Olin Corporation (OLN)

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Olin Corporation (OLN)

Q4 2010 Earnings Call

February 1, 2011 10:00 a.m. ET

Executives

Joseph Rupp – President, Chairman and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chloralkali Products Division

Larry Kromidas - Assistant Treasurer and Director of Investor Relations

Analysts

Sabina Chatterjee - BB&T

Edward Yang – Oppenheimer

Christopher Butler – Sidoti & Company

Don Carson – Susquehanna

Herb Hardt – Monness

Alex Yefrimov - Bank of America-Merrill Lynch

Dmitry Silversteyn - Longbow Research

Gregg Goodnight - UBS

Kristen McDuffy - Goldman Sachs

Gautam Khanna - Cowen & Company

Presentation

Operator

Good morning and welcome to the Olin Corporation fourth quarter 2010 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by 0. After today’s presentation there will be an opportunity to ask questions. To ask a question you may press star then 1 on a touchtone phone. To withdraw your question please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Joseph Rupp. Mr. Rupp, please go ahead.

Joseph Rupp

Good morning and thank you for joining us today. With me this morning are John Fischer, Senior Vice President and Chief Financial Officer, John McIntosh, Senior Vice President of Operations and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations. Last night we announced that net income in the fourth quarter of 2010 was $2 million or 2 cents per diluted share compared to $21.8 million or 28 cents per diluted share in the fourth quarter of 2009.

Fourth quarter 2010 results included a previously announced pre-tax restructuring charge of $34.2 million and the fourth quarter of 2009 results included $37 million of pre-tax recoveries of environmental costs incurred and expensed in prior periods. Sales in the fourth quarter of 2010 were $385 million compared to $351 million in the fourth quarter of 2009. Fourth quarter 2010 results from both our chloralkali and Winchester businesses exceeded our expectations. Our chloralkali business earned 36.5 million in the quarter reflecting better than expected volumes and pricing.

Year over year chlorine and caustic soda volumes improved 12% and the impact of the normal seasonal slow down was less pronounced than we expected. ECU net backs improved 11% from the third quarter of 2010 level and were 21% higher than the fourth quarter 2009 level. The operating rate in the fourth quarter of 2010 was 80% compared to 70% in the fourth quarter of 2009. Winchester’s fourth quarter earnings were $3.6 million and full year 2010 earnings were $63 million, which represented the second most profitable year in its history.

The fourth quarter pre-tax restructuring charge of $34.2 million, approximately 60% of which is non-cash, reflects the plans we announced in December to exit the use of mercury cell technology in the chloralkali manufacturing process by the end of 2012 and the relocation of the Winchester center for our ammunition manufacturing operations from East Alton, Illinois to Oxford, Mississippi.

Fourth quarter 2010 results included a $1.6 million of pre-tax recoveries of environmental costs incurred and expensed in prior periods and a $1.4 million pre-tax recovery of a previously written off investment. Fourth quarter 2010 results also included $2.5 million of favorable income tax adjustments. Net income in 2010 was $64.8 million or 81 cents per diluted share compared to $135.7 million or $1.73 per diluted share in 2009.

In addition to the fourth quarter pre-tax restructuring charge and the investment recovery the 2010 full year results also included $7.2 million of pre-tax recoveries for environmental costs incurred and expensed in prior periods. 2009 full year results included $82.1 million of pre-tax recoveries for environmental costs incurred and expensed in prior periods and a $4.6 million pre-tax reduction in expense associated with the favorable resolution of a capital tax matter in Canada.

First quarter 2011 net income is forecasted to be in the 20-25 cent per diluted share range. Chloralkali expects to see continued improvement in the first quarter segment and our earnings compared to the fourth quarter of 2010 reflecting the positive impact of the 2010 price increase announcements. Earnings in the Winchester segment, which is facing pressure from higher commodity costs, are expected to improved compared to the fourth quarter but be lower than the first quarter 2010 levels.

The first quarter 2011 net income forecast does not include any favorable income tax adjustments. Before I talk about the businesses in more detail I’d like to spend a few minutes and discuss the restructuring charges that we took in both businesses and announced on December 10th. I’m going to begin with the mercury cell technology exit strategy. The timing of this decision was driven by several factors.

First, over the past 18 months we have experienced a steady increase in the number of customers unwilling to accept our products manufactured using mercury cell technology. This was becoming especially critical for the potassium hydroxide product where the two primary competitors have already completed conversions away from mercury cell technology. Second, there is federal legislation that was passed in 2008 governing the treatment of mercury that significantly limits our recycling options after December 31, 2012.

We concluded that exiting mercury cell technology production after 2012 represented an unacceptable future cost risk. Further, the conversion of the Charleston, Tennessee plant to membrane technology will reduce the electricity usage per ECU by approximately 25% and the configuration of the new plant will result in an increase of our capacity to produce potassium hydroxide. Potassium hydroxide is a value enhancing product in our system and has proven to have a more stable demand and pricing profile than caustic soda.

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