Q3 2006 Olin Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day and welcome to the Olin Corporation third quarter 2006 earnings release conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to the Chairman, President, and Chief Executive Officer, Mr. Joseph Rupp. Please go ahead, sir.

JOSEPH RUPP, CHAIRMAN, PRESIDENT, CEO, OLIN: Thank you, good morning and thank you for joining us today. With me today are John Fischer, Vice President and Chief Financial Officer; John McIntosh, President of our Chlor Alkali Products; and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations.

Last night we announced that net income in the third quarter of 2006 was $56.2 million or $0.77 per diluted share compared with net income of $31.4 million or $0.44 per diluted share in the third quarter of 2005. Third quarter 2006 earnings include a $24.8 million reduction in income tax expense associated with the settlement of the tax treatment of capital losses generated in 1997 and other tax matters. Third quarter 2005 results included pretax environmental recoveries of $18 million and a pretax gain on the sale of land of $900,000. Sales in the third quarter were $851.9 million compared with $599 million in the third quarter of 2005. Our third quarter earnings per diluted share of $0.77 represents our highest quarterly earnings per share since the 1999 spinoff of Arch Chemicals and exceeded our forecast of $0.60 primarily due to better than expected results in each of our three businesses and a benefit from the tax settlement. Chlor Alkali experienced better than expected volumes during the quarter while metals experienced better pricing than anticipated and Winchester benefited from lower costs. Earnings in each business also improved over the third quarter of 2005.

Third quarter 2006 results include the impact of a scheduled five-day outage at our McIntosh Chlor Alkali facility, and that includes the Sun Belt partnership and also shorter planned outages at our Augusta and Charleston Chlor Alkali facilities. In the fourth quarter of 2006, Olin expects to be in the $0.25 per diluted share range, which reflects normal seasonal weakness in each of our businesses. Fourth quarter 2005 earnings per diluted share of $0.45 included $30.4 million of pretax gains associated with environmental recoveries and a $2.5 million gain related to asset retirement obligations, which were partially offset by a $10.5 million pretax charge associated with an accounting change. For the full-year 2006, we expect Chlor Alkali and Winchester earnings to improve over 2005 levels. And we anticipate metals earnings to exceed 2005 results when we include the LIFO inventory gain.

Now let's turn to Olin's segment results over the last quarter and I'm going to start with Chlor Alkali products. Sales for the third quarter of 2006 were a $169.1 million compared to $151.5 million in the third quarter of 2005. The increase in sales reflects a 5% increase in chlorine and caustic volumes and a 5% increase in chlorine and caustic prices. Third quarter 2006 volumes were similar to the second quarter of 2006 and reflect the impact of the planned five-day outage at our McIntosh facility, which as I previously stated includes Sun Belt, and the shorter scheduled outages at our Augusta and Charleston facilities.

You may recall that the third quarter of 2005 volumes were negatively impacted by the three hurricanes which caused shutdowns of our McIntosh

Alabama facility and disrupted both transportation systems and customer operations. Chlor Alkali products earned $63 million in the third quarter of 2006 which compares favorably to the third quarter of 2005 earnings of $57.3 million. The third quarter ECU netback was $540, which compares favorably to the third quarter 2005 netback of $515. We expect the ECU netback to decline in the fourth quarter of 2006 and to fall below the fourth quarter 2005 level. However, we anticipate that full-year 2006 netbacks will exceed 2005 levels. Fourth quarter 2006 Chlor Alkali earnings are expected to be similar to earnings in the fourth quarter of 2005. We are implementing the $25 per ton chlorine price increase announced in the third quarter. Third quarter 2006 Chlor Alkali segment earnings were the highest third quarter earnings in the history of our Chlor Alkali business. These earnings were achieved in spite of continued increases in both freight and electricity costs, which increased 18% for freight and 14% for electricity, higher than the third quarter of 2005. We now believe full-year 2006 earnings in our Chlor Alkali segment will be higher than our 2005 record earnings.

Now turning to our metals business. Metals third quarter 2006 sales …