Olin Corporation · NYSE:OLN
Olin — Fulcrum Global Partners, New York City (May 2005)
41 slides from Olin's conference presentation, May 19, 2005
Slide 1: Fulcrum Global Partners New York City
Fulcrum Global Partners New York City May 19, 2005
Slide 2: Attending Today
Attending Today Joseph D. Rupp – President and Chief Executive Officer John E. Fischer – VP Finance and Controller John L. McIntosh – President, Chlor Alkali Products Richard E. Koch – Vice President, Investor Relations and Public Affairs
Slide 3: Company Overview
Company Overview Olin Year Ending Dec. 2004 Revenue: $1,997 Pretax Inc. from Cont. Ops.: 79 Metals Specialty Copper-Based Products and Related Engineered Materials Revenue: $1,230 Income.: $50 Chlor Alkali North American Producer of Chlorine and Caustic Soda Revenue: $448 Income.: $ 83 Winchester No
Slide 4: Olin Corporate Strategy
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 Focused Portfolio of Businesses Global Market Leadership Operational Excellence Improve Profitability of the Metals Business Increase the Value of and
Slide 5: Investment Highlights
Investment Highlights Chlor Alkali Selling Prices Have Improved Sequentially to Record Levels and We Expect that the Price Increases That Were Announced in February Will Favorably Impact our 2Q’05 and 3Q’05 Selling Prices, Particularly as a Result of Higher Caustic Prices A Better Economy Improved M
Slide 6: Olin First Quarter 2005
Olin First Quarter 2005 Reported EPS of $0.52 Per Diluted Share including $0.08 Per Diluted Share Primarily from Real Estate Dispositions and a Tax Benefit Significant Improvement Over 1Q’04
Slide 7: Olin's Second Quarter 2005
Olin’s Second Quarter 2005 On April 28, 2005, Olin Projected Earnings to be in the $0.45 Per Diluted Share Range for 2Q’05 Chlor Alkali Projected to Have Record Earnings in 2Q This Would Be the Third Consecutive Quarter of Record Earnings Metals Earnings are Expected to be Lower than 1Q’05 Because o
Slide 8: Chlor Alkali Products 1Q'05 vs. 1Q'04
Chlor Alkali Products 1Q’05 vs. 1Q’04 Substantial YOY Profit Improvement Segment Income Increased from $10.4 Million to $58.6 Million in 1Q’05 Higher Selling Prices Increased our Return on Sales from 10% to 35% in 1Q’05 ROS = Segment Income / Segment Sales 1Q’05 Had Higher Electricity Costs and Slig
Slide 9: Olin ECU Netbacks
Olin ECU Netbacks 1Q04 300 2Q04 300 3Q04 335 4Q04 410 1Q05 485 Olin Operating Rates Expected to Be Near Capacity (ex. Planned Outages) in 2005 Netback = Gross Selling Price less Transportation Costs less Discounts. Netback excludes product consumed internally (less than 10%) for derivative products.
Slide 10: Olin Chlor Alkali Factors
Olin Chlor Alkali Factors Olin’s Electricity Costs Have Increased Over the Last Five Years, But Have Remained Well Below Natural Gas Generated Electricity Prices High Gas Prices Impacting Other Chlor Alkali Producers Have Caused Pricing Pressures for Last 2-3 Years ($1 / MMBTU = $25-$35 / ECU) Trans
Slide 11: Olin Has Leading Capacity Share in Eastern U.S.
Olin Has Leading Capacity Share in Eastern U.S. Total Industry Capacity Bayer 2% Mexichem 2% Georgia Gulf 3% Vulcan 5% Pioneer 5% Formosa 6% Olin 8% PPG 12% Occidental 17% Dow 32% Other 8% Source: CMAI Chlor Alkali Report 4(th) Overall in U.S. Capacity Largest Producer East of the Mississippi River
Slide 12: North America 2004 Chlorine Demand
North America 2004 Chlorine Demand Inorganics 6% Water Treatment 5% Pulp & Paper 1% Others 14% Chlorinated Inter. 9% United States 92% Organics 26% Vinyls 39% Mexico 3% Canada 5% Domestic Demand = 13.3 Million Metric Tons Houston London Singapore Dubai Prepared exclusively for Olin
Slide 13: North America Chlorine Demand
North America Chlorine Demand Million Metric Tons 15 12 9 6 3 0 99 00 01 02 03 04 05 06 07 08 09 % AAGR 2004-09 Vinyls -0.6 Organics 2.4 Chlorinated Inter. -0.4 Inorganics -0.1 Pulp & Paper -4.6 Water Treatment 1.4 Others 1.2 % AAGR Demand 0.6% Houston London Singapore Dubai Prepared exclusively for
Slide 14: North America 2004 Caustic Soda Demand
North America 2004 Caustic Soda Demand Others Water Treatment United States 3% 12%86% Pulp & Paper Inorganics 25% 22% Mexico Alumina 4% 4% Organics Canada Soaps/Detergents/ 24% 10% Textiles 10% Domestic Demand = 13.5 Million Dry Metric Tons Houston London Singapore Dubai Prepared exclusively for Oli
Slide 15: North America Caustic Soda Demand
North America Caustic Soda Demand Million Dry Metric Tons 15 %AAGR 2004-09 Pulp & Paper 1.0 12 Alumina -1.3 Organics 1.8 9 Soaps/Deterg./Textiles 0.7 Inorganics 1.2 6 Water Treatment 1.7 Others 1.6 3 %AAGR Demand 1.2% 99 00 01 02 03 04 05 06 07 08 09 Houston London Singapore Dubai Prepared exclusive
Slide 16: North America Chlor Alkali Forecast
North America Chlor Alkali Forecast North America Chlor Alkali Capacity Reductions Since 2000 North America Chlor Alkali Capacity Expansions Since 2000 Company Location Short Tons as Chlorine Dow Plaquemine, LA 385,000 Oxy Vinyls LP Deer Park, TX 382,800 Pioneer Tacoma, WA 226,600 Atofina Portland,
Slide 17: CMAI Estimates of ECU Prices
CMAI Estimates of ECU Prices* (For Chlorine to Chemicals and Diaphragm Grade Caustic) $800 $700 $600 $500 $400 $300 $200 $100 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 * ECU Prices Before Freight and Other Allowances April 2005 Forecast
Slide 18: 2004/2005 Industry Highlights
2004 / 2005 Industry Highlights In 2004, Chlorine And Caustic Demand Grew 6.0% Over 2003 Levels Improving Operating Rates To Near Capacity ECU Prices Increased To Record Levels By the Fourth Quarter Of 2004 The Chlor-alkali Business Cycle Is At Peak Levels in 2005/2006. The Last Cycle Peak Was 1995/
Slide 19: Olin Chlor Alkali Products
Olin Chlor Alkali Products Chlorine / Caustic Soda Sodium Hydrosulfite Hydrochloric Acid and Sodium Hypochlorite Potassium Hydroxide (KOH) End Uses Pulp & paper processing, chemical manufacturing, water purification, manufacture of vinyl chloride, bleach, swimming pool chemicals & urethane chemicals
Slide 20: Olin's Chlor Alkali Strategy
Olin’s Chlor Alkali Strategy Be the Preferred Supplier to Non-Integrated Chlor Alkali Customers Continue to Drive Cost Improvements Through Manufacturing and Logistic Optimization Continue Our Partnership Philosophy With Our Customers Significant Opportunities to Increase the Value of the Business a
Slide 21: Impact Of High Chlorine Prices On Chlor Alkali Profitability
Impact Of High Chlorine Prices On Chlor Alkali Profitability Chlorine Buyers are Highly Concentrated Some Large Chlorine Buyers Have Contractual Caps and /or Discounts Which Dampen Impact of Price Increases at High End of Contract Range Chlorine Contracts are Multi-Year and Recognize Cycle Pricing T
Slide 22: Caustic Price Increases Are A Key to Higher ECU Values
Caustic Price Increases Are A Key to Higher ECU Values Historically, Olin’s Chlor Alkali Business Has Seen Peak Earnings During Times of High Caustic Prices Caustic Customers are Smaller and More Numerous Caustic Demand Improvement Normally Lags Chlorine by Six Months Olin Sells 10% More Caustic Tha
Slide 23: Olin's Chlor Alkali System
Olin’s Chlor Alkali System 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 Many Contracts Have a One Quarter Lag in Them, Which Delays Price Incre
Slide 24: Chlor Alkali Summary
Chlor Alkali Summary Our ECU prices will continue to be favorably impacted by the implementation of the price increases announced in February and any future price activity, if any should occur.
Slide 25: Metals
Metals Olin is Leading Manufacturer of Copper Alloy Strip and Brass Rod in the U.S. Large Size Provides Economies of Scale and Manufacturing Efficiencies Olin Possesses Leading Technology Position Olin is the Leading Copper Based Sheet and Strip Distributor in the U.S.
Slide 26: Metals
Metals Earnings Leverage as a Result of Cost Cutting and Capacity Rationalization As the Following Slides Show, 2001, 2002 and 2003 Were Well Below Historical Consumption In 2004, Demand Increased Over 2003 for Both Sheet and Rod Products by 13% and 8%, Respectively
Slide 27: U.S. Strip Consumption
U.S. Strip Consumption In MM Pounds 1800 1600 1400 1200 1000 800 600 400 200 0 1998 1999 2000 2001 2002 2003
Slide 28: U.S. Brass Rod Consumption
U.S. Brass Rod Consumption In MM Pounds 1200 1000 800 600 400 200 1998 1999 2000 2001 2002 2003 2004
Slide 29: 2004 Metals Income Increased vs. 2003
2004 Metals Income Increased vs. 2003 Sales Increased 44% From $854 Million in 2003 to $1.230 Billion in 2004 Shipment Volumes Increased 11% Higher Copper Prices and Product Mix Accounted for 33% of Increase Income Increased From $9 Million in 2003 to $50 Million in 2004 Shipments to Automotive Segm
Slide 30: Metals First Quarter 2005 Results
Metals First Quarter 2005 Results Industry Demand Was Down by Roughly 10% Each for Strip and Rod Previous Estimate Was Down 7% Based on Information Through February Olin’s Total Strip and Rod Demand Was Down 4% Metals Segment Income Decreased from $14.6 MM in 1Q’04 to $13.7 MM in 1Q’05
Slide 31: Winchester Products
Winchester Products Products End Uses Winchester ® sporting ammunition - shot-shells, small caliber centerfire & rimfire ammunition ammunition Small caliber military ammunition Industrial products - 8 gauge loads & powder-actuated tool loads Hunters & recreational shooters, law enforcement agencies
Slide 32: Winchester 1Q'05 Results
Winchester 1Q’05 Results Sales Up 11.5% From 1Q’04 Primarily Due to Higher Military and Law Enforcement Demand Higher Sales Volumes and Selling Prices More than Offset by Increased Commodity Costs 1Q Income Was $3.4 Million in 2005 Compared to $6.1 Million in 2004
Slide 33: Rimfire
Rimfire To Improve Its Competitive Position, Winchester is Relocating Its Rimfire Manufacturing Operation from East Alton to Oxford, MS. Expect New Facility to be Operational in Second Quarter 2005
Slide 34: Winchester's Military Business Is Growing
Winchester’s Military Business Is Growing In May 2004, Winchester Began Deliveries Of 5.56MM M855 Ball Ammunition As Part Of A $18 Million Contract. Winchester Was Awarded A $6.5 Million Contract By The US Army To Produce 7.62MM M80 Ball Linked Ammunition With Deliveries Beginning In 2005 And Contin
Slide 35: Winchester Potential Second Source for US Army
Winchester Potential Second Source for US Army The Contract Is Being Competitively Bid Olin’s Winchester Division Is Bidding As Part Of The General Dynamics Team Second Source Contract Could Generate $150 Million Of Revenue Per Year According to Military Estimates Contract Award Expected in June 200
Slide 36: Financial Highlights
Financial Highlights In February, 2004 Issued $178 Million of Common Stock to Strengthen Balance Sheet and Increase Financial Flexibility $125 Million Pension Contribution Made in February 2004 Additional $43 Million Voluntary Contribution in September 2004 Repaid $27 Million of Debt in 2004 and Exp
Slide 37: Financial Highlights (continued)
Financial Highlights (continued) 2005 Pension Expense Expected to Increase by Approximately $16 Million Over 2004 Projected 2005 Effective Tax Rate of 39% Commitment to Investment Grade Credit Rating Capital Spending Levels Expected to Be in Line With Depreciation in 2005
Slide 38: Cap. Ex. and D&A
Cap. Ex. and D&A ($ MM) Capital Expenditures D&A 38 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 87 88 80 81 82 76 78 78 78 73 74 73 73 65 55 55 41 1997 1998 1999 2000 2001 2002 2003 2004 2005E
Slide 39: Investment Rationale
Investment Rationale Improved Performance Based On: Higher ECU Prices Demand In Key Sectors of the Economy Such as Automotive, Electronics, Coinage, Building Products, Ammunition, and Industrial Construction Which Impacts our Metals Results Winchester Participation in Increased Military Spending Str
Slide 40: Forward-Looking Statements
Forward-Looking Statements This presentation contains estimates of future performance, which are forward-looking statements and results could differ materially from those anticipated in the forward-looking statements. Some of the factors that could cause actual results to differ are described in the
Slide 41: Proud Heritage... Promising Future
Proud Heritage … Promising Future
Olin — Fulcrum Global Partners, New York City (May 2005) on 6ix