Olin Corp (OLN) 2007 Q2 法說會逐字稿

Good day and welcome, everyone, to the Pioneer second-quarter 2007 results. Today's conference is being recorded. At this time, I'd like to turn the program over to Mr. Gary Pittman. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Pioneer's second quarter 2007 conference call. With me today is Mike McGovern, President and Chief Executive Officer, and Dave Scholes, Senior Vice President of Operations.

We are pleased to have the opportunity to review with you the Company's results for the second quarter. Let me remind everyone that as a result of this conference call, Pioneer's management may make certain statements regarding future expectations of Pioneer's business and Pioneer's results of operations, financial conditions and liquidity. These statements may be regarded as forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are subject to various risks that are also listed in the Company's filings with the SEC including Pioneer's Form 10-K/A and Form 10-Q.

At this time, I would like to turn the call over to Pioneer's President and CEO, Mike McGovern.

Thank you, Gary. First, I'd like to talk about the merger, the reasons for the merger and then I'll talk about the second quarter. I think everyone on the call knows, on May 20, Pioneer entered into a merger agreement with Olin. Under the terms of that agreement each share of our common stock has the right to receive cash in the amount of $35 upon the closing of this transaction.

The merger is subject to customary closing conditions. One, the receipt of an affirmative vote of the majority of our outstanding shares of common stock and two, the absence of legal impediments to the consummation of the merger.

On July 16, we announced that the waiting period under the Hart-Scott-Rodino had expired. We then set a date for the stockholders to approve the merger agreement, and that is August 28. If the Company's shareholders approve the merger and all other conditions of the closing are satisfied or waived, we expect to close on August 31.

I'd also like to note on June 4, Pioneer [instructors] were named in a lawsuit arising from this proposed merger. The lawsuit seeks among other things to enjoin the merger. We believe the lawsuit is without merit and intend to defend vigorously.

The reasons for our recommendation, and our Board has unanimously determined that this transaction is in the best interest of our stockholders and recommends that the stockholders vote for the merger. Some of the factors we considered as we looked at the prior, current and the uncertain anticipated financial performance, our prospects, long-term strategy and other such facts, and we came to the conclusion that the $35 per share consideration will reserve in a greater value with less risk to our stockholders and continue to operate as an independent company and pursuing our current plan. We looked at the premium we were receiving, both from a day, a month and a longer period. We looked at the risks related to the future prices for our products and the lack of control, the risk of increased cost to our product and the risk of increased cost to ship and a competitive nature. And then, you know, the potential delays or cost overruns for our St. Gabriel expansion.

We also looked at the lack of recent precedent transactions. This led us to believe that the lack of [some of the] transaction is due to limited number of strategic and financial buyers. We also believe that a strategic buyer such as Olin is paying a higher price than a financial buyer.

In the agreement to some points to note there's no financing out. We continue to advance our project at St. Gabriel, the expansion there. We have the right to pursue other alternatives if we have a superior proposal and it's subject to paying Olin a $15.6 million termination fee. We believe this fee is customary in the range. And the most important thing, our shareholders have the right, we've given our shareholders the right, the opportunity to vote and we think that's critical. Another fact is that most of our senior executives including me and all of our directors will [not] have a role with Olin. And again, the Board of Directors and I unanimously recommend that you vote for these options of this merger.

As we move to the second quarter, I'd like to focus on the EBITDA. As you look at the EBITDA for the three months ending June 30, it was 15.4 and for the first quarter it was 20.4. We believe it's important to note during the second quarter of '07 there was a non-recurring expense for a loss of debt retirement related to the early redemption of the remaining $75 million of the 10% senior notes. It was in the amount of 1.9. We also had a non-cash currency exchange loss of 3.8. Also included in that quarter in the SG&A was a [monetary] occurring amount of $0.9 million or almost $1 million for fees related to the pending merger. As we looked at the year-to-date, we had expenses of 2.5 because we had redeemed some funds in the first quarter and the currency loss was 4.3.

As we move to pricing, we always state our ECU net back is net of transportation. Prices for ECU peaked in the third quarter of [2 '05] at $619. They were treated to $581 in the fourth quarter of '05 and then peaked again in the first quarter of a '06 at $616. Since the first quarter of '06, prices for ECU have continued to decline into the second quarter of '07. The ECU price for the quarter was $540. For the month of July, our average net back was approximately $563, which reflects a $23 increase over the second quarter.

It's important to note that a question that's frequently asked is the anticipated startup date for the Shintech facility in Louisiana. While we have not talked with anyone at Shintech, in a recent press release it was suggested that the startup for their first phase would be in early [2 '08]. I believe that's about 350,000 additional tons of caustic that will come on the market.

As we look at our production, during the first three months ended June 30, it was approximately 171,000 which is 95% of our capacity. Year-to-date, 337,000 which is 94. The industry as a whole was for the second quarter 90% and 91% year-to-date.

An item with our cost that we continue to highlight is the transportation cost. We disclose in our 10-Q the amount spent on transportation as it relates to the sale of products in the aggregate amount. During the past few years, the rail carriers have proposed substantial higher right rates to transport chlorine and most other chemicals. As a result of the renewal of these rail contracts we continue to experience significant cost increases for chlorine shipments. The contracts are currently subject to annual renewals which could lead to further costs. Rates for shipping costs and others have increased, although much lower than compared to the chlorine. Transportation costs increased by 4.6 million or 18% from the three months ended June 30 '07 compared to the same period '06.

Capital expenditures -- the critical path and the costs for the expansion of St. Gabriel remains unchanged. We have increased the scope of the membrane cell contract to include additional membrane cell units, which will be used either to further expand the capacity of St. Gabriel or another location. The cost of additional membrane cells of 7.2 million is not included in the estimated project cost of the 142.

As we look at our forecast for capital expenditure for '07, at the beginning of the year we had forecasted 81 million. We've reduced that now to approximately 50. The major change in our forecast are lower capital expenditures for St. Gabriel during '07 but they will be incurred in '08 and several downstream projects have been delayed.

At this time, I'd like to turn back to Gary Pittman, who will give a financial update.

Think you, Mike. At this time I would like to highlight Pioneer's financial results. For the second quarter of 2007, Pioneer reported net income of $5 million on revenues of $130 million. This compares to net income of $15 million on revenues of $132 million for the second quarter of 2006. The decrease in revenues was due to lower sales price of chlorine and lower sales volume of caustic soda and bleach, which were offset by higher sales volumes of chlorine.

For the first six months of 2007, Pioneer's net income was $12 million on revenues of $252 million as compared to net income of $31 million on revenues of $267 million for the first six months of 2006. Sales of chlorine and caustic soda decreased by $12 million with a decrease of $15 million from lower prices offset by an increase of $3.5 million from higher volumes. Revenues during the first six months of 2007 were also impacted by $2.5 million of lower sales of our other products.

Cost of sales increased $5.4 million for the second quarter of 2007 as compared to the same period in 2006. In the 2007 period, our cost of sales included higher transportation costs of $4.6 million and an increase in fixed cost of [$1.2] million as compared to the same period in '06. Cost of sales increased by $4.8 million to $206 million for the first six months of 2007 as compared to the same period in '06. In the 2007 period, our cost of sales included higher transportation costs of $6.8 million, a decrease in variable product cost of $5.3 million and an increase in fixed cost of [$3.3] million as compared to the same period in '06.

We also recognized increased depreciation expense related to the St. Gabriel plant as a result of a revised estimated service life of certain depreciable assets at the plant in connection with the plant expansion project. Therefore, included in the cost of sales was an increase in depreciation expense of $900,000 and $1.8 million for the three months and six months ended June 30, 2007.

Other expense of $5.7 million in the second quarter of 2007 included a loss on debt extinguishment of $1.9 million related to the early redemption of the remaining $75 million of the 10% senior notes in April 2007. Also included was a currency exchange loss of $3.8 million which resulted from the change of the rate at which the Canadian dollar denomination amounts were converted into the US dollar balances.

Other expense of $6.8 million for the first half of 2007 included a loss on debt extinguishment of $2.5 million related to the earlier redemption of the remaining 10% senior notes in 2007. Also included was a currency exchange loss of $4.3 million.

The income tax expense for the second quarter of 2007 was $2.7 million. The effective tax rate of 35% was equal to the US statutory rate due to a onetime adjustment of $400,000 to Pioneer's deferred tax liability which offset state income tax. The onetime adjustment was due to a Canadian government enacted legislation which resulted in a reduction of corporate income tax for the periods beginning in 2011. Income tax expense for the first six months of 2007 was $7.7 million; the effective tax rate of 38.7 compared to the US statutory rate of 35%. The difference between the effective tax rate and the statutory rate was due mainly to the state income tax expense.

For the year-to-date period, the onetime adjustment of $400,000 for the Canadian enacted legislation was offset by first quarter 2007 adjustment from a revised estimate of the deferred tax expense. [Linder] defined EBITDA for the second quarter of 2007 was approximately 15.5 million which includes a loss on debt of redemption of 1.9 and a currency exchange loss of 3.8. The EBITDA for the last 12 months was 111.9 million which also includes 26.3 million of gains from land sale. In March 2007, Pioneer issued 120 million, up [2 3/4] percentage convertible senior subordinated notes due in 2027. The decrease in interest expense for the second quarter of 2007 was due to the lower interest rate. In January, 2007, Pioneer made a voluntary redemption of the 25 million of the 10% senior notes. In April 2007, Pioneer redeemed the remaining 10% notes. In connection with both of these redemptions, Pioneer paid the note holders a total redemption premium of 2.5% or 25 million.

In June 2007, Pioneer amended its revolving credit facility to increase the loan and the letter of credit amounts from $30 million to $33 million. This amendment was to allow Pioneer to provide additional letters of credit needed for the expansion of the St. Gabriel project. As of June 30, 2007, we had no borrowings but we had $31.8 million of letter of credits issued under the revolver.

At this time we will turn the call back over to the operator for questions.

(OPERATOR INSTRUCTIONS) It looks as if we have no questions standing by on our question roster. I'd like to turn the program back to our speakers at this time for any additional or closing comments.

Thank you. This is Mike McGovern. What I would like to do is express the appreciation from the Board, from the management, all the employees at Pioneer for the support that our shareholders have given us for this long period. And again, as I stated earlier, the Board and the members of management are very supportive of this section. We would appreciate your support and your vote for it. Thank you.

Thank you, everyone, for your participation on today's conference call. You may disconnect at this time.