Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Background

Our manufacturing operations are concentrated in two business segments: Chlor Alkali Products and Winchester. Both are capital intensive manufacturing businesses with operating rates closely tied to the general economy. Each segment has a commodity element to it, and therefore, our ability to influence pricing is quite limited on the portion of the segment's business that is strictly commodity. Our Chlor Alkali Products segment is a commodity business where all supplier products are similar and price is the major supplier selection criterion. We have little or no ability to influence prices in this large, global commodity market. Cyclical price swings, driven by changes in supply/demand, can be abrupt and significant and, given the capacity in our Chlor Alkali Products business, can lead to very significant changes in our overall profitability. Winchester also has a commodity element to its business, but a majority of Winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance. While competitive pricing versus other branded ammunition products is important, it is not the only factor in product selection.

Executive Summary

Chlor Alkali Products segment income of $68.7 million improved 3% compared with the three months ended March 31, 2008, which reflects record ECU pricing in the business, offset by lower volumes. Chlor Alkali Products realized a continuation of the weak demand that we experienced in the fourth quarter of 2008. Operating rates in Chlor Alkali Products for the three months ended March 31, 2009 were 65%, which were slightly lower than the three months ended December 31, 2008 level of 67%. The Chlor Alkali Products earnings for the three months ended March 31, 2009 were unfavorably impacted by maintenance and logistic costs associated with a planned ten-day maintenance outage during the quarter at our largest manufacturing site in McIntosh, AL, including the SunBelt facility, and the outage at our Henderson, NV site, which had been shutdown due to equipment failure from early December 2008 until February. In addition, we did not operate our St. Gabriel, LA facility during the three months ended March 31, 2009.

Winchester segment income of $17.0 million for the three months ended March 31, 2009 represented the highest level of quarterly earnings in its history. Winchester's results reflected the continuation of the stronger than normal demand that began in the fourth quarter of 2008 and improved pricing.

Earnings for the three months ended March 31, 2009 included $5.0 million of pretax gains associated with the sale of land and other asset disposals.