##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 000-31230
 Pioneer Companies, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    06-1215192(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 700 Louisiana Street, Suite 4300, Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
 (713) 570-3200
(Registrants telephone number, including area code)
 þ o
  o þ o
 o þ
 þ o




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TABLE OF CONTENTS
 PagePart IFinancial InformationItem 1
    
    Consolidated Financial Statements (unaudited)Consolidated Balance SheetsJune 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of OperationsThree Months Ended June 30, 2007 and 2006 and Six Months Ended June 30, 2007 and 2006
    
    
    2Consolidated Statements of Cash FlowsSix Months Ended June 30, 2007 and 2006
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    4Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4
    
    Controls and Procedures
    
    
    30Part IIOther InformationItem 1
    
    Legal Proceedings
    
    
    31Item 1A
    
    Risk Factors
    
    
    32Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5
    
    Other Information
    
    
    33Item 6
    
    Exhibits
    
    
    36Eleventh Amendment to Loan and Security AgreementCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 1350Certification Pursuant to Section 1350
  Certain statements in this Form 10-Q regarding future expectations of Pioneers business and
Pioneers results of operations, financial condition and liquidity may be regarded as
forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Forward-looking statements relate to matters that are not historical facts. Such statements involve
risks and uncertainties, including, but not limited to, the risks and uncertainties described in
Item 1A Risk Factors of Pioneers Annual Report on Form 10-K/A for the year ended December 31,
2006, as updated in Item 1A Risk Factors of this Report on Form 10-Q . See also Item 5 Other
Information of Part II of this Report on Form 10-Q for a discussion of forward-looking statements.
Actual outcomes may vary materially.




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 PIONEER COMPANIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (unaudited, in thousands, except par value)
 June 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    126,495
    
    
    $
    115,216Accounts receivable, net of allowance for doubtful accounts of $2,181
at June 30, 2007, and $2,235 at December 31, 2006
    
    
    60,334
    
    
    
    52,028Inventories, net
    
    
    21,666
    
    
    
    21,023Prepaid expenses and other current assets
    
    
    19,868
    
    
    
    15,858Total current assets
    
    
    228,363
    
    
    
    204,125Property, plant and equipment:Land
    
    
    5,758
    
    
    
    5,758Buildings and improvements
    
    
    30,418
    
    
    
    30,431Machinery and equipment
    
    
    234,196
    
    
    
    229,059Construction in progress
    
    
    9,162
    
    
    
    2,350279,534
    
    
    
    267,598Less: accumulated depreciation
    
    
    (127,478
    )
    
    
    (114,814
    )Property, plant and equipment, net
    
    
    152,056
    
    
    
    152,784Other assets, net
    
    
    5,013
    
    
    
    1,850Excess reorganization value over the fair value of identifiable assets
    
    
    84,064
    
    
    
    84,064Total assets
    
    $
    469,496
    
    
    $
    442,823Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    17,088
    
    
    $
    16,969Accrued liabilities
    
    
    34,870
    
    
    
    42,625Short-term debt, including current portion of long-term debt
    
    
    
    
    
    
    978Total current liabilities
    
    
    51,958
    
    
    
    60,572Long-term debt, less current portion
    
    
    121,760
    
    
    
    101,761Accrued pension and other employee benefits
    
    
    18,703
    
    
    
    20,729Other long-term liabilities
    
    
    79,795
    
    
    
    74,941Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value, 10,000 shares authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 50,000 shares authorized, 11,841 and 11,803
shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively
    
    
    118
    
    
    
    118Additional paid-in capital
    
    
    43,850
    
    
    
    43,704Accumulated other comprehensive loss
    
    
    (7,586
    )
    
    
    (7,997
    )Retained earnings
    
    
    160,898
    
    
    
    148,995Total stockholders equity
    
    
    197,280
    
    
    
    184,820Total liabilities and stockholders equity
    
    $
    469,496
    
    
    $
    442,823
  1




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PIONEER COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    130,278
    
    
    $
    132,533
    
    
    $
    252,719
    
    
    $
    267,405Cost of sales
    
    
    (107,414
    )
    
    
    (102,025
    )
    
    
    (206,465
    )
    
    
    (201,663
    )Gross profit
    
    
    22,864
    
    
    
    30,508
    
    
    
    46,254
    
    
    
    65,742Selling, general and administrative expenses
    
    
    (9,658
    )
    
    
    (8,916
    )
    
    
    (18,941
    )
    
    
    (16,995
    )Gain (loss) on asset dispositions and other, net
    
    
    (638
    )
    
    
    95
    
    
    
    (589
    )
    
    
    407Operating income
    
    
    12,568
    
    
    
    21,687
    
    
    
    26,724
    
    
    
    49,154Interest expense
    
    
    (1,373
    )
    
    
    (2,555
    )
    
    
    (3,455
    )
    
    
    (5,284
    )Interest income
    
    
    2,239
    
    
    
    482
    
    
    
    3,564
    
    
    
    745Other expense, net
    
    
    (5,706
    )
    
    
    (2,075
    )
    
    
    (6,830
    )
    
    
    (4,365
    )Income before income taxes
    
    
    7,728
    
    
    
    17,539
    
    
    
    20,003
    
    
    
    40,250Income tax expense
    
    
    (2,703
    )
    
    
    (2,125
    )
    
    
    (7,733
    )
    
    
    (8,786
    )Net income
    
    $
    5,025
    
    
    $
    15,414
    
    
    $
    12,270
    
    
    $
    31,464Net income per share:Basic
    
    $
    0.42
    
    
    $
    1.31
    
    
    $
    1.04
    
    
    $
    2.67Diluted
    
    $
    0.42
    
    
    $
    1.30
    
    
    $
    1.03
    
    
    $
    2.65Weighted average number of shares outstanding:Basic
    
    
    11,842
    
    
    
    11,770
    
    
    
    11,805
    
    
    
    11,765Diluted
    
    
    11,925
    
    
    
    11,856
    
    
    
    11,904
    
    
    
    11,853
  2




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PIONEER COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)
 Six Months EndedJune 30,2007
    
    
    2006Operating activities:Net income
    
    $
    12,270
    
    
    $
    31,464Adjustments to reconcile net income to net cash flows from operating activities:Depreciation and amortization
    
    
    12,505
    
    
    
    11,998Reduction of allowance for doubtful accounts
    
    
    (55
    )
    
    
    (858
    )Deferred tax expense
    
    
    644
    
    
    
    3,144Gain on disposal of assets
    
    
    (111
    )
    
    
    (477
    )Currency exchange loss
    
    
    4,329
    
    
    
    2,110Loss on early debt extinguishment
    
    
    2,500
    
    
    
    2,500Stock-based compensation expense
    
    
    266
    
    
    
    674Accretion of asset retirement obligations
    
    
    467
    
    
    
    152Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (7,240
    )
    
    
    7,183(Increase) decrease in inventories, prepaid expenses and other current assets
    
    
    (3,667
    )
    
    
    2,632Decrease in other assets
    
    
    271
    
    
    
    Decrease in accounts payable and accrued liabilities
    
    
    (7,956
    )
    
    
    (11,864
    )Decrease in other long-term liabilities
    
    
    (4,188
    )
    
    
    (3,204
    )Other
    
    
    (99
    )
    
    
    Net cash flows from operating activities
    
    
    9,936
    
    
    
    45,454Investing activities:Capital expenditures
    
    
    (11,722
    )
    
    
    (4,734
    )Proceeds from disposal of assets
    
    
    444
    
    
    
    331Net cash flows used in investing activities
    
    
    (11,278
    )
    
    
    (4,403
    )Financing activities:Excess tax benefits on stock options exercised
    
    
    
    
    
    
    53Payment of premium on early debt extinguishment
    
    
    (2,500
    )
    
    
    (2,500
    )Proceeds from issuance of convertible notes
    
    
    120,000
    
    
    
    Debt issuance costs
    
    
    (3,993
    )
    
    
    Repayments of long-term debt
    
    
    (100,978
    )
    
    
    (51,452
    )Proceeds from issuance of stock, net
    
    
    
    
    
    
    219Net cash flows from (used in) financing activities
    
    
    12,529
    
    
    
    (53,680
    )Effect of exchange rate changes on cash
    
    
    92
    
    
    
    (22
    )Net change in cash and cash equivalents
    
    
    11,279
    
    
    
    (12,651
    )Cash and cash equivalents at beginning of period
    
    
    115,216
    
    
    
    62,790Cash and cash equivalents at end of period
    
    $
    126,495
    
    
    $
    50,139
  3




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PIONEER COMPANIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1.
    
    Pending Merger Agreement
   See
 2.
    
    Organization and Basis of Presentation
       4




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3.
    
    Recent Accounting Pronouncements
  See
 4.
    
    Debt
  June 30,
    
    
    December 31,2007
    
    
    2006Senior Subordinated Debt:2.75% Convertible Senior Subordinated Notes due 2027
    
    $
    120,000
    
    
    $
    Senior Secured Debt:10% Senior Secured Guaranteed Notes due December 2008
    
    
    
    
    
    
    100,000Revolving credit facility, variable interest rates based on
U.S. prime rate plus a margin ranging from 0.5% to 1.25% or
LIBOR (1) plus a margin ranging from 2.50% to
3.25%, expiring December 31, 2007, as amended
    
    
    
    
    
    
    Other debt:Unsecured, non-interest-bearing, long-term debt,
denominated in Canadian dollars, original face value of
$5.5 million with an effective interest rate of 8.25%
    
    
    
    
    
    
    428Other notes, maturing in various years through 2014, with
various installments, at various interest rates
    
    
    1,760
    
    
    
    2,311Total
    
    
    121,760
    
    
    
    102,739Short-term debt, including current portion of long-term debt
    
    
    
    
    
    
    (978
    )Long-term debt, less current portion
    
    $
    121,760
    
    
    $
    101,761
 
 (1)
    
    The three month London inter-bank offered rate (LIBOR) for the periods ended
June 30, 2007 and December 31, 2006, was 5.36% for both periods. 2.75% Convertible Senior Subordinated Notes due 2027
   5




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10% Senior Secured Guaranteed Notes due 2008
  Revolving Credit Facility
  6




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5.
    
    Environmental Liabilities
    7




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6.
    
    Asset Retirement Obligations
   Six months endedJune 30,2007
    
    
    2006Carrying amount at beginning of period
    
    $
    10,962
    
    
    $
    4,036Liabilities incurred
    
    
    
    
    
    
    Liabilities settled
    
    
    
    
    
    
    Accretion expense
    
    
    467
    
    
    
    152Revisions in estimated cash flows
    
    
    813
    
    
    
    Currency translation loss
    
    
    347
    
    
    
    28Carrying amount at end of period
    
    $
    12,589
    
    
    $
    4,216
  7.
    
    Net Income per Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator for basic and diluted net income per share:Net income
    
    $
    5,025
    
    
    $
    15,414
    
    
    $
    12,270
    
    
    $
    31,464Denominator for weighted average shares  Basic
    
    
    11,842
    
    
    
    11,770
    
    
    
    11,805
    
    
    
    11,765Potentially dilutive common shares  Stock options and other
    
    
    83
    
    
    
    86
    
    
    
    99
    
    
    
    88Denominator for weighted average shares  Diluted
    
    
    11,925
    
    
    
    11,856
    
    
    $
    11,904
    
    
    
    11,853Net income per share:Basic
    
    $
    0.42
    
    
    $
    1.31
    
    
    $
    1.04
    
    
    $
    2.67Diluted
    
    $
    0.42
    
    
    $
    1.30
    
    
    $
    1.03
    
    
    $
    2.65
  8




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8.
    
    Supplemental Financial Information
 Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials, supplies and parts, net
    
    $
    12,880
    
    
    $
    10,655Finished goods
    
    
    8,786
    
    
    
    10,368Inventories, net
    
    $
    21,666
    
    
    $
    21,023
 Other Assets, net
  Accrued Liabilities
  June 30,
    
    
    December 31,2007
    
    
    2006Payroll and benefits
    
    $
    8,771
    
    
    $
    9,330Taxes
    
    
    3,668
    
    
    
    11,694Electricity
    
    
    9,607
    
    
    
    8,488Professional services
    
    
    2,386
    
    
    
    1,647Maintenance services
    
    
    2,853
    
    
    
    5,056Other
    
    
    7,585
    
    
    
    6,410Accrued liabilities
    
    $
    34,870
    
    
    $
    42,625
 Other Expense, net
  9.
    
    Stock-Based Compensation
   9




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10.
    
    Supplemental Cash Flow Information
  Six Months EndedJune 30,2007
    
    
    2006Cash payments for:Interest (SeeNote 4)
    
    $
    2,625
    
    
    $
    5,327Income taxes (SeeNote 14)
    
    
    19,054
    
    
    
    3,057Non-cash investing activities:Property, plant and equipment acquisitions, included in accounts payable
    
    $
    1,356
    
    
    $
    421Non-cash financing activities:Debt issuance costs, included in accounts payable
    
    $
    357
    
    
    $
    
 11.
    
    Condensed Consolidating Financial Statements
 See
  10




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Condensed Consolidating Balance Sheet  June 30, 2007 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    835
    
    
    $
    125,660
    
    
    $
    
    
    
    $
    
    
    
    $
    126,495Accounts receivable, net
    
    
    
    
    
    
    14,610
    
    
    
    45,724
    
    
    
    
    
    
    
    
    
    
    
    60,334Inventories, net
    
    
    
    
    
    
    11,990
    
    
    
    9,676
    
    
    
    
    
    
    
    
    
    
    
    21,666Prepaid expenses and other current assets
    
    
    1,041
    
    
    
    2,963
    
    
    
    15,864
    
    
    
    
    
    
    
    
    
    
    
    19,868Total current assets
    
    
    1,041
    
    
    
    30,398
    
    
    
    196,924
    
    
    
    
    
    
    
    
    
    
    
    228,363Property, plant and equipment, net
    
    
    
    
    
    
    88,055
    
    
    
    63,220
    
    
    
    781
    
    
    
    
    
    
    
    152,056Other assets, net
    
    
    4,186
    
    
    
    746
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    5,013Intercompany receivable
    
    
    132,347
    
    
    
    14,798
    
    
    
    
    
    
    
    90,406
    
    
    
    (237,551
    )
    
    
    Investment in subsidiaries
    
    
    182,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182,816
    )
    
    
    Excess reorganization value over the fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    320,390
    
    
    $
    218,061
    
    
    $
    260,225
    
    
    $
    91,187
    
    
    $
    (420,367
    )
    
    $
    469,496Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    9,735
    
    
    $
    7,353
    
    
    $
    
    
    
    $
    
    
    
    $
    17,088Accrued liabilities
    
    
    1,778
    
    
    
    14,575
    
    
    
    18,517
    
    
    
    
    
    
    
    
    
    
    
    34,870Short-term debt including current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    1,778
    
    
    
    24,310
    
    
    
    25,870
    
    
    
    
    
    
    
    
    
    
    
    51,958Long-term debt, less current portion
    
    
    120,000
    
    
    
    
    
    
    
    1,760
    
    
    
    
    
    
    
    
    
    
    
    121,760Investment in subsidiary
    
    
    
    
    
    
    49,304
    
    
    
    
    
    
    
    
    
    
    
    (49,304
    )
    
    
    Intercompany payable
    
    
    1,332
    
    
    
    192
    
    
    
    236,027
    
    
    
    
    
    
    
    (237,551
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    12,552
    
    
    
    6,151
    
    
    
    
    
    
    
    
    
    
    
    18,703Other long-term liabilities
    
    
    
    
    
    
    39,678
    
    
    
    39,721
    
    
    
    396
    
    
    
    
    
    
    
    79,795Stockholders equity (deficiency in assets)
    
    
    197,280
    
    
    
    92,025
    
    
    
    (49,304
    )
    
    
    90,791
    
    
    
    (133,512
    )
    
    
    197,280Total liabilities and stockholders equity
    
    $
    320,390
    
    
    $
    218,061
    
    
    $
    260,225
    
    
    $
    91,187
    
    
    $
    (420,367
    )
    
    $
    469,496
 Condensed Consolidating Balance Sheet  December 31, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    3,049
    
    
    $
    112,167
    
    
    $
    
    
    
    $
    
    
    
    $
    115,216Accounts receivable, net
    
    
    
    
    
    
    11,327
    
    
    
    40,701
    
    
    
    
    
    
    
    
    
    
    
    52,028Inventories, net
    
    
    
    
    
    
    10,158
    
    
    
    10,865
    
    
    
    
    
    
    
    
    
    
    
    21,023Prepaid expenses and other current assets
    
    
    2,614
    
    
    
    2,121
    
    
    
    11,123
    
    
    
    
    
    
    
    
    
    
    
    15,858Total current assets
    
    
    2,614
    
    
    
    26,655
    
    
    
    174,856
    
    
    
    
    
    
    
    
    
    
    
    204,125Property, plant and equipment, net
    
    
    
    
    
    
    88,122
    
    
    
    63,881
    
    
    
    781
    
    
    
    
    
    
    
    152,784Other assets, net
    
    
    
    
    
    
    15
    
    
    
    1,835
    
    
    
    
    
    
    
    
    
    
    
    1,850Intercompany receivable
    
    
    15,679
    
    
    
    132,483
    
    
    
    
    
    
    
    90,438
    
    
    
    (238,600
    )
    
    
    Investment in subsidiaries
    
    
    167,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167,859
    )
    
    
    Excess reorganization value over fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    186,152
    
    
    $
    331,339
    
    
    $
    240,572
    
    
    $
    91,219
    
    
    $
    (406,459
    )
    
    $
    442,823Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    10,530
    
    
    $
    6,432
    
    
    $
    
    
    
    $
    7
    
    
    $
    16,969Accrued liabilities
    
    
    
    
    
    
    22,906
    
    
    
    19,719
    
    
    
    
    
    
    
    
    
    
    
    42,625Short-term debt including current portion of long-term debt
    
    
    
    
    
    
    428
    
    
    
    543
    
    
    
    7
    
    
    
    
    
    
    
    978Total current liabilities
    
    
    
    
    
    
    33,864
    
    
    
    26,694
    
    
    
    7
    
    
    
    7
    
    
    
    60,572Long-term debt, less current portion
    
    
    
    
    
    
    100,000
    
    
    
    1,761
    
    
    
    
    
    
    
    
    
    
    
    101,761Investment in subsidiary
    
    
    
    
    
    
    71,550
    
    
    
    
    
    
    
    
    
    
    
    (71,550
    )
    
    
    Intercompany payable
    
    
    1,332
    
    
    
    161
    
    
    
    237,114
    
    
    
    
    
    
    
    (238,607
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    12,854
    
    
    
    7,875
    
    
    
    
    
    
    
    
    
    
    
    20,729Other long-term liabilities
    
    
    
    
    
    
    35,844
    
    
    
    38,678
    
    
    
    419
    
    
    
    
    
    
    
    74,941Stockholders equity (deficiency in assets)
    
    
    184,820
    
    
    
    77,066
    
    
    
    (71,550
    )
    
    
    90,793
    
    
    
    (96,309
    )
    
    
    184,820Total liabilities and stockholders equity
    
    $
    186,152
    
    
    $
    331,339
    
    
    $
    240,572
    
    
    $
    91,219
    
    
    $
    (406,459
    )
    
    $
    442,823
 11




---



##### Table of Contents



Condensed Consolidating Statement of Operations  Three Months Ended June 30, 2007 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    52,524
    
    
    $
    99,366
    
    
    $
    
    
    
    $
    (21,612
    )
    
    $
    130,278Cost of sales
    
    
    
    
    
    
    (50,031
    )
    
    
    (78,995
    )
    
    
    
    
    
    
    21,612
    
    
    
    (107,414
    )Gross profit
    
    
    
    
    
    
    2,493
    
    
    
    20,371
    
    
    
    
    
    
    
    
    
    
    
    22,864Selling, general and administrative expenses
    
    
    (1,450
    )
    
    
    (2,505
    )
    
    
    (5,703
    )
    
    
    
    
    
    
    
    
    
    
    (9,658
    )Loss on asset dispositions and other, net
    
    
    
    
    
    
    (360
    )
    
    
    (278
    )
    
    
    
    
    
    
    
    
    
    
    (638
    )Operating income (loss)
    
    
    (1,450
    )
    
    
    (372
    )
    
    
    14,390
    
    
    
    
    
    
    
    
    
    
    
    12,568Interest expense
    
    
    (825
    )
    
    
    (500
    )
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (1,373
    )Interest income
    
    
    
    
    
    
    
    
    
    
    2,239
    
    
    
    
    
    
    
    
    
    
    
    2,239Other expense, net
    
    
    
    
    
    
    (5,705
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (5,706
    )Income (loss) before income taxes
    
    
    (2,275
    )
    
    
    (6,577
    )
    
    
    16,580
    
    
    
    
    
    
    
    
    
    
    
    7,728Income tax expense
    
    
    
    
    
    
    (4,923
    )
    
    
    2,220
    
    
    
    
    
    
    
    
    
    
    
    (2,703
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (2,275
    )
    
    
    (11,500
    )
    
    
    18,800
    
    
    
    
    
    
    
    
    
    
    
    5,025Equity in net income of subsidiaries
    
    
    7,300
    
    
    
    18,800
    
    
    
    
    
    
    
    
    
    
    
    (26,100
    )
    
    
    Net income
    
    $
    5,025
    
    
    $
    7,300
    
    
    $
    18,800
    
    
    $
    
    
    
    $
    (26,100
    )
    
    $
    5,025
 Condensed Consolidating Statement of Operations  Three Months Ended June 30, 2006 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    60,268
    
    
    $
    103,481
    
    
    $
    
    
    
    $
    (31,216
    )
    
    $
    132,533Cost of sales
    
    
    
    
    
    
    (49,363
    )
    
    
    (83,878
    )
    
    
    
    
    
    
    31,216
    
    
    
    (102,025
    )Gross profit
    
    
    
    
    
    
    10,905
    
    
    
    19,603
    
    
    
    
    
    
    
    
    
    
    
    30,508Selling, general and administrative expenses
    
    
    (275
    )
    
    
    (3,033
    )
    
    
    (5,608
    )
    
    
    
    
    
    
    
    
    
    
    (8,916
    )Loss on asset dispositions and other, net
    
    
    
    
    
    
    (47
    )
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    95Operating income (loss)
    
    
    (275
    )
    
    
    7,825
    
    
    
    14,137
    
    
    
    
    
    
    
    
    
    
    
    21,687Interest expense
    
    
    
    
    
    
    (2,509
    )
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    (2,555
    )Interest income
    
    
    
    
    
    
    (5
    )
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    482Other income (expense), net
    
    
    
    
    
    
    (2,070
    )
    
    
    (3,075
    )
    
    
    3,070
    
    
    
    
    
    
    
    (2,075
    )Income (loss) before income taxes
    
    
    (275
    )
    
    
    3,241
    
    
    
    11,503
    
    
    
    3,070
    
    
    
    
    
    
    
    17,539Income tax expense
    
    
    
    
    
    
    3,740
    
    
    
    (5,865
    )
    
    
    
    
    
    
    
    
    
    
    (2,125
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (275
    )
    
    
    6,981
    
    
    
    5,638
    
    
    
    3,070
    
    
    
    
    
    
    
    15,414Equity in net income of subsidiaries
    
    
    15,689
    
    
    
    5,638
    
    
    
    
    
    
    
    
    
    
    
    (21,327
    )
    
    
    Net income
    
    $
    15,414
    
    
    $
    12,619
    
    
    $
    5,638
    
    
    $
    3,070
    
    
    $
    (21,327
    )
    
    $
    15,414
 12




---



##### Table of Contents



Condensed Consolidating Statement of Operations  Six Months Ended June 30, 2007 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    111,226
    
    
    $
    193,715
    
    
    $
    
    
    
    $
    (52,222
    )
    
    $
    252,719Cost of sales
    
    
    
    
    
    
    (95,431
    )
    
    
    (163,256
    )
    
    
    
    
    
    
    52,222
    
    
    
    (206,465
    )Gross profit
    
    
    
    
    
    
    15,795
    
    
    
    30,459
    
    
    
    
    
    
    
    
    
    
    
    46,254Selling, general and administrative expenses
    
    
    (1,772
    )
    
    
    (5,561
    )
    
    
    (11,608
    )
    
    
    
    
    
    
    
    
    
    
    (18,941
    )Gain on asset dispositions and other, net
    
    
    
    
    
    
    (434
    )
    
    
    (153
    )
    
    
    (2
    )
    
    
    
    
    
    
    (589
    )Operating income (loss)
    
    
    (1,772
    )
    
    
    9,800
    
    
    
    18,698
    
    
    
    (2
    )
    
    
    
    
    
    
    26,724Interest expense
    
    
    (871
    )
    
    
    (2,459
    )
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    (3,455
    )Interest income
    
    
    
    
    
    
    
    
    
    
    3,564
    
    
    
    
    
    
    
    
    
    
    
    3,564Other expense, net
    
    
    
    
    
    
    (6,813
    )
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (6,830
    )Income (loss) before income taxes
    
    
    (2,643
    )
    
    
    528
    
    
    
    22,120
    
    
    
    (2
    )
    
    
    
    
    
    
    20,003Income tax expense
    
    
    
    
    
    
    (8,036
    )
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    (7,733
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (2,643
    )
    
    
    (7,508
    )
    
    
    22,423
    
    
    
    (2
    )
    
    
    
    
    
    
    12,270Equity in net income of subsidiaries
    
    
    14,915
    
    
    
    22,423
    
    
    
    
    
    
    
    
    
    
    
    (37,338
    )
    
    
    Net income (loss)
    
    $
    12,272
    
    
    $
    14,915
    
    
    $
    22,423
    
    
    $
    (2
    )
    
    $
    (37,338
    )
    
    $
    12,270
 Condensed Consolidating Statement of Operations  Six Months Ended June 30, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    123,856
    
    
    $
    208,976
    
    
    $
    
    
    
    $
    (65,427
    )
    
    $
    267,405Cost of sales
    
    
    
    
    
    
    (94,410
    )
    
    
    (172,680
    )
    
    
    
    
    
    
    65,427
    
    
    
    (201,663
    )Gross profit
    
    
    
    
    
    
    29,446
    
    
    
    36,296
    
    
    
    
    
    
    
    
    
    
    
    65,742Selling, general and administrative expenses
    
    
    (681
    )
    
    
    (5,625
    )
    
    
    (10,686
    )
    
    
    (3
    )
    
    
    
    
    
    
    (16,995
    )Gain on asset dispositions and other, net
    
    
    
    
    
    
    52
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    407Operating income (loss)
    
    
    (681
    )
    
    
    23,873
    
    
    
    25,965
    
    
    
    (3
    )
    
    
    
    
    
    
    49,154Interest expense
    
    
    
    
    
    
    (5,200
    )
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    (5,284
    )Interest income
    
    
    
    
    
    
    (4
    )
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    745Other income (expense), net
    
    
    
    
    
    
    (4,425
    )
    
    
    (6,231
    )
    
    
    6,291
    
    
    
    
    
    
    
    (4,365
    )Income (loss) before income taxes
    
    
    (681
    )
    
    
    14,244
    
    
    
    20,399
    
    
    
    6,288
    
    
    
    
    
    
    
    40,250Income tax expense
    
    
    
    
    
    
    (2,561
    )
    
    
    (6,225
    )
    
    
    
    
    
    
    
    
    
    
    (8,786
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (681
    )
    
    
    11,683
    
    
    
    14,174
    
    
    
    6,288
    
    
    
    
    
    
    
    31,464Equity in net income of subsidiaries
    
    
    32,145
    
    
    
    14,174
    
    
    
    
    
    
    
    
    
    
    
    (46,319
    )
    
    
    Net income
    
    $
    31,464
    
    
    $
    25,857
    
    
    $
    14,174
    
    
    $
    6,288
    
    
    $
    (46,319
    )
    
    $
    31,464
 13




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows  Six Months Ended June 30, 2007 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedCash flows from (used in) operating activities:Net cash flows from (used in) operating activities
    
    $
    (116,007
    )
    
    $
    104,207
    
    
    $
    21,730
    
    
    $
    6
    
    
    $
    9,936Cash flows used in investing activities:Capital expenditures
    
    
    
    
    
    
    (3,592
    )
    
    
    (8,130
    )
    
    
    
    
    
    
    (11,722
    )Proceeds from disposal of assets
    
    
    
    
    
    
    4
    
    
    
    440
    
    
    
    
    
    
    
    444Net cash flows used in investing activities
    
    
    
    
    
    
    (3,588
    )
    
    
    (7,690
    )
    
    
    
    
    
    
    (11,278
    )Cash flows from (used in) financing activities:Excess tax benefits from stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayments of long-term debt
    
    
    
    
    
    
    (100,428
    )
    
    
    (544
    )
    
    
    (6
    )
    
    
    (100,978
    )Proceeds from issuance of convertible notes
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Debt issuance costs
    
    
    (3,993
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,993
    )Payment of premium on early debt extinguishment
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Proceeds from issuance of stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash flows from (used in) financing activities
    
    
    116,007
    
    
    
    (102,928
    )
    
    
    (544
    )
    
    
    (6
    )
    
    
    12,529Effect of exchange rate changes on cash
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92Net change in cash and cash equivalents
    
    
    
    
    
    
    (2,217
    )
    
    
    13,496
    
    
    
    
    
    
    
    11,279Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,049
    
    
    
    112,167
    
    
    
    
    
    
    
    115,216Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    832
    
    
    $
    125,663
    
    
    $
    
    
    
    $
    126,495
 Condensed Consolidating Statement of Cash Flows  Six Months Ended June 30, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedCash flows from (used in) operating activities:Net cash flows from (used in) operating activities
    
    $
    (219
    )
    
    $
    54,845
    
    
    $
    (9,179
    )
    
    $
    7
    
    
    $
    45,454Cash flows from (used in) investing activities:Capital expenditures
    
    
    
    
    
    
    (1,720
    )
    
    
    (3,014
    )
    
    
    
    
    
    
    (4,734
    )Proceeds from disposal of assets
    
    
    
    
    
    
    91
    
    
    
    240
    
    
    
    
    
    
    
    331Net cash flows used in investing activities
    
    
    
    
    
    
    (1,629
    )
    
    
    (2,774
    )
    
    
    
    
    
    
    (4,403
    )Cash flows from (used in) financing activities:Excess tax benefits from stock options exercised
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53Repayments of long-term debt
    
    
    
    
    
    
    (50,850
    )
    
    
    (590
    )
    
    
    (12
    )
    
    
    (51,452
    )Payments of premium on early debt extinguishment
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Proceeds from issuance of stock, net
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219Net cash flows from (used in) financing activities
    
    
    219
    
    
    
    (53,350
    )
    
    
    (537
    )
    
    
    (12
    )
    
    
    (53,680
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    (22
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    (156
    )
    
    
    (12,490
    )
    
    
    (5
    )
    
    
    (12,651
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,587
    
    
    
    61,198
    
    
    
    5
    
    
    
    62,790Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    1,431
    
    
    $
    48,708
    
    
    $
    
    
    
    $
    50,139
 12.
    
    Pension and Other Postretirement Benefits
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended June 30, 2007Components of net periodic benefit cost:Service cost
    
    $
    372
    
    
    $
    
    
    
    $
    372Interest cost
    
    
    732
    
    
    
    781
    
    
    
    1,513Expected return on plan assets
    
    
    (1,007
    )
    
    
    (935
    )
    
    
    (1,942
    )Amortization of net actuarial loss
    
    
    104
    
    
    
    12
    
    
    
    116Net periodic benefit cost
    
    $
    201
    
    
    $
    (142
    )
    
    $
    59
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended June 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    371
    
    
    $
    
    
    
    $
    371Interest cost
    
    
    703
    
    
    
    789
    
    
    
    1,492Expected return on plan assets
    
    
    (900
    )
    
    
    (886
    )
    
    
    (1,786
    )Amortization of net actuarial loss
    
    
    153
    
    
    
    431
    
    
    
    584Net periodic benefit cost
    
    $
    327
    
    
    $
    334
    
    
    $
    661
 14




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##### Table of Contents



PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedSix Months Ended June 30, 2007Components of net periodic benefit cost:Service cost
    
    $
    711
    
    
    $
    
    
    
    $
    711Interest cost
    
    
    1,400
    
    
    
    1,575
    
    
    
    2,975Expected return on plan assets
    
    
    (1,925
    )
    
    
    (1,888
    )
    
    
    (3,813
    )Amortization of net actuarial loss
    
    
    199
    
    
    
    159
    
    
    
    358Net periodic benefit cost
    
    $
    385
    
    
    $
    (154
    )
    
    $
    231
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedSix Months Ended June 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    731
    
    
    $
    
    
    
    $
    731Interest cost
    
    
    1,387
    
    
    
    1,555
    
    
    
    2,942Expected return on plan assets
    
    
    (1,774
    )
    
    
    (1,740
    )
    
    
    (3,514
    )Amortization of net actuarial loss
    
    
    301
    
    
    
    703
    
    
    
    1,004Net periodic benefit cost
    
    $
    645
    
    
    $
    518
    
    
    $
    1,163
   PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended June 30, 2007Components of net periodic benefit cost:Service cost
    
    $
    91
    
    
    $
    1
    
    
    $
    92Interest cost
    
    
    135
    
    
    
    5
    
    
    
    140Amortization of prior service costs
    
    
    (9
    )
    
    
    (156
    )
    
    
    (165
    )Amortization of net actuarial loss (gain)
    
    
    74
    
    
    
    (12
    )
    
    
    62Net periodic benefit cost
    
    $
    291
    
    
    $
    (162
    )
    
    $
    129
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended June 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    82
    
    
    $
    
    
    
    $
    82Interest cost
    
    
    116
    
    
    
    7
    
    
    
    123Amortization of prior service costs
    
    
    (9
    )
    
    
    (156
    )
    
    
    (165
    )Amortization of net actuarial loss (gain)
    
    
    72
    
    
    
    (11
    )
    
    
    61Net periodic benefit cost
    
    $
    261
    
    
    $
    (160
    )
    
    $
    101
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedSix Months Ended June 30, 2007Components of net periodic benefit cost:Service cost
    
    $
    174
    
    
    $
    1
    
    
    $
    175Interest cost
    
    
    258
    
    
    
    11
    
    
    
    269Amortization of prior service costs
    
    
    (17
    )
    
    
    (312
    )
    
    
    (329
    )Amortization of net actuarial loss (gain)
    
    
    142
    
    
    
    (22
    )
    
    
    120Net periodic benefit cost
    
    $
    557
    
    
    $
    (322
    )
    
    $
    235
 15




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##### Table of Contents



PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedSix Months Ended June 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    161
    
    
    $
    1
    
    
    $
    162Interest cost
    
    
    229
    
    
    
    14
    
    
    
    243Amortization of prior service costs
    
    
    (17
    )
    
    
    (312
    )
    
    
    (329
    )Amortization of net actuarial loss (gain)
    
    
    142
    
    
    
    (24
    )
    
    
    118Net periodic benefit cost
    
    $
    515
    
    
    $
    (321
    )
    
    $
    194
 13.
    
    Commitments and Contingencies
 Environmental Liabilities
 See
  Capital Expenditures
  Litigation
  St. Gabriel Mercury Vapor Emissions Release
  16




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##### Table of Contents



Claude Frazier, et al. v. Pioneer
Americas, LLC and State of Louisiana through the Department of Environmental Quality
 Albany, N.Y. Mercury Refining Superfund Site.
 St. Gabriel Asbestos Premises Liability Lawsuits
 Stockholder Derivative Lawsuit regarding Merger with Olin th See
 14.
    
    Income Taxes
   17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Financial Results Summary for the First Six Months of 2007
  Six months endedJune 30,2007
    
    2006Revenues
    
    $
    252,719
    
    
    $
    267,405Operating income
    
    
    26,724
    
    
    
    49,154Net income
    
    
    12,270
    
    
    
    31,464Net cash flows from operating activities
    
    
    9,936
    
    
    
    45,454Total debt as of June 30
    
    
    121,760
    
    
    
    103,170Average ECU netback prices
    
    
    531
    
    
    
    596
  
    
    During the first six months of 2007, our production rate was 94% of our production
capacity. The average production rate during the same period for the chlor-alkali
industry was 91%.
 18




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##### Table of Contents




    
    In April and May 2007, we announced that we had entered into three key contracts for
the planned expansion at our St. Gabriel plant.
    
    In January 2007, we voluntarily redeemed $25.0 million of principal of our 10%
Senior Secured Guaranteed Notes due December 2008 (10% Senior Notes). The note
holders were paid the principal amount, plus a redemption premium of 2.5% of the
principal amount, or $0.6 million, and interest accrued to the date of payment.
    
    On March 26, 2007, we closed the sale of $120.0 million aggregate principal amount
of 2.75% Convertible Senior Subordinated Notes due 2027 (Convertible Notes).
    
    In April 2007, we redeemed the remaining $75.0 million of principal of our 10%
Senior Notes, plus a redemption premium of 2.5% of the principal, or $1.9 million, plus
interest accrued to the date of payment.
    
    During the first six months of 2007, revenues decreased and transportation costs
increased, resulting in a reduction of 11% in our average ECU netback price compared to
the first six months of 2006.
    
    We had a currency exchange loss of $4.3 million for the six months ended June 30,
2007, which resulted from a change in the rate at which Canadian dollar denominated
amounts were converted into U.S. dollar balances (from $1.1654 at December 31, 2006 to
$1.0654 at June 30, 2007). The currency exchange loss was $3.8 million for the second
quarter of 2007.
    
    In connection with the St. Gabriel expansion project, we revised the estimated
service life of certain depreciable assets at the plant, reflecting an accelerated
expected asset retirement date for these assets. SeeNote 2 to the consolidated
financial statements. The effect of this change for the six months ended June 30, 2007
was an increase in depreciation expense by $1.8 million, which decreased operating
income by $1.8 million and net income by $1.1 million.
    
    At June 30, 2007, we had cash and cash equivalents of $126.5 million, compared to
$50.1 million at June 30, 2006. The higher cash balance in the current period
reflected accumulated cash flows from operations and a portion of the proceeds from the
issuance of the Convertible Notes.
 Pending Merger with Olin Corporation
   See
 Expansion of St. Gabriel, Louisiana Plant
  19




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##### Table of Contents



See
 Pricing
   2006:First Quarter
    
    $
    616Second Quarter
    
    
    577Third Quarter
    
    
    557Fourth Quarter
    
    
    5342007:First Quarter
    
    
    522Second Quarter
    
    
    540
   Chlorine
    
    Caustic Soda2006:First Quarter
    
    $
    25
    (1)
    
    $
    Second Quarter
    
    
    
    
    
    
    35Third Quarter
    
    
    25
    
    
    
    Fourth Quarter
    
    
    
    
    
    
    402007:First Quarter
    
    $
    25
    
    
    $
    40
    (2)Second Quarter
    
    
    
    
    
    
    50
    (3)
 20




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##### Table of Contents



(1)
    
    A February 2006 price increase for chlorine of $25 per ton was
subject to a temporary voluntary allowance for the full amount. Under a
temporary voluntary allowance, we reserve the right to remove all or any
portion of the temporary voluntary allowance at any time following the
effective date of the price increase, upon notice to our customers.(2)
    
    The $40 increase announced in February 2007 is for diaphragm and
chemical grade liquid caustic soda. We also increased the price by $50 for
membrane and rayon grade liquid caustic soda.(3)
    
    The $50 increase announced on May 1, 2007 is for both grades of
liquid caustic soda.     
 21




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##### Table of Contents



Production
  ECUs (In Tons)2006:First Quarter
    
    
    165,359Second Quarter
    
    
    169,759Third Quarter
    
    
    178,205Fourth Quarter
    
    
    172,3092007:First Quarter
    
    
    166,426Second Quarter
    
    
    171,084
     Energy Costs
   Percentage ofTotal Power Costs
    
    Cost of Sales(in thousands)2006:First Quarter
    
    $
    29,963
    
    
    
    30
    %Second Quarter
    
    
    26,226
    
    
    
    26
    %Third Quarter
    
    
    28,945
    
    
    
    28
    %Fourth Quarter
    
    
    26,076
    
    
    
    25
    %2007:First Quarter
    
    
    25,158
    
    
    
    25
    %Second Quarter
    
    
    27,493
    
    
    
    26
    %
 22




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##### Table of Contents



Transportation Costs
   Product
    
    Percentage ofTransportation Costs
    
    Cost of Sales(in thousands)2006:First Quarter
    
    $
    23,981
    
    
    
    24
    %Second Quarter
    
    
    24,914
    
    
    
    24
    %Third Quarter
    
    
    27,361
    
    
    
    26
    %Fourth Quarter
    
    
    25,290
    
    
    
    24
    %2007:First Quarter
    
    
    26,242
    
    
    
    26
    %Second Quarter
    
    
    29,472
    
    
    
    27
    %
  Liquidity and Capital Resources
 2.75% Convertible Senior Subordinated Notes due 2027
    23




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##### Table of Contents



10% Senior Secured Guaranteed Notes due 2008
  Revolving Credit Facility
   24




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##### Table of Contents



Three
    
    
    Three
    
    
    Three
    
    
    Three
    
    
    TwelveMonths
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,2006(1)
    
    
    2006(2)
    
    
    2007
    
    
    2007
    
    
    2007(1)(2)Net income
    
    $
    31,515
    
    
    $
    4,266
    
    
    $
    7,245
    
    
    $
    5,025
    
    
    $
    48,051Income tax expense
    
    
    14,582
    
    
    
    8,095
    
    
    
    5,030
    
    
    
    2,703
    
    
    
    30,410Income before income taxes
    
    
    46,097
    
    
    
    12,361
    
    
    
    12,275
    
    
    
    7,728
    
    
    
    78,461Depreciation and amortization
    
    
    6,051
    
    
    
    6,286
    
    
    
    6,131
    
    
    
    6,374
    
    
    
    24,842Interest expense
    
    
    2,623
    
    
    
    2,498
    
    
    
    2,082
    
    
    
    1,373
    
    
    
    8,576Lender-Defined EBITDA
    
    $
    54,771
    
    
    $
    21,145
    
    
    $
    20,488
    
    
    $
    15,475
    
    
    $
    111,879
 
 (1)
    
    Includes gains of approximately $1.6 million and $22.5 million from
the sales of land in Pittsburg, California completed in July 2006 and in Henderson, Nevada
completed in September 2006, respectively.(2)
    
    Includes the gain of approximately $2.2 million from the
sale of land in Henderson, Nevada completed in December 2006.    25




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##### Table of Contents



Future Payment Commitments
  Retirement Plan Liabilities
  Income Taxes
 Tax Liability Upon Payment of 10% Senior Notes
 Adoption of FIN 48.
  Net Operating Loss Carryforward.
 Net Cash Flows
 Net Cash Flows From Operating Activities .
 26




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##### Table of Contents



Net Cash Flows Used in Investing Activities.
 Net Cash Flows From (Used in) Financing Activities.
 Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  RESULTS OF OPERATIONS
 Three Months Ended June 30, 2007, Compared to Three Months Ended June 30, 2006
 Revenues.
 Three Months EndedJune 30,2007
    
    
    2006Chlorine and caustic soda
    
    $
    98,941
    
    
    $
    99,970Other products
    
    
    31,337
    
    
    
    32,563$
    130,278
    
    
    $
    132,533Average ECU netback*
    
    $
    540
    
    
    $
    577
 
 *
    
    The average ECU netback, which is net of the cost of transporting
products to customers, relates only to sales of chlorine and caustic soda, and not
to sales of other products.   Cost of Sales
 27




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##### Table of Contents



Selling, General and Administrative Expenses.
 Gain (Loss) on Asset Dispositions and Other, Net.
 Interest Expense.
 Interest Income.
 Other Expense, Net.
 Income Tax Expense.
 28




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##### Table of Contents



Six Months Ended June 30, 2007, Compared to Six Months Ended June 30, 2006
 Revenues.
 Six Months EndedJune 30,2007
    
    
    2006Chlorine and caustic soda
    
    $
    191,375
    
    
    $
    203,583Other products
    
    
    61,344
    
    
    
    63,822$
    252,719
    
    
    $
    267,405Average ECU netback*
    
    $
    531
    
    
    $
    596
 
 *
    
    The average ECU netback, which is net of the cost of transporting
products to customers, relates only to sales of chlorine and caustic soda, and not
to sales of other products.   Cost
of Sales
      Selling, General and Administrative Expenses.
 29




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##### Table of Contents



Gain
(Loss) on Asset Dispositions and Other, Net.
 Interest Expense.
 Interest Income.
 Other Expense, Net.
 Income Tax Expense.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 See
 
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  30




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  St. Gabriel Mercury Vapor Emissions Release
  Claude Frazier, et al. v. Pioneer
Americas, LLC and State of Louisiana through the Department of Environmental Quality
 Albany, N.Y. Mercury Refining Superfund Site.
 St. Gabriel Asbestos Premises Liability Lawsuits
 31




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##### Table of Contents



Stockholder Derivative Lawsuit regarding Merger with Olin th
 
 ITEM 1A. RISK FACTORS
  Failure to complete the merger with Olin Corporation could materially and adversely affect our
results of operations and our stock price.
  
    
    the market price of our common stock may decline to the extent that the current market
price includes a market assumption that the merger will be completed;
    
    we will remain liable for significant transaction costs, including legal, accounting,
financial advisory and other costs relating to the merger;
    
    the deterioration of our business in the interim period may be significant and we may
find it difficult to continue as a stand-alone entity;
    
    we may experience a negative reaction to the termination of the merger from our
customers, employees and suppliers which may adversely impact future operating results; and
    
    under some circumstances, we may have to pay a termination fee to Olin in the amount of
approximately $15.6 million.
  Obtaining required approvals and satisfying closing conditions or other developments may delay or
prevent completion of the merger.
  
    
    approval by our stockholders of the merger agreement; and
    
    the absence of any law or order prohibiting the completion of the merger.
  32




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##### Table of Contents



Diversion of management attention to the merger and employee uncertainty regarding the merger could
adversely affect our business, financial condition and operating results.
  Conversion of our Convertible Notes may dilute the ownership interest of existing stockholders and
hedging activities may depress the trading price of our common stock.
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name
    
    For
    
    
    WithheldRobert E. Allen
    
    
    9,944,336
    
    
    
    120,987Marvin E. Lesser
    
    
    9,945,336
    
    
    
    119,987Michael Y. McGovern
    
    
    9,914,377
    
    
    
    150,946Charles L. Mears
    
    
    9,944,336
    
    
    
    120,987David A. Scholes
    
    
    9,851,539
    
    
    
    231,884Richard L. Urbanowski
    
    
    9,752,049
    
    
    
    313,274
  
 ITEM 5. OTHER INFORMATION
 Forward-Looking Statements
  33




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##### Table of Contents




    
    general economic, business and market conditions, including economic instability or a
downturn in the markets served by us;
    
    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;
    
    the occurrence of accidents in the manufacturing, handling, storage or transportation
of chlorine, including chemical spills or releases at our facilities or railcar
accidents that result in a chlorine release;
    
    environmental costs and other expenditures in excess of those projected;
    
    increased costs for litigation and other claims;
    
    changes in laws and regulations inside or outside the United States;
    
    uncertainty with respect to interest rates and fluctuations in currency exchange rates;
    
    the occurrence of extraordinary events, such as Hurricanes Katrina and Rita, the
attacks on the World Trade Center and the Pentagon that occurred on September 11, 2001,
or the war in Iraq;
    
    increases in costs or delays in the completion of the St. Gabriel project;
    
    our Convertible Notes could make an acquisition of the Company more expensive for a
potential acquiror or could cause the dilution of the ownership interest of existing
stockholders; and
    
    our ability to close the merger with Olin Corporation on a timely basis, or at all,
whether due to a failure or delay in obtaining Pioneer stock approval or because of the
effect of a pending stockholder derivative lawsuit relating to the merger.
  34




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##### Table of Contents



35




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##### Table of Contents



ITEM 6. EXHIBITS
 2.1
    
    Agreement and Plan of Merger by and among Olin Corporation,
Princeton Merger Corp. and Pioneer Companies, Inc., dated as of
May 20, 2007 (incorporated by reference to Exhibit 2.1 to
Pioneers Current Report on Form 8-K filed on May 22, 2007, File
No. 1-09859).4.1
    
    Eleventh Amendment to Loan and Security Agreement dated June 7,
2007, between and among the lenders identified on the signature
pages thereof, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC.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
    
    Items incorporated by reference from the Pioneer Companies, Inc.
Form 10-K/A for the year ended December 31, 2006: Item 1A. Risk
Factors.
 
 
    
    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated
and incorporated herein by reference. 36




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##### Table of Contents



SIGNATURES
  PIONEER COMPANIES, INC.Date: August 9, 2007
    By:
    /s/ Gary L. PittmanGary L. PittmanSenior Vice President and Chief Financial Officer
(Principal Financial Officer) 37




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##### Table of Contents



Exhibit Index
 2.1
    
    Agreement and Plan of Merger by and among Olin Corporation,
Princeton Merger Corp. and Pioneer Companies, Inc., dated as of
May 20, 2007 (incorporated by reference to Exhibit 2.1 to
Pioneers Current Report on Form 8-K filed on May 22, 2007, File
No. 1-09859).4.1
    
    Eleventh Amendment to Loan and Security Agreement dated June 7,
2007, between and among the lenders identified on the signature
pages thereof, Foothill Capital Corporation, PCI Chemicals Canada
Company and Pioneer Americas LLC.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
    
    Items incorporated by reference from the Pioneer Companies, Inc.
Form 10-K/A for the year ended December 31, 2006: Item 1A. Risk
Factors.
 
 
    
    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated
and incorporated herein by reference. 38