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. Chlor Alkali operating rates are 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 business 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 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 was $74.4 million for the first quarter of 2012, which increased from the first quarter 2011 segment income of $45.2 million, as a result of improvements in ECU pricing, the ownership of SunBelt for the full quarter and increased contributions from bleach and hydrochloric acid. Chlor Alkali Products' first quarter segment income improved sequentially from the fourth quarter of 2011 level of $50.3 million, as volumes improved. Operating rates in Chlor Alkali Products for the first quarters of 2012 and 2011 were 80%.

First quarter of 2012 ECU netbacks, including SunBelt, of approximately $585 were 11% higher than the first quarter of 2011 ECU netbacks of $525, which included SunBelt for March only. The first quarter 2012 declined slightly from the fourth quarter 2011 levels of approximately $590, as chlorine prices weakened which more than offset increases in caustic soda prices. ECU netbacks in the second quarter of 2012 are forecast to be comparable or slightly lower than the first quarter of 2012. In the first quarter of 2012, a caustic soda price increase was announced totaling $45 per ton and a chlorine price increase was announced totaling $40 per ton. While the success of these caustic soda and chlorine price increases is not yet known, the benefits of the price increases, if realized, would impact third quarter 2012 results.

Winchester segment income was $10.8 million in the first quarter of 2012 compared to $12.5 million in the first quarter of 2011. The decrease in segment income reflects the impact of higher commodity metals and other material costs, higher manufacturing costs and transition costs associated with our ongoing relocation of the centerfire operations to Oxford, MS, partially offset by increased volumes and higher selling prices.

Capital spending of $75.9 million for the three months ended March 31, 2012 included $32.5 million for the conversion of our Charleston, TN facility from mercury cell technology to membrane technology, $15.9 million for the construction of low salt, high strength bleach facilities at our McIntosh, AL; Henderson, NV; and Niagara Falls, NY chlor alkali sites and $9.8 million for our ongoing relocation of our Winchester centerfire ammunition manufacturing operations. We completed the first low salt, high strength bleach facility at McIntosh, AL in the first quarter of 2012.

On April 27, 2012, we entered into a new five-year senior revolving credit facility of $265 million, which replaced the $240 million senior revolving credit facility and a $25 million letter of credit facility. The new credit facility will expire in April 2017. Borrowing options and restrictive covenants are similar to those of our previous $240 million senior revolving credit facility. The $265 million senior revolving credit facility includes a $110 million letter of credit subfacility and a $50 million Canadian subfacility.

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