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OLN > SEC Filings for OLN > Form 10-Q on 25-Jul-2014All Recent SEC Filings

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Form 10-Q for OLIN CORP


25-Jul-2014

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 $40.8 million and $75.1 million for the three and six months ended June 30, 2014, respectively. Chlor Alkali Products' segment income was lower than the comparable periods in the prior year primarily as a result of lower product prices, primarily caustic soda and hydrochloric acid, which were partially offset by lower operating costs. Our operating rate for the three months ended June 30, 2014 was 86%, which was higher than the second quarter of 2013 level of 84%.

Second quarter of 2014 ECU netbacks were approximately $510, 11% lower than the second quarter of 2013 ECU netbacks of approximately $575 and 2% lower than the first quarter of 2014 ECU netbacks of approximately $520. The decrease from the second quarter of 2013 was due to lower caustic soda and chlorine prices. The decrease from the first quarter of 2014 was due to lower chlorine prices. ECU netbacks in the third quarter of 2014 are forecast to be slightly higher than the second quarter of 2014 reflecting improvement in caustic soda prices. In the second quarter of 2014, we announced a caustic soda price increase of $60 per ton. While the success of this price increase is not yet known, the majority of the benefit, if realized, would impact fourth quarter of 2014 results.

Chemical Distribution had breakeven segment income for the three months ended June 30, 2014 and a segment loss of $0.8 million for the six months ended June 30, 2014. Chemical Distribution segment income was lower than the comparable periods in the prior year due to decreased caustic soda volumes. Depreciation and amortization expense included in segment income of $3.9 million for both the three months ended June 30, 2014 and 2013 and $7.9 million and $7.7 million for the six months ended June 30, 2014 and 2013, respectively, were 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 between Chlor Alkali Products and KA Steel at the end of 2015. 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 $33.1 million and $71.4 million for the three and six months ended June 30, 2014, respectively. Winchester second quarter segment income was lower compared to the second quarter last year which reflects a lower level of demand for shotshell and rifle ammunition. Winchester segment income for the six months ended June 30, 2014 was higher than the comparable period last year and reflects the highest segment income in the first six months of a year in at least the last two decades. Winchester continues to see strong commercial demand which began in the fourth quarter of 2012, especially for pistol and rimfire ammunition.

Income from discontinued operations, net for the three and six months ended June 30, 2014 included an after tax gain of $0.7 million ($4.6 million pretax) for the favorable resolution of certain indemnity obligations related to our Metals business sold in 2007.

On June 24, 2014, we provided notice of our intent to redeem our 2019 Notes on August 15, 2014, which would have matured on August 15, 2019. We anticipate recognizing expense of approximately $9.5 million for the call premium and the write-off of unamortized deferred debt issuance costs during the third quarter of 2014 related to this action. We anticipate interest expense savings of approximately $10 million during the first year after the redemption of these notes.


On June 24, 2014, we entered into a new five-year $415 million senior credit facility consisting of a $265 million senior revolving credit facility, which replaced our previous $265 million senior revolving credit facility, and a $150 million delayed-draw term loan facility that will be used to refinance our 2019 Notes. The new senior credit facilities will expire in June 2019.

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