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Olin Corporation (NYSE:OLN)

Q4 2009 Earnings Call

January 26, 2010 10:00 am ET

Executives

Joseph Rupp – Chairman, President and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chlor Alkali Products Division

Larry Kromidas – Assistant Treasurer and Director of Investor Relations

Analysts

Sabina Chatterjee – BB&T Capital Markets

Edward Yang – Oppenheimer

Christopher Butler – Sidoti & Company

Sergey Vasnetsov – Barclays Capital

Don Carson – UBS

Operator

Good day, ladies and gentlemen, and welcome to Olin’s fourth quarter 2009 earnings conference call. My name is Kiana and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions).

I would like to turn the call over to Mr. Joseph Rupp, Chairman, President and Chief Executive Officer. Please proceed.

Joseph Rupp

Good morning, and thank you for joining us today. With me this morning are John Fischer, Vice President and Chief Financial Officer; John McIntosh, Vice President and President of our Chlor Alkali Products Business; and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations.

Last night, we announced that net income in the fourth quarter of 2009 was $21.8 million or $0.28 per diluted share compared to $47.2 million or $0.61 per diluted share in the fourth quarter of 2008. Winchester achieved the highest level of fourth quarter segment earnings in its history reflecting the continuation of the stronger-than-normal demand that began in the fourth quarter of 2008.

Segment earnings more than doubled in the fourth quarter of 2009 compared to the fourth quarter of 2008 driven by better military sales, which increased 22% year-over-year and improved costs. Throughout by fourth quarter of 2009 segment earnings of $5.2 million exceeded our expectation and reflected seasonally weak demand.

ECU netbacks improved approximately $50 or 13% in the fourth quarter of 2009 compared to the third quarter of 2009. While chlorine and caustic soda volumes declined 8% in the fourth quarter of 2009 compared to the third quarter of 2009. The fourth quarter 2009 Chlor Alkali operating rate was 70%.

Our fourth quarter 2009 earnings include $37 million of pretax recoveries of environmental costs incurred and expensed in prior periods and a $1.2 million pretax gain associated with the sale of a former manufacturing facility

Net income in 2009 was $135.7 million, or $1.73 per diluted share, compared to $157.7 million, or $2.07 per diluted share in 2008. Earnings in 2009 included pretax recoveries of environmental costs incurred and expensed in prior periods of $82.1 million, a $4.6 million pretax reduction in selling and administration expense associated with the favorable resolution of a capital tax matter in Canada, and $4.9 million of pretax gains associated with sales of real estate. Sales in 2009 were $1.53 billion compared to $1.76 billion in 2008.

First quarter 2010 earnings are forecast to be in the $0.10 per diluted share range. First quarter 2010 Chlor Alkali segment earnings are expected to improve slightly compared to the fourth quarter of 2009 reflecting some anticipated improvement in demand. Earnings in the Winchester segment are expected to improve from fourth quarter levels due to seasonally stronger demand and are expected to be similar to first quarter 2009 levels.

Now let met discuss Chlor Alkali and Winchester segments in more detail. First I’ll begin with Chlor Alkali. Our fourth quarter 2009 volumes which were inline with the fourth quarter of 2008 volumes reflect the combination seasonally weaker volumes and in continuation of demand levels well below historic norms.

From a full year perspective with combination of a reduced demand than lower prices cause the profitability of our Chlor Alkali business to decline from the record level of segment earnings in 2008 of $328.3 million. Chlorine and caustic soda volumes decline 22% in 2009 compared to 2008 and full year ECU pricing decline from approximately $635 in 2008 the $520 in 2009.

Fourth quarter 2009 ECU netbacks were $425, which is an improvement from the $375 experienced in the third quarter of 2009. We believe that ECU netbacks in our system bottomed out in the third quarter of 2009. The full year decline of Chlorine demand is evidenced by lower shipment levels to customers in major product areas, shipments to vinyls customers declined 18% in 2009 when compared 2008. Our shipments to urethanes customers declined 18% and shipments to titanium dioxide customers declined 3%.

In addition to the volume declines experienced in chlorine and caustic soda we also experience volume declines for potassium hydroxide and hydrochloric acid. The bright spark for the business continues to bleach sales, which increased 17% during 2009 and remaining product of emphasis in our system.

In the fourth quarter of 2009 approximately 28,000 ECU’s were sold in the form of bleach for the full year 2009 bleach volumes, total 114,000 ECU’s up from the 97,000 ECU’s sold into bleach in 2008.

As I mentioned earlier fourth quarter Chlor Alkali segment earnings $5.2 million exceed our expectations due to a better than expected ECU in netback 425. Systems was what we have experienced throughout 2009 electricity cost per ECU produced in the fourth quarter were approximately 14% lower than the fourth quarter of 2008, this reduction reflects our ongoing efforts to optimize electricity usage by manufacturing at the most by producing product at the most cost efficient facilities at during the times of day and weak that are the least cost.

For the full year 2009 electricity cost for ECU produced declined approximately 15% when compared to 2008. On the other hand we continue to experience higher freight cost, freight cost per ECU in the fourth quarter of 2009 were 6% higher in the fourth quarter of 2008 and full year basis these cost increased 9% from 2008 to 2009. As we look forward into 2010 and believe the current seasonally weak level of coring demand is putting some downward pressure on chlorine prices. This pressure is likely to continue until chlorine experiences its normal seasonal pick up in demand which will occur late in the first quarter.

Weak level of chlorine demand is constraining operating rates in our system. In December $75 per tone caustic soda price increase was announced by all major producers. At this point we are optimistic that most of this increase will be realized, if realized the increase will likely impact our system in the second quarter. We continue to see differences in caustic soda demand with high purity caustic soda in much greater demand and experiencing premium pricing compared to diaphragm grade product.

On the demand side we currently expect first quarter 2010 chlorine and caustic soda demand to improve over the first quarter of 2009. In December and continuing in to January we’ve seen improved demand for potassium hydroxide, especially from [deister] and agricultural customers. At this time last year potassium hydroxide sales were negatively impacted by a disruption in soft supply that was caused by strike at a supplier facility.

As a result we expect to see significant volume growth in 2010 compare to 2009 for this product. We expect first quarter of 2010 bleach sales to exceed first quarter of 2009 levels it also expect to see significant growth in volume in the full year 2010 compared to 2009. A portion of this growth reflects our success in delivering bleach by rail car, which is expanding our geographic reach.

In our third quarter earnings call we announced that we had initiated capital projects totaling approximately $10 million and three of our manufacturing locations we expand our capacity to manufacture and ship bleach. These projects are ongoing and will be completed in 2010.

Our St. Gabriel, Louisiana facility has been running successfully and is expected to operate at approximately 80% the conversion and expansion of this facility which went through the start up process in the fourth quarter of 2009 utilizes membrane technology that we anticipate will reduce the operating cost of the facility by approximately $30 million per year due to more efficient electricity usage and the installation of a brine supply system.

In response of this capacity being added to our system we’ve reduced diaphragm-operating rates at several of our locations. This capacity utilization decision allows us to maximize the amount of high purity caustic produced, consistent with the current tightness from membrane caustic soda that we see in the marketplace.

In prior quarters, we’ve discussed legislation that have been introduced in both the United States House of Representatives and United States Senate which if enacted would ban the production of Chlor Alkali products using mercury-cell technology two years from the date was enacted into law.

During October, the House Committee on Energy and Commerce passed a bill that would require Chlor Alkali producers using mercury-cell technology to make a decision by June 30, 2012 as to whether to shutdown or convert their facilities. If the decision is to convert, the mercury-cell plants would be required to be converted by June 30, 2015. The decision is not to convert the plants would be required to be shutdown by June 30, 2013. For this bill to become law, it must be passed by the full House of Representatives and the full Senate. No additional action has been taken on this bill since October in the House of Representatives and no action at all has been taken in the Senate.

Olin currently operates two facilities that utilize mercury-cell technology totaling approximately 350,000 ECU’s or 18% of our capacity. Olin continues to operate these facilities in full compliance with all rules and regulations. It is not yet possible to determine what impact these bills will have on Olin or the Chlor Alkali industry.

Finally on January 15, we declared force majeure until further notice for all product shipments manufactured by McIntosh, Alabama facility. This force majeure declaration did not include the SunBelt operation. Force majeure was declared due to an unexpected equipment failure. McIntosh is our largest facility when we currently have sufficient chlorine and caustic soda capacity elsewhere in our system, our ability to meet customer requirements on a timely basis has been constrained by transportation logistics. The McIntosh facility is currently being brought back online and we expect to lift the force majeure in the near future.

Now turning to Winchester. Winchester experienced the highest level of fourth quarter sales and earnings in its history and completed a record year that exceeded all expectations. Fourth quarter 2009 sales of $126 million were 4% higher than fourth quarter of 2008 sales and reflect continued strength in commercial sales and higher military sales. For the full year 2009, Winchester sales were $567.7 million, a 16% increase over 2008.

During 2009, commercial sales increased 23% compared to 2008, our military sales increased 26%. 2009 law enforcement sales declined slightly from 2008 levels and industrial sales declined 34%. Winchester’s industrial product just sold predominately into the construction industry. On a volume basis, Winchester’s 2009 unit sales increased 14%, which was driven by the high level of commercial sales.

In the fourth quarter of 2009, Winchester earned $9.5 million compared to $3.3 million in the fourth quarter of 2008. Historically, the fourth quarter is a seasonally weak quarter for Winchester with earnings typically in the breakeven range. Winchester’s record 2009 earnings of $68.6 million more than doubled the prior record year earnings of $32.6 million, which was achieved in 2008. The combination of higher sales volumes and lower commodity and material cost were responsible for the record segment earnings.

During 2009, the average prices of the three major commodity metals used by Winchester all declined from 2008 levels. The price of copper declined 12%, the price of zinc declined 36%, and the price of lead declined 24%. As a reminder, Winchester uses approximately three times as much lead as copper and uses more copper than zinc.

Winchester’s commercial backlog at December 31, 2009 was $117 million, which is three times as large as the commercial backlog at the end of 2008. The contract backlog, which includes the military and law enforcement business, was $124 million at the end of 2009. Majority of the military contracts are funded well into 2011. Based in these backlog levels Winchester’s forecast have a strong first quarter of 2010.

First quarter 2010 Winchester earnings are currently expected to improve compared to fourth quarter and to be similar to the first quarter of 2009. The challenge for Winchester as the business moves into 2010 revolves around the low inventory levels. With the high level of demand Winchester’s inventories are approximately 20% lower at the beginning of 2010 compared to the beginning of 2009.

As we look beyond the first quarter of 2010, we continue to see product areas where significant shortages remain, we see products areas in which supply has improved. The ammunition areas where we continued to see product shortages are rimfire and categories of handgun ammunition and hunting rifle ammunition.

In summary we believe there is an industry wide lack of inventory in the system, based on these observations we forecast that stronger than normal levels of demand will continue past of first quarter of 2010.

Finally, in spite of the most challenging economic climate many of us have seen, I believe 2009 was a successful year for Olin. In addition to the record performance from our Winchester business, we were able to significantly improve our financial strength and liquidity.

Our cash balance increased by over $200 million during 2009, including the increase in excess of $80 million during the fourth quarter. This level of liquidity provides us with flexibility and raises the obvious question of what do we intend to do with the money. Our first priority is to grow the business and we remain focused our opportunities in the bleach space. Internally we’ve established a target to grow our bleach volumes by 30% in 2010 compared to 2009.

We’re also actively developing low-salt high-strength bleach that will double the concentration of the bleach we manufacture, which would significantly reduce transportation costs. During 2010 we expect to initiate $15 million to $20 million capital project to construct a dedicated low-salt, high-strength bleach facility.

Additional investments in low-salt, high-strength bleach could follow. In addition, we remain interested in acquisitions that could further enhance our bleach business and therefore our entire Chlor Alkali business.

Now I’ll turn the call over to our Chief Financial Officer, John Fischer, who will review several financial items with you.

John Fischer

Thanks, Joe. First I’d like to discuss a few items on the income statement. Selling and administration expenses decreased $4 million in the fourth quarter of 2009 compared to the fourth quarter 2008. Legal and legal related settlement cost decreased [$1.5] million in the fourth quarter of 2009 compared to the fourth quarter of 2008, due to lower activity levels resulting from the conclusion of environmental recovery activities.

Legal and legal related settlement costs relate to both the recovery actions for environmental costs incurred and expensed in prior periods. Legal cost for other environmental sites both past manufacturing operations and former waste disposal sites.

Fourth quarter 2009 bad debt expense decreased by $1.3 million compared to the fourth quarter of 2008 and reflects recoveries from prior bankruptcy events. Finally, fourth quarter of 2009 incentive compensation cost declined approximately $1 million reflecting the lower level of cooperation and Chlor Alkali earnings.

Fourth quarter of 2009 credits to income for environmental investigatory and remedial activities were $31.2 million, which includes the $37 million of pre-tax recoveries from third parties for costs incurred and expensed in prior periods. Without these recoveries, charges to income for environmental investigatory and remedial activities were $5.8 million in the fourth quarter of 2009 compared to $6.5 million in the fourth quarter of 2008. These charges relate primarily to remedial and investigatory activities associated with former waster disposal sites and past manufacturing operations.

As we look beyond 2009, we do not believe that there will be meaningful additional recoveries of environmental cost previously incurred and expensed in prior periods. Without giving consideration to the $82.1 million of full year 2009 environmental recoveries, full year 2009 charges to income for environmental investigatory and remedial activities were $24.1 million compared to $27.7 million in 2008. We currently expect charges to an income for environmental investigatory and remedial activities to be 10% to 20% higher in 2010 then the 2009 level.

On a total company basis defined benefit pension plan income was $4.4 million during the fourth quarter 2009, compared to $300,000 of expense in the fourth quarter of 2008. Fourth quarter 2008 defined benefit pension plan expense included a $3.3 million curtailment charge associated with the transition of a portion of the Winchester hourly workforce from a defined benefit pension plan to a defined contribution pension plan.

Based on the December 31st, 2009 funding status we will not be required to make any cash contributions to our domestic defined benefit pension plan in 2010 and we also believe it is unlikely we’ll be required to make any contributions in 2011. We do have a small Canadian defined benefit pension plan to which we made small contributions in 2009 and won’t be required to make small contributions in 2010.

Defined contribution pension expense in the fourth quarter 2009 was $2.6 million compared to $2.5 in the fourth quarter 2008. As a reminder, our defined benefit pension plan is frozen to all new entrants, all salaried, all non-union hourly and most union employees. As a result, the majority of our active employees participate in the defined contribution pension plan.

The tax rate during the fourth quarter was 37.4% and the tax rate for the full year 2009 was 35.4%. The full year 2009 rate contained approximately $6 million of favorable adjustments, which reduced the rate below statutory levels. These favorable adjustments related primarily to the finalization of the 2008 income taxes. In 2010 the tax rate is forecasted to be in the 37% to 38% range before discreet items. During periods of low earnings our effective tax rate can be significantly impacted by adjustments for permanent items settlements and credits.

Now turning to the balance sheet. Cash and cash equivalents at December 31st, 2009 were $458.5 million compared to $246.5 million at December 2008 and $376.6 million dollars at September 30th, 2009. The increase in the cash balance from September 30th, 2009 reflects the receipt of the majority of the proceeds from the third and fourth quarter recoveries of environmental costs incurred and expensed in prior periods and an $8.7 million reduction in working capital.

Cash flow during 2009 benefited from a $57.9 million reduction in cash tax payments. During 2009 Olin reduced its cash tax payments by approximately $40 million as a result of accelerated depreciation allowances included in the 2009 American Recovery and Investment Act. Our $172 million St. Gabriel, Louisiana conversion and expansion project was eligible for this accelerated depreciation tax reduction.

Capital spending during the fourth quarter was $15.6 million and was $137 million for the year. Capital spending in 2008 as a point of reference was a $180.3 million. Approximately 50% of the 2009 and 2008 capital spending relates to the St. Gabriel conversion and expansion project. The full year 2009 capital spending was below our most recent forecast of $150 million and reflects a higher level of spending being carried over into 2010.

Fourth quarter and full year 2009 depreciation expense was $21.2 million and $71.7 million respectively. We are currently forecasting 2010 capital spending to be in the $70 to $80 million range and depreciation expense in 2010 to be approximately $90 million. The increased depreciation reflects the capitalization of the St. Gabriel conversion and expansion project in late 2009.

On January 22, 2010 Olin’s board of the directors declared a dividend of $0.20 on each share of Olin common stock. The dividend is payable on March 10th, 2010 to shareholders of record at the close of business on February 10th, 2010. This is the 333rd consecutive quarterly dividend to be paid by the company.

Before we conclude, let me remind you that throughout this presentation we’ve made statements regarding our estimates of future performance. Clearly these are forward looking statements and results could different materially from those projected. Some of the factors that could cause actual results to differ or describe without limitations in the risk factor section of our most recent Form 10-K and then our fourth quarter earnings release. A copy of today’s transcript will be available this afternoon on our website in the investors section under calendar of events. The earnings press release and other financial data and information are available under press releases.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Sabina Chatterjee BB&T Capital Markets. You may proceed.

Sabina Chatterjee – BB&T Capital Markets

In your guidance for Q1, what level of ECU pricing are you factoring in, considering the $75 per ton increases probably unlikely to materialize until the second quarter?

John Fischer

When you look historically at pricing, our chlorine prices dropped in the second quarter of 2009, caustic prices dropped in the fourth quarter, which is typical with caustic (Inaudible). Our ECU dropped on a combined basis in the third quarter. We did same improvement as we said in our remarks in pricing for the fourth quarter and we expect as this cost or price increase becomes fully excepted in the market place that we are going to see continued improvement throughout the first half, but we don’t expect see a significant improvement in the first quarter.

Sabina Chatterjee – BB&T Capital Markets

Okay, but sequentially, probably up modestly up from Q4 level is that fair?

John Fischer

Well, I don’t know what you mean by modestly, we just don’t expect to see significant improvement in pricing from the fourth quarter to the first quarter and that’s really all we can comment on.

Sabina Chatterjee – BB&T Capital Markets

Okay. Just with respect to the cash at the end of the quarter at record levels and Joe had briefly mentioned acquisitions to enhance the bleach business. Can you just comment on how the pipeline looking both in terms of the supply and valuations and what sort of time line should we be constructing in our own minds?

John Fischer

What I’d tell you is that we think that there are some opportunities out there valuation still are an issue, but we think if there are opportunities, Sabina, and we’d be looking to try to accomplish something here in 2010.

Operator

Our next question comes from the line of Edward Yang of Oppenheimer. You may proceed.

Edward Yang – Oppenheimer

On the Chlor Alkali side what is the latest status on the $75 caustic soda price increase. You mentioned you expect to get all of it, but it’s been a bit slow in being implemented and we’ve also heard that a lot of buyers have already accepted half of that has that been the case for you?

John Fischer

Several of the players in the industry have taken a little different position on this $75 price increase. Most everyone else with the exception of (Inaudible) has really segmented it into parts with half of it being effective or something close to half of it in January 1 with the balance of it to be effective February 1. We took a more aggressive approach and we have been pushing the entire price increase from January 1 in every situation where we could and where we want price with the competitive situation. So as we continue to move we hope that our success put us in a position where we will see the full impact of the price increase in the second quarter of course.

Edward Yang – Oppenheimer

Okay, John. And does the $0.10 first quarter EPS guidance, does that include any negative impacts from the force majeure and McIntosh, I would assume that there is some negative absorption that could perceptually impact the first quarter?

John Fischer

We don’t expect anything of any significance any impact to be minimal.

Edward Yang – Oppenheimer

Okay. On the balance sheet again, sort of embracement of riches at this point. Over funded pension, net cash 60 million, will there be any working capital issues that could affect that net cash balance fourth quarter to first quarter?

Joseph Rupp

I think one thing we always talk about Edward is that, there is a fairly strong seasonal aspect to both of our businesses and it’s not an unusual to see working capital growth from the end of the year up until the middle of the third quarter the with Winchester running at the volumes they are running at the pricing levels, they are running that could be as high as $100 million. As you know, that’s something that we always think about when we think about our cash balances. So the answer is yes, it could be quite significant as we work through the next two and half quarters.

Edward Yang – Oppenheimer

Okay. And you mentioned Winchester and Joe said that the major challenge at this point is tight inventory and inventories are down 20% year-over-year. Does that mean that you expect a new round of price increases to be announce, I know on a volume side you are pretty much constrained?

Joseph Rupp

We announced prices increases and basically those are effect of April 1 and they have been followed by everybody in the industry.

Edward Yang – Oppenheimer

And what was the percentage of price increase, Joe?

Joseph Rupp

It’s 2% and 5% depending upon product lines.

Operator

Our next question comes from the line of Christopher Butler – Sidoti & Company.

Christopher Butler – Sidoti & Company

I was hoping you would be able to touch on the growth that you’ve seen in bleach. I know you are up 17%, you said, I mean are we seeing your strong demand for bleach market wide due to concerns of things like swine flu or is this the situation where you guys are grabbing share in the market place?

Joseph Rupp

We did see some isolated cases for certain customers had some increase demand associated with this infection, requirements associated with swine flu. But that was a really something that moved in our market significantly. What we have seen is that customers are continuing to comes through realization that opportunities to buy bleach, carries with it in a convince and certain other products attributes that make positive comparison with some of the other alternatives for water treatment and this infection and so we’re taking advantage of that. We’re possible and utilizing our rail delivery model as the vehicle to expand the reach beyond where historically we have reached by making truck shipments from our producing locations.

Christopher Butler – Sidoti & Company

In shifting gears to the Winchester segment, you’d mentioned that military sales were strong, could you give us some color on demand looking at a little bit with some concerns that the Obama effect might vein here over the next couple of years, but military actions doesn’t seem to be doing that. What do you thinking as far as demand for Winchester?

Joseph Rupp

Chris, I think from a military perspective as we’ve mentioned, we actually have contracts from a military perspective, they’re going to take us out to the 2011 time period, but the other aspect I think that’s going on in addition to that is the fact that we’ve uncertainty here and the regulatory expressed in the economic uncertainty that underscores the economic uncertainty we believe is continuing to drive ammunition demand.

Christopher Butler – Sidoti & Company

And on the raw material front, you’d mentioned that they were a bit of a tailwind in 2009, are you looking at those to be a bit of a headwind as we move into 2010 on Winchester?

Joseph Rupp

Not a huge headwind, but I would point out that commodity prices have gone up compared to 2009.

Operator

Our next question comes from the line of Sergey Vasnetsov of Barclays Capital. You may proceed.

Sergey Vasnetsov – Barclays Capital

My question is on the mercury legislation. U.S. congress has (inaudible) and also in Europe when such a low was proposed it could delayed in some limitation by at least five to seven years. Based on those to practice would it be reasonable for us to expect that’s U.S. mercury legislation impacts from U.S. (Inaudible) industry in general would be past (inaudible) in practical terms?

Unidentified Company Representative

To the past 2015, I don’t know of anything certain with what’s going on in Washington, but our thinking is that it’s 20, 20 in Europe and we believe that what’s we’ve talked about today hopefully it is that or beyond from an industry prospectively we’d like to see that the conversation push beyond.

Sergey Vasnetsov – Barclays Capital

On the U.S. Chlor Alkali capacity, these have some expectations to some plants being shutdown of the next years may be not specifically, but accompanied but what’s your overall U.S. market to you.

Unidentified Company Representative

I think really Sergey, as you’re speaking from an Olin perspective you know we were evaluating the seasonal capacity needs that we need to be able to expand our bleach business and the reality is that the mercury technology is something that is uncertain, we can really predict what will happen there so we have to take that into mind, so the clarity for us from a capacity perspective is something that we continue to try to study. From an industry perspective we believe that historically the industry has tried to put supply and demand in alignment and as we have talk about in the past in the last downturn you know 12% of industry capacity were shutdown and we still think that there is that opportunity for capacity to be shutdown from an industry perspective.

Sergey Vasnetsov – Barclays Capital

Would you care to quantify how much past might be shutdown by the industry next year?

Unidentified Company Representative

I don’t know

Operator

Our next question comes from the line of Don Carson of UBS. You may proceed

Don Carson – UBS

I have follow up on Winchester. How big is the military components there what percentage of sales did that represent in 2009? And just trying to get a sense of whether you, I know in the past you talked about as people rush to get ammunition, you had a gun control or proceed gun control threats that’s historically been about a six quarter long phenomenon, I guess we are four quarters into that now. You think 2009 was the peak for the Winchester or just that the military tailwind and some will be product developments give you continued momentum in 2010.

Joseph Rupp

Don, I think two points. One is that we consider military and law enforcement in one category and that’s really and about the 25% range of our revenue and as we pointed out in the past we bought use around 10% to 15% range we push that in 25% to 30% range, what we’ve said before is just correct is that the surges sometimes last six quarters, I think that the difference with this surge is in addition to regulatory uncertainty, we’ve got economic uncertainty and it’s our sense of economic uncertainty is continuing to drive ammunition demand as we speak.

Don Carson – UBS

And by that you mean is to need to have an extra dear in the freezer type thing or?

Joseph Rupp

Are to be able to protect yourself personally.

Don Carson – UBS

Okay, good point. So would you still regard ’09 then it's not the peak that ‘010 could be used as good as ’09 from a profitability standpoint?

Joseph Rupp

I think it’s hard to call it but I what I say is that I think ‘010 will be a very good year.

Don Carson – UBS

Okay, and then switching over to Chlor Alkali, John McIntosh on the you know you talk about weakness in chlorine, do you think chlorine could come down more than you know what you might realize in plastic and there potential for lower ECU realization in Q1 and then two follow ups to that are you starting to see a little more pressure on electrical power, I know you done some things to optimize your consumption but what about the underlying power rates then finally surprise your operating rate was so low in the quarter were 70% versus an industry rate that was closer to that 80% what in particularly was driving there?

John McIntosh

Well, let me try to catch him in the same order you asked. I think the pace of recovery and demand for chlorine or lack of is going to play into how much price pressure there is on the chlorine molecule moving forward. We just don’t see any significant change in the status quo at least for the first quarter that tells us we should expect a significant change in chlorine price is going to continue to be pressure on chlorine pricing and we may see some slight erosion, but we do have headwinds on the other part of the ECU or tailwinds on the other part of the ECU and so we expect not to see any kind of significant change first quarter and as we push the caustic price increase and we expect to see favorable impact for lead in the second quarter.

In terms of electricity power rates, we really haven’t seen a lot of change in underlying rates as fuel prices continue to be low, whether you are taking about coal, natural gas we’ve not seen pressure from the energy cost part of electricity rates and we’ve just not seen any pressure in the electricity base rates too. Although, we expect depending upon the kind of regulation and cap-and-trade legislation that may ultimately come from Washington that longer term that there will be some impact to electricity power rates just not in the short-term.

Operating rates for Olin in the quarter will lower than the industry. What we’ve seen historically is that in a low demand environment and that’s surely what we find ourselves in the fourth quarter and in a lot of 2009. The non-integrated producer like Olin is more impacted from an operating rate standpoint and some of the producers that have some degree up to total integration in our chlorine in their systems. So we’re not surprised with that, we understand that phenomenon and especially on the show over quarters where we don’t have seasonal demand are going to be disadvantage in this kind of environment.

Operator

With no further questions in the queue, I would like to turn the call back over to Mr. Joseph Rupp for closing remarks. You may proceed.

Joseph Rupp

We’d like to thank you for joining us this morning. And we hope you will join us in April when we announce our results of our first quarter of 2010. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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