PIONEER COMPANIES INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

COMMISSION FILE NO. 000-31230

PIONEER COMPANIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 06-1215192
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)

700 LOUISIANA STREET, SUITE 4300,
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 570-3200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
None Not applicable

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [
] No [X]

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 30, 2003, based on the last reported trading price of the
registrant's common stock on the OTC Bulletin Board on that date, was $22.6
million. For purposes of the above statement only, all directors, executive
officers and 10% shareholders are deemed to be affiliates.

There were 10,010,665 shares of the registrant's common stock outstanding
on March 23, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's definitive proxy statement for the
registrant's 2004 Annual Meeting of Stockholders are incorporated by reference
into Part III of this report.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

OVERVIEW

Pioneer Companies, Inc. and its subsidiaries have manufactured and marketed
chlorine, caustic soda and related products in North America since 1988. We
conduct our primary business through our operating subsidiaries: PCI Chemicals
Canada Company (which we refer to as PCI Canada) and Pioneer Americas LLC (which
we refer to as Pioneer Americas).

Chlorine and caustic soda are commodity chemicals that are used in a wide
variety of applications and chemical processes. We believe they are the seventh
and sixth most commonly produced chemicals, respectively, in the United States,
based on volume. Caustic soda and chlorine are co-products, concurrently
produced in a ratio of approximately 1.1 to 1 through the electrolysis of salt
water. An electrochemical unit, which we refer to as an ECU, consists of 1.1
tons of caustic soda and 1 ton of chlorine.

Chlorine is used in 60% of all commercial chemistry, 85% of all
pharmaceutical chemistry and 95% of all crop protection chemistry. More than
15,000 products, including water treatment chemicals, plastics, detergents,
pharmaceuticals, disinfectants and agricultural chemicals, are manufactured with
chlorine as a raw material. Chlorine is also used directly in water disinfection
applications. In the United States and Canada, chlorination is used to make
public drinking water safe to drink, and a significant portion of industrial and
municipal wastewater is treated with chlorine or chlorine derivatives to kill
water-borne pathogens.

Caustic soda is a versatile chemical alkali used in a diverse range of
manufacturing processes, including pulp and paper production, metal smelting and
oil production and refining. Caustic soda is combined with chlorine to produce
bleach, which is used for water treatment and as a cleaning disinfectant.
Caustic soda is also used as an active ingredient in a wide variety of other
end-use products, including detergents, rayon and cellophane.

We believe that our chlor-alkali production capacity represents
approximately 5% of the chlor-alkali industry's production capacity in the
United States and Canada. We currently operate the following production
facilities that produce chlorine and caustic soda and related products.
Production capacity is stated in tons.

During 2001 we idled half of the production at our Tacoma, Washington
chlor-alkali plant, and in 2002 the plant's remaining production capacity was
idled. We had considered the possibility of resuming chlor-alkali production
operations at the facility, but in March 2004 it was determined that as a result
of our inability to identify and develop the significant long-term market base
that would be served by the plant, chlor-alkali production at the plant will not
be resumed. We will continue to use the plant site as a terminal to serve our
customers in the Pacific Northwest, and calcium chloride is also produced at the
facility. We produce bleach at a separate facility in Tacoma.

Chlor-alkali manufacturers in the United States and Canada account for
approximately 28% of world chlor-alkali annual production capacity, with
approximately 15.4 million tons of chlorine and 16.4 million tons of caustic
soda production capacity. The Dow Chemical Company ("Dow") and Occidental
Chemical Corporation ("OxyChem") are the two largest chlor-alkali producers in
North America, together representing approximately 52% of U.S. and Canadian
capacity. Seventeen companies share the remaining capacity, and approximately
72% of the total capacity is located on the Gulf Coast. The chlor-alkali
industry in the United States and Canada is highly competitive, and many of our
competitors, including Dow, OxyChem and PPG Industries, Inc., are substantially
larger and have greater financial resources than we do. While widely available
technology is used in chlor-alkali production, capital requirements and the
difficulty of obtaining permits for the production of chlor-alkali and
chlor-alkali related products may create barriers to entry.

Our ability to compete effectively depends on our ability to maintain
competitive prices, to provide reliable and responsive service to our customers
and to operate in a safe and environmentally responsible manner. Our goal is
build long-term relationships with our customers by meeting their product
quality, delivery schedule and sales support needs. We believe that there are
some characteristics of our production capabilities that distinguish us from
many of our competitors, including the following:

- our Becancour facility is a lower-cost production facility as a result of
that facility's use of hydropower;

- our St. Gabriel facility has three pipelines that allow us to efficiently
transport and supply chlorine to customers in the area; and

- our Henderson facility is the only currently operating chlor-alkali
production facility in the western region of the United States, providing
us with a strong regional presence and transportation cost advantages.

In 2003 approximately 200,000 tons (30%) of the chlorine and 90,000 tons
(11%) of the caustic soda that we produced at our chlor-alkali plants were used
for our internal production of bleach and hydrochloric acid. We sell our
remaining production in the merchant market. In contrast, many chlor-alkali
companies use a large proportion of the chlorine that they produce for the
internal production of other chemical products. At times those companies treat
the caustic soda that they produce as a secondary product that they are willing
to dispose of at a discount, which places us at a competitive disadvantage.

Our St. Gabriel and Dalhousie facilities use the mercury cell production
process, which yields premium grade, low-salt caustic soda, a niche product that
is required by certain customers. However, many of our competitors benefit from
a greater use of the membrane production process. See " -- Technology" below.

Other competitive disadvantages that we face include relatively high power
costs at our Henderson and St. Gabriel facilities; our need to acquire salt from
third-party producers, with attendant cost and transportation issues; our
inability to spread our fixed costs over a large manufacturing base; and our
inability to serve some customers in Canada and the United States without
incurring significant transportation costs. The demand for and prices of
chlorine and caustic soda are heavily influenced by conditions in the vinyls and
aluminum industries, respectively, so those conditions have an effect on us,
even though we do not sell large

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amounts of our products to customers in either industry. See "-- Marketing,
Pricing, Production and Distribution -- Marketing" below.

Much of the bleach that we produce at several of our plants is sold in bulk
quantities for use in municipal water treatment and as a disinfectant in food
processing. We also supply bulk bleach to consumer and commercial disinfectant
and cleanser manufacturers. Hydrochloric acid has a variety of industrial uses,
including mining operations and the production of oil and gas, exotic metals,
rocket fuel, computer hardware, dyes, ink and solvents. Sodium chlorate is used
in pulp and paper bleaching, and chlorinated paraffin is used in plastics
compounding and in cosmetics and lotions manufacturing. The hydrogen that is
produced as a by-product of the production of chlorine and caustic soda is
generally used either as a raw material in the production of hydrochloric acid
or as a boiler fuel, although pipelines at the St. Gabriel and Becancour plants
are used to transport the hydrogen produced at those plants directly to
purchasers.

We primarily use our own sales force to serve our markets, although we also
sell some of our products to distributors. We use one facility that we own and
three leased terminal facilities to store and distribute caustic soda and
hydrochloric acid, and we use an additional fifteen transfer facilities where
rail shipments are transloaded to trucks for local distribution.

RECENT DEVELOPMENTS

RECENT TRENDS IN PRODUCT PRICES AND COSTS

We believe that, during the first six months of 2004, our average ECU
netback (that is, price adjusted to eliminate the product transportation
element) will be less than the 2003 average of $382, as we do not expect the
projected improvement in chlorine prices to offset declining caustic soda
prices. Operating margins will be adversely affected by the lower ECU values and
by natural gas prices that are still at relatively high levels, although natural
gas prices are now somewhat lower than the 2003 average. Electricity purchases
account for the largest percentage of our raw material cost, and our plants at
St. Gabriel and Henderson rely on power sources that primarily use natural gas
for the generation of electricity. High energy prices are also affecting the
global positioning of chlor-alkali production capacity, since production
capacity and demand is increasing in Asia, where access to lower-cost power is
available.

COST-REDUCTION MEASURES

In February 2004 we engaged a consulting group to assist us in an
organizational efficiency project. The project will involve the design,
development and implementation of uniform and standardized systems, processes
and policies to improve our management, sales and marketing, production, process
efficiency, logistics and material management and information technology
functions. The consulting fees that we will pay in connection with the project
are estimated to be from $2.8 million to $3.6 million. We believe that this
project will produce significant future cost savings, although the major
benefits of the project have not yet been quantified and will not be realized
until 2005 and future years. We are pursuing the project to improve our
efficiency and our operating margins, so that we will be able to improve our
cost competitiveness with other North American chlor-alkali producers, most of
which are larger, enjoy access to lower-cost raw material and energy sources,
and, because of the scale of their production facilities, have significantly
lower unit operating costs.

As part of a continuing effort to reduce our costs, the employee health
care plan that we provide to our U.S. employees was revised in 2003 to reduce
the share of health care costs that are borne by the company, and further
reductions have been effected for 2004. However, this may be offset in part or
whole by increased health care costs generally. Effective February 29, 2004,
benefits under our U.S. defined benefit pension plan were frozen, and future
retirement benefits for our U.S. employees will be provided through enhanced
contributions to our defined contribution pension plan.

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AMENDMENT OF REVOLVER

An important component of our senior secured debt is a Revolving Credit
Facility with a $30 million commitment and a borrowing base restriction (the
"Revolver"). An amendment to the Revolver that was effective as of December 31,
2003, extended the maturity date of borrowings by two years, from December 31,
2004, to December 31, 2006, and reduced the applicable interest rates and fees
that are payable to the lender. Our ability to borrow under the Revolver on the
basis of the London inter-bank offered rate was also restored.

One of the covenants in the Revolver requires us to generate at least
$21.55 million of net earnings before extraordinary gains, the effects of the
derivative instruments excluding derivative expenses paid by us, interest,
income taxes, depreciation and amortization (referred to as "Lender-Defined
EBITDA") for each twelve-month period ending at the end of each calendar
quarter. During some periods in 2002 and 2003, our Lender-Defined EBITDA was
less than the amounts required, although in the absence of certain asset
impairment charges and an increase in our reserve for environmental costs, our
Lender-Defined EBITDA would have exceeded the covenant requirement. The lender
waived our noncompliance during those periods. The December 2003 amendment also
included a change in the definition of Lender-Defined EBITDA that eliminated the
effect of the asset impairment charge and the environmental reserve addition
that occurred in the first quarter of 2003. For the twelve months ended December
31, 2003, we were in compliance with the covenant for that period.

MARKETING, PRICING, PRODUCTION AND DISTRIBUTION

MARKETING

Chlorine and caustic soda are commodity chemicals that we typically sell
under contracts to customers in the United States and Canada, although we
occasionally export an immaterial amount of caustic soda on a spot basis.
Because chlorine and caustic soda are commodity chemicals, our sales contracts
typically contain pricing that is determined on a quarterly basis by mutual
agreement. Our contracts often contain "meet or release clauses" that allow the
customer to terminate the contract if we do not meet a better price for the
product that the customer is offered by a competitor, and the contracts also
allow either party to terminate the agreement if mutual agreement as to the
applicable price is not reached. Both the chlorine and caustic soda markets have
been, and are likely to continue to be, cyclical. Periods of high demand, high
capacity utilization and increasing operating margins tend to result in new
plant investments and increased production until supply exceeds demand, followed
by a period of declining prices and declining capacity utilization until the
cycle is repeated. See "-- Risks -- Our operating results could be negatively
affected during economic downturns" below.

Approximately 15% of our 2003 revenues was derived from sales of products
for use in the water treatment industry, approximately 27% resulted from sales
for use in the pulp and paper industry and approximately 9% was derived from
sales for use by urethane producers. We rely heavily on repeat customers, and
our management and dedicated sales personnel are responsible for developing and
maintaining successful long-term relationships with our customers. We also sell
certain products to distributors, although recently we have reduced our reliance
on the use of distributors. No customer accounted for more than 10% of our total
revenues in any of our last three fiscal years.

PRICING

Our average ECU netback was $382 in 2003, compared to $270 in 2002 and $337
in 2001. The netback improved in the first quarter of 2003, mainly as a result
of a caustic soda price increase announced for January 1. Strong demand for
chlorine in the first quarter of 2003, principally from the vinyls sector,
coupled with lower industry profitability due to high energy costs, led to price
increases for both chlorine and caustic soda effective on April 1, 2003. These
increases yielded a three-year record high ECU netback in the second quarter of
2003. No further price increases were implemented in 2003 and the average ECU
netback declined in the third quarter, and further eroded in the fourth quarter,
as caustic soda prices declined because of soft

4

demand and seasonal plant shutdowns and curtailed production at some of our
major customers. Quarterly average ECU netbacks for 2003, 2002 and 2001 were as
follows:

Caustic soda prices have continued to decline in the first quarter of 2004,
but the chlorine markets are firming and a $75 per ton price increase for
chorine was announced in February 2004. The increase was implemented immediately
or as soon as contract terms permit, although individual contract terms will in
some cases limit or prohibit the imposition of the increase.

PRODUCTION

ECU production volumes at our chlor-alkali facilities and at all
chlor-alkali industry production facilities in the U.S. and Canada for 2003,
2002 and 2001 were as follows:

- ---------------

(1) Excludes production volumes and capacities at our Tacoma facility. The
facility's capacity was reduced by 50% in March 2001, and the facility was
idled in March 2002. In 2002 and 2001 the facility's production volumes were
15,000 ECUs and 103,000 ECUs, respectively.

(2) Source: Chemical Market Associates, Inc.

We also purchased 140,000 tons, 104,000 tons, and 59,000 tons of caustic
soda for resale in 2003, 2002, 2001, respectively.

Production rates for chlorine and caustic soda are generally set based upon
demand for chlorine, because storage capacity for chlorine is both limited and
expensive. When demand for chlorine is high and operational capacity is expanded
accordingly, an increase in the supply of both chlorine and caustic soda occurs
since chlorine and caustic soda are produced in a fixed ratio. As a result, the
price of caustic soda is often depressed as there is insufficient demand for the
increased supply. This imbalance may have the short-term effect of limiting our
operating profits because improving margins in chlorine may be offset by
declining margins in caustic soda. When demand for chlorine declines to a level
below plant operational capacity and available storage is filled, production
must be curtailed, even if demand for caustic soda has increased. This imbalance
may also have the short-term effect of limiting our operating profits because
improving margins for caustic soda may be offset by both declining margins in
chlorine and the reduced production of both products. Our railcars can, under
certain circumstances, be used to provide additional storage capacity.

DISTRIBUTION

The chlorine that we produce is transported to our customers in railcars,
and for customers near our plant in St. Gabriel, Louisiana, by pipelines. We
ship caustic soda by railcars, trucks, ships or barges, and we ship our other
products by railcars or trucks. We lease a fleet of approximately 2,100
railcars, and use third-party transportation operators for truck and water-borne
distribution. We are increasing our ability to maintain inventory at leased
terminal space, and we now store inventory at three terminal locations for
truck-load shipments to customers. Another fifteen locations are used for the
direct transfer of product from railcars to trucks for distribution.

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TECHNOLOGY

We utilize three different technologies in the production of chlor-alkali
products through the electrolysis of brine: diaphragm cell technology, mercury
cell technology and membrane cell technology. Diaphragm cell technology, which
is used for approximately 60% of our production capacity, employs a coated
titanium anode, a steel cathode and an asbestos or asbestos/polymer separator.
While diaphragm cell technology consumes less power, it produces caustic soda
with a relatively higher salt content that requires evaporation with steam to
reach a commercial concentration. Mercury cell technology, which is used in
approximately 31% of our production capacity, employs a coated titanium anode
and flowing mercury as a cathode. Mercury cell technology produces higher-purity
caustic soda that does not require evaporation, but it consumes relatively more
power and the mercury requires heightened handling and disposal practices.
Membrane cell technology, which is used in approximately 9% of our production
capacity and is generally the most efficient technology, employs a coated
titanium anode, a nickel cathode and a fluorocarbon membrane separator. As
membrane cell technology produces higher-purity caustic soda than diaphragm cell
technology, and it requires lower power consumption and lower steam consumption,
most new chlor-alkali plants use that technology. See Item 2
"Properties -- Facilities" below for information regarding the use of these
technologies by our chlor-alkali production facilities.

ENVIRONMENTAL REGULATION

U.S. REQUIREMENTS

General. Various federal, state and local laws and regulations governing
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, affect our operations and costs. In particular,
our activities in connection with the production of chlor-alkali and
chlor-alkali related products are subject to stringent environmental regulation.
As with the industry generally, compliance with existing and anticipated
regulations affects our overall cost of business. Areas affected include capital
costs to construct, maintain and upgrade equipment and facilities. Anticipated
and existing regulations affect our capital expenditures and earnings, and they
may affect our competitive position to the extent that regulatory requirements
with respect to a particular production technology may give rise to costs that
our competitors might not bear. Environmental regulations have historically been
subject to frequent change by regulatory authorities, and we are unable to
predict the ongoing cost to us of complying with these laws and regulations or
the future impact of such regulations on our operations. Violation of federal or
state environmental laws, regulations and permits can result in the imposition
of significant civil and criminal penalties, injunctions and construction bans
or delays. A discharge of chlorine or other hazardous substances into the
environment could, to the extent such event is not insured, subject us to
substantial expense, including both the cost to comply with applicable
regulations and claims by neighboring landowners and other third parties for any
personal injury and property damage that might result.

Air Emissions. Our U.S. operations are subject to the Federal Clean Air
Act and comparable state and local statutes. We believe that our operations are
in substantial compliance with these statutes in all states in which we operate.

Amendments to the Federal Clean Air Act enacted in late 1990 require or
will require most industrial operations in the U.S. to incur capital
expenditures in order to meet air emission control standards developed by the
Environmental Protection Agency (the "EPA") and state environmental agencies.
Among the requirements that are applicable to us are those that require the EPA
to establish hazardous air pollutant emissions limitations and control
technology requirements for chlorine production facilities. In December 2003 the
EPA issued hazardous air pollutant emissions limitations for mercury-cell
chlor-alkali facilities, which apply to our St. Gabriel facility. The new
regulations provide a three-year period during which we must implement various
measures at the St. Gabriel facility, including installing additional emission
monitoring systems, adopting more stringent work practices and conduct more
frequent operating and maintenance checks and repairs, at a total estimated cost
of approximately $3.0 million. Of that amount, approximately $1.0 million has
been spent over the last two years in anticipation of the new requirements.
Environmental groups have challenged the new regulations, contending that the
EPA should reconsider its rules and adopt

6

new standards that bar the use of mercury for chlorine production. Moreover, one
national environmental group has requested that we voluntarily convert the St.
Gabriel facility to a non-mercury chlor-alkali process. See "-- Technology"
above.

Our plants manufacture or use chlorine, which is in gaseous form if
released into the air. Chlorine gas in relatively low concentrations can
irritate the eyes, nose and skin and in large quantities or high concentrations
can cause permanent injury or death. From 1999 to date, there have been minor
releases at our plants, none of which has had any known impact on human health
or the environment or resulted in any material claims against us. We maintain
systems to detect emissions of chlorine at our plants, and the St. Gabriel and
Henderson facilities are members of their local industrial emergency response
networks. We believe that our insurance coverage is adequate with respect to
costs that might be incurred in connection with any future release, although
there can be no assurance that we will not incur substantial expenditures that
are not covered by insurance if a major release occurs in the future.

Water. The Federal Water Pollution Control Act of 1972 ("FWPCA") imposes
restrictions and strict controls regarding the discharge of pollutants into
navigable waters. Permits must be obtained to discharge pollutants into state
and federal waters. The FWPCA imposes substantial potential liability for the
costs of removal, remediation and damages. We maintain wastewater discharge
permits for many of our facilities, where required, pursuant to the FWPCA and
comparable state laws. Where required, we have also applied for permits to
discharge stormwater under such laws. We believe that compliance with existing
permits and compliance with foreseeable new permit requirements will not have a
material adverse effect on our financial condition or results of operations.

Some states maintain groundwater and surface water protection programs that
require permits for discharges or operations that may impact groundwater or
surface water conditions. The requirements of these laws vary and are generally
implemented through a state regulatory agency. These water protection programs
typically require site discharge permits, spill notification and prevention and
corrective action plans. We plan to spend approximately $3.0 million during the
next two years on improvements at our Henderson facility to discontinue the use
of two chlor-alkali wastewater disposal ponds and replace them with systems to
recycle wastewater.

Solid Waste. We generate non-hazardous solid wastes that are subject to
the requirements of the Federal Resource Conservation and Recovery Act ("RCRA")
and comparable state statutes. The EPA is considering the adoption of stricter
disposal standards for non-hazardous wastes. RCRA also governs the disposal of
hazardous wastes. We are not currently required to comply with a substantial
portion of RCRA's requirements because many of our operations do not generate
quantities of hazardous wastes that exceed the threshold levels established
under RCRA. However, it is possible that additional wastes, which could include
wastes currently generated during operations, will in the future be designated
as "hazardous wastes." Hazardous wastes are subject to more rigorous and costly
disposal requirements than are non-hazardous wastes. Such changes in the
regulations could result in additional capital expenditures and operating
expenses.

The EPA has adopted regulations banning the land disposal of certain
hazardous wastes unless the wastes meet defined treatment or disposal standards.
Our disposal costs could increase substantially if our present disposal sites
become unavailable due to capacity or regulatory restrictions. We presently
believe, however, that our current disposal arrangements will allow us to
continue to dispose of land-banned wastes with no material adverse effect on us.

Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), also known as "Superfund," imposes
liability, without regard to fault or the legality of the original act, on
specified classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the site and companies that disposed or arranged for the disposal of the
hazardous substances found at the site. CERCLA also authorizes the EPA and, in
some instances, third parties to act in response to threats to the public health
or the environment and to seek to recover from the responsible classes of
persons the costs they incur. In the course of our ordinary operations, we may
generate waste that falls within CERCLA's definition of a "hazardous substance."
We may be jointly

7

and severally liable under CERCLA for all or part of the costs required to clean
up sites at which such hazardous substances have been disposed of or released
into the environment.

We currently own or lease, and have in the past owned or leased, properties
at which hazardous substances have been or are being handled. Although we have
utilized operating and disposal practices that were standard in the industry at
the time, hazardous substances may have been disposed of or released on or under
the properties owned or leased by us or on or under other locations where these
wastes have been taken for disposal. In addition, many of these properties have
been operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes were not under our control. These properties and
wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws.
Under such laws we could be required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
to clean up contaminated property (including contaminated groundwater) or to
perform remedial plugging operations to prevent future contamination. However,
no investigations or remedial activities are currently being conducted under
CERCLA by third parties at any of our facilities, with the exception of the
chlor-alkali facility that we previously operated in Tacoma, where the
activities are covered by an indemnity from the previous owner. See
"-- Indemnities -- OxyChem Indemnity" below. Investigations and remedial
activities are being carried out at certain facilities under the other statutory
authorities discussed above.

Environmental Remediation. Contamination resulting from spills of
hazardous substances is not unusual within the chemical manufacturing industry.
Historic spills and past operating practices have resulted in soil and
groundwater contamination at several of our facilities and at certain sites
where operations have been discontinued. We are currently addressing soil and/or
groundwater contamination at several sites through assessment, monitoring and
remediation programs with oversight by government agencies. In some cases we are
conducting this work under administrative orders.

In order to reassess our environmental obligations and to update an
independent environmental analysis conducted in 2000, we commissioned a new
study of environmental concerns at all of our plants during 2003. The study was
based on scenario analysis to estimate the cost to remedy environmental concerns
at our plant sites. For each scenario, the study also used cost estimating
techniques that included actual historical costs, estimates prepared for us by
consultants, estimates prepared by our engineers and other published cost data
available for similar projects completed at the same or other sites.

The 2003 study identified a number of conditions that have changed since
the 2000 environmental analysis, including, but not limited to, flexibility in
regulatory agency guidance, increased knowledge of site conditions, the use of
alternative remediation technologies, post-acquisition contamination not covered
under existing environmental indemnity agreements and the inherent risk of
disputes under some of the indemnity agreements due to passage of time. Based on
the study, we estimated our total environmental remediation liabilities to be
$21.0 million, of which $3.2 million is subject to indemnity claims against a
previous owner, as discussed below. As a result, we recorded an environmental
charge of $9.5 million in the first quarter of 2003, and as of December 31,
2003, our total estimated environmental liabilities were $20.5 million. We base
our environmental reserves on undiscounted costs. We believe that adequate
accruals have been established to address all known remedial obligations,
although there can be no guarantee that the actual remedial costs or associated
liabilities will not exceed accrued amounts. At some of our locations,
regulatory agencies are considering whether additional actions are necessary to
protect or remediate surface or groundwater resources. We could be required to
incur additional costs to construct and operate remediation systems in the
future.

OSHA. We are also subject to the requirements of the Federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes that regulate the
protection of the health and safety of workers. In addition, the OSHA hazard
communication standard requires that certain information be maintained about
hazardous materials used or produced in operations and that this information be
provided to employees, state and local government authorities and citizens. We
believe that our operations are in substantial compliance with OSHA
requirements, including general industry standards, record-keeping requirements
and monitoring of occupational exposure to regulated substances.

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CANADIAN REQUIREMENTS

General. Our Canadian facilities are governed by federal environmental
laws administered by Environment Canada and by provincial environmental laws
enforced by administrative agencies. Many of these laws are comparable to the
U.S. laws described above. In particular, the Canadian environmental laws
generally provide for control or prohibition of pollution, for the issuance of
certificates of authority or certificates of authorization, which permit the
operation of regulated facilities and prescribe limits on the discharge of
pollutants, and for penalties for the failure to comply with applicable laws.
These laws include the substantive areas of air pollution, water pollution,
solid and hazardous waste generation and disposal, toxic substances, petroleum
storage tanks, protection of surface and subsurface waters, and protection of
other natural resources. However, there is no Canadian law similar to CERCLA
that would make a company liable for legal off-site disposal.

The Canadian Environmental Protection Act (the "CEPA") is the primary
federal statute that governs environmental matters throughout the provinces. The
federal Fisheries Act is the principal federal water pollution control statute.
This law would apply in the event of a spill of caustic soda or another
deleterious substance that adversely impacts marine life in a waterway. The
Becancour, Dalhousie and Cornwall facilities are all adjacent to major waterways
and are therefore subject to the requirements of this statute. The Chlor-Alkali
Mercury Release Regulations and the Chlor-Alkali Mercury Liquid Effluent
Regulations, adopted under the CEPA, regulate the operation of the Dalhousie
facility. In particular, these regulations provide for the quantity of mercury a
chlor-alkali plant may release into the ambient air and the quantity of mercury
that may be released with liquid effluent. We believe we have operated and are
currently operating in compliance with these statutes. Canadian regulatory
authorities have identified mercury contamination in the waterway adjacent to
the Dalhousie facility, but we believe that any liability for the contamination
would be subject to one of the indemnities discussed below.

The primary provincial environmental laws include the Environmental
Protection Act in the province of Ontario, the Quebec Environment Quality Act in
Quebec and the Clean Environment Act in New Brunswick. In general, each of these
acts regulates the discharge of a contaminant into the natural environment if
such discharge causes or is likely to cause an adverse effect.

INDEMNITIES

ZENECA Indemnity. Our Henderson facility is located within what is known
as the "Black Mountain Industrial Park." Soil and groundwater contamination have
been identified within and adjoining the Black Mountain Industrial Park,
including land owned by us. A groundwater treatment system has been installed at
the facility and, pursuant to a consent agreement with the Nevada Division of
Environmental Protection, studies are being conducted to further evaluate soil
and groundwater contamination at the facility and other properties within the
Black Mountain Industrial Park and to determine whether additional remediation
will be necessary with respect to our property.

In connection with our 1988 acquisition of the St. Gabriel and Henderson
facilities, the sellers agreed to indemnify us with respect to, among other
things, certain environmental liabilities associated with historical operations
at the Henderson site. ZENECA Delaware Holdings, Inc. and ZENECA, Inc.
(collectively, the "ZENECA Companies") have assumed the indemnity obligations
that benefit us. In general, we are indemnified against environmental costs that
arise from or relate to pre-closing actions that involved disposal, discharge or
release of materials resulting from the former agricultural chemical and other
non-chlor-alkali manufacturing operations at the Henderson facility. The ZENECA
Companies are also responsible for costs arising out of the pre-closing actions
at the Black Mountain Industrial Park. Under the ZENECA Indemnity, we may only
recover indemnified amounts for environmental work to the extent that such work
is required to comply with environmental laws or is reasonably required to
prevent an interruption in the production of chlor-alkali products. We are
responsible for environmental costs relating to the chlor-alkali manufacturing
operations at the Henderson facility, both pre- and post-acquisition, for
certain actions taken without the ZENECA Companies' consent and for certain
operation and maintenance costs of the groundwater treatment system at the
facility.

9

Payments for environmental liabilities under the ZENECA Indemnity, together
with other non-environmental liabilities for which the ZENECA Companies agreed
to indemnify us, are limited to approximately $65 million. To date we have been
reimbursed for approximately $12 million of costs covered by the ZENECA
Indemnity, but the ZENECA Companies may have directly incurred additional costs
that would further reduce the total amount remaining under the ZENECA Indemnity.
We have recorded an environmental reserve related to pre-closing actions at
sites that are the responsibility of the ZENECA Companies, as well as a
receivable from the ZENECA Companies for the same amount. It is our policy to
record such amounts when a liability can be reasonably estimated. The timing of
future cash flows for environmental work is uncertain, such that those cash
flows do not qualify for discounting under generally accepted accounting
principles. As a result, the environmental liabilities and related receivables
are recorded at their undiscounted amounts of $3.2 million at December 31, 2003.

The ZENECA Indemnity continues to cover claims after the April 20, 1999,
expiration of the term of the indemnity to the extent that, prior to the
expiration of the indemnity, proper notice to the ZENECA Companies was given and
either the ZENECA Companies have assumed control of such claims or we were
contesting the legal requirements that gave rise to such claims, or had
commenced removal, remedial or maintenance work with respect to such claims, or
commenced an investigation which resulted in the commencement of such work
within ninety days. Our management believes proper notice was provided to the
ZENECA Companies with respect to outstanding claims under the ZENECA Indemnity,
but the amount of such claims has not yet been determined given the ongoing
nature of the environmental work at Henderson. We believe that the ZENECA
Companies will continue to honor their obligations under the ZENECA Indemnity
for claims properly presented by us. It is possible, however, that disputes
could arise between the parties concerning the effect of contractual language
and that we would have to subject our claims for cleanup expenses, which could
be substantial, to the contractually-established arbitration process.

OxyChem Indemnity. We acquired the chlor-alkali facility that we
previously operated in Tacoma from a subsidiary of OxyChem in June 1997. In
connection with the acquisition, we received an indemnification with respect to
certain environmental matters. In general, OxyChem will indemnify us against
damages incurred for remediation of certain environmental conditions, for
certain environmental violations caused by pre-closing operations at the site
and for certain common law claims. The conditions subject to the indemnity are
sites at which hazardous materials have been released prior to closing as a
result of pre-closing operations at the site. In addition, OxyChem has agreed to
indemnify us for certain costs relating to releases of hazardous materials from
pre-closing operations at the site into the Hylebos Waterway, site groundwater
containing certain volatile organic compounds that must be remediated under an
RCRA permit, and historical disposal areas on the embankment adjacent to the
site for maximum periods of 24 or 30 years from the June 1997 acquisition date,
depending upon the particular condition, after which we will have full
responsibility for any remaining liabilities with respect to such conditions.
OxyChem may obtain an early expiration date for certain conditions by obtaining
a discharge of liability or an approval letter from a governmental authority. At
this time we cannot determine if on-going and anticipated remediation work will
be completed prior to the expiration of the indemnity or if additional remedial
requirements will be imposed thereafter.

OxyChem will also indemnify us against certain other environmental
conditions and environmental violations caused by pre-closing operations that
are identified after the closing. Environmental conditions that were the subject
of an administrative or court order before June 2007 will be covered by the
indemnity up to certain dollar amounts and time limits. We have agreed to
indemnify OxyChem for environmental conditions and environmental violations
identified after the closing if (i) an order or agency action is not imposed
within the relevant time frames or (ii) applicable expiration dates or dollar
limits are reached. As of December 31, 2003, no orders or agency actions had
been imposed.

The EPA has advised OxyChem and us that we have been named as a
"potentially responsible party" in connection with the remediation of the
Hylebos Waterway in Tacoma, by virtue of our current ownership of the Tacoma
site. The state Department of Ecology notified OxyChem and us of its concern
regarding high pH groundwater in the Hylebos Waterway embankment area and has
requested additional studies. OxyChem has acknowledged its obligation to
indemnify us against liability with respect to the remediation activities,
subject to the limitations included in the indemnity agreement. We have reviewed
the timeframes currently estimated

10

for remediation of the known environmental conditions associated with the plant
and adjacent areas, including the Hylebos Waterway, and we presently believe
that we will have no material liability upon the termination of OxyChem's
indemnity. However, the indemnity is subject to limitations as to dollar amount
and duration, as well as certain other conditions, and there can be no assurance
that the indemnity will be adequate to protect us, that remediation will proceed
on the present schedule, that it will involve the presently anticipated remedial
methods, or that unanticipated conditions will not be identified. If these or
other changes occur, we could incur a material liability for which we are not
insured or indemnified.

PCI Canada Acquisition Indemnity. In connection with our acquisition of
the assets of PCI Canada in 1997, Imperial Chemical Industrials PLC ("ICI") and
certain of its affiliates (together the "ICI Indemnitors") agreed to indemnify
us for certain liabilities associated with environmental matters arising from
pre-closing operations of the Canadian facilities. In particular, the ICI
Indemnitors have agreed to retain unlimited responsibility for environmental
liabilities associated with the leased Cornwall site, liabilities arising out of
the discharge of contaminants into rivers and marine sediments and liabilities
arising out of off-site disposal sites. The ICI Indemnitors are also subject to
a general environmental indemnity for other pre-closing environmental matters.
This general indemnity will terminate on October 31, 2007, and is subject to a
limit of $25 million (Cdn). We may not recover under the environmental indemnity
until we have incurred cumulative costs of $1 million (Cdn), at which point we
may recover costs in excess of $1 million (Cdn). As of December 31, 2002, we had
incurred no cumulative costs towards the $25 million (Cdn) indemnity.

With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors
are responsible under the general environmental indemnity for a portion of the
costs incurred in any year during the period ending on October 31, 2007, subject
in any event to the $1 million (Cdn) threshold mentioned above. The ICI
Indemnitors will be responsible for 64% of any liabilities incurred during the
twelve months ending October 31, 2004, and the percentage of any costs that will
be the responsibility of the ICI Indemnitors declines by 16% each year
thereafter. After October 31, 2007, we will be responsible for all environmental
liabilities at such facilities (other than liabilities arising out of the
discharge of contaminants into rivers and marine sediments and liabilities
arising out of off-site disposal sites). We have agreed to indemnify ICI for
environmental liabilities arising out of post-closing operations and for
liabilities arising out of pre-closing operations for which we are not
indemnified by the ICI Indemnitors.

In March 2003 we initiated arbitration proceedings to resolve a dispute
with ICI regarding the applicability of certain of ICI's covenants with respect
to approximately $1.3 million of equipment modification costs, most of which
were capital expenditures that we made to achieve compliance with air emissions
standards at the Becancour facility. Those proceedings are still pending. We
believe that the indemnity provided by ICI will be adequate to address the known
environmental liabilities at the acquired facilities, and that residual
liabilities, if any, incurred by us will not be material.

RISKS

OUR OPERATING RESULTS COULD BE NEGATIVELY AFFECTED DURING ECONOMIC DOWNTURNS.

The businesses of most of our customers are, to varying degrees, cyclical
and have historically experienced periodic downturns. These economic and
industry downturns have been characterized by diminished product demand, excess
manufacturing capacity and, in most cases, lower average selling prices.
Therefore, any significant downturn in our customers' markets or in global
economic conditions could result in a reduction in demand for our products and
could adversely affect our results of operations and financial condition. As a
result of the depressed economic conditions beginning in the fourth quarter of
2000 and continuing throughout 2001 and into 2002, our vinyls, urethanes and
pulp and paper customers had lower demand for our chlor-alkali products,
although demand from the vinyl and urethane industries increased during the
latter half of 2002. There was strong demand for chlorine in the first quarter
of 2003, principally from the vinyls sector, but later in the year caustic soda
demand weakened, and it has continued to weaken in the first quarter of 2004.
Domestic economic conditions are still uncertain and could materially adversely
affect demand for our products in 2004 or thereafter.

11

Although we sell only a small percentage of our products directly to
customers abroad, a large part of our financial performance is dependent upon
economies beyond the United States and Canada. Our customers sell a portion of
their products abroad and we import caustic soda from overseas for sales to
domestic customers. As a result, our business is affected by general economic
conditions and other factors beyond the United States and Canada, including
fluctuations in interest rates, market demand, labor costs and other factors
beyond our control. The demand for our customers' products, and therefore, our
products, as well as the domestic supply of caustic soda, is directly affected
by such fluctuations. There can be no assurance that events having a material
adverse effect on the industry in which we operate will not occur or continue.

OUR PROFITABILITY COULD BE REDUCED BY DECLINES IN AVERAGE SELLING PRICES.

Our historical operating results reflect the cyclical nature of the
chemical industry. We experience cycles of fluctuating supply and demand in our
chlor-alkali products business, which result in changes in selling prices.
Periods of high demand, tight supply and increasing operating margins tend to
result in increased capacity and production until supply exceeds demand,
generally followed by periods of oversupply and declining prices. As the U.S.
and world economies deteriorated in 2001 and early 2002, the chlor-alkali
industry experienced a period of oversupply because of lower industry demand for
both chlorine and caustic soda. That in turn led to a reduction in industry
capacity, including the termination of production at our own Tacoma chlor-alkali
facility. Beginning in mid-2002, a combination of higher demand and reduced
industry capacity resulted in an increase in ECU prices. Demand for both
chlorine and caustic soda was strong in the first quarter of 2003. Strong demand
for chlorine in the first quarter of 2003, principally from the vinyls sector,
coupled with lower industry profitability due to high energy costs, led to price
increases for both chlorine and caustic soda effective on April 1, 2003. These
increases yielded a three-year record high ECU netback in the second quarter of
2003. No further price increases were implemented in 2003 and the average ECU
netback declined in the third quarter, and further eroded to $366 in the fourth
quarter, as caustic soda prices declined because of soft demand and seasonal
plant shutdowns and curtailed production at some of our major customers.

When demand for chlorine is high and operational capacity is expanded
accordingly, an increase in the supply of both chlorine and caustic soda occurs
since chlorine and caustic soda are produced in a fixed ratio. In that event the
price of caustic soda may be depressed if there is insufficient demand for the
increased supply. This imbalance may have the short-term effect of limiting our
operating profits as improving margins in chlorine may be offset by declining
margins in caustic soda. When demand for chlorine declines to a level below
plant operational capacity and available storage is filled, production
operations must be curtailed, even if demand for caustic soda has increased.
This imbalance may also have the short-term effect of limiting our operating
profits as improving margins in caustic soda may be offset by both declining
margins in chlorine and the reduced production of both products. When
substantial imbalances occur, we will often be forced to reduce prices or take
actions that could have a material adverse effect on our results of operations
and financial condition.

Most of our customers consider price one of the most significant factors
when choosing among the various suppliers of chlor-alkali products. We have
limited ability to influence prices in this large commodity market. Decreases in
the average selling prices of our products could have a material adverse effect
on our profitability. While we strive to maintain or increase our profitability
by reducing costs through improving production efficiency, emphasizing higher
margin products, and controlling selling and administration expenses, we cannot
provide any assurance that these efforts will be sufficient to offset fully the
effect of declining ECU prices on operating results.

Because of the cyclical nature of our business, we cannot provide any
assurance that pricing or profitability in the future will be comparable to any
particular historical period. We cannot provide any assurance that the
chlor-alkali industry will not experience adverse trends in the future, or that
our operating results or financial condition will not be materially adversely
affected by them.

12

HIGHER ENERGY PRICES CAN IMPAIR OUR ABILITY TO PRODUCE CHLOR-ALKALI PRODUCTS
ECONOMICALLY AND ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.

Energy costs comprise the largest component of the raw material costs
associated with producing chlor-alkali products. As a result, and because we
have limited ability to influence pricing, increases in the cost of energy can
materially adversely affect our results of operations and may cause our
production of chlor-alkali products to become uneconomical. Increases in natural
gas prices increase our cost of operations at our facilities that procure their
power from sources that rely on natural gas to generate power. As a result of
the settlement of our dispute with the Colorado River Commission of Nevada,
which we refer to as CRC, the power requirements of our Henderson facility are
now primarily based on market rates (rather than the below-market rates under
the contracts that were assigned to the Southern Nevada Water Authority pursuant
to our settlement with CRC) and supplied from sources that rely on natural gas
to generate power, rather than hydropower. Natural gas-based power has generally
been more costly than hydropower and has experienced greater price volatility
than hydropower. The current contract with CRC terminates in 2006 and in the
absence of an extension of the term it will be necessary to seek an alternative
arrangement for the purchase of power for our Henderson facility. Any such
arrangement might involve greater costs.

To the extent our competitors are able to secure less expensive power than
we are due to their geographic location or otherwise, we will be unable to
compete economically with them. We are unable to predict the future impact that
energy prices may have on the results of our operations. See "-- Marketing,
Pricing, Production and Distribution" above.

THE RESTRICTIVE TERMS OF OUR INDEBTEDNESS MAY LIMIT OUR ABILITY TO GROW AND
COMPETE.

Our operating flexibility is limited by covenants contained in our debt
instruments, including our Senior Notes and Revolver, that limit our ability to
incur additional indebtedness, prepay or modify debt instruments, create
additional liens upon assets, guarantee any obligations, sell assets and make
dividend payments. The covenants contained in our debt instruments could limit
our ability to grow and compete.

Our Revolver requires us to generate a specified amount of Lender-Defined
EBITDA. We cannot provide any assurance that we will generate the necessary
level of Lender-Defined EBITDA, and our failure to do so would constitute a
default under the Revolver, unless the lender agrees to waive the default. A
default, if not waived, would have a material adverse effect on our business,
financial condition and results of operations. Before the recent amendment to
the definition of Lender-Defined EBITDA in our Revolver, we were required to
seek a waiver from the lender in several of the preceding calendar quarters. A
default under our Revolver, which would also constitute a default under our
Senior Notes, would give the lender under the Revolver and the holders of the
Senior Notes the right to accelerate all indebtedness outstanding thereunder.
This would cause us to suffer a rapid loss of liquidity and we would lose the
ability to operate on a day-to-day basis. In addition, the lender under our
Revolver may refuse to make further advances if a material adverse change in our
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) has occurred. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," in Part II of this report.

Our Senior Secured Floating Rate Guaranteed Notes due 2006 in the aggregate
principal amount of $43.2 million (the "Senior Guaranteed Notes") and Floating
Rate Term Notes due 2006 in the aggregate principal amount of $4.4 million (the
"Senior Floating Notes") provide that, within 60 days after each calendar
quarter through 2006, Pioneer Americas is required to redeem and prepay the
greater of (a) an amount determined on the basis of Pioneer Americas' net income
before extraordinary items, net other income, interest, income taxes,
depreciation and amortization ("Tranche A Notes EBITDA"), and (b) an amount
determined on the basis of the Company's excess cash flow and average liquidity,
as defined. With respect to Tranche A Notes EBITDA, the amount that is to be
redeemed and prepaid is (i) $2.5 million of Senior Guaranteed Notes and Senior
Floating Notes (collectively, the "Tranche A Notes") if Tranche A Notes EBITDA
for such calendar quarter is $20 million or more but less than $25 million, (ii)
$5 million of Tranche A Notes if Tranche A Notes EBITDA for such calendar
quarter is $25 million or more but less than $30 million and (iii) $7.5 million
of Tranche A Notes if Tranche A Notes EBITDA for such calendar quarter

13

is $30 million or more, in each case plus accrued and unpaid interest to the
redemption date. If the Company's excess cash flow for specified periods during
2003 through 2006, when multiplied by a percentage determined by reference to
its average liquidity, is greater than the applicable principal amount above,
then we must redeem the greater principal amount of Tranche A Notes. As a
consequence of these redemption requirements, we will not be able to apply any
significant amount of our income from operations to the expansion of our
business or otherwise until we have redeemed the Tranche A Notes. In addition,
we may be required to redeem some or all of the Tranche A Notes as a result of
non-cash transactions.

We cannot refinance the $150 million outstanding aggregate principal amount
of 10% Senior Secured Guaranteed Notes due 2008 (the "10% Senior Secured Notes")
before December 31, 2005. In order to refinance the indebtedness, we would be
required to pay a 5% redemption premium for any refinancing during 2006 and a
2.5% redemption premium for any refinancing during 2007.

OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. WE
MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH TO FULLY SERVICE OUR DEBT, WHICH
MAY REQUIRE US TO REFINANCE OUR INDEBTEDNESS ON LESS FAVORABLE TERMS OR
DEFAULT ON OUR SCHEDULED DEBT PAYMENTS.

Our ability to generate sufficient cash flow from operations to make
scheduled payments on our debt depends on a range of economic, competitive and
business factors, many of which are outside our control. We cannot provide any
assurance that our business will generate sufficient cash flow from operations
to make such scheduled payments. If we are unable to meet our expenses and debt
obligations, we may need to refinance all or a portion of our indebtedness, sell
assets or raise equity.

As of December 31, 2003, we had approximately $222.3 million of
indebtedness under various loan agreements, including the Revolver, which
expires in December 2006, the Tranche A Notes due in December 2006 and the 10%
Senior Secured Notes due in December 2008. As of February 29, 2004, our
borrowings under our $30 million Revolver were $15.9 million. To the extent that
we continue to need access to this amount of committed credit, it will be
necessary to extend or replace our Revolver on or before its expiration in 2006.
We do not anticipate that the cash that we will generate from our operations
will be sufficient to repay the Revolver and the Tranche A Notes when they are
due in December 2006, or the 10% Senior Secured Notes when they are due in
December 2008. In such events, it would be necessary to refinance the
indebtedness, either through new borrowings or the sale of newly-issued shares
of preferred or common stock, or sell assets. The terms of any new borrowings
could impose significant additional burdens on our financial condition and
operating flexibility, and the issuance of new equity securities could dilute
the interests of our existing stockholders.

The success of our future financing efforts may depend on many factors,
including but not limited to:

- general economic and capital market conditions;

- credit availability from banks and other financial institutions;

- investor confidence in us and the market in which we operate;

- market expectations regarding our future earnings and probable cash
flows;

- market perceptions of our ability to access capital markets on reasonable
terms; and

- provisions of relevant tax and securities laws.

We cannot provide any assurance that we would be able to refinance any of
our indebtedness, raise equity on commercially reasonable terms or at all, or
sell assets, and such inability could cause us to default on our obligations and
impair our liquidity. Our inability to generate sufficient cash flow to satisfy
our debt obligations, or to refinance our obligations on commercially reasonable
terms, would have a material adverse effect on our business, financial condition
and results of operations. Under those circumstances, we would have to take
appropriate action including refinancing, restructuring or reorganizing all or a
portion of our indebtedness, deferring payments on our debt, selling assets,
obtaining additional debt or equity financing or

14

taking other actions, including seeking protection under Chapter 11 of the U.S.
Bankruptcy Code and under Canada's Companies Creditors' Arrangement Act.

See "-- Recent Developments" above and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Part II of this report.

WE FACE INDUSTRY CREDIT RISKS FROM CONCENTRATION OF CUSTOMER BASE.

In 2003 approximately 27% of our revenues was generated by sales of
products for use in the pulp and paper industry. Poor economic conditions
affecting the pulp and paper industry could adversely affect our customers in
that industry and could therefore affect the collectibility of amounts due and
reduce future demand for our products from such customers. As a result, there
could be a material adverse effect on our financial condition, results of
operations or cash flows.

UNCERTAINTY REGARDING OUR FINANCIAL CONDITION MAY ADVERSELY IMPACT OUR
RELATIONSHIP WITH OUR TRADE CREDITORS AND OUR CUSTOMERS.

Due to prevailing market conditions and other business factors, the
uncertainty of our financial condition could cause our suppliers and customers
to do business with us only on terms that are more burdensome than those that
characterize our current relationship, or they may decide to curtail our current
business relationship with them. As a result, we could face liquidity issues
that could adversely affect our financial condition and results of operations.
There can be no assurances with respect to any actions that our trade creditors,
competitors or customers might take in this regard.

WE FACE COMPETITION FROM OTHER CHEMICAL COMPANIES, WHICH COULD ADVERSELY
AFFECT OUR REVENUES AND FINANCIAL CONDITION.

The chlor-alkali industry in which we operate is highly competitive. We
encounter competition in price, delivery, service, performance, and product
recognition and quality, depending on the product involved. Many of our
competitors are significantly larger, have greater financial resources and have
less debt than we do. Among our competitors are two of the world's largest
chemical companies, Dow and OxyChem. Because of their greater financial
resources, these companies may be better able to withstand severe price
competition and volatile market conditions. If we do not compete successfully,
our business, financial condition and results of operations could be materially
adversely affected. See "-- Overview" above.

WE HAVE ONGOING ENVIRONMENTAL COSTS, WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION.

The nature of our operations and products, including the raw materials we
handle, exposes us to a risk of liabilities or claims with respect to
environmental matters. We have incurred and will continue to incur significant
costs and capital expenditures in complying with these environmental laws and
regulations.

The ultimate costs and timing of environmental liabilities are difficult to
predict. Liability under environmental laws relating to contaminated sites can
be imposed retroactively and on a joint and several basis. One liable party
could be held responsible for all costs at a site, regardless of fault,
percentage of contribution to the site or the legality of the original disposal.
We could incur significant costs, including cleanup costs, natural resources
damages, civil or criminal fines and sanctions and third-party claims, as a
result of past or future violations of, or liabilities under, environmental
laws. In addition, future events, such as changes to or more rigorous
enforcement of environmental laws, could require us to make additional
expenditures, modify or curtail our operations or install pollution control
equipment. See "-- Environmental Regulation -- U.S." and "-- Environmental
Laws -- Canada" above and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," in Part II of this report.

We are entitled to be indemnified by various third parties for particular
environmental costs and liabilities associated with real property sold to us by
those third parties. We could incur significant costs upon the inadequacy of the
coverage limits or termination or expiration of one or more of these
indemnification

15

agreements, or if an indemnifying party is unable or unwilling to fulfill its
obligation to indemnify us. See "-- Indemnities" above.

OUR FACILITIES ARE SUBJECT TO OPERATING HAZARDS, WHICH MAY DISRUPT OUR
BUSINESS.

We are dependent upon the continued safe operation of our production
facilities. Our production facilities are subject to hazards associated with the
manufacture, handling, storage and transportation of chemical materials and
products, including leaks and ruptures, chemical spills or releases, pollution,
explosions, fires, inclement weather, natural disasters, unscheduled downtime
and environmental hazards. From time to time in the past, incidents have
occurred at our plants, including particularly hazardous chlorine releases, that
have temporarily shut down or otherwise disrupted our manufacturing, causing
production delays and resulting in liability for injuries, although no such
incident has occurred since 1995. We believe our operating and safety procedures
are consistent in all material respects with those established by the chemical
industry as well as those recommended or required by federal, state and local
governmental authorities. However, we cannot provide any assurance that we will
not experience these types of incidents in the future or that these incidents
will not result in production delays or otherwise have a material adverse effect
on our business, financial condition or results of operations.

We maintain general liability insurance and property and business
interruption insurance with coverage limits we believe are adequate. However,
because of the nature of industry hazards, we cannot provide any assurance that
liabilities for pollution and other damages arising from a major occurrence will
not exceed insurance coverage or policy limits or that adequate insurance will
be available at reasonable rates in the future.

THE PRODUCTION AND SHIPPING OF OUR PRODUCTS MAY BE DISRUPTED BY VARIOUS
EVENTS.

We ship a large portion of the hazardous chemicals that we produce by
railcar, and the rail transportation system in the United States and Canada is
subject to various hazards that are beyond our control, such as derailments,
weather-related delays or disruptions resulting from labor disputes. The U.S.
transportation system is currently the subject of intensified examination as a
result of the risk of terrorist activities, and procedures that may be adopted
to deal with that risk may make the distribution of our products more difficult
and expensive. The implementation of any such procedures could have a material
adverse effect on our business, financial condition or results of operations.

Since September 11, 2001, the chemical industry has responded to the issues
surrounding the terrorist attacks by starting new initiatives relating to the
security of chemical industry facilities. Chemical manufacturing facilities may
be at a greater risk of future terrorist attacks, as compared to other targets
in the United States. Additionally, federal, state and local governments have
begun a regulatory process that could lead to new regulations impacting the
security of chemical industry facilities. Our business or our customers'
businesses could be adversely affected due to the cost of complying with new
regulations.

WE ARE EXPOSED TO THE FINANCIAL EFFECTS OF CURRENCY TRANSLATION.

Due to the significance of the U.S. dollar-denominated long-term debt of
our Canadian subsidiary and certain other U.S. dollar-denominated assets and
liabilities, our functional accounting currency is the U.S. dollar. A portion of
our sales and expenditures are denominated in Canadian dollars, and accordingly,
our results of operations and cash flows are affected by fluctuations in the
exchange rate between the U.S. dollar and the Canadian dollar, since Canadian
dollar transactions must be translated into U.S. dollars for accounting
purposes. Our net income is affected by the remeasurement of Canadian
dollar-denominated account balances in U.S. dollars for financial reporting
purposes. Future changes in the relative value of the U.S. dollar against the
Canadian dollar will impact our financial condition and results of operations.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in Part II of this report.

16

AVAILABILITY OF OUR OPERATING LOSS CARRYFORWARD MAY BE LIMITED BY THE INTERNAL
REVENUE CODE.

We have net operating loss carryforwards ("NOLs") for income tax reporting
purposes, which may be available for offset against any future federal taxable
income generated during the carryforward period. As the result of our emergence
from bankruptcy and certain changes in the ownership of Pioneer, the utilization
of pre-emergence NOLs is subject to limitation under the Internal Revenue Code
and may be substantially restricted. In addition, while post-emergence NOLs are
not subject to limitation, the future realization of such NOLs depends on our
ability to generate sufficient taxable income within the carryforward periods.
The limitation on NOL utilization may adversely affect our after-tax cash flow
in future periods.

WE ARE DEPENDENT UPON A LIMITED NUMBER OF KEY SUPPLIERS.

The production of chlor-alkali products principally requires electricity,
salt and water as raw materials, and if the supply of such materials were
limited or a significant supplier failed to meet its obligations under our
current supply arrangements, we could be forced to incur increased costs which
could have a material adverse effect on our financial condition, results of
operations or cash flows.

EMPLOYEES

As of December 31, 2003, we had 648 employees, 295 of which are covered by
collective bargaining agreements. Seventy-nine of our employees at our
Henderson, Nevada facility are covered by collective bargaining agreements with
the United Steelworkers of America and with the International Association of
Machinists and Aerospace Workers that are in effect until March 2007. At our
Becancour facility, 135 employees are covered by collective bargaining
agreements with the Communication, Energy and Paperworkers Union that are in
effect until April 30, 2006, and 28 employees at our Cornwall facility are
represented by the United Steelworkers Union, with a collective bargaining
agreement that expires in October 2006. Forty-five of our employees at the
Dalhousie, New Brunswick plant are covered by a collective bargaining agreement
with the Communication, Energy and Paperworkers Union of Canada that is in
effect until May 2007. Eight employees at our Tacoma bleach facility are covered
by a collective bargaining agreement with the Teamsters Union that is in effect
until January 2006. Our employees at other production facilities are not covered
by union contracts or collective bargaining agreements. We consider our
relationship with our employees to be satisfactory, and we have not experienced
any strikes or work stoppages.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

For financial information about our geographic areas of operation, please
see the table in Note 11 of our consolidated financial statements, which
presents revenues attributable to each of our geographic areas for the years
ended December 31, 2003, 2002 and 2001 and assets attributable to each of our
geographic areas as of December 31, 2003 and 2002.

ACCESS TO FILINGS

Access to our annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K and amendments to those reports filed with or
furnished to the Securities and Exchange Commission pursuant to Section 13(a) of
the Exchange Act, as well as reports filed electronically pursuant to Section
16(a) of the Exchange Act, may be obtained through our website
(http://www.piona.com). These reports may be viewed and printed at no cost as
soon as reasonably practicable after we have electronically filed such material
with the Securities and Exchange Commission. The contents of our website are
not, and shall not be deemed to be, incorporated into this report.

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ITEM 2. PROPERTIES

FACILITIES

The following provides certain information with respect to our production
facilities and other locations:

Becancour, Quebec. The Becancour facility is located on a 100-acre site in
an industrial park on the deep-water St. Lawrence Seaway. The facility was
constructed in 1975, with additions in 1979 and 1997. Annual production capacity
is 340,000 tons of chlorine, 383,000 tons of caustic soda and 150,000 tons of
hydrochloric acid. In addition, the site has a bleach production facility
capable of producing 9,600 tons of bleach per year. Approximately 82% of the
Becancour facility's production is based on diaphragm cell technology, and more
efficient membrane cell technology accounts for the remaining approximately 18%
of production.

St. Gabriel, Louisiana. The St. Gabriel facility is located on a 100-acre
site near Baton Rouge, Louisiana. Approximately 228 acres adjoining the site are
available to us for future industrial development. The St. Gabriel facility was
completed in 1970 and is situated on the Mississippi River with river frontage
and deepwater docking, loading and unloading facilities. Annual production
capacity at the St. Gabriel facility is 197,000 tons of chlorine and 216,700
tons of caustic soda, using mercury cell technology.

Henderson, Nevada. The Henderson facility is located on a 374-acre site
near Las Vegas, Nevada. Approximately 70 acres are developed and used for
production facilities. The Henderson facility, which began operation in 1942 and
was upgraded and rebuilt in 1976-1977, uses diaphragm cell technology. Annual
production capacity at the Henderson facility is 152,000 tons of chlorine,
167,200 tons of caustic soda and 130,000 tons of hydrochloric acid. In addition,
the facility is capable of producing 180,000 tons of bleach per year. The
Henderson facility is part of an industrial complex shared with three other
manufacturing companies. Common facilities and property are owned and managed by
subsidiaries of Basic Management, Inc. ("BMI"), which provide common services to
the four site companies. BMI's facilities include extensive water and high
voltage power distribution systems and access roads.

Dalhousie, New Brunswick. The Dalhousie facility is located on a 36-acre
site along the north shore of New Brunswick on the Restigouche River. The
Dalhousie facility consists of a mercury cell chlor-alkali plant built in 1963
and expanded in 1971 and a sodium chlorate plant built in 1992. Annual
production capacity is 36,000 tons of chlorine, 40,000 tons of caustic soda and
22,000 tons of sodium chlorate.

Cornwall, Ontario. The Cornwall units are located on portions of a 36-acre
site on the St. Lawrence River in Cornwall, Ontario, which portions are leased
under a lease expiring in the year 2007, with two five-year renewal options. The
facilities consist of a bleach plant with an annual production capacity of
236,000 tons, a Cereclor(R) chlorinated paraffin plant capable of producing
9,800 tons per year, an IMPAQT(R) pulping additive plant capable of producing
3,000 tons per year and a hydrochloric acid plant with an annual production
capacity of 14,700 tons.

Tracy, California. The Tracy facility includes a bleach production plant
capable of producing 233,000 tons per year and a chlorine repackaging plant on a
15-acre tract. The land at the facility is leased under a lease expiring in the
year 2010, with two five-year renewal options.

Santa Fe Springs, California. The Santa Fe Springs facility includes a
bleach production plant capable of producing 180,000 tons per year and a
chlorine repackaging plant on a 4.5-acre tract. The land at the facility is
leased under a lease expiring in 2008.

Tacoma, Washington. The Tacoma bleach facility serves the Pacific
Northwest market. The bleach production facility, which has an annual production
capacity of 90,000 tons, and a chlorine repackaging facility are located on a
five-acre company-owned site in Tacoma, Washington. A separate site in Tacoma is
now used for the production of calcium chloride, with an annual capacity of
8,800 tons, and as a terminal facility. That 31-acre site on the Hylebos
Waterway, was previously used for the production of chlorine and caustic soda.

Other Facilities. Our corporate headquarters is located in leased office
space in Houston, Texas, under a lease terminating in 2006. We also lease office
space in Montreal, Quebec under a lease terminating in 2011.

18

In addition, we lease three terminal facilities to store and distribute caustic
soda and hydrochloric acid, and we lease an additional fifteen transfer
facilities where rail shipments are transloaded to trucks for local
distribution.

ITEM 3. LEGAL PROCEEDINGS

From time to time and currently, we are involved in litigation relating to
claims arising out of our operations in the normal course of our business. We
maintain insurance coverage against potential claims in amounts that we believe
to be adequate. During the course of our bankruptcy proceedings, Tacoma Power, a
municipally-owned utility, filed a claim in the amount of $2.1 million with
respect to amounts owed by us to Tacoma Power prior to the filing of the
bankruptcy petition. Tacoma Power had asserted that, as a result of a state
statutory provision, its claim gave rise to a lien against our Tacoma
chlor-alkali plant site, so that it was entitled to a cash payment of $2.1
million in full satisfaction of its claim in accordance with the provisions of
our plan of reorganization. The Bankruptcy Court ruled that Tacoma Power's claim
was not secured by a lien, such that Tacoma Power was entitled to the receipt of
a pro rata portion of the 300,000 shares of our common stock allocated by the
plan of reorganization to unsecured claims, rather than a cash payment. In 2003
the U.S. District Court for the Southern District of Texas upheld that decision.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of 2003 to a vote of
security holders.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and current offices of our executive officers, each of whom
is to serve until the officer's successor is elected or appointed and qualified
or until the officer's death, resignation or removal by the Board of Directors,
are set forth below.

Michael Y. McGovern has served as our President and Chief Executive Officer
since September 2002. He has been a director of Pioneer since December 31, 2001.
From April 2001 until January 2003, he was President and Chief Executive Officer
and a director of Coho Energy, Inc., a publicly-held oil and gas exploitation,
exploration and development company. In February 2002 Coho Energy, Inc. filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. From
1998 to March 2000, Mr. McGovern was Managing Director of Pembrook Capital
Corporation, a privately held company involved in providing advisory services to
distressed or constrained energy companies, and from July 1993 to October 1997,
he was Chairman and Chief Executive Officer of Edisto Resources Corporation and
Convest Energy Corporation, publicly-held oil and gas exploration and
development companies.

Ronald E. Ciora has served as our Vice President, Sales and Marketing since
February 2004. From August 2003 to February 2004, he was our Vice President,
Caustic Soda; from August 2001 to August 2003, he was our Vice President,
Western Regional Sales and Marketing; and from November 1999 to August 2001, he
was our Vice President, Bleach and Packaged Chlorine. From November 1995 to
December 1999, he served as President of All-Pure Chemical Co., Inc., a separate
Pioneer subsidiary engaged in the production and sale of bleach and repackaged
chlorine in the western U.S. before it was merged into Pioneer Americas LLC.

Gary L. Pittman has served as our Vice President and Chief Financial
Officer since December 2002. From April 2000, to September 2002, he was Vice
President and Chief Financial Officer of Coho Energy, Inc.

19

In February 2002 Coho Energy, Inc. filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. From August 1999 to March 2000, Mr.
Pittman was Chief Financial Officer of Bell Geospace, Inc., a privately-held
data-based oil service company. From 1998 to 1999, he served as a consultant to
Perception, Inc., a privately-held kayak manufacturer, and from 1995 to 1997, he
was Executive Vice President, Chief Financial Officer and Treasurer of Convest
Energy Corporation, a publicly-held oil and gas exploration and production
company.

David A. Scholes has served as our Vice President, Manufacturing since
March 2001. He was our Vice President, Manufacturing -- U.S. from November 1999
to March 2001, and Vice President -- Manufacturing of a predecessor of Pioneer
Americas from January 1997 to November 1999. Prior to that time, he was manager
of Occidental Chemical Corporation's Houston chemical complex. Mr. Scholes was
an executive officer of Pioneer in July 2001 when the petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code was filed.

Kent R. Stephenson has served as our Vice President, General Counsel and
Secretary since June 1995. He was Vice President, General Counsel and Secretary
of a predecessor of Pioneer Americas from 1993 to 1995. Mr. Stephenson was an
executive officer of Pioneer in July 2001 when the petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code was filed.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

We are including the following discussion to inform our existing and
potential security holders generally of some of the risks and uncertainties that
can affect our company and to take advantage of the "safe harbor" protection for
forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our company. These statements may include projections and estimates
concerning the timing and success of specific projects and our future prices,
liquidity, backlog, revenue, income, cash flows and capital spending.
Forward-looking statements are generally accompanied by words such as
"estimate," "project," "predict," "believe," "expect," "anticipate," "plan,"
"forecast," "budget," "goal" or other words that convey the uncertainty of
future events or outcomes. In addition, sometimes we will specifically describe
a statement as being a forward-looking statement and refer to this cautionary
statement. Any statement contained in this report, other than statements of
historical fact, is a forward-looking statement.

Various statements this report contains, including those that express a
belief, expectation or intention, as well as those that are not statements of
historical fact, are forward-looking statements. Those forward-looking
statements appear in Item 1, "Business," Item 2, "Properties," and Item 3,
"Legal Proceedings," in Part I of this report and in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," Item
7A, "Quantitative and Qualitative Disclosures About Market Risk," and in the
notes to the consolidated financial statements incorporated into Item 8 of Part
II of this report and elsewhere in this report. These forward-looking statements
speak only as of the date of this report, we disclaim any obligation to update
these statements, and we caution against any undue reliance on them. We have
based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and uncertainties
relate to, among other matters, the following:

- general economic, business and market conditions, including economic
instability or a downturn in the markets served by us;

- the cyclical nature of our product markets and operating results;

- competitive pressures affecting selling prices and volumes;

- the supply/demand balance for our products, including the impact of
excess industry capacity;

20

- the occurrence of unexpected manufacturing interruptions and outages,
including those occurring as a result of production hazards;

- failure to comply with financial covenants contained in our debt
instruments;

- inability to make scheduled payments on or refinance our indebtedness;

- loss of key customers or suppliers;

- higher than expected raw material and utility costs;

- disruption of transportation or higher than expected transportation or
logistics costs;

- environmental costs and other expenditures in excess of those projected;

- changes in laws and regulations inside or outside the United States;

- uncertainty with respect to interest rates and fluctuations in currency
exchange rates;

- the outcome of our operational efficiency project; and

- the occurrence of extraordinary events, such as the attacks on the World
Trade Center and the Pentagon that occurred on September 11, 2001, or the
war in Iraq.

We believe the items we have outlined above, as well as others, are
important factors that could cause our actual results to differ materially from
those expressed in a forward-looking statement made in this report or elsewhere
by us or on our behalf. We have discussed most of these factors in more detail
elsewhere in this report. These factors are not necessarily all of the important
factors that could affect us. Unpredictable or unknown factors that we have not
discussed in this report could also have material adverse effects on actual
results of matters that are the subject of our forward-looking statements. We do
not intend to update our description of important factors each time a potential
important factor arises. We advise our security holders that they should (i) be
aware that important factors we do not refer to above could affect the accuracy
of our forward-looking statements and (ii) use caution and common sense when
considering our forward-looking statements.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "PONR." As of March 24, 2004, we had 10,010,665 shares of common stock
outstanding and had 1,289 shareholders of record. The last sale of shares of our
common stock on March 24, 2004, as quoted on the OTC Bulletin Board, was at a
price of $6.20.

The following table contains information about the high and low sales
prices per share of our common stock since January 1, 2002. Price information
reflects quotes from the OTC Bulletin Board. Information about OTC bid
quotations represents prices between dealers, does not include retail mark-ups,
mark-downs or

21

commissions, and may not necessarily represent actual transactions. Quotations
on the OTC Bulletin Board are sporadic, and currently there is no established
public trading market for our common stock.

DIVIDEND POLICY

We currently do not anticipate paying dividends on our common stock. The
covenants in the agreements related to our Revolver, our Tranche A Notes and our
10% Senior Secured Notes (collectively, the "Senior Secured Debt") prohibit the
payment of dividends on our common stock, other than dividends payable solely in
our common stock, for so long as any Senior Secured Debt remains outstanding.
Unless we prepay amounts outstanding on our Senior Secured Debt, we will have
borrowings outstanding thereunder until December 31, 2008. Any determination to
declare or pay dividends out of funds legally available for that purpose after
repayment of our Senior Secured Debt will be at the discretion of our board of
directors and will depend on our future earnings, results of operations,
financial condition, capital requirements, future contractual restrictions and
other factors our board of directors deems relevant. No cash dividends have been
declared or paid during the three most recent fiscal years.

EQUITY COMPENSATION PLAN INFORMATION

The following table presents information regarding our 2001 Employee Stock
Option Plan as of December 31, 2003:

- ---------------

* The adoption of our 2001 Employee Stock Option Plan was included in our plan
of reorganization, as confirmed by the Bankruptcy Court after approval by our
creditors.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial information is derived from
our consolidated financial statements for periods both before and after emerging
from bankruptcy protection on December 31, 2001.

22

Certain amounts have been reclassified in prior years to conform to the current
year presentation. No cash dividends were declared or paid for the periods
presented below. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements, including the related notes.

The consolidated statements of operations information for the years ended
December 31, 2003 and 2002, and the consolidated balance sheet information at
December 31, 2003, 2002 and 2001, reflects the financial position and operating
results after the effect of the plan of reorganization and the application of
the principles of fresh-start accounting in accordance with the provisions of
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"). Accordingly, such financial information
is not comparable to the historical financial information before December 31,
2001.

- ---------------

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

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

(3) Asset impairment and other items for 2003 includes a $40.8 million
impairment of our Henderson facilities and a net loss of $0.8 million from
disposition of assets, offset by a gain of $0.4 million from early payment
of debt. Asset impairment and other charges for 2002 includes a $16.9
million impairment loss relating to our Tacoma chlor-alkali facility. Asset
impairments and other items in 2001 include $9.1 million of restructuring
expenses for severance and professional fees incurred prior to the Chapter
11 bankruptcy filings and a $3.8 million loss from an asset impairment. See
Note 12 to the consolidated financial statements.

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

(5) Reorganization items include legal and professional fees and expenses
incurred subsequent to the Chapter 11 bankruptcy filings and executive
retention bonuses, offset by gains from individually-negotiated settlements
of certain pre-petition liabilities. See Note 3 to the consolidated
financial statements.

(6) For information regarding fresh-start adjustments, see Note 3 to the
consolidated financial statements.

(7) Debt forgiveness income of $423.1 million was recorded in 2001 as a result
of the cancellation of debt pursuant to the plan of reorganization. See
Note 3 to the consolidated financial statements.

(8) Other income in 1999 includes a $12.0 million gain on the sale of our 15%
partnership interest in Saguaro Power Company.

(9) Income tax expense in 2000 includes a valuation allowance of $67.8 million
reducing U.S. deferred tax assets to zero. See Note 14 to the consolidated
financial statements.

(10) Because we were in default under various loan agreements on December 31,
2000, $597.7 million of debt outstanding under various agreements is
classified as a current liability on our consolidated balance sheet.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

All statements in this report, other than statements of historical facts,
including, without limitation, statements regarding our business strategy, plans
for future operations and industry conditions, are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to various
risks, uncertainties and assumptions, including those we refer to under the
heading "Cautionary Statement Concerning Forward-Looking Statements" in Part I
of this report. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, because of the inherent limitations
in the forecasting process, as well as the relatively volatile nature of the
industries in which we operate, we can give no assurance that those expectations
will prove to have been correct. Accordingly, evaluation of our future prospects
must be made with caution when relying on forward-looking information.

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OVERVIEW

Pioneer Companies, Inc. and its subsidiaries have manufactured and marketed
chlorine, caustic soda and related products in North America since 1988. We
conduct our primary business through our operating subsidiaries: PCI Chemicals
Canada Company (which we refer to as PCI Canada) and Pioneer Americas LLC (which
we refer to as Pioneer Americas).

The production of chlor-alkali products principally requires salt,
electricity and water as raw materials. Production rates for chlorine and
caustic soda are generally set based upon demand for chlorine, because storage
capacity for chlorine is both limited and expensive. When demand for chlorine is
high and operational capacity is expanded accordingly, an increase in the supply
of both chlorine and caustic soda occurs since chlorine and caustic soda are
produced in a fixed ratio. As a result, the price of caustic soda is often
depressed because there is insufficient demand for the increased supply. This
imbalance may have the short-term effect of limiting our operating profits as
improving margins in chlorine may be offset by declining margins in caustic
soda. When demand for chlorine declines to a level below plant operational
capacity and available storage is filled, production must be curtailed, even if
demand for caustic soda has increased. This imbalance may also have the
short-term effect of limiting our operating profits because improving margins
for caustic soda may be offset by both declining margins for chlorine and the
reduced production of both products. Our railcars can, under certain
circumstances, be used to provide additional storage capacity.

In 2003 approximately $23.4 million of our cost of sales-product was
attributable to our salt requirements and approximately $78.0 million of our
cost of sales-product was attributable to our power requirements. The cost and
adequacy of our salt supplies are dependent on transportation cost and
availability. Adequate water supplies are available at each of our operating
locations. We procure most of our energy requirements from sources that rely on
hydropower or natural gas. During 2003, our costs for power increased by $14.6
million from 2002, even though in 2002 we incurred $2.5 million of power costs
at the Tacoma facility before it was idled early in the year. Our power costs in
2002 were $16.9 million lower than in 2001, with $14.2 million of the decrease
attributable to idling the Tacoma facility. The energy costs associated with our
production of chlor-alkali products can materially affect our results of
operations since each one dollar change in our cost for a megawatt hour of
electricity generally results in a corresponding change of approximately $2.75
in our cost to produce an ECU.

Electric power for our Becancour and Dalhousie facilities is provided under
public utility tariffs that are based to a substantial extent on lower-cost
hydropower resources, which enables us to procure electricity at economical
rates. The St. Gabriel facility, like many in the industry, uses electricity
under a public utility tariff that is based primarily on natural gas resources
and that typically costs more than electricity provided under contracts that
rely on hydropower sources. Because all of the power requirements for our four
chlor-alkali facilities, other than the power procured through the supply
contract for our Henderson facility, are procured in regulated markets, our cost
for power is primarily based on the underlying cost of producing such power as
opposed to market rate pricing. As a result, our Canadian facilities, which
procure power from sources that rely on hydropower, are generally able to obtain
power at favorable rates that are relatively stable over time. Our U.S.
facilities, which procure power from sources that rely on natural gas, will
generally experience higher rates than for hydropower as prices are based on the
underlying price of natural gas.

SETTLEMENT OF DISPUTE WITH THE COLORADO RIVER COMMISSION OF NEVADA

Electric power for our Henderson facility is primarily provided by the
Colorado River Commission of Nevada, or CRC, under a new long-term supply
contract. Variations in the cost of power used at our Henderson facility have a
material impact on that facility's cost structure. Beginning in 2001, we
disputed our responsibility for certain contractual obligations that were
undertaken by CRC. All of the conditions of a settlement of that dispute were
satisfied on March 3, 2003. As a result of the settlement, which was effective
as of January 1, 2003, we were released from all claims for liability with
respect to electricity derivatives positions, and all litigation between Pioneer
and CRC was dismissed.

Prior to the settlement with CRC, approximately 35% of the electric power
supply for our Henderson facility was hydropower furnished under a low-cost,
long-term contract with CRC, approximately 50% was

25

provided under a supplemental supply contract with CRC, and the remaining 15%
was provided under a long-term arrangement with a third party. The supplemental
supply contract entered into in March 2001 set forth detailed procedures
governing the procurement of power by CRC on our behalf.

The dispute with CRC involved various derivative positions that were
executed by CRC, purportedly for our benefit under the supplemental supply
contract. The dispute arose prior to our bankruptcy proceedings, but was not
resolved as a part of our plan of reorganization. The derivative positions
consisted of contracts for the forward purchase and sale of electricity as well
as put and call options that were written for electric power. We disputed CRC's
contention that certain derivative positions were our responsibility, although
we recognized a liability relating to certain transactions that we did not
dispute.

We had recorded estimated realized income and expense related to fulfilling
or settling the obligations that could arise with respect to the derivatives
transactions as a component of cost of sales, and we had recorded in "Other
Assets" a net receivable from CRC of $21.0 million at December 31, 2002. The net
receivable included $14.8 million of cash that CRC had collected in the form of
premiums related to options that expired prior to December 31, 2002, but had not
remitted to us. The remaining $6.2 million of the net receivable represented our
estimate of CRC's net proceeds from the settlement of certain derivatives
positions on their delivery dates during 2002 that were not remitted to us.

In accordance with the terms of the settlement, we assigned our low-cost,
long-term hydropower contracts to the Southern Nevada Water Authority and
entered into a new supply agreement with CRC. CRC now provides power to meet
approximately 85% of our Henderson facility's needs through purchases made on
the open market, under an agreement with a term extending to December 31, 2006,
although Pioneer and CRC may agree to extend the term. CRC retained all amounts
of cash it had previously collected under the terms of the derivatives
agreements, although $3 million of that amount was applied as a collateral
deposit in satisfaction of a requirement under the supply agreement.

Although the settlement with CRC did not generate any cash proceeds for us,
we recorded a net non-cash gain from the settlement of $66.3 million in the
first quarter of 2003, arising from the reversal of the net liability of $87.3
million that we had recorded for the net mark-to-market loss on outstanding
derivative positions and the $21.0 million receivable from CRC. Due to the
assignment of our long-term hydropower contracts to the Southern Nevada Water
Authority and the resulting higher energy prices under the new supply agreement
effective in 2003, we performed an impairment test and determined that the book
value of the Henderson facility exceeded the undiscounted sum of future expected
cash flows over the remaining life of the facility. We then calculated the
estimated fair value of the facility by discounting expected future cash flows
using a risk-adjusted discount rate of 13%. Based on that analysis, we recorded
an impairment charge of $40.8 million in the first quarter of 2003. During 2003
the power purchased by the Henderson facility cost approximately $4.4 million
more than the same amount of hydropower resources would have cost under the
previously existing hydropower contract.

EMERGENCE FROM BANKRUPTCY

The financial results for the twelve months ended December 31, 2001, were
affected by our filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code and a parallel filing under the Canadian Companies Creditors'
Arrangement Act on July 31, 2001, and our emergence from bankruptcy on December
31, 2001, the effective date of our plan of reorganization. Our post-emergence
consolidated financial statements reflect results after the consummation of the
plan of reorganization and the application of the principles of fresh-start
accounting in accordance with the provisions of SOP 90-7. See Note 3 to the
consolidated financial statements. The company as it existed prior to our
emergence from bankruptcy (which we refer to as the Predecessor Company) and the
Successor Company after adopting fresh-start accounting are different reporting
entities and the consolidated financial statements are not comparable.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We apply those accounting policies that we believe best reflect the
underlying business and economic events, consistent with generally accepted
accounting principles. Inherent in such policies are certain key

26

assumptions and estimates that we have made. Our more significant accounting
policies include those related to long-lived assets, accruals for long-term
employee benefit costs such as pension, postretirement and other post-employment
costs, revenue recognition, environmental liabilities, inventory reserves,
allowance for doubtful accounts and income taxes.

Long-Lived Assets. We evaluate long-lived assets for impairment whenever
indicators of impairment exist. In addition to idling of production capacity, we
consider product prices and energy costs to be key indicators in the evaluation
of long-lived asset impairment. In accordance with SFAS 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," long-lived assets and certain
identifiable intangible assets to be held and used are reviewed for impairment
on an annual basis or whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The determination of
recoverability of long-lived assets and certain other identifiable intangible
assets is based on an estimate of undiscounted future cash flows resulting from
the use of the asset or its disposition. During 2002 and 2003 we recognized
asset impairments as a result of the idling of capacity at our Tacoma
chlor-alkali plant and increased energy costs at our Henderson chlor-alkali
plant. In accordance with SFAS 142, "Goodwill and Other Intangible Assets,"
goodwill is evaluated using the discounted future cash flow estimates of the
reporting unit to which the goodwill is identifiable. Using discounted cash flow
methodology based on projections of the amounts and timing of future revenues
and cash flows of PCI Canada, we determined that as of December 31, 2003 and
2002, our goodwill, all of which relates to PCI Canada, was not impaired. As a
result, there was no change in the carrying value of goodwill of $84.1 million
as of December 31, 2003 and 2002.

We believe that the accounting estimate related to asset impairment is a
critical accounting estimate because it is highly susceptible to change from
period to period and requires management to make assumptions about, among other
things, future trends in product prices and energy costs. Those assumptions
require significant judgment because actual product prices and energy costs have
fluctuated in the past and will continue to do so. To the extent additional
information arises or our strategies change, it is possible that our conclusions
regarding the impairment of goodwill or other long-lived assets could change and
result in a material effect on our financial position or results of operations.

Environmental Liabilities. In order to reassess our environmental
obligations and to update an independent environmental analysis conducted in
2000, we commissioned a new study of environmental concerns at all of our plants
during 2003. The study was based on scenario analysis to estimate the cost to
remedy environmental concerns at our plant sites. For each scenario, the study
also used cost estimating techniques that included actual historical costs,
estimates prepared for us by consultants, estimates prepared by our engineers
and other published cost data available for similar projects completed at the
same or other sites.

The 2003 study identified a number of conditions that have changed since
the 2000 environmental analysis, including, but not limited to, flexibility in
regulatory agency guidance, increased knowledge of site conditions, the use of
alternative remediation technologies, post-acquisition contamination not covered
under existing environmental indemnity agreements and the inherent risk of
disputes under some of the indemnity agreements due to passage of time. Based on
the study, we estimated our total environmental remediation liabilities to be
$21.0 million, of which $3.2 million is subject to indemnity claims against a
previous owner. As a result, we recorded an environmental charge of $9.5 million
in the first quarter of 2003, and as of December 31, 2003, our total estimated
environmental liabilities were $20.5 million. We base our environmental reserves
on undiscounted costs. We believe that adequate accruals have been established
to address all known remedial obligations, although there can be no guarantee
that the actual remedial costs or associated liabilities will not exceed accrued
amounts. At some of our locations, regulatory agencies are considering whether
additional actions are necessary to protect or remediate surface or groundwater
resources. We could be required to incur additional costs to construct and
operate remediation systems in the future.

Defined Benefit and Post-Retirement Plans. As of December 31, 2003, we
reported pension and post-retirement liabilities of $24.5 million. Plan
obligations and the annual pension expense are determined by independent
actuaries and are based in part on a number of assumptions. Key assumptions in
measuring plan

27

obligations include the discount rate, the rate of salary increases, the
long-term healthcare cost trend rate, mortality rates and the estimated future
return on plan assets. As of December 31, 2003, we used the following
weighted-average assumptions:

DEFINED BENEFIT PLANS:
Discount rate............................................ 6.1%
Expected return on plan assets........................... 8.0%
Rate of compensation increase............................ 3.5%

POST RETIREMENT BENEFIT PLANS:
Discount rate............................................ 6.2%
Health care cost inflation............................... 6.5%-7.5%

In determining the discount rate, we used the corporate AA-rated fixed
income investment rate with approximately the same duration as our plans'
liabilities. Asset returns are based on the anticipated average of earnings
expected on the invested funds of the plans based on the results of historical
statistical studies performed by our advisors. Approximately 60% of pension plan
assets is invested in equity securities and approximately 40% is invested in
debt and other fixed-income instruments. Salary-increase assumptions are based
on historical experience and anticipated future management actions.

Changes in key estimates and assumptions could have a material impact on
recorded liability amounts and our statutorily-required annual cash-funding
obligations. In 2004 we expect a cash-funding obligation of between $4.9 million
and $6.3 million for our pension plans. A 1% change in the discount rate would
change our recorded obligations by approximately $13.0 million, while a 1%
change in the assumed rate of return on assets would change annual costs by
approximately $0.8 million. We expect that the 1% change in the discount rate or
the assumed rate of return to have no impact on our statutorily-required
minimum-funding requirements. Effective December 31, 2003, we decreased our
discount rate assumption for our employee benefit plans by 75 basis points to
reflect the market decline in the yield of high-quality fixed-income instruments
with the same duration as our plans' liabilities. The impact of changes in
healthcare trend rates is described in Note 8 to the consolidated financial
statements.

Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments and occasional invoice disputes with customers. Our
allowance for doubtful accounts consists of a reserve estimate for specific
customer accounts that are in dispute or are deemed collection risks, a reserve
estimate for industry specific credit concentration risk, primarily pulp and
paper accounts, and a general reserve based on our historical bad-debt write-off
experience. We perform ongoing credit evaluations of customers and set credit
limits based upon a review of our customers' current credit information and
payment history. Estimation of such losses requires adjusting historical loss
experience for current economic conditions and judgments about the probable
effects of economic conditions on certain customers. We cannot guarantee that
the rate of future credit losses will be similar to past experience. Each
quarter we consider all available information when assessing the adequacy of the
provision for allowances, claims and doubtful accounts.

Income Taxes. We have significant amounts of deferred tax assets that are
reviewed periodically for recoverability. These assets are evaluated by using
estimates of future taxable income streams and the impact of tax planning
strategies. Valuations related to tax accruals and assets could be impacted by
changes to tax codes, changes in the statutory tax rates and our future taxable
income levels. We have provided a valuation allowance for the full amount of the
U.S. net deferred tax assets due to uncertainties relating to limitations on
utilization under the Internal Revenue Code and our ability to generate
sufficient taxable income within the carryforward period.

We periodically update our estimates used in the preparation of the
financial statements based on our latest assessment of the current and projected
business and general economic environment.

28

LIQUIDITY AND CAPITAL RESOURCES

Summary of Certain Debt Provisions. Our Senior Secured Debt consists of
the Senior Guaranteed Notes due 2006 in the aggregate principal amount of $43.2
million, the Senior Floating Notes due 2006 in the aggregate principal amount of
$4.4 million, the 10% Senior Secured Notes due 2008 in the aggregate principal
amount of $150 million and the Revolver with a $30 million commitment and a
borrowing base restriction. The Senior Secured Debt requires payments of
interest and the related agreements contain various covenants including
financial covenants in our Revolver (which, if violated, will create a default
under the cross-default provisions of the Senior Notes) that obligate us to
comply with certain cash flow requirements.

The debt agreements contain covenants limiting or preventing our ability
to, among other things, incur additional indebtedness, prepay or modify debt
instruments, grant additional liens, guarantee any obligations, sell assets,
engage in another type of business or suspend or terminate a substantial portion
of business, declare or pay dividends, make investments, make capital
expenditures in excess of certain amounts, or make use of the proceeds of
borrowings for purposes other than those specified in the agreements. The
agreements also include customary events of default, including one for a change
of control under the Revolver. Borrowings under the Revolver are subject to the
accuracy of all representations and warranties, including the absence of a
material adverse change and the absence of any default or event of default.

We are required to redeem the Tranche A Notes from and to the extent of net
cash proceeds of certain asset sales, new equity issuances in excess of $5
million and excess cash flow (as defined in the related agreements). We also
have a redemption obligation if certain levels of Pioneer Americas' EBITDA are
realized, as discussed below, or if there is a change of control.

The holders of the 10% Senior Secured Notes may require us to redeem their
notes with net cash proceeds from certain asset sales and from new equity
issuances in excess of $35 million (if there is no indebtedness outstanding
under the Tranche A Notes). In addition, upon the occurrence of a change of
control, the holders may require us to repurchase all or a portion of the notes.

The obligations under the Revolver are secured by liens on our accounts
receivable and inventory, and the obligations under the Senior Notes are secured
by liens on substantially all of our other assets, with the exception of certain
assets that secure the obligations under certain other long-term liabilities.

Revolver Obligations. One of the covenants in the Revolver requires us to
generate at least $21.55 million of net earnings before extraordinary gains, the
effects of the derivative instruments excluding derivative expenses paid by us,
interest, income taxes, depreciation and amortization (referred to as
"Lender-Defined EBITDA") for each twelve-month period ending at the end of each
calendar quarter. An amendment to the Revolver that was effective as of December
2003 redefined the manner in which Lender-Defined EBITDA is determined by
eliminating the inclusion of non-cash charges that we had incurred in the first
quarter of 2003 with respect to an asset impairment and an addition to our
environmental reserve. As a result, our Lender-Defined EBITDA for the twelve
months ended December 31, 2003, was $39.6 million, which was greater than the
$21.55 million required under the Revolver covenant for that period.

During March 2002 the lender under the Revolver advised us that it believed
that a material adverse change had occurred, although it continued to fund loans
under the Revolver. In order to address concerns about adverse changes in our
financial condition and the possibility that we might not comply with the
financial covenant included in the Revolver during the remainder of 2002, we had
discussions with the lender on the proposed terms of an amendment to the
Revolver, and the lender rescinded its notice that it believed that a material
adverse change had occurred. In April 2002 our Revolver was amended to revise
the financial covenant to exclude the effects of changes in the fair value of
derivative instruments, eliminate the availability of interest rates based on
the London interbank offered rate ("LIBOR"), and replace the previously
applicable margin over the prime rate (the "Previous Rate") with the Previous
Rate plus 2.25% for all loans outstanding under the Revolver. We paid a
forbearance fee of $250,000 in connection with the April 2002 amendment. We also
agreed with our lender to further amend the financial covenant in the Revolver
to exclude realized gains and losses (except to the extent such losses are paid
by us) on derivatives, to take into account our expectations for the amount of
Lender-Defined EBITDA that would be generated during 2002 as

29

agreed to by the lender, and to add such other financial covenants to the
Revolver as the lender deemed necessary to monitor our performance in meeting
such projections. A June 2002 amendment to the Revolver required us to meet
certain Lender-Defined EBITDA amounts and added the additional financial
covenants. Those additional covenants require us to maintain Liquidity (as
defined in the June 2002 amendment) of at least $5.0 million, and limit capital
expenditure levels to $25.0 million in each calendar year. At December 31, 2003,
our Liquidity was $12.4 million, consisting of borrowing availability of $10.5
million and cash of $1.9 million. Our capital expenditures were $10.0 million in
2003, and we estimate capital expenditures will be approximately $9.4 million
during 2004.

In addition to revising the definition of Lender-Defined EBITDA, the
December 2003 amendment to the Revolver extended the maturity date of borrowings
under the Revolver by two years, from December 31, 2004, to December 31, 2006,
restored the Previous Rate for borrowings that are based on the prime rate,
restored the availability of LIBOR-based borrowings, and reduced the fees that
are payable to the lender. We paid a closing fee of $150,000 in connection with
the December 2003 amendment.

We report amounts of Lender-Defined EBITDA generated by our business
because, as indicated above, there are covenants in the Revolver that require us
to generate specified levels of Lender-Defined EBITDA. Lender-Defined EBITDA is
not a measure of performance calculated in accordance with accounting principles
generally accepted in the United States of America. Lender-Defined EBITDA should
not be considered in isolation of, or as a substitute for, income before income
taxes as an indicator of operating performance or cash flows from operating
activities as a measure of liquidity. Lender-Defined EBITDA, as defined in the
Revolver, may not be comparable to similar measures reported by other companies.
In addition, Lender-Defined EBITDA does not represent funds available for
discretionary use.

The calculation of Lender-Defined EBITDA for each of the quarters during
2003 and for the twelve months ended December 31, 2003, is as follows (dollar
amounts in thousands):

- ---------------

* For the quarter ended March 31, 2003, Lender-Defined EBITDA, as then defined,
did not exclude the impairment and environmental charges, although they are
excluded in this presentation.

See Note 16 to the consolidated financial statements for selected unaudited
quarterly financial data.

The Revolver also provides that, as a condition of borrowings, there shall
not have occurred any material adverse change in our business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise).

If the required Lender-Defined EBITDA level under the Revolver is not met
and the lender does not waive our non-compliance, we will be in default under
the terms of the Revolver. Moreover, if conditions constituting a material
adverse change occur, our lender can refuse to make further advances. Following
any such refusal, customer receipts would be applied to our borrowings under the
Revolver, and we would not have the ability to reborrow. This would cause us to
suffer a rapid loss of liquidity, and we would lose the ability to

30

operate on a day-to-day basis. In addition, a default under the Revolver would
allow our lender to accelerate the outstanding indebtedness under the Revolver
and would also result in a cross-default under our Senior Notes which would
provide the holders of our Senior Notes the right to accelerate the $197.6
million in Senior Notes outstanding and demand immediate repayment.

Our borrowings under the Revolver as of February 29, 2004, were $15.9
million. Our $30 million Revolver commitment is subject to borrowing base
limitations related to the level of accounts receivable and reserves, and is
further reduced by letters of credit that are outstanding. As a result, on
February 29, 2004, our additional availability under the Revolver was
approximately $11.5 million, and our Liquidity was $14.9 million.

Prepayment Obligations. Our Tranche A Notes provide that, within 60 days
after the end of each calendar quarter through 2006, we are required to redeem
and prepay the greater of an amount determined on the basis of (a) Pioneer
Americas' net income before extraordinary items, other income, net, interest,
income taxes, depreciation and amortization ("Tranche A Notes EBITDA"), and (b)
an amount determined on the basis of the Company's excess cash flow and average
liquidity, as defined. With respect to Tranche A Notes EBITDA, the amount that
is to be redeemed and prepaid is (i) $2.5 million if Tranche A Notes EBITDA for
such calendar quarter is $20 million or more but less than $25 million, (ii) $5
million if Tranche A Notes EBITDA for such calendar quarter is more than $25
million but less than $30 million and (iii) $7.5 million if Tranche A Notes
EBITDA for such calendar quarter is more than $30 million, in each case plus
accrued and unpaid interest to the date of redemption and prepayment. With
respect to excess cash flow, the amount that is to be redeemed and prepaid is a
percentage of the Company's consolidated net income, without regard to
extraordinary gains and losses and net after-tax other income, plus
depreciation, amortization and other non-cash charges, and less all cash
principal payments, capital expenditures and extraordinary cash gains or cash
income received, plus or minus cash changes in working capital. The applicable
percentage is to be determined on the basis of the Company's average liquidity,
which is the average of cash plus borrowing availability under the Revolver for
the quarter or for the 45-day period following the end of the quarter.

Each holder of Senior Floating Notes may refuse any such repayment. As a
result of the application of the applicable provisions with respect to the first
quarter of 2003, we redeemed and prepaid $2.4 million of Tranche A Notes on May
23, 2003. One holder refused the prepayment of the balance of the $2.5 million
that was to have been prepaid on that date. No redemption and prepayment of
Tranche A Notes was required with respect to the calendar quarters that ended on
June 30, 2003, September 30, 2003, and December 31, 2003.

Future Payment Commitments. In 2004, we expect to have cash requirements,
in addition to operating and administrative costs, of approximately $32.9
million consisting of the following: (i) interest payments of $18.8 million,
(ii) capital expenditures of $9.5 million, (iii) environmental remediation
spending of $1.7 million, (iv) severance payments of $1.2 million and (v)
contractual debt repayments of $1.7 million. These amounts are our current
estimates and they could materially change based on various factors or
unanticipated circumstances. We expect to fund these obligations through
available borrowings under our Revolver and internally-generated cash flows from
operations, including changes in working capital. Consulting fees that we will
incur in connection with the organizational efficiency project that we initiated
in February 2004 will range from $2.8 million to $3.6 million, and it is
anticipated that additional severance and other costs will arise through the
implementation of the project, although we expect to fund such costs through
savings generated as a result of the project. We can provide no assurance that
the savings from the project will exceed its costs nor can we provide any
assurance that we will have sufficient resources to fund all of the obligations
and investments noted above.

31

The following table sets forth our obligations and commitments to make
future payments under debt agreements, non-cancelable operating lease agreements
and purchase obligations as of December 31, 2003.

- ---------------

(a) Includes the maturity of the Revolver in 2004 (although the contractual
expiration is in 2006), the Senior Guaranteed Notes and Senior Floating
Notes in 2006 and the 10% Senior Secured Notes in 2008. The amount
outstanding under the Revolver is included as short-term debt for financial
reporting purposes. The timing and amount of payments that are set forth do
not take into consideration any early redemption obligations that may
arise.

(b) Consists primarily of tankcar leases and leases of certain plant facilities
and equipment.

(c) Consists primarily of purchase contracts with fixed and determinable
payment obligations for goods and services used in manufacturing and
producing operations in the normal course of business.

While we anticipate that product prices will increase during 2004, we have
limited ability to influence prices in the commodity markets in which we sell
our products. Decreases in the selling prices of our products could have a
material adverse affect on our liquidity. In addition, our operating margin is
subject to the adverse effects of increased energy costs, and it appears that
those costs will remain at relatively high levels during 2004. The amount of
liquidity ultimately needed to meet all of our obligations in the future will
depend on a number of factors, some of which are uncertain, although some of the
uncertainty as to our future liquidity needs has been reduced by the resolution
in 2003 of our derivatives dispute with CRC. We also expect that, if successful,
our current organizational efficiency project will increase our liquidity,
although we would not expect to see any significant net benefit until 2005.

While we strive to maintain or increase our profitability by reducing costs
through improving production efficiency, emphasizing higher margin products, and
controlling selling and administration expenses, we cannot provide any assurance
that these efforts will be sufficient to offset fully the effect of declining
ECU prices on operating results.

There was approximately $222.3 million of our Senior Secured Debt
outstanding on December 31, 2003. We do not anticipate that the cash that we
will generate from our operations will be sufficient to repay the Revolver and
the Tranche A Notes when they are due in December 2006, or the 10% Senior
Secured Notes when they are due in December 2008. In such events, it would be
necessary to refinance the indebtedness, issue new equity or sell assets. The
terms of any necessary new borrowings would be determined by then-current market
conditions and other factors, and could impose significant additional burdens on
our financial condition and operating flexibility, and the issuance of new
equity securities could dilute the interest of our existing stockholders. We
cannot provide any assurance that we would be able to refinance any of our
indebtedness, raise equity on commercially reasonable terms or at all, or sell
assets, which failure could cause us to default on our obligations and impair
our liquidity. Our inability to generate sufficient cash flow to satisfy our
debt obligations, or to refinance our obligations on commercially reasonable
terms, would have a material adverse effect on our business, financial condition
and results of operations.

Capital and Environmental Expenditures. Total capital expenditures were
approximately $10.0 million, $10.6 million and $13.1 million for the years ended
December 31, 2003, 2002, and 2001, respectively, and are expected to be
approximately $9.5 million for the year ending December 31, 2004. Total capital
expenditures include expenditures for environmental-related matters at existing
facilities of approximately $2.8 million,

32

$1.4 million and $2.9 million for the years ended December 31, 2003, 2002 and
2001, respectively. We do not anticipate any capital expenditures for
environmental-related matters in 2004.

We routinely incur operating expenditures associated with hazardous
substance management and environmental compliance matters in ongoing operations.
These operating expenses include items such as waste management, fuel,
electricity and salaries. The amounts of these operating expenses were
approximately $1.3 million, $3.2 million and $2.7 million in 2003, 2002 and
2001, respectively. We expect to spend approximately $1.7 million for these
types of expenses during 2004. At December 31, 2003 and 2002, we maintained an
accrual of $20.5 million and $11.6 million, respectively, for environmental
liabilities. We recorded a $9.5 million environmental charge during the first
quarter of 2003 resulting from an environmental study completed in May 2003. See
Item 1 "Business -- Environmental Regulation" in Part I of this report and Note
15 to our consolidated financial statements.

Net Operating Loss Carryforward. At December 31, 2003, we had, for income
tax purposes, approximately $268.0 million of U.S. NOLs. Approximately $68.0
million of the NOLs (the "Successor Company NOLs") generated in 2003 and 2002
will expire in 2022 and 2023 and are not subject to limitation. The remaining
$200.0 million of NOLs (the "Predecessor Company NOLs"), expiring from 2009 to
2023, were generated prior to our emergence from bankruptcy on December 31,
2001. As a result of our emergence from bankruptcy and changes in the ownership
of the Company in 2001, the utilization of the Predecessor Company NOLs is
subject to limitation under the Internal Revenue Code and may be substantially
restricted. The limitation on NOL utilization may adversely affect our after-tax
cash flow in future periods. An additional $24.0 million of Canadian NOLs
generated in 2003 and 2002 are not subject to limitation, and expire in 2009 and
2010. See Item 1 "Business -- Risks -- Availability of our operating loss
carryforward may be limited by the Internal Revenue Code" in Part I of this
report and Note 14 to our consolidated financial statements.

Foreign Operations and Exchange Rate Fluctuations. We have operating
activities in Canada, and we engage in export sales to various countries.
International operations and exports to foreign markets are subject to a number
of risks, including currency exchange rate fluctuations, trade barriers,
exchange controls, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
foreign-based companies. In addition, earnings of foreign subsidiaries and
intracompany payments are subject to foreign taxation rules.

Due to the significance of the U.S. dollar-denominated long-term debt of
our Canadian subsidiary and certain other U.S. dollar-denominated assets and
liabilities, the entity's functional accounting currency is the U.S. dollar. A
portion of our sales and expenditures is denominated in Canadian dollars, and
accordingly, our results of operations and cash flows may be affected by
fluctuations in the exchange rate between the U.S. dollar and the Canadian
dollar, since Canadian dollar transactions must be translated into U.S. dollars
for accounting purposes. In addition, because a portion of our revenues, cost of
sales and other expenses are denominated in Canadian dollars, we have a
translation exposure to fluctuation in the Canadian dollar against the U.S.
dollar. We recorded $5.8 million of currency exchange loss as other expense for
2003, compared to $0.1 million of currency exchange gain in 2002. We also
recorded a Canadian deferred tax benefit of $3.9 million in 2003 as the result
of the exchange loss on U.S. dollar denominated intercompany balances, due to
the effect of the weakening of the U.S. dollar. Currently, we are not engaged in
forward foreign exchange contracts, but may enter into such hedging activities
in the future.

Working Capital. Our working capital was $12.6 million and negative $16.4
million as of December 31, 2003 and 2002, respectively. There was no net current
derivative mark-to-market liability in the 2003 total, while the 2002 amount
includes $19.8 million of net current derivative mark-to-market liability. Other
changes from 2002 to 2003 consisted primarily of improved collections of
accounts receivable and reduced liabilities as a result of current-year payments
of pre-petition liabilities and severance obligations.

Net Cash Flows from Operating Activities. Net cash from operating
activities was $14.3 million in 2003, compared to $0.3 million in 2002. The
increase was primarily due to higher current year net income offset by $7.1
million in increased use of cash, primarily attributable to increased pension
and plant operating costs.

33

Net Cash Flows Used in Investing Activities. Net cash used in investing
activities, consisting primarily of capital expenditures, was $10.0 million in
2003, as compared to $8.6 million in 2002.

Net Cash Flows from Financing Activities. Net cash used by financing
activities was $5.4 million in 2003, compared to cash inflows of $6.4 million in
2002. The 2003 cash outflows were due primarily to a $2.4 million redemption and
prepayment of the Tranche A Notes, $3.0 million of early payments on two
promissory notes and $2.1 million in repayments of other debt obligations,
offset by net borrowings of $2.1 million under the Revolver. The 2002 cash
inflows were due to net borrowings under the Revolver, offset by scheduled debt
repayments.

RESULTS OF OPERATIONS

The following table sets forth certain operating data of the Successor
Company and the Predecessor Company for the periods indicated (dollars in
thousands and percentages as a percentage of revenues). The consolidated
statements of operations information for the years ended December 31, 2003 and
2002 reflects the operating results after the effect of the plan of
reorganization and the application of the principles of fresh-start accounting.
Accordingly, such financial information is not comparable to the historical
financial information before December 31, 2001.

Our derivatives positions, which were the subject of the dispute with CRC
that was settled early in 2003, are discussed under "Settlement of Dispute with
the Colorado River Commission of Nevada" above.

34

YEAR ENDED DECEMBER 31, 2003, COMPARED TO YEAR ENDED DECEMBER 31, 2002

Revenues. Revenues for the years ended December 31, 2003 and 2002, were as
follows:

- ---------------

* The average ECU netback relates only to sales of chlorine and caustic soda,
and not to sales of other products.

Revenues increased by $61.8 million, or approximately 19%, to $378.7
million for 2003 as compared to 2002. Revenues from the sale of chlorine and
caustic soda increased by $54.8 million, with an increase of approximately $62.1
million due to increased ECU netbacks being partially offset by a decrease of
$7.3 million arising from 55,000 fewer tons of chlorine sales due to the idling
of the Tacoma facility in early 2002. Our average ECU netback for the year ended
December 31, 2003 was $382, an increase of approximately 41% from the average
netback in 2002 of $270. Revenues in 2003 were also favorably affected by
increased prices and volumes for our other products, with an increase of $7.9
million in revenues resulting from improved bleach sales in the western U.S.

Cost of Sales -- Product. Cost of sales -- product increased by $44.2
million, or approximately 15%, in 2003 as compared to 2002. The increase was
primarily attributable to an $8.8 million increase in environmental charges,
increased electricity costs of approximately $14.6 million, an increase of
approximately $11.5 million in other variable production costs and cost of
products purchased for resale, approximately $15.6 million of increased
operating and maintenance expenses, and the absence of a $1.1 million
curtailment gain and $1.2 million in costs, primarily property taxes, recorded
in 2002 and related to the idling of the Tacoma plant. Those increases were
offset to some extent by decreases of $3.7 million in depreciation expense and
$1.0 in freight costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively constant at $23.2 million in 2003 as
compared to $23.9 million in 2002. An increase in bad debt expense of $2.1
million in 2003 compared to 2002 was largely offset by the absence of $1.4
million of personnel costs and $0.6 million of professional fees that had been
recorded in 2002 as the result of the restructuring efforts and derivatives
dispute matters. The increase in bad debt expense in 2003 was primarily related
to an increase in the allowance for doubtful accounts for estimated collection
losses due to credit-risk exposure to customers in the pulp and paper industry.

Asset Impairment and Other Items. Asset impairment and other items for
2003 included a $40.8 million impairment charge related to the Henderson
facility and a net loss $0.8 million on disposition of fixed assets, offset
slightly by a $0.4 million gain from the early payment of a promissory note. The
impairment charge arose as a result of the increase in energy costs at the
Henderson facility brought about by the CRC settlement. In December 2002, due to
increasing power costs and the uncertainty of restarting the Tacoma facility, we
recorded an impairment of $16.9 million to reduce the book value of the facility
to estimated fair value at December 31, 2002. Asset impairment and other items
in 2002 also included $2.9 million of severance expense, $0.7 million of Tacoma
idling costs, $0.5 million of legal expenses related to Pioneer's emergence from
bankruptcy, and a $1.3 million gain from the sale of assets. See Note 12 to the
consolidated financial statements.

Interest Expense, Net. Interest expense was $19.1 million and $18.9
million in 2003 and 2002, respectively, net of interest income of $18,000 in
2003 and $64,000 in 2002.

35

Other Income (Expense), Net. Other expense for 2003 was comprised of $5.8
million in exchange loss. For 2002 other income, net of $0.6 million included
$0.1 million in exchange gain and other various nominal items.

Income Tax Benefit. Income tax benefit for 2003 was $3.3 million,
reflecting foreign tax benefit on the net loss of our Canadian operations. Due
to uncertainty as to our ability to generate future taxable income against which
our U.S. NOLs and other deferred tax assets can be applied in future years, a
100% valuation allowance amounting to $110.6 million was recorded in connection
with our U.S. deferred tax assets at December 31, 2003, compared to a $116.3
million allowance in 2002. Income tax benefit for 2002 was $0.8 million. During
2002 we recorded a credit of $0.5 million to additional paid-in capital in
connection with a refund relating to the carryback of Predecessor Company NOLs.

YEAR ENDED DECEMBER 31, 2002, COMPARED TO YEAR ENDED DECEMBER 31, 2001

As noted above, the information in the consolidated statements of
operations for the year ended December 31, 2002, reflects the operating results
after the effect of the plan of reorganization and the application of the
principles of fresh-start accounting. Accordingly, in certain respects financial
information for the year ended December 31, 2002, is not comparable to the
historical financial information before December 31, 2001.

Revenues. Revenues for the years ended December 31, 2002 and 2001, were as
follows:

- ---------------

* The average ECU netback relates only to sales of chlorine and caustic soda,
and not to sales of other products.

Revenues decreased by $66.6 million, or approximately 17%, to $316.9
million for 2002 as compared to 2001. The decrease was primarily due to lower
ECU netbacks. Our average ECU netback for the year ended December 31, 2002, was
$270, a decrease of approximately 20% from the average netback in 2001 of $337.

Cost of Sales -- Product. Cost of sales -- product, decreased
approximately $52.1 million, or approximately 15% in 2002 as compared to 2001.
Cost savings resulting from idling the Tacoma plant in March 2002 accounted for
approximately $25.5 million of the decrease, including the impact of a $1.2
million curtailment gain for the Tacoma pension plan. Another $8.2 million of
the decrease resulted from lower depreciation expense due to the revaluation of
property, plant and equipment pursuant to fresh-start accounting. The remaining
decrease resulted primarily from cost savings from an organizational
restructuring and other cost reduction initiatives, offset somewhat by a $1.4
million inventory adjustment to reduce the amount recorded for stores (spare
parts) inventory based on a physical count, and $1.6 million of planned major
maintenance expense at our St. Gabriel facility.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $18.0 million, or 43%, for 2002 as compared to
2001. This decrease is primarily comprised of non-cash items, including $3.7
million related to a reduction in bad debt expense, $2.3 million resulting from
the absence of amortization of debt issuance costs, which were written off upon
emergence from bankruptcy when the related debt was forgiven, $8.9 million due
to the absence of goodwill amortization resulting from the adoption of SFAS 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, and a $2.4 million
decrease in depreciation and amortization expense caused by the revaluation of
property, plant and equipment and intangibles upon emergence from bankruptcy.
The remaining decrease is primarily attributable to cost savings from the
organizational restructuring and other cost reduction initiatives.

36

Asset Impairment and Other Items. In December 2002, due to increasing
power costs and the uncertainty of restarting the Tacoma facility, we recorded
an impairment of $16.9 million to reduce the book value of the facility to
estimated fair value at December 31, 2002. Asset impairment and other items in
2002 also included $2.9 million of severance expense, $0.7 million of Tacoma
idling costs, $0.5 million of legal expenses related to Pioneer's emergence from
bankruptcy and a $1.1 million gain from the sale of assets. Asset impairment and
other items for 2001 included $3.8 million from an asset impairment, $4.8
million of severance expense and $4.3 million of professional fees related to
Pioneer's financial reorganization incurred prior to the Chapter 11 filing on
July 31, 2001.

Interest Expense, Net. Interest expense for 2001 excluded contractual
interest of $21.8 million that was not recorded in accordance with SOP 90-7 as
it related to forgiven debt, and interest income for 2001 was $67,000. Interest
expense decreased by $17.1 million, or 52% during 2002 as compared to 2001.
Interest income in 2002 was $64,000. The decrease resulted primarily from debt
forgiveness of $368 million, which represents a 63% decrease from the amount of
debt outstanding immediately prior to emergence from Chapter 11. This decrease
from debt forgiveness was partially offset by an increase in interest rates.

Other Income, Net. For 2002 other income, net of $0.6 million included
various nominal items. For 2001 other income, net included a sales tax refund of
$0.5 million.

Income Tax Benefit. Income tax benefit for 2002 was $0.8 million,
reflecting foreign tax benefit on the net loss of our Canadian operations. Due
to uncertainty as to as to our ability to generate future taxable income against
which our U.S. NOLs and other deferred tax assets can be applied in future
years, a 100% valuation allowance amounting to $116.3 million was recorded in
connection with our U.S. deferred tax assets at December 31, 2002. We recorded
$140.7 million of valuation allowance for deferred tax assets as of December 31,
2001. During 2002 we recorded a credit of $0.5 million to additional paid-in
capital in connection with a refund relating to the carryback of Predecessor
Company NOLs.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") has issued a number of
new accounting standards that became effective in 2003. The effects of such
requirements on our financial statements are as follows:

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Under SFAS 145, gains or losses from extinguishments of debt that do not meet
the criteria of Accounting Principles Board No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
should be classified to income from continuing operations in all periods
presented. We adopted SFAS 145 effective January 1, 2003, and have classified
gains on early extinguishments of debt within income for continuing operations
for all periods presented. As a result, a gain of $414.3 million (net of tax of
$8.7 million) from debt forgiven upon our emergence from Chapter 11 bankruptcy
on December 31, 2001, has been reclassified as income before income taxes.

In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for fiscal years beginning
after December 31, 2002. SFAS 146 requires the liability for costs associated
with exit or disposal activities to be recognized when incurred, rather than at
the date of a commitment to an exit or disposal plan. We adopted SFAS 146
effective January 1, 2003, and the adoption did not impact our results of
operations or financial condition.

In January 2003, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others" ("FIN 45"), which required recognition of a liability
for the obligation undertaken upon issuing a guarantee. This liability would be
recorded at the inception date of the guarantee and would be measured at fair
value. The disclosure provisions of FIN 45 were effective for our financial
statements as of March 31, 2003. The adoption of FIN 45 did not have a material
effect on our financial position or results of operations.

37

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information about our market-sensitive debt
instruments and constitutes a "forward-looking statement." Our fixed-rate debt
has no earnings exposure from changes in interest rates. We have certain
variable rate instruments that are subject to market risk. An increase in the
market interest rates would increase our interest expense and our cash
requirements for interest payments. For example, an average increase of 0.25% in
the variable interest rate would increase our annual interest expense and
payments by approximately $0.2 million.

- ---------------

(a) Debt instruments at fixed interest rates ranging from 8.0% to 10.0%, with
the majority at 10.0%; includes the payment of the 10% Senior Secured Notes
in 2008.

(b) Debt instruments at variable interest rates, including LIBOR based loans,
ranging from 1.4% to 7.0% at December 31, 2003; includes the maturity of
the Tranche A Notes in 2006; includes the maturity of the Revolver in 2006,
although the Revolver is classified as short-term debt for financial
reporting purposes. The timing and amount of payments that are set forth do
not take into consideration any early redemption obligations that may
arise.

We operate in Canada and are subject to foreign currency exchange rate
risk. Due to the significance of our Canadian subsidiary's United States
dollar-denominated long-term debt and certain other United States
dollar-denominated assets and liabilities, our functional accounting currency is
the United States dollar. Certain other items of working capital are denominated
in Canadian dollars. An average change of 1% in the currency exchange rate would
change total assets by approximately $0.2 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

In this report, our consolidated financial statements and supplementary
data appear following the signature page to this report and are hereby
incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2003, to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.

There has been no change in our internal controls over financial reporting
that occurred during the three months ended December 31, 2003, that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.

38

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in Pioneer's definitive proxy statement relating to
the 2004 Annual Meeting of Stockholders of Pioneer (the "2004 Proxy Statement")
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in response to Items 401, 405 and 406 of
Regulation S-K under the Securities Act of 1933, as amended, and the Exchange
Act ("Regulation S-K"). If the 2004 Proxy Statement is not so filed within 120
days after December 31, 2003, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4A of Part I of this report under the
caption "Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2004 Proxy Statement in response to Item 402
of Regulation S-K, or if the 2004 Proxy Statement is not so filed within 120
days after December 31, 2003, such information will be included in an amendment
to this report filed not later than the end of such period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2004 Proxy Statement in response to Item 403
of Regulation S-K, or if the 2004 Proxy Statement is not so filed within 120
days after December 31, 2003, such information will be included in an amendment
to this report filed not later than the end of such period.

See the information contained under the heading "Equity Compensation Plan
Information" in Item 5 of this report regarding shares authorized for issuance
under equity compensation plans approved by stockholders and not approved by
stockholders. For descriptions of our equity compensation plans, including the
2001 Employee Stock Option Plan, see Note 8 to the consolidated financial
statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2004 Proxy Statement in response to Item 404
of Regulation S-K, or if the 20034 Proxy Statement is not so filed within 120
days after December 31, 2003, such information will be included in an amendment
to this report filed not later than the end of such period.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 14 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2004 Proxy Statement in response to Item 404
of Regulation S-K, or if the 20034 Proxy Statement is not so filed within 120
days after December 31, 2003, such information will be included in an amendment
to this report filed not later than the end of such period.

39

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)Financial Statements.

See Index to Consolidated Financial Statements on page F-1.

(2)
Financial Statement Schedule.

See Exhibit 99.1.

(3)
Exhibits

- ---------------

* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated and incorporated herein by reference.

+ Indicates management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

On November 26, 2003, we filed a report on Form 8-K. Under Item 5 of the
report ("Other Events and Regulation FD Disclosure"), we disclosed that we had
received a request to provide production information for each of the calendar
quarters during 2002 and 2003, similar to the three- and nine-month information
provided in our quarterly report on Form 10-Q for the quarter ended September
30, 2003. The requested information for 2002 and 2003 was provided.

We also filed a report on Form 8-K on October 24, 2003. Under Item 5 of the
report ("Other Events and Regulation FD Disclosure"), we disclosed that we had
issued a press release reporting on progress with respect to negotiations of the
terms of a power contract for our chlor-alkali plant in Tacoma, Washington, and
the possible re-opening of the plant.

42

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

PIONEER COMPANIES, INC.
(Registrant)

Date: March 29, 2004
By: /s/ MICHAEL Y. MCGOVERN
------------------------------------
Michael Y. McGovern
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

43

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

All schedules, except Schedule II, which is filed as Exhibit 99.1, have
been omitted because they are not required under the relevant instructions or
because the required information is included in the consolidated financial
statements or notes thereto.

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Pioneer Companies, Inc.

We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. and subsidiaries ("Pioneer") as of December 31, 2003 and 2002
(Successor Company balance sheets), and the related consolidated statements of
operations, stockholders' equity (deficiency in assets) and cash flows for the
each of the two years ended December 31, 2003 and 2002 (Successor Company
operations) and for the year ended December 31, 2001 (Predecessor Company
operations). Our audits also included the financial statement schedule listed in
the Index referred to in Item 15(a)(2) of the Successor Company and Predecessor
Company as of the respective dates referred to above. These financial statements
and the financial statement schedule are the responsibility of Pioneer's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, on July 31,
2001, Pioneer and each of its direct and indirect wholly-owned subsidiaries
filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
Houston, Texas. On the same day, a parallel filing under the Canadian Companies'
Creditors Arrangement Act was filed in Superior Court in Montreal, Canada. These
filings were jointly administered, and on November 28, 2001, the Bankruptcy
Court entered an order confirming the plan of reorganization, which became
effective on December 31, 2001. Accordingly, the accompanying financial
statements and the financial statement schedule have been prepared in conformity
with AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods.

In our opinion, the Successor Company financial statements present fairly, in
all material respects, the financial position of Pioneer as of December 31, 2003
and 2002, and the results of its operations and its cash flows for the two years
in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. Further, in our opinion, the
Predecessor Company financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
year ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein as of December 31, 2003 and 2002 and for each
of the three years in the period ended December 31, 2003.

As discussed in Note 2 to the consolidated financial statements, Pioneer changed
its method of accounting for goodwill and other intangible assets on January 1,
2002, to conform with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."

DELOITTE & TOUCHE LLP

March 29, 2004
Houston, Texas

F-2

PIONEER COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)

See notes to consolidated financial statements.
F-3

PIONEER COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements.
F-4

PIONEER COMPANIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
(IN THOUSANDS)

See notes to consolidated financial statements.
F-5

PIONEER COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See notes to consolidated financial statements.
F-6

PIONEER COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Pioneer
Companies, Inc. (the "Company" or "PCI") and its consolidated subsidiaries
(collectively, "Pioneer"). The term "Predecessor Company" refers to Pioneer
prior to its emergence from bankruptcy on December 31, 2001, and the term
"Successor Company" refers to Pioneer after its emergence from bankruptcy on
December 31, 2001. All significant intercompany balances and transactions have
been eliminated in consolidation.

Pioneer operates in one industry segment, the production, marketing and
selling of chlor-alkali and related products. Pioneer operates in one geographic
area, North America. Pioneer conducts its primary business through its operating
subsidiaries: PCI Chemicals Canada Company ("PCI Canada") and Pioneer Americas.

On December 31, 2001, the Company and each of its direct and indirect
wholly-owned subsidiaries emerged from protection under Chapter 11 of the U.S.
Bankruptcy Code, and on the same date PCI Canada, a wholly-owned subsidiary of
PCI, emerged from protection under the provisions of Canada's Companies
Creditors' Arrangement Act. On that date Pioneer's plan of reorganization, which
was confirmed by the U.S. Bankruptcy Court on November 28, 2001, became
effective.

The financial results for the twelve months ended December 31, 2001, were
affected by the Company's filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code and a parallel filing under the Canadian Companies Creditors'
Arrangement Act on July 31, 2001, and the Company's emergence from bankruptcy on
December 31, 2001, the effective date of the plan of reorganization. The
Company's post-emergence consolidated financial statements reflect results after
the consummation of the plan of reorganization and the application of the
principles of fresh-start accounting in accordance with the provisions of the
American Institute of Certified Public Accountants' Statement of Position 90-7
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"). See Note 4. The Predecessor Company, as it existed prior to
Pioneer's emergence from bankruptcy, and the Successor Company, after the
adoption of fresh-start accounting, are different reporting entities and the
consolidated financial statements are not comparable.

Dollar amounts, other than per-share amounts, in tabulations in the notes
to the consolidated financial statements are stated in thousands of U.S. dollars
unless otherwise indicated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

Inventories

Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are recorded under the average cost method, which includes
appropriate elements of material, labor and manufacturing overhead costs, while
the first-in, first-out method is utilized for raw materials, supplies and
parts. Pioneer enters into agreements with other companies to exchange
chlor-alkali inventories in order to minimize working capital requirements and
to optimize distribution logistics. Balances related to quantities due to or
payable by Pioneer are included in inventory.

F-7

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Major renewals and
improvements that extend the useful lives of equipment are capitalized.
Disposals are removed at carrying cost less accumulated depreciation with any
resulting gain or loss reflected in operations.

Depreciation is computed primarily under the straight-line method over the
estimated remaining useful lives of the assets. Asset lives range from 5 to 15
years, including buildings and improvements with an average life ranging from 10
to 15 years and machinery and equipment with an average life ranging from 5 to
10 years.

Property, plant and equipment was revalued pursuant to fresh-start
accounting. See Note 3.

Planned Major Maintenance Activities

In connection with the application of fresh-start accounting, Pioneer
adopted a policy of expensing major maintenance costs when incurred. Such costs
are incurred when major maintenance activities are performed on Pioneer's
chlor-alkali plants. The change in policy affects the accounting for major
maintenance at the St. Gabriel plant, since previously the costs were amortized
over the period, generally two years or more, between major maintenance
activities.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset or its
disposition. Measurement of an impairment loss for long-lived assets that
management expects to hold and use are based on the estimated fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value. See Note 12 for discussion of asset impairment charges
recorded in 2003, 2002 and 2001.

Other Assets

Other assets include amounts for deferred financing costs, which are being
amortized on a straight-line basis over the term of the related debt.
Amortization of such costs using the interest method would not have resulted in
material differences in the amounts amortized during the periods presented. At
December 31, 2001, unamortized debt issuance costs of $12.4 million were
written-off against the related debt balances in accordance with SOP 90-7.
Amortization expense for other assets for the years ended December 31, 2003,
2002 and 2001 was approximately $0.1 million, $0.1 million and $3.8 million,
respectively.

Excess Cost Over The Fair Value of Net Assets Acquired and Excess Reorganization
Value Over The Fair Value of Identifiable Assets

Prior to Pioneer's emergence from bankruptcy and application of fresh-start
accounting, excess cost over the fair value of net assets acquired was amortized
on a straight-line basis over 25 years. Amortization expense for excess cost
over the fair value of net assets acquired was approximately $8.9 million for
the year ended December 31, 2001.

Upon Pioneer's emergence from bankruptcy and application of fresh-start
accounting, Pioneer recorded $84.1 million of excess reorganization value over
the fair value of identifiable assets ("goodwill") attributable to PCI Canada.
In accordance with Statement of Financial Accounting Standards ("SFAS") 142,
"Goodwill and Other Intangible Assets," this goodwill will not be amortized. The
carrying value of goodwill will be reviewed at least annually, and if this
review indicates that it will not be recoverable, as determined based on the
estimated fair value of the applicable reporting unit, Pioneer's carrying value
will be adjusted in accordance with SFAS 142. Using discounted cash flow
methodology based on projections of the amounts and timing of future revenues
and cash flows of PCI Canada, Pioneer determined that as of December 31, 2003
and 2002, goodwill was not impaired. As a result, there was no change in the
carrying value of goodwill of $84.1 million as of December 31, 2003 and 2002.

F-8

The impact of goodwill amortization expense, net of income tax, on net
income (loss), and earnings (loss) per share is as follows:

Environmental Expenditures

Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost. Ongoing environmental compliance costs, including maintenance
and monitoring costs, are charged to operations as incurred. See Note 15.

Revenue Recognition

Pioneer generates revenues through sales in the open market and long-term
supply contracts. Revenue is recognized when the products are shipped and
collection is reasonably assured. Pioneer classifies amounts billed to customers
for shipping and handling as revenues, with the related shipping and handling
costs included in cost of goods sold.

Research and Development Expenditures

Research and development expenditures are expensed as incurred. Such costs
totaled $1.0 million in 2001. No research and development costs were incurred
during 2002 or 2003.

Interest Expense

Interest expense, net consisted of the following for the indicated periods:

No interest was capitalized in 2003, 2002 or 2001.

F-9

Income (Loss) Per Share

Basic income (loss) per share is based on the weighted average number of
common shares outstanding during the period. Diluted income (loss) per share
considers the dilutive effect of potentially issuable common shares during the
period.

Options to purchase 20,000 shares that were outstanding as of December 31,
2003, were not included in the computation of diluted earnings per share because
the options' exercise price exceeded the average market price of the shares.
Earnings per share for the year ended December 31, 2002, was not affected by
outstanding options to acquire 727,000 shares because the options' exercise
price exceeded the average market price of the shares during that period.

Stock-Based Compensation

Pioneer has stock option plans that are more fully described in Note 8.
Pioneer accounts for those plans under Accounting Principals Board ("APB") 25,
"Accounting for Stock Issued to Employees." Stock options issued under Pioneer's
stock option plans have no intrinsic value at the grant date, and Pioneer
recorded no compensation costs under APB 25. Had compensation expense for the
stock option plans been determined in accordance with SFAS 123, "Accounting for
Stock-Based Compensation", Pioneer's pro-forma net income (loss) and earnings
(loss) per share would have been as follows:

The fair value of each stock option grant was estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for the grants: in 2003, risk-free interest
rate of 4.25%, no expected dividend yield for all years, expected life of 10
years, and expected volatility of 95%; and in 2002, risk-free interest rate of
3.8%, no expected dividend yield for all years, expected life of 10 years, and
expected volatility of 95%. Stock options generally expire 10 years from the
date of grant and fully vest after 3 years. At December 31, 2003, the
weighted-average remaining contractual life on outstanding options was 8.6 years

Foreign Currency Translation

Following SFAS 52, "Foreign Currency Translation," the functional
accounting currency for Canadian operations is the U.S. dollar; accordingly,
gains and losses resulting from balance sheet translations are included as other
income (loss) in the consolidated statement of operations.

Concentration of Credit Risk

Pioneer manufactures and sells its products to companies in diverse
industries. Pioneer performs periodic credit evaluations of its customers'
financial condition and does not require collateral. Pioneer's sales are

F-10

primarily to customers throughout the United States and in eastern Canada.
Credit losses relating to these customers have historically been immaterial.

In 2003 approximately 27% of Pioneer's revenues was generated by sales of
products for use in the pulp and paper industry. At December 31, 2003, Pioneer
had approximately $11.1 million of accounts receivable from pulp and paper
customers.

Fair Value of Financial Instruments

Pioneer has assumed that the carrying amount approximates fair value for
cash and cash equivalents, receivables, short-term borrowings, accounts payable
and certain accrued expenses because of the short maturities of those
instruments. The fair values of debt instruments are estimated based upon quoted
market values (if applicable), or based on debt with similar terms and remaining
maturities. Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values presented
herein are indicative of the amounts that would be realized in a free market
exchange. See below for discussion of the fair value of certain derivative
positions.

At December 31, 2003, the fair market value of Pioneer's debt instruments
approximated the carrying value, with the exceptions of the Senior Guaranteed
Notes, the Senior Floating Notes and the 10% Senior Secured Notes, which had
book values of $43.2 million, $4.4 million, and $150 million, respectively, and
estimated fair values of $40.6 million, $4.1 million, and $141.0 million,
respectively.

Reclassifications

Certain amounts have been reclassified in prior years to conform to the
current-year presentation. All reclassifications have been applied consistently
for the periods presented.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.

Derivatives

As of January 1, 2001, Pioneer adopted the accounting and reporting
standards of SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," as interpreted and amended. SFAS 133 requires a company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Based upon the
contracts in effect at January 1, 2001, the adoption of SFAS 133 had no effect
on the consolidated financial statements at that date.

Prior to the settlement of derivative disputes (as discussed below) with
CRC, approximately 35% of the electric power supply for Pioneer's Henderson
facility was hydropower furnished under a low-cost, long-term contract with CRC,
approximately 50% was provided under a supplemental supply contract with CRC,
and the remaining 15% was provided under a long-term arrangement with a third
party. The supplemental supply contract entered into in March 2001 set forth
detailed procedures governing the procurement of power by CRC on Pioneer's
behalf. This agreement was not intended to provide for speculative power
purchases on behalf of Pioneer.

The dispute with CRC involved various derivative positions that were
executed by CRC, purportedly for Pioneer's benefit under the supplemental supply
contract. The derivative positions consisted of contracts for the forward
purchase and sale of electricity as well as put and call options that were
written for electric power. Pioneer disputed CRC's contention that certain
derivative positions with a net liability at December 31, 2002, of $82.3 million
were its responsibility. A net liability of $87.3 million, consisting of the
$82.3 million liability

F-11

for those derivatives positions and a $5.0 million liability relating to
transactions that were not disputed, was recorded by Pioneer and is reflected in
its December 31, 2002, balance sheet.

All of the conditions of the settlement of Pioneer's dispute with CRC were
satisfied on March 3, 2003. As a result of the settlement, which was effective
as of January 1, 2003, Pioneer was released from all claims for liability with
respect to electricity derivatives positions, and all litigation between Pioneer
and CRC was dismissed. As of December 31, 2002, Pioneer had recorded a net
liability of $87.3 million for the net mark-to-market loss on outstanding
derivative positions, and a receivable from CRC of $21.0 million, included in
"Other Assets" on the balance sheet, for estimated proceeds received by CRC for
matured derivative contracts. Due to the settlement of the dispute with CRC,
both the $87.3 million net liability and the $21.0 million receivable were
reversed in the first quarter of 2003, resulting in a non-cash net gain of $66.3
million. These amounts appear in the consolidated statement of operations for
the year ended December 31, 2003, as $87.3 million of operating income under the
caption "Change in Fair Value of Derivatives" to reflect the reversal of the
previously recorded mark-to-market loss, and $21.0 million of "Cost of
Sales -- Derivatives," reflecting the reversal of the receivable from CRC.

The derivative positions included many types of contracts with varying
strike prices and maturity dates extending through 2006. The fair value of the
instruments varied over time based upon market circumstances. The fair value of
the derivative positions was determined for Pioneer by an independent consultant
using available market information and valuation methodologies that included
current and forward pricing. Considerable judgment, however, was necessary to
interpret market data and develop the related estimates of fair value.
Accordingly, the estimates for the fair value of the derivative positions are
not necessarily indicative of the amounts that could be realized upon
disposition of the derivative positions or the ultimate amount that would be
paid or received when the positions were settled. The use of different market
assumptions or estimation methodologies could have resulted in different fair
values. Management of Pioneer believes that the market information,
methodologies and assumptions used by the independent consultant to fair value
the derivative positions produced a reasonable estimation of their fair value.

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") has issued a number of
new accounting standards that became effective in 2003, and Pioneer has
evaluated the effects of such requirements on its financial statements.

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Under SFAS 145, gains or losses from extinguishments of debt that do not meet
the criteria of APB No. 30, "Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" should be classified to
income from continuing operations in all periods presented. Pioneer adopted SFAS
145 effective January 1, 2003, and has classified gains on early extinguishments
of debt within income for continuing operations for all periods presented.

In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for fiscal years beginning
after December 31, 2002. SFAS 146 requires the liability for costs associated
with exit or disposal activities to be recognized when incurred, rather than at
the date of a commitment to an exit or disposal plan. Pioneer adopted SFAS 146
effective January 1, 2003, and the adoption did not impact Pioneer's results of
operations or financial condition.

In January 2003, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others" ("FIN 45"), which required recognition of a liability
for the obligation undertaken upon issuing a guarantee. This liability would be
recorded at the inception date of the guarantee and would be measured at fair
value. The disclosure provisions of FIN 45 were effective for Pioneer's
financial statements as of March 31, 2003. The adoption of FIN 45 did not have a
material effect on Pioneer's financial position or results of operations.

F-12

3. REORGANIZATION AND FRESH-START ADJUSTMENTS

On December 31, 2001, the Company and each of its direct and indirect
wholly-owned U.S. subsidiaries emerged from protection under the U.S. Bankruptcy
Code, and on the same date PCI Canada emerged from protection under the
provisions of Canada's Companies Creditors' Arrangement Act.

Pioneer has applied fresh-start accounting to the consolidated balance
sheet as of December 31, 2001, in accordance with SOP 90-7. Under fresh-start
accounting, a new reporting entity is considered to be created and the recorded
amounts of assets and liabilities are adjusted to reflect their estimated fair
values at the date fresh-start accounting is applied similar to the procedures
specified in accordance with SFAS 141, "Business Combinations." In addition, the
accumulated deficit of the Predecessor Company was eliminated and its common
stock was valued based on an enterprise value of $355 million. Pioneer
subsequently adjusted the equity value to include the effects of idling its
chlor alkali operations at Tacoma and the net derivative liability, which were
not considered in the initial valuation.

In 2001 reorganization adjustments reflected the forgiveness of debt,
including related accrued interest, and certain pre-petition trade payables in
consideration for new debt and new common stock, resulting in debt-forgiveness
income of $423.1 million. Pioneer also recorded $106.9 million of fresh-start
adjustments to reflect the write-down of assets to estimated fair value of $87.1
million, the increase in pension liability of $6.3 million and an increase in
other long-term liabilities of $15.0 million as the result of applying
fresh-start accounting as of December 31, 2001.

Reorganization items include legal and professional fees and expenses
related to Pioneer's reorganization incurred subsequent to the Chapter 11
filings and executive retention bonuses, offset by gains from
individually-negotiated settlements of critical vendor pre-petition liabilities
prior to confirmation of the plan of reorganization.

4. CASH FLOW INFORMATION

The net effect of changes in operating assets and liabilities is as
follows:

Non-cash financing activities:

On April 17, 2003, Pioneer realized a non-cash gain of $0.4 million from the
early payment of a $2.8 million promissory note.

In October 2002 Pioneer financed certain insurance premiums with two notes
totaling $1.5 million and payable to a third-party financing company. Since the
financing company distributed cash directly to the insurance company, the
transaction was a non-cash transaction for Pioneer. The notes payable were
classified as short-term debt, and were payable in monthly installments through
June 2003. The payment made by the financing company to the insurance company is
classified as prepaid insurance and will be amortized over the term of the
insurance policy.

F-13

Following is supplemental cash flow information:

5. INVENTORIES

Inventories consisted of the following at December 31:

6. OTHER ASSETS

Other assets consist of the following at December 31:

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

8. EMPLOYEE BENEFITS

DEFINED BENEFIT PENSION PLANS

PCI Canada and Pioneer Americas sponsor various non-contributory, defined
benefit pension plans covering substantially all their union and non-union
employees. Benefits under the plans are based primarily on participants'
compensation and years of credited service. In connection with Pioneer's
application of fresh-start accounting on December 31, 2001, Pioneer adjusted the
amounts recorded for pension and post-retirement benefits other than pension
liabilities to include all previously unrecognized actuarial gains and losses,
as well as unrecognized prior service costs.

PCI Canada's actuary makes actuarial determinations for the PCI Canada
defined benefit plan every three years as of December 31, and Pioneer Americas'
actuary makes actuarial determinations for the Pioneer Americas defined benefit
plans as of January 1 each year. Annual pension costs and liabilities under the
plans are determined by the actuaries using various methods and assumptions.
Global capital market developments in 2002 and 2003 resulted in a decline in the
discount rates used to estimate the liabilities. As a result, Pioneer was
required to record as "Other Comprehensive Loss" additional minimum pension
liabilities of $5.5 million and $5.0 million as of December 31, 2003 and 2002,
respectively, for plans as to which the accumulated benefit obligations exceeded
the fair market values of the respective plan assets. Pension expense in 2003,
2002

F-14

and 2001 was $3.4 million ($1.0 million for the Canadian plan and $2.4 million
for the U.S. plans), $2.8 million ($1.0 million for the Canadian and $1.8
million for the U.S. plans) and $3.2 million ($1.4 million for the Canadian
plans and $1.8 million for the U.S. plans), respectively.

PCI Canada and Pioneer Americas intend to contribute such amounts as are
necessary to provide assets sufficient to meet the benefits to be paid to
participants in the defined benefit plans. The present intent is to make
actuarially-computed annual contributions in amounts not more than the maximum
nor less than the minimum allowable under U.S. and Canadian statutory
requirements. Total contributions of from $4.9 million to $6.3 million are
expected in 2004 (after giving effect to the freezing of benefits under the U.S.
plans, as discussed below), compared to contributions of $6.3 million in 2003.

Information concerning the pension obligations, plan assets, amounts
recognized in Pioneer's financial statements and underlying actuarial
assumptions with respect to the defined benefit pension plans is stated below.

F-15

F-16

Plan assets at December 31, 2003 and 2002, consist primarily of fixed
income investments and equity investments. The following discussions describe
the selection of the expected return on assets and investment policy for both
the PCI Canada and the Pioneer Americas plans.

Selection of the Expected Return on Assets. The expected long-term rate of
return on assets is based on the facts and circumstances that exist as of the
measurement date and the specific portfolio mix of the plan's assets. PCI Canada
and Pioneer Americas use a model developed by their actuaries to assist in the
determination of this assumption. The model takes into account several factors
such as target portfolio allocation, expenses, historical market performance and
expected returns, variances and correlations of different asset categories.
These measures are used to determine a range of expected returns on the
portfolio. A rate of return assumption that is within 25 basis points of the
median long-term return produced by the model is generally selected. The
assumption is compared with the historical average asset return to ensure that
the assumption is consistent and reasonable.

Investment Strategy. The pension asset investment objective is to maximize
long-term returns while minimizing losses in order to meet future benefit
obligations when they become due.

F-17

The assets of the defined benefit plans are allocated in accordance with
recommendations made by pension plan consultants. The weighted-average asset
allocations at December 31, 2003 and 2002, by asset category were as follows:

Effective February 29, 2004, Pioneer Americas froze benefits under its
defined benefit pension plans for substantially all U.S. salaried and union and
non-union hourly employees. The effect of the freezing of defined benefit
pension plan benefits will be accounted for as a curtailment pursuant to SFAS
88. As the result of the curtailment, the projected benefit obligations for the
Pioneer Americas pension plans will decrease. The actuarial gain from such
decrease will be applied against existing unrecognized actuarial losses and
Pioneer expects to recognize no curtailment gain in its statement of operations
for the quarter ending March 31, 2004.

DEFINED CONTRIBUTION PENSION PLANS

PCI Canada offers a defined contribution plan to its employees, under which
participant employees may generally contribute from 1% to approximately 8% of
their compensation. PCI Canada also contributes funds to the plan in the amount
of 35% of employee contributions up to 4% of employee compensation. Effective
February 1, 2002, PCI Canada suspended its contributions to the plan in order to
reduce costs. In 2003, PCI Canada resumed making matching contributions on
employee contributions up to 4% of employee compensation in accordance with the
following schedule: from May 1, 2003: 20%; from July 1, 2003: 70%; from October
1, 2004: 65%; from November 1, 2004: 35%. Contribution expense under the plan
was $169,000, $17,000 and $167,000 in 2003, 2002 and 2001, respectively.

Pioneer Americas offers defined contribution plans to its employees, under
which participants may generally contribute from 1% to 50% of their
compensation. Effective February 1, 2002, Pioneer Americas suspended making
matching contributions to the plans in order to reduce costs. Effective May 1,
2003, Pioneer Americas resumed making matching contributions in the amount of
25% of employee contributions up to 6% of employee compensation. Effective March
1, 2004, the plans were amended to provide for additional contributions to
participant accounts by Pioneer Americas, in amounts of 5% of employee
compensation for employees under the age of 45, and 7.5% of employee
compensation for employees 45 or older. Contribution expense under the plans was
$0.2 million, $0.1 million and $1.0 million in 2003, 2002 and 2001,
respectively.

POST-RETIREMENT BENEFITS OTHER THAN PENSIONS

PCI Canada provides its employees with retiree health care benefits that
supplement the health care benefits that are made available under governmental
programs. Until January 1, 1999, Pioneer Americas provided health care benefits
to retirees. On that date, Pioneer Americas modified the plan to provide that
employees retiring after January 1, 1999, do not receive company-paid retiree
medical benefits. Effective December 31, 2003, the Pioneer Americas plan was
further modified to eliminate retiree health care benefits when a participant
reaches age 65. Pioneer Americas accounted for the reduction in benefits as a
negative plan amendment, which resulted in $4.4 million of unamortized gain
included in accrued benefit liability as of December 31, 2003. The gain will be
amortized over a period of up to 7.63 years.

F-18

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") became law. Among other things, the Act
provides for a voluntary program of partial prescription drug coverage through
Medicare Part D beginning in 2006. To encourage sponsors of retiree health plans
to retain prescription drug coverage in their plans after Part D becomes
available, federal subsidy payments will be made to sponsors of qualified
retiree health plans for a portion of the prescription drug claims incurred by
retirees who are eligible for Part D benefits but have not enrolled in the Part
D program. On January 12, 2004, the FASB issued a Staff Position that permits a
sponsor of a post-retirement health care plan that provides a prescription drug
benefit to make a one-time election to defer accounting for the effects of the
Act. Pioneer has made the one-time election to defer accounting for the economic
effects of the Act. Accordingly, the calculation of the accrued post-retirement
benefit obligation or net periodic post-retirement benefit cost in the
consolidated financial statements or the accompanying notes do not reflect the
effects of the Medicare changes on the plan. Specific guidance on the accounting
for the new tax free federal subsidy is pending and that guidance, when issued,
might require Pioneer to change previously-reported information.

PCI Canada's actuary prepares a valuation of the Canadian retiree health
care plan every three years, and Pioneer America's actuary prepares a valuation
of the U.S. retiree health care plans as of December 31 each year. Information
concerning plan obligations, the funded status, amounts recognized in Pioneer's
financial statements and underlying actuarial assumptions is stated below.

F-19

With respect to the PCI Canada plan, the weighted-average annual assumed
health care trend rate is assumed to be 6.7% for 2004. The rate is assumed to
decrease gradually to 4.4% in 2012 and remain level thereafter. With respect to
the Pioneer Americas plan, the weighted-average annual assumed health care trend
rate is assumed to be 7.5% for 2004. The rate is assumed to decrease gradually
to 4.5% in 2012 and remain level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the

F-20

health care plans. A one-percentage-point change in assumed health care trend
rates would have the following effects:

STOCK-BASED COMPENSATION

Pioneer has a stock incentive plan that provides for the granting to key
personnel and directors of options to purchase up to 1.0 million shares of
common stock of the Successor Company. The options may be either qualified
incentive stock options or nonqualified stock options. Stock options granted to
date have an exercise price equal to or exceeding the market value of the shares
of common stock on the date of grant. Options awarded to Pioneer's employees
become exercisable in annual increments over a three-year period beginning one
year from the grant date. Options awarded to directors become exercisable on the
anniversary of the date of their election as directors.

Prior to bankruptcy Pioneer had two stock incentive plans that provided key
employees the option to purchase shares of common stock. The plans authorized
the issuance of options to purchase up to a total of 2.3 million shares of
common stock, with vesting periods of up to three years and maximum option terms
of ten years. In addition, options for the purchase of 0.3 million shares had
been issued outside the scope of the stock option plans. Those plans were
terminated and all outstanding options were cancelled pursuant to the plan of
reorganization.

The following table summarizes the transactions with respect to the stock
options of the Successor Company for the years ended December 31, 2003 and 2002
(shares in thousands):

The fair market value of options granted in 2002 was $2.2 million, and the fair
market value of the options granted in 2003 was $0.1 million. A total of 40,000
shares were exercisable under the options outstanding at December 31, 2002, at
an average exercise price of $2.50 per share, and 280,000 shares were
exercisable under the options outstanding at December 31, 2003, at an average
exercise price of $2.97 per share.

F-21

The following table summarizes the transactions with respect to the stock
options of the Predecessor Company for the period ended December 31, 2001
(shares in thousands):

9. DEBT

Debt consisted of the following at December 31:

Senior secured debt outstanding under various debt instruments consists of
the Senior Guaranteed Notes, the Senior Floating Notes, the 10% Senior Secured
Notes and the Revolver. Collectively, the $197.6 million in Senior Guaranteed
Notes, Senior Floating Notes and 10% Senior Secured Notes are referred to as the
Senior Notes, and together with the Revolver are referred to as the Senior
Secured Debt. In addition, at December 31, 2003, Pioneer had a $2.4 million
unsecured non-interest bearing instrument payable to a critical vendor for the
settlement of pre-petition amounts owed to that vendor, which contains a
covenant that allows

F-22

the vendor to demand immediate repayment and begin charging interest at a rate
of 9.3% if Pioneer's liquidity falls below $5 million (Canadian dollars); $0.9
million payable over several years to a state taxing authority; and $4.6 million
of other debt outstanding, comprised of notes maturing in various years through
2014.

The Revolver provides for revolving loans in an aggregate amount up to $30
million, subject to borrowing base limitations related to the level of accounts
receivable, inventory and reserves. Borrowings under the Revolver are available
through December 31, 2006, so long as no default exits and all conditions to
borrowings are met. Borrowings under the Revolver accrue interest determined on
the basis of the prime rate plus a margin. Pioneer incurs a fee on the unused
amount of the facility at a rate of 0.375% per year.

The Revolver requires Pioneer to maintain Liquidity (as defined) of at
least $5.0 million, and limit its capital expenditures to $25.0 million in each
fiscal year. At December 31, 2003, Liquidity was $12.4 million, consisting of
borrowing availability of $10.5 million and cash of $1.9 million. Capital
expenditures were $10.0 million during 2003. One of the covenants in the
Revolver requires Pioneer to generate at least $21.550 million of Lender-Defined
EBITDA for each twelve-month period ending at the end of each fiscal quarter.

An amendment to the Revolver that was effective as of December 2003
redefined the manner in which Lender-Defined EBITDA is determined by eliminating
the inclusion of non-cash charges that Pioneer had incurred in the first quarter
of 2003 with respect to an asset impairment and an addition to Pioneer's
environmental reserve. As a result, Lender-Defined EBITDA for the twelve months
ended December 31, 2003, was $39.6 million. The Revolver also provides that, as
a condition of borrowings, there shall not have occurred any material adverse
change in Pioneer's business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).

If the required Lender-Defined EBITDA level under the Revolver is not met
and the lender does not waive Pioneer's failure to comply with the requirement,
Pioneer will be in default under the terms of the Revolver. Moreover, if
conditions constituting a material adverse change occur, the lender can refuse
to make further advances. Following any such refusal, customer receipts would be
applied to Pioneer's borrowings under the Revolver, and Pioneer would not have
the ability to reborrow. This would cause Pioneer to suffer a rapid loss of
liquidity and it would lose the ability to operate on a day-to-day basis. In
addition, a default under the Revolver would allow the lender to accelerate the
outstanding indebtedness under the Revolver and would also result in a
cross-default under the Senior Notes that would provide the holders of the
Senior Notes with the right to demand immediate repayment.

Interest on the 10% Senior Secured Notes is payable on June 30th and
December 31st. Interest on the Senior Guaranteed Notes and the Senior Floating
Notes is payable quarterly on March 31st, June 30th, September 30th and December
31st.

Pioneer is required to make mandatory redemptions of Senior Floating Notes
and Senior Guaranteed Notes (collectively, the "Tranche A Notes") from and to
the extent of net cash proceeds of certain asset sales, new equity issuances in
excess of $5 million and excess cash flow (as defined in the related
agreements), and if there is a change of control

The Tranche A Notes also provide that, within 60 days after each calendar
quarter during 2003 through 2006, Pioneer is required to redeem and prepay the
greater of an amount determined on the basis of (a) Pioneer Americas' net income
before extraordinary items, other income, net, interest, income taxes,
depreciation and amortization ("Tranche A Notes EBITDA") and (b) an amount
determined on the basis of the Company's excess cash flow and average liquidity,
as defined. With respect to the Tranche A Notes EBITDA, the amount that is
redeemed and prepaid is (i) $2.5 million if Tranche A Notes EBITDA for such
calendar quarter for such calendar quarter is $20 million or more but less than
$25 million, (ii) $5 million if Tranche A Notes EBITDA for such calendar quarter
is $25 million or more but less than $30 million and (iii) $7.5 million if
Tranche A Notes EBITDA for such calendar quarter is $30 million or more, in each
case plus accrued and unpaid interest to the date of redemption and prepayment.
With respect to excess cash flow, the amount that is to be redeemed and prepaid
is a percentage of the Company's consolidated net income, without regard to
extraordinary gains and losses and net after-tax other income, plus

F-23

depreciation, amortization and other non-cash charges, and less all cash
principal payments, capital expenditures and extraordinary cash gains or cash
income received, plus or minus cash changes in working capital. The applicable
percentage is to be determined on the basis of the Company's average liquidity,
which is the average of cash plus borrowing availability under the Revolver for
the quarter or for the 45-day period following the end of the quarter. Each
holder of Senior Floating Notes may refuse any such repayment. As a result of
the application of these provisions with respect to the first quarter of 2003,
Pioneer redeemed and prepaid $2.4 million of the principal amount of the Tranche
A Notes on May 23, 2003. One holder refused the prepayment of the balance of the
$2.5 million that was to have been prepaid on that date. No redemption and
prepayment of Tranche A Notes was required with respect to any other calendar
quarter during 2003.

The holders of the 10% Senior Secured Notes may require Pioneer to redeem
10% Senior Secured Notes with net cash proceeds of certain asset sales and of
new equity issuance in excess of $35 million (if there is no indebtedness
outstanding under the Senior Floating Notes and the Senior Guaranteed Notes). In
addition, the holders may require Pioneer to repurchase all or a portion of the
notes upon the occurrence of a change of control.

Pioneer may prepay amounts owed on the Tranche A Notes and the 10% Senior
Secured Notes in minimum amounts of $1.0 million or more, and Pioneer may, at
its option, terminate the Revolver. If the Revolver is terminated early, there
will be a premium due that ranges from 1% to 3% of $50 million, depending upon
the termination date. On or after December 31, 2005, Pioneer may redeem some or
all of the 10% Senior Secured Notes by paying the holders a percentage declining
from 105% to 100% (depending on the year of redemption) of the stated principal
amount plus accrued and unpaid interest to the redemption date.

The obligations under the Revolver are secured by liens on Pioneer's
accounts receivable and inventory, and the obligations under the Senior Notes
are secured by liens on substantially all of Pioneer's other assets, with the
exception of certain assets that secure the obligations outstanding under
certain other long-term liabilities.

The debt agreements contain covenants requiring Pioneer to meet minimum
liquidity levels, and limiting or prohibiting Pioneer's ability to, among other
things, incur additional indebtedness, prepay or modify debt instruments, grant
additional liens, guarantee any obligations, sell assets, engage in another type
of business or suspend or terminate a substantial portion of business, declare
or pay dividends, make investments, make capital expenditures in excess of
certain amounts, or make use of the proceeds of borrowings for purposes other
than those specified in the agreements. The agreements also include customary
events of default, including one for a change of control under the Revolver.
Borrowings under the Revolver will generally be available subject to the
accuracy of all representations and warranties, including the absence of a
material adverse change and the absence of any default or event of default.

Scheduled maturities of long-term debt at December 31, 2003 are as follows:

Because the Revolver requires a lock-box arrangement and contains a clause
that allows the lender to refuse to fund further advances in the event of a
material adverse change in Pioneer's business, the Revolver must be classified
as current debt, and its maturity in the above table is included in 2004,
although the contractual expiration of the Revolver is in 2006.

F-24

On December 31, 2003, the borrowing base under the Revolver was $30.0
million. Borrowing availability net of outstanding letters of credit was $10.5
million, and net liquidity (consisting of cash and borrowing availability) was
$12.4 million.

Pioneer does not anticipate that the cash that it will generate from its
operations will be sufficient to repay the Revolver and the Tranche A Notes when
they are due in December 2006, or the 10% Senior Secured Notes when they are due
in December 2008. In such events, it would be necessary to refinance the
indebtedness, issue new equity or sell assets. The terms of any necessary new
borrowings would be determined by then-current market conditions and other
factors, and could impose significant additional burdens on Pioneer's financial
condition and operating flexibility, and the issuance of new equity securities
could dilute the interest of Pioneer's existing stockholders. Pioneer cannot
provide any assurance that it would be able to refinance any of its
indebtedness, raise equity on commercially reasonable terms or at all, or sell
assets, which failure could cause Pioneer to default on its obligations and
impair its liquidity. Pioneer's inability to generate sufficient cash flow to
satisfy its debt obligations, or to refinance its obligations on commercially
reasonable terms, would have a material adverse effect on its business,
financial condition and results of operations.

10. CONSOLIDATING FINANCIAL STATEMENTS

PCI Canada (a wholly-owned subsidiary of PCI) is the issuer of the $150
million 10% Senior Secured Notes, which are fully and unconditionally guaranteed
on a joint and several basis by PCI and all of PCI's other direct and indirect
wholly-owned subsidiaries.

Pioneer Americas (a wholly-owned subsidiary of PCI Canada) is the issuer of
the $43.2 million of Senior Guaranteed Notes and $4.4 million of Senior Floating
Notes, which are fully and unconditionally guaranteed on a joint and several
basis by PCI and all of PCI's other direct and indirect wholly-owned
subsidiaries. Together, PCI Canada, Pioneer Americas and the subsidiary note
guarantors comprise all of the direct and indirect subsidiaries of PCI.

F-25

Condensed consolidating financial information for PCI and its wholly-owned
subsidiaries is presented below. Information is presented as though the
Successor Company organizational structure had been in place for all periods
presented. Separate financial statements of PCI Canada and Pioneer Americas are
not provided because Pioneer does not believe that such information would be
material to investors or lenders of the Company.

CONDENSED CONSOLIDATING BALANCE SHEET -- SUCCESSOR COMPANY
DECEMBER 31, 2003

F-26

CONDENSED CONSOLIDATING BALANCE SHEET -- SUCCESSOR COMPANY
DECEMBER 31, 2002

F-27

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2002

F-28

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2001

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2003

F-29

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2001

F-30

Pursuant to the terms of certain debt instruments, there are prohibitions
on the payment of dividends on the new common stock by the Company. Pioneer's
ability to incur additional new indebtedness is restricted, other than borrowing
available under the Revolver. See Note 9.

PCI did not receive dividends from its subsidiaries during the years ended
December 31, 2003, 2002, and 2001.

11. BUSINESS SEGMENT INFORMATION

Financial information relating to Pioneer by geographical area is as
follows. Revenues are attributed to countries based on delivery point.

Revenues by major products for the years ended December 31, 2003, 2002 and
2001, were as follows:

No individual customer accounted for 10% or more of Pioneer's revenues in
2003, 2002 or 2001.

12. ASSET IMPAIRMENT AND OTHER ITEMS

CRC now provides power to meet the majority of the Henderson plant's needs
at market rates. The market rates are expected to remain at levels higher than
the rates under the long-term hydropower contracts that were assigned to the
Southern Nevada Water Authority as part of the settlement of the dispute with
CRC. As a result, Pioneer reviewed the facility for impairment as of March 31,
2003, and determined that the book value of the Henderson facility exceeded the
undiscounted sum of future expected cash flows over the remaining life of the
facility. Pioneer then calculated the estimated fair value of the facility by
discounting expected future cash flows using a risk-adjusted discount rate of
13%. Based on that analysis, Pioneer recorded an impairment charge of $40.8
million in the first quarter of 2003.

In March 2002 Pioneer idled the Tacoma chlor-alkali plant due to poor
market conditions. The idling of the Tacoma plant resulted in the termination of
84 employees, all of whom were terminated prior to June 30, 2002, and for whom
$1.9 million of severance expense was recorded during the quarter ended March
31, 2002. Substantially all of the accrued severance was paid out during 2002.
Additionally, $2.6 million of asset

F-31

impairment and other items were recorded during 2002, primarily comprised of
$0.7 million of exit costs related to idling the Tacoma plant, $0.4 million
related to staff reductions at the Cornwall plant, $0.6 million of executive
severance, $0.5 million of legal expense related to Pioneer's emergence from
bankruptcy and a $1.1 million gain from the sale of assets.

Due to the continuation of the idling of the Tacoma chlor-alkali facility
and uncertainty as to when Pioneer would restart it, Pioneer reviewed the
facility for impairment as of December 31, 2002. The impairment review showed
that the book value of the Tacoma assets exceeded the undiscounted sum of the
expected future cash flows from those assets. The expected future cash flows
were calculated by taking a weighted average of the cash flow streams associated
with various scenarios for the future use of the facility. The cash flows and
probability of occurrence of each scenario were determined using management's
best estimates based on current available information. Pioneer then discounted
the expected future cash flows using a risk-free interest rate of 3.6% to
determine the fair value of the facility. Based on this analysis, Pioneer
recognized a $16.9 million impairment of the Tacoma facility in December 2002.

Of the $12.9 million of asset impairments and other items recorded in 2001,
$4.3 million represented professional fees related to Pioneer's financial
reorganization incurred prior to the Chapter 11 filing on July 31, 2001, $3.8
million related to an asset impairment charge relating to the Pioneer Technical
Center ("PTC") and $4.8 million was attributable to severance expense.

In March 2001 Pioneer announced a 50% curtailment in the capacity of its
Tacoma plant due to an inability to obtain sufficient power at reasonable
prices. The Tacoma curtailment resulted in the termination of 55 employees, for
which $1.9 million of accrued severance expense was recorded in March 2001.
Additionally, in connection with an organizational restructuring undertaken by
Pioneer, $1.6 million of severance expense was recorded in March 2001 relating
to terminations of 19 employees at other locations, all whom were terminated
prior to June 30, 2001. Severance payments of approximately $3.0 million were
made during the year ended December 31, 2001, resulting in accrued severance of
$0.5 million at December 31, 2001.

In October 2001 Pioneer announced plans to shut down the PTC. This shutdown
resulted in the termination of 23 employees, for which $1.3 million of accrued
severance was recorded in reorganization items as of December 31, 2001. During
2002, all of the employees were terminated, and substantially all of the
severance was paid. In December 2001 Pioneer performed an impairment analysis,
and determined that the PTC asset was impaired. As a result, Pioneer measured
the asset at current fair market value, based on sales prices for similar
properties less estimated selling costs, and recorded an impairment loss of $3.8
million during 2001. The sale of the PTC assets was completed in August 2002,
and a $0.7 million gain was recorded in asset impairment and other items.

13. COMMITMENTS AND CONTINGENCIES

LETTERS OF CREDIT

At December 31, 2003, Pioneer had letters of credit outstanding of
approximately $2.6 million. These letters of credit were issued for the benefit
of municipal customers under sales agreements securing delivery of products
sold, state environmental agencies as required for manufacturers in the states
and holders of Pioneer's tax-exempt bonds. The letters of credit expire at
various dates in 2004. No amounts were drawn on the letters of credit at
December 31, 2003.

F-32

OPERATING LEASES

Pioneer leases certain manufacturing and distribution facilities and
equipment, computer equipment, and administrative offices under non-cancelable
leases. Minimum future rental payments on such leases with terms in excess of
one year in effect at December 31, 2003, are as follows:

2004............................................... $12,281
2005............................................... 11,329
2006............................................... 9,198
2007............................................... 6,423
2008............................................... 5,079
Thereafter......................................... 13,920
-------
Total minimum obligations..................... $58,230
=======

Lease expense charged to operations for the years ended December 31, 2003,
2002, and 2001, was approximately $15.9 million, $16.8 million and $18.4
million, respectively.

LITIGATION

Pioneer is party to various legal proceedings and potential claims arising
in the ordinary course of its business. In the opinion of management, Pioneer
has adequate legal defenses or insurance coverage with respect to these matters,
and management does not believe that they will materially affect Pioneer's
financial position or results of operations. See Note 3 for information
concerning litigation related to Pioneer's derivatives dispute with CRC.

Collective Bargaining Agreements

Approximately 46% of Pioneer's employees are covered by collective
bargaining agreements, none of which will expire during 2004.

14. INCOME TAXES

Income taxes are recorded pursuant to SFAS 109, "Accounting for Income
Taxes," under which deferred income taxes are determined utilizing an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting basis
and tax basis of the assets and liabilities, and the ultimate realization of any
deferred tax asset resulting from such differences. Pioneer considers all
foreign earnings as being permanently invested in that country.

The components of income tax (expense) benefit are as follows:

F-33

The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax (expense) benefit for the periods presented is as follows:

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax liabilities and assets are as follows at December 31:

As of December 31, 2003, a valuation allowance for the full amount of the
U.S. net deferred tax assets was recorded due to uncertainties as to whether
Pioneer will generate future taxable income so as to realize the benefit of the
deferred tax assets.

F-34

At December 31, 2003, Pioneer had net operating loss carryforwards ("NOLs")
of $268 million (representing $99.0 million of deferred tax assets) for U.S.
income tax purposes that will expire in varying amounts from 2009 to 2023, if
not utilized. Approximately $68 million of the U.S. NOLs generated in 2002 and
2003 will expire in 2022 and 2023 and are not subject to limitation. The
remaining $200 million of U.S. NOLs (the "Predecessor Company NOLs") was
generated prior to the Company's emergence from bankruptcy on December 31, 2001,
and its utilization in subsequent years may be substantially restricted. Pioneer
also had $24.0 million of Canadian NOLs (representing $7.9 million of deferred
tax assets) generated in 2003 and 2002 that are not subject to limitation and
that will expire in 2009 and 2010.

The income tax benefit, if any, resulting from any future realization of
the Predecessor Company NOLs will be credited to paid-in capital. In 2002,
Pioneer recorded a credit of $0.5 million to additional paid-in capital in
connection with a refund relating to the carryback of Predecessor NOLs.

At December 31, 2003, Pioneer also had various tax credits and other tax
loss carryforwards of approximately $7.1 million which includes primarily $3.5
million of capital loss with no expiration date, and $1.0 million in other
losses with expirations between 2004 and no expiration, and tax credits of $2.6
million with expirations between 2004 and no expiration.

15. OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL

Pioneer's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those applicable
to waste management, discharge of materials into the air and water, clean-up
liability from historical waste disposal practices, and employee health and
safety. Pioneer is currently addressing soil and/or groundwater contamination at
several sites through assessment, monitoring and remediation programs with
oversight by the applicable state agency. In some cases, Pioneer is conducting
this work under administrative orders. Pioneer could be required to incur
additional costs to construct and operate remediation systems in the future.
Pioneer believes that it is in substantial compliance with existing government
regulations.

In order to reassess Pioneer's environmental obligations and to update an
independent environmental analysis conducted in 2000, Pioneer commissioned a new
study of environmental concerns at all of its plants during 2003. The study was
based on scenario analysis to estimate the cost to remedy environmental concerns
at Pioneer's plant sites. For each scenario, the study also used cost estimating
techniques that included actual historical costs, estimates prepared for us by
consultants, estimates prepared by Pioneer's engineers and other published cost
data available for similar projects completed at the same or other sites.

The 2003 study identified a number of conditions that have changed since
the 2000 environmental analysis, including, but not limited to, flexibility in
regulatory agency guidance, increased knowledge of site conditions, the use of
alternative remediation technologies, post-acquisition contamination not covered
under existing environmental indemnity agreements and the inherent risk of
disputes under some of the indemnity agreements due to passage of time. Based on
the study, Pioneer estimated its total environmental remediation liabilities to
be $21.0 million, of which $3.2 million is subject to indemnity claims against a
previous owner. As a result, Pioneer recorded an environmental charge of $9.5
million in the first quarter of 2003, and as of December 31, 2003, its total
estimated environmental liabilities were $20.5 million and are included in other
long-term liabilities on the consolidated balance sheet.

Pioneer's Henderson facility is located within what is known as the Black
Mountain Industrial Park. Soil and groundwater contamination have been
identified within and adjoining the Black Mountain Industrial Park, including
land owned by Pioneer. A groundwater treatment system was installed at the
facility and, pursuant to a consent agreement with the Nevada Division of
Environmental Protection, studies are being conducted to further evaluate soil
and groundwater contamination at the facility and other properties within the
Black Mountain Industrial Park and to determine whether additional remediation
will be necessary with respect to Pioneer's property.

In connection with the 1988 acquisition of the St. Gabriel and Henderson
facilities, the sellers agreed to indemnify Pioneer with respect to, among other
things, certain environmental liabilities associated with

F-35

historical operations at the Henderson site. ZENECA Delaware Holdings, Inc. and
ZENECA Inc., (collectively the "ZENECA Companies") have assumed the indemnity
obligations, which benefit Pioneer. In general, the ZENECA Companies agreed to
indemnify Pioneer for environmental costs which arise from or relate to
pre-closing actions which involved disposal, discharge, or release of materials
resulting from the former agricultural chemical and other non-chlor-alkali
manufacturing operations at the Henderson facility. The ZENECA Companies are
also responsible for costs arising out of the pre-closing actions at the Black
Mountain Industrial Park. Under the ZENECA Indemnity, Pioneer may only recover
indemnified amounts for environmental work to the extent that such work is
required to comply with environmental laws or is reasonably required to prevent
an interruption in the production of chlor-alkali products. Pioneer is
responsible for environmental costs relating to the chlor-alkali manufacturing
operations at the Henderson facility, both pre- and post-acquisition, for
certain actions taken without the ZENECA Companies' consent and for certain
operation and maintenance costs of the groundwater treatment system at the
facility.

Payments for environmental liabilities under the ZENECA Indemnity, together
with other non-environmental liabilities for which the ZENECA Companies agreed
to indemnify Pioneer, cannot exceed approximately $65 million. To date Pioneer
has been reimbursed for approximately $12 million of costs covered by the ZENECA
Indemnity, but the ZENECA Companies may have directly incurred additional costs
that would further reduce the total amount remaining under the ZENECA Indemnity.
Pioneer has recorded a $3.2 million environmental reserve related to pre-closing
actions at sites that are the responsibility of the ZENECA Companies, as well as
a receivable from the ZENECA Companies for the same amount. It is Pioneer's
policy to record such amounts when a liability can be reasonably estimated. The
timing of future cash flows for environmental work is uncertain, such that those
cash flows do not qualify for discounting under generally accepted accounting
standards. As a result, the environmental liabilities and related receivables
are recorded at their undiscounted amounts of $3.2 million at December 31, 2003.

The ZENECA Indemnity continues to cover claims after the April 20, 1999,
expiration of the term of the indemnity to the extent that, prior to the
expiration of the indemnity, proper notice to the ZENECA Companies was given and
either the ZENECA Companies have assumed control of such claims or Pioneer was
contesting the legal requirements that gave rise to such claims, or had
commenced removal, remedial or maintenance work with respect to such claims, or
commenced an investigation which resulted in the commencement of such work
within ninety days. Management believes proper notice was provided to the ZENECA
Companies with respect to outstanding claims under the ZENECA Indemnity, but the
amount of such claims has not yet been determined given the ongoing nature of
the environmental work at Henderson. Pioneer believes that the ZENECA Companies
will continue to honor their obligations under the ZENECA Indemnity for claims
properly presented. It is possible, however, that disputes could arise between
the parties concerning the effect of contractual language and that Pioneer would
have to subject claims for cleanup expenses, which could be substantial, to the
contractually-established arbitration process.

Pioneer acquired the chlor-alkali facility in Tacoma from a subsidiary of
Occidental Chemical Corporation ("OxyChem"), in June 1997. In connection with
the acquisition, Pioneer received an indemnification with respect to certain
environmental matters. In general, Pioneer will be indemnified by OxyChem
against damages incurred for remediation of certain environmental conditions,
for certain environmental violations caused by pre-closing operations at the
site and for certain common law claims. The conditions subject to the indemnity
are sites at which hazardous materials have been released prior to closing as a
result of pre-closing operations at the site. In addition, OxyChem will
indemnify Pioneer for certain costs relating to releases of hazardous materials
from pre-closing operations at the site into the Hylebos Waterway, site
groundwater containing certain volatile organic compounds that must be
remediated under an RCRA permit, and historical disposal areas on the embankment
adjacent to the site for maximum periods of 24 or 30 years from the June 1997
acquisition date, depending upon the particular condition, after which Pioneer
will have full responsibility for any remaining liabilities with respect to such
conditions. OxyChem may obtain an early expiration date for certain conditions
by obtaining a discharge of liability or an approval letter from a governmental
authority. At this time it cannot be determined whether the currently
anticipated remediation work will be completed prior to the expiration of the
indemnity, or whether additional remedial requirements will be imposed
thereafter.

F-36

OxyChem will also indemnify Pioneer against certain other environmental
conditions and environmental violations caused by pre-closing operations that
are identified after the closing. Environmental conditions that are subject to
an administrative or court order before June 2007 will be covered by the
indemnity up to certain dollar amounts and time limits. Pioneer will indemnify
OxyChem for environmental conditions and environmental violations identified
after the closing if (i) an order or agency action is not imposed within the
relevant time frames or (ii) applicable expiration dates or dollar limits are
reached. As of December 31, 2003, no orders or agency actions had been imposed.

The EPA has advised OxyChem and Pioneer that Pioneer has been named as a
"potentially responsible party" in connection with the remediation of the
Hylebos Waterway in Tacoma, by virtue of its current ownership of the Tacoma
site. The state Department of Ecology notified OxyChem and Pioneer of its
concern regarding high pH groundwater in the Hylebos Waterway embankment area
and has requested additional studies. OxyChem has acknowledged its obligation to
indemnify Pioneer against liability with respect to the remediation activities,
subject to the limitations included in the indemnity agreement. Pioneer has
reviewed the time frames currently estimated for remediation of the known
environmental conditions associated with the plant and adjacent areas, including
the Hylebos Waterway, and presently believes that it will have no material
liability upon the termination of OxyChem's indemnity. However, the OxyChem
indemnity is subject to limitations as to dollar amount and duration, as well as
certain other conditions, and there can be no assurance that such indemnity will
be adequate to protect Pioneer, that remediation will proceed on the present
schedule, that it will involve the presently anticipated remedial methods, or
that unanticipated conditions will not be identified. If these or other changes
occur, Pioneer could incur a material liability for which it is not insured or
indemnified.

In connection with the acquisition of the assets of PCI Canada in 1997,
Imperial Chemical Industrials PLC ("ICI") and certain of its affiliates
(together the "ICI Indemnitors") agreed to indemnify Pioneer for certain
liabilities associated with environmental matters arising from pre-closing
operations of the Canadian facilities. In particular, the ICI Indemnitors have
retained unlimited responsibility for environmental liabilities associated with
the Cornwall site, liabilities arising out of the discharge of contaminants into
rivers and marine sediments and liabilities arising out of off-site disposal
sites. The ICI Indemnitors are also subject to a general environmental indemnity
for other pre-closing environmental matters. This general indemnity will
terminate on October 31, 2007, and is subject to a limit of $25 million (Cdn).
Pioneer may not recover under the environmental indemnity until it has incurred
cumulative costs of $1 million (Cdn), at which point Pioneer may recover costs
in excess of $1 million (Cdn). As of December 31, 2002, Pioneer had not incurred
any cumulative costs towards the $25 million (Cdn) indemnity.

With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors
are responsible under the general environmental indemnity for a portion of the
costs incurred in any year during the period ending on October 31, 2007, subject
in any event to the $1 million (Cdn) threshold mentioned above. The ICI
Indemnitors will be responsible for 64% of any liabilities incurred during the
twelve months ending October 31, 2004, and the percentage of any costs that will
be the responsibility of the ICI Indemnitors declines by 16% each year
thereafter. After October 31, 2007, Pioneer will be responsible for
environmental liabilities at such facilities (other than liabilities arising out
of the discharge of contaminants into rivers and marine sediments and
liabilities arising out of off-site disposal sites). Pioneer will indemnify ICI
for environmental liabilities arising out of post-closing operations and for
liabilities arising out of pre-closing operations for which Pioneer is not
indemnified by the ICI Indemnitors.

In March 2003 Pioneer initiated arbitration proceedings to resolve a
dispute with ICI regarding the applicability of certain of ICI's covenants with
respect to approximately $1.3 million of equipment modification costs that
Pioneer incurred to achieve compliance with air emissions standards at the
Becancour facility.

Management believes that the indemnity provided by ICI will be adequate to
address the known environmental liabilities at the acquired facilities, and that
residual liabilities, if any, incurred by Pioneer will not be material.

F-37

The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs, or a determination that Pioneer is potentially responsible for
the release of hazardous substances at other sites could result in expenditures
in excess of amounts currently estimated by Pioneer to be required for such
matters, or could have a material adverse effect on Pioneer's financial
condition or results of operations. Furthermore, there can be no assurance that
additional environmental matters will not arise in the future.

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

17. SUBSEQUENT EVENT

In March 2004 Pioneer completed its internal evaluation of the advisability
of resuming operations at the Tacoma chlor-alkali facility, which was idled in
March 2002. Following the evaluation, Pioneer decided that the chlor-alkali
production operations at the facility would not be restarted; however, Pioneer
will continue to use the facility as a terminal and calcium chloride production
facility. Pioneer is currently evaluating the facility's assets, which have a
total net book value of $4.8 million at December 31, 2003, for (1) redeployment
of the chlor-alkali assets to other facilities or (2) the potential sale of such
assets. The results of that evaluation will be reflected in Pioneer's
consolidated results of operations for the quarter ending March 31, 2004.

F-38

EXHIBIT INDEX