Olin Corporation · NYSE:OLN
Olin — Investor Presentation (February 2005)
65 slides from Olin's investor presentation, Feb 9, 2005
Slide 1: Fulcrum Global Partners New York City
Fulcrum Global Partners New York City February 9, 2005
Slide 2: Attending Today
Attending Today Joseph D. Rupp – President and Chief Executive Officer Anthony W. Ruggiero – Exec. VP and CFO John E. Fischer – Vice President, 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.: $51 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 Improve Profitability of the Metals Business Increase the Value of and Generate Cash From Chlor Alkali Leverage Winche
Slide 5: Investment Highlights
Investment Highlights Significant Operating Leverage Chlor Alkali Selling Prices Have Improved Sequentially and Future Increases are Expected Particularly as a Result of Higher Caustic Prices A Better Economy Improved Metals Results in 2004 over 2003 Winchester Has Additional Earnings Potential from
Slide 6: Olin 2004
Olin 2004 Sales Increased 28% vs. 2003 Metal Sales Increased Because of Stronger Shipments and Higher Copper Prices Chlor Alkali Sales Increased Due to Higher Volumes and Selling Prices Income from Continuing Operations was $0.74 Per Diluted Share in 2004 Compared to $0.01 in 2003
Slide 7: First Quarter
First Quarter We are Projecting Our EPS to be in $0.40 Per Diluted Share Range for 1Q05 Earnings in Chlor Alkali Expected to Increase over 4Q04 Levels Winchester and Metals Expected to Experience Seasonal Improvements over 4Q04 Levels
Slide 8: Chlor Alkali Products 2004 vs. 2003
Chlor Alkali Products 2004 vs. 2003 Demand Was Up 6% Over 2003 Levels Price Increase Announcements for Chlorine and Caustic Over the Last 4 Quarters Substantial Profit Improvement For Full Year 2004 and Into 2005
Slide 9: Olin ECU Netbacks
Olin ECU Netbacks 1Q04 300 2Q04 300 3Q04 335 4Q04 410 Olin Operating Rates Expected to Be Near Capacity (ex. Planned Outages) in 2005
Slide 10: Olin Chlor Alkali Factors
Olin Chlor Alkali Factors Olin’s Electricity Costs Have Increased Over the Last Five Years, But Have Remained Well Below Natural Gas Generated Electricity Prices High Gas Prices Impacting Other Chlor Alkali Producers Have Caused Pricing Pressures for Last 2-3 Years ($ 1 / MMBTU = $25-$35 / ECU)
Slide 11: Olin Has Leading Capacity Share in Eastern U.S.
Olin Has Leading Capacity Share in Eastern U.S. Total Industry Capacity 4th Overall in U.S. Capacity Largest Producer East of the Mississippi River Olin Has 1.22 Million ECU Capacity Per Year (1) A $10 / ECU Change Equates to an $12 Million Change in Pretax Income at Full Capacity, or $.11 per share
Slide 12: North America 2004 Chlorine Demand
North America 2004 Chlorine Demand Inorganics 6% Others 14% Chlorinated Inter. 9% Vinyls 39% Organics 26% Pulp & Paper 1% Water Treatment 5% United States 92% Mexico 3% Canada 5% Domestic Demand = 13.3 Million Metric Tons Prepared exclusively for Olin Houston London Singapore Dubai
Slide 13: North America Chlorine Demand
North America Chlorine Demand %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% Million Metric Tons 15 12 9 6 3 0 99 00 01 02 03 04 05 06 07 08 09 Houston London Singapore Dubai Prepared exclusively for O
Slide 14: North America 2004 Caustic Soda Demand
North America 2004 Caustic Soda Demand Inorganics 22% Water Treatment 3% Others 12% Pulp & Paper 25% United States 86% Alumina 4% Soaps/Detergents/ Textiles 10% Organics 24% Mexico 4% Canada 10% Domestic Demand = 13.5 Million Dry Metric Tons Houston London Dubai Prepared exclusively for Olin Singapo
Slide 15: North America Caustic Soda Demand
North America Caustic Soda Demand Million Dry Metric Tons %AAGR 2004-09 Pulp & Paper 1.0 Alumina -1.3 Organics 1.8 Soaps/Deterg./Textiles 0.7 Inorganics 1.2 Water Treatment 1.7 Others 1.6 %AAGR Demand 1.2% 15 12 9 6 3 0 Million Dry Metric Tons 99 00 01 02 03 04 05 06 07 08 09 Houston London Singapor
Slide 16: North America Chlor Alkali Forecast
North America Chlor Alkali Forecast North America Chlor Alkali Capacity Reductions 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, OR 224,400 La Roche Gramercy, LA 198,000 Dow Ft. Saskatche
Slide 17: CMAI Estimates of ECU Prices
CMAI Estimates of ECU Prices* (For Chlorine to Chemicals and Diaphragm Grade Caustic) $700 $600 $500 $400 $300 $200 $100 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 * ECU Prices Before Freight and Other Allowances
Slide 18: 2004 Industry Highlights
2004 Industry Highlights Chlorine And Caustic Demand Grew 6.0% Over 2003 Levels Improving Operating Rates To Near Capacity ECU Prices Have Increased To Record Levels By Fourth Quarter Of 2004 The Chlor-alkali Business Cycle Is Approaching The Next Peak 2005/2006. The Last Cycle Peak Was 1995/1996, S
Slide 19: Olin Chlor Alkali Products
Olin Chlor Alkali Products Products End Uses Chlorine / Caustic Soda Pulp & paper processing, chemical manufacturing, water purification, manufacture of vinyl chloride, bleach, swimming pool chemicals & urethane chemicals Sodium Hydrosulfite Paper and clay bleaching Textile dye reducing agent Hydroc
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: 2004 Price Increase Announcements
2004 Price Increase Announcements in $ per ton Feb: Chlorine $75 Apr: Caustic $50 May: Chlorine $20; Caustic $45 July: Caustic $65 September: Chlorine $20; Caustic $45 November: Caustic $50 Total Chlorine: $115; Caustic $255 *Caustic Price Increases Shown are for Diaphragm Grade. Membrane Grade Pric
Slide 22: 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 23: 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 24: 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 25: 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 14% and 10%, Respectively
Slide 26: 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 27: 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 2004
Slide 28: 2004 Metals Income Increased vs. 2003
2004 Metals Income Increased vs. 2003 Sales Increased 44% From $855 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 $51 Million in 2004 Shipments to Automotive Segm
Slide 29: Olin First Quarter 2005 Demand Expectations
Olin First Quarter 2005 Demand Expectations Strip Volumes are Expected to Increase 15% from 4Q04 but be 5% Below 1Q04 1Q05 below 1Q04 Due to Weakness in Automotive and Certain Electronic Market Segments. Rod Volumes Expected to Increase 15% from 4Q04 and Up 5% from 1Q04 Continued Strength In Constru
Slide 30: Winchester Products
Winchester Products Products End Uses Winchester ® sporting ammunition — shot-shells, small caliber centerfire & rimfire ammunition Hunters & recreational shooters, law enforcement agencies Small caliber military ammunition Infantry and mounted weapons Industrial products — 8 gauge loads & powder-ac
Slide 31: Winchester 2004 vs. 2003
Winchester 2004 vs. 2003 Sales Up 5% From $303 Million in 2003 to $319 Million in 2004 Primarily Due to Higher Commercial Demand Income Was $21.9 Million in 2004 Compared to $21.6 Million in 2003 Higher Commercial Sales Offset in Part by Increased Commodity Costs
Slide 32: 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 Spring 2005
Slide 33: 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 34: 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 35: 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 36: Financial Highlights (continued)
Financial Highlights (continued) 2005 Pension Expense Expected to Increase by $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
Slide 37: Cap. Ex. and D&A
Cap. Ex. and D&A $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 76 78 7878 73 73 1997 1998 1999 2000 2001 2002 2003 2004 2005E Capital Expenditures D&A
Slide 38: Investment Rationale
Investment Rationale Potential for Improved Performance Based On: Higher Expected ECU Prices Metals Results Will Depend on Demand In Key Sectors of the Economy Such as Automotive, Electronics, Coinage, Building Products, Ammunition, and Industrial Construction Winchester Participation in Increased M
Slide 39: Corporate Office Moves
Corporate Office Moves Moved Norwalk, CT Headquarters to Clayton, MO at the End of 2004 Decision Driven By Organizational, Strategic, Economic Reasons One-time Costs of Approximately $12 Million; Annualized Savings of about $6 Million
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
Slide 42: 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 43: Metals Products
Metals Products Strip and Sheet Products End Uses Copper and Copper Alloy Sheet & Strip (standard / high performance) Electronic connectors, lead frames, electrical components, communications, automotive, builders’ hardware, coinage, ammunition Network of Metals Service Centers Electronic connectors
Slide 44: 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 45: 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 Segment Is Sensitive to Swings in the Economy
Slide 46: 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 47: Brass Strip Mill Shipment Industry Profile
Brass Strip — Mill Shipment Industry Profile Market Segment Base 2000 Index 2002 Index 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 48: Chase Industries
Chase Industries Ps
Slide 49: Chase
Chase Chase is a Leader in Brass Rod Competitive Advantages Manufacturing Excellence, Low Cost, High Quality “Blue Dot” Trademark Leading Market Share Customer Service Focus Leverage to Enhance Long-term Profitability and Return on Investment Chase has New Efficient Facilities, Future Cash Flow Pote
Slide 50: U.S. Brass Rod End Uses
U.S. Brass Rod End Uses Consumer & General Electrical & Electronic Transportation Industrial Machinery & Equip. Exports Building Products
Slide 51: 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 52: 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 TechSystems (Federal Ca
Slide 53: 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
Slide 54: Key Drivers – Chlor Alkali
Key Drivers – Chlor Alkali Chlorine/caustic Demand Driven by General Economic Conditions PVC Is the Largest End-use Market Segment for Chlorine, and Pulp and Paper Is Largest Caustic Market Segment Manufacturing Cost Heavily Dependent on Energy (Electricity via Natural Gas) No Significant North Amer
Slide 55: Chlor Alkali Competitive Advantages / Strategies
Chlor Alkali Products Competitive Advantages / Strategies Olin’s Electricity Costs Have Increased Over Last Five Years But Are Still Favorable Versus Natural Gas Generated Electricity Olin’s Sunbelt Joint Venture Has Low Manufacturing Costs Due to Membrane Technology and Low Power Costs Olin’s South
Slide 56: Chlor Alkali Competitive Advantages / Strategies
Chlor Alkali Products Competitive Advantages / Strategies Focus on Being the Preferred Supplier to Merchant Chlor Alkali Customers Continue Our Partnership Philosophy With Our Customers Continue to Drive Cost Improvements Through Manufacturing and Logistics Optimization Significant Opportunities to
Slide 57: 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 Degree of Chlorine Integration Across the Producers Pricing to Customers Can Vary Depending on Customer End Use and Location and Method of Shipment (Pipeline, Railcar, Truck, Bar
Slide 58: 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 59: Manufacturing Cost Structure
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 60: Manufacturing Cost Structure
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 61: Pension Plan
Pension Plan As of 12/31/04, Pension Plan Under-funded by Approximately $247MM After the $43MM Voluntary Contribution in September 2004 No Mandatory Contributions Expected Until 2008 In 2002, We Recorded a Pretax Charge of $360 MM ($220 MM After Tax) to Shareholders’ Equity. In 2003, an Additional P
Slide 62: February 2004 Stock Offering
February 2004 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: June 2005 = $50 Million
Slide 63: 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 $160 Million Five-Year Revolving Credit Facility on July 30, 2004 Completed Common Stock Offering on March 11, 2002 Which Raised $56 Million and Lowered Olin’
Slide 64: 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 Maximizing Return on C
Slide 65: 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 Management Boar