Olin Corp (OLN) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Pioneer Companies Announces First Quarter 2005 Results conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Tuesday, May 17, 2005. I would now like to turn the conference over to Gary Pittman. Please go ahead, Sir.

Thank you; good morning to everyone. I would like to start out by introducing Mike McGovern, the President and CEO, and Dave Scholes, Vice President, Manufacturing. They will be joining us this morning for the conference call.

What I would like to do is start out as we do each conference call is with a disclaimer.

Certain statements that we may make during this teleconference regarding future expectations of Pioneer's business and Pioneer's results of operations, financial conditions and liquidity may be regarded as forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are subject to various risks including but not limited to Pioneer's high financial leverage, global economic conditions, the demand and prices for our products, Pioneer and industry production volume, competitive prices, the cyclical nature of the market for many of our markets and raw materials.

The effects of Pioneer's results of operations are in set (ph) agreement and other risks of uncertainties. Attention is directed to our Form 10-Q and our annual report on Form 10-K for 2004 for a discussion of such risks and uncertainties. Actual outcomes may vary materially.

The Company background, Pioneer operates in one industry segment -- the production marketing and selling of chlor-alkali products such as chlorine caustic soda, hydrochloric acid and bleach. Pioneer operates in one geographic area -- North America. The Company's combined annual capacity for our 4 chlor-alkali plants is 725,000 (technical difficulty) representing approximately 5% of North America capacity.

At this time I'd like to turn it over to Mike McGovern.

Thank you Gary, and thank you, everybody, for participating in the call. I just have a few brief comments; then I'll turn it over to Dave Scholes.

First Pioneer had an outstanding first quarter. Our net income for first quarter '05 before income taxes was 18+ million, first quarter '04 was a loss of 7 million. The reason I'm doing before income tax is we were not a cash taxpayer. So we think it is very positive. Our lender EBITDA was 28 7 for the first quarter '05 vs. approximately 6 million of '04 -- another indication of our strong performance.

What we look at the pricing, as you look at the first quarter of '04, it was 339. It traveled by the end of the fourth quarter at 480 but the first quarter it was 548 and as we've stated in the Q, it's 570 as we finished April. So the price was strong and demand looks robust.

The only concern I'd like to bring up is rail and the rail service. The two areas -- there are three things we really ought to talk about. First in the West, there's a great deal of congestion. All the lines are in an oversold position so it caused delays and it's causing us some logistic problems. Given we are the only party, the only producer in the West Coast, it's even more of a problem for our competitors because they have to swing their products all the way from the Gulf Coast. So it is a problem for us, it is a nightmare for others.

With the rail we want to note that there is talk in the industry that the rail carriers intend to move, are discussing moving from a long-term contract to a tariff. The concern there is with the tariff, they could change prices at will or on very short-term basis and the services. The other point I need to raise is one of our large carriers is a potential strike that could occur with one of their unions.

But even with that, why raise those concerns? Our prices looks solid and the market looks robust.

At this time I'd like to turn it over to Dave Scholes.

Thanks, Mike. Good morning. I'd like to start out and talk about our production performance during this first quarter. We produced 161,600 ECUs during the first quarter. As we reported on January 24th, we reduced the operation of our chlor-alkali plant in Henderson, Nevada during January when flooding in California and Utah disrupted inbound and outbound shipments by rail to and from the plant.

Also in January, an apparent seasonal reduction in orders that would have been supplied by our Becancour plant that led us to reduce that plant's operating rate for several days. Those reductions led to approximately 9500 fewer ECUs being produced during January. We had a planned two-week maintenance outage at our St. Gabriel plant in March. This is an every two year event, the last one actually being in December of 2003 and during that month, we reduced production by approximately 8000 ECUs as a result of the outage.

As a result of all those reductions, the plants operated at about 88% of capacity during the first quarter. While we don't have any maintenance outages planned for our planned for our chlor-alkali plants during the second quarter of 2005, as Mike has discussed, reductions in our operating rates could occur as a result of rail disruption, particularly in the West.

We do have outages scheduled at our Henderson and Becancour plants for the fall of this year.

I'd like now to go to the cost reduction measures that we implemented beginning early last year. As has previously been discussed, we began the development implementation of an organizational efficiency project that we refer to as Project Star in the first quarter of 2004.

Project Star was not simply a manufacturing improvement project. It involved a design and development and implementation of processes to improve our senior management, our sales and marketing, our production logistics materials management and IT factions. The original project resulted in the eliminate of 128 employee and contractor positions at our Houston and Montreal offices and our Becancour, Henderson and St. Gabriel plants. Almost all of those reductions have now taken place.

The extension of Project Star to our Dell Housing plant in January this year is expected to result in the further reduction of 11 employee positions there.

The anticipated completion date of all of the work associated with Project Star -- including the Dalhousie phase is December 31st of this year.

In the fourth quarter of 2004 we initiated the transfer of our bleach production assets from Cornwall to Becancour. This work was completed in April of 2005. The additional driver for this project was logistics, to eliminate the movement of chlorine and caustic from Becancour to Cornwall and the subsequent movement of the bleach from Cornwall to customers.

In addition to logistics savings, we anticipate that the project will result in a net elevation of 8 employee positions, giving us an increase at Becancour and a reduction at Cornwall.

We are currently evaluating the remaining operations at Cornwall. All of the employees' severance and related costs are recognized in other items in the consolidated statement of operations. And there you'll find a table that carries the liability balance as of December 31st, 2004, which was 1.89 million -- the cost recognized during the first quarter, the cost paid during the first quarter and the remaining liability balance related to the original Project Star, the extension to Dalhousie and the Cornwall project.

I'd like now to discuss environmental issues impacting our operations. In December 2003, the EPA adopted maximum achievable control technology omissions limitations for (indiscernible) for alkali facilities. These will apply to our St. Gabriel facility. These limitations have a compliance date of December 2006.

We have previously disclosed that we expect the total cost to us to comply with these regulations to be about 2.3 million. Of that amount we have already spent approximately 1.8 billion since January 2001 in anticipation of the new requirements.

In early 2004, environmental groups filed suit against the APA, challenging the new regulations, contending that the EPA should reconsider their rules. The EPA has agreed to reconsider the new rules and the litigation has been held in abeyance while that process continues.

Every two years, we commission assessments, reassessments of our long-term environmental obligations. In April 2005, the most recent independent analysis of environmental concerns at all of our sites was completed. Updating a similar independent environmental analysis that was completed in April of 2003. The study was based on the same methodology as the 2003 study, using scenario analysis to estimate the cost to remedy environmental concerns at our sites.

Based on the recent study we estimate our total remediation and liability to be 19.8 million, of which 3.2 million is subject to indemnity claims against a previous owner. As a result, we reduced our environmental reserves by 200,000 in the first quarter of 2005, which is reflected.

Finally, in 2005 we expect to fund approximately $1.4 million in remediation expenses and $2.9 million in capital projects relating to our environmental compliance program.

And now, I will turn it over to Gary Pittman.

Thank you, Dave. At this time I would like to go over the first quarter results. We reported net income at 15 million or 1. -- $1.28 per diluted share in the first quarter of '05 compared to a net loss of 7.3 million or $0.73 per diluted share in the comparable quarter of 2004.

Our revenue for the first quarter of 2005 were 119 million as compared to 91 million for the same period in 2004. Revenues in the most recent quarter were favorably affected by higher ECU netback offset in part by lower ECUs sales volumes as a result of lower sales volume for caustic soda. Our revenues in the most recent quarter from sales of chlorine and caustic were 28.1 million higher than the year earlier quarter, primarily as a result of the higher ECU prices, offset in part by the lower ECU sales volumes reflecting lower caustic soda volumes.

The volumes of caustic soda that we purchased for resale for the first quarter of 2005 were 16,000 tons compared to 30,000 tons for the same period in 2004. Our average ECU netback for the first quarter of 2005 was 548, compared to 339 for the first quarter in '04. Revenue in the most recent quarter was also favorably affected by increased prices for other products, with an increase of 1.4 million and revenues resulting from accrued sales of bleach and other products.

Our ECU production was 161,000 tons in the first quarter '05 compared to 170,000 tons for the same period in '04.

Cost of sales product for the first quarter of '05 increased by 300,000 as compared to the comparable quarter in '04. In the most recent quarter our variable product costs were 1.8 million higher than in prior year, primarily as a result of a 2.9 million increase in salt, electricity costs, and other raw materials due to higher prices, offset by 1.6 million due to lower production volumes and .5 million increase in purchase for resale cost.

Additionally during the most recent quarter, there was also a 2.3 million increase in maintenance costs, partially offset by lower salaries and employee-related costs as a result of the workforce reductions related to Project Star. The increase in maintenance costs was incurred on a plant in St. Gabriel where major maintenance activities occur every two years. Also offsetting these increases was the absence of depreciation of approximately 3.4 million related to a decision to discontinue chloric live production at the Tacoma facility during the first quarter of '04.

SG&A expenses increased by 1.9 million to 8.5 million for the first quarter of '05 as compared to the comparable quarter in 2004. The increase was primarily attributable to an increase in personnel expenses of 1.3 million resulting from increased employee bonus accruals partially offset by a decrease in salaries and other employee-related costs, along with the increase in the bad debt allowance of approximately 900,000, due to a much higher level of accounts receivable.

Other items increased by 300,000 for the three months ended March 31, '05 compared to the same quarter in '04, due to recognition of employee severance as a result of the extension of Project Star to our Dalhousie facility and the realignment of certain Canadian operations.

Interest expense decreased by approximately 400,000 to 4.3 million during the three months ended March 31, '05, as a result of lower debt balances during the period. There was a partial redemption in our senior guaranteed notes in January '05; and there were lower levels of borrowings under our revolver during the period.

We had income tax expense of 3.4 million for the quarter ended March 31, '05, compared to income tax benefit of 300,000 in the first quarter of '04. Income from our Canadian operation gave us the rise to 2.3 million of tax expense in the latest period. On April 30th, '05, our availability under the revolver was approximately 25.4 million after reducing the amount of availability by the 4.6 million of letter of credits then outstanding; and our liquidity was approximately 48 million.

While no redemption or prepayment on Traunche Notes were required, with respect to any calendar quarter during 2004, Pioneer will be required to redeem and prepay approximately 18.3 million of the principal payment of the Traunche Notes as a result of Pioneer's average liquidity and Pioneer's excess cash flow for the quarter ended March 31, '05. Such prepayments and redemptions will occur before the end of the month in May.

At this time, I would like to turn the conference over for the Q&A period.

(OPERATOR INSTRUCTIONS) Dan Chadrough (ph) from Redcourt (ph).

Great quarter. Could you give a little more detail on the caustic purchases that you made and when those are going to discontinue and how long we should be modeling them in for?

First, the purchase resale is not going to be discontinued, scaled back. What we did this week retreated from the Northwest when we decided not to start the plant. And so we continue -- our goal is to continue to buy and sell caustic in our orbits in our three orbits. So it is a reduction not a phaseout. So the big phaseout occurred last year.

So, should we be thinking -- I guess -- purchase on the open market are going to continue at these levels? And if so, are you earning a positive margin on the resales or --?

One of the things that we will continue to do is evaluate our purchase for resale. If you will notice in this particular quarter we use less of our product in our downstream operation. So we are constantly balancing our demand -- our supply and demand at each one of our orbits. And as we need, maybe we need more chlorine we may go to the market and do purchase for resale for hydrochloric acid. This particular quarter, we relocated our operations. We needed to do purchase for resale of bleach in the Canadian orbit. We will continue to have some purchase for resale volumes as they make sense in each one of our orbits.

So these caustic prices aren't primarily tied to agreements that you had at Tacoma?

No. We've rotated out of that market.

In terms of the 60 acres in Henderson that you have for sale, do you have any update on the timing and where things stand with that?

We have had numerous interested parties but we have nothing more to report at this time.

(OPERATOR INSTRUCTIONS) Mr. Pittman, there are no further questions at this time; I will turn the call back to you.

At this time I would like to thank everyone for participating and we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.