Mr. Pittman was Chief Financial Officer of Bell Geospace, Inc., a privately-held
data-based oil service company. From 1998 to 1999, he served as a consultant to Perception, Inc., a
privately-held kayak manufacturer, and from 1995 to 1997, he was Executive Vice President, Chief
Financial Officer and Treasurer of Convest Energy Corporation, a publicly-held oil and gas
exploration and production company. Kent R. Stephenson has served as our Vice President, General Counsel and Secretary since June
1995. He was Vice President, General Counsel and Secretary of a predecessor of Pioneer Americas
from 1993 to 1995. Mr. Stephenson was an executive officer of Pioneer in July 2001 when the
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code was filed. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS We are including the following discussion to inform our existing and potential security
holders generally of some of the risks and uncertainties that can affect our company and to take
advantage of the safe harbor protection for forward-looking statements that applicable federal
securities law affords. From time to time, our management or persons acting on our behalf make forward-looking
statements to inform existing and potential security holders about our company. These statements
may include projections and estimates concerning the timing and success of specific projects and
our future prices, liquidity, backlog, debt levels, production, revenue, income, expenses, product
margins, cash flows, capital spending and pension contributions. Forward-looking statements are
generally accompanied by words such as estimate, project, predict, believe, expect,
anticipate, plan, could, intend, may, might, potential, should, forecast,
budget, goal or other words that convey the uncertainty of future events or outcomes. In
addition, sometimes we will specifically describe a statement as being a forward-looking statement
and refer to this cautionary statement. Any statement contained in this report, other than
statements of historical fact, is a forward-looking statement. Various statements this report contains, including those that express a belief, expectation or
intention, as well as those that are not statements of historical fact, are forward-looking
statements. Those forward-looking statements appear in Item 1, Business, Item 2, Properties,
and Item 3, Legal Proceedings, in Part I of this report and in Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, and in the notes to the consolidated financial
statements incorporated into Item 8 of Part II of this report and elsewhere in this report. These
forward-looking statements speak only as of the date of this report, we disclaim any obligation to
update these statements, and we caution against any undue reliance on them. We have based these
forward-looking statements on our current expectations and assumptions about future events. While
our management considers these expectations and assumptions to be reasonable, they are inherently
subject to significant business, economic, competitive, regulatory and other risks, contingencies
and uncertainties, most of which are difficult to predict and many of which are beyond our control.
These risks, contingencies and uncertainties relate to, among other matters, the following:  
    general economic, business and market conditions, including economic instability or a
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
    the cyclical nature of our product markets and operating results;
    competitive pressures affecting selling prices and volumes;
    the supply/demand balance for our products, including the impact of excess industry
capacity or the construction of new industry capacity;
    the occurrence of unexpected manufacturing interruptions and outages, including those
occurring as a result of production hazards or an interruption in the supply of
electricity, salt or other raw materials;
    failure to comply with financial covenants contained in our debt instruments;
    inability to make scheduled payments on or refinance our indebtedness;
    loss of key customers or suppliers;
    increased prices for raw materials, including electricity;
    disruption of transportation or higher than expected transportation or logistics costs;
    environmental costs and other expenditures in excess of those projected;
    changes in laws and regulations inside or outside the United States;
    uncertainty with respect to interest rates and fluctuations in currency exchange rates;
    limitations on our NOL utilization;
    the outcome of the operational efficiency project that we began implementing in the
first quarter of 2004;
    our ability to effect the sale of certain excess land and water rights at our Henderson
facility; and
    the occurrence of extraordinary events, such as the attacks on the World Trade Center
and the Pentagon that occurred on September 11, 2001, or the war in Iraq. We believe the items we have outlined above, as well as others, are important factors that
could cause our actual results to differ materially from those expressed in a forward-looking
statement made in this report or elsewhere by us or on our behalf. We have discussed most of these
factors in more detail elsewhere in this report. These factors are not necessarily all of the
important factors that could affect us. Unpredictable or unknown factors that we have not discussed
in this report could also have material adverse effects on actual results of matters that are the
subject of our forward-looking statements. We do not intend to update our description of important
factors each time a potential important factor arises. We advise our security holders that they
should (i) be aware that important factors we do not refer to above could affect the accuracy of
our forward-looking statements and (ii) use caution and common sense when considering our
forward-looking statements. 
 PART II 
  Item 5.
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is currently quoted on the OTC Bulletin Board under the symbol PONR. As of
March 22, 2005, we had 11,175,610 shares of common stock outstanding and had 1,264 shareholders of
record. The last sale of shares of our common stock on March 22, 2005, as quoted on the OTC
Bulletin Board, was at a price of $25.50. The following table contains information about the high and low sales prices per share of our
common stock since January 1, 2003. Price information reflects quotes from the OTC Bulletin Board.
Information about OTC bid 23




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##### Table of Contents



quotations represents prices between dealers, does not include retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Quotations on the OTC Bulletin
Board are sporadic, and currently there is no established public trading market for our common
stock. Sales PriceHigh
    
    
    Low2004Fourth Quarter
    
    $
    24.20
    
    
    $
    14.56Third Quarter
    
    
    15.40
    
    
    
    7.05Second Quarter
    
    
    7.55
    
    
    
    3.80First Quarter
    
    
    8.35
    
    
    
    4.992003Fourth Quarter
    
    $
    8.30
    
    
    $
    4.55Third Quarter
    
    
    4.80
    
    
    
    2.80Second Quarter
    
    
    4.55
    
    
    
    3.50First Quarter
    
    
    5.26
    
    
    
    1.37
 There were no repurchases of our equity securities by us during the year ended December 31,
2004. Dividend Policy We currently do not anticipate paying dividends on our common stock. The covenants in the
agreements related to our Revolver, our Tranche A Notes and our 10% Senior Secured Notes
(collectively, the Senior Secured Debt) prohibit the payment of dividends on our common stock,
other than dividends payable solely in our common stock, for so long as any Senior Secured Debt
remains outstanding. Unless we prepay amounts outstanding on our Senior Secured Debt, we will have
borrowings outstanding thereunder until December 31, 2008. Any determination to declare or pay
dividends out of funds legally available for that purpose after repayment of our Senior Secured
Debt will be at the discretion of our board of directors and will depend on our future earnings,
results of operations, financial condition, capital requirements, future contractual restrictions
and other factors our board of directors deems relevant. No cash dividends have been declared or
paid during the three most recent fiscal years. Equity Compensation Plan Information The following table presents information regarding our 2001 Employee Stock Option Plan as of
December 31, 2004: Number of securitiesremaining available forNumber of securities
    
    
    Weighted average
    
    
    future issuance underto be issued upon
    
    
    exercise price of
    
    
    equity compensationexercise of
    
    
    outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants
    
    
    securities reflected inwarrants and rights
    
    
    and rights
    
    
    column (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by security
holders
    
    
    765,417
    
    
    $
    4.92
    
    
    
    151,671Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    765,417
    
    
    $
    4.92
    
    
    
    151,671
 
 Item 6.Selected Financial Data The following selected consolidated financial information is derived from our consolidated
financial statements for periods both before and after emerging from bankruptcy protection on
December 31, 2001. Certain amounts have been reclassified in prior years to conform to the current
year presentation. No cash dividends were declared or paid for the periods presented below. The
data should be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements, including the
related notes. The consolidated statements of operations information for the years ended December 31, 2004,
2003 and 2002, and the consolidated balance sheet information at December 31, 2004, 2003, 2002 and
2001, reflects the financial 24




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##### Table of Contents



position and operating results after the effect of the plan of reorganization and the
application of the principles of fresh-start accounting in accordance with the provisions of
Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy
Code (SOP 90-7). Accordingly, such financial information is not comparable to the historical
financial information before such dates. Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Successor Company
    
    
    Predecessor Company(In thousands, except per share data)Statement of Operations Data:Revenues
    
    $
    407,115
    
    
    $
    378,675
    
    
    $
    316,907
    
    
    $
    383,482
    
    
    $
    402,908Cost of sales  product(1)
    
    
    (353,454
    )
    
    
    (340,804
    )
    
    
    (296,622
        )
    
    
    (348,726
    )
    
    
    (370,997
    )Cost of sales  derivatives(2)
    
    
    
    
    
    
    (20,999
    )
    
    
    12,877
    
    
    
    10,725
    
    
    
    Gross profit
    
    
    53,661
    
    
    
    16,872
    
    
    
    33,162
    
    
    
    45,481
    
    
    
    31,911Selling, general and administrative
expenses
    
    
    (27,608
    )
    
    
    (23,204
    )
    
    
    (23,893
    )
    
    
    (41,861
    )
    
    
    (43,424
    )Change in fair value of
derivatives(2)
    
    
    
    
    
    
    87,271
    
    
    
    23,566
    
    
    
    (110,837
    )
    
    
    Asset impairment(3)
    
    
    
    
    
    
    (40,818
    )
    
    
    (16,941
    )
    
    
    (3,832
    )
    
    
    Other items(4)
    
    
    (3,974
    )
    
    
    (340
    )
    
    
    (3,143
    )
    
    
    (9,106
    )
    
    
    Operating income (loss)
    
    
    22,079
    
    
    
    39,781
    
    
    
    12,751
    
    
    
    (120,155
    )
    
    
    (11,513
    )Interest expense, net(5)
    
    
    (18,356
    )
    
    
    (19,064
    )
    
    
    (18,891
    )
    
    
    (36,010
    )
    
    
    (56,328
    )Reorganization items(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,499
    )
    
    
    Fresh-start adjustments(7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106,919
    )
    
    
    Debt forgiveness income(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423,051
    
    
    
    Other income (expense), net
    
    
    (2,838
    )
    
    
    (5,816
    )
    
    
    602
    
    
    
    1,169
    
    
    
    3,309Income (loss) before income taxes
    
    
    885
    
    
    
    14,901
    
    
    
    (5,538
    )
    
    
    154,637
    
    
    
    (64,532
    )Income tax (expense) benefit(9)
    
    
    (2,127
    )
    
    
    3,286
    
    
    
    781
    
    
    
    (11,862
    )
    
    
    (41,031
    )Net income (loss)
    
    $
    (1,242
    )
    
    $
    18,187
    
    
    $
    (4,757
    )
    
    $
    142,775
    
    
    $
    (105,563
    )Net income (loss) per share:Basic
    
    $
    (0.12
    )
    
    $
    1.82
    
    
    $
    (0.48
    )
    
    $
    12.37
    
    
    $
    (9.15
    )Diluted
    
    $
    (0.12
    )
    
    $
    1.79
    
    
    $
    (0.48
    )
    
    $
    12.37
    
    
    $
    (9.15
    )Other Financial Data:Net cash flows from operating activities
    
    $
    19,639
    
    
    $
    14,261
    
    
    $
    250
    
    
    $
    32,906
    
    
    $
    13,137Net cash flows from investing activities
    
    
    (8,069
    )
    
    
    (9,998
    )
    
    
    (8,568
    )
    
    
    (12,879
    )
    
    
    (15,819
    )Net cash flows from financing activities
    
    
    2,472
    
    
    
    (5,367
    )
    
    
    6,392
    
    
    
    (21,489
    )
    
    
    4,486Capital expenditures
    
    
    8,384
    
    
    
    9,998
    
    
    
    10,615
    
    
    
    13,112
    
    
    
    18,697Depreciation and amortization
    
    
    25,514
    
    
    
    21,551
    
    
    
    24,926
    
    
    
    46,810
    
    
    
    50,242Balance Sheet Data:Total assets
    
    $
    351,604
    
    
    $
    339,000
    
    
    $
    474,146
    
    
    $
    706,912
    
    
    $
    590,037Total long-term debt (exclusive of
current maturities), and redeemable
preferred stock
    
    
    200,797
    
    
    
    203,803
    
    
    
    207,463
    
    
    
    208,701
    
    
    
    9,586Total stockholders equity (deficit)
    
    
    37,895
    
    
    
    18,990
    
    
    
    1,252
    
    
    
    10,527
    
    
    
    (132,324
    )
   (1)

    During March 2001, there was a 50% curtailment of the operations at our Tacoma
chlor-alkali plant, and in March 2002, the Tacoma chlor-alkali plant was idled. In
addition, Pioneer stopped amortizing goodwill effective January 1, 2002, in accordance
with Statement of Financial Accounting Standards (SFAS) 142.(2)

    For information regarding derivatives transactions, see Note 2 to the
consolidated financial statements.(3)

    Asset impairment includes a $40.8 million impairment of our Henderson
facilities for 2003, a $16.9 million impairment relating to our Tacoma chlor-alkali
facility in 2002, and $3.8 million of asset impairment in 2001.(4)

    For 2004 other items included severance costs related to the organizational
efficiency project and the realignment of certain Canadian operations. Other items in
2003 included a loss of $0.8 million from disposition of assets, partially offset by a
gain of $0.4 million from early payment of debt. In 2002, other items predominantly
included a $2.9 million severance charge and for the 2001 period included $9.1 million
of severance expense and professional fees related to our financial reorganization
incurred prior to our Chapter 11 filing on July 31, 2001. SeeNote 11 to the
consolidated financial statements.(5)

    Interest expense for 2001 excludes contractual interest of $21.8 million, which
was not recorded in accordance with SOP 90-7 as it related to compromised debt.(6)

    Reorganization items include legal and professional fees and expenses incurred
subsequent to our Chapter 11 bankruptcy filings in 2001 and executive retention
bonuses, offset by gains from individually-negotiated settlements of certain
pre-petition liabilities. 25




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(7)
    
    On December 31, 2001, we emerged from protection under Chapter 11 of the
bankruptcy code, and applied fresh-start accounting as of that date in accordance with
SOP 90-7. Fresh-start adjustments were recorded to reflect the write-down of assets to
estimated fair value, an increase in pension liability and an increase in other
long-term liabilities.(8)
    
    Debt forgiveness income of $423.1 million was recorded in 2001 as a result of
the cancellation of debt pursuant to the plan of reorganization adopted in connection
with our Chapter 11 proceedings.(9)
    
    Income tax expense in 2000 includes a valuation allowance of $67.8 million
reducing U.S. deferred tax assets to zero. SeeNote 13 to the consolidated financial
statements. 
 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations All statements in this report, other than statements of historical facts, including, without
limitation, statements regarding our business strategy, plans for future operations and industry
conditions, are forward- looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to
various risks, uncertainties and assumptions, including those we refer to under the heading
Cautionary Statement Concerning Forward-Looking Statements in Part I of this report. Although we
believe that the expectations reflected in such forward-looking statements are reasonable, because
of the inherent limitations in the forecasting process, as well as the relatively volatile nature
of the industries in which we operate, we can give no assurance that those expectations will prove
to have been correct. Accordingly, evaluation of our future prospects must be made with caution
when relying on forward-looking information. Overview Pioneer Companies, Inc. and its subsidiaries have manufactured and marketed chlorine, caustic
soda and related products in North America since 1988. We conduct our primary business through our
operating subsidiaries: PCI Chemicals Canada Company (which we refer to as PCI Canada) and Pioneer
Americas LLC (which we refer to as Pioneer Americas). The production of chlor-alkali products principally requires salt, electricity and water as
raw materials. Production rates for chlorine and caustic soda are generally set based upon demand
for chlorine, because storage capacity for chlorine is both limited and expensive. When demand for
chlorine is high and operational capacity is expanded accordingly, an increase in the supply of
both chlorine and caustic soda occurs since chlorine and caustic soda are produced in a fixed
ratio. As a result, the price of caustic soda is often depressed because there is insufficient
demand for the increased supply. This imbalance may have the short-term effect of limiting our
operating profits as declining margins in caustic soda may offset improving margins in chlorine.
When demand for chlorine declines to a level below plant operational capacity and available storage
is filled, production must be curtailed, even if demand for caustic soda has increased. This
imbalance may also have the short-term effect of limiting our operating profits because improving
margins for caustic soda may be offset by both declining margins for chlorine and the reduced
production of both products. Our railcars can, under certain circumstances, be used to provide
additional storage capacity. In 2004 approximately $27.2 million of our cost of sales-product was attributable to our salt
requirements and approximately $76.0 million of our cost of sales-product was attributable to our
power requirements for our ECU production process. The cost and adequacy of our salt supplies are
dependent on transportation cost and availability. Adequate water supplies are available at each of
our operating locations. We procure most of our energy requirements from sources that rely on
hydropower or natural gas. During 2004, our costs for power increased by $7.0 million from 2003,
and our power costs in 2003 were $14.6 million higher than in 2002, even though in 2002 we incurred
$2.5 million of power costs at the Tacoma facility before it was idled early in the year. The
energy costs associated with our production of chlor-alkali products can materially affect our
results of operations since each one dollar change in our cost for a megawatt hour of electricity
generally results in a corresponding change of approximately $2.75 in our cost to produce an ECU. Electric power for our Becancour and Dalhousie facilities is provided under public utility
tariffs that are based to a substantial extent on lower-cost hydropower resources, which enables us
to procure electricity at economical rates. The St. Gabriel facility, like many in the industry,
uses electricity under a public utility tariff that is based primarily on natural gas resources and
that typically costs more than electricity provided under contracts that rely on hydropower
sources. Because all of the power requirements for our four chlor-alkali facilities, other than the
power procured through the supply contract for our Henderson facility, are procured in regulated
markets, our cost for power is primarily based on the underlying cost of producing such power as
opposed to market rate pricing. As a 26




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##### Table of Contents



result, our Canadian facilities, which procure power from sources that rely on hydropower, are
generally able to obtain power at favorable rates that are relatively stable over time. Our U.S.
facilities, which procure power from sources that rely on natural gas, will generally experience
higher rates than for hydropower as prices are based on the underlying price of natural gas. See
 Liquidity and Capital Resources below. Settlement of Dispute with the Colorado River Commission of Nevada Electric power for our Henderson facility is primarily provided by the Colorado River
Commission of Nevada, or CRC. Variations in the cost of power used at our Henderson facility have a
material impact on that facilitys cost structure. Beginning in 2001, we disputed our
responsibility for certain contractual obligations with respect to electricity derivatives
positions that were undertaken by CRC. All of the conditions of a settlement of that dispute were
satisfied on March 3, 2003. As a result of the settlement, which was effective as of January 1,
2003, we were released from all claims for liability with respect to the contractual obligations,
and all litigation between Pioneer and CRC was dismissed. Prior to the settlement with CRC, approximately 35% of the electric power supply for our
Henderson facility was hydropower furnished under a low-cost, long-term contract with CRC,
approximately 50% was provided under a supplemental supply contract with CRC, and the remaining 15%
was provided under a long-term arrangement with a third party. The supplemental supply contract
entered into in March 2001 set forth detailed procedures governing the procurement of power by CRC
on our behalf. The dispute with CRC involved various derivative positions that were executed by CRC,
purportedly for our benefit under the supplemental supply contract. The dispute arose prior to our
bankruptcy proceedings, but was not resolved as a part of our plan of reorganization. The
derivative positions consisted of contracts for the forward purchase and sale of electricity as
well as put and call options that were written for electric power. We disputed CRCs contention
that certain derivative positions were our responsibility, although we recognized a liability
relating to certain transactions that we did not dispute. We had recorded estimated realized income and expense related to fulfilling or settling the
obligations that could arise with respect to the derivatives transactions as a component of cost of
sales, and we had recorded in Other Assets a net receivable from CRC of $21.0 million at December
31, 2002. The net receivable included $14.8 million of cash that CRC had collected in the form of
premiums related to options that expired prior to December 31, 2002, but had not remitted to us.
The remaining $6.2 million of the net receivable represented our estimate of CRCs net proceeds
from the settlement of certain derivatives positions on their delivery dates during 2002 that were
not remitted to us. In accordance with the terms of the settlement, we assigned our low-cost, long-term hydropower
contracts to the Southern Nevada Water Authority and entered into a new supply agreement with CRC.
CRC now provides power to meet approximately 85% of our Henderson facilitys needs through
purchases made on the open market, under an agreement with a term extending to December 31, 2006,
although Pioneer and CRC may agree to extend the term. CRC retained all amounts of cash it had
previously collected under the terms of the derivatives agreements, although $3 million of that
amount was applied as a collateral deposit in satisfaction of a requirement under the supply
agreement. Although the settlement with CRC did not generate any cash proceeds for us, we recorded a net
non-cash gain from the settlement of $66.3 million in the first quarter of 2003, arising from the
reversal of the net liability of $87.3 million that we had recorded for the net mark-to-market loss
on outstanding derivative positions and the $21.0 million receivable from CRC. Due to the
assignment of our long-term hydropower contracts to the Southern Nevada Water Authority and the
resulting higher energy prices under the new supply agreement effective in 2003, we performed an
impairment test and determined that the book value of the Henderson facility exceeded the
undiscounted sum of future expected cash flows over the remaining life of the facility. We then
calculated the estimated fair value of the facility by discounting expected future cash flows using
a risk-adjusted discount rate of 13%. Based on that analysis, we recorded an impairment charge of
$40.8 million in the first quarter of 2003. As a result of the CRC settlement the power purchased
for the Henderson facility has a substantially greater cost than the same amount of hydropower
resources would cost under the previously existing hydropower contract. 27




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Emergence from Bankruptcy The financial results for the twelve months ended December 31, 2001, were affected by our
filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code and a parallel filing under
the Canadian Companies Creditors Arrangement Act on July 31, 2001, and our emergence from
bankruptcy on December 31, 2001, the effective date of our plan of reorganization. Our
post-emergence consolidated financial statements reflect results after the consummation of the plan
of reorganization and the application of the principles of fresh-start accounting in accordance
with the provisions of SOP 90-7. The company as it existed prior to our emergence from bankruptcy
(which we refer to as the Predecessor Company) and the Successor Company after adopting fresh-start
accounting are different entities for financial reporting purposes and the consolidated financial
statements are not comparable. Critical Accounting Policies and Estimates We apply those accounting policies that we believe best reflect the underlying business and
economic events, consistent with generally accepted accounting principles. Inherent in such
policies are certain key assumptions and estimates that we have made. Our more significant
accounting policies include those related to long-lived assets, accruals for long-term employee
benefit costs such as pension, postretirement and other post-employment costs, environmental
liabilities, allowance for doubtful accounts and income taxes. Long-Lived Assets.We evaluate long-lived assets for impairment whenever indicators of
impairment exist. In addition to idling of production capacity, we consider product prices and
energy costs to be key indicators in the evaluation of long-lived asset impairment. In accordance
with SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets, long-lived assets and
certain identifiable intangible assets to be held and used are reviewed for impairment on an annual
basis or whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. The determination of recoverability of long-lived assets and certain
other identifiable intangible assets is based on an estimate of undiscounted future cash flows
resulting from the use of the asset or its disposition. During 2003 and 2002 we recognized asset
impairments as a result of the idling of capacity at our Tacoma chlor-alkali plant and increased
energy costs at our Henderson chlor-alkali plant. In accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is evaluated using the discounted future cash flow estimates of the
reporting unit to which the goodwill is identifiable. Using discounted cash flow methodology based
on projections of the amounts and timing of future revenues and cash flows of PCI Canada, we
determined that as of December 31, 2004 and 2003, our goodwill, all of which relates to PCI Canada,
was not impaired. As a result, there was no change in the carrying value of goodwill of $84.1
million as of December 31, 2004 and 2003. We believe that the accounting estimate related to asset impairment is a critical accounting
estimate because it is highly susceptible to change from period to period and requires management
to make assumptions about, among other things, future trends in product prices and energy costs.
Those assumptions require significant judgment because actual product prices and energy costs have
fluctuated in the past and will continue to do so. To the extent additional information arises or
our strategies change, it is possible that our conclusions regarding the impairment of goodwill or
other long-lived assets could change and result in a material effect on our financial position or
results of operations. Environmental Liabilities.In order to reassess our environmental obligations, we
commissioned an independent environmental analysis at all of our plants during 2003. The study was
based on scenario analysis to estimate the cost to remedy environmental concerns at our plant
sites. For each scenario, the study also used cost estimating techniques that included actual
historical costs, estimates prepared for us by consultants, estimates prepared by our engineers and
other published cost data available for similar projects completed at the same or other sites. The 2003 study included an analysis of flexibility in regulatory agency guidance, current
knowledge of site conditions, the use of alternative remediation technologies, post-acquisition
contamination not covered under existing environmental indemnity agreements and the inherent risk
of disputes under some of our indemnity agreements. Based on the study, we estimated our total
environmental remediation liabilities to be $21.0 million, of which $3.2 million is subject to
indemnity claims against a previous owner. As a result, we recorded an environmental charge of $9.5
million in the first quarter of 2003. As of December 31, 2004, our total estimated environmental
liabilities were $20.3 million, based on the environmental study and the costs that we have
incurred since its completion. We base our environmental reserves on undiscounted costs. We believe
that adequate accruals have been established to address all known remedial obligations, although
there can be no guarantee that the actual remedial costs or associated liabilities will not exceed
accrued amounts. At some of our locations, regulatory 28




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##### Table of Contents



agencies are considering whether additional actions are necessary to protect or remediate
surface or groundwater resources. We could be required to incur additional costs to construct and
operate remediation systems in the future. Defined Benefit Pension and Post-Retirement Plans.As of December 31, 2004, we reported
pension and post-retirement liabilities of $23.2 million. Plan obligations and the annual pension
expense are determined by independent actuaries and are based in part on a number of assumptions.
Key assumptions in measuring plan obligations include the discount rate, the rate of salary
increases, the long-term healthcare cost trend rate, mortality rates and the estimated future
return on plan assets. As of December 31, 2004, the weighted average of the assumptions that we
used were as follows: Defined benefit plans:Discount rate
    
    
    5.9
    %Expected return on plan assets
    
    
    7.9
    %Rate of compensation increase
    
    
    3.5
    %Post retirement benefit plans:Discount rate
    
    
    6.0
    %Health care cost inflation
    
    
    7.5%-9.3
    %
 In determining the discount rate, we used the corporate AA-rated fixed income investment rate
with approximately the same duration as our plans liabilities. Asset returns are based on the
anticipated average of earnings expected on the invested funds of the plans based on the results of
historical statistical studies performed by our advisors. Approximately 60% of pension plan assets
is invested in equity securities and approximately 40% is invested in debt and other fixed-income
instruments. Salary-increase assumptions are based on historical experience and anticipated future
management actions. Changes in key estimates and assumptions could have a material impact on recorded liability
amounts and our statutorily-required annual cash-funding obligations. In 2005 we expect a
cash-funding obligation of approximately $5.3 million for our pension plans. A 1% change in the
discount rate would change our recorded obligations by approximately $14.4 million, while a 1%
change in the assumed rate of return on assets would change annual costs by approximately $0.8
million. We expect that the 1% change in the discount rate or the assumed rate of return to have no
impact on our statutorily-required minimum-funding requirements. The impact of changes in
healthcare trend rates is described in Note 7 to the consolidated financial statements. Allowance for Doubtful Accounts.We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments and occasional
invoice disputes with customers. Our allowance for doubtful accounts consists of a reserve estimate
for specific customer accounts that are in dispute or are deemed collection risks, a reserve
estimate for industry specific credit concentration risk, primarily pulp and paper accounts, and a
general reserve based on our historical bad-debt write-off experience. We perform ongoing credit
evaluations of customers and set credit limits based upon a review of our customers current credit
information and payment history. Estimation of such losses requires adjusting historical loss
experience for current economic conditions and judgments about the probable effects of economic
conditions on certain customers. We cannot guarantee that the rate of future credit losses will be
similar to past experience. Each quarter we consider all available information when assessing the
adequacy of the provision for allowances, claims and doubtful accounts. Income Taxes.We have significant amounts of deferred tax assets that are reviewed
periodically for recoverability. These assets are evaluated by using estimates of future taxable
income streams and the impact of tax planning strategies. Valuations related to tax accruals and
assets could be impacted by changes to tax codes, changes in the statutory tax rates and our future
taxable income levels. We have provided a valuation allowance for the full amount of the U.S. net
deferred tax assets due to uncertainties relating to limitations on utilization under the Internal
Revenue Code and our ability to generate sufficient taxable income within the carryforward period. We periodically update our estimates used in the preparation of the financial statements based
on our latest assessment of the current and projected business and general economic environment. Liquidity and Capital Resources Summary of Certain Debt Provisions.As of December 31, 2004, our outstanding Senior Secured
Debt consisted of the Senior Guaranteed Notes due 2006 in the aggregate principal amount of $43.2
million, the Senior Floating 29




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##### Table of Contents



Notes due 2006 in the aggregate principal amount of $3.1 million and the 10% Senior Secured
Notes due 2008 in the aggregate principal amount of $150 million. We redeemed $21.1 million in
principal amount of the Senior Guaranteed Notes in January 2005. As of December 31, 2004, we had
no borrowings outstanding under our Revolver. The Revolver has a $30 million commitment and a
borrowing base restriction. The Senior Secured Debt requires payments of interest and the related
agreements contain various covenants including financial covenants in our Revolver (which, if
violated, will create a default under the cross-default provisions of the Senior Notes) that
obligate us to comply with certain cash flow requirements. The debt agreements contain covenants limiting or preventing our ability to, among other
things, incur additional indebtedness, prepay or modify debt instruments, grant additional liens,
guarantee any obligations, sell assets, engage in another type of business or suspend or terminate
a substantial portion of business, declare or pay dividends, make investments, make capital
expenditures in excess of certain amounts, or make use of the proceeds of borrowings for purposes
other than those specified in the agreements. The agreements also include customary events of
default, including one for a change of control under the Revolver. Borrowings under the Revolver
are subject to the accuracy of all representations and warranties, including the absence of a
material adverse change and the absence of any default or event of default. We are required to redeem and prepay the Tranche A Notes from and to the extent of net cash
proceeds of certain asset sales, new equity issuances in excess of $5 million and excess cash flow
(as defined in the related agreements). The $22.1 million in net proceeds of our equity offering in
December 2004, was applied to the redemption and prepayment of Tranche A Notes. We also have a
redemption obligation if certain levels of Pioneer Americas EBITDA are realized, as discussed
below, or if there is a change of control. The holders of the 10% Senior Secured Notes may require us to redeem their notes with net cash
proceeds from certain asset sales and from new equity issuances in excess of $35 million (if there
is no indebtedness outstanding under the Tranche A Notes). In addition, upon the occurrence of a
change of control, the holders may require us to repurchase all or a portion of the notes. The obligations under the Revolver are secured by liens on our accounts receivable and
inventory, and the obligations under the Senior Notes are secured by liens on substantially all of
our other assets, with the exception of certain assets that secure the obligations under certain
other long-term liabilities. Revolver Obligations.One of the covenants in the Revolver requires us to generate at least
$21.55 million of net earnings before extraordinary gains, the effects of derivative instruments
excluding any derivative expenses paid by us, interest, income taxes, depreciation and amortization
(referred to as Lender-Defined EBITDA) for each twelve-month period ending at the end of each
calendar quarter. Our Lender-Defined EBITDA for the twelve months ended December 31, 2004, was
$44.8 million, which was greater than the $21.55 million required under the Revolver covenant for
that period. During March 2002 the lender under the Revolver advised us that it believed that a material
adverse change had occurred, although it continued to fund loans under the Revolver. In order to
address concerns about adverse changes in our financial condition and the possibility that we might
not comply with the financial covenant included in the Revolver during the remainder of 2002, we
had discussions with the lender on the proposed terms of an amendment to the Revolver, and the
lender rescinded its notice that it believed that a material adverse change had occurred. In April
2002 our Revolver was amended to revise the financial covenant to exclude the effects of changes in
the fair value of derivative instruments, eliminate the availability of interest rates based on the
London interbank offered rate (LIBOR), and replace the previously applicable margin over the
prime rate (the Previous Rate) with the Previous Rate plus 2.25% for all loans outstanding under
the Revolver. We paid a forbearance fee of $250,000 in connection with the April 2002 amendment. We
also agreed with our lender to further amend the financial covenant in the Revolver to exclude
realized gains and losses (except to the extent such losses are paid by us) on derivatives, to take
into account our expectations for the amount of Lender-Defined EBITDA that would be generated
during 2002 as agreed to by the lender, and to add such other financial covenants to the Revolver
as the lender deemed necessary to monitor our performance in meeting such projections. A June 2002
amendment to the Revolver required us to meet certain Lender-Defined EBITDA amounts and added the
additional financial covenants. Those additional covenants require us to maintain Liquidity (as
defined in the June 2002 amendment) of at least $5.0 million, and limit capital expenditure levels
to $25.0 million in each calendar year. At December 31, 2004, our Liquidity was $43.0 million,
consisting of borrowing availability of $26.8 million and cash of $16.2 million, 30




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##### Table of Contents



including short-term investments. Our capital expenditures were $8.4 million in 2004, and we
estimate capital expenditures will be approximately $15.1 million during 2005. In addition to revising the definition of Lender-Defined EBITDA, the December 2003 amendment
to the Revolver extended the maturity date of borrowings under the Revolver by two years, from
December 31, 2004, to December 31, 2006, restored the Previous Rate for borrowings that are based
on the prime rate, restored the availability of LIBOR-based borrowings, and reduced the fees that
are payable to the lender. We paid a closing fee of $150,000 in connection with the December 2003
amendment. We report amounts of Lender-Defined EBITDA generated by our business because, as indicated
above, there are covenants in the Revolver that require us to generate specified levels of
Lender-Defined EBITDA. Lender-Defined EBITDA is not a measure of performance calculated in
accordance with accounting principles generally accepted in the United States of America.
Lender-Defined EBITDA should not be considered in isolation of, or as a substitute for, income
before income taxes as an indicator of operating performance or cash flows from operating
activities as a measure of liquidity. Lender-Defined EBITDA, as defined in the Revolver, may not be
comparable to similar measures reported by other companies. In addition, Lender-Defined EBITDA does
not represent funds available for discretionary use. The calculation of Lender-Defined EBITDA for each of the quarters during 2004 and for the
twelve months ended December 31, 2004, is as follows (dollar amounts in thousands): Three
    
    
    Three
    
    
    Three
    
    
    Three
    
    
    TwelveMonths
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004Net income (loss)
    
    $
    (7,293
    )
    
    $
    (2,401
    )
    
    $
    3,917
    
    
    $
    4,535
    
    
    $
    (1,242
    )Income tax (benefit) expense
    
    
    (262
    )
    
    
    (342
    )
    
    
    (1,185
    )
    
    
    3,916
    
    
    
    2,127Income (loss) before income taxes
    
    
    (7,555
    )
    
    
    (2,743
    )
    
    
    2,732
    
    
    
    8,451
    
    
    
    885Depreciation and amortization
    
    
    8,884
    
    
    
    5,470
    
    
    
    5,557
    
    
    
    5,603
    
    
    
    25,514Interest expense
    
    
    4,642
    
    
    
    4,561
    
    
    
    4,578
    
    
    
    4,575
    
    
    
    18,356Derivative items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Environmental charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lender-Defined EBITDA
    
    $
    5,971
    
    
    $
    7,288
    
    
    $
    12,867
    
    
    $
    18,629
    
    
    $
    44,755
 See Note 15 to the consolidated financial statements for selected unaudited quarterly
financial data. The Revolver also provides that, as a condition of borrowings, there shall not have occurred
any material adverse change in our business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise). If the required Lender-Defined EBITDA level under the Revolver is not met and the lender does
not waive our non-compliance, we will be in default under the terms of the Revolver. Moreover, if
conditions constituting a material adverse change occur, our lender can refuse to make further
advances. Following any such refusal, customer receipts would be applied to our borrowings under
the Revolver, and we would not have the ability to reborrow. This would cause us to suffer a rapid
loss of liquidity, and we would lose the ability to operate on a day-to-day basis. In addition, a
default under the Revolver would allow our lender to accelerate the outstanding indebtedness under
the Revolver and would also result in a cross-default under our Senior Notes which would provide
the holders of our Senior Notes the right to accelerate the amount outstanding and demand immediate
repayment. We had no borrowings under the Revolver as of February 28, 2005. Our $30 million Revolver
commitment is subject to borrowing base limitations related to the level of accounts receivable and
reserves, and is further reduced by letters of credit that are outstanding. As a result, on
February 28, 2005, our additional availability under the Revolver was approximately $26.8 million,
after reducing the amount of availability by the $3.2 million of letters of credit then
outstanding, and our Liquidity was $33.9 million. Prepayment Obligations.Our Tranche A Notes provide that, within 60 days after the end of
each calendar quarter through 2006, we are required to redeem and prepay the greater of an amount
determined on the basis of (a) Pioneer Americas net income before extraordinary items, other
income, net, interest, income taxes, depreciation and 31




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##### Table of Contents



amortization (Tranche A Notes EBITDA), and (b) an amount determined on the basis of the
Companys excess cash flow and average liquidity, as defined. With respect to Tranche A Notes
EBITDA, the amount that is to be redeemed and prepaid is (i) $2.5 million if Tranche A Notes EBITDA
for such calendar quarter is $20 million or more but less than $25 million, (ii) $5 million if
Tranche A Notes EBITDA for such calendar quarter is more than $25 million but less than $30 million
and (iii) $7.5 million if Tranche A Notes EBITDA for such calendar quarter is more than $30
million, in each case plus accrued and unpaid interest to the date of redemption and prepayment.
With respect to excess cash flow, the amount that is to be redeemed and prepaid is a percentage of
the Companys consolidated net income, without regard to extraordinary gains and losses and net
after-tax other income, plus depreciation, amortization and other non-cash charges, and less all
cash principal payments, capital expenditures and extraordinary cash gains or cash income received,
plus or minus cash changes in working capital. The applicable percentage is to be determined on the
basis of the Companys average liquidity, which is the average of cash plus borrowing availability
under the Revolver for the quarter or for the 45-day period following the end of the quarter. We
must also apply the proceeds of certain equity offerings to the redemption of Tranche A Notes. In December 2004, we issued 1.1 million shares of our common stock in a public offering. Of
the $22.1 million in net proceeds of the offering, we applied a total of $1.3 million to the
prepayment of Senior Floating Notes in December 2004, and we applied the remainder to the
redemption of $21.1 million in principal amount of Senior Guaranteed Notes in January 2005. As a result of the application of the applicable provisions with respect to the first quarter
of 2003, we redeemed and prepaid $2.4 million of Tranche A Notes on May 23, 2003. One holder
refused the prepayment of the balance of the $2.5 million that was to have been prepaid on that
date. No further redemption and prepayment of Tranche A Notes was required with respect to the
three subsequent calendar quarters in 2003 or with respect to any of the calendar quarters of 2004. Future Payment Commitments.In 2005, we expect to have cash requirements, in addition to
operating and administrative costs, of approximately $36.6 million, consisting of the following:
(i) interest payments of $15.9 million, (ii) capital expenditures of $15.1 million, (iii)
environmental remediation spending of $1.4 million, (iv) severance payments of $2.2 million and (v)
contractual debt repayments (including the redemption and prepayment mentioned above) of $2.0
million. These amounts are our current estimates and they could materially change based on various
factors or unanticipated circumstances. We expect to fund these obligations through
internally-generated cash flows from operations, including changes in working capital, and
available borrowings under our Revolver. We will be subject to Sarbanes-Oxley Section 404 compliance beginning in 2005 and as a result
we anticipate a substantial increase in professional services and internal costs in connection with
our managements attestation of the effectiveness of our internal controls over financial reporting
and disclosure and related certifications. The following table sets forth our obligations and commitments to make future payments under
debt agreements, non-cancelable operating lease agreements and purchase obligations as of December
31, 2004 (dollar amounts in thousands): 2010 andTotal
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    thereafterConsolidated Balance Sheet:Long-term debt(1)
    
    $
    268,710
    
    
    $
    19,910
    
    
    $
    65,791
    
    
    $
    16,046
    
    
    $
    165,029
    
    
    $
    1,934
    
    
    $
    Other Obligations(2):Leases(3)
    
    
    71,843
    
    
    
    16,619
    
    
    
    13,573
    
    
    
    11,073
    
    
    
    8,920
    
    
    
    5,953
    
    
    
    15,705Purchase obligations(4)
    
    
    12,093
    
    
    
    12,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    352,646
    
    
    $
    48,622
    
    
    $
    79,364
    
    
    $
    27,119
    
    
    $
    173,949
    
    
    $
    7,887
    
    
    $
    15,705
   (1)
    
    Includes the maturity of the Senior Guaranteed Notes and Senior Floating Notes in 2006 and
the 10% Senior Secured Notes in 2008. The timing and amount of payments that are set forth do
not take into consideration any early redemption obligations that may arise. Long-term debt
is inclusive of interest payments based on interest rates in effect at December 31, 2004 as
follows: Senior Guaranteed Notes  fixed 10%; Senior Floating Notes   LIBOR plus 3.5% and
other notes at various interest rates.(2)
    
    Payments for environmental remediation liabilities are excluded from the table as they are
not contracted obligations. The timing of payment for environmental remediation liabilities is
predicated upon the timing of future events that have not occurred and may not be predicted
with certainty.(3)
    
    Consists primarily of tankcar leases and leases of certain facilities and equipment.(4)
    
    Consists primarily of purchase contracts with fixed and determinable payment obligations for
goods and services used in manufacturing and producing operations in the normal course of
business. 32




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In January 2005 we redeemed $21.1 million in principal amount of long-term debt that is
included in the above table with a maturity in 2006. Interest of
$1.2 million that in the absence of such redemption would be paid in each of 2005 and 2006 is also included in the above table. While we anticipate that product prices will increase during 2005, we have limited ability to
influence prices in the commodity markets in which we sell our
products. Decreases in the selling prices of our products could have
a material adverse affect on our liquidity. In addition, our
operating margin is subject to the adverse effects of increased raw material costs, and it appears
that energy costs will remain at relatively high levels during 2005, and that the cost of salt,
another major raw material cost, will also be higher than in prior periods. The amount of liquidity
ultimately needed to meet all of our obligations in the future will depend on a number of factors,
some of which are uncertain. We also expect that the results of the organizational efficiency
project that we initiated in 2004 will increase our liquidity during 2005. While we strive to maintain or increase our profitability by reducing costs through improving
production efficiency, emphasizing higher margin products, and controlling selling and
administration expenses, we cannot provide any assurance that these efforts will be sufficient to
offset fully the effect of any decline in ECU prices on operating results. There was approximately $196.2 million of our Senior Secured Debt outstanding on December 31,
2004, prior to the redemption of $21.1 million of Senior Guaranteed Notes in January 2005. We can
provide no assurance that the cash that we will generate from our operations will be sufficient to
repay the Revolver and the remaining principal amount of the Tranche A Notes when they are due in
December 2006, or the 10% Senior Secured Notes when they are due in December 2008. In the event
that we do not generate sufficient amounts of cash, it would be necessary to refinance the
indebtedness, issue new equity or sell assets. The terms of any necessary new borrowings would be
determined by then-current market conditions and other factors, and could impose significant
additional burdens on our financial condition and operating flexibility, and the issuance of new
equity securities could dilute the interest of our existing stockholders. We cannot provide any
assurance that we would be able to refinance any of our indebtedness, raise equity on commercially
reasonable terms or at all, or sell assets, which failure could cause us to default on our
obligations and impair our liquidity. Our inability to generate sufficient cash flow to satisfy our
debt obligations, or to refinance our obligations on commercially reasonable terms, would have a
material adverse effect on our business, financial condition and results of operations. Capital and Environmental Expenditures.Total capital expenditures were approximately $8.4
million, $10.0 million and $10.6 million for the years ended December 31, 2004, 2003 and 2002,
respectively, and are expected to be approximately $15.1 million for the year ending December 31,
2005. Total capital expenditures include expenditures for environmental-related matters at existing
facilities of approximately $3.9 million, $2.8 million and $1.4 million for the years ended
December 31, 2004, 2003 and 2002, respectively. We routinely incur operating expenditures associated with hazardous substance management and
environmental compliance matters in ongoing operations. These operating expenses include items such
as waste management, fuel, electricity and salaries. The amounts of these operating expenses were
approximately $0.1 million, $1.3 million and $3.2 million in 2004, 2003 and 2002, respectively. We
expect to spend approximately $1.4 million for these types of expenses during 2005. We recorded a
$9.5 million environmental charge during the first quarter of 2003 resulting from an environmental
study completed in May 2003, and at December 31, 2004 and 2003, we maintained an accrual of $20.3
million and $20.5 million, respectively, for environmental liabilities, which were included in
other long-term liabilities on our balance sheet. During 2004 we paid approximately $0.6 million
for environmental costs that had been included in such liabilities. We believe the remaining
amount of environmental reserves is adequate to address costs that may arise over the course of the
next thirty years. Those costs will be determined on the basis of known environmental concerns and
the application of environmental requirements to those concerns, such that the amount and timing of
specific amounts is not certain. SeeItem 1 Business  Environmental Regulation in Part I of
this report and Note 14 to our consolidated financial statements. Defined Benefit Pension and Post-Retirement Plan Liabilities.Defined benefit and
post-retirement plan liabilities totaled $23.2 million at December 31, 2004. Our contributions to
these plans were $6.2 million during the year ended December 31, 2004, and are expected to be $5.3
million for the year ending December 31, 2005. Based on consultation with our outside actuary and
assuming no change in current interest rates and assuming the plans assets grow at an average of
8.0% per year, we estimate that our minimum required contributions will be at least $5.3 million in
each of the next four consecutive years. 33




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##### Table of Contents



Net Operating Loss Carryforward.At December 31, 2004, we had combined U.S. and Canadian net
operating loss carryforward (NOL) of $306.1 million (representing $111.2 million of deferred tax
assets) that will expire in varying amounts from 2009 to 2024, if not utilized. U.S. NOL in the
amount of $199.5 million (the Predecessor Company NOL) was generated prior to our emergence from
bankruptcy on December 31, 2001, and our ability to use the Predecessor Company NOL to offset
future taxable income will be materially restricted. The remaining $79.1 million of U.S. NOL that
was generated in 2002 through 2004 will expire in 2022 through 2024, and may be subject to
limitations on use. We also had $27.5 million of Canadian NOL (representing $8.1 million of
deferred tax assets) generated in 2002 and 2003 that is not subject to limitation and that will
expire in 2009 and 2010. SeeItem 1 Business  Risks  Availability of our net operating loss
carryforward may be limited .... in Part I of this report and Note 13 to our consolidated financial
statements. Foreign Operations and Exchange Rate Fluctuations.We have operating activities in Canada,
and we engage 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. Due to the significance of the U.S. dollar-denominated long-term debt of our Canadian
subsidiary and certain other U.S. dollar-denominated assets and liabilities, the entitys
functional accounting currency is the U.S. dollar. A portion of our sales and expenditures is
denominated in Canadian dollars, and accordingly, our results of operations and cash flows may be
affected by fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar,
since Canadian dollar transactions must be translated into U.S. dollars for accounting purposes. In
addition, because a portion of our revenues, cost of sales and other expenses are denominated in
Canadian dollars, we have a translation exposure to fluctuations of the Canadian dollar against the
U.S. dollar. We recorded $2.8 million of currency exchange loss as other expense for 2004, compared
to $5.8 million of currency exchange loss in 2003. Currently, we are not engaged in forward foreign
exchange contracts, but we may enter into such hedging activities in the future. Working Capital.Our working capital was $48.2 million and $12.6 million as of December 31,
2004 and 2003, respectively. Changes from 2003 to 2004 consisted primarily of an increase in
short-term investments of approximately $13.3 million, an increase in accounts receivable of
approximately $13.9 million due to increased sales as a result of higher prices and volumes, and a
decrease in the current portion of long-term debt of approximately $16.8 million, primarily due to
payment of the Revolver balance during the year, partially offset by increases in accounts payable
of approximately $3.5 million resulting from normal operations and an increase in accrued
liabilities of approximately $6.9 million due to increased electricity prices and employee benefit
costs. Net Cash Flows from Operating Activities.Net cash from operating activities was $19.6
million in 2004, compared to $14.3 million in 2003. The increase was primarily due to increased
sales in 2004 as a result of higher prices and sales volumes, partially offset by slightly higher
operating expenses and unfavorable changes in working capital, primarily due to increased sales. Net Cash Flows Used in Investing Activities.Net cash used in investing activities,
consisting primarily of capital expenditures, was $8.1 million in 2004, as compared to $10.0
million in 2003. Net Cash Flows from Financing Activities.Net cash from financing activities was $2.5 million
in 2004, compared to net cash used of $5.4 million in 2003. The 2004 cash inflows were due
primarily to net cash proceeds from the issuance of stock in an equity offering of approximately
$22.1 million, net of the repayment of net borrowings under the Revolver of $16.8 million and the
prepayment of $3.1 million in principal amount of the Tranche A Notes. The 2003 use of cash was
attributable to a $2.4 million redemption and prepayment of the Tranche A Notes, $3.0 million of
early payment on two promissory notes and $2.1 million in repayments of other debt obligations,
offset by net borrowings of $2.1 million under the Revolver. 34




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##### Table of Contents



Results of Operations The following table sets forth certain operating data for the periods indicated (dollars in
thousands and percentages as a percentage of revenues). Year Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    407,115
    
    
    
    100
    %
    
    $
    378,675
    
    
    
    100
    %
    
    $
    316,907
    
    
    
    100
    %Cost of sales  product
    
    
    (353,454
    )
    
    
    (87
    )
    
    
    (340,804
    )
    
    
    (90
    )
    
    
    (296,622
    )
    
    
    (94
    )Cost of sales  derivatives
    
    
    
    
    
    
    
    
    
    
    (20,999
    )
    
    
    (6
    )
    
    
    12,877
    
    
    
    4Total cost of sales
    
    
    (353,454
    )
    
    
    (87
    )
    
    
    (361,803
    )
    
    
    (96
    )
    
    
    (283,745
    )
    
    
    (90
    )Gross profit
    
    
    53,661
    
    
    
    13
    
    
    
    16,872
    
    
    
    4
    
    
    
    33,162
    
    
    
    10Selling, general and administrative
expenses
    
    
    (27,608
    )
    
    
    (7
    )
    
    
    (23,204
    )
    
    
    (6
    )
    
    
    (23,893
    )
    
    
    (8
    )Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    87,271
    
    
    
    23
    
    
    
    23,566
    
    
    
    8Asset impairment
    
    
    
    
    
    
    
    
    
    
    (40,818
    )
    
    
    (11
    )
    
    
    (16,941
    )
    
    
    (5
    )Other items
    
    
    (3,974
    )
    
    
    (1
    )
    
    
    (340
    )
    
    
    
    
    
    
    (3,143
    )
    
    
    (1
    )Operating income
    
    
    22,079
    
    
    
    5
    
    
    
    39,781
    
    
    
    11
    
    
    
    12,751
    
    
    
    4Interest expense, net
    
    
    (18,356
    )
    
    
    (5
    )
    
    
    (19,064
    )
    
    
    (5
    )
    
    
    (18,891
    )
    
    
    (6
    )Other income (expense), net
    
    
    (2,838
    )
    
    
    (1
    )
    
    
    (5,816
    )
    
    
    (2
    )
    
    
    602
    
    
    
    Income (loss) before income tax items
    
    
    885
    
    
    
    
    
    
    
    14,901
    
    
    
    4
    
    
    
    (5,538
    )
    
    
    (2
    )Income tax (expense) benefit
    
    
    (2,127
    )
    
    
    (1
    )
    
    
    3,286
    
    
    
    1
    
    
    
    781
    
    
    
    Net income (loss)
    
    $
    (1,242
    )
    
    
    
    
    
    $
    18,187
    
    
    
    5
    %
    
    $
    (4,757
    )
    
    
    (2
    )%
 Our derivatives positions, which were the subject of the dispute with CRC that was
settled early in 2003, are discussed under Settlement of Dispute with the Colorado River
Commission of Nevada above. Year Ended December 31, 2004, Compared to Year Ended December 31, 2003 Revenues.Revenues for the years ended December 31, 2004 and 2003, were as follows: 2004
    
    
    2003Chlorine and caustic soda
    
    $
    293,508
    
    
    $
    276,309Other
    
    
    113,607
    
    
    
    102,366Total revenues
    
    $
    407,115
    
    
    $
    378,675Average ECU netback*
    
    $
    393
    
    
    $
    382
   *
    
    The average ECU netback
relates only to sales of chlorine and
caustic soda, and not to sales of other products. Revenues increased by $28.4 million, or approximately 8%, to $407.1 million for 2004 as
compared to $378.7 million in 2003. Revenues from the sale of chlorine and caustic soda increased
by $17.2 million, with an increase of approximately $5.9 million due to increased ECU netbacks and
an increase of approximately $11.3 million due to increased ECU sales volume. Our average ECU
netback for the year ended December 31, 2004, was $393, an increase of approximately 3% from the
average netback in 2003 of $382. Revenues in 2004 were also favorably affected by increased prices
and volumes for our other products, with an increase of $3.3 million in revenues resulting from
increased volumes from sales of hydrochloric acid and Cereclor (R), and an increase of $7.0
million due to increased prices for various other products. Cost of Sales  Product.Cost of sales  product increased by $12.7 million, or approximately
4%, in 2004 as compared to 2003. The increase was primarily attributable to higher variable costs
of $14.2 million, including increased electricity and salt costs of $7.0 million and $3.8 million,
respectively, due to higher prices and production volumes, and $3.5 million of increased costs
related to purchases of caustic soda for resale. Cost of sales  product in 2004 also included
increased freight costs of $8.8 million as a result of higher volumes and fuel surcharges, and
higher depreciation of approximately $3.9 million due to a first quarter charge related to a
decision to discontinue chlor-alkali production at the Tacoma facility. The increases were
partially offset by lower fixed costs, including a decrease in personnel costs of $3.3 million as a
result of Project STAR, and the absence of costs incurred in 2003 for 35




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anode recoating projects and environmental charges of approximately $3.5 million and $9.3.
million, respectively. Other companies may include certain of these costs in selling, general and
administrative expenses, resulting in a lack of comparability between our gross profit and that
reported by other companies. Selling, General and Administrative Expenses.Selling, general and administrative expenses of
$27.6 million increased by $4.4 million, or approximately 19%, in 2004 as compared to 2003. The
increase was for the most part due to higher consulting fees of $4.1 million primarily related to
Project STAR and a $2.4 million increase in employee benefit costs, partially offset by $1.8
million of decreased bad debt expense. Other companies may include as a component of selling,
general and administrative expenses certain costs that we recognize as cost of sales  product. As
a result, our gross profit may not be comparable to that reported by other companies. Other Items.Other items for 2004 increased by $3.6 million due to the recognition of
employee severance and related benefits costs in 2004 of $4.0 million related to our restructuring
efforts from Project STAR and the realignment of certain Canadian operations. In 2003 other items
included a $0.4 million gain from the early payment of a promissory note. Interest Expense, Net.Interest expense was $18.4 million and $19.1 million in 2004 and 2003,
respectively, net of interest income of $106,000 in 2004 and $18,000 in 2003. Other Income (Expense), Net.Other expense for 2004 was comprised of $2.8 million in currency
exchange loss, which resulted from a decline in the rate at which Canadian-dollar-denominated
amounts were converted into U.S. dollar balances (from $1.30 at December 31, 2003, to $1.20 at
December 31, 2004). For 2003, other expense of $5.8 million also resulted from a decline in
exchange rates from the previous period. Income Tax (Benefit) Expense.Income tax expense for 2004 was $2.1 million compared to a tax
benefit of $3.3 million in 2003. The 2004 expense resulted primarily from the recording of a
valuation allowance against our Canadian capital loss carryforward, offset by a benefit from the
net loss of our Canadian operations. The valuation allowance was necessary since it is now
considered unlikely that the capital loss carryforward will be used against future capital gains. Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 Revenues.Revenues for the years ended December 31, 2003 and 2002, were as follows: 2003
    
    
    2002Chlorine and caustic soda
    
    $
    276,309
    
    
    $
    221,521Other
    
    
    102,366
    
    
    
    95,386Total revenues
    
    $
    378,675
    
    
    $
    316,907Average ECU netback*
    
    $
    382
    
    
    $
    270
   *
    
    The average ECU netback
relates only to sales of chlorine and caustic
soda, and not to sales of other products. Revenues increased by $61.8 million, or approximately 19%, to $378.7 million for 2003 as
compared to 2002. Revenues from the sale of chlorine and caustic soda increased by $54.8 million,
with an increase of approximately $62.1 million due to increased ECU netbacks being partially
offset by a decrease of $7.3 million arising from 55,000 fewer tons of chlorine sales due to the
idling of the Tacoma facility in early 2002. Our average ECU netback for the year ended December
31, 2003 was $382, an increase of approximately 41% from the average netback in 2002 of $270.
Revenues in 2003 were also favorably affected by increased prices and volumes for our other
products, with an increase of $7.9 million in revenues resulting from improved bleach sales in the
western U.S. Cost of Sales  Product.Cost of sales  product increased by $44.2 million, or approximately
15%, in 2003 as compared to 2002. The increase was primarily attributable to an $8.8 million
increase in environmental charges, increased electricity costs of approximately $14.6 million, a
$7.9 million increase in the amount of products purchased for resale as a result of the idling of
production at the Tacoma chlor-alkali plant in 2002, a $3.6 million increase in other variable
costs primarily consisting of other raw materials, inventory changes and freight to terminals,
higher maintenance costs of approximately $9.5 million due to increased maintenance activity
related to 36




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anode recoating and other planned major maintenance activity, $5.5 million of increases in
personnel costs that were also related to the anode recoating and other planned major maintenance
activity, as well as the absence of a $1.1 million curtailment gain and $1.2 million in costs,
primarily property taxes, recorded in 2002 and related to the idling of the Tacoma plant. The 2003
increase was partially offset by a decrease of $3.7 million in depreciation expense due to a
decrease in our depreciable asset base (as a result of impairment charges in 2003 with respect to
the Henderson facility) and $1.0 million in freight costs. Other companies may include certain of
these costs in selling, general and administrative expenses, resulting in a lack of comparability
between our gross profit and that reported by other companies. Selling, General and Administrative Expenses.Selling, general and administrative expenses
remained relatively constant at $23.2 million in 2003 as compared to $23.9 million in 2002. An
increase in bad debt expense of $2.1 million in 2003 compared to 2002 was largely offset by the
absence of $1.4 million of personnel costs and $0.6 million of professional fees that had been
recorded in 2002 as the result of the restructuring efforts and derivatives dispute matters. The
increase in bad debt expense in 2003 was primarily related to an increase in the allowance for
doubtful accounts for estimated collection losses due to credit-risk exposure to customers in the
pulp and paper industry. Other companies may include as a component of selling, general and
administrative expenses certain costs that we recognize as cost of sales  product. As a result,
our gross profit may not be comparable to that reported by other companies. Asset Impairment.Asset impairment for 2003 consisted of a $40.8 million impairment charge
related to the Henderson facility. The impairment charge arose as a result of the increase in
energy costs at the Henderson facility brought about by the CRC settlement. In December 2002, due
to increasing power costs and the uncertainty of restarting the Tacoma facility, we recorded an
impairment of $16.9 million to reduce the book value of the Tacoma facility to estimated fair value
at December 31, 2002. SeeNote 11 to the consolidated financial statements. Other Items.Other items for 2003 included a net loss of $0.8 million on disposition of fixed
assets, offset slightly by a $0.4 million gain from the early payment of a promissory note. Other
items in 2002 included $2.9 million of severance expense, $0.7 million of Tacoma idling costs, $0.5
million of legal expenses related to our emergence from bankruptcy, and a $1.3 million gain from
the sale of assets. Interest Expense, Net.Interest expense was $19.1 million and $18.9 million in 2003 and 2002,
respectively, net of interest income of $18,000 in 2003 and $64,000 in 2002. Other Income (Expense), Net.Other expense for 2003 was comprised of $5.8 million in exchange
loss, which resulted from a decline in the rate at which Canadian-dollar-denominated amounts were
converted into U.S. dollar balances (from $1.58 at December 31, 2002, to $1.30 at December 31,
2003).For 2002 other income, net of $0.6 million included $0.1 million in exchange gain and other
various nominal items. Income Tax Benefit.Income tax benefit for 2003 was $3.3 million, reflecting foreign tax
benefit on the net loss of our Canadian operations. Due to uncertainty as to our ability to
generate future taxable income against which our U.S. NOL and other deferred tax assets can be
applied in future years, a 100% valuation allowance amounting to $110.6 million was recorded in
connection with our U.S. deferred tax assets at December 31, 2003, compared to a $116.3 million
allowance in 2002. Income tax benefit for 2002 was $0.8 million. During 2002 we recorded a credit
of $0.5 million to additional paid-in capital in connection with a refund relating to the carryback
of certain NOL. Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued a number of new accounting
standards that became effective in 2004. The effects of such requirements on our financial
statements are as follows: In December 2003, the FASB issued SFAS 132 (Revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106,
which revises employers disclosures about pension plans and other postretirement benefit plans.
All provisions of this statement are effective for the year ended December 31, 2004, and we have
included relevant disclosure in the notes to our financial statements. SeeNote 7 to the
consolidated financial statements. In November 2004, the FASB issued SFAS 151, Inventory CostsAn Amendment of Accounting
Research Bulletin No. 43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facility
expense, freight, handling 37




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costs and spoilage should be expensed as incurred and not included in overhead. Further, SFAS
151 requires that allocation of fixed production overhead to conversion costs be based on normal
capacity of the production facilities. The provisions of SFAS 151 must be applied prospectively to
our inventory costs incurred after January 1, 2006. The adoption of SFAS 151 is not expected to
have a material impact on our financial position or results of operations. In December 2004, the FASB issued SFAS 123R, Share-Based Payment, replacing SFAS 123 and
superseding Accounting Principles Board (APB) Opinion No. 25. SFAS 123R requires public companies
to recognize compensation expense for the cost of awards of equity instruments. This compensation
cost will be measured as the fair value of the award on the grant date, as estimated using an
option-pricing model. We are evaluating the various transition provisions under SFAS 123R and will
adopt SFAS 123R effective July 1, 2005, which is expected to result in additional compensation
expense of $0.2 million for the year ending December 31, 2005. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets-an amendment of
APB Opinion No. 29, addressing the measurement of exchanges of nonmonetary assets. SFAS 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
production assets in APB Opinion No. 29, Accounting for Nonmonetary Exchanges, and replaces it
with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 with earlier
application permitted. We do not expect adoption of the provisions of SFAS 153 to have a material
impact on our financial position or results of operations. 
 Item 7A.Quantitative and Qualitative Disclosures about Market Risk The table below provides information about our market-sensitive debt instruments and
constitutes a forward-looking statement. Our fixed-rate debt has no earnings exposure from
changes in interest rates. We have certain variable rate instruments that are subject to market
risk. An increase in the market interest rates would increase our interest expense and our cash
requirements for interest payments. For example, an average increase of 0.25% in the variable
interest rate would increase our annual interest expense and payments by approximately $0.2
million. Expected Maturity Date At December 31, 2004Year Ending December 31,
    
    
    
    
    
    
    Fair Value At2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    December 31, 2004Fixed rate debt(1)
    
    $
    1,978
    
    
    $
    1,832
    
    
    $
    965
    
    
    $
    150,000
    
    
    $
    
    
    
    $
    
    
    
    $
    154,775Variable rate debt(2)
    
    
    
    
    
    
    46,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,760
    
    
    
    48,001Total debt
    
    $
    1,978
    
    
    $
    48,073
    
    
    $
    965
    
    
    $
    150,000
    
    
    $
    
    
    
    $
    1,760
    
    
    $
    202,776
   (1)
    
    Debt instruments at fixed interest rates ranging from 8.0% to 10.0%, with the
majority at 10.0%; includes the payment of the 10% Senior Secured Notes in 2008.(2)
    
    Debt instruments at variable interest rates, including LIBOR based loans, ranging
from 1.1% to 2.0% at December 31, 2004; includes the maturity of the Tranche A Notes in
2006. The timing and amount of payments that are set forth do not take into consideration
any early redemption obligations that may arise. We operate in Canada and are subject to foreign currency exchange rate risk. Due to the
significance of our Canadian subsidiarys United States dollar-denominated long-term debt and
certain other United States dollar-denominated assets and liabilities, our functional accounting
currency is the United States dollar. Certain other items of working capital are denominated in
Canadian dollars. An average change of 1% in the currency exchange rate would result in a change in
currency exchange gain or loss of approximately $0.4 million. 
 Item 8.Financial Statements and Supplementary Data In this report, our consolidated financial statements and supplementary data appear following
the signature page to this report and are hereby incorporated by reference. 
 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 38




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Item 9A.
    Controls and Procedures In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under
the supervision and with the participation of management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2004, to provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms. There has been no change in our internal controls over financial reporting that occurred
during the three months ended December 31, 2004, that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting. 
  Item 9B.
    Other Information None. 
 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 to be set forth in Pioneers
definitive proxy statement relating to the 2005 Annual Meeting of Stockholders of Pioneer (the
2005 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, 405 and 406 of Regulation S-K
under the Securities Act of 1933, as amended, and the Exchange Act (Regulation S-K). If the 2005
Proxy Statement is not so filed within 120 days after December 31, 2004, 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 4A 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 to be set forth in the 2005 Proxy
Statement in response to Item 402 of Regulation S-K, or if the 2005 Proxy Statement is not so filed
within 120 days after December 31, 2004, 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 and Related Stockholder
Matters 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 to be set forth in the 2005 Proxy
Statement in response to Item 403 of Regulation S-K, or if the 2005 Proxy Statement is not so filed
within 120 days after December 31, 2004, such information will be included in an amendment to this
report filed not later than the end of such period. See the information contained under the heading Equity Compensation Plan Information in Item
5 of this report for information regarding shares authorized for issuance under equity compensation
plans approved by stockholders and not approved by stockholders. For descriptions of our equity
compensation plans, including the 2001 Employee Stock Option Plan, see Note 7 to the consolidated
financial statements. 
  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 to be set forth in the 2005 Proxy
Statement in response to Item 404 of Regulation S-K, or if the 2005 Proxy Statement is not so filed
within 120 days after December 31, 2004, such information will be included in an amendment to this
report filed not later than the end of such period. 39




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##### Table of Contents



Item 14.
    Principal Accounting Fees and Services Pursuant to General Instruction G of Form 10-K, the information called for by Item 14 of Part
III of Form 10-K is incorporated by reference to the information to be set forth in the 2005 Proxy
Statement in response to Item 404 of Regulation S-K, or if the 2005 Proxy Statement is not so filed
within 120 days after December 31, 2004, such information will be included in an amendment to this
report filed not later than the end of such period. 
 PART IV 
  Item 15.
    Exhibits and Financial Statement Schedules  (a)(1) Financial StatementsAn index to the Consolidated Financial Statements filed with this report appears on page F-1.  (2)
    Financial Statement ScheduleThe information required by this item is filed as Exhibit 99.1.(3)
    ExhibitsSee Item 15(b) below.  (b)
    Exhibits: Exhibit No.
    
    Description2.1*
    
    Pioneer Companies, Inc. Amended Joint Plan of Reorganization under Chapter 11 of the United
States Bankruptcy Code (incorporated by reference to Exhibit 2.1 to Pioneers Annual Report on
Form 10-K for the fiscal year ended December 31, 2001).2.2*
    
    Order Approving Disclosure Statement, dated September 21, 2001 (incorporated by reference to
Exhibit 2.2 to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31,
2001).2.3*
    
    Order Confirming Joint Plan of Reorganization, dated November 28, 2001 (incorporated by
reference to Exhibit 2.4 to Pioneers Current Report on Form 8-K filed on December 28, 2001).2.4*
    
    Asset Purchase Agreement, dated as of May 14, 1997, by and between OCC Tacoma, Inc. and
Pioneer Companies, Inc. (incorporated by reference to Exhibit 2 to Pioneers Current Report on
Form 8-K filed on July 1, 1997).2.5*
    
    Asset Purchase Agreement, dated as of September 22, 1997, between PCI Chemicals Canada Inc.
(PCICC), PCI Carolina, Inc. and Pioneer Companies, Inc. and ICI Canada Inc., ICI Americas,
Inc. and Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to Pioneers
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).2.6*
    
    First Amendment to Asset Purchase Agreement, dated as of October 31, 1997, between PCICC, PCI
Carolina, Inc. and Pioneer Companies, Inc. and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by reference to Exhibit 2 to Pioneers Current
Report on Form 8-K filed on November 17, 1997).3.1*
    
    Fourth Amended and Restated Certificate of Incorporation of Pioneer Companies, Inc.
(incorporated by reference to Exhibit 3.1 to Pioneers Annual Report on Form 10-K for the
fiscal year ended December 31, 2001).3.2*
    
    Amended and Restated By-laws of Pioneer Companies, Inc. (incorporated by reference to Exhibit
3.2 to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2001).4.1*
    
    Specimen Pioneer Companies, Inc. Stock Certificate (incorporated by reference to Exhibit 4.1
to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2001).
 40




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##### Table of Contents



Exhibit No.
    
    Description4.2*
    
    Indenture, dated as of December 31, 2001, among PCI Chemicals Canada Company, the guarantors
named therein and Wells Fargo Bank Minnesota, National Association, as trustee, relating to
$150,000,000 principal amount of 10% Senior Secured Guaranteed Notes due 2008 (incorporated by
reference to Exhibit 4.3 to Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).4.3*
    
    Term Loan Agreement, dated as of December 31, 2001, among Pioneer Americas LLC, the guarantors
named therein, the lenders from time to time parties thereto and Wells Fargo Bank Minnesota,
National Association, as administrative agent (incorporated by reference to Exhibit 4.4 to
Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2001).4.4*
    
    Indenture, dated as of December 31, 2001, among Pioneer Americas LLC, the guarantors named
therein, and Wells Fargo Bank Minnesota, National Association, as trustee, relating to up to
$50,000,000 principal amount of Senior Secured Floating Rate Guaranteed Notes due 2006
(incorporated by reference to Exhibit 4.5 to Pioneers Annual Report on Form 10-K for the
fiscal year ended December 31, 2001).4.5*
    
    Loan and Security Agreement, dated as of December 31, 2001, among PCI Chemicals Canada
Company, Pioneer Americas LLC, the lenders that are signatories thereto and Foothill Capital
Corporation, as arranger and administrative agent (incorporated by reference to Exhibit 4.6 to
Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2001).4.6*
    
    First Amendment to Loan and Security Agreement, dated April 15, 2002, between and among the
lenders identified on the signature pages thereto, Foothill Capital Corporation, PCI Chemicals
Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.7 to Pioneers
Annual Report on Form 10-K for the fiscal year ended December 31, 2001).4.7*
    
    Second Amendment to Loan and Security Agreement effective as of May 31, 2002, between and
among the lenders identified on the signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.1 to
Pioneers Current Report on Form 8-K filed on June 14, 2002).4.8*
    
    Third Amendment to Loan and Security Agreement effective as of July 29, 2002, between and
among the lenders identified on the signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.8 to
Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2002).4.9*
    
    Fourth Amendment to Loan and Security Agreement effective as of December 10, 2002, between and
among the lenders identified on the signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.9 to
Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2002).4.10*
    
    Fifth Amendment to Loan and Security Agreement effective as of July 1, 2003, between and among
the lenders identified on the signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.10
to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2003).4.11*
    
    Sixth Amendment to Loan and Security Agreement effective as of December 31, 2003, between and
among the lenders identified on the signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by reference to Exhibit 4.11
to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2003).4.12*
    
    Common Security and Intercreditor Agreement, dated as of December 31, 2001, by and among the
grantors named therein and Wells Fargo Bank Minnesota, National Association (incorporated by
reference to Exhibit 4.8 to Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).10.1+*
    
    Pioneer Companies, Inc. 2001 Employee Stock Option Plan (incorporated by reference to Exhibit
10.1 to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31, 2001).10.2+*
    
    Employment Agreement, dated September 17, 2002, between Pioneer Companies, Inc. and Michael Y.
McGovern (incorporated by reference to Exhibit 10.2 to Pioneers Annual Report on Form 10-K
for the fiscal year ended December 31, 2002).10.3*
    
    Indemnity Agreement dated March 14, 2002, between Pioneer Companies, Inc. and Marvin E. Lesser
(incorporated by reference to Exhibit 10.1 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).
 41




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##### Table of Contents



Exhibit No.
    
    Description10.4*
    
    Indemnity Agreement dated March 14, 2002, between Pioneer Companies, Inc. and Michael Y.
McGovern (incorporated by reference to Exhibit 10.2 to Pioneers Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002).10.5*
    
    Indemnity Agreement dated March 14, 2002, between Pioneer Companies, Inc. and Gary L.
Rosenthal (incorporated by reference to Exhibit 10.3 to Pioneers Quarterly Report on Form
10-Q for the quarter ended March 31, 2002).10.6*
    
    Indemnity Agreement dated March 14, 2002, between Pioneer Companies, Inc. and David N.
Weinstein (incorporated by reference to Exhibit 10.4 to Pioneers Quarterly Report on Form
10-Q for the quarter ended March 31, 2002).10.7
    
    Indemnity Agreement dated March 14, 2002, between Pioneer Companies, Inc. and David A. Scholes.10.8*+
    
    Pioneer Companies, Inc. Discretionary Severance Benefit Plan, effective May 1, 2003
(incorporated by reference to Exhibit 10.9 to Pioneers Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).14.1*
    
    Pioneer Companies, Inc. Code of Business Conduct and Ethics (incorporated by reference to
Exhibit 14.1 to Pioneers Annual Report on Form 10-K for the fiscal year ended December 31,
2003).21.1*
    
    List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Pioneers Annual Report on
Form 10-K for the fiscal year ended December 31, 2001).23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Michael Y. McGovern required by Rule 13a-14(a) or Rule 15d-14(a) under the
Securities Exchange Act of 1934.31.2
    
    Certification of Gary L. Pittman required by Rule 13a-14(a) or Rule 15d-14(a) under the
Securities Exchange Act of 1934.32.1
    
    Certification of Michael Y. McGovern required by Rule 13a-14(b) or Rule 15d-14(b) under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.32.2
    
    Certification of Gary L. Pittman required by Rule 13a-14(b) or Rule 15d-14(b) under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.99.1
    
    Schedule II  Valuation and Qualifying Accounts.
   *
    
    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated
and incorporated herein by reference.+
    
    Indicates management contract or compensatory plan or arrangement. 42




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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. PIONEER COMPANIES, INC.(Registrant)Date: March 28, 2005By:
    
    /s/ MICHAEL Y. MCGOVERNMichael Y. McGovernPresident and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ MICHAEL Y. MCGOVERN
    
    President, Chief Executive Officer
    
    March 28, 2005and Director(Michael Y. McGovern)/s/ GARY L. PITTMAN
    
    Vice President and Chief Financial
    
    March 28, 2005Officer (Principal Financial Officer)(Gary L. Pittman)/s/CARL MONTICONE
    
    Vice President and Controller
    
    March 28, 2005(Principal Accounting Officer)(Carl Monticone)/s/ DAVID N. WEINSTEIN
    
    Chairman of the Board of Directors
    
    March 28, 2005(David N. Weinstein)/s/ MARVIN E. LESSER
    
    Director
    
    March 28, 2005(Marvin E. Lesser)/s/ CHARLES L. MEARS
    
    Director
    
    March 28, 2005(Charles L. Mears)/s/ DAVID A. SCHOLES
    
    Vice President, Manufacturing and Director
    
    March 28, 2005(David A. Scholes)
 43




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Financial Statements, Pioneer Companies, Inc. and subsidiaries:Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Statements of Stockholders Equity for the years ended December 31, 2004,
2003 and 2002
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 All schedules, except Schedule II, which is filed as Exhibit 99.1,
have been omitted because they are not required under the relevant
instructions or because the required information is included in the
consolidated financial statements or notes thereto. F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Pioneer Companies, Inc. We have audited the accompanying consolidated balance sheets of Pioneer Companies, Inc. and
subsidiaries (Pioneer) as of December 31, 2004 and 2003, and the related consolidated statements
of operations, stockholders equity and cash flows for the each of the three years in the period
ended December 31, 2004. Our audits also included the financial statement schedule of Pioneer
listed in the Index at Item 15(a)(2). These financial statements and the financial statement
schedule are the responsibility of Pioneers management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
Pioneer is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances but
not for the purpose of expressing an opinion on the effectiveness of Pioneers internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Pioneer as of December 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. DELOITTE & TOUCHE LLP March 28, 2005
Houston, Texas F-2




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##### Table of Contents



PIONEER COMPANIES, INC. 
 CONSOLIDATED BALANCE SHEETS (In Thousands, Except Par Value)
 December 31,
    
    
    December 31,2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,191
    
    
    $
    1,946Accounts receivable, less allowance for doubtful accounts:2004, $2,563; 2003, $2,947
    
    
    52,693
    
    
    
    38,800Inventories, net
    
    
    16,417
    
    
    
    15,707Prepaid expenses and other current assets
    
    
    5,682
    
    
    
    5,018Total current assets
    
    
    90,983
    
    
    
    61,471Property, plant and equipment:Land
    
    
    6,520
    
    
    
    6,520Buildings and improvements
    
    
    30,375
    
    
    
    29,522Machinery and equipment
    
    
    198,121
    
    
    
    190,953Construction in progress
    
    
    3,013
    
    
    
    2,975238,029
    
    
    
    229,970Less accumulated depreciation
    
    
    (65,831
    )
    
    
    (40,436
    )172,198
    
    
    
    189,534Other assets, net
    
    
    4,359
    
    
    
    3,931Excess reorganization value over the fair value of identifiable assets
    
    
    84,064
    
    
    
    84,064Total assets
    
    $
    351,604
    
    
    $
    339,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,545
    
    
    $
    13,027Accrued liabilities
    
    
    24,295
    
    
    
    17,369Short-term debt, including current portion of long-term debt
    
    
    1,979
    
    
    
    18,485Total current liabilities
    
    
    42,819
    
    
    
    48,881Long-term debt, less current portion
    
    
    200,797
    
    
    
    203,803Accrued pension and other employee benefits
    
    
    23,248
    
    
    
    24,584Other long-term liabilities
    
    
    46,845
    
    
    
    42,742Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value, 10,000 shares
authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 50,000 shares authorized,
11,176 (2004) and 10,000 (2003) shares issued and outstanding
    
    
    112
    
    
    
    100Additional paid-in capital
    
    
    33,649
    
    
    
    10,941Other comprehensive loss
    
    
    (8,054
    )
    
    
    (5,481
    )Retained earnings
    
    
    12,188
    
    
    
    13,430Total stockholders equity
    
    
    37,895
    
    
    
    18,990Total liabilities and stockholders equity
    
    $
    351,604
    
    
    $
    339,000
 See notes to consolidated financial statements. F-3




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##### Table of Contents



PIONEER COMPANIES, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    407,115
    
    
    $
    378,675
    
    
    $
    316,907Cost of sales  product
    
    
    (353,454
    )
    
    
    (340,804
    )
    
    
    (296,622
    )Cost of sales  derivatives
    
    
    
    
    
    
    (20,999
    )
    
    
    12,877Total cost of sales
    
    
    (353,454
    )
    
    
    (361,803
    )
    
    
    (283,745
    )Gross profit
    
    
    53,661
    
    
    
    16,872
    
    
    
    33,162Selling, general and administrative expenses
    
    
    (27,608
    )
    
    
    (23,204
    )
    
    
    (23,893
    )Change in fair value of derivatives
    
    
    
    
    
    
    87,271
    
    
    
    23,566Asset impairment
    
    
    
    
    
    
    (40,818
    )
    
    
    (16,941
    )Other items
    
    
    (3,974
    )
    
    
    (340
    )
    
    
    (3,143
    )Operating income
    
    
    22,079
    
    
    
    39,781
    
    
    
    12,751Interest expense, net
    
    
    (18,356
    )
    
    
    (19,064
    )
    
    
    (18,891
    )Other income (expense), net
    
    
    (2,838
    )
    
    
    (5,816
    )
    
    
    602Income (loss) before income taxes
    
    
    885
    
    
    
    14,901
    
    
    
    (5,538
    )Income tax (expense) benefit
    
    
    (2,127
    )
    
    
    3,286
    
    
    
    781Net income (loss)
    
    $
    (1,242
    )
    
    $
    18,187
    
    
    $
    (4,757
    )Income (loss) per share:Basic
    
    $
    (0.12
    )
    
    $
    1.82
    
    
    $
    (0.48
    )Diluted
    
    $
    (0.12
    )
    
    $
    1.79
    
    
    $
    (0.48
    )Weighted average number of shares outstanding:Basic
    
    
    10,113
    
    
    
    10,002
    
    
    
    10,000Diluted
    
    
    10,113
    
    
    
    10,169
    
    
    
    10,000
 See notes to consolidated financial statements. F-4




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PIONEER COMPANIES, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (In Thousands)
 AccumulatedAdditional
    
    
    Retained
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Earnings
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    Loss
    
    
    TotalBalance at December 31, 2001
    
    
    10,000
    
    
    $
    100
    
    
    $
    10,427
    
    
    $
    
    
    
    $
    
    
    
    $
    10,527Utilization of net operating
loss carryback benefit
    
    
    
    
    
    
    
    
    
    
    506
    
    
    
    
    
    
    
    
    
    
    
    506Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,757
    )
    
    
    
    
    
    
    (4,757
    )Other comprehensive loss,
net of taxes:Additional minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,024
    )
    
    
    (5,024
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,781
    )Balance at December 31, 2002
    
    
    10,000
    
    
    
    100
    
    
    
    10,933
    
    
    
    (4,757
    )
    
    
    (5,024
    )
    
    
    1,252Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,187
    
    
    
    
    
    
    
    18,187Other comprehensive loss,
net of taxes:Additional minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (457
    )
    
    
    (457
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,730Issuance of new shares
    
    
    4
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Balance at December 31, 2003
    
    
    10,004
    
    
    
    100
    
    
    
    10,941
    
    
    
    13,430
    
    
    
    (5,481
    )
    
    
    18,990Utilization of net operating
loss carryback benefit
    
    
    
    
    
    
    
    
    
    
    346
    
    
    
    
    
    
    
    
    
    
    
    346Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,242
    )
    
    
    
    
    
    
    (1,242
    )Other comprehensive loss,
net of taxes:Additional minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,573
    )
    
    
    (2,573
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,815
    )Issuance of new shares
    
    
    1,172
    
    
    
    12
    
    
    
    22,362
    
    
    
    
    
    
    
    
    
    
    
    22,374Balance at December 31, 2004
    
    
    11,176
    
    
    $
    112
    
    
    $
    33,649
    
    
    $
    12,188
    
    
    $
    (8,054
    )
    
    $
    37,895
 See notes to consolidated financial statements. F-5




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PIONEER COMPANIES, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002Operating activities:Net income (loss)
    
    $
    (1,242
    )
    
    $
    18,187
    
    
    $
    (4,757
    )Adjustments to reconcile net income (loss) to net cash flows from
operating activities:Depreciation and amortization
    
    
    25,514
    
    
    
    21,551
    
    
    
    24,926Provision for (recovery of) loss on accounts receivable
    
    
    (384
    )
    
    
    1,296
    
    
    
    (848
    )Deferred tax expense (benefit)
    
    
    2,127
    
    
    
    (3,142
    )
    
    
    (781
    )Derivatives  cost of sales and change in fair value
    
    
    
    
    
    
    (66,272
    )
    
    
    (36,443
    )Asset impairment
    
    
    
    
    
    
    40,818
    
    
    
    16,941(Gain) loss on disposal of assets
    
    
    (10
    )
    
    
    761
    
    
    
    (1,324
    )Currency exchange (gain) loss
    
    
    2,840
    
    
    
    5,825
    
    
    
    (92
    )Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (12,803
    )
    
    
    1,644
    
    
    
    3,851(Increase) decrease in inventories, prepaid expenses and
other current assets
    
    
    (774
    )
    
    
    (780
    )
    
    
    8,810(Increase) decrease in other assets
    
    
    (494
    )
    
    
    700
    
    
    
    (751
    )Increase (decrease) in accounts payable and accrued
liabilities
    
    
    8,313
    
    
    
    (10,618
    )
    
    
    (5,910
    )Increase (decrease) in other long-term liabilities
    
    
    (3,794
    )
    
    
    4,291
    
    
    
    (3,372
    )Other
    
    
    346
    
    
    
    
    
    
    
    Net cash flows from operating activities
    
    
    19,639
    
    
    
    14,261
    
    
    
    250Investing activities:Capital expenditures
    
    
    (8,384
    )
    
    
    (9,998
    )
    
    
    (10,615
    )Proceeds from disposal of assets
    
    
    315
    
    
    
    
    
    
    
    2,047Net cash flows used in investing activities
    
    
    (8,069
    )
    
    
    (9,998
    )
    
    
    (8,568
    )Financing activities:Debtor-in-possession credit facility, net
    
    
    
    
    
    
    
    
    
    
    (6,663
    )Net borrowings (payments) under revolving credit arrangements
    
    
    (16,823
    )
    
    
    2,119
    
    
    
    14,704Repayments of long-term debt
    
    
    (3,079
    )
    
    
    (7,494
    )
    
    
    (1,649
    )Proceeds from issuance of stock, net
    
    
    22,374
    
    
    
    8
    
    
    
    Net cash flows from (used in) financing activities
    
    
    2,472
    
    
    
    (5,367
    )
    
    
    6,392Effect of exchange rate changes on cash
    
    
    203
    
    
    
    261
    
    
    
    1,091Net change in cash and cash equivalents
    
    
    14,245
    
    
    
    (843
    )
    
    
    (835
    )Cash and cash equivalents at beginning of period
    
    
    1,946
    
    
    
    2,789
    
    
    
    3,624Cash and cash equivalents at end of period
    
    $
    16,191
    
    
    $
    1,946
    
    
    $
    2,789
 See notes to consolidated financial statements. F-6




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PIONEER COMPANIES, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The consolidated financial statements include the accounts of Pioneer Companies, Inc. (the
Company or PCI) and its consolidated subsidiaries (collectively, Pioneer). All significant
intercompany balances and transactions have been eliminated in consolidation. Pioneer operates in one industry segment, the production, marketing and selling of
chlor-alkali and related products. Pioneer operates in one geographic area, North America. Pioneer
conducts its primary business through its operating subsidiaries: PCI Chemicals Canada Company
(PCI Canada) and Pioneer Americas LLC (Pioneer Americas). Dollar amounts, other than per-share amounts, in tabulations in the notes to the consolidated
financial statements are stated in thousands of U.S. dollars unless otherwise indicated. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents All highly liquid investments with maturities of three months or less when purchased are
considered to be cash equivalents. Inventories Inventories are valued at the lower of cost or market. Finished goods and work-in-process
costs are recorded under the average cost method, which includes appropriate elements of material,
labor and manufacturing overhead costs, while the first-in, first-out method is utilized for raw
materials, supplies and parts. Pioneer enters into agreements with other companies to exchange
chlor-alkali inventories in order to minimize working capital requirements and to optimize
distribution logistics. When there is an imbalance resulting from an exchange contract, such
imbalance quantity is included in Pioneers finished goods inventory and valued at its
manufacturing cost. Imbalances included in inventory due from (due to) other companies were $1.0
million and ($1.1) million at December 31, 2004, and $1.1 million and ($1.8) million at December
31, 2003. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Major renewals and improvements that
extend the useful lives of equipment are capitalized. Disposals are removed at carrying cost less
accumulated depreciation with any resulting gain or loss reflected in operations. Depreciation is computed primarily under the straight-line method over the estimated remaining
useful lives of the assets. Asset lives range from 5 to 15 years, including buildings and
improvements with an average life ranging from 10 to 15 years and machinery and equipment with an
average life ranging from 5 to 10 years. Depreciation expense recorded in 2004, 2003 and 2002 was
$24.9 million, $21.0 million and $24.6 million, respectively. Planned Major Maintenance Activities Pioneer expenses major maintenance costs when incurred. Such costs are incurred when major
maintenance activities are performed on Pioneers chlor-alkali plants. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows resulting from the use of
the asset or its disposition. Measurement of an impairment F-7




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##### Table of Contents



loss for long-lived assets that management expects to hold and use are based on the estimated
fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value. See Note 11 for discussion of asset impairment charges. Other Assets Other assets include amounts for deferred financing costs, which are being amortized on a
straight-line basis over the term of the related debt. Amortization of such costs using the
interest method would not have resulted in material differences in the amounts amortized during the
periods presented. Amortization expense for other assets for the years ended December 31, 2004,
2003 and 2002 was approximately $0.1 million for each period. Excess Reorganization Value Over The Fair Value of Identifiable Assets Upon Pioneers emergence from bankruptcy and application of fresh-start accounting on December
31, 2001, Pioneer recorded $84.1 million of excess reorganization value over the fair value of
identifiable assets (goodwill) attributable to PCI Canada. In accordance with Statement of
Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, this goodwill
will not be amortized. The carrying value of goodwill will be reviewed at least annually, and if
this review indicates that it will not be recoverable, as determined based on the estimated fair
value of the applicable reporting unit, Pioneers carrying value will be adjusted in accordance
with SFAS 142. Using discounted cash flow methodology based on projections of the amounts and
timing of future revenues and cash flows of PCI Canada, Pioneer determined that as of December 31,
2004, 2003 and 2002, goodwill was not impaired. As a result, there was no change in the carrying
value of goodwill of $84.1 million as of December 31, 2004, 2003 and 2002. Environmental Expenditures Remediation costs are accrued based on estimates of known environmental remediation exposure.
Such accruals are based upon managements best estimate of the ultimate cost. Ongoing environmental
compliance costs, including maintenance and monitoring costs, are charged to operations as
incurred. SeeNote 14. Revenue Recognition Pioneer generates revenues through sales in the open market and long-term supply contracts.
Pioneer recognizes revenue when products are shipped under contract terms or approved purchase
orders at stated prices and all significant obligations have been satisfied. Risk of loss passes
with the transfer of title in accordance with shipping terms. Provisions are made for estimated
returns and estimated credit losses. Pioneer classifies amounts billed to customers for shipping
and handling as revenues, with the related shipping and handling costs included in cost of goods
sold. Cost of Sales  Product Amounts recognized as cost of sales  product are comprised of production and distribution
costs, including variable costs primarily from power, raw materials, freight, purchase for resale,
purchasing and receiving, inspection and warehousing costs. Also included are fixed costs such as
salaries and personnel costs, rental expense and depreciation related to Pioneers production
facilities. Selling, General and Administrative Expenses Amounts presented in selling, general and administrative expenses include expenses related to
selling, customer service, and costs of providing corporate-wide functional support in such areas
as finance, legal, human resources and logistics management, including related salaries and
personnel costs, rental expense and depreciation. F-8




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Interest Expense Interest expense, net consisted of the following for the indicated periods: Year EndedDecember 31,2004
    
    
    2003
    
    
    2002Interest expense
    
    $
    18,462
    
    
    $
    19,082
    
    
    $
    18,955Interest income
    
    
    (106
    )
    
    
    (18
    )
    
    
    (64
    )Interest expense, net
    
    $
    18,356
    
    
    $
    19,064
    
    
    $
    18,891
 No interest was capitalized in 2004, 2003 or 2002. Income (Loss) Per Share Basic income (loss) per share is based on the weighted average number of common shares
outstanding during the period. Diluted income (loss) per share considers the dilutive effect of
potentially issuable common shares during the period. None of the options to purchase shares of common stock that were outstanding at December 31,
2004, were included in the computations of diluted net loss per share since their inclusion would
have been anti-dilutive. Options to purchase 20,000 shares of common stock that were outstanding
as of December 31, 2003, were not included in the computation of diluted earnings per share because
the options exercise price exceeded the average market price of the shares and their inclusion
would have been anti-dilutive. Diluted earnings per share for the year ended December 31, 2002, was
not affected by outstanding options to acquire common stock as such options were not included in
the calculation because their inclusion would have been anti-dilutive. Net income (loss) per share was computed as follows for the indicated periods: Year EndedDecember 31,2004
    
    
    2003
    
    
    2002Numerator for basic and diluted income (loss) per share:Net income (loss)
    
    $
    (1,242
    )
    
    $
    18,187
    
    
    $
    (4,757
    )Denominator for basic and diluted income (loss) per share:Weighted average shares
    
    
    10,113
    
    
    
    10,002
    
    
    
    10,000Potentially dilutive common shares:Stock options
    
    
    
    
    
    
    167
    
    
    
    Denominator for diluted income (loss) per share
    
    
    10,113
    
    
    
    10,169
    
    
    
    10,000Net income (loss) per share:Basic
    
    $
    (0.12
    )
    
    $
    1.82
    
    
    $
    (0.48
    )Diluted
    
    $
    (0.12
    )
    
    $
    1.79
    
    
    $
    (0.48
    )
 Stock-Based Compensation Pioneer has stock option plans that are more fully described in Note 7. Pioneer accounts for
those plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees. Stock options issued under Pioneers stock option plans have no intrinsic value at
the grant date, and Pioneer recorded no compensation costs under APB Opinion No. 25. Had
compensation expense for the stock option plans been determined with the use of a fair-value-based
method in accordance with SFAS 123, Accounting for Stock-Based Compensation, Pioneers pro-forma
net income (loss) and earnings (loss) per share would have been as follows: F-9




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2004
    
    
    2003
    
    
    2002Net income (loss):As reported
    
    $
    (1,242
    )
    
    $
    18,187
    
    
    $
    (4,757
    )Add: Stock-based compensation expense
included in reported net income
(loss)
    
    
    57
    
    
    
    
    
    
    
    Deduct: Stock-based compensation
expense determined under
fair-value-based method
    
    
    (701
    )
    
    
    (733
    )
    
    
    (430
    )Pro forma net income (loss)
    
    $
    (1,886
    )
    
    $
    17,454
    
    
    $
    (5,187
    )Net income (loss), per common share:Basic, as reported
    
    $
    (0.12
    )
    
    $
    1.82
    
    
    $
    (0.48
    )Basic, pro forma
    
    $
    (0.19
    )
    
    $
    1.75
    
    
    $
    (0.52
    )Diluted, as reported
    
    $
    (0.12
    )
    
    $
    1.79
    
    
    $
    (0.48
    )Diluted, pro forma
    
    $
    (0.19
    )
    
    $
    1.72
    
    
    $
    (0.52
    )
 The fair value of each stock option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average assumptions used for the
grants: in 2004, risk-free interest rate of 4.25%, no expected dividend yield for all years,
expected life of 10 years, and expected volatility of approximately 54%; in 2003, risk-free
interest rate of 4.25%, no expected dividend yield for all years, expected life of 10 years, and
expected volatility of 95%; and in 2002, risk-free interest rate of 3.8%, no expected dividend
yield for all years, expected life of 10 years, and expected volatility of 95%. Stock options
generally expire 10 years from the date of grant and fully vest after 3 years. At December 31,
2004, the weighted-average remaining contractual life of outstanding options was 8.2 years. Foreign Currency Translation Following SFAS 52, Foreign Currency Translation, the functional accounting currency for
Canadian operations is the U.S. dollar; accordingly, gains and losses resulting from balance sheet
translations are included as other income (expense) in the consolidated statement of operations. Concentration of Credit Risk Pioneer manufactures and sells its products to companies in diverse industries. Pioneer
performs periodic credit evaluations of its customers financial condition and does not require
collateral. Pioneers sales are primarily to customers throughout the United States and in eastern
Canada. Pioneer provides for credit losses through its allowance for doubtful accounts. In 2004 approximately 23% of Pioneers revenues was generated by sales of products for use in
the pulp and paper industry. At December 31, 2004, Pioneer had approximately $11.9 million of
accounts receivable from pulp and paper customers. Fair Value of Financial Instruments Pioneer has assumed that the carrying amount approximates fair value for cash and cash
equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses
because of the short maturities of those instruments. The fair values of debt instruments are
estimated based upon quoted market values (if applicable), or based on debt with similar terms and
remaining maturities. Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values presented herein are indicative of
the amounts that would be realized in a free market exchange. See below for discussion of the fair
value of certain derivative positions. At December 31, 2004, the fair market value of Pioneers debt instruments approximated the
carrying value. Reclassifications Certain amounts have been reclassified in prior years to conform to the current-year
presentation. F-10




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Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the estimates. Derivatives As of January 1, 2001, Pioneer adopted the accounting and reporting standards of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, as interpreted and amended. SFAS
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. 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. Prior to the settlement of derivative disputes (as discussed below) with CRC, approximately
35% of the electric power supply for Pioneers Henderson facility was hydropower furnished under a
low-cost, long-term contract with CRC, approximately 50% was provided under a supplemental supply
contract with CRC, and the remaining 15% was provided under a long-term arrangement with a third
party. The supplemental supply contract set forth detailed procedures governing the procurement of
power by CRC on Pioneers behalf. The agreement was not intended to provide for speculative power
purchases on behalf of Pioneer. The dispute with CRC involved various derivative positions that were executed by CRC,
purportedly for Pioneers benefit under the supplemental supply contract. The derivative positions
consisted of contracts for the forward purchase and sale of electricity as well as put and call
options that were written for electric power. Pioneer disputed CRCs contention that certain
derivative positions with a net liability at December 31, 2002, of $82.3 million were its
responsibility. A net liability of $87.3 million, consisting of the $82.3 million liability for
those derivatives positions and a $5.0 million liability relating to transactions that were not
disputed, was recorded by Pioneer and was reflected in its December 31, 2002, balance sheet. All of the conditions of a settlement of Pioneers dispute with CRC were satisfied on March 3,
2003. As a result of the settlement, which was effective as of January 1, 2003, Pioneer was
released from all claims for liability with respect to electricity derivatives positions, and all
litigation between Pioneer and CRC was dismissed. As of December 31, 2002, Pioneer had recorded a
net liability of $87.3 million for the net mark-to-market loss on outstanding derivative positions,
and a receivable from CRC of $21.0 million for estimated proceeds received by CRC for matured
derivative contracts. Due to the settlement of the dispute with CRC, both the $87.3 million net
liability and the $21.0 million receivable were reversed in the first quarter of 2003, resulting in
a non-cash net gain of $66.3 million. These amounts appear in the consolidated statement of
operations for the year ended December 31, 2003, as $87.3 million of operating income under the
caption Change in Fair Value of Derivatives to reflect the reversal of the previously recorded
mark-to-market loss, and $21.0 million of Cost of Sales  Derivatives, reflecting the reversal of
the receivable from CRC. The derivative positions included many types of contracts with varying strike prices and
maturity dates extending through 2006. The fair value of the instruments varied over time based
upon market circumstances. The fair value of the derivative positions was determined for Pioneer by
an independent consultant using available market information and valuation methodologies that
included current and forward pricing. Considerable judgment, however, was 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 be
realized upon disposition of the derivative positions or the ultimate amount that would be paid or
received when the positions were settled. The use of different market assumptions or estimation
methodologies could have resulted in different fair values. Management of Pioneer believes that the
market information, methodologies and assumptions used by the independent consultant to determine
the fair value of the derivative positions produced a reasonable estimation of their fair value. F-11




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##### Table of Contents



Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued a number of new accounting
standards that became effective in 2004, and Pioneer has evaluated the effects of such requirements
on its financial statements. In December 2003, the FASB issued SFAS 132 (Revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106,
which revises employers disclosures about pension plans and other postretirement benefit plans.
All provisions of this statement are effective for the year ended December 31, 2004. SeeNote 7. In November 2004, the FASB issued SFAS 151, Inventory CostsAn Amendment of Accounting
Research Bulletin No. 43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facility
expense, freight, handling costs and spoilage should be expensed as incurred and not included in
overhead. Further, SFAS 151 requires that allocation of fixed production overhead to conversion
costs be based on normal capacity of the production facilities. The provisions of SFAS 151 must be
applied prospectively to Pioneers inventory costs incurred after January 1, 2006. The adoption of
SFAS 151 is not expected to have a material impact on Pioneers consolidated financial statements. In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, replacing SFAS 123 and
superseding APB Opinion No. 25. SFAS 123(R) requires public companies to recognize compensation
expense for the cost of awards of equity instruments. This compensation cost will be measured as
the fair value of the award on the grant date estimated using an option-pricing model. Pioneer is
evaluating the various transition provisions under SFAS 123(R) and will adopt SFAS 123(R) effective
July 1, 2005, which is expected to result in additional compensation expense of $0.2 million for
the year ending December 31, 2005. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary AssetsAn Amendment of
APB Opinion No. 29, addressing the measurement of exchanges of nonmonetary assets. SFAS 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
production assets in APB Opinion No. 29, Accounting for Nonmonetary Exchanges, and replaces it
with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier
application permitted. Pioneer does not expect adoption of the provisions of SFAS 153 to have a
material impact on its consolidated financial statements. 3. Cash Flow Information Non-cash financing activities included the following: In April 2003, Pioneer realized a non-cash gain of $0.4 million from the early payment of a
$2.8 million promissory note. In October 2002, Pioneer financed certain insurance premiums with two notes totaling $1.5
million and payable to a third-party financing company. Since the financing company distributed
cash directly to the insurance company, the transaction was a non-cash transaction for Pioneer. The
notes payable were classified as short-term debt, and were payable in monthly installments through
June 2003. The payment made by the financing company to the insurance company was classified as
prepaid insurance and amortized over the term of the insurance policy. Following is supplemental cash flow information: 2004
    
    
    2003Interest paid
    
    $
    18,434
    
    
    $
    19,070Income taxes refunded
    
    
    (346
    )
    
    
    (144
    )
 In
December 2004 Pioneer issued 1.1 million shares of common
stock, resulting in
gross proceeds of $22.7 million. Expenses of $0.6 million were incurred in connection with the
equity offering, and Pioneer realized net proceeds of
$22.1 million. The net proceeds were used to prepay and redeem
long-term debt. See Note 8. F-12




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##### Table of Contents



4. Inventories Inventories consisted of the following at December 31: 2004
    
    
    2003Raw materials, supplies and parts, net
    
    $
    7,089
    
    
    $
    7,673Finished goods
    
    
    9,328
    
    
    
    8,034$
    16,417
    
    
    $
    15,707
 5. Other Assets Other assets consisted of the following at December 31: 2004
    
    
    2003Accounts receivable under environmental indemnification
    
    $
    3,379
    
    
    $
    3,366Other, net of amortization of $230 and $145, respectively
    
    
    980
    
    
    
    565Other assets, net
    
    $
    4,359
    
    
    $
    3,931
 6. Accrued Liabilities Accrued liabilities consisted of the following at December 31: 2004
    
    
    2003Payroll and benefits
    
    $
    7,250
    
    
    $
    4,302Electricity
    
    
    8,558
    
    
    
    5,887Other accrued liabilities
    
    
    8,487
    
    
    
    7,180Accrued liabilities
    
    $
    24,295
    
    
    $
    17,369
 7. Employee Benefits Defined Benefit Pension Plans PCI Canada and Pioneer Americas sponsor various non-contributory, defined benefit pension
plans covering substantially all their union and non-union employees. Benefits under the plans are
based primarily on participants compensation and years of credited service. In connection with
Pioneers application of fresh-start accounting on December 31, 2001, Pioneer adjusted the amounts
recorded for pension and post-retirement benefits other than pension liabilities to include all
previously unrecognized actuarial gains and losses, as well as unrecognized prior service costs. Annual pension costs and liabilities under both the U.S. and Canadian plans are determined
each year by the actuaries using various methods and assumptions. Global capital market
developments in 2002 and 2003 resulted in a decline in the discount rates used to estimate the
pension liabilities. As a result, Pioneer was required to record as Other Comprehensive Loss
additional minimum pension liabilities of $8.1 million, $5.5 million and $5.0 million as of
December 31, 2004, 2003 and 2002, respectively, for plans as to which the accumulated benefit
obligations exceeded the fair market values of the respective plan assets. Pension expense in 2004,
2003 and 2002 was $2.0 million ($1.0 million for the Canadian plan and $1.0 million for the U.S.
plans), $3.4 million ($1.0 million for the Canadian plan and $2.4 million for the U.S. plans), and
$2.8 million ($1.0 million for the Canadian plan and $1.8 million for the U.S. plans),
respectively. Effective February 29, 2004, Pioneer Americas froze benefits under its defined benefit pension
plans for substantially all U.S. salaried and union and non-union hourly employees. The effect of
the freezing of defined benefit pension plan benefits was accounted for as a curtailment pursuant
to SFAS 88. As a result of the curtailment, the projected benefit obligations for the Pioneer
Americas pension plans decreased by $4.3 million. The actuarial gain from such decrease was applied
against existing unrecognized actuarial losses and Pioneer recognized no curtailment gain in its
statement of operations for the year ended December 31, 2004. As a result of the organizational
efficiency project, during 2004 partial plan terminations were recognized with respect to two of
the Pioneer Americas defined benefit pension plans. Such partial plan terminations did not have
any significant impact on the financial statements. F-13




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##### Table of Contents



PCI Canada and Pioneer Americas intend to contribute such amounts as are necessary to provide
assets sufficient to meet the benefits to be paid to participants in the defined benefit plans. The
present intent is to make actuarially-computed annual contributions in amounts not more than the
maximum nor less than the minimum allowable under U.S. and Canadian statutory requirements. Total
minimum contributions of $5.3 million are expected in 2005, compared to contributions of $6.2
million in 2004. Information concerning the pension obligations, plan assets, amounts recognized in Pioneers
financial statements and underlying actuarial assumptions with respect to the defined benefit
pension plans are stated below. PCI Canada
    
    
    Pioneer Americas
    
    
    Pioneer Consolidated2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Change in benefit obligation:Projected benefit obligation, beginning of year
    
    $
    36,612
    
    
    $
    26,045
    
    
    $
    50,493
    
    
    $
    43,882
    
    
    $
    87,105
    
    
    $
    69,927Service cost
    
    
    1,182
    
    
    
    869
    
    
    
    328
    
    
    
    1,314
    
    
    
    1,510
    
    
    
    2,183Interest cost
    
    
    2,291
    
    
    
    2,001
    
    
    
    2,939
    
    
    
    2,878
    
    
    
    5,230
    
    
    
    4,879Benefits paid
    
    
    (1,685
    )
    
    
    (1,728
    )
    
    
    (2,328
    )
    
    
    (2,163
    )
    
    
    (4,013
    )
    
    
    (3,891
    )Decrease in obligation due to curtailment
    
    
    
    
    
    
    
    
    
    
    (4,349
    )
    
    
    
    
    
    
    (4,349
    )
    
    
    Actuarial loss (gain)
    
    
    1,580
    
    
    
    3,428
    
    
    
    4,839
    
    
    
    4,582
    
    
    
    6,419
    
    
    
    8,010Currency translation (gain) loss
    
    
    3,051
    
    
    
    5,997
    
    
    
    
    
    
    
    
    
    
    
    3,051
    
    
    
    5,997Projected benefit obligation, end of year
    
    $
    43,031
    
    
    $
    36,612
    
    
    $
    51,922
    
    
    $
    50,493
    
    
    $
    94,953
    
    
    $
    87,105Change in plan assets:Market value of plan assets, beginning of year
    
    $
    30,571
    
    
    $
    21,395
    
    
    $
    36,557
    
    
    $
    29,895
    
    
    $
    67,128
    
    
    $
    51,290Actual return on plan assets
    
    
    2,483
    
    
    
    3,063
    
    
    
    3,397
    
    
    
    5,735
    
    
    
    5,880
    
    
    
    8,798Employer contributions
    
    
    3,201
    
    
    
    3,171
    
    
    
    2,963
    
    
    
    3,090
    
    
    
    6,164
    
    
    
    6,261Benefits paid
    
    
    (1,685
    )
    
    
    (1,728
    )
    
    
    (2,192
    )
    
    
    (1,963
    )
    
    
    (3,877
    )
    
    
    (3,691
    )Actual plan expenses
    
    
    (335
    )
    
    
    (378
    )
    
    
    (137
    )
    
    
    (200
    )
    
    
    (472
    )
    
    
    (578
    )Currency translation gain (loss)
    
    
    2,703
    
    
    
    5,048
    
    
    
    
    
    
    
    
    
    
    
    2703
    
    
    
    5,048Market value of plan assets, end of year
    
    $
    36,938
    
    
    $
    30,571
    
    
    $
    40,588
    
    
    $
    36,557
    
    
    $
    77,526
    
    
    $
    67,128Accumulated benefit obligation
    
    $
    35,294
    
    
    $
    30,434
    
    
    $
    51,721
    
    
    $
    47,291
    
    
    $
    87,015
    
    
    $
    77,725
 PCI Canada
    
    
    Pioneer Americas
    
    
    Pioneer Consolidated2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Development of net amount recognized:Benefit obligation  end of year
    
    $
    (43,031
    )
    
    $
    (36,612
    )
    
    $
    (51,922
    )
    
    $
    (50,493
    )
    
    $
    (94,953
    )
    
    $
    (87,105
    )Market value of plan assets  end of year
    
    
    36,938
    
    
    
    30,571
    
    
    
    40,588
    
    
    
    36,557
    
    
    
    77,526
    
    
    
    67,128Funded status  deficit
    
    
    (6,093
    )
    
    
    (6,041
    )
    
    
    (11,334
    )
    
    
    (13,936
    )
    
    
    (17,427
    )
    
    
    (19,977
    )Unamortized prior service costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Unamortized net actuarial loss (gain)
    
    
    3,789
    
    
    
    1,707
    
    
    
    9,266
    
    
    
    9,923
    
    
    
    13,055
    
    
    
    11,630Currency translation (gain) loss
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Net liability recognized
    
    $
    (2,304
    )
    
    $
    (4,358
    )
    
    $
    (2,068
    )
    
    $
    (3,995
    )
    
    $
    (4,372
    )
    
    $
    (8,353
    )Accrued benefit liability
    
    $
    (2,304
    )
    
    $
    (3,839
    )
    
    $
    (10,122
    )
    
    $
    (9,555
    )
    
    $
    (12,426
    )
    
    $
    (13,394
    )Additional contributions
    
    
    
    
    
    
    (519
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (519
    )Intangible asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    79Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    8,054
    
    
    
    5,481
    
    
    
    8,054
    
    
    
    5,481Net amount recognized
    
    $
    (2,304
    )
    
    $
    (4,358
    )
    
    $
    (2,068
    )
    
    $
    (3,995
    )
    
    $
    (4,372
    )
    
    $
    (8,353
    )
 F-14




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##### Table of Contents



PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedYear Ended December 31, 2004Components of net periodic benefit cost:Service cost
    
    $
    1,182
    
    
    $
    328
    
    
    $
    1,510Interest cost
    
    
    2,291
    
    
    
    2,939
    
    
    
    5,230Expected return on plan assets
    
    
    (2,487
    )
    
    
    (2,995
    )
    
    
    (5,482
    )Amortization of prior service costs
    
    
    
    
    
    
    
    
    
    
    Loss on plan curtailment
    
    
    
    
    
    
    77
    
    
    
    77Gain on plan settlement
    
    
    
    
    
    
    (58
    )
    
    
    (58
    )Amortization of net actuarial loss
    
    
    
    
    
    
    745
    
    
    
    745Net periodic benefit cost
    
    $
    986
    
    
    $
    1,036
    
    
    $
    2,022Weighted average assumptions as of December 31:Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.90
    %Expected return on plan assets
    
    
    7.75
    %
    
    
    8.00
    %
    
    
    7.90
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %Year Ended December 31, 2003Components of net periodic benefit cost:Service cost
    
    $
    872
    
    
    $
    1,314
    
    
    $
    2,186Interest cost
    
    
    2,010
    
    
    
    2,877
    
    
    
    4,887Expected return on plan assets
    
    
    (1,930
    )
    
    
    (2,392
    )
    
    
    (4,322
    )Amortization of prior service costs
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Amortization of net actuarial loss (gain)
    
    
    (6
    )
    
    
    622
    
    
    
    616Net periodic benefit cost
    
    $
    946
    
    
    $
    2,416
    
    
    $
    3,362Weighted average assumptions as of December 31:Discount rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.10
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %Year Ended December 31, 2002Components of net periodic benefit cost:Service cost
    
    $
    928
    
    
    $
    1,535
    
    
    $
    2,463Interest cost
    
    
    1,813
    
    
    
    2,827
    
    
    
    4,640Expected return on plan assets
    
    
    (1,750
    )
    
    
    (2,544
    )
    
    
    (4,294
    )Amortization of prior service costs
    
    
    
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    991
    
    
    $
    1,819
    
    
    $
    2,810Weighted average assumptions as of December 31:Discount rate
    
    
    7.00
    %
    
    
    6.80
    %
    
    
    6.80
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %
 Plan assets at December 31, 2004 and 2003, consist primarily of fixed income investments and
equity investments. The following discussions describe the selection of the expected return on
assets and investment policy for both the PCI Canada and the Pioneer Americas plans. Selection of the Expected Return on Assets.The expected long-term rate of return on assets
is based on the facts and circumstances that exist as of the measurement date and the specific
portfolio mix of the plans assets. PCI Canada and Pioneer Americas use a model developed by their
actuaries to assist in the determination of this assumption. The model takes into account several
factors such as target portfolio allocation, expenses, historical market performance and expected
returns, variances and correlations of different asset categories. These measures are used to
determine a range of expected returns on the portfolio. A rate of return assumption that is within
25 basis points of the median long-term return produced by the model is generally selected. The
assumption is compared with the historical average asset return to ensure that the assumption is
consistent and reasonable. Investment Strategy.The pension asset investment objective is to maximize long-term returns
while minimizing losses in order to meet future benefit obligations when they become due. F-15




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##### Table of Contents



The assets of the defined benefit plans are allocated in accordance with recommendations
made by pension plan consultants. The weighted-average asset allocations at December 31, 2004 and
2003, by asset category were as follows: December 31, 2004
    
    
    December 31, 2003PCI
    
    
    Pioneer
    
    
    PCI
    
    
    PioneerCanada
    
    
    Americas
    
    
    Canada
    
    
    AmericasEquity
securities  U.S.
    
    
    20
    %
    
    
    42
    
    
    
    20
    %
    
    
    41
    %Equity securities  Canadian
    
    
    25
    
    
    
    
    
    
    
    24
    
    
    
    Equity securities  international
    
    
    19
    
    
    
    13
    
    
    
    20
    
    
    
    13Debt securities
    
    
    35
    
    
    
    20
    
    
    
    35
    
    
    
    17Real estate fund
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Guaranteed accounts
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    25Short-term investments
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The expected benefits to be paid in future periods, which are estimated as of December 31,
2004, and are based on the same assumptions used to measure pension plan benefit obligations at
year end, are as follows: PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedFor the years ended December 31:2005
    
    $
    1,148
    
    
    $
    2,118
    
    
    $
    3,2662006
    
    
    1,328
    
    
    
    2,244
    
    
    
    3,5722007
    
    
    1,544
    
    
    
    2,421
    
    
    
    3,9652008
    
    
    1,770
    
    
    
    2,625
    
    
    
    4,3952009
    
    
    1,999
    
    
    
    3,000
    
    
    
    4,9992010 through 2014
    
    
    14,335
    
    
    
    20,092
    
    
    
    34,427Total
    
    $
    22,124
    
    
    $
    32,500
    
    
    $
    54,624
 Defined Contribution Pension Plans PCI Canada offers a defined contribution pension plan to its employees, under which
participant employees may generally contribute from 1% to approximately 8% of their compensation.
PCI Canada also contributes funds to the plan in the amount of 35% of employee contributions up to
4% of employee compensation. Effective February 1, 2002, PCI Canada suspended its contributions to
the plan in order to reduce costs. In 2003, PCI Canada resumed making matching contributions on
employee contributions up to 4% of employee compensation in accordance with the following schedule:
from May 1, 2003: 20%; from July 1, 2003: 70%; from October 1, 2004: 65%; from November 1, 2004:
35%. Contribution expense under the plan was $320,000, $169,000 and $17,000 in 2004, 2003 and 2002,
respectively. Pioneer Americas offers defined contribution pension plans to its employees, under which
participants may generally contribute from 1% to 50% of their compensation. Effective February 1,
2002, Pioneer Americas suspended making matching contributions to the plans in order to reduce
costs. Effective May 1, 2003, Pioneer Americas resumed making matching contributions in the amount
of 25% of employee contributions up to 6% of employee compensation. Effective March 1, 2004, the
plans were amended to provide for additional contributions to participant accounts by Pioneer
Americas, in amounts of 5% of employee compensation for employees under the age of 45, and 7.5% of
employee compensation for employees 45 or older. Contribution expense under the plans was $0.9
million, $0.2 million and $0.1 million in 2004, 2003 and 2002, respectively. Post-Retirement Benefits Other Than Pensions PCI Canada provides its employees with retiree health care benefits that supplement the health
care benefits that are made available under governmental programs. Until January 1, 1999, Pioneer
Americas provided health care benefits to retirees. On that date, Pioneer Americas modified the
plan to provide that employees retiring after January 1, 1999, do not receive company-paid retiree
medical benefits. Effective December 31, 2003, the Pioneer Americas plan was further modified to
eliminate retiree health care benefits when a participant reaches age 65. Pioneer Americas
accounted for the reduction in benefits as a negative plan amendment, which resulted in a gain of
$4.8 million included in accrued benefit liability to be amortized over a period of up to 7.63
years at December 31, 2003. At December 31, 2004, the unamortized gain related to the negative
plan amendment was $3.8 million. F-16




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##### Table of Contents



Information concerning the benefit obligations, amounts recognized in Pioneers financial
statements and underlying actuarial assumptions with respect to the retiree health care benefits
plan are stated below. PCI Canada
    
    
    Pioneer Americas
    
    
    Pioneer Consolidated2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Change in benefit obligation:Benefit obligation, beginning of
year
    
    $
    4,461
    
    
    $
    2,683
    
    
    $
    828
    
    
    $
    5,859
    
    
    $
    5,289
    
    
    $
    8,542Service cost
    
    
    148
    
    
    
    100
    
    
    
    2
    
    
    
    2
    
    
    
    150
    
    
    
    102Interest cost
    
    
    277
    
    
    
    211
    
    
    
    35
    
    
    
    207
    
    
    
    312
    
    
    
    418Plan amendments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,445
    )
    
    
    
    
    
    
    (4,445
    )Benefits paid
    
    
    (44
    )
    
    
    (39
    )
    
    
    (223
    )
    
    
    (195
    )
    
    
    (267
    )
    
    
    (234
    )Decrease in obligation due to
curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    (35
    )Actuarial loss (gain)
    
    
    475
    
    
    
    839
    
    
    
    (63
    )
    
    
    (565
    )
    
    
    412
    
    
    
    274Currency translation loss
    
    
    420
    
    
    
    667
    
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    667Benefit obligation, end of year
    
    $
    5,737
    
    
    $
    4,461
    
    
    $
    579
    
    
    $
    828
    

    
    $
    6,316
    
    
    $
    5,289Reconciliation of funded status:Funded status  deficit
    
    $
    (5,737
    )
    
    $
    (4,461
    )
    
    $
    (579
    )
    
    $
    (828
    )
    
    $
    (6,316
    )
    
    $
    (5,289
    )Unamortized prior service costs
    
    
    (174
    )
    
    
    (189
    )
    
    
    (3,822
    )
    
    
    (4,445
    )
    
    
    (3,996
    )
    
    
    (4,634
    )Unamortized net actuarial
loss (gain)
    
    
    942
    
    
    
    437
    
    
    
    (507
    )
    
    
    (492
    )
    
    
    435
    
    
    
    (55
    )Currency translation loss
    
    
    63
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    19Accrued benefit liability
    
    $
    (4,906
    )
    
    $
    (4,194
    )
    
    $
    (4,908
    )
    
    $
    (5,765
    )
    
    $
    (9,814
    )
    
    $
    (9,959
    )
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedYear Ended December 31, 2004Components of net periodic benefit cost:Service cost
    
    $
    148
    
    
    $
    2
    
    
    $
    150Interest cost
    
    
    277
    
    
    
    35
    
    
    
    312Amortization of prior service costs
    
    
    (29
    )
    
    
    (623
    )
    
    
    (652
    )Amortization of net actuarial loss (gain)
    
    
    2
    
    
    
    (47
    )
    
    
    (45
    )Net periodic benefit cost
    
    $
    398
    
    
    $
    (633
    )
    
    $
    (235
    )Weighted average assumptions as of December 31:Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %Year Ended December 31, 2003Components of net periodic benefit cost:Service cost
    
    $
    100
    
    
    $
    2
    
    
    $
    102Interest cost
    
    
    211
    
    
    
    207
    
    
    
    418Amortization of prior service costs
    
    
    (27
    )
    
    
    (312
    )
    
    
    (339
    )Amortization of net actuarial gain
    
    
    (10
    )
    
    
    (43
    )
    
    
    (53
    )Net periodic benefit cost
    
    $
    274
    
    
    $
    (146
    )
    
    $
    128Weighted average assumptions as of December 31:Discount rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.20
    %Year Ended December 31, 2002Components of net periodic benefit cost:Service cost
    
    $
    94
    
    
    $
    4
    
    
    $
    98Interest cost
    
    
    194
    
    
    
    395
    
    
    
    589Amortization of net actuarial gain
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )Net periodic benefit cost
    
    $
    288
    
    
    $
    369
    
    
    $
    657Weighted average assumptions as of December 31:Discount rate
    
    
    7.00
    %
    
    
    6.80
    %
    
    
    6.80
    %
 The annual costs and liabilities under both the U.S. and Canadian retiree health care plans
are determined each year by Pioneers actuaries using various assumptions. With respect to the PCI
Canada plan, the weighted-average annual assumed health care trend rate is assumed to be 9.3% for
2005. The rate is assumed to decrease gradually to 4.6% in 2012 and remain level thereafter. With
respect to the Pioneer Americas plan, the weighted-average annual assumed health care trend rate is
assumed to be 7.5% for 2005. The rate is assumed to decrease gradually to 4.5% in 2012 and remain
level thereafter. Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed health care trend
rates would have the following effects: F-17




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##### Table of Contents



PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedEffect of a one-percentage-point change to the health
care cost trend rate assumption:Effect of + 1% on service cost plus interest cost
    
    $
    106
    
    
    $
    
    
    
    $
    106Effect of - 1% on service cost plus interest cost
    
    $
    (83
    )
    
    $
    
    
    
    $
    (83
    )Effect of + 1% on accrued benefit obligation
    
    $
    1,161
    
    
    $
    52
    
    
    $
    1,213Effect of - 1% on accrued benefit obligation
    
    $
    (920
    )
    
    $
    (60
    )
    
    $
    (980
    )
 The expected benefits to be paid in future periods, which are estimated as of December 31,
2004, and are based on the same assumptions used to measure pension plan benefit obligations at
year end, are as follows: PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedFor the years ended December 31:2005
    
    $
    90
    
    
    $
    102
    
    
    $
    1922006
    
    
    113
    
    
    
    84
    
    
    
    1972007
    
    
    138
    
    
    
    60
    
    
    
    1982008
    
    
    165
    
    
    
    53
    
    
    
    2182009
    
    
    198
    
    
    
    14
    
    
    
    2122010 through 2014
    
    
    1,493
    
    
    
    91
    
    
    
    1,584Total
    
    $
    2,197
    
    
    $
    404
    
    
    $
    2,601
 It is anticipated that total contributions to the plans will be $0.2 million in 2005. Stock-Based Compensation Pioneer has a stock incentive plan that provides for the granting to key personnel and
directors of options to purchase up to 1.0 million shares of common stock. The options may be
either qualified incentive stock options or nonqualified stock options. Stock options granted to
date have an exercise price equal to or exceeding the market value of the shares of common stock on
the date of grant. Options awarded to Pioneers employees become exercisable in annual increments
over a three-year period beginning one year from the grant date. Options awarded to directors
become exercisable on the first to occur of the anniversary of the date of their election as
directors and the date that occurs 365 days after the grant date. The following table summarizes the transactions with respect to the stock options of Pioneer
for the years ended December 31, 2002, 2003 and 2004 (shares in thousands): WeightedAverageNumber of
    
    
    Exercise Price
    
    
    Exercise PriceShares
    
    
    Per Share
    
    
    Per Share2002:Granted
    
    
    952
    
    
    $
    2.00  $4.00
    
    
    $
    2.94Forfeited
    
    
    (174
    )
    
    $
    2.50
    
    
    $
    2.50Outstanding at December 31, 2002
    
    
    778
    
    
    $
    2.00  $4.00
    
    
    $
    3.042003:Granted
    
    
    20
    
    
    $
    8.15
    
    
    $
    8.15Exercised
    
    
    (4
    )
    
    $
    2.50
    
    
    $
    2.50Forfeited
    
    
    (47
    )
    
    $
    2.50
    
    
    $
    2.50Outstanding at December 31, 2003
    
    
    747
    
    
    $
    2.00  $8.15
    
    
    $
    2.972004:Granted
    
    
    198
    
    
    $
    4.00  $20.75
    
    
    $
    9.32Exercised
    
    
    (82
    )
    
    $
    2.00  $8.15
    
    
    $
    2.82Forfeited
    
    
    (98
    )
    
    $
    2.50
    
    
    $
    2.50Outstanding at December 31, 2004
    
    
    765
    
    
    $
    2.00  $20.75
    
    
    $
    4.92
 The fair market value of options granted in 2002, 2003 and 2004 was $2.2 million, $0.1 million
and $1.3 million, respectively. There were 40,000, 280,000 and 390,000 shares exercisable under the
options outstanding at December 31, 2002, 2003 and 2004, respectively. The average exercise price
of the exercisable options at December 31, 2002, 2003 and 2004 was $2.50 per share, $2.97 per share
and $3.43 per share, respectively. F-18




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##### Table of Contents



8. Debt Debt consisted of the following at December 31: 2004
    
    
    2003Senior Secured Debt:Senior Secured Floating Rate Guaranteed Notes, due December
2006, variable rates based on the three-month LIBOR* plus 3.5%
(Senior Guaranteed Notes)
    
    
    43,151
    
    
    $
    43,151Senior Floating Rate Term Notes, due December 2006, variable
interest rates based on the three-month LIBOR* plus 3.5%
(Senior Floating Notes)
    
    
    3,090
    
    
    
    4,41310% Senior Secured Guaranteed Notes, due December 2008 (10%
Senior Secured Notes)
    
    
    150,000
    
    
    
    150,000Revolving credit facility; variable interest rates based on
U.S. prime rate plus a margin ranging from 0.5% to 1.25% or
LIBOR* plus a margin ranging from 2.50% to 3.25% expiring
December 31, 2006, as amended (Revolver)
    
    
    
    
    
    
    16,823Other debt:Unsecured, non-interest-bearing, long-term debt, denominated
in Canadian dollars (amounts below are in Canadian dollars),
original face value of $5.5 million, payable in five annual
installments of $1.0 million and a final payment of $0.5
million, beginning January 10, 2002, with an effective
interest rate of 8.25%, net of unamortized discount of $0.2
million at December 31, 2004
    
    
    1,947
    
    
    
    2,432Other notes, maturing in various years through 2014, with
various installments, at various interest rates
    
    
    4,588
    
    
    
    5,469Total
    
    
    202,776
    
    
    
    222,288Short-term debt, including current maturities of long-term debt
    
    
    (1,979
    )
    
    
    (18,485
    )Long-term debt, less current maturities
    
    $
    200,797
    
    
    $
    203,803
   *The three-month London inter-bank offered rate (LIBOR) for the period ended December 31,
2004 and 2003 was 1.98% and 1.14%, respectively. Senior secured debt outstanding under various debt instruments consists of the Senior
Guaranteed Notes, the Senior Floating Notes, the 10% Senior Secured Notes and the Revolver.
Collectively, the $196.2 million in Senior Guaranteed Notes, Senior Floating Notes and 10% Senior
Secured Notes are referred to as the Senior Notes, and together with the Revolver are referred to
as the Senior Secured Debt. In addition, at December 31, 2004, Pioneer had a $1.9 million unsecured
non-interest bearing instrument payable to a vendor for the settlement of certain amounts owed to
that vendor, which contains a covenant that allows the vendor to demand immediate repayment and
begin charging interest at a rate of 9.3% if Pioneers liquidity falls below $5 million (Canadian
dollars); $0.6 million payable over several years to a state taxing authority; and $4.1 million of
other debt outstanding, comprised of notes maturing in various years through 2014. In December 2004, Pioneer issued 1.1 million shares of common stock in a public offering. Of
the $22.1 million in net proceeds of the offering, a total of $1.3 million was applied to prepay a
portion of the outstanding Senior Floating Notes in December 2004, and the remainder was applied to
the redemption of $21.1 million in principal amount of the outstanding Senior Guaranteed Notes in
January 2005. The Revolver provides for revolving loans in an aggregate amount up to $30 million,
subject to borrowing base limitations related to the level of accounts receivable, inventory and
reserves. On December 31, 2004, the borrowing base under the Revolver was $30.0 million, and on
that date borrowing availability net of outstanding letters of credit was $26.8 million, and net
liquidity (consisting of cash and borrowing availability) was $43.0 million. No borrowings were
outstanding under the Revolver on December 31, 2004. Borrowings under the Revolver are available
through December 31, 2006, so long as no default exits and all conditions to borrowings are met.
Borrowings under the Revolver accrue interest determined on the basis of either the prime rate plus
a margin or LIBOR plus a margin. The rate at which interest accrued on December 31, 2004 and 2003
was 5.75% and 7.00%, respectively. Pioneer incurs a fee on the unused amount of the facility at a
rate of 0.375% per year. Because the Revolver requires a lock-box arrangement and contains a
clause that allows the lender to refuse to fund further advances in the event of a material adverse
change in Pioneers business, Pioneer must classify the Revolver as current debt. The Revolver requires Pioneer to maintain Liquidity (as defined) of at least $5.0 million, and
limit its capital expenditures to $25.0 million in each fiscal year. At December 31, 2004,
Liquidity was $43.0 million, consisting of borrowing availability of $26.8 million and cash of
$16.2 million, including short-term investments. Capital expenditures were $8.4 million during 2004. One of the covenants in the
Revolver requires Pioneer to generate at least $21.55 million of Lender-Defined F-19




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##### Table of Contents



EBITDA for each twelve-month period ending at the end of each fiscal quarter. Pioneer was in
compliance with the covenant for the twelve months ended December 31, 2004. The Revolver also provides that, as a condition of borrowings, there shall not have occurred
any material adverse change in Pioneers business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise). If the required Lender-Defined EBITDA level under the Revolver is not met and the lender does
not waive Pioneers failure to comply with the requirement, Pioneer will be in default under the
terms of the Revolver. Moreover, if conditions constituting a material adverse change occur, the
lender can refuse to make further advances. Following any such refusal, customer receipts would be
applied to Pioneers borrowings under the Revolver, and Pioneer would not have the ability to
reborrow. This would cause Pioneer to suffer a rapid loss of liquidity and it would lose the
ability to operate on a day-to-day basis. In addition, a default under the Revolver would allow the
lender to accelerate the outstanding indebtedness under the Revolver and would also result in a
cross-default under the Senior Notes that would provide the holders of the Senior Notes with the
right to demand immediate repayment. Interest on the 10% Senior Secured Notes is payable on June 30th and December 31st. Interest
on the Senior Guaranteed Notes and the Senior Floating Notes is payable quarterly on March 31st,
June 30th, September 30th and December 31st. Pioneer is required to make mandatory redemptions and prepayments of Tranche A Notes from and
to the extent of net cash proceeds of certain asset sales, new equity issuances in excess of $5
million and excess cash flow (as defined in the related agreements), and if there is a change of
control. The Tranche A Notes also provide that, within 60 days after each calendar quarter through
2006, Pioneer is required to redeem and prepay the greater of an amount determined on the basis of
(a) Pioneer Americas net income before extraordinary items, other income, net, interest, income
taxes, depreciation and amortization (Tranche A Notes EBITDA) and (b) an amount determined on the
basis of the Companys excess cash flow and average liquidity, as defined. With respect to the
Tranche A Notes EBITDA, the amount that is redeemed and prepaid is (i) $2.5 million if Tranche A
Notes EBITDA for such calendar quarter is $20 million or more but less than $25 million, (ii) $5
million if Tranche A Notes EBITDA for such calendar quarter is $25 million or more but less than
$30 million and (iii) $7.5 million if Tranche A Notes EBITDA for such calendar quarter is $30
million or more, in each case plus accrued and unpaid interest to the date of redemption and
prepayment. With respect to excess cash flow, the amount that is to be redeemed and prepaid is a
percentage of the Companys consolidated net income, without regard to extraordinary gains and
losses and net after-tax other income, plus depreciation, amortization and other non-cash charges,
and less all cash principal payments, capital expenditures and extraordinary cash gains or cash
income received, plus or minus cash changes in working capital. The applicable percentage is to be
determined on the basis of the Companys average liquidity, which is the average of cash plus
borrowing availability under the Revolver for the quarter or for the 45-day period following the
end of the quarter. Each holder of Senior Floating Notes may refuse any such repayment. As a result
of the application of these provisions with respect to the first quarter of 2003, Pioneer redeemed
and prepaid $2.4 million of the principal amount of the Tranche A Notes on May 23, 2003. One holder
refused the prepayment of the balance of the $2.5 million that was to have been prepaid on that
date. No redemption and prepayment of Tranche A Notes was required with respect to any other
calendar quarter during 2003 or with respect to any calendar quarter during 2004. The holders of the 10% Senior Secured Notes may require Pioneer to redeem 10% Senior Secured
Notes with net cash proceeds of certain asset sales and of new equity issuance in excess of $35
million (if there is no indebtedness outstanding on the Tranche A Notes). In addition, the holders
may require Pioneer to repurchase all or a portion of the notes upon the occurrence of a change of
control. Pioneer may prepay amounts owed on the Tranche A Notes and the 10% Senior Secured Notes in
minimum amounts of $1.0 million or more, and Pioneer may, at its option, terminate the Revolver. If
the Revolver is terminated early, a prepayment premium of $0.3 million will be required. On or
after December 31, 2005, Pioneer may redeem some or all of the 10% Senior Secured Notes by paying
the holders a redemption premium of 5% for a redemption during 2006 and a 2.5% premium for any
redemption during 2007. No premium would be payable with respect to a redemption during 2008. F-20




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##### Table of Contents



The obligations under the Revolver are secured by liens on Pioneers accounts receivable and
inventory, and the obligations under the Senior Notes are secured by liens on substantially all of
Pioneers other assets, with the exception of certain assets that secure the obligations
outstanding under certain other long-term liabilities. The debt agreements contain covenants requiring Pioneer to meet minimum liquidity levels, and
limiting or prohibiting Pioneers ability to, among other things, incur additional indebtedness,
prepay or modify debt instruments, grant additional liens, guarantee any obligations, sell assets,
engage in another type of business or suspend or terminate a substantial portion of business,
declare or pay dividends, make investments, make capital expenditures in excess of certain amounts,
or make use of the proceeds of borrowings for purposes other than those specified in the
agreements. The agreements also include customary events of default, including one for a change of
control under the Revolver. Borrowings under the Revolver will generally be available subject to
the accuracy of all representations and warranties, including the absence of a material adverse
change and the absence of any default or event of default. Pioneer was in compliance with the
requirements of the debt agreements for the twelve months ended December 31, 2004. Scheduled maturities of long-term debt at December 31, 2004 are as follows: SeniorSecuredDebt
    
    
    Other
    
    
    Total2005
    
    $
    
    
    
    $
    1,978
    
    
    $
    1,9782006*
    
    
    46,241
    
    
    
    1,832
    
    
    
    48,0732007
    
    
    
    
    
    
    965
    
    
    
    9652008
    
    
    150,000
    
    
    
    
    
    
    
    150,0002009
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    1,760
    
    
    
    1,760$
    196,241
    
    
    $
    6,535
    
    
    $
    202,776
   *
    
    As indicated above, $21.1 million in principal amount of the
Senior Secured Debt was redeemed in January 2005, and the
remaining principal amount of $25.1 million is scheduled to
mature in 2006. The cash that Pioneer generates from its operations may not be sufficient to repay the
Revolver and the Tranche A Notes when they are due in December 2006, or the 10% Senior Secured
Notes when they are due in December 2008. In such events, it would be necessary to refinance the
indebtedness, issue new equity or sell assets. The terms of any necessary new borrowings would be
determined by then-current market conditions and other factors, and could impose significant
additional burdens on Pioneers financial condition and operating flexibility, and the issuance of
new equity securities could dilute the interest of Pioneers existing stockholders. Pioneer cannot
provide any assurance that it would be able to refinance any of its indebtedness, raise equity on
commercially reasonable terms or at all, or sell assets, which failure could cause Pioneer to
default on its obligations and impair its liquidity. Pioneers inability to generate sufficient
cash flow to satisfy its debt obligations, or to refinance its obligations on commercially
reasonable terms, would have a material adverse effect on its business, financial condition and
results of operations. 9. Condensed Consolidating Financial Statements PCI Canada (a wholly-owned subsidiary of PCI) is the issuer of the 10% Senior Secured Notes,
which are fully and unconditionally guaranteed on a joint and several basis by PCI and all of PCIs
other direct and indirect wholly-owned subsidiaries. Pioneer Americas (a wholly-owned subsidiary of PCI Canada) is the issuer of the Senior
Guaranteed Notes and Senior Floating Notes, which are fully and unconditionally guaranteed on a
joint and several basis by PCI and all of PCIs other direct and indirect wholly-owned
subsidiaries. Together, PCI Canada, Pioneer Americas and the subsidiary note guarantors comprise
all of the direct and indirect subsidiaries of PCI. F-21




---



##### Table of Contents



Condensed consolidating financial information for PCI and its wholly-owned subsidiaries is
presented below. Separate financial statements of PCI Canada and Pioneer Americas are not provided
because Pioneer does not believe that such information would be material to investors or lenders of
the Company. CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2004 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    148
    
    
    $
    16,041
    
    
    $
    2
    
    
    $
    
    
    
    $
    16,191Accounts receivable, net
    
    
    
    
    
    
    11,199
    
    
    
    41,494
    
    
    
    
    
    
    
    
    
    
    
    52,693Inventories, net
    
    
    
    
    
    
    7,317
    
    
    
    9,100
    
    
    
    
    
    
    
    
    
    
    
    16,417Prepaid expenses and other current assets
    
    
    2,627
    
    
    
    2,011
    
    
    
    1,044
    
    
    
    
    
    
    
    
    
    
    
    5,682Total current assets
    
    
    2,627
    
    
    
    20,675
    
    
    
    67,679
    
    
    
    2
    
    
    
    
    
    
    
    90,983Property, plant and equipment, net
    
    
    
    
    
    
    103,554
    
    
    
    67,116
    
    
    
    1,528
    
    
    
    
    
    
    
    172,198Other assets, net
    
    
    
    
    
    
    179
    
    
    
    4,180
    
    
    
    
    
    
    
    
    
    
    
    4,359Intercompany receivable
    
    
    13,808
    
    
    
    100,789
    
    
    
    
    
    
    
    76,550
    
    
    
    (191,147
    )
    
    
    Investment in subsidiaries
    
    
    22,792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,792
    )
    
    
    Excess reorganization value over fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    39,227
    
    
    $
    309,261
    
    
    $
    138,975
    
    
    $
    78,080
    
    
    $
    (213,939
    )
    
    $
    351,604LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    8,109
    
    
    $
    8,436
    
    
    $
    
    
    
    $
    
    
    
    $
    16,545Accrued liabilities
    
    
    
    
    
    
    7,990
    
    
    
    16,305
    
    
    
    
    
    
    
    
    
    
    
    24,295Current portion of long-term debt
    
    
    
    
    
    
    734
    
    
    
    1,217
    
    
    
    28
    
    
    
    
    
    
    
    1,979Total current liabilities
    
    
    
    
    
    
    16,833
    
    
    
    25,958
    
    
    
    28
    
    
    
    
    
    
    
    42,819Long-term debt, less current portion
    
    
    
    
    
    
    151,213
    
    
    
    49,550
    
    
    
    34
    
    
    
    
    
    
    
    200,797Investment in subsidiary
    
    
    
    
    
    
    157,176
    
    
    
    
    
    
    
    632
    
    
    
    (157,808
    )
    
    
    Intercompany payable
    
    
    1,332
    
    
    
    261
    
    
    
    189,554
    
    
    
    
    
    
    
    (191,147
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    7,211
    
    
    
    16,037
    
    
    
    
    
    
    
    
    
    
    
    23,248Other long-term liabilities
    
    
    
    
    
    
    30,483
    
    
    
    15,052
    
    
    
    1,310
    
    
    
    
    
    
    

    46,845Stockholders equity (deficiency in assets)
    
    
    37,895
    
    
    
    (53,916
    )
    
    
    (157,176
    )
    
    
    76,076
    
    
    
    135,016
    
    
    
    37,895Total liabilities and stockholders equity
    
    $
    39,227
    
    
    $
    309,261
    
    
    $
    138,975
    
    
    $
    78,080
    
    
    $
    (213,939
    )
    
    $
    351,604
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2003 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    500
    
    
    $
    1,422
    
    
    $
    24
    
    
    $
    
    
    
    $
    1,946Accounts receivable, net
    
    
    
    
    
    
    10,218
    
    
    
    28,582
    
    
    
    
    
    
    
    
    
    
    
    38,800Inventories, net
    
    
    
    
    
    
    6,219
    
    
    
    9,488
    
    
    
    
    
    
    
    
    
    
    
    15,707Prepaid expenses and other current assets
    
    
    2,812
    
    
    
    1,341
    
    
    
    865
    
    
    
    
    
    
    
    
    
    
    
    5,018Total current assets
    
    
    2,812
    
    
    
    18,278
    
    
    
    40,357
    
    
    
    24
    
    
    
    
    
    
    
    61,471Property, plant and equipment, net
    
    
    
    
    
    
    113,615
    
    
    
    74,391
    
    
    
    1,528
    
    
    
    
    
    
    
    189,534Other assets, net
    
    
    
    
    
    
    165
    
    
    
    3,766
    
    
    
    
    
    
    
    
    
    
    
    3,931Intercompany receivable
    
    
    
    
    
    
    87,356
    
    
    
    
    
    
    
    67,581
    
    
    
    (154,937
    )
    
    
    Investment in subsidiaries
    
    
    25,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,376
    )
    
    
    Excess reorganization value over fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    28,188
    
    
    $
    303,478
    
    
    $
    118,514
    
    
    $
    69,133
    
    
    $
    (180,313
    )
    
    $
    339,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    5,875
    
    
    $
    7,152
    
    
    $
    
    
    
    $
    
    
    
    $
    13,027Accrued liabilities
    
    
    
    
    
    
    5,751
    
    
    
    11,585
    
    
    
    33
    
    
    
    
    
    
    
    17,369Current portion of long-term debt
    
    
    
    
    
    
    627
    
    
    
    17,830
    
    
    
    28
    
    
    
    
    
    
    
    18,485Total current liabilities
    
    
    
    
    
    
    12,253
    
    
    
    36,567
    
    
    
    61
    
    
    
    
    
    
    
    48,881Long-term debt, less current portion
    
    
    
    
    
    
    151,805

    
    
    
    51,936
    
    
    
    62
    
    
    
    
    
    
    
    203,803Investment in subsidiary
    
    
    
    
    
    
    144,036
    
    
    
    
    
    
    
    445
    
    
    
    (144,481
    )
    
    
    Intercompany payable
    
    
    9,198
    
    
    
    3,527
    
    
    
    142,212
    
    
    
    
    
    
    
    (154,937
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    8,050
    
    
    
    16,534
    
    
    
    
    
    
    
    
    
    
    
    24,584Other long-term liabilities
    
    
    
    
    
    
    25,856
    
    
    
    15,301
    
    
    
    1,585
    
    
    
    
    
    
    
    42,742Stockholders equity (deficiency in assets)
    
    
    18,990
    
    
    
    (42,049
    )
    
    
    (144,036
    )
    
    
    66,980
    
    
    
    119,105
    
    
    
    18,990Total liabilities and stockholders equity
    
    $
    28,188
    
    
    $
    303,478
    
    
    $
    118,514
    
    
    $
    69,133
    
    
    $
    (180,313
    )
    
    $
    339,000
 F-22




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 2004 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    193,691
    
    
    $
    310,810
    
    
    $
    
    
    
    $
    (97,386
    )
    
    $
    407,115Cost of sales
    
    
    
    
    
    
    (162,192
    )
    
    
    (288,468
    )
    
    
    (180
    )
    
    
    97,386
    
    
    
    (353,454
    )Gross profit
    
    
    
    
    
    
    31,499
    
    
    
    22,342
    
    
    
    (180
    )
    
    
    
    
    
    
    53,661Selling, general and administrative expenses
    
    
    (885
    )
    
    
    (8,082
    )
    
    
    (18,693
    )
    
    
    52
    
    
    
    
    
    
    
    (27,608
    )Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other items
    
    
    
    
    
    
    (2,046
    )
    
    
    (1,928
    )
    
    
    
    
    
    
    
    
    
    
    (3,974
    )Operating income (loss)
    
    
    (885
    )
    
    
    21,371
    
    
    
    1,721
    
    
    
    (128
    )
    
    
    
    
    
    
    22,079Interest expense, net
    
    
    
    
    
    
    (15,135
    )
    
    
    (3,215
    )
    
    
    (6
    )
    
    
    
    
    
    
    (18,356
    )Other income (expense), net
    
    
    
    
    
    
    (2,834
    )
    
    
    (9,421
    )
    
    
    9,417
    
    
    
    
    
    
    
    (2,838
    )Income (loss) before income taxes
    
    
    (885
    )
    
    
    3,402
    
    
    
    (10,915
    )
    
    
    9,283
    
    
    
    
    
    
    
    885Income tax expense
    
    
    
    
    
    
    (2,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,127
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (885
    )
    
    
    1,275
    
    
    
    (10,915
    )
    
    
    9,283
    
    
    
    
    
    
    
    (1,242
    )Equity in net earnings (loss) of subsidiaries
    
    
    (357
    )
    
    
    (10,915
    )
    
    
    
    
    
    
    (186
    )
    
    
    11,458
    
    
    
    Net income (loss)
    
    $
    (1,242
    )
    
    $
    (9,640
    )
    
    $
    (10,915
    )
    
    $
    9,097
    
    
    $
    11,458
    
    
    $
    (1,242
    )
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 2003 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    178,805
    
    
    $
    287,427
    
    
    $
    
    
    
    $
    (87,557
    )
    
    $
    378,675Cost of sales
    
    
    
    
    
    
    (154,064
    )
    
    
    (295,450
    )
    
    
    154
    
    
    
    87,557
    
    
    
    (361,803
    )Gross profit
    
    
    
    
    
    
    24,741
    
    
    
    (8,023
    )
    
    
    154
    
    
    
    
    
    
    
    16,872Selling, general and administrative expenses
    
    
    (332
    )
    
    
    (5,318
    )
    
    
    (17,533
    )
    
    
    (21
    )
    
    
    
    
    
    
    (23,204
    )Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    87,271
    
    
    
    
    
    
    
    
    
    
    
    87,271Asset impairment
    
    
    
    
    
    
    
    
    
    
    (40,818
    )
    
    
    
    
    
    
    
    
    
    
    (40,818
    )Other items
    
    
    
    
    
    
    (320
    )
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (340
    )Operating income (loss)
    
    
    (332
    )
    
    
    19,103
    
    
    
    20,877
    
    
    
    133
    
    
    
    
    
    
    
    39,781Interest expense, net
    
    
    
    
    
    
    (15,172
    )
    
    
    (3,884
    )
    
    
    (8
    )
    
    
    
    
    
    
    (19,064
    )Other income (expense), net
    
    
    
    
    
    
    (5,829
    )
    
    
    (13,769
    )
    
    
    13,782
    
    
    
    
    
    
    
    (5,816
    )Income (loss) before income taxes
    
    
    (332
    )
    
    
    (1,898
    )
    
    
    3,224
    
    
    
    13,907
    
    
    
    
    
    
    
    14,901Income tax benefit
    
    
    
    
    
    
    3,142
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    3,286Net income (loss) before equity in earnings of subsidiaries
    
    
    (332
    )
    
    
    1,245
    
    
    
    3,368
    
    
    
    13,907
    
    
    
    
    
    
    
    18,187Equity in net earnings of subsidiaries
    
    
    18,519
    
    
    
    3,368
    
    
    
    
    
    
    
    145
    
    
    
    (22,032
    )
    
    
    Net income
    
    $
    18,187
    
    
    $
    4,612
    
    
    $
    3,368
    
    
    $
    14,052
    
    
    $
    (22,032
    )
    
    $
    18,187
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 2002 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    149,048
    
    
    $
    238,495
    
    
    $
    
    
    
    $
    (70,636
    )
    
    $
    316,907Cost of sales
    
    
    
    
    
    
    (131,092
    )
    
    
    (222,489
    )
    
    
    (800
    )
    
    
    70,636
    
    
    
    (283,745
    )Gross profit
    
    
    
    
    
    
    17,956
    
    
    
    16,006
    
    
    
    (800
    )
    
    
    
    
    
    
    33,162Selling, general and administrative expenses
    
    
    (400
    )
    
    
    (5,988
    )
    
    
    (17,452
    )
    
    
    (53
    )
    
    
    
    
    
    
    (23,893
    )Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    23,566
    
    
    
    
    
    
    
    
    
    
    
    23,566Asset impairment
    
    
    
    
    
    
    
    
    
    
    (16,941
    )
    
    
    
    
    
    
    
    
    
    
    (16,941
    )Other items
    
    
    
    
    
    
    982
    
    
    
    (4,270
    )
    
    
    145
    
    
    
    
    
    
    
    (3,143
    )Operating income (loss)
    
    
    (400
    )
    
    
    12,950
    
    
    
    909
    
    
    
    (708
    )
    
    
    
    
    
    
    12,751Interest expense, net
    
    
    
    
    
    
    (14,557
    )
    
    
    (4,336
    )
    
    
    2
    
    
    
    
    
    
    
    (18,891
    )Other income
    
    
    
    
    
    
    278
    
    
    
    309
    
    
    
    15
    
    
    
    
    
    
    
    602Loss before income taxes
    
    
    (400
    )
    
    
    (1,329
    )
    
    
    (3,118
    )
    
    
    (691
    )
    
    
    
    
    
    
    (5,538
    )Income tax benefit
    
    
    
    
    
    
    781
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    781Net loss before equity in earnings of subsidiaries
    
    
    (400
    )
    
    
    (548
    )
    
    
    (3,118
    )
    
    
    (691
    )
    
    
    
    
    
    
    (4,757
    )Equity in net loss of subsidiaries
    
    
    (4,357
    )
    
    
    (3,118
    )
    
    
    
    
    
    
    (763
    )
    
    
    8,238
    
    
    
    Net income (loss)
    
    $
    (4,757
    )
    
    $
    (3,666
    )
    
    $
    (3,118
    )
    
    $
    (1,454
    )
    
    $
    8,238
    
    
    $
    (4,757
    )
 F-23




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 2004 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedNet cash flows from operating activities
    
    $
    (22,374
    )
    
    $
    3,363
    
    
    $
    38,656
    
    
    $
    (6
    )
    
    $
    19,639Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (3,074
    )
    
    
    (5,310
    )
    
    
    
    
    
    
    (8,384
    )Proceeds from disposal of assets
    
    
    
    
    
    
    
    
    
    
    315
    
    
    
    
    
    
    
    315Net cash flows from investing activities
    
    
    
    
    
    
    (3,074
    )
    
    
    (4,995
    )
    
    
    
    
    
    
    (8,069
    )Cash flows from financing activities:Repayments on long-term debt
    
    
    
    
    
    
    (793
    )
    
    
    (2,270
    )
    
    
    (16
    )
    
    
    (3,079
    )Revolving credit, net
    
    
    
    
    
    
    
    
    
    
    (16,823
    )
    
    
    
    
    
    
    (16,823
    )Proceeds from stock issuance, net
    
    
    22,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,374Net cash flows from financing activities
    
    
    22,374
    
    
    
    (793
    )
    
    
    (19,093
    )
    
    
    (16
    )
    
    
    2,472Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    203Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (301
    )
    
    
    14,568
    
    
    
    (22
    )
    
    
    14,245Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    499
    
    
    
    1,423
    
    
    
    24
    
    
    
    1,946Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    198
    
    
    $
    15,991
    
    
    $
    2
    
    
    $
    16,191
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 2003 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedNet cash flows from operating activities
    
    $
    (8
    )
    
    $
    2,980
    
    
    $
    11,252
    
    
    $
    37
    
    
    $
    14,261Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (3,794
    )
    
    
    (6,206
    )
    
    
    2
    
    
    
    (9,998
    )Proceeds from disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash flows from investing activities
    
    
    
    
    
    
    (3,794
    )
    
    
    (6,206
    )
    
    
    2
    
    
    
    (9,998
    )Cash flows from financing activities:Revolving credit borrowings, net
    
    
    
    
    
    
    
    
    
    
    2,119
    
    
    
    
    
    
    
    2,119Repayments on long-term debt
    
    
    
    
    
    
    (649
    )
    
    
    (6,817
    )
    
    
    (28
    )
    
    
    (7,494
    )Proceeds from issuance of stock
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Net cash flows from financing activities
    
    
    8
    
    
    
    (649
    )
    
    
    (4,698
    )
    
    
    (28
    )
    
    
    (5,367
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    261Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (1,202
    )
    
    
    348
    
    
    
    11
    
    
    
    (843
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,702
    
    
    
    1,074
    
    
    
    13
    
    
    
    2,789Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    500
    
    
    $
    1,422
    
    
    $
    24
    
    
    $
    1,946
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 2002 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedNet cash flows from operating activities
    
    $
    
    
    
    $
    6,348
    
    
    $
    (6,139
    )
    
    $
    41
    
    
    $
    250Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (3,332
    )
    
    
    (7,283
    )
    
    
    
    
    
    
    (10,615
    )Proceeds from disposal of assets
    
    
    
    
    
    
    2,047
    
    
    
    
    
    
    
    
    
    
    
    2,047Net cash flows from investing activities
    
    
    
    
    
    
    (1,285
    )
    
    
    (7,283
    )
    
    
    
    
    
    
    (8,568
    )Cash flows from financing activities:Debtor-in-possession credit facility, net
    
    
    
    
    
    
    (5,774
    )
    
    
    (889
    )
    
    
    
    
    
    
    (6,663
    )Revolving credit borrowings, net
    
    
    
    
    
    
    
    
    
    
    14,704
    
    
    
    
    
    
    
    14,704Repayments on long-term debt
    
    
    
    
    
    
    (628
    )
    
    
    (993
    )
    
    
    (28
    )
    
    
    (1,649
    )Net cash flows from financing activities
    
    
    
    
    
    
    (6,402
    )
    
    
    12,822
    
    
    
    (28
    )
    
    
    6,392Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    1,091
    
    
    
    
    
    
    
    
    
    
    
    1,091Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (248
    )
    
    
    (600
    )
    
    
    13
    
    
    
    (835
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,950
    
    
    
    1,674
    
    
    
    
    
    
    
    3,624Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    1,702
    
    
    $
    1,074
    
    
    $
    13
    
    
    $
    2,789
 Pursuant to the terms of certain debt instruments, there are prohibitions on the payment
by the Company of dividends on common stock. Pioneers ability to incur additional new indebtedness
is restricted, other than borrowing available under the Revolver. SeeNote 8. PCI did not receive dividends from its subsidiaries during the years ended December 31, 2004,
2003, and 2002. F-24




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10. Business Segment Information Pioneer has one reportable segment: production and sales of chlor-alkali and related
products. The products consist of chlorine and caustic soda along with related products, primarily
bleach and hydrochloric acid. The segment consists of Pioneers two operating subsidiaries,
Pioneer Americas and PCI Canada. While Pioneers executive decision-makers routinely review production cost information for
each operating facility in order to allocate available capacity, the consolidated operating results
are regularly reviewed in determining resource allocation and assessing performance. Financial information relating to Pioneer by geographical area is as follows. Revenues are
attributed to countries based on delivery point. 2004
    
    
    2003
    
    
    2002Revenues:United States
    
    $
    310,118
    
    
    $
    284,625
    
    
    $
    237,336Canada
    
    
    96,423
    
    
    
    92,778
    
    
    
    78,704Other
    
    
    574
    
    
    
    1,272
    
    
    
    867Consolidated
    
    $
    407,115
    
    
    $
    378,675
    
    
    $
    316,907
 2004
    
    
    2003Long-lived assets (at year end):United States
    
    $
    69,625
    
    
    $
    76,485Canada
    
    
    187,617
    
    
    
    197,678
 Revenues by major products for the years ended December 31, 2004, 2003 and 2002, were as
follows: 2004
    
    
    2003
    
    
    2002Revenues:Chlorine and caustic soda
    
    $
    293,508
    
    
    $
    276,209
    
    
    $
    221,521Other
    
    
    113,607
    
    
    
    102,366
    
    
    
    95,386Total revenues
    
    $
    407,115
    
    
    $
    378,675
    
    
    $
    316,907
 No individual customer accounted for 10% or more of Pioneers revenues in 2004, 2003 or 2002. 11. Asset Impairment CRC now provides power to meet the majority of the Henderson plants needs at market rates.
The market rates are expected to remain at levels higher than the rates under the long-term
hydropower contracts that were assigned to the Southern Nevada Water Authority as part of the
settlement of the dispute with CRC. As a result, Pioneer reviewed the facility for impairment as of
March 31, 2003, and determined that the book value of the Henderson facility exceeded the
undiscounted sum of future expected cash flows over the remaining life of the facility. Pioneer
then calculated the estimated fair value of the facility by discounting expected future cash flows
using a risk-adjusted discount rate of 13%. Based on that analysis, Pioneer recorded an impairment
charge of $40.8 million in the first quarter of 2003. In March 2002 Pioneer idled the Tacoma chlor-alkali plant due to poor market conditions. The
idling of the Tacoma plant resulted in the termination of 84 employees, all of whom were terminated
prior to June 30, 2002, and for whom $1.9 million of severance expense was recorded during the
quarter ended March 31, 2002. Substantially all of the accrued severance was paid out during 2002.
Additionally, $2.6 million of asset impairment and other items were recorded during 2002, primarily
comprised of $0.7 million of exit costs related to idling the Tacoma plant, $0.4 million related to
staff reductions at the Cornwall plant, $0.6 million of executive severance, $0.5 million of legal
expense related to Pioneers emergence from bankruptcy and a $1.1 million gain from the sale of
assets. Due to the continuation of the idling of the Tacoma chlor-alkali facility and uncertainty as
to when Pioneer would restart it, Pioneer reviewed the facility for impairment as of December 31,
2002. The impairment review showed that the book value of the Tacoma assets exceeded the
undiscounted sum of the expected future cash flows from those assets. The expected future cash
flows were calculated by taking a weighted average of the cash flow streams associated with various
scenarios for the future use of the facility. The cash flows and probability of occurrence of F-25




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each scenario were determined using managements best estimates based on current available
information. Pioneer then discounted the expected future cash flows using a risk-free interest rate
of 3.6% to determine the fair value of the facility. Based on that analysis, Pioneer recognized a
$16.9 million impairment of the Tacoma facility in December 2002. 12. Commitments and Contingencies Letters of Credit At December 31, 2004, Pioneer had letters of credit outstanding of approximately $3.2 million.
The letters of credit were issued for the benefit of municipal customers under sales agreements
securing delivery of products sold, state environmental agencies as required for manufacturers in
the states and holders of Pioneers tax-exempt bonds. The letters of credit expire at various
dates in 2005. No amounts were drawn on the letters of credit at December 31, 2004. Operating Leases Pioneer leases certain manufacturing and distribution facilities and equipment, computer
equipment, and administrative offices under non-cancelable leases. Minimum future rental payments
on such leases with terms in excess of one year in effect at December 31, 2004, are as follows: 2005
    
    $
    14,5402006
    
    
    13,5732007
    
    
    11,0732008
    
    
    8,9202009
    
    
    5,953Thereafter
    
    
    15,705Total minimum obligations
    
    $
    69,764
 Lease expense charged to operations for the years ended December 31, 2004, 2003 and 2002 was
approximately $14.2 million, $15.9 million and $16.8 million, respectively. Litigation Pioneer is party to various legal proceedings and potential claims arising in the ordinary
course of its business. In the opinion of management, Pioneer has adequate legal defenses or
insurance coverage with respect to these matters, and management does not believe that they will
materially affect Pioneers financial position or results of operations. Collective Bargaining Agreements Approximately 49% of Pioneers employees are covered by collective bargaining agreements. One
of the agreements, covering six employees, will expire during 2005. 13. Income Taxes Income taxes are recorded pursuant to SFAS 109, Accounting for Income Taxes, under which
deferred income taxes are determined utilizing an asset and liability approach. This method gives
consideration to the future tax consequences associated with differences between the financial
accounting basis and tax basis of the assets and liabilities, and the ultimate realization of any
deferred tax asset resulting from such differences. F-26




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The components of income tax (expense) benefit are as follows: 2004
    
    
    2003
    
    
    2002Current income tax benefit:U.S
    
    $
    
    
    
    $
    144
    
    
    $
    Canada
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    144
    
    
    $
    Deferred income tax (expense) benefit:U.S
    
    $
    
    
    
    $
    
    
    
    $
    Canada
    
    
    (2,127
    )
    
    
    3,142
    
    
    
    781Total
    
    $
    (2,127
    )
    
    $
    3,142
    
    
    $
    781Total income tax (expense) benefit
    
    $
    (2,127
    )
    
    $
    3,286
    
    
    $
    781
 The reconciliation of income tax computed at the U.S. federal statutory tax rates to income
tax (expense) benefit for the periods presented is as follows: 2004
    
    
    2003
    
    
    2002Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentTax at U.S. statutory rates
    
    $
    (310
    )
    
    
    (35
    )
    
    $
    (5,293
    )
    
    
    (35
    )
    
    $
    1,938
    
    
    
    35State and foreign income taxes, net of
U.S. tax benefit
    
    
    1,732
    
    
    
    196
    
    
    
    2,837
    
    
    
    19
    
    
    
    100
    
    
    
    2U.S. income tax refund
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    1
    
    
    
    
    
    
    
    Other
    
    
    (637
    )
    
    
    (72
    )
    
    
    (67
    )
    
    
    
    
    
    
    (310
    )
    
    
    (6
    )Valuation allowance
    
    
    (2,912
    )
    
    
    (329
    )
    
    
    5,665
    
    
    
    37
    
    
    
    (947
    )
    
    
    (17
    )Total tax (expense) benefit
    
    $
    (2,127
    )
    
    
    (240
    )
    
    $
    3,286
    
    
    
    22
    
    
    $
    781
    
    
    
    14
 Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of deferred tax liabilities and assets are as
follows at December 31: 2004
    
    
    2003U.S.
    
    
    Canada
    
    
    Total
    
    
    U.S.
    
    
    Canada
    
    
    TotalDeferred tax liabilities:Property, plant and equipment
    
    $
    (22,817
    )
    
    $
    (31,147
    )
    
    $
    (53,964
    )
    
    $
    (21,912
    )
    
    $
    (30,871
    )
    
    $
    (52,783
    )Total deferred tax liabilities
    
    
    (22,817
    )
    
    
    (31,147
    )
    
    
    (53,964
    )
    
    
    (21,912
    )
    
    
    (30,871
    )
    
    
    (52,783
    )Deferred tax assets:Goodwill
    
    
    7,623
    
    
    
    (8,371
    )
    
    
    (748
    )
    
    
    10,072
    
    
    
    (7,766
    )
    
    
    2,306Pension and other post-retirement benefits
    
    
    7,597
    
    
    
    1,907
    
    
    
    9,504
    
    
    
    8,686
    
    
    
    2,189
    
    
    
    10,875Environmental reserve
    
    
    4,831
    
    
    
    1,412
    
    
    
    6,243
    
    
    
    4,888
    
    
    
    1,323
    
    
    
    6,211Tax credit and other tax loss carryovers
    
    
    1,318
    
    
    
    6,015
    
    
    
    7,333
    
    
    
    1,601
    
    
    
    5,477
    
    
    
    7,078Other
    
    
    7,993
    
    
    
    1,476
    
    
    
    9,469
    
    
    
    8,241
    
    
    
    931
    
    
    
    9,172Net operating loss carryforward
    
    
    103,103
    
    
    
    8,137
    
    
    
    111,240
    
    
    
    99,027
    
    
    
    7,908
    
    
    
    106,935Total deferred tax assets
    
    
    132,465
    
    
    
    10,576
    
    
    
    143,041
    
    
    
    132,515
    
    
    
    10,062
    
    
    
    142,577Valuation allowance for deferred tax assets
    
    
    (109,648
    )
    
    
    (3,867
    )
    
    
    (113,515
    )
    
    
    (110,603
    )
    
    
    
    
    
    
    (110,603
    )Net deferred tax assets
    
    
    22,817
    
    
    
    6,709
    
    
    
    29,526
    
    
    
    21,912
    
    
    
    10,062
    
    
    
    31,974Net deferred tax liabilities
    
    $
    
    
    
    $
    (24,438
    )
    
    $
    (24,438
    )
    
    $
    
    
    
    $
    (20,809
    )
    
    $
    (20,809
    )
 As of December 31, 2004, a valuation allowance for the full amount of the U.S. net
deferred tax assets was recorded due to uncertainties as to whether Pioneer will generate future
taxable income so as to realize the benefit of the deferred tax assets. In addition, a valuation
allowance equal to the Canadian capital loss carryforward was recorded due to the unlikelihood of
the capital loss being utilized. At December 31, 2004, Pioneer had combined U.S. and Canadian net operating loss carryforward
(NOL) of $306.1 million (representing $111.2 million of deferred tax assets) that will expire in
varying amounts from 2009 to 2024, if not utilized. U.S. NOL in the amount of $199.5 million (the
Predecessor Company NOL) was generated prior to the Companys emergence from bankruptcy on
December 31, 2001, and will expire from 2009 to 2021, while the remaining U.S. NOL of $79.1 million
was generated in 2002 through 2004 and will expire in 2022 through 2024. At December 31, 2004,
Pioneer also had $27.5 million of Canadian NOL (representing $8.1 million of deferred tax assets)
generated in 2003 and 2004 and that will expire in 2009 and 2010. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership
change (generally defined as a greater than 50% change (by value) in its equity ownership over a
three-year period), the corporations ability to use its pre-change NOL and other pre-change tax
attributes against its post-change income is limited (the Section 382 Limitation). As a result of
Pioneers emergence from bankruptcy and changes in the ownership of its common stock in 2001, the
$199.5 million of Predecessor Company NOL is subject to the Section 382 Limitation, F-27




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and Pioneers ability to use the Predecessor Company NOL to offset future taxable income will
be materially restricted. Pioneers utilization of the $79.1 million of Successor Company NOL may
also be subject to the Section 382 Limitation as a result of changes in the ownership of Pioneers
common stock. The Section 382 Limitation does not apply to Pioneers utilization of the $27.5
million of Canadian NOL. The income tax benefit, if any, resulting from any future realization of the Predecessor
Company NOL will be credited to paid-in capital. In 2004, Pioneer recorded a credit of $0.3 million
to additional paid-in capital in connection with a U.S. tax refund relating to the carryback of a
part of the NOL generated in 2003 to a year prior to the bankruptcy in 2001. At December 31, 2004, Pioneer also had various tax credits and other tax loss carryforward of
approximately $7.3 million which includes primarily $3.9 million of capital loss carryforward with
no expiration date, and $1.0 million in other loss carryforward with expirations after 2005, and
tax credits of $2.4 million with expirations in or after 2007. 14. Other Long-Term Liabilities  Environmental Pioneers operations are subject to extensive environmental laws and regulations related to
protection of the environment, including those applicable to waste management, discharge of
materials into the air and water, clean-up liability from historical waste disposal practices, and
employee health and safety. Pioneer is currently addressing soil and/or groundwater contamination
at several sites through assessment, monitoring and remediation programs with oversight by the
applicable state agency. In some cases, Pioneer is conducting this work under administrative
orders. Pioneer could be required to incur additional costs to construct and operate remediation
systems in the future. Pioneer believes that it is in substantial compliance with existing
government regulations. Pioneer commissioned an independent study of environmental concerns at all of its plants
during 2003 in order to assess its environmental obligations. The study was based on scenario
analysis to estimate the cost to remedy environmental concerns at Pioneers plant sites. For each
scenario, the study also used cost estimating techniques that included actual historical costs,
estimates prepared for us by consultants, estimates prepared by Pioneers engineers and other
published cost data available for similar projects completed at the same or other sites. The study included consideration of various factors, including, but not limited to,
flexibility in regulatory agency guidance, the use of alternative remediation technologies,
post-acquisition contamination not covered under existing environmental indemnity agreements and
the inherent risk of disputes under some of the indemnity agreements due to passage of time. Based
on the study, Pioneer estimated its total environmental remediation liabilities to be $21.0
million, of which $3.2 million is subject to indemnity claims against a previous owner. As a
result, Pioneer recorded an environmental charge of $9.5 million in the first quarter of 2003, and
as of December 31, 2004, its total estimated environmental liabilities were $20.3 million and are
included in other long-term liabilities on the consolidated balance sheet. Pioneers Henderson facility is located within what is known as the Black Mountain Industrial
Park. Soil and groundwater contamination have been identified within and adjoining the Black
Mountain Industrial Park, including land owned by Pioneer. A groundwater treatment system was
installed at the facility and, pursuant to a consent agreement with the Nevada Division of
Environmental Protection, studies are being conducted to further evaluate soil and groundwater
contamination at the facility and other properties within the Black Mountain Industrial Park and to
determine whether additional remediation will be necessary with respect to Pioneers property. In connection with the 1988 acquisition of the St. Gabriel and Henderson facilities, the
sellers agreed to indemnify Pioneer 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,
which benefit Pioneer. In general, the ZENECA Companies agreed to indemnify Pioneer for
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 facility. The ZENECA Companies are also
responsible for costs arising out of the pre-closing actions at the Black Mountain Industrial Park.
Under the ZENECA Indemnity, Pioneer 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. Pioneer is responsible for
environmental costs relating to the chlor-alkali manufacturing operations at the F-28




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Henderson facility, both pre- and post-acquisition, for certain actions taken without the
ZENECA Companies consent and for certain operation and maintenance costs of the groundwater
treatment system at the facility. Payments for environmental liabilities under the ZENECA Indemnity, together with other
non-environmental liabilities for which the ZENECA Companies agreed to indemnify Pioneer, cannot
exceed approximately $65 million. To date Pioneer has been reimbursed for approximately $12 million
of costs covered by the ZENECA Indemnity, but the ZENECA Companies may have directly incurred
additional costs that would further reduce the total amount remaining under the ZENECA Indemnity.
Pioneer has recorded a $3.2 million environmental reserve related to pre-closing actions at sites
that are the responsibility of the ZENECA Companies, as well as a receivable from the ZENECA
Companies for the same amount. It is Pioneers policy to record such amounts when a liability can
be reasonably estimated. The timing of future cash flows for environmental work is uncertain, such
that those cash flows do not qualify for discounting under generally accepted accounting standards.
As a result, the environmental liabilities and related receivables are recorded at their
undiscounted amounts of $3.2 million at December 31, 2004. The ZENECA Indemnity continues to cover claims after April 1999, expiration of the term of the
indemnity to the extent that, prior to the expiration of the indemnity, proper notice to the ZENECA
Companies was given and either the ZENECA Companies have assumed control of such claims or Pioneer
was contesting the legal requirements that gave rise to such claims, or had commenced removal,
remedial or maintenance work with respect to such claims, or commenced an investigation which
resulted in the commencement of such work within ninety days. Management believes proper notice was
provided to the ZENECA Companies with respect to outstanding claims under the ZENECA Indemnity, but
the amount of such claims has not yet been determined given the ongoing nature of the environmental
work at Henderson. Pioneer believes that the ZENECA Companies will continue to honor their
obligations under the ZENECA Indemnity for claims properly presented. It is possible, however, that
disputes could arise between the parties concerning the effect of contractual language and that
Pioneer would have to subject claims for cleanup expenses, which could be substantial, to the
contractually-established arbitration process. Pioneer acquired the chlor-alkali facility in Tacoma from a subsidiary of Occidental Chemical
Corporation (OxyChem), in June 1997. In connection with the acquisition, Pioneer received an
indemnification with respect to certain environmental matters. In general, Pioneer will be
indemnified by OxyChem against damages incurred for remediation of certain environmental
conditions, for certain environmental violations caused by pre-closing operations at the site and
for certain common law claims. The conditions subject to the indemnity are sites at which hazardous
materials have been released prior to closing as a result of pre-closing operations at the site. In
addition, OxyChem will indemnify Pioneer for certain costs relating to releases of hazardous
materials from pre-closing operations at the site into the Hylebos Waterway, site groundwater
containing certain volatile organic compounds that must be remediated under an RCRA permit, and
historical disposal areas on the embankment adjacent to the site for maximum periods of 24 or 30
years from the June 1997 acquisition date, depending upon the particular condition, after which
Pioneer will have full responsibility for any remaining liabilities with respect to such
conditions. OxyChem may obtain an early expiration date for certain conditions by obtaining a
discharge of liability or an approval letter from a governmental authority. At this time it cannot
be determined whether the currently anticipated remediation work will be completed prior to the
expiration of the indemnity, or whether additional remedial requirements will be imposed
thereafter. OxyChem has also agreed to indemnify Pioneer against certain other environmental conditions
and environmental violations caused by pre-closing operations that are identified after the
closing. Environmental conditions that are subject to an administrative or court order before June
2007 will be covered by the indemnity up to certain dollar amounts and time limits. Pioneer will
indemnify OxyChem for environmental conditions and environmental violations identified after the
closing if (i) an order or agency action is not imposed within the relevant time frames or (ii)
applicable expiration dates or dollar limits are reached. The Washington Department of Ecology notified OxyChem and Pioneer of its concern regarding
high pH groundwater in the Hylebos Waterway embankment area at Pioneers former chlor-alkali
facility in Tacoma, and has requested additional studies. In addition, on March 15, 2005, the U.S.
District Court for the Western District of Washington entered a consent decree relating to the
remediation of the Hylebos Waterway in Tacoma. Pioneer is a party to the decree by virtue of its
current ownership of the Tacoma site. Additional remediation of the site itself is ongoing.
OxyChem has acknowledged its obligation to indemnify Pioneer against liability with respect to the
remediation activities, subject to the limitations included in the indemnity agreement. Pioneer has
reviewed the time F-29




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frames currently estimated for remediation of the known environmental conditions associated
with the plant and adjacent areas, including the Hylebos Waterway, and presently believes that it
will have no material liability upon the termination of OxyChems indemnity. However, the OxyChem
indemnity is subject to limitations as to dollar amount and duration, as well as certain other
conditions, and there can be no assurance that such indemnity will be adequate to protect Pioneer,
that remediation will proceed on the present schedule, that it will involve the presently
anticipated remedial methods, or that unanticipated conditions will not be identified. If these or
other changes occur, Pioneer could incur a material liability for which it is not insured or
indemnified. In connection with the acquisition of the assets of PCI Canada in 1997, Imperial Chemical
Industrials PLC (ICI) and certain of its affiliates (together the ICI Indemnitors) agreed to
indemnify Pioneer for certain liabilities associated with environmental matters arising from
pre-closing operations of the Canadian facilities. In particular, the ICI Indemnitors have retained
unlimited responsibility for environmental liabilities associated with the Cornwall site,
liabilities arising out of the discharge of contaminants into rivers and marine sediments and
liabilities arising out of off-site disposal sites. The ICI Indemnitors are also subject to a
general environmental indemnity for other pre-closing environmental matters. This general indemnity
will terminate on October 31, 2007, and is subject to a limit of $25 million (Cdn). Pioneer may not
recover under the environmental indemnity until it has incurred cumulative costs of $1 million
(Cdn), at which point Pioneer may recover costs in excess of $1 million (Cdn). As of December 31,
2004, Pioneer had not incurred any cumulative costs towards the $25 million (Cdn) indemnity, and it
does not currently anticipate incurring any liabilities that will be recoverable under the
indemnity. With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors are responsible
under the general environmental indemnity for a portion of the costs incurred in any year during
the period ending on October 31, 2007, subject in any event to the $1 million (Cdn) threshold
mentioned above. The ICI Indemnitors will be responsible for 48% of any liabilities incurred during
the twelve months ending October 31, 2005, and the percentage of any costs that will be the
responsibility of the ICI Indemnitors declines by 16% each year thereafter. After October 31, 2007,
Pioneer will be responsible for environmental liabilities at such facilities (other than
liabilities arising out of the discharge of contaminants into rivers and marine sediments and
liabilities arising out of off-site disposal sites). Pioneer will indemnify ICI for environmental
liabilities arising out of post-closing operations and for liabilities arising out of pre-closing
operations for which Pioneer is not indemnified by the ICI Indemnitors. In March 2003 Pioneer initiated arbitration proceedings to resolve a dispute with ICI
regarding the applicability of certain of ICIs covenants with respect to approximately $1.3
million of equipment modification costs that Pioneer incurred to achieve compliance with air
emissions standards at the Becancour facility. Those proceedings are still pending. Management believes that the indemnity provided by ICI will be adequate to address the known
environmental liabilities at the acquired facilities, and that residual liabilities, if any,
incurred by Pioneer will not be material. The imposition of more stringent standards or requirements under environmental laws or
regulations, new developments or changes respecting site cleanup costs, or a determination that
Pioneer is potentially responsible for the release of hazardous substances at other sites could
result in expenditures in excess of amounts currently estimated by Pioneer to be required for such
matters, or could have a material adverse effect on Pioneers financial condition or results of
operations. Furthermore, there can be no assurance that additional environmental matters will not
arise in the future. F-30




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15. Selected Quarterly Financial Data (Unaudited) First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear ended December 31, 2004Revenues
    
    $
    90,026
    
    
    $
    97,072
    
    
    $
    104,979
    
    
    $
    115,038Gross profit
    
    
    3,715
    
    
    
    12,755
    
    
    
    14,679
    
    
    
    22,512Operating income (loss)
    
    
    (3,039
    )
    
    
    1,209
    
    
    
    9,158
    
    
    
    14,751Income (loss) before income taxes
    
    
    (7,555
    )
    
    
    (2,743
    )
    
    
    2,732
    
    
    
    8,451Net income (loss)
    
    
    (7,293
    )
    
    
    (2,401
    )
    
    
    3,917
    
    
    
    4,535Per share data:Basic net income (loss)
    
    $
    (0.73
    )
    
    $
    (0.24
    )
    
    $
    0.39
    
    
    $
    0.44Diluted net income (loss)
    
    $
    (0.73
    )
    
    $
    (0.24
    )
    
    $
    0.38
    
    
    $
    0.41Year ended December 31, 2003Revenues
    
    $
    89,031
    
    
    $
    96,316
    
    
    $
    100,001
    
    
    $
    93,327Gross profit (loss)
    
    
    (16,559
    )
    
    
    15,544
    
    
    
    13,650
    
    
    
    4,237Operating income
    
    
    21,536
    
    
    
    10,276
    
    
    
    7,682
    
    
    
    287Income (loss) before income taxes
    
    
    14,845
    
    
    
    2,920
    
    
    
    3,010
    
    
    
    (5,874
    )Net income (loss)
    
    
    16,378
    
    
    
    5,046
    
    
    
    1,953
    
    
    

    (5,190
    )Per share data:Basic net income (loss)
    
    $
    1.64
    
    
    $
    0.50
    
    
    $
    0.20
    
    
    $
    (0.52
    )Diluted net income (loss)
    
    $
    1.63
    
    
    $
    0.50

    
    
    $
    0.19
    
    
    $
    (0.52
    )Year ended December 31, 2002Revenues
    
    $
    71,796
    
    
    $
    74,244
    
    
    $
    86,579
    
    
    $
    84,288Gross profit (loss)
    
    
    4,732
    
    
    
    (3,319
    )
    
    
    23,058
    
    
    
    8,692Operating income (loss)
    
    
    13,868
    
    
    
    (3,630
    )
    
    
    6,981
    
    
    
    (4,469
    )Income (loss) before income taxes
    
    
    9,131
    
    
    
    (9,378
    )
    
    
    3,929
    
    
    
    (9,220
    )Net income (loss)
    
    
    9,863
    
    
    
    (6,655
    )
    
    
    3,273
    
    
    
    (11,238
    )Per share data:Basic and diluted net income (loss)
    
    $
    0.99
    
    
    $
    (0.67
    )
    
    $
    0.33
    
    
    $
    (1.12
    )
 The sum of the earnings per share provided in the foregoing table for the four quarters in
2004 does not agree with the earnings per share for the full year, as each quarters computation is
based on the weighted average number of shares outstanding during the quarter, as well as the
dilutive effect of options in each quarter. 16. Other Items During the first quarter of 2004 Pioneer began the development and implementation of an
organizational efficiency project (referred to as Project STAR) that involves the design,
development and implementation of uniform and standardized systems, processes and policies to
improve Pioneers management, sales and marketing, production, process efficiency, logistics and
material management and information technology functions. In the fourth quarter of 2004 Pioneer
also initiated a plan to relocate assets in the first quarter of 2005, involving the transfer of
the bleach producing assets from its Cornwall plant to the Becancour facility. The physical transfer of assets from Cornwall has taken place in the first quarter of 2005,
and the anticipated completion date of Project STAR is June 30, 2005. Total employee severance and
benefits-related costs expected to be incurred are $4.7 million. During the year ended December
31, 2004, Pioneer recognized $4.0 million of such costs related to both projects in other items in
the Consolidated Statements of Operations. During the year ended December 31, 2004, $2.1 million
of such costs had been paid, resulting in a liability balance at December 31, 2004 of $1.9 million. F-31




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Exhibit Index Exhibit No.
    
    Description2.1*
    
    Pioneer Companies, Inc. Amended Joint Plan of Reorganization under
Chapter 11 of the United States Bankruptcy Code (incorporated by
reference to Exhibit 2.1 to Pioneers Annual Report on Form 10-K
for the fiscal year ended December 31, 2001).2.2*
    
    Order Approving Disclosure Statement, dated September 21, 2001
(incorporated by reference to Exhibit 2.2 to Pioneers Annual
Report on Form 10-K for the fiscal year ended December 31, 2001).2.3*
    
    Order Confirming Joint Plan of Reorganization, dated November 28,
2001 (incorporated by reference to Exhibit 2.4 to Pioneers Current
Report on Form 8-K filed on December 28, 2001).2.4*
    
    Asset Purchase Agreement, dated as of May 14, 1997, by and between
OCC Tacoma, Inc. and Pioneer Companies, Inc. (incorporated by
reference to Exhibit 2 to Pioneers Current Report on Form 8-K
filed on July 1, 1997).2.5*
    
    Asset Purchase Agreement, dated as of September 22, 1997, between
PCI Chemicals Canada Inc. (PCICC), PCI Carolina, Inc. and Pioneer
Companies, Inc. and ICI Canada Inc., ICI Americas, Inc. and
Imperial Chemical Industries plc (incorporated by reference to
Exhibit 2 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).2.6*
    
    First Amendment to Asset Purchase Agreement, dated as of October
31, 1997, between PCICC, PCI Carolina, Inc. and Pioneer Companies,
Inc. and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical
Industries plc (incorporated by reference to Exhibit 2 to Pioneers
Current Report on Form 8-K filed on November 17, 1997).3.1*
    
    Fourth Amended and Restated Certificate of Incorporation of Pioneer
Companies, Inc. (incorporated by reference to Exhibit 3.1 to
Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).3.2*
    
    Amended and Restated By-laws of Pioneer Companies, Inc.
(incorporated by reference to Exhibit 3.2 to Pioneers Annual
Report on Form 10-K for the fiscal year ended December 31, 2001).4.1*
    
    Specimen Pioneer Companies, Inc. Stock Certificate (incorporated by
reference to Exhibit 4.1 to Pioneers Annual Report on Form 10-K
for the fiscal year ended December 31, 2001).4.2*
    
    Indenture, dated as of December 31, 2001, among PCI Chemicals
Canada Company, the guarantors named therein and Wells Fargo Bank
Minnesota, National Association, as trustee, relating to
$150,000,000 principal amount of 10% Senior Secured Guaranteed
Notes due 2008 (incorporated by reference to Exhibit 4.3 to
Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).4.3*
    
    Term Loan Agreement, dated as of December 31, 2001, among Pioneer
Americas LLC, the guarantors named therein, the lenders from time
to time parties thereto and Wells Fargo Bank Minnesota, National
Association, as administrative agent (incorporated by reference to
Exhibit 4.4 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).4.4*
    
    Indenture, dated as of December 31, 2001, among Pioneer Americas
LLC, the guarantors




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##### Table of Contents



Exhibit No.
    
    Descriptionnamed therein, and Wells Fargo Bank Minnesota, National
Association, as trustee, relating to up to $50,000,000 principal
amount of Senior Secured Floating Rate Guaranteed Notes due 2006
(incorporated by reference to Exhibit 4.5 to Pioneers Annual
Report on Form 10-K for the fiscal year ended December 31, 2001).4.5*
    
    Loan and Security Agreement, dated as of December 31, 2001, among
PCI Chemicals Canada Company, Pioneer Americas LLC, the lenders
that are signatories thereto and Foothill Capital Corporation, as
arranger and administrative agent (incorporated by reference to
Exhibit 4.6 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).4.6*
    
    First Amendment to Loan and Security Agreement, dated April 15,
2002, between and among the lenders identified on the signature
pages thereto, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC (incorporated by reference to
Exhibit 4.7 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).4.7*
    
    Second Amendment to Loan and Security Agreement effective as of May
31, 2002, between and among the lenders identified on the signature
pages thereof, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC (incorporated by reference to
Exhibit 4.1 to Pioneers Current Report on Form 8-K filed on June
14, 2002).4.8*
    
    Third Amendment to Loan and Security Agreement effective as of July
29, 2002, between and among the lenders identified on the signature
pages thereof, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC (incorporated by reference to
Exhibit 4.8 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2002).4.9*
    
    Fourth Amendment to Loan and Security Agreement effective as of
December 10, 2002, between and among the lenders identified on the
signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by
reference to Exhibit 4.9 to Pioneers Annual Report on Form 10-K
for the fiscal year ended December 31, 2002).4.10*
    
    Fifth Amendment to Loan and Security Agreement effective as of July
1, 2003, between and among the lenders identified on the signature
pages thereof, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC (incorporated by reference to
Exhibit 4.10 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2003).4.11*
    
    Sixth Amendment to Loan and Security Agreement effective as of
December 31, 2003, between and among the lenders identified on the
signature pages thereof, Foothill Capital Corporation, PCI
Chemicals Canada Company and Pioneer Americas LLC (incorporated by
reference to Exhibit 4.11 to Pioneers Annual Report on Form 10-K
for the fiscal year ended December 31, 2003).4.12*
    
    Common Security and Intercreditor Agreement, dated as of December
31, 2001, by and among the grantors named therein and Wells Fargo
Bank Minnesota, National Association (incorporated by reference to
Exhibit 4.8 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).10.1+*
    
    Pioneer Companies, Inc. 2001 Employee Stock Option Plan
(incorporated by reference to




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Exhibit No.
    
    DescriptionExhibit 10.1 to Pioneers Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).10.2+*
    
    
    Employment Agreement, dated September 17, 2002, between Pioneer
Companies, Inc. and Michael Y. McGovern (incorporated by reference
to Exhibit 10.2 to Pioneers Annual Report on Form 10-K for the
fiscal year ended December 31, 2002).10.3*
    
    
    Indemnity Agreement dated March 14, 2002, between Pioneer
Companies, Inc. and Marvin E. Lesser (incorporated by reference to
Exhibit 10.1 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).10.4*
    
    
    Indemnity Agreement dated March 14, 2002, between Pioneer
Companies, Inc. and Michael Y. McGovern (incorporated by reference
to Exhibit 10.2 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).10.5*
    
    
    Indemnity Agreement dated March 14, 2002, between Pioneer
Companies, Inc. and Gary L. Rosenthal (incorporated by reference to
Exhibit 10.3 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).10.6*
    
    
    Indemnity Agreement dated March 14, 2002, between Pioneer
Companies, Inc. and David N. Weinstein (incorporated by reference
to Exhibit 10.4 to Pioneers Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).10.7
    
    
    Indemnity Agreement dated March 14, 2002, between Pioneer
Companies, Inc. and David A. Scholes.10.8*+
    
    
    Pioneer Companies, Inc. Discretionary Severance Benefit Plan,
effective May 1, 2003 (incorporated by reference to Exhibit 10.9 to
Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2003).14.1*
    
    
    Pioneer Companies, Inc. Code of Business Conduct and Ethics
(incorporated by reference to Exhibit 14.1 to Pioneers Annual
Report on Form 10-K for the fiscal year ended December 31, 2003).21.1*
    
    
    List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
Pioneers Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).23.1
    
    

Consent
of Independent Registered Public Accounting Firm.31.1
    
    
    Certification of Michael Y. McGovern required by Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of 1934.31.2
    
    
    Certification of Gary L. Pittman required by Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934.32.1
    
    
    Certification of Michael Y. McGovern required by Rule 13a-14(b) or
Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350.32.2
    
    
    Certification of Gary L. Pittman required by Rule 13a-14(b) or Rule
15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.99.1
    
    
    Schedule II  Valuation and Qualifying Accounts.