Buckingham Research Group’s
2007 Chemicals and Advanced
Materials – Majors Conference
June 28, 2007
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Olin Attendees
John E. Fischer
Vice President & Chief Financial Officer
John L. McIntosh
Vice President & President Chlor-Alkali Products
Larry P. Kromidas
Assistant Treasurer & Director, Investor Relations
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Company Overview
Olin
FY 2006
Revenue:
$3,152
Pretax Operating Inc.: $ 201
EPS (Diluted):
$ 2.06
Metals
Chlor Alkali
Specialty Copper-Based Products
& Related Engineered Materials
Revenue:
Income:
FY 2006
$2,112
$58
Q1 2007
$510
$ 10
North American Producer of
Chlorine and Caustic Soda
Revenue:
Income:
FY 2006 Q1 2007
$666
$155
$256
$ 43
Q1 2007
$766
$ 35
$ .31
Winchester
North American Producer of
Ammunition
Revenue:
Income:
FY 2006
$374
$ 16
Q1 2007
$100
$ 8
All financial data are for the year ending 2006 and quarter ending March 2007 and are presented in millions of U.S. dollars
except for earnings per share. Shown above is income before taxes from continuing operations. Additional information is
available on Olin’s website www.olin.com in the Investors section.
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Olin Vision
To be a leading Basic Materials company delivering
attractive, sustainable shareholder returns
• Being low cost, high quality producer, and #1 or #2
supplier in the markets we serve
• Providing excellent customer service and advanced
technological solutions
• Following our customers globally where we can do it
profitably
• Generating returns above the cost of capital over the
economic cycle
4
Olin Corporate Strategy
Olin Corporation Goal: Superior Shareholder Returns
TRS in Top Third S&P Mid Cap 400
ROCE Over Cost of Capital Over the Cycle
1. Build on current leadership positions in Chlor-Alkali,
Metals and Ammunition
• Improve operating efficiency and profitability
• Integrate downstream selectively
• Expand globally where profitable
2. Allocate resources to the businesses that can create the
most value
3. Manage financial resources to satisfy legacy liabilities
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2006 Highlights
•
•
•
•
•
•
Highest earnings per share level since 1996
Second consecutive record year for Chlor Alkali
Products division
Capital expenditures for bleach expansion projects and
rail transportation to improve margins and customer
service
Unprecedented copper, zinc and lead prices increase
working capital requirements and production expense
Customer surcharges and price increases implemented
by Metals and Winchester divisions
Metals closure of Waterbury Rolling Mills completed in
June, New Haven Copper shutdown completed March
2007, annual savings expected to be $11-$12 million.
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2006 Highlights Continued
• Metals restructuring charges were more than offset by
LIFO inventory gains
• Winchester revenues increased 8% over 2005 primarily
due to increased selling prices and commercial sales
• Tax dispute settled favorably with IRS resulting in a
reduction in income tax expense of $22 million
• Strong investment returns, a higher discount rate and an
$80 million voluntary contribution reduced pension
under-funding $148 million from year end 2005 levels
• Completed $125 million debt exchange extending
maturity 5 years and lowering interest rate
• Year end cash and short-term investments were $276
million
7
First Quarter 2007 Results
• Chlor Alkali operating rates lower than Q4 ’06 due to
reduced demand in January and unplanned outages in
February; outages fully resolved by mid-March
• Metals volumes off 13% with softer demand from
automotive, electronics and building products
customers; inventory reduction program yields $5.3
million LIFO liquidation gain
• Winchester earnings are best first quarter ever reflecting
improved volumes and pricing
• Copper, zinc and lead prices continue to escalate over
2006 levels
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Second Quarter 2007 Outlook
• Chlor Alkali expects improved ECU netbacks over Q1
from caustic price increases announced in Q4 ’06 and
operating rates in mid-90% range
• April 1 chlorine and caustic price increases announced
and are pending implementation
• May price announcement of $50/ton for all grades of
caustic soda by Olin and other major producers
• May 1 sale of sodium hydrosulphite production to
Chemtrade Logistics for approximately $7 million
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Second Quarter 2007 Outlook
(continued)
• Metals inventory reduction program is projected to add
$5 million to earnings in the second quarter
• Inventory reduction program objective is to reduce
Metals inventory levels by 20% over 2007 and 2008
• Winchester expects seasonally weaker earnings as
compared to record first quarter
• $100 million pension contribution made in May and
investment policy changes designed to insulate plan
from discount rate changes
• On our April 27th earnings call, we projected EPS to be
in the $0.35 range
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Pioneer Acquisition
• Synergistic, bolt-on acquisition that enhances our chloralkali franchise
–
–
–
–
#3 in chlor-alkali, up from #4
Diversifies geographic coverage
Improves overall cost position
#1 in industrial bleach
• Further low-cost expansion opportunities in the largest
chlorine consuming region of North America
• Significant near-term cost synergies of $35 million
• Immediately accretive to EPS and remains highly
accretive throughout the cycle, and the balance sheet
remains strong
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Pioneer Acquisition
(Continued)
• Purchase price of $35 per share, or about $420 million
• Pioneer cash used to repay their debt, Olin will finance
transaction through use of cash and debt
• Synergies will come from logistics, purchasing, operations
and SG&A expenses
• Expect to realize $20 million in synergies in the first 12
months following acquisition and $35 million annually
thereafter
• Approvals required
– Pioneer shareholder approval
– Regulatory approval
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Olin’s Chlor Alkali Strategy
• Be the preferred merchant supplier to non-integrated
chlor alkali customers
• Continue to drive cost improvements through
manufacturing and logistic optimization
• Continue our partnership philosophy with our
customers
• Opportunities to increase the value of the business at
modest capital investment
• Be a strong cash generator and value enhancer to Olin
Corporation
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Olin Has Leading Capacity
Share in Eastern U.S.
Bayer
2%
Mexichem
2%
• 4th Overall in U.S. Capacity
Other
8%
Georgia Gulf
3%
Dow
32%
Pioneer
5%
• Largest Producer East of
the Mississippi River
• Olin Has 1.23 Million tons
ECU Capacity Per Year (1)
Formosa
6%
Olin
8%
PPG
12%
Occidental
22%
Source: CMAI Chlor Alkali Report
• A $10 / ECU Change
Equates to an $11 Million
Change in Pretax Income at
Full Capacity, or $.10 per
share @ 35% tax rate
(1)
Includes 50% of SunBelt
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Pioneer Acquisition Moves Olin
from #4 to #3 Producer and . . .
5,000
4,780
4,000
Chlorine Capacity
(-000- short tons)
3,484
3,000
1,992
2,000
1,856
1,218
880
1,000
774
471
430
371
Georgia Gulf
Bayer AG
Mexichem
0
Dow
Occidental
PF Olin and
Pioneer
PPG
Diaphragm
Olin
Formosa
Membrane
Mercury
Pioneer
Other
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. . . Enhances Olin’s Operational
and Geographical Platform
Dalhousie, NB
Tacoma, WA
Becancour, Quebec
Niagara Falls, NY
Tracy, CA
Henderson, NV
-000- of Short Tons
McIntosh, AL
Becancour, Quebec (1)
Niagara Falls, NY
Charleston, TN
St. Gabriel, LA (2)
McIntosh, AL (50% Sunbelt)
Henderson, NV
Augusta, GA
Dalhousie, NB
Chlorine
Capacity
401
340
281
270
246
146
152
120
36
Charleston, TN
Santa Fe Springs, CA
McIntosh, AL
Total
Augusta, GA
1,992
St. Gabriel, LA
(1) Pioneer’s Becancour plant has 275,000 short tons
Diaphragm and 65,000 short tons Membrane capacity.
Pioneer Chlorine Plants
(2) Pioneer’s St. Gabriel plant includes the announced
49,000 short tons capacity expansion and conversion to
membrane cell.
Pioneer Bleach Plants
Source: CMAI.
Olin Corporation
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Chlor Alkali Products
• 2005 & 2006 record years, peak ECU netback in Q1‘06:
Q2’05 $505
Q3’05 $515
Q4’05 $545
Q1’06 $590
Q2’06 $560
Q3’06 $540
Q4’06 $520
Q1’07 $500
• Chlorine and Caustic price increases announced in Q1’07
• Higher transportation and energy costs
• $1 change in Natural Gas MMBTU increases costs of
Natural Gas-based producers by $25 to $35/ECU
• Natural Gas increases plus capacity reductions have
created a more favorable long-term price outlook
• North American demand growth rate of 0.8% annually
• Net North American capacity has decreased since 2000
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North America Chlor Alkali Forecast
North America Chlor Alkali Capacity
Reductions 2000 Through 2006
Company
Location
Short Tons as
Chlorine
North America Chlor Alkali Capacity
Expansions 2000 Through 2006
Company
Location
Short Tons as
Chlorine
Dow
Ft. Saskatchewan
610,000
Vulcan C-A
Geismer, LA
Dow
Plaquemine, LA
375,000
Equachlor
Longview, WA
80,000
Oxy Vinyls LP
Deer Park, TX
395,000
Westlake
Calvert City, KY
80,000
Formosa Plastics
Baton Rouge, LA
201,000
SunBelt
McIntosh, AL
70,000
Pioneer
Tacoma, WA
214,000
Oxy
Various Sites
22,000
Atofina
Portland, OR
187,000
Total Additions
La Roche
Gramercy, LA
198,000
OXY
Delaware City, DE
145,000
Holtra Chem
Orrington, ME
80,000
Holtra Chem
Acme, NC
66,000
Cedar Chem
Vicksburg, MS
40,000
Georgia Pacific
(3 locations)
24,000
Oremet
Albany, OR
5,000
Total Reductions
462,000
Announced Future Capacity Changes
Source: Olin Data
Short Tons
as Chlorine
Company
Location
Shintech
Plaquemine, LA
330,000
2007/2008
Bayer
Baytown, TX
220,000
Delayed
Oxy
Muscle Shoals, AL
(154,000)
2008
Pioneer
St. Gabriel, LA
49,000
2009
Total Announced Changes
2,540,000
Annual demand growth at 0.8%/Yr = 110,000 Short Tons/Yr
210,000
Timing
445,000*
* Includes delayed capacity
Reductions
Additions
Total Reductions
2,540,000
(462,000)
2,078,000
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Olin’s Chlor Alkali Contracts
• Olin contracts nearly 100% of its chlorine and
caustic sales
• On about two-thirds of the chlorine and caustic
volumes, prices change quarterly, with a
combination of formula-based and negotiated
pricing, and the balance is renegotiated annually or
semi-annually
• Many contracts have a one quarter lag in them,
which delays price increases in a tightening market
and delays decreases in a softening market
• Competitive forces dictate contract duration and
terms
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Metals
• Olin is the leading manufacturer of copper alloy
strip, and a leading manufacturer of brass rod in
the U.S.
• Olin possesses leading technology position
– 37 U.S. patents for High Performance Alloys
– 40 U.S. patents on various proprietary processing and
technical capabilities
• Olin is the leading copper alloy strip distributor in
the U.S. with 8 service/distribution centers located
in the U.S. and Puerto Rico; 2 additional centers
are located in Mexico and China
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Metals
• The average price of copper increased from $2.57/lb in
January to $2.92/lb in March and is currently about
$3.60/lb resulting in increased metal melting loss costs
and higher working capital requirements
• Improved product pricing partially offsets higher costs
• Softer automotive and building products demand masks
benefits from plant closures and other actions
• Inventory reduction program adds $5.3 million to
income in Q1 and is expected to add an additional $5
million to Q2 results
• Target of 20% inventory reduction over 2007-8 period
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Metals Outlook
• US dollar coin program should add volume for the
strip business, ammunition sales remain strong
• We expect automotive to pick-up and we are
encouraged by forecasts of a housing pick up in Q2,
both of which will add positive results to our cost
and inventory reduction accomplishments
• Expansion of our China distribution facility by
adding stamping capabilities
• We believe that we are the low cost metals producer
in the U. S. putting us in a preferred position with
regards to profitability
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Winchester Products
Products
End Uses
Winchester ® sporting
ammunition -- shotshells, small caliber
centerfire & rimfire
ammunition
Hunters & recreational shooters, law
enforcement agencies
Small caliber military
ammunition
Infantry and mounted weapons
Industrial products -- 8 Maintenance applications in power & concrete
gauge loads & powder- industries, powder-actuated tools in construction
actuated tool loads
industry
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Winchester
• Profits of $8.1 million reflect best first quarter ever
• Nine price increases announced since the beginning
of 2004 to offset higher metal prices
• Continued increase in metal prices, especially lead,
poses a challenge for 2007
• Winchester recently received 2 new military orders:
1. $18 million order from US Army for shotgun
shells, and
2. $24 million order under General Dynamics
second source small caliber ammunition program
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Financial Highlights
• Q1 cash and short-term investments of $283 million
exceed outstanding debt by nearly $30 million
• $15 million sale/leaseback, lower tax payments and
lower level of working capital growth increased cash
balances in Q1 which is normally a cash use period
• $80 million voluntary pension contribution in Q3
2006 coupled with higher discount rate and healthy
returns on plan assets cut funded status shortfall by
$148 million to $234 million
• $100 million voluntary contribution this quarter and
investment policy change will likely lead to fully
funded plan by 2011 without further contributions
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Financial Highlights
(continued)
• 2007 pension expense expected to decrease by
approximately $21 million as compared to 2006
• Favorably settled all IRS audits through 2002 resulting
in a $22 million reduction in tax expense in 2006
• 2007 effective tax rate expected to be in the 34% to
35% range
• Capital spending levels, net of January sale leaseback
transaction, are expected to be $75 to $80 million in
2007 with 65% allocated to Chlor-Alkali to complete
bleach expansion and ongoing maintenance projects
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Investment Rationale
• Continued strong performance based on
– Relatively high ECU prices, Pioneer acquisition likely
– Cost reductions, better pricing, inventory liquidation
gains and restructuring in Metals
– Cost reductions, price increases and increased U.S.
Military revenue in Winchester
• Strong financial discipline
• Commitment to investment grade credit rating
• At recent price levels, common dividend yield is
approximately 4.00%
• 322nd consecutive quarterly common dividend (80+
years) paid in June
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Forward-Looking Statements
This presentation contains estimates of future
performance, which are forward-looking
statements and actual results could differ
materially from those anticipated in the forwardlooking statements. Some of the factors that could
cause actual results to differ are described in the
business and outlook sections of Olin’s Form 10-K
for the year ended December 31, 2006 and in
Olin’s First Quarter 2007 Earnings Release. These
reports are filed with the U.S. Securities and
Exchange Commission.
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