Olin Corp (OLN) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Pioneer Companies Inc. first-quarter 2006 results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Wednesday, May 10th, 2006. Your speakers today are Mike McGovern, Dave Scholes, and Gary Pittman. I would now like to turn the conference over to Gary Pittman, Chief Financial Officer of Pioneer Companies Inc.

Good morning, everyone. As we start out each one of our conference calls, I will start it out this morning going through the disclaimer, and then moving to the Company background, and at that time I will turn it over to Mike McGovern. 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 and Reform Act. Such statements are subject to varied risks, including but not limited to, Pioneer's high financial leverage, global economic conditions and demands and prices for our product, 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 agreement, and other risks and uncertainties. Attention is directed to our Form 10-Q and our annual report on the Form 10-K for 2005 for our discussions 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 geographical area, North America. The Company's combined annual capacity from our four chlor-alkali plants is 725,000 ECUs, representing approximately 5% of North America's capacity. At this time, I will turn it over to Mike McGovern.

On the call today we have Gary Pittman, CFO; Dave Scholes, Vice President of Operations and a Director, and myself. I'm going to spend a few minutes just talking about the EBITDA for the quarter, pricing, costs for electricity and transportation, and then Dave will talk about operation, safety and the favorable settlement at Becancour and we will pass it over to Gary on some financial matters.

We had another -- we posted another good quarter. Our EBITDA, 31 million plus. For us that's very good. Operating income was up $27 million. A key indicator for us is if you look at the debt from 2005 March 31 to 2006, it was 180 million, and now it's 103 million. We're real proud of bringing that down. As we look forward, we anticipate that 2006 will allow us to continue to strengthen our balance sheet, decrease our debt, both from operational cash flow and the pending assets sale, particularly Henderson.

As we look at our netback prices, as we saw in the first quarter of '05, they continue to increase from first quarter of '05 through fourth quarter of '05. So basically flat from the fourth quarter to the first quarter, 619 to 616. That's basically just a change in customer mix.

As we always disclose the front month of the next quarter, April looks like 577; that's a combination of two things, a slight retreat in the price and a shift in our customer mix. Again, a lot of our contracts are priced on a quarterly basis, so they would move at the beginning of the -- at the beginning of the quarter. So the 577 still looks like a we're vary strong price.

As we move to energy, electricity is our most costly raw material. And we've tried to lay out quarter by quarter, if you look at first quarter '05 last year, this is for production, it was $21 million, it increased to $29 million, almost $30 million the first quarter of '06. Our plants as restated at St. Gabriel [tends to allow our] power sources are primarily used natural gas for generation. As everyone knows, the price of natural gas ran peak in October/ November. While the prices have decreased somewhat in the first quarter of '06 from peak in '05 levels, prices remain high. But they look like there's a back gradation, you know, for Henderson, and St. Gabriel. And again, Becancour is hydro.

As we look the transportation, we've tried to disclose that; it's a major cost component. If one were to anticipate from the first quarter of '05 to '06 it's increased about $3 million. And we're at all-time high cost for fuel, and so that is as expected.

As we look forward, our goal is to continue to solidify the operating platform. And we've worked very diligently to try to increase revenue, and reduce expenses. We've worked it both ends. We focused on the margin, not just one end. As we go forward we intend to focus more aggressively on the purchase of bleach facilities, adding product lines that use our products, and adding product lines independent of our existing product lines that may use our existing core competencies. So at this time I'd like to turn it over to Dave Scholes to give you an update on operations.

Good morning. I'd like to start out with safety. Safety is one of -- certainly one of our core values, and given the businesses that we're in, it needs to be. But we seldom if ever talk about it on these calls. I'd like to change that practice, starting with this call.

On April 4th, The Chlorine Institute, our industry association, held its annual awards event. And that [out] at our Dalhousie plant, our St. Gabriel plant, and our Santa Fe Springs plant were all recognized for their excellent safety performance. Our Henderson, Nevada plant was recognized for several years of excellent environmental performance.

We ship chlorine, caustic soda and hydrochloric acid by rail. And a number of railroads recognize shippers for their delivery of safe packages, and in this case tank cars to them. Three of our plants, Becancour, St. Gabriel and Dalhousie, are receiving safe handling awards from the CN Railroad this week.

These are areas that are important to us, and obviously we like it when our performance in these areas is recognized by outside organizations.

I'd like to talk now about our production in the first quarter. Our production -- our operating rate during the first quarter was approximately 91% of our production capacity at 165,000 (technical difficulty) ECUs. That was a couple percentage points higher than the industry average operating rate as recorded by The Chlorine Institute for the first quarter.

During the first quarter our Henderson plant was down for 7 days for its scheduled maintenance outage.

For the remainder of 2006, our scheduled maintenance shutdowns are as follows. The number one plant at Becancour and our Dalhousie quarry plant in the second quarter, and actually the Dalhousie quarry plant outage was completed two weeks ago and the Becancour No.1 plant is down this week for its scheduled outage. And then the Dalhousie chlor-alkali plant is scheduled for its annual outage in the third quarter of this year, and the Becancour number two plant in the fourth quarter of this year.

The last thing I'd like to mention, as was recorded on May 1st, 2006, our production and maintenance employees at our Becancour, Quebec plant, who are represented by the Communications Energy and Paperworkers Union, ratified a new six-year labor agreement. This collective bargaining agreement will expire April 30th of 2012. And of course, we and obviously our employees are very pleased with the ratification of this agreement.

At this time what I'd like to do is just go over some of the financial highlights. I noted in the past we have gone through more of the detail. We feel like at this time we will leave that to everyone to go through the annual -- either look at the 10-Q or look at the press release instead of just trying to regurgitate that information on the conference call.

So start out with the net income for the first quarter of '06. It was $16.1 million, or $1.35 per diluted share. And that compared to the first quarter of '05 of $15 million, or $1.28 per diluted share.

If we look at the net income for the first quarter of '06 compared to the fourth quarter of '05, we can see that the one -- the $16.1 million compares to the fourth quarter of $11.1 million. The revenues for the first quarter was $134 million compared to $131 million of the fourth quarter of '05.

The other highlights I'd like to mention at this time is talk about the debt. As everyone is aware, the senior notes, we made a voluntary redemption payment of $50 million in principle. The noteholders were paid $52.5 million of principal and redemption premium. The $2.5 million was redemption premium on the $50 million.

The other item I'd like to highlight was on the senior notes, on -- while they are denominated in U.S. dollars, were issued by the Canadian subsidiary. So the payment of the senior notes prior to or at maturity may create a tax liability due to the changes in the exchange rate. The foreign exchange gain or loss (technical difficulty) based on the difference between the exchange rate prevailing when the debt repayment is made, and the exchange rate of 1.59 when the senior notes were originally issued. This payment created an exchange gain of approximately $8.7 million. And we just wanted to highlight that.

While we have capital loss carryforward for Canadian tax purposes sufficient to offset this gain in 2006, we may not have sufficient to offset any future payments. And we're considering whether to refinance the remaining 100 million principal balance of the senior notes prior to the scheduled maturity, which could accelerate the realization of any related tax liability due to the exchange difference.

The other instrument I'd like to mention is the revolver. We had no borrowings outstanding under the revolver. However, we did have 3.6 million of LC outstanding as of March 31. As we have indicated, we are evaluating our financing needs, and we know that the revolver matures at 12-31-06. We'll either extend or put in place a new revolver.

The lender-defined EBITDA has, we mentioned -- as Mike mentioned earlier -- was 31.2 for the quarter, giving us a 12 months trailing average of approximately $124 million of EBITDA, the required covenant being a little over $20 million.

The next item I'd like to highlight was the net cash flow from operations. During the first three months of '06, our cash flow from operating activities was $19.7 million. That was $6 million less than the same period in 2005. I just wanted to highlight that it was predominantly changes for operating assets and liability decrease of $5 million for the current quarter compared to an increase of operating cash flow of $1.2 million for the first quarter of '05, creating the delta of the $6.2 million.

Also in the other income and expense net item on our income statement, I wanted to highlight the $2.3 million of expense in the first quarter of '06, included a loss on the debt extinguishment of the $2.5 million related to the premium payment for the early debt extinguishment on the voluntary redemption of the $50 million and principal payment on the senior notes in January 2006.

At this time, that concludes the highlights for the first quarter. What we would like to do is turn it back over to the operator, and see if we have any calls.

(OPERATOR INSTRUCTIONS). You have no questions at this time.

We appreciate everybody's participation. We're unable to tell if we're doing such an outstanding job of communicating the information or that we're putting people to sleep. Hopefully we're communicating the information, and thank you for your support, and we will talk to you next quarter.

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