##### 



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 September 30, 2006
 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
(State or other jurisdiction of 
incorporation or organization)
    
    06-1215192
(I.R.S. Employer
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
   Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
 þ o




---



##### 



TABLE OF CONTENTS
 PagePart I  Financial InformationItem 1
    
    Consolidated Financial StatementsConsolidated Balance Sheets  September 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations  Three Months Ended September 30, 2006 and 2005 andNine Months Ended September 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4
    
    Controls and Procedures
    
    
    32Part II  Other InformationItem 1
    
    Legal Proceedings
    
    
    33Item 1A
    
    Risk Factors
    
    
    33Item 5
    
    Other Information
    
    
    36Item 6
    
    Exhibits
    
    
    37
 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 of Pioneers Annual Report on Form 10-K for the year ended December 31, 2005, as updated in
Item 1A of Part II of this Report on Form 10-Q . See also Item 5 of Part II of this Report on Form
10-Q for a discussion of forward-looking statements. Actual outcomes may vary materially.
 2




---



##### 



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    103,269
    
    
    $
    62,790Accounts receivable, net of allowance for doubtful accounts of $2,336
at September 30, 2006, and $3,748 at December 31, 2005
    
    
    62,617
    
    
    
    65,937Inventories, net
    
    
    14,670
    
    
    
    19,076Prepaid expenses and other current assets
    
    
    3,396
    
    
    
    3,800Total current assets
    
    
    183,952
    
    
    
    151,603Property, plant and equipment:Land
    
    
    5,759
    
    
    
    6,516Buildings and improvements
    
    
    30,370
    
    
    
    30,234Machinery and equipment
    
    
    216,743
    
    
    
    209,457Construction in progress
    
    
    2,616
    
    
    
    2,208255,488
    
    
    
    248,415Less: accumulated depreciation
    
    
    (107,853
    )
    
    
    (89,455
    )Property, plant and equipment, net
    
    
    147,635
    
    
    
    158,960Other assets, net
    
    
    6,685
    
    
    
    4,310Excess reorganization value over the fair value of identifiable assets
    
    
    84,064
    
    
    
    84,064Total assets
    
    $
    422,336
    
    
    $
    398,937Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    16,835
    
    
    $
    18,630Accrued liabilities
    
    
    42,066
    
    
    
    39,444Short-term debt, including current portion of long-term debt
    
    
    1,205
    
    
    
    1,858Total current liabilities
    
    
    60,106
    
    
    
    59,932Long-term debt, less current portion
    
    
    101,760
    
    
    
    152,739Accrued pension and other employee benefits
    
    
    23,656
    
    
    
    26,619Other long-term liabilities
    
    
    67,634
    
    
    
    54,657Commitments and contingenciesStockholders equity:Common stock, $.01 par value, 50,000 shares authorized, 11,795 and 11,759
shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively
    
    
    118
    
    
    
    118Additional paid-in capital
    
    
    37,995
    
    
    
    36,784Accumulated other comprehensive loss
    
    
    (14,396
    )
    
    
    (14,396
    )Retained earnings
    
    
    145,463
    
    
    
    82,484Total stockholders equity
    
    
    169,180
    
    
    
    104,990Total liabilities and stockholders equity
    
    $
    422,336
    
    
    $
    398,937
  3




---



##### 



PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    137,110
    
    
    $
    132,773
    
    
    $
    404,515
    
    
    $
    384,722Cost of sales
    
    
    (105,089
    )
    
    
    (96,087
    )
    
    
    (306,752
    )
    
    
    (276,292
    )Gross profit
    
    
    32,021
    
    
    
    36,686
    
    
    
    97,763
    
    
    
    108,430Selling, general and administrative expenses
    
    
    (8,552
    )
    
    
    (8,735
    )
    
    
    (25,547
    )
    
    
    (25,212
    )Other items
    
    
    24,329
    
    
    
    (483
    )
    
    
    24,736
    
    
    
    (2,485
    )Operating income
    
    
    47,798
    
    
    
    27,468
    
    
    
    96,952
    
    
    
    80,733Interest expense, net
    
    
    (1,736
    )
    
    
    (3,597
    )
    
    
    (6,275
    )
    
    
    (11,967
    )Other income (expense), net
    
    
    35
    
    
    
    (1,711
    )
    
    
    (4,330
    )
    
    
    (1,129
    )Income before income taxes
    
    
    46,097
    
    
    
    22,160
    
    
    
    86,347
    
    
    
    67,637Income tax expense
    
    
    (14,582
    )
    
    
    (2,058
    )
    
    
    (23,368
    )
    
    
    (8,426
    )Net income
    
    $
    31,515
    
    
    $
    20,102
    
    
    $
    62,979
    
    
    $
    59,211Net income per share:Basic
    
    $
    2.68
    
    
    $
    1.76
    
    
    $
    5.35
    
    
    $
    5.24Diluted
    
    $
    2.66
    
    
    $
    1.70
    
    
    $
    5.31
    
    
    $
    5.02Weighted average number of shares outstanding:Basic
    
    
    11,781
    
    
    
    11,412
    
    
    
    11,774
    
    
    
    11,291Diluted
    
    
    11,862
    
    
    
    11,814
    
    
    
    11,866
    
    
    
    11,791
  4




---



##### 



PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Nine Months EndedSeptember 302006
    
    
    2005Operating activities:Net income
    
    $
    62,979
    
    
    $
    59,211Adjustments to reconcile net income to net cash flows from operating activities:Depreciation and amortization
    
    
    18,049
    
    
    
    18,582(Reduction of) provision for allowance for doubtful accounts
    
    
    (1,412
    )
    
    
    99Deferred tax expense
    
    
    12,217
    
    
    
    7,212(Gain) loss on disposals of assets
    
    
    (24,514
    )
    
    
    1,532Currency exchange loss
    
    
    2,074
    
    
    
    1,052Loss on early debt extinguishment
    
    
    2,500
    
    
    
    Stock-based compensation expense
    
    
    712
    
    
    
    Accretion expense
    
    
    228
    
    
    
    Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    5,499
    
    
    
    (8,402
    )Decrease in inventories, prepaid expenses and other current assets
    
    
    5,132
    
    
    
    1,860Increase in other assets
    
    
    (2,437
    )
    
    
    (440
    )Increase in accounts payable and accrued liabilities
    
    
    958
    
    
    
    8,851(Decrease) increase in other long-term liabilities
    
    
    (4,097
    )
    
    
    796Net cash flows from operating activities
    
    
    77,888
    
    
    
    90,353Investing activities:Capital expenditures
    
    
    (8,735
    )
    
    
    (7,496
    )Proceeds from disposal of assets
    
    
    25,032
    
    
    
    1,228Net cash flows from (used in) investing activities
    
    
    16,297
    
    
    
    (6,268
    )Financing activities:Excess tax benefits on stock options exercised
    
    
    129
    
    
    
    Payment of premium on early debt extinguishment
    
    
    (2,500
    )
    
    
    Repayments of long-term debt
    
    
    (51,664
    )
    
    
    (48,107
    )Proceeds from issuance of stock, net
    
    
    409
    
    
    
    1,204Net cash flows used in financing activities
    
    
    (53,626
    )
    
    
    (46,903
    )Effect of exchange rate changes on cash
    
    
    (80
    )
    
    
    95Net change in cash and cash equivalents
    
    
    40,479
    
    
    
    37,277Cash and cash equivalents at beginning of period
    
    
    62,790
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    103,269
    
    
    $
    53,468
  5




---



##### 



PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Organization and Basis of Presentation
      2. Debt
  September 30,
    
    
    December 31,2006
    
    
    2005Senior Secured Debt:10% Senior Secured Guaranteed Notes, due December 2008 (Senior Notes)
    
    $
    100,000
    
    
    $
    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)
    
    

    
    
    
    Other debt:Unsecured, non-interest-bearing, long-term debt, denominated in
Canadian dollars, original face value of $5.5 million CAN, payable in
five annual installments of $1.0 million CAN beginning January 10,
2002, and a final payment of $0.5 million CAN, with an effective
interest rate of 8.25%, net of unamortized discount of $11,000 and
$43,000 CAN at September 30, 2006, and December 31, 2005, respectively
    
    
    437
    
    
    
    1,253Other notes, maturing in various years through 2014, with various
installments, at various interest rates
    
    
    2,528
    
    
    
    3,344Total debt
    
    
    102,965
    
    
    
    154,597Short-term debt, including current portion of long-term debt
    
    
    (1,205
    )
    
    
    (1,858
    )Long-term debt, less current portion
    
    $
    101,760
    
    
    $
    152,739
 
 *
    
    The three month London inter-bank offered rate (LIBOR) for the periods ended September
30, 2006, and December 31, 2005, was 5.37% and 4.39%, respectively. 6




---



##### 



7




---



##### 



3. Environmental Liabilities
     8




---



##### 



4. Net Income per Share
 see
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator for basic and diluted net income per share:Net income
    
    $
    31,515
    
    
    $
    20,102
    
    
    $
    62,979
    
    
    $
    59,211Denominator for basic and diluted net income per share:Weighted average shares
    
    
    11,781
    
    
    
    11,412
    
    
    
    11,774
    
    
    
    11,291Potentially dilutive common shares:Stock options
    
    
    81
    
    
    
    402
    
    
    
    92
    
    
    
    500Denominator for diluted net income per share
    
    
    11,862
    
    
    
    11,814
    
    
    
    11,866
    
    
    
    11,791Net income per share:Basic
    
    $
    2.68
    
    
    $
    1.76
    
    
    $
    5.35
    
    
    $
    5.24Diluted
    
    $
    2.66
    
    
    $
    1.70
    
    
    $
    5.31
    
    
    $
    5.02
  5. Supplemental Financial Information
 Inventories
  September 30,
    
    
    December 31,2006
    
    
    2005Raw materials, supplies and parts, net
    
    $
    7,620
    
    
    $
    9,807Finished goods
    
    
    7,050
    
    
    
    9,269Inventories, net
    
    $
    14,670
    
    
    $
    19,076
 9




---



##### 



Accrued Liabilities
  September 30,
    
    
    December 31,2006
    
    
    2005Payroll and benefits
    
    $
    8,342
    
    
    $
    13,567Electricity
    
    
    9,434
    
    
    
    10,104Maintenance services
    
    
    2,396
    
    
    
    4,702Professional services
    
    
    1,521
    
    
    
    3,037Taxes
    
    
    10,822
    
    
    
    2,063Waste disposal
    
    
    2,469
    
    
    
    452Other
    
    
    7,082
    
    
    
    5,519Accrued liabilities
    
    $
    42,066
    
    
    $
    39,444
 6. Stock-Based Compensation
 Share-Based Incentive Plan
    Accounting for Share-Based Compensation
   10




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net income:As reported
    
    $
    20,102
    
    
    $
    59,211Deduct: Stock-based
compensation expense
determined under
fair-value-based method
    
    
    (212
    )
    
    
    (603
    )Pro forma net income
    
    $
    19,890
    
    
    $
    58,608Net income per common share:Basic, as reported
    
    $
    1.76
    
    
    $
    5.24Basic, pro forma
    
    $
    1.74
    
    
    $
    5.19Diluted, as reported
    
    $
    1.70
    
    
    $
    5.02Diluted, pro forma
    
    $
    1.68
    
    
    $
    4.97
 Stock Options
  Weighted -AverageNumber of
    
    
    Exercise Price
    
    
    Exercise PriceShares
    
    
    Per Share
    
    
    Per ShareOutstanding at January 1, 2006
    
    
    236
    
    
    $
    2.00 - $29.97
    
    
    $
    12.69Granted
    
    
    10
    
    
    $
    31.37
    
    
    $
    31.37Exercised
    
    
    (36
    )
    
    $
    2.50 - $20.75
    
    
    $
    11.37Forfeited
    
    
    (32
    )
    
    $
    8.28 - $26.40
    
    
    $
    25.63Outstanding at September 30, 2006
    
    
    178
    
    
    $
    2.00 - $31.37
    
    
    $
    11.73Exercisable
    
    
    123
    
    
    $
    2.00 - $31.37
    
    
    $
    13.28
  Weighted-AverageWeighted- Average
    
    
    RemainingOptions
    
    
    Exercise
    
    
    Contractual Term
    
    
    Aggregate IntrinsicOutstanding
    
    
    Price Per Share
    
    
    (years)
    
    
    Value (1)Fully vested and currently exercisable
    
    
    123
    
    
    $
    13.28
    
    
    
    7.60
    
    
    $
    1,532Expected to vest
    
    
    55
    
    
    $
    8.28
    
    
    
    7.90
    
    
    
    898Total outstanding stock options
    
    
    178
    
    
    $
    11.73
    
    
    
    7.69
    
    
    $
    2,430
 
 (1)
    
    The aggregate intrinsic value is computed based on the closing price of
Pioneers stock on September 29, 2006. 11




---



##### 



Weighted- AverageOptions
    
    
    Grant-DateOutstanding
    
    
    Fair ValueUnvested Stock Options at January 1, 2006
    
    
    167
    
    
    $
    8.54Granted
    
    
    10
    
    
    $
    14.58Vested
    
    
    (90
    )
    
    $
    9.30Forfeited
    
    
    (32
    )
    
    $
    12.87Unvested Stock Options at September 30, 2006
    
    
    55
    
    
    $
    5.93
   Nine Months Ended September 30,2006
    
    
    2005Expected Term (years)
    
    
    5.2
    
    
    
    10.0Expected Volatility
    
    
    45.4
    %
    
    
    61.57
    %Risk-free Interest Rate
    
    
    4.5
    %
    
    
    4.1
    %Expected Dividends
    
    
    
    
    
    
    
   7. Supplemental Cash Flow Information
  Nine Months Ended September 30,2006
    
    
    2005Cash payments for:Interest
    
    $
    5,432
    
    
    $
    8,500Income taxes
    
    $
    3,187
    
    
    $
    300Non-cash investing activities  Property, plant and equipment
acquisitions, included in accounts payable
    
    $
    160
    
    
    $
    1,043
 12




---



##### 



8. Condensed Consolidating Financial Statements
   13




---



##### 



Condensed Consolidating Balance Sheet  September 30, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,040
    
    
    $
    102,229
    
    
    $
    
    
    
    $
    
    
    
    $
    103,269Accounts receivable, net
    
    
    
    
    
    
    14,055
    
    
    
    48,562
    
    
    
    
    
    
    
    
    
    
    
    62,617Inventories, net
    
    
    
    
    
    
    5,853
    
    
    
    8,817
    
    
    
    
    
    
    
    
    
    
    
    14,670Prepaid expenses and other current assets
    
    
    226
    
    
    
    2,627
    
    
    
    543
    
    
    
    
    
    
    
    
    
    
    
    3,396Total current assets
    
    
    226
    
    
    
    23,575
    
    
    
    160,151
    
    
    
    
    
    
    
    
    
    
    
    183,952Property, plant and equipment, net
    
    
    
    
    
    
    86,125
    
    
    
    60,729
    
    
    
    781
    
    
    
    
    
    
    
    147,635Other assets, net
    
    
    
    
    
    
    2,743
    
    
    
    3,942
    
    
    
    
    
    
    
    
    
    
    
    6,685Intercompany receivable
    
    
    18,044
    
    
    
    132,377
    
    
    
    
    
    
    
    99,924
    
    
    
    (250,345
    )
    
    
    Investment in subsidiaries
    
    
    152,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152,423
    )
    
    
    Excess reorganization value over the fair value of identifiable asset
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    170,693
    
    
    $
    328,884
    
    
    $
    224,822
    
    
    $
    100,705
    
    
    $
    (402,768
    )
    
    $
    422,336Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    9,118
    
    
    $
    7,716
    
    
    $
    
    
    
    $
    1
    
    
    $
    16,835Accrued liabilities
    
    
    180
    
    
    
    21,079
    
    
    
    20,807
    
    
    
    
    
    
    
    
    
    
    
    42,066Short-term debt including current portion of long-term debt
    
    
    
    
    
    
    437
    
    
    
    754
    
    
    
    14
    
    
    
    
    
    
    
    1,205Total current liabilities
    
    
    180
    
    
    
    30,634
    
    
    
    29,277
    
    
    
    14
    
    
    
    1
    
    
    
    60,106Long-term debt, less current portion
    
    
    
    
    
    
    100,000
    
    
    
    1,760
    
    
    
    
    
    
    
    
    
    
    
    101,760Investment in subsidiary
    
    
    
    
    
    
    99,271
    
    
    
    
    
    
    
    
    
    
    
    (99,271
    )
    
    
    Intercompany payable
    
    
    1,333
    
    
    
    722
    
    
    
    248,291
    
    
    
    
    
    
    
    (250,346
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    8,371
    
    
    
    15,285
    
    
    
    
    
    
    
    
    
    
    
    23,656Other long-term liabilities
    
    
    
    
    
    
    37,670
    
    
    
    29,480
    
    
    
    484
    
    
    
    
    
    
    
    67,634Stockholders equity (deficiency in assets)
    
    
    169,180
    
    
    
    52,216
    
    
    
    (99,271
    )
    
    
    100,207
    
    
    
    (53,152
    )
    
    
    169,180Total liabilities and stockholders equity
    
    $
    170,693
    
    
    $
    328,884
    
    
    $
    224,822
    
    
    $
    100,705
    
    
    $
    (402,768
    )
    
    $
    422,336
 Condensed Consolidating Balance Sheet  December 31, 2005 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,587
    
    
    $
    61,198
    
    
    $
    5
    
    
    $
    
    
    
    $
    62,790Accounts receivable, net
    
    
    
    
    
    
    14,264
    
    
    
    51,673
    
    
    
    
    
    
    
    
    
    
    
    65,937Inventories, net
    
    
    
    
    
    
    9,040
    
    
    
    10,036
    
    
    
    
    
    
    
    
    
    
    
    19,076Prepaid expenses and other current assets
    
    
    2,034
    
    
    
    1,516
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    3,800Total current assets
    
    
    2,034
    
    
    
    26,407
    
    
    
    123,157
    
    
    
    5
    
    
    
    
    
    
    
    151,603Property, plant and equipment, net
    
    
    
    
    
    
    93,977
    
    
    
    63,455
    
    
    
    1,528
    
    
    
    
    
    
    
    158,960Other assets, net
    
    
    
    
    
    
    186
    
    
    
    4,124
    
    
    
    
    
    
    
    
    
    
    
    4,310Intercompany receivable
    
    
    15,887
    
    
    
    148,733
    
    
    
    
    
    
    
    88,541
    
    
    
    (253,161
    )
    
    
    Investment in subsidiaries
    
    
    88,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88,530
    )
    
    
    Excess reorganization value over fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    106,451
    
    
    $
    353,367
    
    
    $
    190,736
    
    
    $
    90,074
    
    
    $
    (341,691
    )
    
    $
    398,937Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    8,171
    
    
    $
    10,460
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    18,630Accrued liabilities
    
    
    128
    
    
    
    12,815
    
    
    
    26,501
    
    
    
    
    
    
    
    
    
    
    
    39,444Short-term debt including current portion of long-term debt
    
    
    
    
    
    
    825
    
    
    
    1,005
    
    
    
    28
    
    
    
    
    
    
    
    1,858Total current liabilities
    
    
    128
    
    
    
    21,811
    
    
    
    37,966
    
    
    
    28
    
    
    
    (1
    )
    
    
    59,932Long-term debt, less current portion
    
    
    
    
    
    
    150,429
    
    
    
    2,303
    
    
    
    7
    
    
    
    
    
    
    
    152,739Investment in subsidiary
    
    
    
    
    
    
    133,690
    
    
    
    
    
    
    
    429
    
    
    
    (134,119
    )
    
    
    Intercompany payable
    
    
    1,333
    
    
    
    347
    
    
    
    251,481
    
    
    
    
    
    
    
    (253,161
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    9,064
    
    
    
    17,555
    
    
    
    
    
    
    
    
    
    
    
    26,619Other long-term liabilities
    
    
    
    
    
    
    38,670
    
    
    
    15,121
    
    
    
    865
    
    
    
    1
    
    
    
    54,657Stockholders equity (deficiency in assets)
    
    
    104,990
    
    
    
    (644
    )
    
    
    (133,690
    )
    
    
    88,745
    
    
    
    45,589
    
    
    
    104,990Total liabilities and stockholders equity
    
    $
    106,451
    
    
    $
    353,367
    
    
    $
    190,736
    
    
    $
    90,074
    
    
    $
    (341,691
    )
    
    $
    398,937
 14




---



##### 



Condensed Consolidating Statement of Operations  Three Months Ended September 30, 2006 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    62,955
    
    
    $
    107,272
    
    
    $
    
    
    
    $
    (33,117
    )
    
    $
    137,110Cost of sales
    
    
    
    
    
    
    (49,183
    )
    
    
    (89,015
    )
    
    
    (8
    )
    
    
    33,117
    
    
    
    (105,089
    )Gross profit
    
    
    
    
    
    
    13,772
    
    
    
    18,257
    
    
    
    (8
    )
    
    
    
    
    
    
    32,021Selling, general and administrative expenses
    
    
    37
    
    
    
    (3,063
    )
    
    
    (5,526
    )
    
    
    
    
    
    
    
    
    
    
    (8,552
    )Other items
    
    
    
    
    
    
    37
    
    
    
    22,663
    
    
    
    1,629
    
    
    
    
    
    
    
    24,329Operating income
    
    
    37
    
    
    
    10,746
    
    
    
    35,394
    
    
    
    1,621
    
    
    
    
    
    
    
    47,798Interest expense, net
    
    
    
    
    
    
    (2,509
    )
    
    
    773
    
    
    
    
    
    
    
    
    
    
    
    (1,736
    )Other income (expense), net
    
    
    
    
    
    
    35
    
    
    
    (3,124
    )
    
    
    3,124
    
    
    
    
    
    
    
    35Income before income taxes
    
    
    37
    
    
    
    8,272
    
    
    
    33,043
    
    
    
    4,745
    
    
    
    
    
    
    
    46,097Income tax expense
    
    
    
    
    
    
    (1,513
    )
    
    
    (13,069
    )
    
    
    
    
    
    
    
    
    
    
    (14,582
    )Net income before equity in earnings of subsidiaries
    
    
    37
    
    
    
    6,759
    
    
    
    19,974
    
    
    
    4,745
    
    
    
    
    
    
    
    31,515Equity in net income (loss) of subsidiaries
    
    
    31,478
    
    
    
    19,974
    
    
    
    (144
    )
    
    
    1
    
    
    
    (51,309
    )
    
    
    Net income
    
    $
    31,515
    
    
    $
    26,733
    
    
    $
    19,830
    
    
    $
    4,746
    
    
    $
    (51,309
    )
    
    $
    31,515
 Condensed Consolidating Statement of Operations  Three Months Ended September 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    62,025
    
    
    $
    105,558
    
    
    $
    
    
    
    $
    (34,810
    )
    
    $
    132,773Cost of sales
    
    
    
    
    
    
    (44,548
    )
    
    
    (86,349
    )
    
    
    
    
    
    
    34,810
    
    
    
    (96,087
    )Gross profit
    
    
    
    
    
    
    17,477
    
    
    
    19,209
    
    
    
    
    
    
    
    
    
    
    
    36,686Selling, general and administrative expenses
    
    
    (179
    )
    
    
    (2,204
    )
    
    
    (6,349
    )
    
    
    (3
    )
    
    
    
    
    
    
    (8,735
    )Other items
    
    
    
    
    
    
    (431
    )
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (483
    )Operating income (loss)
    
    
    (179
    )
    
    
    14,842
    
    
    
    12,808
    
    
    
    (3
    )
    
    
    
    
    
    
    27,468Interest expense, net
    
    
    
    
    
    
    (3,745
    )
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    (3,597
    )Other income (expense), net
    
    
    
    
    
    
    (1,689
    )
    
    
    (3,076
    )
    
    
    3,054
    
    
    
    
    
    
    
    (1,711
    )Income (loss) before income taxes
    
    
    (179
    )
    
    
    9,408
    
    
    
    9,880
    
    
    
    3,051
    
    
    
    
    
    
    
    22,160Income tax expense
    
    
    
    
    
    
    (1,044
    )
    
    
    (1,014
    )
    
    
    
    
    
    
    
    
    
    
    (2,058
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (179
    )
    
    
    8,364
    
    
    
    8,866
    
    
    
    3,051
    
    
    
    
    
    
    
    20,102Equity in net income of subsidiaries
    
    
    20,281
    
    
    
    8,866
    
    
    
    
    
    
    
    
    
    
    
    (29,147
    )
    
    
    Net income
    
    $
    20,102
    
    
    $
    17,230
    
    
    $
    8,866
    
    
    $
    3,051
    
    
    $
    (29,147
    )
    
    $
    20,102
 Condensed Consolidating Statement of Operations  Nine Months Ended September 30, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    186,811
    
    
    $
    316,248
    
    
    $
    
    
    
    $
    (98,544
    )
    
    $
    404,515Cost of sales
    
    
    
    
    
    
    (143,593
    )
    
    
    (261,696
    )
    
    
    (7
    )
    
    
    98,544
    
    
    
    (306,752
    )Gross profit
    
    
    
    
    
    
    43,218
    
    
    
    54,552
    
    
    
    (7
    )
    
    
    
    
    
    
    97,763Selling, general and administrative expenses
    
    
    (644
    )
    
    
    (8,688
    )
    
    
    (16,213
    )
    
    
    (2
    )
    
    
    
    
    
    
    (25,547
    )Other items
    
    
    
    
    
    
    89
    
    
    
    23,019
    
    
    
    1,628
    
    
    
    
    
    
    
    24,736Operating income (loss)
    
    
    (644
    )
    
    
    34,619
    
    
    
    61,358
    
    
    
    1,619
    
    
    
    
    
    
    
    96,952Interest expense, net
    
    
    
    
    
    
    (7,713
    )
    
    
    1,439
    
    
    
    (1
    )
    
    
    
    
    
    
    (6,275
    )Other income (expense), net
    
    
    
    
    
    
    (4,390
    )
    
    
    (9,355
    )
    
    
    9,415
    
    
    
    
    
    
    
    (4,330
    )Income (loss) before income taxes
    
    
    (644
    )
    
    
    22,516
    
    
    
    53,442
    
    
    
    11,033
    
    
    
    
    
    
    
    86,347Income tax expense
    
    
    
    
    
    
    (4,074
    )
    
    
    (19,294
    )
    
    
    
    
    
    
    
    
    
    
    (23,368
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (644
    )
    
    
    18,442
    
    
    
    34,148
    
    
    
    11,033
    
    
    
    
    
    
    
    62,979Equity in net income (loss) of subsidiaries
    
    
    63,623
    
    
    
    34,148
    
    
    
    (144
    )
    
    
    
    
    
    
    (97,627
    )
    
    
    Net income
    
    $
    62,979
    
    
    $
    52,590
    
    
    $
    34,004
    
    
    $
    11,033
    
    
    $
    (97,627
    )
    
    $
    62,979
 15




---



##### 



Condensed Consolidating
Statement of Operations  Nine Months Ended September 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    176,066
    
    
    $
    304,756
    
    
    $
    
    
    
    $
    (96,100
    )
    
    $
    384,722Cost of sales
    
    
    
    
    
    
    (128,808
    )
    
    
    (243,789
    )
    
    
    205
    
    
    
    96,100
    
    
    
    (276,292
    )Gross profit
    
    
    
    
    
    
    47,258
    
    
    
    60,967
    
    
    
    205
    
    
    
    
    
    
    
    108,430Selling, general and administrative expenses
    
    
    (732
    )
    
    
    (6,750
    )
    
    
    (17,726
    )
    
    
    (4
    )
    
    
    
    
    
    
    (25,212
    )Other items
    
    
    
    
    
    
    (2,417
    )
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    (2,485
    )Operating income (loss)
    
    
    (732
    )
    
    
    38,091
    
    
    
    43,173
    
    
    
    201
    
    
    
    
    
    
    
    80,733Interest expense, net
    
    
    
    
    
    
    (11,320
    )
    
    
    (644
    )
    
    
    (3
    )
    
    
    
    
    
    
    (11,967
    )Other income (expense), net
    
    
    
    
    
    
    (1,055
    )
    
    
    (9,230
    )
    
    
    9,156
    
    
    
    
    
    
    
    (1,129
    )Income (loss) before income taxes
    
    
    (732
    )
    
    
    25,716
    
    
    
    33,299
    
    
    
    9,354
    
    
    
    
    
    
    
    67,637Income tax expense
    
    
    
    
    
    
    (6,275
    )
    
    
    (2,151
    )
    
    
    
    
    
    
    
    
    
    
    (8,426
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (732
    )
    
    
    19,441
    
    
    
    31,148
    
    
    
    9,354
    
    
    
    
    
    
    
    59,211Equity in net income of subsidiaries
    
    
    59,943
    
    
    
    31,148
    
    
    
    
    
    
    
    202
    
    
    
    (91,293
    )
    
    
    Net income
    
    $
    59,211
    
    
    $
    50,589
    
    
    $
    31,148
    
    
    $
    9,556
    
    
    $
    (91,293
    )
    
    $
    59,211
 Condensed Consolidating Statement of Cash Flows  Nine Months Ended September 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
    
    $
    (409
    )
    
    $
    56,340
    
    
    $
    24,048
    
    
    $
    (2,091
    )
    
    $
    77,888Cash flows
from (used in) investing activities:Capital expenditures
    
    
    
    
    
    
    (3,409
    )
    
    
    (5,326
    )
    
    
    
    
    
    
    (8,735
    )Proceeds from disposal of assets
    
    
    
    
    
    
    (42
    )
    
    
    22,974
    
    
    
    2,100
    
    
    
    25,032Net cash
flows from (used in) investing activities
    
    
    
    
    
    
    (3,451
    )
    
    
    17,648
    
    
    
    2,100
    
    
    
    16,297Cash flows from (used in) financing activities:Excess tax benefits from stock options exercised
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    129Repayments of long-term debt
    
    
    
    
    
    
    (50,851
    )
    
    
    (797
    )
    
    
    (16
    )
    
    
    (51,664
    )Payment of premium on early debt extinguishment
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Proceeds from issuance of stock, net
    
    
    409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    409Net cash flows from (used in) financing activities
    
    
    409
    
    
    
    (53,351
    )
    
    
    (668
    )
    
    
    (16
    )
    
    
    (53,626
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (80
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    (542
    )
    
    
    41,028
    
    
    
    (7
    )
    
    
    40,479Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,587
    
    
    
    61,198
    
    
    
    5
    
    
    
    62,790Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    1,045
    
    
    $
    102,226
    
    
    $
    (2
    )
    
    $
    103,269
 Condensed Consolidating Statement of Cash Flows  Nine Months Ended September 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedCash flows from (used in) operating activities:Net cash
flows from (used in) operating activities
    
    $
    (1,204
    )
    
    $
    7,445
    
    
    $
    84,090
    
    
    $
    22
    
    
    $
    90,353Cash flows from (used in) investing activities:Capital expenditures
    
    
    
    
    
    
    (3,170
    )
    
    
    (4,326
    )
    
    
    
    
    
    
    (7,496
    )Proceeds from disposal of assets
    
    
    
    
    
    
    6
    
    
    
    1,122
    
    
    
    
    
    
    
    1,228Net cash flows used in investing activities
    
    
    
    
    
    
    (3,164
    )
    
    
    (3,104
    )
    
    
    
    
    
    
    (6,268
    )Cash flows from (used in) financing activities:Repayments of long-term debt
    
    
    
    
    
    
    (827
    )
    
    
    (47,262
    )
    
    
    (18
    )
    
    
    (48,107
    )Proceeds from issuance of stock
    
    
    1,204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,204Net cash flows from (used in) financing activities
    
    
    1,204
    
    
    
    (827
    )
    
    
    (47,262
    )
    
    
    (18
    )
    
    
    (46,903
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    95Net change in cash and cash equivalents
    
    
    
    
    
    
    3,549
    
    
    
    33,724
    
    
    
    4
    
    
    
    37,277Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    148
    
    
    
    16,041
    
    
    
    2
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    3,697
    
    
    $
    49,765
    
    
    $
    6
    
    
    $
    53,468
 16




---



##### 



9. Pension and Other Post-retirement Benefits
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended September 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    371
    
    
    $
    
    
    
    $
    371Interest cost
    
    
    704
    
    
    
    777
    
    
    
    1,481Expected return on plan assets
    
    
    (898
    )
    
    
    (870
    )
    
    
    (1,768
    )Amortization of net actuarial loss
    
    
    149
    
    
    
    353
    
    
    
    502Net periodic benefit cost
    
    $
    326
    
    
    $
    260
    
    
    $
    586
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended September 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    293
    
    
    $
    13
    
    
    $
    306Interest cost
    
    
    693
    
    
    
    779
    
    
    
    1,472Expected return on plan assets
    
    
    (755
    )
    
    
    (792
    )
    
    
    (1,547
    )Amortization of net actuarial loss
    
    
    70
    
    
    
    329
    
    
    
    399Loss on plant curtailment
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    301
    
    
    $
    329
    
    
    $
    630
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedNine Months Ended September 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    1,102
    
    
    $
    
    
    
    $
    1,102Interest cost
    
    
    2,091
    
    
    
    2,332
    
    
    
    4,423Expected return on plan assets
    
    
    (2,672
    )
    
    
    (2,610
    )
    
    
    (5,282
    )Amortization of net actuarial loss
    
    
    450
    
    
    
    1,056
    
    
    
    1,506Net periodic benefit cost
    
    $
    971
    
    
    $
    778
    
    
    $
    1,749
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedNine Months Ended September 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    859
    
    
    $
    56
    
    
    $
    915Interest cost
    
    
    2,035
    
    
    
    2,233
    
    
    
    4,268Expected return on plan assets
    
    
    (2,210
    )
    
    
    (2,406
    )
    
    
    (4,616
    )Amortization of net actuarial loss
    
    
    191
    
    
    
    637
    
    
    
    828Loss on plan curtailment
    
    
    727
    
    
    
    
    
    
    
    727Net periodic benefit cost
    
    $
    1,602
    
    
    $
    520
    
    
    $
    2,122
  17




---



##### 



PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended September 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    82
    
    
    $
    1
    
    
    $
    83Interest cost
    
    
    116
    
    
    
    7
    
    
    
    123Amortization of prior service costs
    
    
    (8
    )
    
    
    (155
    )
    
    
    (163
    )Amortization of net actuarial loss (gain)
    
    
    70
    
    
    
    (14
    )
    
    
    56Net periodic benefit cost
    
    $
    260
    
    
    $
    (161
    )
    
    $
    99
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended September 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    47
    
    
    $
    1
    
    
    $
    48Interest cost
    
    
    84
    
    
    
    8
    
    
    
    92Amortization of prior service costs
    
    
    (8
    )
    
    
    (155
    )
    
    
    (163
    )Amortization of net actuarial loss (gain)
    
    
    12
    
    
    
    (12
    )
    
    
    Net periodic benefit cost
    
    $
    135
    
    
    $
    (158
    )
    
    $
    (23
    )
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedNine Months Ended September 30, 2006Components of net periodic benefit cost:Service cost
    
    $
    243
    
    
    $
    2
    
    
    $
    245Interest cost
    
    
    345
    
    
    
    21
    
    
    
    366Amortization of prior service costs
    
    
    (25
    )
    
    
    (467
    )
    
    
    (492
    )Amortization of net actuarial loss (gain)
    
    
    212
    
    
    
    (38
    )
    
    
    174Net periodic benefit cost
    
    $
    775
    
    
    $
    (482
    )
    
    $
    293
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedNine Months Ended September 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    142
    
    
    $
    2
    
    
    $
    144Interest cost
    
    
    251
    
    
    
    26
    
    
    
    277Expected return on plan assets
    
    
    (23
    )
    
    
    (467
    )
    
    
    (490
    )Amortization of net actuarial loss (gain)
    
    
    30
    
    
    
    (36
    )
    
    
    (6
    )Net periodic benefit cost
    
    $
    400
    
    
    $
    (475
    )
    
    $
    (75
    )
 10. Asset Sales
 Sale of Acreage in Henderson, Nevada.
 18




---



##### 



Property Sale in Pittsburg, California.
 11. Commitments and Contingencies
 See
   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.
 19




---



##### 



12. Income Taxes
  13. Recent Accounting Pronouncements and Developments
     20




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Significant
Events in the First Nine Months of 2006
 Financial Results
  For the nine months endedSeptember 302006
    
    
    2005Revenues
    
    $
    404,515
    
    
    $
    384,722Operating income
    
    
    96,952
    
    
    
    80,733Net income
    
    
    62,979
    
    
    
    59,211Net cash flows from operating activities
    
    
    77,888
    
    
    
    90,353Total debt as of September 30
    
    
    102,965
    
    
    
    154,773Average ECU netback prices
    
    
    583
    
    
    
    569
     ECU Netback Prices
  21




---



##### 



2005:First Quarter
    
    $
    548Second Quarter
    
    
    577Third Quarter
    
    
    581Fourth Quarter
    
    
    6192006:First Quarter
    
    
    616Second Quarter
    
    
    577Third Quarter
    
    
    557
   2005:
    
    Chlorine
    
    
    Caustic SodaFirst Quarter
    
    $
    20
    
    
    $
    40Second Quarter
    
    
    
    
    
    
    30Third Quarter
    
    
    25
    
    
    
    125Fourth Quarter
    
    
    
    
    
    
    60
    (1)2006:First Quarter
    
    
    
    (2)
    
    
    Second Quarter
    
    
    
    
    
    
    35Third Quarter
    
    
    25
    
    
    
    
 
 (1)
    
    In late October 2005, we announced an additional caustic
soda price increase of $160 per ton, although this increase was subject to a
temporary voluntary allowance of $100 per ton. A temporary voluntary
allowance is a temporary withdrawal of an announced price increase which is
subject to immediate implementation upon notice to our customers if warranted
by market conditions.(2)
    
    A February 2006 price increase for chlorine of $25 per ton
was also subject to a temporary voluntary allowance for the full
amount.    22




---



##### 



Production
  2005:First Quarter
    
    
    161,635Second Quarter
    
    
    181,003Third Quarter
    
    
    164,343Fourth Quarter
    
    
    163,7292006:First Quarter
    
    
    165,359Second Quarter
    
    
    169,759Third Quarter
    
    
    178,205
   23




---



##### 



Energy Costs
   Percentage ofTotal Power Costs
    
    
    Cost of Sales(in thousands)2005:First Quarter
    
    $
    21,199
    
    
    
    24
    %Second Quarter
    
    
    24,446
    
    
    
    26
    %Third Quarter
    
    
    25,892
    
    
    
    27
    %Fourth Quarter
    
    
    32,184
    
    
    
    32
    %2006:First Quarter
    
    
    29,963
    
    
    
    30
    %Second Quarter
    
    
    26,226
    
    
    
    26
    %Third Quarter
    
    
    28,945
    
    
    
    28
    %
  Transportation
   Product
    
    
    Percentage ofTransportation Costs
    
    
    Cost of Sales(in thousands)2005:First Quarter
    
    $
    20,674
    
    
    
    24
    %Second Quarter
    
    
    22,503
    
    
    
    24
    %Third Quarter
    
    
    22,367
    
    
    
    23
    %Fourth Quarter
    
    
    23,462
    
    
    
    23
    %2006:First Quarter
    
    
    23,981
    
    
    
    24
    %Second Quarter
    
    
    24,914
    
    
    
    24
    %Third Quarter
    
    
    27,361
    
    
    
    26
    %
  24




---



##### 



Environmental Issues
      25




---



##### 



Liquidity and Capital Resources
 Senior Secured Debt
       Three
    
    
    Three
    
    
    Three
    
    
    Three
    
    
    TwelveMonths
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept. 30
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2006
    
    
    2006(1)
    
    
    2006(1)Net income
    
    $
    11,085
    
    
    $
    16,050
    
    
    $
    15,414
    
    
    $
    31,515
    
    
    $
    74,064Income tax expense
    
    
    2,355
    
    
    
    6,661
    
    
    
    2,125
    
    
    
    14,582
    
    
    
    25,723Income before income taxes
    
    
    13,440
    
    
    
    22,711
    
    
    
    17,539
    
    
    
    46,097
    
    
    
    99,787Depreciation and amortization
    
    
    5,982
    
    
    
    6,030
    
    
    
    5,968
    
    
    
    6,051
    
    
    
    24,031Interest expense
    
    
    3,300
    
    
    
    2,466
    
    
    
    2,073
    
    
    
    1,736
    
    
    
    9,575Lender-Defined EBITDA
    
    $
    22,722
    
    
    $
    31,207
    
    
    $
    25,580
    
    
    $
    53,884
    
    
    $
    133,393
 
 (1) Includes the gain of $22.5 million from the sale of land
in Henderson, Nevada completed in September 2006.  26




---



##### 



Asset Sales
 Sale of Acreage in Henderson, Nevada.
 Property Sale in Pittsburg, California.
 27




---



##### 



Future Payment Commitments
  Sarbanes-Oxley Section 404 Compliance
  Retirement Plans
  Stock Options
  Net Operating Loss Carryforward
  28




---



##### 



Net Cash Flows
 Net Cash Flows from Operating Activities .
 Net Cash Flows from (used in) Investing Activities.
 Net Cash Flows used in Financing Activities.
 Critical Accounting Policies and Estimates
  RESULTS OF OPERATIONS
 Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005
 Revenues.
 Three Months EndedSeptember 30,2006
    
    
    2005Chlorine and caustic soda
    
    $
    100,063
    
    
    $
    96,500Other products
    
    
    37,047
    
    
    
    36,273$
    137,110
    
    
    $
    132,773Average ECU netback*
    
    $
    557
    
    
    $
    581
 
 *
    
    The average ECU netback relates only to sales of chlorine and caustic
soda, and not to sales of other products.   29




---



##### 



Cost of Sales
   Selling, General and Administrative Expenses.
 Other Items.
 Interest Expense, Net.
 Other Income (Expense), Net.
 Income Tax Expense.
 30




---



##### 



Nine Months Ended September 30, 2006, Compared to Nine Months Ended September 30, 2005
 Revenues.
 Nine Months EndedSeptember 30,2006
    
    
    2005Chlorine and caustic soda
    
    $
    303,646
    
    
    $
    288,123Other products
    
    
    100,869
    
    
    
    96,599$
    404,515
    
    
    $
    384,722Average ECU netback*
    
    $
    583
    
    
    $
    569
 
 *
    
    The average ECU netback relates only to sales of chlorine and caustic
soda, and not to sales of other products.  ,
 Cost of Sales
   Selling, General and Administrative Expenses.
 31




---



##### 



Other Items.
 Interest Expense, Net.
 Other Income (Expense), Net.
 Income Tax Expense
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   32




---



##### 



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.
 
 ITEM 1A. RISK FACTORS
   We are undergoing management turnover with respect to our Chief Executive Officer,
other executive officers and our board of directors.
  33




---



##### 



Material Change :
  Labor disputes under our collective bargaining agreements may disrupt our business.
   Material Change:
  The shipment of chlorine by rail may be negatively impacted by rail industry initiatives and
potential changes to existing regulatory and/or legislative requirements.
  
    
    Proposed new tank car standards.The AARs tank car standard setting committee, the
Tank Car Committee, is considering adoption of a new tank car performance standard for
chlorine and anhydrous ammonia tank cars that it believes would reduce the probability
of a tank car release in the event of an accident. The Tank Car Committee also is
proposing that the existing fleet of tank cars that transport TIH products be replaced
within a period of 5-7 years by tank cars that meet the new standard. If adopted, this
new requirement would require us to update our fleet of leased tank cars, which would
result in increased lease costs for the new tank cars. In addition, the new tank car
being proposed is heavier than existing tank cars when fully loaded (286,000 pounds
versus 263,000 pounds for existing tank cars), and substantial portions of the rail
track on our existing routes are unable to handle the heavier tank cars when fully
loaded. Therefore, the new tank car standard would require us to reduce the chlorine
payload that is being shipped in the new tank cars, which in turn would require us to
use more tank cars to ship our chlorine to customers and increase our shipping costs.
    
    Increased rail transport prices.Rail industry pricing practices result in
substantially higher rates for the transportation of chlorine than most other chemicals
due to safety and security concerns with chlorine products.
    
    Proposed bans and/or re-routing requirements on the shipment of chlorine and other
TIH products.In February 2005, Washington, D.C. passed a ban on the transportation of
certain hazardous materials, including chlorine, by rail or truck through certain
portions of Washington, D.C. on the belief that it will reduce the risk of a terrorist
attack. Although the
 34




---



##### 



enforcement of this law has been stayed by litigation brought by a rail company on the
basis that the D.C. law is preempted by the Federal Railroad Safety Act, other cities are
considering similar legislation. If the D.C. ban were ultimately allowed, other cities
may be expected to pass similar bans. In addition, one or more bills have been
introduced in Congress that would require the Department of Homeland Security to re-route
TIH and other hazardous materials, as well as implement other safety measures for the
transport of hazardous materials. Any such re-routing requirements would disrupt our
ability to ship chlorine to our customers since we would have to find alternate routes
for our shipments, which would likely make the shipment of chlorine more costly.
 
    
    Proposed contract changes in our rail transport contracts.One of our existing rail
transportation companies has notified its customers that ship chlorine, including us,
that it will require new contract provisions that will have the effect of shifting any
liability resulting from a railcar accident or terrorist attack to us. If we are
required to accept such liability as a condition to maintaining our ability to ship
chlorine, this could increase our insurance costs or hinder our ability to obtain
insurance on commercially reasonable terms to cover these risks. Another of our
existing rail transportation companies has requested the ability to terminate service to
us upon 30 days notice. A railroads ability to force changes in the terms upon which
services are provided to us, and to do so in a short period of time, means that
available rail transportation could be reduced or even eliminated, or that we could be
required to incur substantial increases in the cost of service. There could be further
and more severe disruptions to rail service, which might affect our ability to meet our
contractual obligations. Our chlorine plants are each served by only one rail carrier,
so we do not have the ability to shift our business to alternate rail carriers.
  Material Change:
   We will need to pay or refinance our outstanding indebtedness at or prior to its maturity in
2008.
   35




---



##### 




    
    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
    
    provisions of relevant tax and securities laws.
  Material Change:
 PART II  OTHER INFORMATION
 
 ITEM 5. OTHER INFORMATION
 Forward-Looking Statements
   36




---



##### 




    
    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, including the impact of
excess industry capacity or the construction of new industry capacity;
    
    a reduction in customer demand for our products that is difficult to predict, including
continued reductions in demand from the pulp and paper industry;
    
    changes in regulatory and/or legislative requirements that would negatively affect our
ability to ship chlorine by rail to our customers;
    
    the occurrence of a terrorist attack on us or others in our industry that could
adversely affect our operations;
    
    personal injuries or damages to our plants caused by chemical spills or releases,
environmental pollution, explosions, fires or other hazards associated with the
manufacture, handling, storage and transportation of hazardous materials and products;
    
    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;
    
    inability to make scheduled payments on or refinance our indebtedness;
    
    loss of key customers or suppliers;
    
    increased prices for electricity that could increase our cost of producing our chlor-alkali products;
    
    disruption of transportation or higher than expected transportation or logistics costs;
    
    environmental costs and other expenditures in excess of projected costs;
    
    the uncertain outcomes of litigation and other claims pending against us;
    
    changes in laws and regulations in the United States or Canada that adversely affect our operations;
    
    the financial and tax effects of changes in the US to Canadian dollar currency exchange rates;
    
    limitations on our NOL utilization;
    
    our ability to successfully implement product deliveries to our customers through our
newly formed motor carrier subsidiary;
    
    our ability to effect the sale of certain excess land 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.
  
 ITEM 6. EXHIBITS
 10.1
    
    
    Third Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions incorporated by reference to Exhibit 10.1 of the
Companys Form 8-K filed on July 7, 2006, File No 001-09859.10.2
    
    
    Fourth Amendment to Agreement of Purchase and Sale and Joint
Escrow Instructions incorporated by reference to Exhibit 10.2 of
the Companys Form 8-K filed on July 7, 2006, File No. 001-09859.31.1
    
    
    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.
 37




---



##### 



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 for the year ended December 31, 2005: Item 1A. Risk
Factors.
 
 
    
    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated
and incorporated herein by reference. 38




---



##### 



SIGNATURES
  PIONEER COMPANIES, INC.Date: November 8, 2006
    By:
    /s/ Gary L. PittmanGary L. PittmanSenior Vice President and Chief Financial Officer
(Principal Financial Officer) 39




---



##### 



Exhibit Index
 10.1
    
    
    Third Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions incorporated by reference to Exhibit 10.1 of the
Companys Form 8-K filed on July 7, 2006, File No 001-09859.10.2
    
    
    Fourth Amendment to Agreement of Purchase and Sale and Joint
Escrow Instructions incorporated by reference to Exhibit 10.2 of
the Companys Form 8-K filed on July 7, 2006, File No. 001-09859.31.1
    
    
    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 for the year ended December 31, 2005: Item 1A. Risk
Factors.
 
 
    
    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated
and incorporated herein by reference. 40