Olin Corp (OLN) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Pioneer Companies Announces 2005 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Monday, March 20, 2006.

I would now like to turn the conference over to Gary Pittman, Chief Financial Officer. Please go ahead, sir.

Thank you, George. This morning, I have myself, Gary Pittman, CFO of Pioneer, and Mike McGovern. We will be doing the analyst call this morning.

If I can get started as we always do and start with every conference call, I will go through the disclaimer. Certain statements that we may make during this teleconference regarding future expectation 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 Private Securities Litigation Reform Act, such statements are subject to various risk, included but not limited to Pioneer's high financial leverage; global economic condition; the demand and prices for our products; Pioneer and industry production volumes; competitive prices; the cyclical nature of the markets for many of our products and raw materials; the effect of Pioneer's results of operations on its debt agreements; and other risks and uncertainties. Attention is directed to our Form 10-Q and our annual report on our Form 10-Q for 2005 for a discussion of such risks and uncertainties. Actual outcomes may vary.

The Company background information -- 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 the chlor-alkali plants is 725,000 ECUs, representing approximately 5% of North America's capacity.

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

Thank you, Gary, and thanks to all of you who've called in.

I'm going to make a few comments. We will turn it back to Gary to go through the -K. Mine will be I will compare EBITDA, fourth quarter to third quarter, a little direction on the first quarter of '06 and for the year '06, talk about our redeployment of assets (indiscernible) had a press release yesterday.

You know, as we start, we had an outstanding year last year. Our EBITDA, and we disclosed in our 10-K, was approximately $121 million.

Now, what I want to focus on is, if we compare the fourth quarter to the third quarter, our EBITDA was 22 million in the fourth quarter and 32 in the third, or a drop of 10. If we look at these, I think we can explain these rather quickly. Our revenue in the fourth quarter was about 131, 131 million, compared to 133 million for the third quarter. We did have a price increase on our ECU; it was 619 in the fourth quarter versus 581 in the prior quarter. Our production was about flat in the fourth quarter of 163,000.7, and in the third quarter, it was 164.3.

Our cost of sales for the fourth quarter increased by about $4 million. This is a result of the increased variable product costs and we disclosed the change by quarter in the K. Increase -- also increased plant fixed expense due to the scheduled turnarounds we had at Becancour and St. Gabriel.

Our SG&A was 12.8 in the fourth quarter versus 8.7 in the third. This is primarily due to consulting fees and expenses to comply with SOX and a bonus accrual. So all in all, the change from this relates to basically non-recurring cost.

As we look at '06, our average net back for the first two months, which we disclosed in the K, was 6.20, so basically flat for the first two months. It's important to note, there is some downward pressure on the price of caustic.

When we look at the production of the fourth quarter versus the first, you know it should be relatively flat. And we have a six to seven-day turnaround scheduled at Henderson this month.

Expenses should be a little lower. When people look at the price curve for natural gas, they see that stair step (indiscernible) in the fourth quarter has dropped off. The SOX expenditure should not beat at the killer pace that we had, so that's kind of the first quarter.

When we look at '06, the outlook for the demand of chlorine seems to be strong and the demand for caustic seems to be strengthening, particularly over the last couple of weeks as we move into the bleach season. The price curve for natural gas appears to be increasing slightly, but not a great amount. So all in all, it looks like a good year as we go into '06.

We had several assets sales in redeployment. We continue to try to maximize return on assets by shedding the nonproducing and the marginal assets. The first one was the sale of Tacoma; this was a site we had purchased from OxyChem in '97. We sold this back to them for 750,000 in cash and we had a reserve, environmental reserve on both the 4.5 million that we diverged. The key with this is Oxy can manage this better with us being off the site and we were -- had no intent of restarting the facility.

(indiscernible) operations at Cornwall, once we move the bleach facilities to Becancour, the viability of that facility became questionable and so we shut it down.

At Henderson, we continue to pursue the sale of the undeveloped acreage, the 60 acres at Henderson. It has been like going through the gauntlet, getting the partial mass done. Henderson is part Las Vegas; it is just exploding, so any development there is taking longer than we had anticipated, but we continue to push forward with that.

We made a press release morning and the substance of the press release is I had, in November of last year, expressed a desire to discontinue my employment with the Company after we found my successor. We've had numerous conversation since that time, and through numerous discussions with the Board, I've reconsidered this and I advised the Board yesterday that I would like to enter some negotiations. As I stated, I believe that Pioneer is a fine company. I have great respect for our management teams and our employees. While most of the difficult financials -- with this most financial issues we have (indiscernible) and now that the Company is healthy, we look forward to implementing a growth strategy. I appreciate the Board's support.

So, I will turn it back to Mr. Pittman.

Thank you, Mike.

What I'd like to do now is go through the year ended 2005 compared to 2004. Revenues increased by 108 million, or approximately 27%, to 515 million for the year ended '05 as compared to the prior-year period. Revenue from sales of chlorine and caustic soda increased by 92 million with an increase of approximately 120 million due to increased ECU netbacks, but partially offset by a decrease of approximately 27 million due to the increase of the ECU sales volume. Our average ECU netback for the year ended '05 was 581, an increase of 48% compared to an average net back in '04 of 392. Our revenues in the most recent year were also favorably affected by the increased prices for our other products, primarily from an increase of 16.8 million in revenues from bleach sales.

Our cost of sales product increased by 22.8 million to 376 million for 2005 as compared to '04. For 2005, our variable costs were 14.1 million higher than 2004. Variable product costs included a 23 million increase we saw from higher prices for salt, electricity and other raw materials, being partially offset by 5 million due to lower production volumes, 8 million of lower purchase for resale.

For 2005, our fixed costs were 8.7 million higher than in 2004. The increase included maintenance, which were 7.9 million higher due to increased maintenance expense at Becancour, Henderson and St. Gabriel plants, also including 3.6 million of turnaround costs at our St. Gabriel and Henderson plants. Also, the most recent period included increased utility costs of 2.3 million.

SG&A expenses increased 10.6 million, or approximately 38%, to 38.2 million for the year ended 2005, as compared to the year ended 2004.

The unfavorable variance in 2005 was primarily attributable to an increase in personnel expenses of 7.7 million, including higher employee bonus accrual of 6.1 million, additional pension expense of 800,000 as a result of our Cornwall plant shutdown, and 400,000 of employee severance and related costs. We also incurred higher professional fees in 2005 of approximately 1.2 million. The professional fees were impacted by a recognition of 5.1 million in 2005 for consulting fees related to Sarbanes-Oxley compliance [readiness], which was largely offset by the absence of consulting fees of 4.3 million incurred in '04 related to our organizational efficiency project.

Other items represented a net cost of 1.2 million for the year ended 2005, a cost decrease of approximately 2.8 million compared to '04. The '05 period included a loss of miscellaneous assets, dispositions and asset write-offs of approximately 3 million, a loss of 1.8 on the Cornwall closure. Partially offset by these costs was a gain of 4.1 million in connection with the sale of the [Como] facility in December of 2005.

Interest expense net of 15.38 for the year ended '05 included interest expense of 16.2 million. This was approximately 3 million less than in the year 2004 as a result of lower debt balances for the '05 period.

Other expense of 1.5 million in 2005 primarily reflects a currency exchange loss, which resulted in a decrease in the rate at which the Canadian dollar-denominated amounts were converted into U.S. balances.

Income tax expense, we had income tax expense of 10.8 million for the year ended '05, compared to income tax expense of 2 million in 2004. The effective income tax rate was 13% for the year ended 2005 and 240% for the year ended '04.

The other thing we had was the cumulative effect of accounting change. With the clarifications outlined in FIN 47, we were able to reasonably estimate our conditional asset retirement obligations and accordingly recorded an asset retirement obligation of 4 million as of December 31, '05. The obligation involved various federal, state, local regulatory and/or contractual obligations to decontaminate and/or dismantle certain machinery and equipment buildings, leasehold improvements and other various operations. The impact of the adoption resulted in a charge of 2.2 million recorded as a cumulative effect in the accounting principle, net of taxes in our consolidated statements of operations for '05.

At December 31, 2005, we had a U.S. net operating loss carryforward of 56.7 million that will expire in various amounts from 2008 to 2004.

The other thing I'd like to mention was the tax liability upon the payment of the senior notes. Our senior Notes will -- while denominated in U.S. dollars, were issued by our Canadian subsidiary. As a result, the payment of the senior Notes, prior to or at maturity, may create a tax liability due to changes in the exchange rate.

For Canadian tax purposes, a foreign exchange gain or loss is determined based on the difference between the exchange rate prevailing while the debt repayment is made and the exchange rate of 1.59 when the senior Notes were originally issued on December 31, 2001. Our redemption of the 50 million of senior notes on January 13, 2006, while the exchange rate was 1.16, resulted in a foreign exchange gain treated as a capital gain for Canadian tax purposes of approximately 18.7 million. While we have a capital loss carryforward for Canadian tax purposes sufficient to offset this gain in 2006, the tax consequences of the redemption will result in the use of a substantial portion of the Canadian capital loss carryforward. The senior Notes are due in December 2008 and we are considering whether to refinance the remaining 100 million principal amount on the senior Notes prior to the scheduled maturity dates, which could accelerate the realization of any related tax liability due to the exchange rate difference.

In addition, we expect to receive proceeds of approximately 22.8 million from the sale of certain excess acreage at Henderson, Nevada, sometime in 2006 that we anticipate we will apply to repay these senior notes. If the exchange rate of the U.S. dollar and Canadian dollars on that date of payment or any portion of the senior Notes is less than the exchange rate when the senior Notes were originally issued on December 31, '01, we would have a Canadian tax liability based on such difference.

The other thing in 2005 -- we became subject to the Sarbanes-Oxley Section 404 compliance requirement, under which management is required to attest to the effectiveness of the internal controls or financial reporting, and our outside auditors were required to audit our compliance. We hired an outside consulting to help us document and assess our internal controls to meet our compliance obligations and incurred additional expenses for the (indiscernible) hire outside auditors. As a result, we incurred substantial fees, professional fees in the amount of approximately 5.4 million in 2005.

At this time, this concludes our report for the 2005 results. What we will do is turn it back over to George for any Q&A.

Sure. (OPERATOR INSTRUCTIONS). Mr. Pittman, there appear to be no questions from the phone line.

Well again, we appreciate everybody for listening and we hope the lack of questions wasn't that we put everybody to sleep, so that we hope the information was complete and informative. We thank you all, and we will talk to you again at the next call. Thank you. This concludes the call.

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.