##### 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 March 31, 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
    
    06-1215192(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 700 Louisiana Street, Suite 4300, Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
 (713) 570-3200
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ
 þ o




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##### 



TABLE OF CONTENTS
 PagePart IFinancial InformationItem 1
    
    Consolidated Financial StatementsConsolidated Balance SheetsMarch 31, 2006 and December 31, 2005
    
    3Consolidated Statements of OperationsThree Months Ended March 31, 2006 and 2005
    
    4Consolidated Statements of Cash FlowsThree Months Ended March 31, 2006 and 2005
    
    5Notes to Consolidated Financial Statements
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    16Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    24Item 4
    
    Controls and Procedures
    
    24Part IIOther InformationItem 1
    
    Legal Proceedings
    
    25Item 1A
    
    Risk Factors
    
    25Item 5
    
    Other Information
    
    26Item 6
    
    Exhibits
    
    27Certification of Michael Y McGovern required by Rule 13a-14a/15d-14aCertification of Gary L. Pittman required by Rule 13a-14a/15d-14aCertification of Michael Y McGovern required by Rule 13a-14b/15d-14bCertification of Gary L. Pittman required by Rule 13a-14b/15d-14b
  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 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




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 PIONEER COMPANIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (unaudited, in thousands, except par value)
 March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    26,085
    
    
    $
    62,790Accounts receivable, net of allowance for doubtful accounts of $3,074 at March
31, 2006, and $3,748 at December 31, 2005
    
    
    61,674
    
    
    
    65,937Inventories, net
    
    
    15,659
    
    
    
    19,076Prepaid expenses and other current assets
    
    
    4,868
    
    
    
    3,800Total current assets
    
    
    108,286
    
    
    
    151,603Property, plant and equipment:Land
    
    
    6,516
    
    
    
    6,516Buildings and improvements
    
    
    30,318
    
    
    
    30,234Machinery and equipment
    
    
    210,848
    
    
    
    209,457Construction in progress
    
    
    3,174
    
    
    
    2,208250,856
    
    
    
    248,415Less: accumulated depreciation
    
    
    (95,526
    )
    
    
    (89,455
    )Property, plant and equipment, net
    
    
    155,330
    
    
    
    158,960Other assets, net
    
    
    4,177
    
    
    
    4,310Excess reorganization value over the fair value of identifiable assets
    
    
    84,064
    
    
    
    84,064Total assets
    
    $
    351,857
    
    
    $
    398,937Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    14,922
    
    
    $
    18,630Accrued liabilities
    
    
    31,000
    
    
    
    39,444Short-term debt, including current portion of long-term debt
    
    
    1,482
    
    
    
    1,858Total current liabilities
    
    
    47,404
    
    
    
    59,932Long-term debt, less current portion
    
    
    101,979
    
    
    
    152,739Accrued pension and other employee benefits
    
    
    25,433
    
    
    
    26,619Other long-term liabilities
    
    
    55,358
    
    
    
    54,657Commitments and contingenciesStockholders equity:Common stock, $.01 par value, 50,000 shares authorized, 11,769 and 11,759 shares
issued and outstanding at March 31, 2006 and December 31, 2005, respectively
    
    
    118
    
    
    
    118Additional paid-in capital
    
    
    37,427
    
    
    
    36,784Other comprehensive loss
    
    
    (14,396
    )
    
    
    (14,396
    )Retained earnings
    
    
    98,534
    
    
    
    82,484Total stockholders equity
    
    
    121,683
    
    
    
    104,990Total liabilities and stockholders equity
    
    $
    351,857
    
    
    $
    398,937
  3




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PIONEER COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, in thousands, except per share data)
 Three Months EndedMarch 312006
    
    
    2005Revenues
    
    $
    134,872
    
    
    $
    119,090Cost of sales
    
    
    (99,638
    )
    
    
    (87,608
    )Gross profit
    
    
    35,234
    
    
    
    31,482Selling, general and administrative expenses
    
    
    (8,079
    )
    
    
    (8,463
    )Other items
    
    
    312
    
    
    
    (505
    )Operating income
    
    
    27,467
    
    
    
    22,514Interest expense, net
    
    
    (2,466
    )
    
    
    (4,256
    )Other income (expense), net
    
    
    (2,290
    )
    
    
    173Income before income taxes
    
    
    22,711
    
    
    
    18,431Income tax expense
    
    
    (6,661
    )
    
    
    (3,411
    )Net income
    
    $
    16,050
    
    
    $
    15,020Net income per share:Basic
    
    $
    1.36
    
    
    $
    1.34Diluted
    
    $
    1.35
    
    
    $
    1.28Weighted average number of shares outstanding:Basic
    
    
    11,761
    
    
    
    11,176Diluted
    
    
    11,864
    
    
    
    11,779
  4




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PIONEER COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)
 Three Months EndedMarch 31,2006
    
    
    2005Operating activities:Net income
    
    $
    16,050
    
    
    $
    15,020Adjustments to reconcile net income to net cash flows from operating activities:Depreciation and amortization
    
    
    6,030
    
    
    
    5,685(Recovery of) provision for losses on accounts receivable
    
    
    (674
    )
    
    
    603Deferred tax expense
    
    
    742
    
    
    
    3,311Gain on disposals of assets
    
    
    (312
    )
    
    
    (74
    )Currency exchange gain
    
    
    (153
    )
    
    
    (173
    )Loss on early debt extinguishment
    
    
    2,500
    
    
    
    Stock-based compensation expense
    
    
    378
    
    
    
    Accretion expense
    
    
    76
    
    
    
    Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    5,203
    
    
    
    (5,064
    )Decrease (increase) in inventories, prepaid expenses and other current assets
    
    
    2,278
    
    
    
    (3,459
    )Decrease in other assets
    
    
    112
    
    
    
    39(Decrease) increase in accounts payable and accrued liabilities
    
    
    (11,367
    )
    
    
    4,197(Decrease) increase in other long-term liabilities
    
    
    (1,179
    )
    
    
    5,470Net cash flows from operating activities
    
    
    19,684
    
    
    
    25,555Investing activities:Capital expenditures
    
    
    (3,087
    )
    
    
    (3,932
    )Proceeds from disposal of assets
    
    
    132
    
    
    
    74Net cash flows used in investing activities
    
    
    (2,955
    )
    
    
    (3,858
    )Financing activities:Payment of premium on early debt extinguishment
    
    
    (2,500
    )
    
    
    Repayments of long-term debt
    
    
    (51,135
    )
    
    
    (22,316
    )Proceeds from issuance of stock, net
    
    
    218
    
    
    
    8Net cash flows used in financing activities
    
    
    (53,417
    )
    
    
    (22,308
    )Effect of exchange rate changes on cash
    
    
    (17
    )
    
    
    (14
    )Net change in cash and cash equivalents
    
    
    (36,705
    )
    
    
    (625
    )Cash and cash equivalents at beginning of period
    
    
    62,790
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    26,085
    
    
    $
    15,566
  5




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PIONEER COMPANIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)
 1. Organization and Basis of Presentation
      2. Debt
  March 31,
    
    
    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 CAN$5.5 million, payable in
five annual installments of CAN$1.0 million beginning January 10,
2002,and a final payment of CAN$0.5 million, with an effective
interest rate of 8.25%, net of unamortized discount of CAN$34,000 and
CAN$43,000 at March 31, 2006, and December 31, 2005, respectively
    
    
    402
    
    
    
    1,253Other notes, maturing in various years through 2014, with various
installments, at various interest rates
    
    
    3,059
    
    
    
    3,344Total
    
    
    103,461
    
    
    
    154,597Short-term debt, including current portion of long-term debt
    
    
    (1,482
    )
    
    
    (1,858
    )Long-term debt, less current portion
    
    $
    101,979
    
    
    $
    152,739
 
 *
    
    The three-month London inter-bank offered rate (LIBOR) for the periods ended March 31,
2006, and December 31, 2005, was 5.00% and 4.39%, respectively. 6




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7




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3. Environmental Liabilities
     4. Net Income per Share
 see
 8




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005Numerator for basic and diluted net income per share:Net income
    
    $
    16,050
    
    
    $
    15,020Denominator for basic and diluted net income per share:Weighted average shares
    
    
    11,761
    
    
    
    11,176Potentially dilutive common shares:Stock options
    
    
    103
    
    
    
    603Denominator for diluted net income per share
    
    
    11,864
    
    
    
    11,779Net income per share:Basic
    
    $
    1.36
    
    
    $
    1.34Diluted
    
    $
    1.35
    
    
    $
    1.28
  5. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials, supplies and parts, net
    
    $
    8,653
    
    
    $
    9,807Finished goods
    
    
    7,006
    
    
    
    9,269Inventories, net
    
    $
    15,659
    
    
    $
    19,076
 6. Stock-Based Compensation
 Share-Based Incentive Plan
  Accounting for Share-Based Compensation
  9




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Three MonthsEndedMarch 31, 2005Net income:As reported
    
    $
    15,020Deduct: Stock-based compensation expense determined under fair value-based method
    
    
    (189
    )Pro forma net income
    
    $
    14,831Net income per common share:Basic, as reported
    
    $
    1.34Basic, pro forma
    
    $
    1.33Diluted, as reported
    
    $
    1.28Diluted, pro forma
    
    $
    1.26
 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
    )
    
    $
    8.28 - $20.75
    
    
    $
    19.28Forfeited
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    234
    
    
    
    $2.00 $31.37
    
    
    $
    13.17
  Weighted-AverageWeighted-
    
    
    RemainingOptions
    
    

Average Exercise
    
    
    Contractual
    
    
    AggregateOutstanding
    
    
    Price Per Share
    
    
    Term (years)
    
    
    IntrinsicValue (1)Fully Vested Options
    
    
    57
    
    
    $
    6.89
    
    
    
    6.98
    
    
    $
    1,453Nonvested Options
    
    
    177
    
    
    $
    15.20
    
    
    
    8.85
    
    
    
    3,827Total Outstanding Stock Options
    
    
    234
    
    
    $
    13.17
    
    
    
    8.39
    
    
    $
    5,280
 
 (1)
    
    The aggregate intrinsic value is computed based on the closing price of Pioneers stock on
March 31, 2006.  10




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Three-Months EndedMarch 31, 2006Expected Term (years)
    
    
    5.2Expected Volatility
    
    
    45.4
    %Risk-free Interest Rate
    
    
    4.5
    %Expected Dividends
    
    
    
   7. Supplemental Cash Flow Information
  Three Months EndedMarch 31,2006
    
    
    2005Cash payments for:Interest
    
    $
    243
    
    
    $
    528Income taxes
    
    
    2,193
    
    
    
    Non-cash investing activities -Property, plant and equipment acquisitions, included in accounts payable
    
    $
    644
    
    
    
    
 8. Condensed Consolidating Financial Statements
   11




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Condensed Consolidating Balance Sheet  March 31, 2006 (in thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    921
    
    
    $
    25,164
    
    
    $
    
    
    
    $
    
    
    
    $
    26,085Accounts receivable, net
    
    
    
    
    
    
    13,536
    
    
    
    48,138
    
    
    
    
    
    
    
    
    
    
    
    61,674Inventories, net
    
    
    
    
    
    
    6,952
    
    
    
    8,707
    
    
    
    
    
    
    
    
    
    
    
    15,659Prepaid expenses and other current assets
    
    
    1,911
    
    
    
    2,563
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    4,868Total current assets
    
    
    1,911
    
    
    
    23,972
    
    
    
    82,403
    
    
    
    
    
    
    
    
    
    
    
    108,286Property, plant and equipment, net
    
    
    
    
    
    
    91,350
    
    
    
    62,452
    
    
    
    1,528
    
    
    
    
    
    
    
    155,330Other assets, net
    
    
    
    
    
    
    198
    
    
    
    3,979
    
    
    
    
    
    
    
    
    
    
    
    4,177Intercompany receivable
    
    
    16,073
    
    
    
    109,638
    
    
    
    
    
    
    
    91,692
    
    
    
    (217,403
    )
    
    
    Investment in subsidiaries
    
    
    105,031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,031
    )
    
    
    Excess reorganization value over the fair value of identifiable assets
    
    
    
    
    
    
    84,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,064Total assets
    
    $
    123,015
    
    
    $
    309,222
    
    
    $
    148,834
    
    
    $
    93,220
    
    
    $
    (322,434
    )
    
    $
    351,857Liabilities and stockholders equity (deficiency in assets)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    7,074
    
    
    $
    7,848
    
    
    $
    
    
    
    $
    
    
    
    $
    14,922Accrued liabilities
    
    
    
    
    
    
    15,801
    
    
    
    15,199
    
    
    
    
    
    
    
    
    
    
    
    31,000Current portion of long-term debt
    
    
    
    
    
    
    402
    
    
    
    1,052
    
    
    
    28
    
    
    
    
    
    
    
    1,482Total current liabilities
    
    
    
    
    
    
    23,277
    
    
    
    24,099
    
    
    
    28
    
    
    
    
    
    
    
    47,404Long-term debt, less current portion
    
    
    
    
    
    
    100,000
    
    
    
    1,979
    
    
    
    
    
    
    
    
    
    
    
    101,979Investment in subsidiary
    
    
    
    
    
    
    125,106
    
    
    
    
    
    
    
    468
    
    
    
    (125,574
    )
    
    
    Intercompany payable
    
    
    1,332
    
    
    
    77
    
    
    
    215,995
    
    
    
    
    
    
    
    (217,404
    )
    
    
    Accrued pension and other employee benefits
    
    
    
    
    
    
    8,538
    
    
    
    16,895
    
    
    
    
    
    
    
    
    
    
    
    25,433Other long-term liabilities
    
    
    
    
    
    
    39,585
    
    
    
    14,972
    
    
    
    801
    
    
    
    
    
    
    
    55,358Stockholders equity (deficiency in assets)
    
    
    121,683
    
    
    
    12,639
    
    
    
    (125,106
    )
    
    
    91,923
    
    
    
    20,544
    
    
    
    121,683Total liabilities and stockholders equity
    
    $
    123,015
    
    
    $
    309,222
    
    
    $
    148,834
    
    
    $
    93,220
    
    
    $
    (322,434
    )
    
    $
    351,857
 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
 12




---



##### Table of Contents



Condensed Consolidating Statement of Operations  Three Months Ended March 31, 2006 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    63,588
    
    
    $
    105,495
    
    
    $
    
    
    
    $
    (34,211
    )
    
    $
    134,872Cost of sales
    
    
    
    
    
    
    (45,047
    )
    
    
    (88,802
    )
    
    
    
    
    
    
    34,211
    
    
    
    (99,638
    )Gross profit
    
    
    
    
    
    
    18,541
    
    
    
    16,693
    
    
    
    
    
    
    
    
    
    
    
    35,234Selling, general and administrative expenses
    
    
    (406
    )
    
    
    (2,592
    )
    
    
    (5,079
    )
    
    
    (2
    )
    
    
    
    
    
    
    (8,079
    )Other items
    
    
    
    
    
    
    98
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    312Operating income (loss)
    
    
    (406
    )
    
    
    16,047
    
    
    
    11,828
    
    
    
    (2
    )
    
    
    
    
    
    
    27,467Interest expense, net
    
    
    
    
    
    
    (2,690
    )
    
    
    224
    
    
    
    
    
    
    
    
    
    
    
    (2,466
    )Other income (expense), net
    
    
    
    
    
    
    (2,354
    )
    
    
    (3,157
    )
    
    
    3,221
    
    
    
    
    
    
    
    (2,290
    )Income (loss) before income taxes
    
    
    (406
    )
    
    
    11,003
    
    
    
    8,895
    
    
    
    3,219
    
    
    
    
    
    
    
    22,711Income tax expense
    
    
    
    
    
    
    (6,301
    )
    
    
    (360
    )
    
    
    
    
    
    
    
    
    
    
    (6,661
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (406
    )
    
    
    4,702
    
    
    
    8,535
    
    
    
    3,219
    
    
    
    
    
    
    
    16,050Equity in net income of subsidiaries
    
    
    16,456
    
    
    
    8,535
    
    
    
    
    
    
    
    
    
    
    
    (24,991
    )
    
    
    Net income
    
    $
    16,050
    
    
    $
    13,237
    
    
    $
    8,535
    
    
    $
    3,219
    
    
    $
    (24,991
    )
    
    $
    16,050
 Condensed Consolidating Statement of Operations  Three Months Ended March 31, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    
    
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    55,833
    
    
    $
    93,382
    
    
    $
    
    
    
    $
    (30,125
    )
    
    $
    119,090Cost of sales
    
    
    
    
    
    
    (39,430
    )
    
    
    (78,508
    )
    
    
    205
    
    
    
    30,125
    
    
    
    (87,608
    )Gross profit
    
    
    
    
    
    
    16,403
    
    
    
    14,874
    
    
    
    205
    
    
    
    
    
    
    
    31,482Selling, general and administrative expenses
    
    
    (211
    )
    
    
    (2,544
    )
    
    
    (5,708
    )
    
    
    
    
    
    
    
    
    
    
    (8,463
    )Other items
    
    
    
    
    
    
    (579
    )
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    (505
    )Operating income (loss)
    
    
    (211
    )
    
    
    13,280
    
    
    
    9,240
    
    
    
    205
    
    
    
    
    
    
    
    22,514Interest expense, net
    
    
    
    
    
    
    (3,774
    )
    
    
    (481
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,256
    )Other income (expense), net
    
    
    
    
    
    
    173
    
    
    
    (2,882
    )
    
    
    2,882
    
    
    
    
    
    
    
    173Income (loss) before income taxes
    
    
    (211
    )
    
    
    9,679
    
    
    
    5,877
    
    
    
    3,086
    
    
    
    
    
    
    
    18,431Income tax expense
    
    
    
    
    
    
    (3,311
    )
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (3,411
    )Net income (loss) before equity in earnings of subsidiaries
    
    
    (211
    )
    
    
    6,368
    
    
    
    5,777
    
    
    
    3,086
    
    
    
    
    
    
    
    15,020Equity in net income of subsidiaries
    
    
    15,231
    
    
    
    5,777
    
    
    
    
    
    
    
    203
    
    
    
    (21,211
    )
    
    
    Net income
    
    $
    15,020
    
    
    $
    12,145
    
    
    $
    5,777
    
    
    $
    3,289
    
    
    $
    (21,211
    )
    
    $
    15,020
 Condensed Consolidating Statement of Cash Flows  Three Months Ended March 31, 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
    
    $
    (218
    )
    
    $
    53,795
    
    
    $
    (33,893
    )
    
    $
    
    
    
    $
    19,684Cash flows used in investing activities:Capital expenditures
    
    
    
    
    
    
    (1,160
    )
    
    
    (1,927
    )
    
    
    
    
    
    
    (3,087
    )Proceeds from disposal of assets
    
    
    
    
    
    
    67
    
    
    
    65
    
    
    
    
    
    
    
    132Net cash flows used in investing activities
    
    
    
    
    
    
    (1,093
    )
    
    
    (1,862
    )
    
    
    
    
    
    
    (2,955
    )Cash flows from (used in) financing activities:Repayments of long-term debt
    
    
    
    
    
    
    (50,852
    )
    
    
    (279
    )
    
    
    (4
    )
    
    
    (51,135
    )Payment of premium on early debt extinguishment
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Proceeds from issuance of stock, net
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218Net cash flows used in financing activities
    
    
    218
    
    
    
    (53,352
    )
    
    
    (279
    )
    
    
    (4
    )
    
    
    (53,417
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (17
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    (667
    )
    
    
    (36,034
    )
    
    
    (4
    )
    
    
    (36,705
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,580
    
    
    
    61,217
    
    
    
    (7
    )
    
    
    62,790Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    913
    
    
    $
    25,183
    
    
    $
    (11
    )
    
    $
    26,085
 Condensed Consolidating Statement of Cash Flows  Three Months Ended March 31, 2005 (in
thousands)
 PCI
    
    
    Pioneer
    
    
    Other
    
    
    PioneerPCI
    
    
    Canada
    
    
    Americas
    
    
    Guarantors
    
    
    ConsolidatedCash flows from (used in) operating activities:Net cash flows from operating activities
    
    $
    (8
    )
    
    $
    2,529
    
    
    $
    23,018
    
    
    $
    16
    
    
    $
    25,555Cash flows from (used in) investing activities:Capital expenditures
    
    
    
    
    
    
    (1,489
    )
    
    
    (2,443
    )
    
    
    
    
    
    
    (3,932
    )Proceeds from disposal of assets
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    74Net cash flows used in investing activities
    
    
    
    
    
    
    (1,489
    )
    
    
    (2,369
    )
    
    
    
    
    
    
    (3,858
    )Cash flows from (used in) financing activities:Repayments of long-term debt
    
    
    
    
    
    
    (827
    )
    
    
    (21,483
    )
    
    
    (6
    )
    
    
    (22,316
    )Proceeds from issuance of stock
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Net cash flows from (used in) financing activities
    
    
    8
    
    
    
    (827
    )
    
    
    (21,483
    )
    
    
    (6
    )
    
    
    (22,308
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    199
    
    
    
    (834
    )
    
    
    10
    
    
    
    (625
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    148
    
    
    
    16,041
    
    
    
    2
    
    
    
    16,191Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    347
    
    
    $
    15,207
    
    
    $
    12
    
    
    $
    15,566
 13




---



##### Table of Contents



9. Pension and Other Postretirement Benefits
  PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended March 31, 2006Components of net periodic benefit cost:Service cost
    
    $
    360
    
    
    $
    
    
    
    $
    360Interest cost
    
    
    684
    
    
    
    766
    
    
    
    1,450Expected return on plan assets
    
    
    (874
    )
    
    
    (854
    )
    
    
    (1,728
    )Amortization of net actuarial loss
    
    
    148
    
    
    
    272
    
    
    
    420Net periodic benefit cost
    
    $
    318
    
    
    $
    184
    
    
    $
    502
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended March 31, 2005Components of net periodic benefit cost:Service cost
    
    $
    335
    
    
    $
    22
    
    
    $
    357Interest cost
    
    
    637
    
    
    
    727
    
    
    
    1,364Expected return on plan assets
    
    
    (696
    )
    
    
    (807
    )
    
    
    (1,503
    )Amortization of net actuarial loss
    
    
    
    
    
    
    154
    
    
    
    154Net periodic benefit cost
    
    $
    276
    
    
    $
    96
    
    
    $
    372
   PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended March 31, 2006Components of net periodic benefit cost:Service cost
    
    $
    79
    
    
    $
    1
    
    
    $
    80Interest cost
    
    
    113
    
    
    
    7
    
    
    
    120Amortization of prior service costs
    
    
    (8
    )
    
    
    (156
    )
    
    
    (164
    )Amortization of net actuarial loss (gain)
    
    
    70
    
    
    
    (13
    )
    
    
    57Net periodic benefit cost
    
    $
    254
    
    
    $
    (161
    )
    
    $
    93
 PCI
    
    
    Pioneer
    
    
    PioneerCanada
    
    
    Americas
    
    
    ConsolidatedThree Months Ended March 31, 2005Components of net periodic benefit cost:Service cost
    
    $
    47
    
    
    $
    1
    
    
    $
    48Interest cost
    
    
    84
    
    
    
    9
    
    
    
    93Amortization of prior service costs
    
    
    (8
    )
    
    
    (156
    )
    
    
    (164
    )Amortization of net actuarial gain
    
    
    (18
    )
    
    
    (12
    )
    
    
    (30
    )Net periodic benefit cost
    
    $
    105
    
    
    $
    (158
    )
    
    $
    (53
    )
 10. Pending Asset Sales
 Pending Sale of Acreage in Henderson, Nevada.
 14




---



##### Table of Contents



Pending 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.
 15




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Significant Events in the First Quarter of 2006
 Financial Results
  For the three months endedMarch 312006
    
    2005Revenues
    
    $
    134,872
    
    
    $
    119,090Operating income
    
    
    27,467
    
    
    
    22,514Net income
    
    
    16,050
    
    
    
    15,020Net cash flows from operating activities
    
    
    19,684
    
    
    
    25,555Total debt as of March 31
    
    
    103,461
    
    
    
    180,471Average ECU netback prices
    
    
    616
    
    
    
    548
  ECU Netback Prices
  16




---



##### Table of Contents



2005:First Quarter
    
    $
    548Second Quarter
    
    
    577Third Quarter
    
    
    581Fourth Quarter
    
    
    6192006:First Quarter
    
    
    616
   Chlorine
    
    Caustic Soda2005:First Quarter
    
    $
    20
    
    
    $
    40Second Quarter
    
    
    
    
    
    
    30Third Quarter
    
    
    25
    
    
    
    125Fourth Quarter
    
    
    
    
    
    
    60
    (1)2006:First Quarter
    
    
    
    (2)
    
    
    
 
 (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.     17




---



##### Table of Contents



Production
  2005:First Quarter
    
    
    161,635Second Quarter
    
    
    181,003Third Quarter
    
    
    164,343Fourth Quarter
    
    
    163,7292006:First Quarter
    
    
    165,359
    Energy Costs
  18




---



##### Table of Contents



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
    %
   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
    
    
    23,891
    
    
    
    24
    %
 Environmental Issues
   19




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##### Table of Contents



Liquidity and Capital Resources
 Senior Secured Debt
      20




---



##### Table of Contents



Three
    
    
    Three
    
    
    Three
    
    
    Three
    
    
    TwelveMonths
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    March 31,2005
    
    
    2005
    
    
    2005
    
    
    2006
    
    
    2006Net income
    
    $
    24,089
    
    
    $
    20,102
    
    
    $
    11,085
    
    
    $
    16,050
    
    
    $
    71,326Income tax expense
    
    
    2,957
    
    
    
    2,058
    
    
    
    2,355
    
    
    
    6,661
    
    
    
    14,031Income before income taxes
    
    
    27,046
    
    
    
    22,160
    
    
    
    13,440
    
    
    
    22,711
    
    
    
    85,357Depreciation and amortization
    
    
    6,647
    
    
    
    6,250
    
    
    
    5,982
    
    
    
    6,030
    
    
    
    24,909Interest expense
    
    
    4,114
    
    
    
    3,597
    
    
    
    3,300
    
    
    
    2,466
    
    
    
    13,477Lender-Defined EBITDA
    
    $
    37,807
    
    
    $
    32,007
    
    
    $
    22,722
    
    
    $
    31,207
    
    
    $
    123,743
        Pending Asset Sales
 Henderson, Nevada.
 21




---



##### Table of Contents



Pittsburg, California.
 Future Payment Commitments
  Sarbanes-Oxley Section 404 Compliance
  Retirement Plan Liabilities
  Stock Options
  Net Operating Loss Carryforward
  Net Cash Flows
 Net Cash Flows from Operating Activities .
 22




---



##### Table of Contents



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 March 31, 2006, Compared to Three Months Ended March 31, 2005
 Revenues.
 Three Months EndedMarch 31,2006
    
    
    2005Chlorine and caustic soda
    
    $
    103,614
    
    
    $
    91,415Other products
    
    
    31,258
    
    
    
    27,675$
    134,872
    
    
    $
    119,090Average ECU netback*
    
    $
    616
    
    
    $
    548
 
 *
    
    The average ECU netback relates only to sales of chlorine and caustic
soda, and not to sales of other products.   Cost of Sales
 23




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##### Table of Contents



Selling, General and Administrative Expenses.
 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
   24




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##### 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.
  25




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##### Table of Contents



Material Change :
  Labor disputes under our collective bargaining agreements may disrupt our business.
   Material Change:
 
 ITEM 5. OTHER INFORMATION
 Forward-Looking Statements
   
    
    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;
 26




---



##### Table of Contents




    
    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 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
 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 27




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##### Table of Contents



SIGNATURES
  PIONEER COMPANIES, INC.Date: May 8, 2006
    By:
    /s/ Gary L. PittmanGary L. PittmanVice President and Chief Financial Officer
(Principal Financial Officer) 28




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##### Table of Contents



Exhibit Index
 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. 29