Slide 1: Presentations to Investors
Presentations to Investors Chicago May 4, 2004 New York City May 5, 2004
Slide 2: Attending Today
Attending Today • Joseph D. Rupp – President and Chief Executive Officer, presenting on May 5 only • John L. McIntosh — President, Chlor Alkali Products • John E. Fischer – Vice President, Finance • Richard E. Koch – Vice President, Investor Relations and Public Affairs
Slide 3: Company Overview
Company Overview Olin Year Ending Dec. 2003 Revenue: $1,586 Op. Inc.: 53 Metals Specialty Copper-Based Products and Related Engineered Materials Revenue: $883 Op. Inc.: 11 Chlor Alkali North American Producer of Chlorine and Caustic Soda Revenue: $400 Op. Inc.: 63 Winchester North American Producer
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 • Improve Profitability of the Metals Business • Increase the Value of and Generate Cash From Chlor Alkali • Leverage
Slide 5: Investment Highlights
Investment Highlights • Significant Operating Leverage • Chlor Alkali Selling Prices Forecast to Increase in Late 2004 and 2005 • A Better Economy Is Expected to Improve Metals Results • Winchester Has Additional Earnings Potential from Defense Related Opportunities
Slide 6: Olin Corporation First Quarter 2004
Olin Corporation First Quarter 2004 • Sales Increased 25% vs. 2003 • Earnings Per Share, Without Restructuring and Other Charges, Were $0.13 in ‘04 vs. $0.09 in ‘03. (See Non-GAAP Reconciliation at End of Presentation.) • Restructuring Charge of $0.09 Per Share in 1Q’04 Associated With Previously An
Slide 7: First Quarter 2004 (continued)
First Quarter 2004 (continued) • Improved Metals Results Offset Reduced Chlor Alkali Profits • Estimated 2004 Pension Expense Projected to be Approximately $10 Million Higher than 2003 • Tax Rate (excluding Restructuring Charge) in the First Quarter of 41% Was Lower Than Previously Projected Rate of
Slide 8: 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 9: Metals
Metals • Significant 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 the First Quarter of 2004, Demand Increased Year Over Year for Both Sheet and Rod Products
Slide 10: Metals First Quarter 2004 vs. 2003
Metals First Quarter 2004 vs. 2003 • Sales Increased 41% From $222 Million in 1Q’03to $314 Million in 1Q’04 – ShipmentVolumes Increased 13% – Higher Copper Prices and Product Mix Accounted for 28% • Operating Income Increased From $3.4 Million in 1Q’03 to $14.7 Million in 1Q’04 • Shipments to Automo
Slide 11: 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 We believe the normalized market is somewhat below 1.3 billion pounds per year.
Slide 12: Brass Strip Mill Shipment Industry Profile
Brass Strip — Mill Shipment Industry Profile Base Index Index Market Segment 2000 2002 2003 Auto Electrical 100 94 90 Computer/Telecom 100 65 53 Electrical 100 78 74 Bldg./Household 100 138 142 Other Transportation 100 36 28 Other Commercial 100 81 69 Coinage 100 40 30 Ammunition 100 106 120 Exports
Slide 13: U.S. Brass Rod Consumption
U.S. Brass Rod Consumption In MM Pounds 1200 1000 800 600 400 200 0 1998 1999 2000 2001 2002 2003
Slide 14: Metals Summary
Metals Summary • We See Improving Macro-Economic Factors • Historically our Businesses Generally Lag the Recovery by About Six Months • Visibility Has Improved • Cost Reduction Initiatives Are Expected to Offset Cost Increases
Slide 15: China Joint Venture
China Joint Venture • Olin-Loutong Metals (GZ) Ltd., Co. • Distribution Center in Guangzhou, China • Will Process and Distribute Both Olin and Luoyang’s Copper Alloy Products • Became Operational in 1Q’04
Slide 16: Winchester Products
Winchester Products Products Winchester ® sporting ammunition — shot-shells, small caliber centerfire & rimfire ammunition Small caliber military ammunition Industrial products — 8 gauge loads & powder-actuated tool loads End Uses Hunters & recreational shooters, law enforcement agencies Infantry an
Slide 17: Winchester First Quarter 2004 vs. 2003
Winchester First Quarter 2004 vs. 2003 • Sales Up 6% From $71 Million in 1Q’03 to $75 Million in 1Q’04 Primarily Due to Higher Commercial Demand • Operating Income Increased to $6.1 Million, From $5.9 million in 1Q’03 • Higher Commercial Sales Offset in Part by Increased Manufacturing Costs
Slide 18: Rimfire
Rimfire • To Improve Its Competitive Position, Winchester is Considering Relocating Its Rimfire Manufacturing Operation from East Alton • No Final Geographic Decision Made As Yet
Slide 19: Corporate Office Moves
Corporate Office Moves • Closing Norwalk, CT Headquarters and Moving by End of 2004 • Decision Driven By Organizational, Strategic, Economic Reasons • One-time Costs of Approximately $12 Million; Annualized Savings of about $6 Million
Slide 20: Chlor Alkali Products First Quarter 2004 vs. 2003
Chlor Alkali Products First Quarter 2004 vs. 2003 • Olin ECU Prices Were Below 1Q’03 ($300 vs. $315) Due to Falling Caustic Prices • Demand Was Higher 1Q’04 and Somewhat Better than Expected
Slide 21: Olin Chlor Alkali Factors
Olin Chlor Alkali Factors • Olin Operating Rates Expected to Be in mid 90% Range in 2Q’04 • Olin’s Electricity Costs, a Key Component of Manufacturing Costs, Have Remained Relatively Stable Over Time • High Gas Prices Impacting Other Chlor Alkali Producers May Cause Prices to Increase ($ 1 / MMBTU =
Slide 22: 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 6% Pioneer 5% Formosa 6% Olin 9% Other 5% Dow 31% Occidental 19% PPG 12% Source: CMAI Chlor Alkali Report • 4th Overall in U.S. Capacity • #1 Capacity Share East of the Mississippi Riv
Slide 23: U.S. Chlorine Uses
U. S. Chlorine Uses 2003 Demand Inorganics 5% Other 13% Pulp & Paper 1% Water 5% Vinyl 39% Organics 28% Chlorinated Intermediates 9% Source: CMAI
Slide 24: U.S. Chlorine Segment Growth 2003-2008
U.S. Chlorine Segment Growth 2003—2008 2.8% 2.1% -0.7% 1.3% 1.8% 0.1% -0.3% 1.0% AAGR Other Water P&P Inorganics Organics Urethanes Vinyl (100) CMAI Data Annual Demand Increase (‘000 ST/Y) %s are Segment Annual Growth
Slide 25: U.S. Caustic Soda Demand
U. S. Caustic Soda Demand 2003 P&P 26% Alumina 3% Water 3% Organic 24% Others 10% Soaps/Detergents/Textiles 11% Inorganic 23% Source: CMAI
Slide 26: U.S. Caustic Segment Growth 2003-2008
U.S. Caustic Segment Growth 2003—2008 1.3% AAGR -2.5% 3.2% 1.7% 1.5% -1.5% 2.2% 0.0% 0.3% Net Exports Other Water Inorganics Textile Organics Alumina P&P (200) (100) %’s are Segment Annual Growth Annual Demand Increase (‘000 ST/Y) CMAI Data
Slide 27: Key Changes in Market Segment Growth 2003-2008
Key Changes in Market Segment Growth 2003—2008 • Chlorine – EDC, PVC exports from US will be reduced due to current and future projections for US energy pricing • Caustic – Capacity increases in Middle East and Far East will reduce US exports of caustic – Net export category reflects increased impor
Slide 28: 2003 Industry Highlights
2003 Industry Highlights • Chlorine demand remained relatively flat in 2003, but operating rates improved with industry rationalization continuing • The 2003 average ECU pricing rose some $120 over 2002 despite weakening caustic values in the second half of 2003 • North American chlor alkali capacit
Slide 29: U.S. Chlor Alkali Forecast
U.S. Chlor Alkali Forecast North American Chlor Alkali Capacity North American Chlor Alkali Capacity Reductions Since 2000 Expansions Since 2000 Short Company Location Tons as Chlorine Dow Plaquemine, LA 385,000 Oxy Vinyls LP Deer Park, TX 382,800 Pioneer Tacoma, WA 226,600 Atofina Portland, OR 224,
Slide 30: CMAI Estimates of ECU Prices
CMAI Estimates of ECU Prices (For Chlorine to Chemicals and Diaphragm Grade Caustic) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Slide 31: KOH Consumption
KOH Consumption Market Segments (Total Annual US KOH Market – 500,000 Tons) Other Potassium Chemicals 15% Potassium Phosphates 13% Potassium Carbonate 27% Misc 28% Liquid Fertilizers 9% Soaps/Detergents 8% Source: SRI
Slide 32: Olin Re-Enters KOH Business
Olin Re-Enters KOH Business • Part of strategy to increase value and generate cash from Chlor-Alkali • Converting portion of Charleston, TN capacity to potassium hydroxide • Project requires minimal capital utilizing available equipment • No loss of chlorine capacity from Olin system • Reduction of
Slide 33: Chlor Alkali Products
Chlor Alkali Products Products Chlorine / Caustic Soda Sodium Hydrosulfite Hydrochloric Acid and Sodium Hypochlorite KOH End Uses Pulp & paper processing, chemical manufacturing, water purification, manufacture of vinyl chloride, bleach, swimming pool chemicals & urethane chemicals Paper and clay bl
Slide 34: Olin's Chlor Alkali Strategy
Olin’s Chlor Alkali Strategy • Be the Preferred Supplier to the Merchant Chlor-Alkali Market • Continue to Drive Cost Improvements Through Manufacturing and Logistic Optimization • Continue Our Partnership Philosophy With Our Customers • Significant Opportunities to Increase the Value of the Busines
Slide 35: Olin Corporation Second Quarter 2004
Olin Corporation Second Quarter 2004 • EPS in the Breakeven Range Including a Non-recurring Gain • Restructuring Charges Are Expected to be Minimal • Lower Metals Results vs. 1Q’04 –$ 10 Million Negative Impact from Fire – Lower Ammunition and Coinage Volumes • Lower Caustic Soda Pricing and Higher
Slide 36: Key Financial Issues
Key Financial Issues • February Stock Issuance Strengthened Balance Sheet and Increased Financial Flexibility •$ 125 Million Pension Contribution Made in February 2004 – Possible Additional $40 Million Voluntary Contribution in 2005 • Expected Debt Repayments of $27 Million in 2004 and $52 Million i
Slide 37: Key Financial Issues (continued)
Key Financial Issues (continued) • Commitment to Investment Grade Credit Rating • Pension Expense Increasing Over 2003 and Expected to Increase Approximately $10 Million Per Year Through 2007 • Capital Spending Levels Expected to Continue at Less Than Depreciation
Slide 38: Cap. Ex. and D&A
Cap. Ex. and D&A $100 $90 $80 $70 $60 MM) $50 $ ($ 40 $30 $20 $10 $0 76 78 78 78 1997 1998 1999 2000 2001 2002 2003 2004 E Capital Expenditures D&A
Slide 39: Investment Rationale
Investment Rationale • Potential for Improved Performance Based On: – Higher Expected ECU Prices in the Next Several Years – A Improved Economy Is Expected to Improve Metals Results – Winchester Participation in Increased Military Spending • Strong Financial Discipline • Commitment to Investment Gra
Slide 40: Profit Summary From Earnings Release, First Quarter 2004
Profit Summary From Earnings Release (a) First Quarter—2004 Operating Pretax Tax Net Diluted Effective Income Income Expense Income EPS Tax rate(b) As Reported $9.2 $5.2 $2.3 $2.9 $0.04 44% Restructuring Charge (c) 8.9 8.9 3.5 5.4 0.09 39% As Adjusted $18.1 $14.1 $5.8 $8.3 $0.13 41% Average Diluted
Slide 41: Profit Summary From Earnings Release, First Quarter 2003
Profit Summary From Earnings Release (a) First Quarter—2003 Operating Pretax Net Diluted Income(Loss) Income (Loss) Income(Loss) EPS As Reported ($14.7) ($19.7) ($39.0) ($0.67) Accounting Change (d) - - 25.4 0.44 Restructuring Charge (c) 29.0 29.0 18.7 0.32 As Adjusted $14.3 $ 9.3 $ 5.1 $0.09 Averag
Slide 42: Profit Summary From Earnings Release (notes)
Profit Summary From Earnings Release (a) (a) Unaudited (b) The effective tax rate is defined as tax expense divided by pretax income. (c) Reflects the restructuring charge in 2004 for the relocation of our corporate headquarters and the restructuring charge in 2003 for the shutdown of our Indianapol
Slide 43: 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 44: Proud Heritage ... Promising Future
Proud Heritage … Promising Future
Slide 45: The Following Slides Are Provided as Background Information
The Following Slides Are Provided as Background Information and Come Primarily from Previous Presentations. These Slides May or May Not Be Used in the Presentation. In Some Cases, They Are Duplicate Slides From What Was Covered in the Above Slides.
Slide 46: Metals Products
Metals Products Strip and Sheet Products Copper and Copper Alloy Sheet & Strip (standard / high performance) Network of Metals Service Centers Posit-bond ® clad metal Rolled copper foil, Copperbond ® foil, stainless steel strip Copper alloy welded tube Fabricated products High performance, high reli
Slide 47: Overview of Brass Strip Processing
Overview of Brass Strip Processing Olin is the leader in each of these categories. Scrap Metal Virgin Material Casting Hot Mill Coil Miller Cold Rolling Annealing/ Cleaning Slitting Integrated Mills (60%) Olin OAB PMX Revere Hussey Miller Scott Brush Wellman NGK Imports Reroll Mills (11%) Olin Heyco
Slide 48: Key Drivers – Brass Strip
Key Drivers – Brass Strip • Sensitive to Changes in the Economy • Changes in Demand for Specific Sectors Affect Olin Performance: – Automotive – Computers – Telecommunications – Housing • Coinage Market Is Sensitive to Swings in the Economy
Slide 49: Olin Brass Competitive Advantages
Olin Brass Competitive Advantages • Largest Brass Mill in U.S. Provides Economies of Scale • Outstanding Manufacturing Capabilities • More Patents Than Competitors • Largest Distribution Business in U.S. (A.J Oster) • High Performance Alloys and Specialty Products
Slide 50: Chase Industries
Chase Industries
Slide 51: Chase
Chase • Chase is a Leader in Brass Rod • Competitive Advantages X Manufacturing Excellence, Low Cost, High Quality X “Blue Dot” Trademark X Leading Market Share X Customer Service Focus • Leverage to Enhance Long-term Profitability and Return on Investment • Chase has New Efficient Facilities, Futur
Slide 52: U.S. Brass Rod End Uses
U.S. Brass Rod End Uses Exports Building Products Consumer & General Electrical & Electronic Transportation Industrial Machinery & Equip.
Slide 53: Demand Drivers
Demand Drivers Building Products Housing Starts # of Bathrooms – Home Intensity of Use Product Innovation Average Age of Homes Existing Home Sales Low Mortgage Rates Industrial Machinery & Equipment GDP Industrial Production Transportation US Auto Sales Class Eight Truck Sales Consumer & General Pro
Slide 54: Chase Financial Performance
Chase Financial Performance Years Ending December 31 In Millions of Dollars 35 30 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 Pretax Income
Slide 55: Factors Affecting Chase Brass in 2003
Factors Affecting Chase Brass in 2003 • Lower Commercial Construction • Less Capital Spending for Industrial Machinery • Lower Automotive and Truck Sales • Housing Remained at Healthy Levels
Slide 56: Key Drivers—Winchester
Key Drivers—Winchester • Supply / Demand Balance – Total U.S. Demand: 4.5 Billion Rounds With Excess U.S. Production Capacity – Non-Economic Factors Primarily Drive Demand Cycle • Political / Regulatory – Political Pressure Shifting From Federal to State/local Level • Competition – Alliant TechSyste
Slide 57: Winchester Strategy
Winchester Strategy • Leverage Existing Strengths to Grow Sales – Legendary Winchester® Brand Name – Received “Ammunition of the Year” Award For Six Years (1997 –2002) From Shooting Industry Academy of Excellence – Manufacturer of the Year Award from National Association of Sporting Goods Wholesaler
Slide 58: Chlor Alkali Products
Chlor Alkali Products • Chlorine and Caustic Soda Are Co-Products of Salt Electrolysis • The Production of 1 Ton of Chlorine Results in 1.1 Tons of Caustic Soda • Together the Two Chemicals Are Called an Electrochemical Unit “ECU” • Supply / Demand Determine Pricing in This Commodity Business
Slide 59: Key Drivers – Chlor Alkali
Key Drivers – Chlor Alkali • Chlorine/caustic Demand Driven by General Economic Conditions • PVC Is the Largest End-use Market for Chlorine, and Pulp and Paper Is Largest Caustic Market • Manufacturing Cost Heavily Dependent on Energy (Natural Gas) • No North American Chlor Alkali Producers Have Ann
Slide 60: Chlor Alkali Competitive Advantages / Strategies
Chlor Alkali Products Competitive Advantages / Strategies • Olin’s Electricity Costs Have Been Relatively Stable Over Time Because We Purchase Electricity From Utilities That Are Primarily Coal, Nuclear and Hydro-Power Based • Olin’s Sunbelt Joint Venture Has Low Manufacturing Costs Due to Membrane
Slide 61: Chlor Alkali Competitive Advantages / Strategies
Chlor Alkali Products Competitive Advantages / Strategies • Focus on Being the Preferred Supplier to the Merchant Chlor Alkali Market • Continue Our Partnership Philosophy With Our Customers • Continue to Drive Cost Improvements Through Manufacturing and Logistics Optimization • Significant Opportun
Slide 62: Why Olin's ECU Netbacks Differ from Other Producers
Why Olin’s ECU Netbacks Differ from Other Chlor Alkali Producers • Methodologies and Definitions May Differ Among Producers • Pricing to Customers Can Vary Depending on Customer End Use and Location and Method of Shipment (Pipeline, Railcar, Truck, Barge, Terminal) • Delivered Price – Freight = Netb
Slide 63: 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 Volume and One-Third of the Caustic Volume, Prices Change Quarterly, with a Combination of Formula-based and Negotiated Pricing • Many Contracts Have a One Quarter Lag in T
Slide 64: Manufacturing Cost Structure (Gas at $2.00)
Manufacturing Cost Structure “Typical” Gulf Coast Diaphragm Plant Nat. gas @ $2.00/mmbtu Steam, less H2 credit 3% Fixed Cost 43% Other Variable 2% Electric Power 40% Salt 12%
Slide 65: Manufacturing Cost Structure (Gas at $5.50)
Manufacturing Cost Structure “Typical” Gulf Coast Diaphragm Plant Nat. gas @ $5.5/mmbtu Steam, less H2 credit 4% Fixed Cost 30% Other Variable 1% Electric Power 56% Salt 9%
Slide 66: Pension Plan
Pension Plan • At 12/31/2003, Pension Plan Under-funded by Approximately $400 MM (as measured under SFAS 87) Before Recent $125 MM Pension Contribution. • During 2003, a 24% Gain in Value of Plan Assets Was More Than Offset by Interest Rate Effect • In 2002, We Recorded a Pretax Charge of $360 MM ($
Slide 67: Pension Plan (continued)
Pension Plan (continued) • Based on revised assumptions and estimates taking into account the recently passed Pension Funding Equity Act of 2004, we may make a voluntary contribution to the pension plan in the $40 million pretax range in 2005 and, as a result, no other contributions would be require
Slide 68: Recent Stock Offering
Recent Stock Offering • 10 Million Shares of Common Stock • Done Overnight on February 3, 2004 • Net Proceeds: $178 Million •$ 125 Million Contributed to Pension Plan •$ 53 Million for General Corporate Purposes – Debt Maturities: March 2004 = $17.5 Million; June 2004 = $8.1 Million; June 2005 = $50
Slide 69: Rationale for Stock Issuance
Rationale for Stock Issuance • Strengthens Balance Sheet and Increase Financial Flexibility – Companies with Stronger Financial Positions Have Better Multiples • Company Stock Price Was Close to 52-Week High and Reasonably Close to Its Average High Price for the Past 5 Years • Market Receptive to Ch
Slide 70: Stock Offering Accretive Up to EPS of $0.90
Stock Offering Accretive Up to EPS of $0.90 Assumed Use of Proceeds Proceeds Pretax After Tax EPS Pension Return 9% 125.0 11.3 6.9 0.69 Debt $17.5 at 6.875% 17.5 1.2 0.7 0.07 Debt $8.1 at 4.5% 8.1 0.3 0.2 0.02 Series A notes at 7.11% 27.4 1.9 1.2 0.12 178.0 14.7 9.0 0.90 All values in $ millions, ex
Slide 71: Indianapolis Shutdown
Indianapolis Shutdown Reduced Cost Base and About 10% of Domestic Strip Capacity • Completed in Mid-February 2003 • Restructuring Charge of $29 Million Pretax Primarily Associated With This Shutdown • Cash Cost of Shutdown Estimated to Be in the $5 Million Range • Pretax Savings From Shutdown Estima
Slide 72: Key Initiatives Have Increased Olin's Financial Flexibility
Key Initiatives Have Increased Olin’s Financial Flexibility • Completed $200 Million Public Senior Note Offering on December 11, 2001 • Closed on $140 Million Three-Year Revolving Credit Facility on January 3, 2002 • Completed Common Stock Offering on March 11, 2002 Which Raised $56 Million and Lowe
Slide 73: Financial Policies and Objectives
Financial Policies and Objectives • Commitment to Maximizing Total Return to Shareholders (TRS) Over the Long Run • Commitment to Lower Cost Structure – Targeted Headcount Reductions – Optimized Manufacturing – Reduced Capital Spending • Commitment to Investment Grade Rating • Commitment to Maximizi
Slide 74: Olin's Demonstrated Shareholder Orientation
Olin’s Demonstrated Shareholder Orientation • Compensation System Assures Alignment With Shareholder Interests – Long Term Incentive Plan is 100% Stock Options and Performance Shares – Senior Management Compensation Highly Oriented to Stock Performance – Stock Ownership Guidelines for Senior Managem