Olin Corporation (OLN)

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Olin (OLN)

Q3 2012 Earnings Call

October 26, 2012 10:00 am ET

Executives

Joseph D. Rupp - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

John E. Fischer - Chief Financial Officer and Senior Vice President

John L. McIntosh - Senior Vice President of Operations

Analysts

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Christopher W. Butler - Sidoti & Company, LLC

Edward H. Yang - Oppenheimer & Co. Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Dmitry Silversteyn - Longbow Research LLC

Gregg A. Goodnight - UBS Investment Bank, Research Division

Richard O'Reilly

Presentation

Operator

Good morning, and welcome to the Olin Corporation's Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Joseph Rupp, Chairman, President and CEO. Please go ahead, sir.

Joseph D. Rupp

Thank you. Good morning, and thank you for joining us today. With me this morning are John Fischer, Senior Vice President, Chief Financial Officer; John McIntosh, our Senior Vice President of Operations; and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations.

Last night, we announced the net income in the third quarter of 2012 was $28.7 million or $0.35 per diluted share, which compares to $47.2 million or $0.58 per diluted share in the third quarter of 2011. Third quarter 2012 earnings in our Chlor Alkali business declined compared to the third quarter of 2011 due to lower chlorine and caustic soda volumes and lower ECU netbacks. These declines more than offset increased bleach and potassium hydroxide volumes and improved hydrochloric acid pricing. Third quarter 2012 bleach shipments of 50,000 ECU set a record, and the Winchester third quarter 2012 segment earnings improved compared to the third quarter of 2011 segment earnings, and that was due to improved pricing and lower commodity costs.

During the third quarter of 2012, Olin generated adjusted EBITDA of $81.3 million, and we continue to believe that we have the opportunity to generate a record level of adjusted EBITDA in 2012.

Fourth quarter 2012 net income is forecast to be in the $0.30 to $0.35 per diluted share range. Chlor Alkali Segment earnings in the fourth quarter of 2012 are expected to increase slightly compared to the fourth quarter of 2011 with higher volumes more than offset lower pricing.

Fourth quarter 2012 Chlor Alkali volumes are forecasted to be negatively impacted by anticipated seasonal customer outages and weaker-than-expected customer demand. The fourth quarter Chlor Alkali forecast also includes onetime costs totaling approximately $3 million associated with 4 scheduled plant maintenance outages. Winchester earnings in the seasonally weak fourth quarter are expected to more than double compared to the fourth quarter 2011. Fourth quarter 2012 forecast includes approximately $3 million pretax restructuring charges.

The third quarter was a significant one for Olin as we achieved a number of strategic milestones. First, we completed the acquisition of the K.A. Steel on August 22. K.A, Steel is a chemical distributor, uniquely focused on the distribution of only chemicals that Olin produces. For this reason, we believe the acquisition will enhance our commodity chemical business increasing the amount of our chlor alkali capacity that can be sold as value-added products. K,A. Steel contributed segment earnings of $1.9 million and EBITDA of $3.6 million in the third quarter.

The acquisition of K.A. Steel should enhance Olin's profitability, while improving our performance at all points of the economic cycle. We believe that it will realize between $7 million and $10 million of synergies during the first year of ownership, and we'll achieve annual synergies of at least $35 million at the end of 3 years. These synergy opportunities include increasing the sale of bleach, hydrochloric acid, potassium hydroxide, freight and logistic cost rationalization and improve caustic soda sales and distribution.

Our second accomplishment in quarter was to support the K.A. Steel. We did issue $200 million of Senior Notes. These notes, which have an interest rate of 5.5% and a 10-year maturity, fit nicely with our objective of maintaining staggered maturities while maintaining manageable towers of debt that come due in any single year.

Third, in September, the Chlor Alkali business successfully started the second of our low-salt high-strength bleach plants in Niagara Falls, New York. This follows the successful startup of our first salt-to-bleach plant at McIntosh, Alabama, that occurred during the first quarter. The new plant has the capacity to manufacture approximately 33,000 ECUs of bleach which increases the amount of our chlor alkali capacity that can be sold as bleach to 15%. We expect a third low-salt high-strength bleach plant located in Henderson, Nevada to be operational in the first quarter of 2013, and this will further increase the amount of our chlor alkali capacity that can be sold as bleach to 17%.

Fourth accomplishment in the quarter was the first of the 2 new membrane technology, chlor alkali cell rooms, at Charleston, Tennessee successfully started up in September. This cell room produces caustic soda. The second Charleston membrane cell room, which will produce potassium hydroxide, is scheduled to start up in November. And with this, the production using a mercury cell technology in Charleston will be completed. At that point, Olin will have successfully exited the chlor alkali in Charleston.

The fifth accomplishment was the start up of the first cell room in Charleston. The mercury salt chlor alkali production on Augusta, Georgia plant was also discontinued. The Augusta facility will continue to operate as a distribution facility, and will no longer manufacture chlorine and caustic soda.

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