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

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Form 10-Q for OLIN CORP


29-Oct-2013

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 $64.4 million and $173.1 million for the three and nine months ended September 30, 2013, respectively. Chlor Alkali Products' segment income was higher than the third quarter of 2012 as a result of an $11.0 million favorable contract settlement and increased volumes. This increase was partially offset by higher operating costs associated with planned maintenance outages and higher electricity costs due to increased natural gas prices. Our operating rate for the three months ended September 30, 2013 was 86%, which reflected the capacity reductions that occurred in fourth quarter of 2012, compared to the operating rate of 83% for the three months ended September 30, 2012.

Third quarter of 2013 ECU netbacks of approximately $570 were 2% higher than the third quarter of 2012 ECU netbacks of approximately $560 and 1% lower than the second quarter of 2013 ECU netbacks of approximately $575. The increase from the third quarter of 2012 was due to higher caustic soda prices partially offset by lower chlorine prices. The decrease from second quarter of 2013 was due to lower chlorine prices. ECU netbacks in the fourth quarter of 2013 are forecast to be lower than the third quarter of 2013 as a result of lower chlorine and caustic soda prices. In the third quarter of 2013, a caustic soda price increase of $30 per ton was announced. At this time, the $30 per ton caustic soda price increase has not been successful.

Chemical Distribution segment income was $3.4 million and $9.7 million for the three and nine months ended September 30, 2013, respectively, and $1.9 million for both the three and nine months ended September 30, 2012. Chemical Distribution segment income was higher than the comparable periods in the prior year as a result of the additional period of our ownership. Depreciation and amortization expense included in segment income for the three and nine months ended September 30, 2013 of $3.8 million and $11.5 million, respectively, and $1.7 million for both the three and nine months ended September 30, 2012 was 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 $40.7 million and $109.1 million for the three and nine months ended September 30, 2013, respectively. The increase in third quarter and year to date segment income compared to the comparable periods last year reflect 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, including the impact of decreased costs associated with our new centerfire operation in Oxford, MS.

During the third quarter we entered in sale/leaseback agreements for chlorine, caustic soda and bleach railcars and bleach trailers. We received proceeds from the sales of $35.8 million.

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

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