##### 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, 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
  o þ o
 o þ
 þ o




---



##### 



TABLE OF CONTENTS
 PagePart I  Financial InformationItem 1
    
    Consolidated Financial StatementsConsolidated Balance Sheets  June 30, 2006 and December 31, 2005
    
    3Consolidated Statements of Operations  Three Months Ended June 30, 2006 and 2005
    
    4and Six Months Ended June 30, 2006 and 2005Consolidated Statements of Cash FlowsSix Months Ended June 30, 2006 and 2005
    
    5Notes to Consolidated Financial Statements
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    19Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4
    
    Controls and Procedures
    
    30Part II  Other InformationItem 1
    
    Legal Proceedings
    
    31Item 1A
    
    Risk Factors
    
    31Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    32Item 5
    
    Other Information
    
    32Item 6
    
    Exhibits
    
    34Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(b)Certification Pursuant to Rule 13a-14(b)
  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




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 PIONEER COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)
 June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    50,139
    
    
    $
    62,790Accounts receivable, net of allowance for doubtful accounts of $2,891
at June 30, 2006, and $3,748 at December 31, 2005
    
    
    60,368
    
    
    
    65,937Inventories, net
    
    
    15,593
    
    
    
    19,076Prepaid expenses and other current assets
    
    
    5,010
    
    
    
    3,800Total current assets
    
    
    131,110
    
    
    
    151,603Property, plant and equipment:Land
    
    
    6,516
    
    
    
    6,516Buildings and improvements
    
    
    30,327
    
    
    
    30,234Machinery and equipment
    
    
    213,028
    
    
    
    209,457Construction in progress
    
    
    3,432
    
    
    
    2,208253,303
    
    
    
    248,415Less: accumulated depreciation
    
    
    (101,652
    )
    
    
    (89,455
    )Property, plant and equipment, net
    
    
    151,651
    
    
    
    158,960Other assets, net
    
    
    4,269
    
    
    
    4,310Excess reorganization value over the fair value of identifiable assets
    
    
    84,064
    
    
    
    84,064Total assets
    
    $
    371,094
    
    
    $
    398,937Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    15,385
    
    
    $
    18,630Accrued liabilities
    
    
    31,763
    
    
    
    39,444Short-term debt, including current portion of long-term debt
    
    
    1,410
    
    
    
    1,858Total current liabilities
    
    
    48,558
    
    
    
    59,932Long-term debt, less current portion
    
    
    101,760
    
    
    
    152,739Accrued pension and other employee benefits
    
    
    23,701
    
    
    
    26,619Other long-term liabilities
    
    
    59,480
    
    
    
    54,657Commitments and contingenciesStockholders equity:Common stock, $.01 par value, 50,000 shares authorized, 11,770 and 11,759
shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively
    
    
    118
    
    
    
    118Additional paid-in capital
    
    
    37,925
    
    
    
    36,784Other comprehensive loss
    
    
    (14,396
    )
    
    
    (14,396
    )Retained earnings
    
    
    113,948
    
    
    
    82,484Total stockholders equity
    
    
    137,595
    
    
    
    104,990Total liabilities and stockholders equity
    
    $
    371,094
    
    
    $
    398,937
  3




---



##### Table of Contents



PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    132,533
    
    
    $
    132,859
    
    
    $
    267,405
    
    
    $
    251,949Cost of sales
    
    
    (102,025
    )
    
    
    (92,597
    )
    
    
    (201,663
    )
    
    
    (180,205
    )Gross profit
    
    
    30,508
    
    
    
    40,262
    
    
    
    65,742
    
    
    
    71,744Selling, general and administrative expenses
    
    
    (8,916
    )
    
    
    (8,014
    )
    
    
    (16,995
    )
    
    
    (16,477
    )Other items
    
    
    95
    
    
    
    (1,497
    )
    
    
    407
    
    
    
    (2,002
    )Operating income
    
    
    21,687
    
    
    
    30,751
    
    
    
    49,154
    
    
    
    53,265Interest expense, net
    
    
    (2,073
    )
    
    
    (4,114
    )
    
    
    (4,539
    )
    
    
    (8,370
    )Other income (expense), net
    
    
    (2,075
    )
    
    
    409
    
    
    
    (4,365
    )
    
    
    582Income before income taxes
    
    
    17,539
    
    
    
    27,046
    
    
    
    40,250
    
    
    
    45,477Income tax expense
    
    
    (2,125
    )
    
    
    (2,957
    )
    
    
    (8,786
    )
    
    
    (6,368
    )Net income
    
    $
    15,414
    
    
    $
    24,089
    
    
    $
    31,464
    
    
    $
    39,109Net income per share:Basic
    
    $
    1.31
    
    
    $
    2.14
    
    
    $
    2.67
    
    
    $
    3.48Diluted
    
    $
    1.30
    
    
    $
    2.05
    
    
    $
    2.65
    
    
    $
    3.32Weighted average number of shares outstanding:Basic
    
    
    11,770
    
    
    
    11,271
    
    
    
    11,765
    
    
    
    11,229Diluted
    
    
    11,856
    
    
    
    11,767
    
    
    
    11,853
    
    
    
    11,778
  4




---



##### Table of Contents



PIONEER COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Six Months EndedJune 30,2006
    
    
    2005Operating activities:Net income
    
    $
    31,464
    
    
    $
    39,109Adjustments to reconcile net income to net cash flows from operating activities:Depreciation and amortization
    
    
    11,998
    
    
    
    12,332(Recovery of) provision for losses on accounts receivable
    
    
    (858
    )
    
    
    600Deferred tax expense
    
    
    3,144
    
    
    
    6,168(Gain) loss on disposals of assets
    
    
    (477
    )
    
    
    1,291Currency exchange loss (gain)
    
    
    2,110
    
    
    
    (634
    )Loss on early debt extinguishment
    
    
    2,500
    
    
    
    Stock-based compensation expense
    
    
    674
    
    
    
    Accretion expense
    
    
    152
    
    
    
    Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    7,183
    
    
    
    (11,256
    )Decrease (increase) in inventories, prepaid expenses and other current assets
    
    
    2,632
    
    
    
    (2,967
    )Decrease in other assets
    
    
    
    
    
    
    23(Decrease) increase in accounts payable and accrued liabilities
    
    
    (11,864
    )
    
    
    2,056(Decrease) increase in other long-term liabilities
    
    
    (3,204
    )
    
    
    2,685Net cash flows from operating activities
    
    
    45,454
    
    
    
    49,407Investing activities:Capital expenditures
    
    
    (4,734
    )
    
    
    (5,758
    )Proceeds from disposal of assets
    
    
    331
    
    
    
    180Net cash flows used in investing activities
    
    
    (4,403
    )
    
    
    (5,578
    )Financing activities:Excess tax benefits on stock options exercised
    
    
    53
    
    
    
    Payment of premium on early debt extinguishment
    
    
    (2,500
    )
    
    
    Repayments of long-term debt
    
    
    (51,452
    )
    
    
    (40,894
    )Proceeds from issuance of stock, net
    
    
    219
    
    
    
    289Net cash flows used in financing activities
    
    
    (53,680
    )
    
    
    (40,605
    )Effect of exchange rate changes on cash
    
    
    (22
    )
    
    
    (2
    )Net change in cash and cash equivalents
    
    
    (12,651
    )
    
    
    3,222Cash and cash equivalents at beginning of period
    
    
    62,790
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    50,139
    
    
    $
    19,413
  5




---



##### Table of Contents



PIONEER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Organization and Basis of Presentation
      2. Debt
  June 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 $21,000 CAN
and $43,000 CAN at June 30, 2006, and December 31, 2005, respectively
    
    
    429
    
    
    
    1,253Other notes, maturing in various years through 2014, with various
installments, at various interest rates
    
    
    2,741
    
    
    
    3,344Total debt
    
    
    103,170
    
    
    
    154,597Short-term debt, including current portion of long-term debt
    
    
    (1,410
    )
    
    
    (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 June 30,
2006, and December 31, 2005, was 5.48% and 4.39%, respectively. 6




---



##### Table of Contents



7




---



##### Table of Contents



3. Environmental Liabilities
      8




---



##### Table of Contents



4. Net Income per Share
 see
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator for basic and diluted net income per share:Net income
    
    $
    15,414
    
    
    $
    24,089
    
    
    $
    31,464
    
    
    $
    39,109Denominator for basic and diluted net income per share:Weighted average shares
    
    
    11,770
    
    
    
    11,271
    
    
    
    11,765
    
    
    
    11,229Potentially dilutive common shares:Stock options
    
    
    86
    
    
    
    496
    
    
    
    88
    
    
    
    549Denominator for diluted net income per share
    
    
    11,856
    
    
    
    11,767
    
    
    
    11,853
    
    
    
    11,778Net income per share:Basic
    
    $
    1.31
    
    
    $
    2.14
    
    
    $
    2.67
    
    
    $
    3.48Diluted
    
    $
    1.30
    
    
    $
    2.05
    
    
    $
    2.65
    
    
    $
    3.32
  5. Supplemental Financial Information
 Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005Raw materials, supplies and parts, net
    
    $
    8,128
    
    
    $
    9,807Finished goods
    
    
    7,465
    
    
    
    9,269Inventories, net
    
    $
    15,593
    
    
    $
    19,076
 Accrued Liabilities
  June 30,
    
    
    December 31,2006
    
    
    2005Payroll and benefits
    
    $
    7,151
    
    
    $
    13,567Electricity
    
    
    8,806
    
    
    
    10,104Maintenance services
    
    
    1,818
    
    
    
    4,702Professional services
    
    
    1,718
    
    
    
    3,037Taxes
    
    
    5,454
    
    
    
    2,063Waste disposal
    
    
    2,352
    
    
    
    452Other
    
    
    4,464
    
    
    
    5,519Accrued liabilities
    
    $
    31,763
    
    
    $
    39,444
 9




---



##### Table of Contents



6. Stock-Based Compensation
 Share-Based Incentive Plan
    Accounting for Share-Based Compensation
     10




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2005Net income:As reported
    
    $
    24,089
    
    
    $
    39,109Deduct: Stock-based
compensation expense
determined under
fair-value-based method
    
    
    (202
    )
    
    
    (391
    )Pro forma net income
    
    $
    23,887
    
    
    $
    38,718Net income per common share:Basic, as reported
    
    $
    2.14
    
    
    $
    3.48Basic, pro forma
    
    $
    2.12
    
    
    $
    3.45Diluted, as reported
    
    $
    2.05
    
    
    $
    3.32Diluted, pro forma
    
    $
    2.03
    
    
    $
    3.29
 Stock Options
  Weighted -AverageNumber of
    
    
    Exercise Price
    
    
    Exercise PriceShares
    
    
    Per Share
    
    
    Per ShareOutstanding at December 31, 2005
    
    
    236
    
    
    $
    2.00 - $29.97
    
    
    $
    12.69Granted
    
    
    10
    
    
    $
    31.37
    
    
    $
    31.37Exercised
    
    
    (12
    )
    
    $
    2.50 - $20.75
    
    
    $
    18.83Forfeited
    
    
    Outstanding at June 30, 2006
    
    
    234
    
    
    $
    2.00 - $31.37
    
    
    $
    13.18Exercisable
    
    
    92
    
    
    $
    2.00 - $31.37
    
    
    $
    14.84
  Weighted-AverageWeighted-Average
    
    
    RemainingOptions
    
    
    Exercise
    
    
    Contractual Term
    
    
    Aggregate IntrinsicOutstanding
    
    
    Price Per Share
    
    
    (years)
    
    
    Value (1)Fully vested and currently exercisable
    
    
    92
    
    
    $
    14.84
    
    
    
    7.70
    
    
    $
    1,226Expected to vest
    
    
    142
    
    
    $
    12.11
    
    
    
    8.43
    
    
    
    2,154Total outstanding stock options
    
    
    234
    
    
    $
    13.18
    
    
    
    8.14
    
    
    $
    3,380
 
 (1)
    
    The aggregate intrinsic value is computed based on the closing price of Pioneers stock on
June 30, 2006.   Weighted-AverageOptions
    
    
    Grant-DateOutstanding
    
    
    Fair ValueNonvested Options at January 1, 2006
    
    
    167
    
    
    $
    8.54Granted
    
    
    10
    
    
    $
    14.58Vested
    
    
    (35
    )
    
    $
    14.62Forfeited
    
    
    
    
    
    
    Nonvested Options at June 30, 2006
    
    
    142
    
    
    $
    7.46
 11




---



##### Table of Contents



Six Months Ended June 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
  Six Months Ended June 30,2006
    
    
    2005Cash payments for:Interest
    
    $
    5,327
    
    
    $
    8,365Income taxes
    
    
    3,057
    
    
    
    200Non-cash investing activities  Property, plant and equipment
acquisitions, included in accounts payable
    
    $
    421
    
    
    
    
 8. Condensed Consolidating Financial Statements
   12




---



##### Table of Contents



Condensed Consolidating Balance Sheet  June 30, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,431
    
    
    $
    48,708
    
    
    $
    
    
    
    $
    
    
    
    $
    50,139Accounts receivable, net
    
    
    
    
    
    
    14,300
    
    
    
    46,068
    
    
    
    
    
    
    
    
    
    
    
    60,368Inventories, net
    
    
    
    
    
    
    6,200
    
    
    
    9,393
    
    
    
    
    
    
    
    
    
    
    
    15,593Prepaid expenses and other current assets
    
    
    1,070
    
    
    
    2,553
    
    
    
    1,387
    
    
    
    
    
    
    
    
    
    
    
    5,010Total current assets
    
    
    1,070
    
    
    
    24,484
    
    
    
    105,556
    
    
    
    
    
    
    
    
    
    
    
    131,110Property, plant and equipment, net
    
    
    
    
    
    
    88,579
    
    
    
    61,544
    
    
    
    1,528
    
    
    
    
    
    
    
    151,651Other assets, net
    
    
    
    
    
    
    208
    
    
    
    4,061
    
    
    
    
    
    
    
    
    
    
    
    4,269Intercompany receivable
    
    
    16,936
    
    
    
    115,990
    
    
    
    
    
    
    
    94,725
    
    
    
    (227,651
    )
    
    
    Investment in subsidiaries
    
    
    120,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120,921
    )
    
    
    Excess reorganization value over the fair value of identifiable asset
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    138,927
    
    
    $
    313,325
    
    
    $
    171,161
    
    
    $
    96,253
    
    
    $
    (348,572
    )
    
    $
    371,094Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    6,535
    
    
    $
    8,851
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    15,385Accrued liabilities
    
    
    
    
    
    
    15,464
    
    
    
    16,299
    
    
    
    
    
    
    
    
    
    
    
    31,763Current portion of long-term debt
    
    
    
    
    
    
    429
    
    
    
    960
    
    
    
    21
    
    
    
    
    
    
    
    1,410Total current liabilities
    
    
    
    
    
    
    22,428
    
    
    
    26,110
    
    
    
    21
    
    
    
    (1
    )
    
    
    48,558Long-term debt, less current portion
    
    
    
    
    
    
    100,000
    
    
    
    1,760
    
    
    
    
    
    
    
    
    
    
    
    101,760Investment in subsidiary
    
    
    
    
    
    
    119,268
    
    
    
    
    
    
    
    469
    
    
    
    (119,737
    )
    
    
    Intercompany payable
    
    
    1,332
    
    
    
    594
    
    
    
    225,725
    
    
    
    
    
    
    
    (227,651
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    6,638
    
    
    
    17,063
    
    
    
    
    
    
    
    
    
    
    
    23,701Other long-term liabilities
    
    
    1
    
    
    
    38,937
    
    
    
    19,771
    
    
    
    771
    
    
    
    
    
    
    
    59,480Stockholders equity (deficiency in assets)
    
    
    137,594
    
    
    
    25,460
    
    
    
    (119,268
    )
    
    
    94,992
    
    
    
    (1,183
    )
    
    
    137,595Total liabilities and stockholders equity
    
    $
    138,927
    
    
    $
    313,325
    
    
    $
    171,161
    
    
    $
    96,253
    
    
    $
    (348,572
    )
    
    $
    371,094
 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
    
    
    
    
    
    
    
    
    
    
    
    39,444Current 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
 13




---



##### Table of Contents



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
    )Other items
    
    
    
    
    
    
    (47
    )
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    95Operating income (loss)
    
    
    (275
    )
    
    
    7,825
    
    
    
    14,137
    
    
    
    
    
    
    
    
    
    
    
    21,687Interest expense, net
    
    
    
    
    
    
    (2,514
    )
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    (2,073
    )Other 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) benefit
    
    
    
    
    
    
    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
 Condensed Consolidating Statement of Operations  Three Months Ended June 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    58,209
    
    
    $
    105,815
    
    
    $
    
    
    
    $
    (31,165
    )
    
    $
    132,859Cost of sales
    
    
    
    
    
    
    (44,830
    )
    
    
    (78,932
    )
    
    
    
    
    
    
    31,165
    
    
    
    (92,597
    )Gross profit
    
    
    
    
    
    
    13,379
    
    
    
    26,883
    
    
    
    
    
    
    
    
    
    
    
    40,262Selling, general and administrative expenses
    
    
    (341
    )
    
    
    (2,002
    )
    
    
    (5,668
    )
    
    
    (3
    )
    
    
    
    
    
    
    (8,014
    )Other items
    
    
    
    
    
    
    (1,408
    )
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    (1,497
    )Operating income (loss)
    
    
    (341
    )
    
    
    9,969
    
    
    
    21,126
    
    
    
    (3
    )
    
    
    
    
    
    
    30,751Interest expense, net
    
    
    
    
    
    
    (3,801
    )
    
    
    (312
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,114
    )Other income (expense), net
    
    
    
    
    
    
    461
    
    
    
    (3,271
    )
    
    
    3,219
    
    
    
    
    
    
    
    409Income (loss) before income taxes
    
    
    (341
    )
    
    
    6,629
    
    
    
    17,543
    
    
    
    3,215
    
    
    
    
    
    
    
    27,046Income tax expense
    
    
    
    
    
    
    (1,920
    )
    
    
    (1,037
    )
    
    
    
    
    
    
    
    
    
    
    (2,957
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (341
    )
    
    
    4,709
    
    
    
    16,506
    
    
    
    3,215
    
    
    
    
    
    
    
    24,089Equity in net income of subsidiaries
    
    
    24,430
    
    
    
    16,506
    
    
    
    
    
    
    
    (1
    )
    
    
    (40,935
    )
    
    
    Net income
    
    $
    24,089
    
    
    $
    21,215
    
    
    $
    16,506
    
    
    $
    3,214
    
    
    $
    (40,935
    )
    
    $
    24,089
 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
    )Other items
    
    
    
    
    
    
    52
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    407Operating income (loss)
    
    
    (681
    )
    
    
    23,873
    
    
    
    25,965
    
    
    
    (3
    )
    
    
    
    
    
    
    49,154Interest expense, net
    
    
    
    
    
    
    (5,204
    )
    
    
    665
    
    
    
    
    
    
    
    
    
    
    
    (4,539
    )Other 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
 Condensed Consolidating Statement of Operations  Six Months Ended June 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    114,042
    
    
    $
    199,197
    
    
    $
    
    
    
    $
    (61,290
    )
    
    $
    251,949Cost of sales
    
    
    
    
    
    
    (84,260
    )
    
    
    (157,440
    )
    
    
    205
    
    
    
    61,290
    
    
    
    (180,205
    )Gross profit
    
    
    
    
    
    
    29,782
    
    
    
    41,757
    
    
    
    205
    
    
    
    
    
    
    
    71,744Selling, general and administrative expenses
    
    
    (552
    )
    
    
    (4,546
    )
    
    
    (11,376
    )
    
    
    (3
    )
    
    
    
    
    
    
    (16,477
    )Other items
    
    
    
    
    
    
    (1,986
    )
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (2,002
    )Operating income (loss)
    
    
    (552
    )
    
    
    23,250
    
    
    
    30,365
    
    
    
    202
    
    
    
    
    
    
    
    53,265Interest expense, net
    
    
    
    
    
    
    (7,576
    )
    
    
    (792
    )
    
    
    (2
    )
    
    
    
    
    
    
    (8,370
    )Other income (expense), net
    
    
    
    
    
    
    635
    
    
    
    (6,155
    )
    
    
    6,102
    
    
    
    
    
    
    
    582Income (loss) before income taxes
    
    
    (552
    )
    
    
    16,309
    
    
    
    23,418
    
    
    
    6,302
    
    
    
    
    
    
    
    45,477Income tax expense
    
    
    
    
    
    
    (5,231
    )
    
    
    (1,137
    )
    
    
    
    
    
    
    
    
    
    
    (6,368
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (552
    )
    
    
    11,078
    
    
    
    22,281
    
    
    
    6,302
    
    
    
    
    
    
    
    39,109Equity in net income of subsidiaries
    
    
    39,661
    
    
    
    22,281
    
    
    
    
    
    
    
    204
    
    
    
    (62,146
    )
    
    
    Net income
    
    $
    39,109
    
    
    $
    33,359
    
    
    $
    22,281
    
    
    $
    6,506
    
    
    $
    (62,146
    )
    
    $
    39,109
 14




---



##### Table of Contents



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 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
    )Payment 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
 Condensed Consolidating Statement of Cash Flows  Six Months Ended June 30, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedCash flows from (used in) operating activities:Net cash flows from operating activities
    
    $
    (289
    )
    
    $
    3,365
    
    
    $
    46,310
    
    
    $
    21
    
    
    $
    49,407Cash flows from (used in) investing activities:Capital expenditures
    
    
    
    
    
    
    (2,370
    )
    
    
    (3,388
    )
    
    
    
    
    
    
    (5,758
    )Proceeds from disposal of assets
    
    
    
    
    
    
    6
    
    
    
    174
    
    
    
    
    
    
    
    180Net cash flows used in investing activities
    
    
    
    
    
    
    (2,364
    )
    
    
    (3,214
    )
    
    
    
    
    
    
    (5,578
    )Cash flows from (used in) financing activities:Repayments of long-term debt
    
    
    
    
    
    
    (827
    )
    
    
    (40,055
    )
    
    
    (12
    )
    
    
    (40,894
    )Proceeds from issuance of stock
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289Net cash flows from (used in) financing activities
    
    
    289
    
    
    
    (827
    )
    
    
    (40,055
    )
    
    
    (12
    )
    
    
    (40,605
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    172
    
    
    
    3,041
    
    
    
    9
    
    
    
    3,222Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    148
    
    
    
    16,041
    
    
    
    2
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    320
    
    
    $
    19,082
    
    
    $
    11
    
    
    $
    19,413
 15




---



##### Table of Contents



9. Pension and Other Post-retirement Benefits
  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
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended June 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    231
    
    
    $
    21
    
    
    $
    252Interest cost
    
    
    705
    
    
    
    727
    
    
    
    1,432Expected return on plan assets
    
    
    (759
    )
    
    
    (807
    )
    
    
    (1,566
    )Amortization of net actuarial loss
    
    
    121
    
    
    
    154
    
    
    
    275Loss on plant curtailment
    
    
    727
    
    
    
    
    
    
    
    727Net periodic benefit cost
    
    $
    1,025
    
    
    $
    95
    
    
    $
    1,120
  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
    
    
    ConsolidatedSix Months Ended June 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    566
    
    
    $
    43
    
    
    $
    609Interest cost
    
    
    1,342
    
    
    
    1,454
    
    
    
    2,796Expected return on plan assets
    
    
    (1,455
    )
    
    
    (1,614
    )
    
    
    (3,069
    )Amortization of net actuarial loss
    
    
    121
    
    
    
    308
    
    
    
    429Loss on plan curtailment
    
    
    727
    
    
    
    
    
    
    
    727Net periodic benefit cost
    
    $
    1,301
    
    
    $
    191
    
    
    $
    1,492
  16




---



##### Table of Contents



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
    
    
    ConsolidatedThree Months Ended June 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    48
    
    
    $
    
    
    
    $
    48Interest cost
    
    
    83
    
    
    
    9
    
    
    
    92Amortization of prior service costs
    
    
    (7
    )
    
    
    (156
    )
    
    
    (163
    )Amortization of net actuarial loss (gain)
    
    
    36
    
    
    
    (12
    )
    
    
    24Net periodic benefit cost
    
    $
    160
    
    
    $
    (159
    )
    
    $
    1
  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
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedSix Months Ended June 30, 2005Components of net periodic benefit cost:Service cost
    
    $
    95
    
    
    $
    1
    
    
    $
    96Interest cost
    
    
    167
    
    
    
    18
    
    
    
    185Expected return on plan assets
    
    
    (15
    )
    
    
    (312
    )
    
    
    (327
    )Amortization of net actuarial loss (gain)
    
    
    18
    
    
    
    (24
    )
    
    
    (6
    )Net periodic benefit cost
    
    $
    265
    
    
    $
    (317
    )
    
    $
    (52
    )
 10. Asset Sales
 Pending Sale of Acreage in Henderson, Nevada.
 17




---



##### Table of Contents



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.
 18




---



##### Table of Contents



12. Changes in Future Canadian Tax Rates
  13.
Recent Accounting Pronouncements
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Significant Events in the First Six Months of 2006
 Financial Results
  For the six months endedJune 302006
    
    
    2005Revenues
    
    $
    267,405
    
    
    $
    251,949Operating income
    
    
    49,154
    
    
    
    53,265Net income
    
    
    31,464
    
    
    
    39,109Net cash flows from operating activities
    
    
    45,454
    
    
    
    49,407Total debt as of June 30
    
    
    103,170
    
    
    
    161,901Average ECU netback prices
    
    
    596
    
    
    
    563
  19




---



##### Table of Contents



ECU Netback Prices
   2005:First Quarter
    
    $
    548Second Quarter
    
    
    577Third Quarter
    
    
    581Fourth Quarter
    
    
    6192006:First Quarter
    
    
    616Second Quarter
    
    
    577
   Chlorine
    
    
    Caustic Soda2005:First Quarter
    
    $
    20
    
    
    $
    40Second Quarter
    
    
    
    
    
    
    30Third Quarter
    
    
    25
    
    
    
    125Fourth Quarter
    
    
    
    
    
    
    60
    (1)2006:First Quarter
    
    
    
    (2)
    
    
    Second Quarter
    
    
    
    
    
    
    35
 
 (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.   20




---



##### Table of Contents



Production
  2005:First Quarter
    
    
    161,635Second Quarter
    
    
    181,003Third Quarter
    
    
    164,343Fourth Quarter
    
    
    163,7292006:First Quarter
    
    
    165,359Second Quarter
    
    
    169,759
  21




---



##### Table of Contents



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
    %
    Transportation
  22




---



##### Table of Contents



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
    %
  Environmental Issues
     23




---



##### Table of Contents



Liquidity and Capital Resources
 Senior Secured Debt
      24




---



##### Table of Contents



Three
    
    
    Three
    
    
    Three
    
    
    Three
    
    
    TwelveMonths
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2006Net income
    
    $
    20,102
    
    
    $
    11,085
    
    
    $
    16,050
    
    
    $
    15,414
    
    
    $
    62,651Income tax expense
    
    
    2,058
    
    
    
    2,355
    
    
    
    6,661
    
    
    
    2,125
    
    
    
    13,199Income before income taxes
    
    
    22,160
    
    
    
    13,440
    
    
    
    22,711
    
    
    
    17,539
    
    
    
    75,850Depreciation and amortization
    
    
    6,250
    
    
    
    5,982
    
    
    
    6,030
    
    
    
    5,968
    
    
    
    24,230Interest expense
    
    
    3,597
    
    
    
    3,300
    
    
    
    2,466
    
    
    
    2,073
    
    
    
    11,436Lender-Defined EBITDA
    
    $
    32,007
    
    
    $
    22,722
    
    
    $
    31,207
    
    
    $
    25,580
    
    
    $
    111,516
        25




---



##### Table of Contents



Asset Sales
 Pending Sale of Acreage in Henderson, Nevada.
 Property Sale in Pittsburg, California.
 Future Payment Commitments
  Sarbanes-Oxley Section 404 Compliance
  Retirement Plan Liabilities
  Stock Options
  26




---



##### Table of Contents



Net Operating Loss Carryforward
  Net Cash Flows
 Net Cash Flows from Operating Activities .
 Net Cash Flows used in Investing Activities.
 Net Cash Flows used in Financing Activities.
 Critical Accounting Policies and Estimates
  RESULTS OF OPERATIONS
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
 Revenues.
 Three Months EndedJune 30,2006
    
    
    2005Chlorine and caustic soda
    
    $
    99,970
    
    
    $
    100,208Other products
    
    
    32,563
    
    
    
    32,651$
    132,533
    
    
    $
    132,859Average ECU netback*
    
    $
    577
    
    
    $
    577
 
 *
    
    The average ECU netback relates only to sales of chlorine and caustic
soda, and not to sales of other products.  27




---



##### Table of Contents



Cost of Sales
   Selling, General and Administrative Expenses.
 Other Items.
 Interest Expense, Net.
 Other Income (Expense), Net.
 Income Tax Expense.
 28




---



##### Table of Contents



Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005
 Revenues.
 Six Months EndedJune 30,2006
    
    
    2005Chlorine and caustic soda
    
    $
    203,583
    
    
    $
    191,623Other products
    
    
    63,822
    
    
    
    60,326$
    267,405
    
    
    $
    251,949Average ECU netback*
    
    $
    596
    
    
    $
    563
 
 *
    
    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.
 Other Items.
 29




---



##### Table of Contents



Interest Expense, Net.
 Other Income (Expense), Net.
 Income Tax Expense.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   30




---



##### Table of Contents



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.
  31




---



##### Table of Contents



Material Change :
  Labor disputes under our collective bargaining agreements may disrupt our business.
   Material Change:
 PART II  OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Abstentions and BrokerName
    
    For
    
    
    Withheld
    
    
    Non-votesRobert E. Allen
    
    
    10,336,106
    
    
    
    158,444
    
    
    Marvin E. Lesser
    
    
    10,335,106
    
    
    
    159,444
    
    
    Michael Y. McGovern
    
    
    10,368,426
    
    
    
    126,124
    
    
    Charles L. Mears
    
    
    10,370,351
    
    
    
    124,199
    
    
    David A. Scholes
    
    
    10,235,616
    
    
    
    258,934
    
    
    Richard L. Urbanowski
    
    
    10,302,897
    
    
    
    191,653
    
    
    
   
 ITEM 5. OTHER INFORMATION
 Forward-Looking Statements
 32




---



##### 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, 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 dispose of brine sludge at our mercury cell chlor-alkali plant at Dalhousie, New Brunswick;
    
    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.
  33




---



##### Table of Contents



ITEM 6. EXHIBITS
 10.1
    
    Pioneer Companies, Inc. 2006 Stock Incentive Plan (incorporated by
reference to Annex B to the Pioneer Companies, Inc. Proxy Statement
on Schedule 14A for the 2006 Annual Meeting of Stockholders, File
No. 001-09859).10.2
    
    Employment Agreement dated as of May 2, 2006 between Michael Y.
McGovern and Pioneer Companies, Inc. incorporated by reference to
Exhibit 10.2 of the Companys Form 8-K filed on May 5, 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. 34




---



##### Table of Contents



SIGNATURES
  PIONEER COMPANIES, INC.Date: August 7, 2006
    
    By:
    
    /s/ Gary L. PittmanGary L. PittmanSenior Vice President and Chief Financial Officer(Principal Financial Officer)
 35




---



##### Table of Contents



Exhibit Index
 10.1
    
    Pioneer Companies, Inc. 2006 Stock Incentive Plan (incorporated by
reference to Annex B to the Pioneer Companies, Inc. Proxy Statement
on Schedule 14A for the 2006 Annual Meeting of Stockholders, File
No. 001-09859).10.2
    
    Employment Agreement dated as of May 2, 2006 between Michael Y.
McGovern and Pioneer Companies, Inc. incorporated by reference to
Exhibit 10.2 of the Companys Form 8-K filed on May 5, 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. 36