Olin Corp (OLN) 2002 Q3 法說會逐字稿

Good day and welcome to the Olin Corporation third quarter 2002 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to the President and Chief Executive Officer, Mr. Joseph Rupp. Go ahead, sir.

Thank you, good morning. With me this morning from Olin are Tony Ruggiero and Dick Koch. Former Chase holders and analysts on the call, we welcome you to the teleconference today.

We announced a loss in the third quarter of 2002 of $500,000 pretax with an after-tax loss of 2 cents per diluted share. Compared with a loss of $32.2 million pretax and an after tax loss of 45 cents per diluted share in the third quarter of 2001. Which included a restructuring charge in unusual items of $29 million pretax. The 2001 charge was primarily for costs associated with a salary workforce reduction, accomplished through an early retirement incentive program.

Olin sales for the third quarter of 2002 were $340 million compared with $334 million in 2001. Third quarter results do not include any sales or profits from Chase industries which was merged with Olin at the end of the quarter.

Our third quarter pretax loss of $500,000 was in line with our previous guidance of results being in the break-even range. This represents significant improvement over our second quarter pretax loss of approximately $9 million and is primarily because of the improvement in our Chlor Alkali selling prices.

In its peak seasonal third quarter, our Winchester business posted strong sales and profit gains over the second quarter of this year and over the third quarter of 2001.

While our metal segment improved significantly over last year's severely depressed results in the third quarter, its profits were lower than the second quarter of 2002, primarily due to our regularly scheduled maintenance shutdowns that occur in the summer.

In addition, during the third quarter, the soft economy continued to negatively effect the electronics and telecommunications customers served by our metals businesses. While sales to our electronics customers are ahead of last year's depressed levels, they are well below their traditional levels. Demand for our products from the telecommunications customers remain at low level.

Let's turn to Olin's third quarter results starting with Chlor Alkali.

Chlor Alkali product sales for the third quarter of 2002 were $83 million, a decrease of 11% from the prior year's third quarter. Chlor Alkali posted an operating loss of $8.1 million compared with operating income of $800,000 in the third quarter of 2001. Compared to last year, the lower operating results were primarily because of lower selling prices offset in part by higher volume. While the year-over-year comparisons for Chlor Alkali are unfavorable, the sequential comparisons are quite favorable.

Let's look at the year-over-year comparison first. Our ECU netbacks, excluding our Sunbelt Plan, were $240 million in the third quarter of 2002 compared with $310 in the third quarter of 2001. Our ECU realizations bottom out in the second quarter of 2002 at approximately $200. And then increased to $240 in the third quarter and further improvement is expected in the fourth quarter.

We're expecting prices for both chlorine and caustic to increase from the third quarter to the fourth quarter as this reflects the price increases announced in the marketplace since mid-year. We expect further price improvement in the first quarter of 2003 as our contracts reflect the price increases announced during the third and fourth quarter.

About a week ago, Occidental Chemical, a major Chlor Alkali producer, announced the price increase on caustic soda effective immediately or as contract terms permit. That affected a similar price increase. Yesterday, we made a similar announcement.

During the month of October, we operated at about 90% of capacity. We expect our operating rates will be somewhat lower in November and December as chlorine demand slows due to normal seasonal factors associated with the inventory management. This will likely result in a tightened supply/demand situation for caustic soda both in the fourth quarter of 2002 and the first quarter of 2003.

Let's turn to metal.

Sales of $164 million for the third quarter of 2002 increased 8% over the prior period due to the higher strip volumes, 11%, offset by lower metal values of 2% and lower selling prices of 1%. Stripped shipments to the automotive segment were up 22%. Stripped shipments to the electronics segment were up 39% from last year, although down significantly from historical levels. Owning shipments were down 15% from last year.

Operating income for the third quarter improved from a loss of $4 million in 2001 to a profit of $4.8 million in 2002. Due reduced costs and increased sales. The lower costs in 2002 include the benefit of the earlier retirement incentive program implemented in late 2001 and the consolidation of the Monarch Distribution Business.

Let me turn to Chase Brass.

We're very excited about welcoming Chase into the Olin family of successful businesses. Chase with an excellent position in rod will complement Olin's role in copper and strip products. At the end of the third quarter, we completed our merger with Chase industries with the issuance of 9.8 million shares of Olin stock. We said before the transaction, said before, that the transaction strengthened our financial position because we issued stock for chase, a profitable debt-free company.

Each of our metals businesses is a leader with strong premiere reputations in the respective field. Our combination will create a company with the scale, scope and critical mass to compete more effectively and create a stronger, less cyclical company.

Chase is the leading manufacturer in supplier of brass rod in the United States and Canada. Chase's diverse customer mix uses the trademark brass rod, commonly called blue dot, to create a variety of products, including plumbing fixtures, industrial valves and fittings, heating and air conditioning components, cable and electronic connectors and automotive parts.

Over the years, Chase continued to strengthen its position as the highest quality, lowest cost and most customer service oriented producer in the domestic brass rod industry. As we look forward to the fourth quarter for the metals segment, we forecast that overall demand for our strip and rod products will be decreasing somewhat after showing improvement earlier in the year. The fourth quarter is normally weaker than the third quarter for both the strip and rod businesses.

On the strip side of the business, some of this is related to those seasonally lower demand for brass by the ammunition industry in the fourth quarter and in addition, there is a generalized softness in the remainder of the market.

Moving now to Winchester, sales for the third quarter of 2002 were $93 million, an increase of 6% from the prior year's third quarter, primarily due to higher volumes. Primarily as a result of higher sales, along with lower overall costs, which also are due in part to the benefit of the early retirement program we implemented in 2001, Winchester posted operating income of $7.8 million compared with $3.2 million in the third quarter of 2001.

For the fourth quarter, Winchester sales and operating results will decrease seasonally from their peak third quarter levels as the hunting season winds down. Winchester had a very good year with year to date operating income increasing from $4.9 million to $14 million.

Now, let me turn the microphone over to Tony Ruggiero who will review several financial items with you. Tony?

Thank you, Joe.

In the fourth quarter of 2002, Olin expects its performance will be somewhat lower than the third quarter of 2002 and projects a loss in the five-cent per share range as Joe mentioned. Improvements in the Chlor Alkali segment should be more than offset by lower operating results in the metals segment and the lower than normal operating results caused by the seasonal effects on our Winchester business. Better Chlor Alkali results are expected due to higher selling prices in the fourth quarter.

We expect earnings for the metals segment, which will include a modest profit from Chase Industries, to decline from third quarter levels due to softening demand for our product. The following previously-reported information may be helpful in comparing the actual fourth quarter performance to 2001 and the forecast performance for 2002. In the fourth quarter of 2001, Olin reported net income of 2 cents per share, which included a restructuring charge of 27 cents per share, excluding the restructuring charge, earnings were 29 cents per share in the first quarter -- in the fourth quarter of 2001.

But it doesn't end there. Because a number of non-recurring and other items favorably impacted earnings in the fourth quarter of 2001. And excluding those items and the impact of the restructuring charge, the company estimates that on a normalized basis it would have recorded a loss of 20 cents per share for that time period.

I know that that sounds very complicated, but I just will repeat that. The main point is we thought at last year in the fourth quarter on a normalized basis that we had lost about 20 cents per share and we're comparing that now to a loss of 5 cents a share this year.

Let's just turn to the income statements discussed several items.

SG&A expenses are about 10% lower than last year, primarily because of the early retirement incentive program implemented last year. The loss from the non-consolidated affiliates is lower this year, primarily because of lower loss to that Sunbelt. Interest expense increased due to the higher interest rates on the company's desk portfolio.

In the third quarter of 2002, we made an income tax provision of .5 million, a half million, on a pretax loss of a half million because as we previously told you, we're including taxes, interest on taxes, which may be comparable in the future. The effect of this can cause unusual computations when you're close to the break-even level, which is where we are. As we look to the balance sheet, I remind you that we now consolidated the assets and liabilities of Chase as of December 30th.

At the end of the quarter, we had cash and short-term investments of $119 million. $13 million of which came from Chase compared with 30.5 million at the same time last year. We expect to have significant excess cash at the end of the year.

Our inventories even excluding Chase inventory of 15 million, are higher at the end of the third quarter of 2002, primarily because we are selling more brass on a metal-type basis rather than a full basis and therefore have inventory more raw materials. The addition of Chase increased our profit and plant equipment by $135 million and increased our working capital by $9 million.

The goodwill associated with Chase was $41 million and there were intangible assets associated with the blue dot trademark. The goodwill and intangible assets will not be amortized.

We recorded other liabilities of $27 million consisting of items with the first act of liabilities. The sum was approximately $179 million.

As we stated on previous occasions,2002, we plan to manage our own capital spending at a level approximating 50% of depreciation or about $40 million. We expect our depreciation and amortization in 2002 will be in the $88 million range.

As you know, yesterday, the board of directors declared a quarterly dividend of 20 cents on each share of Olin common stock. This is the 304th consecutive quarterly dividend paid by the company.

Before I conclude, I want to update you on the status of our pension plan since our July teleconference. By way of background, let me repeat what I said at that time.

I'm sure many of you are aware of the very serious decline that occurred in the stock market this year. As a result of this, the market value of our pension plan portfolio is less than the accumulated benefit obligations.

As of December 31st, 2002, the market value of the assets is less than the accumulated benefit obligation, under FAS 187, one is required at that time to reduce equity to reflect this difference. So, if the market stays where it is between now and the end of the year and interest rates stay where they are between now and the end of the year, because that does also affect our calculations. We will be taking a charge against equity, which is a non-cash charge in the $150 million range. Our estimate of this charge is unchanged since July.

This charge would have no effect on cash, it would have no effect on loan coverage, no effect effect in time for several years on funding requirements and would modestly affect pension income next year and the years there after. If the market were to reverse itself and improved by year end, there is a possibility that there would be no charge.

At yesterday's peak, the important facts that r that it doesn't affect contributions to the pension plan for several years, doesn't affect pension income in any significant way for several years. It doesn't affect our current cash position and does not affect my loan covenant compliance nor my opportunity pay dividends. We wanted to be sure you were aware of the possibility of this pension adjustment to equity and I'm sure you're hearing this for more and more companies, as we approach year-end.

Before I conclude, let me remind you that throughout this presentation, we have made statements regarding our estimates of future performance. Clearly these are forward-looking statements and results could differ materially from those projected. Some of the factors that could cause actual results to differ are described in the outlook section of our most recent 10K and in our third quarter earnings release.

Lisa, we are now ready to take questions and was I turn this back over to Joseph Rupp.

Lisa, we're ready for questions.

Thank you, the question and answer session will be conducted electronically. If you would like to ask a question, press the star key followed by the digit 1 on your touch-tone phone. If ours a speaker phone, be sure your mute function is turned off so your signal reaches our equipment. That's star 1 to ask a question. First we have John Roberts with Buckingham Research.

Good morning, guys.

Good morning, John.

The Chlor Alkali revenue was up 10% sequentially. Can you break it into volume versus price realization?

Guys, as we look at the volumes going forward, Q2 to Q3, our chlorine volume was down sequentially and our Chlor Alkali was down and caustic soda volume was essentially unchanged. If that's of assistance to you. Our EOC prices over that period of time changed from $200 in the second quarter to $241 in the third quarter.

The industry ECU, you indicated went from 200 to 240; it that your realization ex-Sunbelt.

Our realization ex-Sunbelt.

Okay, since you don't consolidate Sun belt, you would have had 20% higher prices on your consolidated business and sounds like volumes would have been down 2.5% with chlorine down five and caustic flat. I'm not sure if it gives to give the 10% sequential improvement 345 that you had.

John, that's the only information that I have in the, you know, report back to double check the numbers. Our Sunbelt ECU numbers improved from 2Q to 3Q, as well. Their operating...

Okay, I will get back in the queue. But since you indicated you expect a modest amount of earnings for the fourth quarter, can you give us what the revenue expectations or range -- what -- how much of a quarterly revenue you expect from Chase in the fourth quarter in the metals segment?

Yeah, I -- John, maybe I can do a little better. Chase, last year in the fourth quarter made $2.5 million on a pretax basis, EBIT basis that, was our lowest quarter, they made 4.5 -- 2.5 and this year they were running at a lower rate than that. And made 4.5 in the first quarter, 4.5 in the second, 4 in the third, which is below last year.

And so I just repeat they made $2.5 million EBIT last year in the fourth quarter and I will let you conclude what they might be making in this year's fourth quarter.

Can we prorate the days versus last year's fourth quarter and use the third quarter revenue decline versus last year's third quarter revenue to get a sense of the fourth quarter revenue for Chase would have been? I'm trying to get a sense of the revenue.

I will give you the revenue for the third quarter they would have reported if they reported was $57 million.

Okay.

And the fourth quarter revenue was about $4 million below the third quarter revenue.

Okay. Would it be fair to prorate that by days?

I think that's something that you to decide.

Okay. Thank you.

Our next question comes from Sergei [Besnevov] with Lehman Brothers.

Good morning.

Good morning.

I want to follow up the clerical issues, which seem to be the core this quarter. Could we please explain to us, at least quotatively, as the cost of chlorine comes moving up and the industry benchmark members are accurate, which I think they are, for the most part, what's the structurely in your contracts or end markets that allows you to lag or lead and by how much? I mean could you talk about this?

It's Tony, yeah, we can talk about it and we have a mix of contract terms with various customers. And because of the weakness in the market last year, some of our contract terms are longer than as is usually the case.

So, the effects of these increases will be felt, though, in the fourth quarter and certainly in the first quarter of next year. And including the extent to which the $70 increase, the Dow, Oxfy and we have just made, we will be between now and the end of the year, renegotiating all of those contracts.

Finally, as a follow-up, I think it is well-known that the cost of caustic and chlorine vary significantly. It depends on what market applications you sell into. So, from the end product mix perspective, are you significantly different than the industry average?

We are not -- I don't think we're significantly different.

Sergei, we're a little bit lower on sales to -- into the vinyl industry than the overall industry is. And probably heavier with respect to caustic sodas than the rest of the industry.

Okay. Thank you.

Our next question comes from Fred Seymour with Seymour Company.

You know, just a -- a couple of little accounting things. What are your shares outstanding now? Hello?

57.2 million.

Okay. And -- and I had one -- what are your assumptions -- I know I could look it up in your annual report your assumption on your pension and return of about 9.5%? Something like that?

Last year 2 it was 9.5%.

And that -- that is -- you're not changing that, are you?

That's something we have to decide at the end of the year because -- because the lower that the stock market is at the end of the year, that would affect the forward-look on what pension income assumption we're going to use. So, need to wait until the end of the year to see where the market winds up and then based that we will make a forward assumption about earnings on the pension.

As far as the modeling we've done, though, as I mentioned, we don't expect there to be a funding requirement for several years and there will be -- we expect some effect on our pension income next year versus this year I mean it will be lower. And moderately lower. It won't be -- it won't be minimally lower and won't be majorly lower, it will be moderately lower.

A couple million dollars! Okay, thank you.

Our next question comes from Jeff Peck with Janney Montgomery.

Good morning. I have a couple of questions. First, wonder if you could estimate or give us what your net back ECU price is looking at in October? Answer that and I will ask one or two more.

Jeff, this is Tony again. We really don't like do that because we're out there negotiating with customers trying to maximize the value for Olin. So, we don't give a perspective of projections on the ECU prices.

Okay. Let me just ask, Tony, if -- it sounds like it is a moderate amount of contracts that are rolling over by year end. Is that a fair assessment?

Yes. Yes, it is, Jeff.

Okay. Okay. And now onto something different. When you purchased Chase, a venture capital company wound up owning several million shares of Olin. I wondered if you could tell us, do they still -- are they still owning the stock or since sold since the transaction?

I think we can tell you this, that we did a block trade of 3.6 million shares on an overnight deal without -- in our opinion -- affecting the market. And that CVC group owns 4.8 million shares which is just somewhat higher.

So, I don't really -- I'm really not concerned about their overhang effect, as I said, because we effected the last transaction overnight and the market very quickly absorbs that flow. I don't -- I don't think we have any public reports on where they are in regard to their holdings. So, therefore I can't really comment on that.

I mean you could ask them.

Right, right, I understand. Fair answer. And my last question and I will let you move on, you mentioned the coinage market or think the coinage market was down 15% and I'm curious about why and if you can give us some guidance on that market if the fourth quarter, maybe into '03. Thanks.

That market is down because the consumption of coins is down at this point in time, Jeff, which originally -- it started to pick up in the second quarter and then dropped in the third quarter and is dropping in the fourth quarter and it is a reflection on the men getting their inventories back in line -- mint getting their inventories back in line. So, they have too much inventory with regard to coins and cut back. That will continue into the fourth quarter.

Okay. So, they're cutting back on inventories until the end of the year it sounds like.

That's correct.

Okay. Okay. Thanks a lot.

Next is Avi Nash with Goldman Sachs.

Good morning.

Good morning, Avi.

A couple of questions. First, can you refresh my money about absent Sunbelt, how does the company breakdown between Mercury, diaphragm and membrane? That's one. Second, are there any plans for any switching or replacing any of the diaphragm or the Mercury with membrane now? Are there any turn arounds you're looking at over the next six or nine months?

Let me give you the capacity break out. We have at MacIntosh, Alabama, roughly 14,000 btus, that's diaphragms sold. Charleston and Augusta, you know, together, represent -- let me add something here -- represent about 380,000 ECUs. Our facility in Niagara falls, called Nyclor is around 250,000. Charleston and Augusta are both Mercury sell plants.

Right, now; there --

There is no planning at this point in time, Avi, to replace the Mercury sell capacity at this point in time. And -- and there will be some turn around scheduled in 2003. We just, as you know, have two turn arounds in the third quarter. One at MacIntosh and one at Charleston in 2002 here.

And likewise no plans to change the MacIntosh diaphragm plans?

No plans.

Okay. And last question, if I were to, you know, sort of construct in my mind a 2 by 3 matrix, chlorine and caustic on the one axis and monthly contracts, quarterly contracts and longer than quarterly contracts on the other axis, how is your business structured right now in terms of what percentage of the chlorine is monthly versus quarterly and longer? And same thing for caustic?

Avi, I don't think we can do that on the phone. And I don't think that even if we had the information we would give it to you.

Okay. Anything quantitative you can describe, even if it don't divide it into that level of granularity?

Dick will try something here.

Avi, just by way of history, recognize that, you know, the vast majority of all of our sales are contract sales and like, you know, we're talking in general terms, 95% of our caustic is contract and very high percentage of our chlorine is caustic. And those contracts from a duration point of view will sometimes vary depending on market conditions as you go through negotiations. You will recognize that last year in the fourth quarter market conditions were very, very soft.

Right.

You know, so, some buyers, you know, wanted to go, you know, somewhat longer term. But this changes from time to time in the marketplace and -- and, you know, also that historically our system from an ECU pricing point lags the market by at least three months. And that, you know, there are quarterly price re-openers or escalation protections that varies from customer to customer.

But the vast majority and when you really need to understand is that the vast majority of what we do is contract and so things do not change on a day-to-day basis in our system. Things are pretty well set as you get to the beginning of the quarter and oftentimes there is quarterly price protection that will lag for at least one quarter.

That's why as we come into the fourth quarter we are confident that our ECU prices will be moving upward and as we come into January 1, particularly with much better market conditions than we had last year and December for annual contract negotiations that we believe there is further improvement ahead in the fourth quarter.

The most recent announcement caustic soda by $70 by Oxy and Dow and ourselves, suggests to us that the conditions in the market are going to be quite tight for caustic and -- and could in fact be tight tight for chlorine, as well. Particularly as Dow is taking down capacity for renovations and -- and other turn arounds are taking place.

So, we think that 4Q will have higher prices for us and further high prices heading for us in Q1. Our, you know, feelings are respect to Sunbelt, those -- those -- the pricing -- all the chlorine pricing there goes to the vinyl market. So, our ECU prices there have moved up more rapidly than they have our base Chlor Alkali business.

Thanks a lot, I appreciate it.

Next is Gene Fullham with Salomon Smith Barney.

Joe, Tony, good morning.

Good morning.

I have two questions. The first concerns just the flexibility within your -- your current cost structure. If the economy continues to weaken here going into '03, how much more flexibility exists and within the response could you just talk about working capital management as well? Second question concerns the newly-renewed bank revolver facility. The new $140 million three-year. How much is currently available?

The $140 million, we have access cash in the $100 million range. So, that's all available.

Okay.

Could you just -- I'd like to better understand your question -- your first question on the flexibility. Could you just either ask it again or ask it --

Sure, Tony. In terms of in '01 you had lowered your cost structure through a variety of different things, head count reduction, I think there was an optimization of manufacturing and reduced capital spending.

Going forward, should the economy continue to weaken here and principally your end market demand, what further cost reductions can be implemented and can you include a discussion of working capital management? On the inventory receivable side?

Let me talk for a soaked cost reduction with our manufacturing base is, as you know, we've brought some capacity back onstream as the markets, in particular on the metal side, started to pick up in the second quarter. We have -- we have some opportunities on the cost side in our metals business to -- to -- to affect that if this economy starts to slow down. So, there are some still some point opportunities for us from a cost perspective and we have some opportunities throughout our -- all of our businesses from a cost perspective, Gene.

And needless to say that we are, you know, we have a plan that we expect for next year but in the event that this economy stays very, very weak, number one, Chlor Alkali, we believe, based on some momentum in that market, based on the pricing that has occurred in n that market, we expect Chlor Alkali, not to that they're immune from general economic conditions, but for some time they would be somewhat immune from a pricing point of view and we even think from a volume point of view because that's the one major sector in the chemical side where capacity has come offline in the last several years while demand has modestly improved. So, that supply capacity situation is very different than other sectors.

We realize in the long run, if the economy were to stay in a very poor state on a prolonged basis, that eventually that would back up into the Chlor Alkali sector. But we are expecting Chlor Alkali, I don't want to say almost independent of the economy, at least in the historic run, to continue to advance for us.

The -- the -- we are also -- we would be remiss if we were not developing contingency plans relative to our other businesses to further adapt our cost structure to accommodate the demand levels in those businesses and we have those plans in place. You know, some are less pleasant than others but we're prepared to adjust our cost structure to the level of demand that might exist in these markets and we have plans to do so.

I don't want to get into the details of those plans, but as I said, some of them are less pleasant than others but we have an obligation to the shareholders to manage, you know, especially manage our cash flows to be consistent with the ultimate level of demand in the markets that we serve. And we plan to do so.

Tony, if I can just is ask a follow-up question. On the working capital front, should we expect in '03 working capital to be a source or use of cash? I think in '02 you were able to take cash out of the metals business. Is that correct?

We've had changes in the customer mix in the metals business, requiring us to hold higher inventory levels in metals, but it really is going to be a function of business conditions and if they're soft, we would expect really no growth in working capital. And also we -- we very severely cut back capital in '02 and that, again, would be a source of -- of -- of cash in the sense of cutting back capital in '03.

We have said that we're going -- you know, we're still losing money and we understand that. We're going to continue to manage this as though we're losing money until we're not for some time and manage our cost structure and our cash flows accordingly and -- I guess that does it.

Okay. One final question. Have you met with the rating agencies and when was your last meeting if one did occur? And what was the general tenor of that meeting?

As far as the rating agencies go, you know, we -- we issued $200 million worth of debt at the end of last year, we renegotiate our revolver, we changed our cost structure and then issued equity as I mentioned, we issued equity over 9.63 million shares of almost 60, that was almost $60 million and we acquired Chase, using equity and basically acquired a profitable debt free company. Those actions significantly strengthen the balance sheet.

We've talked with the rating agencies and needless to say expensively at that time and I think that the rating agencies, this is a very subjective view, so, -- but the rating agencies believe that the actions we took on -- are very consistent with a company that's very mindful of the importance of its investment grade ratings. And I think the rating agencies, like all of us, would like to see the businesses, you know, continue to capitalize on what's hopefully an upturn this economy.

So, barring this double dip and barring, you know, the deterioration in the businesses which we don't expect, I think the rating agencies are comfortable that the -- that, you know, what we say is what we do and these two actions of issuing the -- the common for Chase are consistent that.

And I think what the future holds are going to be a function of -- of what -- you know, what the economy does and how well we respond to the economic conditions in the market. And as I said, we are prepared to respond. And we intend to respond if this economy deteriorates.

Okay. Thank you, gentlemen.

Next we have Martin with thorn Chester Group.

Good morning.

Good morning.

I have several questions. One, in the fourth quarter from your metals side, particularly, what kind of information are you getting from your important customers as to possible shutdowns say from the Christmas to the New Year's week or beyond? And will that create any shutdowns on your facilities?

There are -- there are some customers that are slowing down as they get their inventories in control and we are actually taking an extended shut down at our East Alton operation as well as our Indianapolis operation. A couple of additional days at Christmas. We normally shut the East Alton operations down for a week at Christmas time and will add a couple of days to that.

Okay. Okay. And second, this regards to your pension plan.

The $150 million, I assume say in 2005 that's going to impact your income statement and assuming the present interest rate structure and equity markets stays flat, how much will that mean in these ensuing years? And secondly, on an increase in the market value and interest rates, how will that effect that kind of charge?

I think that it's difficult for to us project the next quarter, so, to get into 2005 I think is a stretch. But --

That's not a trivial question -- That's an actuarial question.

That's an actual question. The modeling we've done for the Corporation, let me say this, which does go out to 2005, 6, 7 and 8, contemplates the company's continuing act to meet all of its obligations in the ordinary costs as they come due. I guess I can say that.

Uh-huh.

And including what would be a pension contribution by 2005, that would be consistent with the $150 million write-off. And, in fact, higher writeoffs if that were to occur. So, as we look at our plan, we -- we starting off with what we consider the much-strengthened balance sheet, believe that we can maintain the strength in the balance sheet and I will say again, while meeting all of our obligations.

Okay, and if when you write off $150 million there, has to be an offsetting item in your balance sheet. I assume it would be some sort of long-term liability account. Is that correct assessment?

Yeah, that's a correct assessment. And the -- yeah, it is a non-cash charge. It is a non-cash charge to reflect the lower value of the pension assets versus the accumulated benefit obligation.

Say in 2005, if it occurs, as you put money into the pension plan, that liability would be reduced, is that -- that's right, looking at that correctly?

Yeah.

Okay. Thank you very much.

Thank you.

We have a follow-up question from John Roberts with Buckingham Research.

Thanks, back to the Chlor Alkali and maybe, Tony, if we could use your adjectives of moderately, majorly and minimally, would you characterize your success on chlorine increases as majorly and caustic increases as minimally?

Guys, are you talking sequentially from Q2 --

Since the pricing increases have been announced and since you had the opportunity with a customer, have you had a lot of success in implementing the increases on chlorine? And I would assume relatively little success in implementing the differences on caustic today.

John, I don't think we should comment on that. I think our sales force is out there and trying to, you know, maximize the value from these announced increases and I -- I don't think it's in our interest to comment on that.

Okay. Would you characterize this quarter for Winchester as a record excluding the go-kart contract you lost a while back? Apples to apples, it seems like a record Winchester quarter.

It is very close from a sales point of view, John, but from a profitability -- I mean for a recent pass it was a very strong third quarter.

Okay, just as we go forward, it will be a difficult comp or something you can move up from? You know, next third quarter when we get the seasonal peak.

I understand what you're saying. There are a lot of factors that play into that. Obviously I don't think it's impossible to exceed it again, but there are, you know, seasonality, whether, -- weather, animal issues, et cetera, military issues, et cetera, that can affect it. Is it possible to exceed it? Yes, it is.

Okay. And I understand that the electronic-related strip business had some easy comps, but even looking around the rest of the electronics industry, up 40% year-over-year third quarter to third quarter was a pretty strong gain. What's going on there? Is this going to be just an exceptionally lumpy business at this current level of sales?

I think it is a very good characterization of being lumpy and the thing to remember, John; that we're comparing to a very year on year weak year on a weak year comparing back, reflecting back to the '99, 2000 timeframe that, segment is still off in excess of 40%.

It will be lumpy. But we will see some impact and it will -- it will go up and go down.

But it's still going -- still having easy comps as we speak, at least from that perception and every couple quarters we could put in one of these 20, 30, 40% gains.

We like see lots of quarters like that.

Okay. Great, thank you.

It is star 1 to ask a question. We will go Bob Goldberg with New Vernon Associates.

Good morning.

Good morning. Bob.

Joe, you characterized the decline in the coinage segment as being a function of destocking of inventory. Is that a fair assess mane of what you're seeing in other end markets in that segment? Or do you see end market declines as well?

Well, if you want to talk about the -- some of the segments, Bob, what we have seen year on year is that our automotive segment has -- has actually been stronger this year as we've talked about in the past, year on year. The telecommunications sector is still off compared to the peak years that I just talked about with John. The coinage suggestment is down year on year and down significantly compared back to the 2000 areas. Housing is running just slightly down year on year. And the electrical segment is slightly down year on year.

Overall, the overall market is really overall all segments added together will be almost a mirror reflection of last year of 2001. From a volume consumption perspective.

I'm talking more -- as the business progresses through the second half it seems to be weakening. I mean -- can you tell us what the operating rate progression as been for the business over the third quarter into October and what the backlog looks like?

What we would say is that what we saw from a volume perspective is we saw an increase from first quarter to second quarter, we saw an increase going into the third quarter, we were mitigated a little bit with our plant shutdowns and what we were seeing is we are seeing a volume drop in the fourth quarter and -- and then those markets are what I'm talking about, in coinage and again in the telecommunications aspect, as well.

And one way to look at this is that, you know, the first half, you know, volumes very good based on the expectation of an improving economy and that may be what's happening now is the recovery failed to materialize. Is that -- is that the way you see it? Or is there something else going on?

I think there's a lot of people that -- that see that there was some great better strength in the first half and that there is a slowdown in -- as we get into the last -- last half. I would characterize to say that historically that the metals businesses of slowdown in the fourth quarter -- they -- they historically start to slow down and in some years, more so than others. So, it is not surprising to see it slower than the first half of -- and probably should just keep it at that.

Okay. And Tony, just wondering on the cash flow statements, you raised about $14 million from a disposition. What was that referring to?

We disposed of our corporate air fares. We felt -- feel that in these times, this was one of the things we could do without.

Okay. But was there a gain or loss on that?

No, we sold it at about book value. And -- and realized, I think, both fair market value, because the used aircraft market has since deteriorated. So, we got a price that was reasonably close to what we paid for it but the book value, just because -- the book value was very close to that. So, there was a very -- no gain or loss on it from a book point of view.

And -- and as for -- could you comment your ability to turn around the operating cash flow has been running negative all year. I think it was about $10 million negative in the third quarter. Obviously the company is running at a modest loss. Is there anything else you can do to try and stem that and start to generate some cash flow?

Historically in the -- in the -- we start to liquidate working capital with regard to Winchester, so, they tie up a lot of capital for us, working capital, as we build in the second and third quarter and then deplete it in the fourth quarter, Bob.

Okay. Thanks.

But you know, the dynamics of -- of number one the Chlor Alkali business, the Chlor Alkali business can lose money, I mean not that we're planning that that will be the case, but can lose money in a steady amount and still be cash neutral and when it's making money, it's very, very cash flow positive.

And the same is true for the overall company.

And when I talk about -- on an overall company basis, we could have low levels of profitability and if we manage our capital and working capital -- and really, it's -- I think the conceptually erroneous to say because of depreciation. We have a high profit before depreciation and the high cash goes before the depreciation. So, we -- that is one of the strengths we have in Olin; that high cash flow.

Thanks, Tony.

Again, it is star 1 to ask a question. Next we go Richard O'Riley with Standard and Poors Research.

Good morning, gentlemen.

Good morning.

A couple of quick questions. Your assumptions for the fourth quarter, what does that assume for the -- Winchester business? In the past, in the fourth quarter, you could make a little money, lose a little money. How do you see this year's fourth quarter?

The same assumption as normal. It is the slowest quarter for us.

Okay. But you're not willing to say it's in the back or the red yet?

No, that's too -- that's just --

Okay. Okay. Second thing is on the -- the equity line. You had a small loss. Listening to your partner yesterday, I got the impression that Sunbelt was in the black for the quarter. Is there something else on that equity line or is there something different about Sunbelt than what we might have heard from Polly 1?

We have some of the things in there that are affecting that -- that are affecting that number. You to remember when you look at Sunbelt and think about Sunbelt, Sunbelt is fully financed, that is that the entire cost of Sunbelt was financed. So, this full interest being charged against Sunbelt and when you look at that equity pickup, which is -- is not true of our other businesses. And -- and so that tends to cause Sunbelt to, you know, operationally make money and then after the interest charge keep losing money. At times.

Okay. Great. Okay, good. Third question is, um, I'm still having a little trouble with your fourth quarter outlook for the chlorine business, for the Chlor Alkali business, but basically, if I understand this right, your terms of contracts may be longer than what one would, as a casual observer outside think so. And that's why you may not be seeing the same change in the fourth quarter as we would think from the outside. Is that just how I should be thinking about it?

Yeah, we toned lag a bit because of our contract. We tend to lag the market.

Okay.

We tend to lag the market. Even though we are expecting this significant improvement as we said, in the Chlor Alkali profits in the fourth quarter versus the third quarter because of -- of the pricing industry.

Okay. Great. Thanks a lot, guys.

Thank you.

Thank you.

At this time, we have no more questions in our queue. I'd like to turn the call back over to Mr. Rupp for additional or closing remarks.

We'd like to thank everyone for participating and look forward to talking to you discuss our fourth quarter results. Thank you.

This does conclude today's conference call. Thank you for your participation. You may disconnect your line at this time.