UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2005

OR

For the transition period from                          to                         

Commission file number 000-31230

Pioneer Companies, Inc.

700 Louisiana Street, Suite 4300, Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)

(713) 570-3200
(Registrant’s telephone number, including area code)

     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 for 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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 þ No o

     On May 9, 2005, there were 11,284,774 shares of common stock of Pioneer Companies, Inc. outstanding.

TABLE OF CONTENTS

     Certain statements in this Form 10-Q regarding future expectations of Pioneer’s business and Pioneer’s results of operations, financial condition and liquidity may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements relate to matters that are not historical facts. Such statements involve risks and uncertainties, including, but not limited to, Pioneer’s high financial leverage, global political and economic conditions, the demand and prices for Pioneer’s products and raw materials, Pioneer and industry production volumes, competitive prices, the cyclical nature of the markets for many of Pioneer’s products and raw materials, the results of Pioneer’s organizational efficiency project, the effect of Pioneer’s results of operations on its debt agreements, Pioneer’s ability to procure the sale of certain excess land and water rights at its Henderson facility, and other risks and uncertainties. Attention is directed to Pioneer’s Annual Report on Form 10-K and Item 5 of Part II of this Report on Form 10-Q for a discussion of such risks and uncertainties. Actual outcomes may vary materially.

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PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

PIONEER COMPANIES, INC.

See notes to consolidated financial statements.

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PIONEER COMPANIES, INC.

See notes to consolidated financial statements.

4

PIONEER COMPANIES, INC.

See notes to consolidated financial statements.

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PIONEER COMPANIES, INC.

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”). All significant intercompany balances and transactions have been eliminated in consolidation.

     Pioneer operates in one industry segment, production and sales of chlor-alkali and related products. The products consist of chlorine and caustic soda along with related products, primarily bleach and hydrochloric acid. The segment consists of Pioneer’s two operating subsidiaries: PCI Chemicals Canada Company (“PCI Canada”) and Pioneer Americas LLC (“Pioneer Americas”).

     The consolidated balance sheet at March 31, 2005, and the consolidated statements of operations and cash flows for the periods presented are unaudited and reflect all adjustments, which consist only of normal recurring items, that management considers necessary for a fair presentation. Operating results for the first three months of 2005 are not necessarily indicative of results to be expected for the year ending December 31, 2005. All dollar amounts in the tabulations in the notes to the consolidated financial statements are stated in thousands of dollars unless otherwise indicated. Certain amounts are reclassified in prior periods to conform to current period presentations.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts as well as certain disclosures. Pioneer’s financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

     The consolidated balance sheet at December 31, 2004, is derived from the December 31, 2004, audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

2. Debt

     Debt consisted of the following:

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     The three-month London inter-bank offered rate (“LIBOR”) for the periods ended March 31, 2005, and December 31, 2004, was 2.56% and 1.98%, respectively.

     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 $175.2 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 March 31, 2005, Pioneer had a $1.1 million unsecured non-interest bearing instrument payable to a vendor for the settlement of certain amounts owed to that vendor, which contains a covenant that allows the vendor to demand immediate repayment and begin charging interest at a rate of 9.3% if Pioneer’s liquidity (as defined in the agreement with the vendor) falls below $5 million (Canadian dollars); a $0.4 million obligation payable over several years to a state taxing authority; and $3.8 million of other debt outstanding, comprised of notes maturing in various years through 2014.

     In December 2004, Pioneer issued 1.1 million shares of its common stock in a public offering. Of the $22.1 million in net proceeds of the offering, a total of $1.3 million was applied to prepay a portion of the outstanding Senior Floating Notes in December 2004, and the remainder was applied to the redemption of $21.1 million in principal amount of the outstanding Senior Guaranteed Notes in January 2005.

     The Revolver provides for revolving loans in an aggregate amount of up to $30 million, subject to borrowing base limitations related to the level of eligible accounts receivable, as determined in accordance with and subject to reserves established pursuant to the agreement, and as reduced by the amount of letters of credit that are outstanding. Borrowings under the Revolver are available through December 31, 2006, so long as no default exists and all conditions to borrowings are met. Borrowings under the Revolver accrue interest at a rate equal to either the prime rate plus a margin or LIBOR plus a margin. Pioneer incurs a fee on the unused amount of the facility at a rate of 0.375% per year. No borrowings were outstanding under the Revolver on March 31, 2005. On that date the borrowing base under the Revolver was $25.4 million.

     The Revolver requires Pioneer to maintain Liquidity (as defined in the agreement) of at least $5.0 million, and limits capital expenditures to $25.0 million in each fiscal year. At March 31, 2005, Liquidity was $41.0 million, consisting of borrowing availability, net of $4.6 million in outstanding letters of credit, of $25.4 million and cash of $15.6 million. Capital expenditures were $3.9 million during the three months ended March 31, 2005. One of the covenants in the Revolver requires Pioneer to generate at least $21.550 million of Lender-Defined EBITDA (as defined) for each twelve-month period ending at the end of each fiscal quarter. 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 in the future the required Lender-Defined EBITDA level under the Revolver were not met or if Pioneer were to fail to comply with other covenants and the lender did not waive Pioneer’s non-compliance, Pioneer would be in default under the terms of the Revolver. Moreover, if conditions constituting a material adverse change occur, the lender could refuse to make further advances. Following any such refusal, customer receipts would be applied to Pioneer’s borrowings under the Revolver, if any, and Pioneer would not have the ability to reborrow. This could cause Pioneer to suffer a rapid loss of liquidity and it could 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 30 and December 31. Interest on the Senior Guaranteed Notes and the Senior Floating Notes (collectively, the “Tranche A Notes”) is payable quarterly on March 31, June 30, September 30 and December 31. Interest on any borrowings outstanding from time to time under the Revolver is payable monthly.

     Pioneer is required to make mandatory redemptions of 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), or if there is a change of control. The $22.1 million in net proceeds of Pioneer’s equity offering

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in December 2004 was applied to the redemption and prepayment of Tranche A Notes in December 2004 and January 2005.

     The Tranche A Notes also provide that, within 60 days after each calendar quarter through 2006, Pioneer is required to redeem and prepay the greater of (a) an amount determined on the basis of 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 Pioneer’s excess cash flow and average liquidity, as defined. With respect to the Tranche A Notes EBITDA, the amount that is to be redeemed and prepaid is (i) $2.5 million if Tranche A Notes EBITDA for a calendar quarter is $20 million or more but less than $25 million, (ii) $5 million if Tranche A Notes EBITDA for a calendar quarter is $25 million or more but less than $30 million and (iii) $7.5 million if Tranche A Notes EBITDA for a 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 Pioneer’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 scheduled 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 prepayment.

     While no redemption and prepayment of Tranche A Notes was required with respect to any calendar quarter during 2004, on the basis of current estimates Pioneer believes that it will be required to redeem and prepay approximately $18.3 million of the principal amount of the Tranche A Notes as a result of the application of these provisions with respect to Pioneer’s excess cash flow for the quarter ended March 31, 2005, although the holders of Senior Floating Notes may refuse the prepayment of a portion of such amount. Such prepayment and redemption is expected to occur during May 2005.

     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 issuances in excess of $35 million (if there is no indebtedness outstanding under the Tranche A 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, a prepayment premium of $0.3 million will be required. 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 to be redeemed 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 in the Revolver relating to a change of control. 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. On March 31, Pioneer was in compliance with all of the covenants contained in its debt agreements.

     The cash that Pioneer generates from its operations may not be sufficient for the repayment of the 10% Senior Secured Notes when they are due in December 2008. To the extent that Pioneer is unable to repay any indebtedness

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when it is due, 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. Any inability by Pioneer 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.

3. Tacoma Facility

     In March 2004 Pioneer completed its evaluation of the resumption of operations at the Tacoma chlor-alkali facility, which was idled in March 2002. As a result of the evaluation, Pioneer decided that the chlor-alkali production operations at the facility would not be restarted. However, Pioneer has continued to use the facility as a terminal. Pioneer recorded additional depreciation expense of $3.4 million related to the net book value of the non-productive chlor-alkali assets at the Tacoma facility during the quarter ended March 31, 2004. As of March 31, 2004, the net book value of the Tacoma facility was $1.3 million. Pioneer anticipates that its evaluation of other uses of the facility will be completed during 2005.

4. Environmental Liabilities

     Pioneer and its operations are subject to extensive United States and Canadian federal, state, provincial and local laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the release or disposal of regulated materials. The operation of any chemical manufacturing plant and the distribution of chemical products entail certain obligations under current environmental laws.

     Pioneer commissions periodic reassessments of its environmental obligations. In April 2005 the most recent independent analysis of environmental concerns at all of Pioneer’s sites was completed, updating a similar independent environmental analysis completed in April 2003. The new study involved a site-by-site analysis of environmental concerns and assessed conditions, situations, and sets of circumstances involving uncertainty as to a possible loss to Pioneer. The outcomes of uncertain conditions will be resolved when one or more future events occur or fail to occur, and resolution of the uncertainty may confirm the impairment of an asset or the incurrence of a liability. The study was based on the same methodology as the 2003 study, using scenario analysis to estimate the cost to remedy environmental concerns at Pioneer’s sites. For each scenario, the study also used cost estimating techniques that included actual historical costs, estimates prepared for Pioneer by other consultants, estimates prepared by Pioneer engineers and other published cost data available for similar projects completed at the same or other sites.

     The study identified a number of conditions that have changed since the 2003 environmental analysis due to, among other things, changes in regulations or in their application by regulatory agencies, the results of on-going and completed remediation projects, 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 recent study, Pioneer estimated its total environmental remediation liabilities to be $19.8 million, of which $3.2 million is subject to indemnity claims against a previous owner, as discussed below. As a result, Pioneer reduced its environmental reserves by $0.2 million in the first quarter of 2005, which is reflected as a reduction in cost of sales in the consolidated statement of operations, and during the quarter Pioneer also paid $0.3 million of environmental costs in connection with certain remediation projects. Pioneer bases its environmental reserves on undiscounted costs. See Note 12.

     As discussed in the Annual Report on Form 10-K for the year ended December 31, 2004, Pioneer has indemnity agreements with certain previous owners covering, among other things, pre-acquisition environmental conditions at certain of its sites. Previous analysis resulted in a $3.2 million environmental reserve related to pre-acquisition conditions at the Henderson site that is the responsibility of a previous owner, and a receivable from the previous owner for the same amount has also been recorded. Pioneer believes that the previous owner will continue to honor

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its obligations for claims properly presented by Pioneer or by regulatory authorities, although it is possible that disputes could arise concerning the effect of contractual language, in which event Pioneer would have to subject any claims for cleanup expenses, which could be substantial, to the contractually-established arbitration process. The recent study did not include environmental matters covered by the $3.2 million environmental receivable. Such amount, as originally estimated, is included in the consolidated balance sheet as of March 31, 2005, in offsetting amounts in other assets and other long term liabilities. The recent study also did not cover any environmental matters that Pioneer believes to be fully covered under other indemnity agreements.

5. Other Items

     Pioneer began the development and implementation of an organizational efficiency project referred to as Project STAR in the first quarter of 2004 and extended the concept of the project to its Dalhousie facility in the first quarter of 2005. Additionally, in the fourth quarter of 2004 Pioneer initiated a plan to relocate the bleach production assets from its Cornwall plant to the Becancour facility.

     Project STAR involves the design, development and implementation of uniform and standardized systems, processes and policies to improve Pioneer’s management, sales and marketing, production, process efficiency, logistics and material management and information technology functions. The original project resulted in the elimination of 128 employee and contract positions. Almost all of the reductions have now taken place. The extension of Project STAR to Dalhousie is expected to result in the elimination of eleven employee positions. The anticipated completion date of Project STAR, including the Dalhousie phase, is December 31, 2005.

     The transfer of bleach production assets from Cornwall to the Becancour facility was completed in April 2005. The transfer is expected to result in the termination of thirteen employee positions at the Cornwall facility. However, after taking into account the necessary additional staffing at the Becancour plant, Pioneer anticipates that the project will result in a net elimination of eight employee positions. Pioneer is currently evaluating the remaining operations at the Cornwall facility.

     All employee severance and related costs are recognized in other items in the consolidated statements of operations. Pioneer anticipates only minor cost recognition over the remainder of the projects associated with Project STAR, including the Dalhousie project, and from the transfer of the Cornwall bleach assets. The employee severance and related costs associated with the above restructuring activities are shown in the table below (dollars in thousands).

6. Net Income (Loss) per Share

     Basic net income (loss) per share is based on the weighted average number of shares outstanding during the period. Diluted net income (loss) per share considers the dilutive effect of potentially issuable shares pursuant to stock option plans (see Note 8) during the period.

     Computational amounts for net income (loss) per share are as follows:

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     All of the options to purchase shares of common stock that were outstanding during the three-month period ended March 31, 2005, were included in the computation of diluted net income per share. None of the options to purchase shares of common stock that were outstanding during the three-month period ended March 31, 2004, were included in the computation of diluted net loss per share since their inclusion would have been anti-dilutive.

7. Inventories

     Inventories consisted of the following:

8. Stock-Based Compensation

     At March 31, 2005, options to purchase 752,750 shares of PCI’s common stock were outstanding, with exercise prices ranging from $2.00 to $20.75 per share, a weighted average exercise price of $4.97 and a weighted average remaining contractual life of 7.93 years. No options were granted during the three months ended March 31, 2005 and 2004. Stock options generally expire 10 years from the date of grant and fully vest after three years.

     Pioneer accounts for stock options under Accounting Principles Board Opinion No. 25 (“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 Statement of Financial Accounting Standards (“SFAS”) 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” Pioneer’s pro-forma net income (loss) and net income (loss) per share would have been as follows:

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     SFAS 123(R), “Share-Based Payment,” issued in December 2004, superseded APB 25 and revised SFAS 123 and will require the recognition of compensation expense related to applicable stock options. In April 2005 the Securities and Exchange Commission postponed the adoption date of SFAS 123(R), and Pioneer currently expects to adopt SFAS 123(R) effective January 1, 2006. We expect the adoption of SFAS 123(R) to result in additional compensation expense of approximately $0.2 million for the year ending December 31, 2006. Until the adoption of SFAS 123(R), Pioneer continues to account for its stock option plan under the provisions and related interpretations of APB 25. No compensation expense is recognized for such options.

9. Supplemental Cash Flow Information

     Following are supplemental disclosures of cash flow information:

10. Condensed Consolidating Financial Statements

     PCI Canada (a wholly-owned subsidiary of PCI) is the issuer of the $150 million principal amount of 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 $22.1 million principal amount of Senior Guaranteed Notes and the $3.1 million principal amount 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.

     Condensed consolidating financial information for PCI and its wholly-owned subsidiaries is presented below. 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.

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Condensed Consolidating Balance Sheet — March 31, 2005 (in thousands)

Condensed Consolidating Balance Sheet — December 31, 2004 (in thousands)

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Condensed Consolidating Statement of Operations — Three Months Ended March 31, 2005 (in thousands)

Condensed Consolidating Statement of Operations — Three Months Ended March 31, 2004 (in thousands)

Condensed Consolidating Statement of Cash Flows — Three Months Ended March 31, 2005 (in thousands)

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Condensed Consolidating Statement of Cash Flows — Three Months Ended March 31, 2004 (in thousands)

11. Pension and Other Postretirement Benefits

     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 has been accounted for as a curtailment pursuant to SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.” As a result of the curtailment, the projected benefit obligations for the Pioneer Americas pension plans decreased by $4.3 million. The actuarial gain from such decrease was applied against existing unrecognized actuarial losses and Pioneer recorded no curtailment gain in its statement of operations for the three months ended March 31, 2004.

     The component of net periodic benefit costs related to Pioneer’s defined benefit pension plans for the three months ended March 31, 2005 and 2004 were:

     Pension expense was $0.4 million and $0.7 million for the three months ended March 31, 2005 and 2004, respectively. Pension contributions were $0.9 million and $0.3 million in the three months ended March 31, 2005 and 2004, respectively. Total contributions in 2005, which are based on regulatory requirements, are expected to be approximately $5.3 million.

     Effective December 31, 2003, Pioneer Americas’ retiree health care benefits plan was modified to eliminate retiree health care benefits when a participant reaches age 65. Pioneer Americas accounted for the reduction in

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benefits as a negative plan amendment. The gain is amortized over a period of up to 7.63 years, and at March 31, 2005, the unamortized gain related to the negative plan amendment was $3.7 million.

     The annual costs and liabilities under both the U.S. and Canadian retiree health care plans are determined each year by Pioneer’s actuaries using various assumptions. The component of net periodic benefit costs related to Pioneer’s postretirement benefits other than pensions for the three months ended March 31, 2005 and 2004 were:

     Pioneer also maintains matched defined contribution savings plans for its employees in the U.S. and Canada. Pioneer’s contributions to these plans are based on the amount of employee contributions to the plans. In connection with the freezing of benefits under Pioneer Americas’ defined benefit plans, after March 1, 2004, the U.S. defined contribution plans have been supplemented by the company’s voluntary contributions to employees’ accounts based on various percentages of compensation. Pioneer’s contributions to the U.S. and Canadian defined contribution plans, consisting of both matching and supplemental contributions, were $0.3 million and $0.2 million for the three months ended March 31, 2005 and 2004, respectively.

12. Commitments and Contingencies

     Present or future environmental laws and regulations may affect Pioneer’s capital and operating costs relating to compliance, may impose cleanup requirements with respect to site contamination resulting from past, present or future spills and releases and may affect the markets for Pioneer’s products. Pioneer believes that its operations are currently in general compliance with environmental laws and regulations, the violation of which could result in a material adverse effect on Pioneer’s business, properties or results of operations on a consolidated basis. There can be no assurance, however, that material costs will not be incurred as a result of instances of noncompliance or new regulatory requirements.

     Pioneer relies on certain indemnities from previous owners and believes it has adequate environmental reserves covering known and estimable environmental liabilities at its chlor-alkali plants and other sites. There can be no assurance, however, that such indemnity agreements will be adequate to protect Pioneer from environmental liabilities at these sites or that such parties will perform their obligations under the respective indemnity agreements. The failure by such parties to perform under these indemnity agreements and/or any material increase in Pioneer’s environmental obligations will have a material adverse effect on Pioneer’s future results of operations and liquidity.

     Pioneer is subject 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 and/or insurance coverage with respect to these matters, and management does not believe that they will materially affect Pioneer’s operations or financial position.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Our annual report on Form 10-K for the year ended December 31, 2004, provides a discussion of our business, including the chlor-alkali industry, our customers and markets, the major components of our production process and costs and the means we use to distribute our products. The following discussion and analysis should be read in conjunction with the information provided in the annual report on Form 10-K for the year ended December 31, 2004, the consolidated financial statements and the related notes thereto.

Listing of Common Stock

     On April 15, 2005, trading of our common stock began on the NASDAQ National Market under the symbol PONR.

Product Prices

     In accordance with industry practice, we compare ECU prices on a netback basis, reporting and analyzing prices without regard to the cost of transporting the products to customers to allow for a comparable means of price comparisons between periods and with respect to our competitors. An electrochemical unit, which we refer to as an ECU, consists of 1.1 tons of caustic soda and 1 ton of chlorine. For purposes of determining our ECU netback, we use prices that we realize as a result of sales of chlorine and caustic soda to our customers, and we do not include the value of chlorine and caustic soda that is incorporated in other products that we manufacture and sell. During the quarter ended March 31, 2005, we used approximately 23% of the chlorine and 9% of the caustic soda that we produced to manufacture other products, primarily bleach and hydrochloric acid.

     Our quarterly average ECU netback for each of the most recent five quarters was as follows:

     Increasing demand for chlorine since the beginning of 2004 and increasing demand for caustic soda beginning in the second quarter of 2004 led us to announce price increases for those products since January 1, 2004, as follows (stated on a per ton basis):

     All of the price increases that we announce are implemented on effective dates as announced or as soon thereafter as permitted by applicable contract terms.

     Our annual production capacity is approximately 1,500,000 tons of chlorine and caustic soda. Most of the chlorine and caustic soda that we sell to customers is sold under contracts with varying terms and conditions. As of January 1, 2005, we had contracts covering the anticipated sale of an annual total of approximately 520,000 tons of chlorine and caustic soda (including equivalent amounts that will be sold as bleach or hydrochloric acid), and that are subject to contractual provisions that could restrict or eliminate our ability to increase the netback we will

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receive for the amount of product that is sold under those contracts. Of the contracts that are subject to such restrictions, contracts with respect to approximately 460,000 tons will expire over the course of the next three years and the remainder will expire over the following five years.

     The prices that we realize for contract sales of chlorine and caustic soda during any quarter, and thus our average ECU netback for the quarter, are different from the chlorine and caustic soda contract prices that are reported by Chemical Market Associates, Inc. (commonly referred to as CMAI), a leading industry observer. CMAI’s reported monthly contract prices are based on the assumption that price changes are implemented on the first day of the calendar quarter that follows announced price changes, while we have a mix of pricing provisions that in some cases limits or delays the implementation of price changes. CMAI’s reported monthly contract prices also relate to products that are produced and delivered in the U.S. Gulf Coast. While the majority of the demand for North American chlor-alkali production does occur in the U.S. Gulf Coast region, only one of our plants is located in that region, and regional supply and demand factors and logistical considerations generally result in varying regional prices for our products.

     During the first quarter of 2005 our average ECU netback was $548, while the average ECU netback quoted by CMAI for the same quarter was $709. In general, changes in our average ECU netback and the related effect on our revenues and cash flow have lagged changes in our announced prices and changes in the contract prices that are reported by CMAI, although the corresponding benefit to us in a period of declining prices is of a somewhat lesser magnitude. The following table illustrates the recent relationship between our average ECU netback and the monthly contract price reported by CMAI:

     For the month of April 2005 our average ECU netback was approximately $570. Since part of the benefit of the price increases that we have announced has been delayed, we expect that absent unforeseen circumstances our average ECU netback will increase during the balance of 2005, even in the absence of any further price increases. Plant operating rates in the chlor-alkali industry are reportedly at near capacity, and further increases in ECU prices during the remainder of 2005 could be announced if these conditions continue.

     The order control programs that we have implemented for both chlorine and caustic soda are a necessary means of balancing the demand for the products with our manufacturing capacity and the availability of products that we are able to purchase for resale, as permitted by our standard contract terms. Many of our competitors are reported to have adopted similar programs as a result of the industry’s current operating rate.

Production

     Our quarterly production volumes, expressed in terms of ECUs, at our chlor-alkali facilities for the most recent five quarters were as follows:

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     In January 2005 we reduced the operation of our chlor-alkali plant in Henderson, Nevada when flooding in California and Utah disrupted rail transportation of salt to the plant and the shipment of chlorine, caustic soda and hydrochloric acid to our customers, as well as the shipment of chlorine and caustic soda to our bleach plants in California. Also in January 2005, an apparently seasonal reduction in orders that would ordinarily be supplied by our Becancour plant led us to reduce that plant’s operating rate for several days. Those reductions led to approximately 9,500 fewer ECUs being produced during the month. We also had a planned maintenance outage at our St. Gabriel plant in March, reducing production by approximately 8,000 ECUs. As a result of those reductions and with various other minor production losses, during the most recent quarter our chor-alkali plants operated at approximately 88% of capacity. While we do not have any maintenance outages planned for our chlor-alkali plants during the second quarter of 2005, reductions in our operating rate could occur as a result of further disruptions in rail transportation or operating equipment failures.

     The volumes (in tons) of caustic soda that we purchased for resale during the most recent five quarters were as follows:

     On average, our margins on purchases for resale are lower than the margins we realize from the sales of caustic soda that is produced in our own plants. Some of the purchases are made under contracts with suppliers, and others are made on a spot basis, and we generally use such purchases to satisfy contractual commitments to customers. Following the reduction and later termination of chlor-alkali production in Tacoma, we met contractual commitments for caustic soda through purchases for resale. Those commitments have been terminated and we anticipate a reduced need for purchases for resale in future periods, and in any event, the decreasing availability of caustic soda under current market conditions may limit our purchases for resale during the remainder of 2005.

Raw Material and Transportation Costs

     The electricity costs associated with our production of chlor-alkali products can materially affect our results of operations, as 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.

     The amounts (in thousands) that we spent on power for the production of chlor-alkali products and for other power requirements during each of the most recent five quarters, and the corresponding percentages of our cost of sales that those amounts represented, were as follows:

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     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. In response to natural gas price movements, our electricity rates increased during the first quarter of 2005, but our total power costs decreased due to lower production levels during the quarter.

     Rail service problems since the beginning of the year have made it increasingly difficult to obtain timely and adequate supplies of salt at our Henderson facility. The same problems have made it more difficult to ensure that caustic soda, chlorine and hydrochloric acid are shipped on a timely basis to our customers, or that our bleach plants in Santa Fe Springs and Tracy, California and Tacoma, Washington receive shipments of caustic soda and chlorine when necessary to produce and deliver bleach to our bleach customers.

     Our rail carriers have indicated that they are reevaluating the transportation services that they provide to us, including the contractual terms upon which those services are provided and the prices charged for the services. A railroad’s ability to unilaterally change the terms upon which services are provided to us, and to do so in a short period of time, means that rail transportation could be reduced or even eliminated, or that we could be required to incur substantial increases in the cost of service. There could be further and more severe disruptions to rail service, which would affect our ability to meet our contractual obligations. Applicable contractual limitations may also prevent us from passing some or all of any cost increases on to our customers.

Cost Reduction Measures

     We began the development and implementation of an organizational efficiency project referred to as Project STAR in the first quarter of 2004 and extended the concept of the project to our Dalhousie facility in the first quarter of 2005. Additionally, in the fourth quarter of 2004 we initiated a plan to relocate the bleach production assets from our Cornwall plant to the Becancour facility.

     Project STAR involves 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 original project resulted in the elimination of 128 employee and contract positions. Almost all of the reductions have now taken place. The extension of Project STAR to Dalhousie is expected to result in the elimination of eleven employee positions. The anticipated completion date of Project STAR, including the Dalhousie phase, is December 31, 2005.

     The transfer of bleach production assets from Cornwall to the Becancour facility was completed in April 2005. The transfer is expected to result in the termination of thirteen employee positions at the Cornwall facility. However, after taking into account the necessary additional staffing at the Becancour plant, we anticipate that the project will result in a net elimination of eight employee positions. We are currently evaluating the remaining operations at the Cornwall facility.

     All employee severance and related costs are recognized in other items in the consolidated statements of operations. We anticipate only minor cost recognition over the remainder of the projects associated with Project STAR, including the Dalhousie project, and from the transfer of the Cornwall bleach assets. The employee severance and related costs associated with the above restructuring activities are shown in the table below (dollars in thousands).

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