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#Good morning, and thank you for joining us today.
During this morning\
Thanks, <UNK>.
Let's turn to our 2017 cash flow forecast, which is on Slide 11.
We expect to generate $500 million of free cash flow before dividend payments and before the $209 million ethylene investment that we expect to make soon.
Our expectation is that by the end of 2017, the combination of debt reduction and EBITDA growth will reduce the net debt-to-EBITDA leverage ratio to the range of 3.1 to 3.3 times.
Starting with the midpoint of our full year adjusted EBITDA forecast of $1 billion, on the far left of the waterfall chart, we add back $10 million in taxes reflecting the proceeds from an income tax refund in 2017.
In 2017, we continue to believe that the book effective tax rate will be in the 25% to 30% range and we do not expect to be a cash taxpayer in 2017.
This reflects the utilization of net operating loss carryforwards created over the last two years.
We expect net operating loss carryforward to provide a cash tax shield of approximately $70 million in 2017.
Additionally, we currently expect to exit 2017 with unused operating loss carryforwards to provide a cash tax shield in the future years of approximately $60 to $70 million.
Column three shows capital spending we expect to make in 2017.
The $325 million is the midpoint of our current forecast for capital spending, with annual maintenance capital spending of between $225 and $275 million.
Last year, Olin entered into a program to accelerate the collection of receivables, which create a permanent working capital reduction of $126 million in 2016.
We expect to expand this program in 2017 and realize an additional $50 million reduction in receivables.
This, when combined with an inventory reduction at Winchester, will generate $75 million of cash flow from working capital reductions in 2017.
The next column, one-time items include integration and cash restructuring costs of approximately $50 million.
This is consistent with our prior forecast.
The next column reflects an estimate of interest expense.
We have approximately 30% of our debt at variable interest rates, and we're forecasting 2017 interest rates will be higher than those we experienced in 2016.
On the far-right column, we are forecasting $159 million of free cash flow after paying our normal quarterly dividend totaling $132 million for the year and the $209 million investment for 20 years of additional ethylene at producer economics.
Finally: Last Thursday, July 27th, Olin's Board of Directors declared a dividend of $0.20 on each share of Olin common stock.
The dividend is payable on September 11, 2017, to shareholders of record at the close of business on August 10, 2017.
This is the 363rd consecutive quarterly dividend to be paid by the company.
Operator, we are now ready to take questions.
Yes, this is Jim <UNK>.
Yes, over the last month or so, with the success that's taken place in the caustic market, there's been more incremental players that come on with EDC into the market trying to get at the caustic.
So that's caused us to lower a little bit our forecast year-over-year, but we're still showing a 20% increase that we're estimating for EDC prices '16 ---+ '17 over '16.
What we said was that we were basing our outlook on what we've seen in terms of the July change in the price indices and our expectation of what we're going to see in August and September.
Could you describe your exposure to EDC prices.
Do you have exposure to spot or contract, other lags.
And also, do you think your realized EDC pricing is more or less volatile than the spot market.
I would say, generally, the EDC realization by Olin is less volatile than the spot market, and I would say we try to keep a balanced mix between contracts and spot exposure.
You've talked about 8% increase sequentially in your realized caustic soda price in the second quarter.
Does this reflect any of the actual second quarter index increase.
Or are those still to come in the third quarter with a lag.
And I guess related to that, do you expect to see higher or lower sequential increase in caustic soda in the third quarter compared to second.
I would say that what you saw in the second quarter does not reflect anything you saw in the second quarter price indices.
So those are still to come.
I would just say, sequentially, we believe we will see better pricing on caustic soda in the third quarter than the second and in the fourth quarter than the third.
This is Jim <UNK>.
What I would say is that the short-term impact of the Formosa force majeure is not factored into EDC forecast or pricing.
And other than that, the dynamics that I mentioned earlier are intact.
And we are seeing the price declines in the third quarter.
And we would expect to see volatility in EDC that we normally see.
And oftentimes, it bounces back in the fourth quarter.
And year-over-year, we're looking at that 20% increase.
I'm not sure how Dow interprets the word imminent.
I would say we just said we expect to receive the second tranche of ethylene sometime in the third quarter, and our full year outlook reflects that.
Yes, we do.
I think what we ---+ I believe we've experienced the worst that we're going to experience in Winchester in the first two quarters of this year.
And I think what you'll see is a run rate in the second half that would support $125 million a year of EBITD<UNK>
The further increase in the upside in Q4 is upside to our guidance.
Our guidance reflects the 30 that you discussed.
IHS is showing I think 15, 10, and 5, and that's what we based our guidance on.
Don, this is Jim <UNK>.
We have had success with our contracts in a number of different ways, whether they be removal of discounts, lowering of discounts or just resetting the bar in certain parameters.
So we do ---+ we are making progress as those ---+ as each contract comes up and we look specifically at areas to improve those contracts.
And our contracts run in 2- to 5-year ranges, so we will continue to be able to upgrade those contracts as they come due over the next couple of years.
I think the biggest difference between how we view our full year guidance today and where we viewed it 90 days ago when we last spoke was the impact of the unplanned outages in the second quarter, the extra $45 million to $50 million that we incurred to complete the planned outage and to remediate the unplanned outage.
I think it was second quarter of last year that we had some problems with export prices.
And I think if you look, export prices year-over-year are actually up more than they are in the domestic market, and we're at a point where they're very close to parity.
Well, as we said in the remarks, most of our big customers during the first half of the year were selling more than they were buying, and that's not sustainable long term.
Second, we do ---+ this is the strongest seasonal period for the business, Q3.
And yet, we've had years where 35% of ---+ 40% of our revenue occurs in Q3.
And we've also said that we've got a better outlook for military business, and that ---+ really, the biggest impact on that is in the second half, not in the first half.
And that impact will also carry us through most of next year in terms of the military.
So I'd say there is really three or four factors that give us confidence there, <UNK>.
There's no change in our outlook in synergies.
The biggest revenue synergy that we talked about, the growth ---+ 15% year-over-year growth in the bleach business, that is really the largest revenue synergy that we have going on right now.
The maintenance ---+ the chlorine business is primarily the merchant business, and the merchant business was ---+ is not ---+ was not really affected by the outages.
Those outages were more around the internal and other products where the chlorine goes, such as VCM and epoxy.
So the merchant chlorine business was generally unaffected.
The unplanned outages did affect the amount of caustic soda we had available because we weren't running chlorine for the vinyls piece.
We weren't running chlorine for the epoxy piece.
And so that's sort of the mix.
We have quite a bit ---+ as you know, just from our sensitivities, we have quite a bit more caustic soda to sell in any quarter than we do chlorine ---+ that we sell as chlorine.
Yes, this is <UNK> <UNK>.
It was more centered around the upstream.
And also, Europe continues to grow nicely as well on the midstream.
So those were the two primary areas.
We said that the prices sequentially were similar, that the second quarter was up 5% year-over-year.
Yes, you should.
And I would take you back to the comment we made, which is we believe that the combination of the price increases and the higher hydrocarbon costs in the third quarter will allow the business to return to the margins you saw in the third quarter of last year.
Yes, again, this is <UNK> <UNK>.
I would tell you that in the month of June, we saw prices stable.
We think the demand is starting to show some modest improvement in North America.
You've got to remember last year, North America actually contracted mainly due to oil and gas, so we're starting to see improvements there.
Europe continues to grow very nicely, and we think most of the bottom out in Asia Pacific has been seen and we're starting to see some improvements in demand there as well.
We haven't really commented on a specific amount, <UNK>.
We would expect by the end of this year, with the improvement in EBITDA, to be in that 3.1 to 3.3 net debt-to-EBITDA range.
And as we move into 2018 and beyond, we expect to use excess cash flow from the business to de-lever.
I would answer that with a third comment.
The majority of it was due to reduced sales volumes and an unfavorable product mix.
Based on what we know right now, I would tell you that 2016 would be at the low end of what we would expect and 2017 would be at the high end of what we would expect.
It will be lumpy, but I think those two probably bracket what we would expect to see.
I guess I'm confused by the question.
Very little of our caustic soda is converted to anything.
The majority of what we make is all sold.
Some of it is sold to our pipeline customers.
The rest of it is sold to the market.
The question may be, how much of our chlorine that we produce which goes into derivatives.
But maybe you can clarify for me what you mean.
The only place that we use significant amounts of caustic is in the manufacture of bleach, which is chlorine and caustic together.
That's a relatively small percentage of our business.
I would tell you, however, that bleach pricing does reflect the underlying market price of chlorine and caustic soda.
What we said was that the first and second quarter merchant chlorine prices were similar to each other and that we expected chlorine to improve sequentially in Q3 versus Q2 and then again in Q4 versus Q3.
We said that 2018 would be meaningfully lower than 2017.
<UNK>, this is <UNK>.
We had estimated at the beginning of the year that between restructuring and acquisition integration costs, that would be about $50 million.
And I think we're still on track for that to be the expense for the full year.
I would agree with your basic premise that high operating rates are going to lead to more frequent maintenance turnarounds.
And I would just offer that not only do we have newer assets in Freeport, our plant in St.
Gabriel is less than 10 years old, our plant in Charleston is less than 10 years old.
So, I think across the Olin system, we have relatively young assets versus the industry.
I think if you look at 2016, which is the only real market we have for the new business, the third and fourth quarters were very similar.
Thank you all for joining us today, and we look forward to speaking with you about our third quarter in about 90 days.
Thank you.
