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OLN > SEC Filings for OLN > Form 10-Q on 29-Apr-2013All Recent SEC Filings

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Form 10-Q for OLIN CORP


Quarterly Report

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

Business Background

Our operations are concentrated in three business segments: Chlor Alkali Products, Chemical Distribution and Winchester. Chlor Alkali Products and Winchester are both capital intensive manufacturing businesses. Chlor Alkali Products 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 and Chemical Distribution businesses are commodity businesses 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 $58.5 million for the first quarter of 2013, which decreased from the first quarter 2012 segment income of $74.4 million primarily as a result of lower product prices and decreased volumes. Chlor Alkali Products' first quarter 2013 segment income improved sequentially from the fourth quarter of 2012 level of $54.3 million, as volumes improved. Our operating rate for the three months ended March 31, 2013 was 85%, which reflected the capacity reductions that occurred in fourth quarter of 2012, compared to the operating rate of 80% for the three months ended March 31, 2012.

First quarter of 2013 ECU netbacks of approximately $565 were approximately 3% lower than both the first quarter of 2012 ECU netbacks of approximately $585 and the fourth quarter of 2012 level of approximately $580. The decline from both periods was due to lower chlorine prices. ECU netbacks in the second quarter of 2013 are forecast to be higher than the first quarter of 2013 reflecting slight improvements in both chlorine and caustic soda prices. In the first quarter of 2013, a caustic soda price increase of $50 per ton was announced and a chlorine price increase of $60 per ton was announced. While the success of the $50 per ton caustic soda price increase or the $60 per ton chlorine price increase is not yet known, the majority of the benefit, if realized, would impact third quarter 2013 results.
Chemical Distribution segment income was $4.1 million for the three months ended March 31, 2013, which includes depreciation and amortization expense of $3.8 million primarily associated with the acquisition fair valuing of KA Steel. As a result of acquiring KA Steel in August of 2012, we anticipate realizing approximately $35 million of annual synergies at the end of three years. These synergies include opportunities to sell additional volumes of products we produce such as caustic soda, bleach, hydrochloric acid and potassium hydroxide through KA Steel and to optimize freight cost and logistics assets between our Chlor Alkali Products segment and KA Steel.
Winchester segment income was $31.3 million in the first quarter of 2013 compared to $10.8 million in the first quarter of 2012. The increase in segment income reflects the impact of increased volumes due to the continuation of the stronger than normal demand that began in the fourth quarter of 2012, improved selling prices and decreased costs associated with our new centerfire operation in Oxford, MS.

In January 2013 we repaid the $11.4 million 6.5% Senior Notes (2013 Notes), which became due. These were redeemed using cash.

Capital spending of $30.2 million for the three months ended March 31, 2013 included $7.3 million for the construction of a low salt, high strength bleach facility and a hydrochloric acid expansion project at our Henderson, NV chlor alkali site and $1.8 million for our ongoing relocation of our Winchester centerfire ammunition manufacturing operations.

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