OLN

OLIN Corp 2009 Annual Report (10-K) Summary

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2009. Olin Corporation operates in two primary segments: Chlor Alkali Products (63% of 2009 sales), which manufactures chlorine, caustic soda, and related chemicals, and Winchester (37% of 2009 sales), a leading manufacturer of sporting and military ammunition. The company sold its Metals business in late 2007, which is reported as discontinued operations. Olin is the third-largest chlor-alkali producer in North America.

Key Financial Metrics (2009)

Material Changes vs. Prior Period

• Revenue Decline: Total sales decreased 13% to $1.53 billion, driven primarily by a 24% drop in Chlor Alkali sales due to lower volumes (down 22%) and lower ECU netbacks (down 18% to $520). Conversely, Winchester sales increased 16% due to higher volumes and selling prices.
• Segment Performance:
  • Chlor Alkali: Segment income fell 62% to $125.4 million from a record $328.3 million in 2008. This was caused by weaker caustic soda demand and pricing pressures.
  • Winchester: Segment income surged 110% to $68.6 million, reaching a 20-year high, driven by strong commercial demand and lower commodity costs.
• Environmental Recoveries: Income from continuing operations included a significant one-time benefit of $82.1 million from recoveries of environmental costs incurred in prior periods.
• Debt Issuance: In August 2009, Olin issued $150 million of 8.875% Senior Notes due 2019 to strengthen liquidity.

Guidance, Outlook, and Risks

• 2010 Outlook: Management projects Q1 2010 net income in the range of $0.10 per diluted share, compared to $0.60 in Q1 2009.
  • Chlor Alkali: Earnings expected to improve slightly from Q4 2009. ECU netbacks are expected to remain comparable to Q4 2009 levels (~$425). A $75/ton caustic soda price increase announced in December 2009 is expected to be realized in Q2 2010.
  • Winchester: Earnings expected to be similar to Q1 2009 ($17.0 million) as demand remains above normal. Price increases were announced to offset rising copper and lead costs.
• Capital Spending: Expected to be $70–$80 million in 2010, down from $137.9 million in 2009, focusing on bleach expansion projects.
• Key Risks:
  • Cyclicality: The chlor-alkali industry is highly cyclical; profitability is sensitive to ECU netback fluctuations.
  • Environmental Liabilities: Total estimated liability is $166.1 million. Future charges may be material, though 2010 charges are expected to be 10–20% higher than the $24.1 million charged in 2009 (excluding recoveries).
  • Regulatory: Potential legislation to ban mercury cell technology could impact 18% of Olin's capacity.
  • Pension: No cash contributions required for the domestic defined benefit plan through 2010; Canadian plan contributions expected to be ~$4 million.

Investor Verification Checklist

• Environmental Recoveries: Verify the sustainability of the $82.1 million environmental recovery; future periods will not include similar one-time benefits.
• ECU Netback Trends: Monitor the realization of the announced $75/ton caustic soda price increase and the impact of new capacity (e.g., Shintech) on pricing.
• Winchester Demand: Assess whether the "above normal" demand for ammunition is sustainable or a temporary post-election spike.
• Debt Covenants: Review compliance with leverage and coverage ratios in the senior revolving credit facility, especially given the cyclical nature of the Chlor Alkali segment.
• Mercury Cell Regulation: Track legislative progress on mercury cell bans and potential capital expenditure requirements for conversion or shutdown.