Good morning and welcome to the Olin Corporation's First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Larry Kromidas. Please go ahead.

Thank you, Keith. Good morning, everyone. Before we begin, I want to remind everyone that this presentation along with the associated slides and the question-and-answer session following our prepared remarks will include statements regarding estimates of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ are described without limitations in our Risk Factors section of our most recent Form 10-K and in our first quarter earnings press release. A copy of today's transcript and slides will be available 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. With me this morning are John Fischer, Olin's Chairman, President and Chief Executive Officer; Pat Dawson, Executive Vice President and President Epoxy and International; John McIntosh, Executive Vice President, Synergies and Systems; Jim Varilek, Executive Vice President and President, Chlor Alkali Products and Vinyls and Services; and Todd Slater, Vice President and Chief Executive (sic) [Financial] Officer. Now, I'd like to turn the call over to John Fischer. John?

Good morning, and thank you for joining us today. Last night, we reiterated our annual adjusted EBITDA forecast of $1 billion plus or minus 5%. However, with our current outlook for volumes and pricing, we believe our full year 2017 results will more likely be in the plus 5% range. During this call, we will review our outlook for the second quarter and second half of the year. Our first quarter 2017 results were in line with our expectations. The Chlor Alkali Products and Vinyls segment earnings improved sequentially reflecting improved caustic soda and ethylene dichloride prices and increased volumes. These were partially offset by planned maintenance, turnaround activities at our McIntosh, Alabama and Plaquemine, Louisiana facilities and higher ethylene and electricity costs primarily due to increased natural gas prices. The planned maintenance turnarounds idled approximately 7% of our Chlor Alkali capacity during the quarter. The Epoxy segment results were negatively impacted by higher raw material costs associated with benzene and propylene pricing, which increased 36% and 64% respectively from year-end levels. The impact of Epoxy raw material cost increases were partially offset by increased product prices and higher volumes. Winchester's first quarter 2017 segment earnings declined year-over-year due to lower commercial volumes partially offset by lower operating costs. Lower customer demand, which we expect to continue through the second quarter of 2017, have negatively affected commercial ammunition volumes. Our first quarter 2017 results were impacted by $4.7 million of additional stock-based compensation expense, which includes mark-to-market adjustments compared to first quarter 2016. During March, Olin completed the refinancing of the term loan debt incurred as part of the Dow acquisition and expanded our revolving credit facility. The new senior credit facility will mature in March 2022. In conjunction with this refinancing, we issued $500 million of 5.125% senior notes…

Thanks, John. 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 the $209 million ethylene investment that we expect to make mid-year 2017. Our expectation is that by the end of 2017, the combination of debt reduction and EBITDA growth will reduce 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 a result of an income tax refund in 2017. In 2017, we currently believe that the book tax – the book effective tax rate to be in the 25% to 30% range. We do not expect to be a cash tax payer in 2017. This reflects the utilization of net operating loss carryforwards created over the last two years. We expect net operating loss carryforwards to provide a cash tax shield of approximately $70 million in 2017. Additionally, we currently expect to exit 2017 with net operating loss carryforwards to provide a cash tax shield in future years of approximately $60 million to $70 million. Column 3 shows the capital spending we expect in 2017. The $325 million is the midpoint of our current forecast for capital spending. The annual maintenance capital spending is expected to be between $225 million and $275 million. Last year, Olin entered into a program to accelerate the collection of receivables, which created a permanent working capital reduction of $126 million in 2016. We expect that we can expand this program in 2017 and realize an additional $50 million reduction in receivables. This, when combined with the inventory reduction in 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. The next column represents an estimate of interest expense. We have approximately 30% of our debt at variable interest rates, and we are forecasting 2017 interest rates will be higher than those we experienced in 2016. In the far right column, we are forecasting $159 million of free cash flow after paying our normal quarterly dividends totaling $132 million for the year and the $209 million investment for 20 years of additional ethylene at producer economics that will be paid when the Dow Chemical Company's Texas-9 cracker is completed. We are forecasting this payment will be made at the beginning of the third quarter. Finally, last Thursday, April 27, Olin's Board of Directors declared a dividend of $0.20 on each share of Olin common stock. The dividend is payable on June 9, 2017 to shareholders of record at the close of business on May 10, 2017. This is the 362nd consecutive quarterly dividend to be paid by the company. Operator, we are now ready to take questions.

Thank you. We will now begin the question-and-answer session. And the first question comes from Frank Mitsch with Wells Fargo.

Hey, guys. It's Aziza on for Frank. Question, so it sounds like the $25 million expected headwind is all attributable to Freeport, but how does the rest of your turnaround schedule look for the year and should we be counting 2Q as a high watermark?

Q2 will definitely be the high watermark. You can look at Q3 and expect minimal turnarounds and there will be some smaller turnarounds in Q4 associated with seasonally weaker demand.

Okay. And then going to your ethylene investment, should we still be thinking of that as a $40 million savings annually, which translates for 2017 to roughly $20 million for the segment?

Yeah, we said – the annual benefit is $40 million to $50 million, depending on ethane prices and market-based ethylene cost.

Got it. Okay. Thanks.

Thank you. And the next question comes from Alex Yefremov from Nomura Instinet.

After 10% to 20% of caustic is exported from your system, it sounds like you're the top of that range now. Do you foresee yourself kind of increasing that as a percent of sales?

We didn't get the first part of your question, could you repeat it? I'm sorry.

All right. Just caustic exports, typically you're seeing 10% to 20%, at least that's what you've mentioned in the past of caustic is exported. Do you foresee yourself wanting to kind of up that percentage?

This is Jim Varilek. You're correct in the 10% to 20% range, we continue to operate in that. And what we're doing right now, the market is tight. And so, what we're doing domestically is we're fulfilling all of our contracts and then we're replacing our product in the export market where we can make the most money. But we've got to live up to our domestic markets as we have contracts.

Okay. All right. And then on Epoxy, could you just talk about the lagged pricing impact, given raw material fluctuation? And how much of this business is kind of indexed to raw materials?

Yeah, this is Pat Dawson. And on Epoxy, when you have this kind of run-up in hydrocarbon costs, there is going to be a lag on the way up, you just can't get ahead of those kind of increases. If hydrocarbons stabilize and start to come down, then we can lag it on the way down, and that will be a positive thing. The index is primarily in our upstream products, in epichlorohydrin, in our Bisphenol A. And so, a majority of that is formula-based tied right to benzene and propylene, so that moves accordingly, and we have very stable margins there. We have very little, very little indexed formula based price in our midstream, in the Epoxy resin, liquid Epoxy resin space or our downstream.

Thank you.

Thank you. And your next question comes from Arun Viswanathan from RBC Capital Markets.

Hi, this is (25:27) on for Arun. Thank you for taking my question. I've seen in recent consultant reports that buyers are looking to do more contracts relative to looking to the spot market to ensure supply given tight conditions and have you guys seen this at all, does this benefit you guys with higher domestic prices?

This is Jim Varilek. Yes, we have seen that, that security of supply is taking precedence over pricing, so contracts are being sought on the export market as well as they are traditionally on domestic.

Okay, thanks. And then just back on the ethylene charge, how long will it take for you guys to receive that benefit after the Dow's Freeport cracker starts? That's likely to start-up in June or are you going to see that in July or what kind of lag is there?

From my standpoint, when we pay we'll be getting ethylene.

Okay, great. Thank you.

Thank you. And the next question comes from Don Carson of Susquehanna Financial Group.

Good morning. This is Emily Wagner on for Don. In your caustic soda business, what percentage of your contracts are tied to the index? And as a portion of contracts reset at the beginning of the year, did you get that discount down from the 30% to 70% range?

The – from a contractual standpoint, we're seeking to improve every one of our contracts all the time. And so, as those contracts come up, we're still in the 30% to 70% range. But we're continuing to improve every contract in a variety of different fashions as those contracts become available. And most of our contracts run in the two to five-year range, so we'll be expecting to improve them over that time period.

Okay. And are most tied to the index?

We have the majority of our contracts still tied to index, yes.

Okay. And then on chlorine, there is about a $25 price increase on the table. Can you discuss how that's being received by the market? And then on the bleach expansion in Freeport, what percent of the chlorine is now going to bleach?

The chlorine increase is being well received and we continue to believe that the fundamentals worked towards both sides of the ECU, so that's moving positively. And from a bleach standpoint, we don't give out specific chlorine usages for the variety of derivatives that we have.

Thank you.

Thank you. And the next question comes from Jason Freuchtel with SunTrust.

Hey, good morning.

Good morning, Jason.

As a follow-up to an earlier question, does volatility in raw material costs within your Epoxy business typically have an impact on demand?

Yeah. This is Pat Dawson. The short answer is no. We feel this volatility that we articulated in the first quarter and you saw that our demand was very strong, it was up 11% over the same quarter last year and we expect demand to continue to be on plan.

Okay. And I apologize if missed this, but what was the amount of synergies you realized in 1Q? And how should we think about the pace of synergies throughout 2017?

We didn't give you a specific number for Q1. We said $50 million to $75 million of cost synergies in 2017, and then we talked about the bleach plant coming on stream in March. So, and that represents revenue synergy that would obviously translate into bottom line synergy.

Okay. And I guess, in terms of the cost synergies, should we think that, I mean, I guess, you had realized more over the course of the year, is that...

Yeah. I would advise that if you're trying to model it, just model it as being level, up over the course of the year.

Okay. Thanks. And then on your corporate and unallocated costs, what drove the sequential increase and how should I think about those over the course of 2017?

Jason, this is Todd. The biggest thing that happened in the first quarter was stock-based compensation was up $4.7 million year-over-year. That was really driven by mark-to-market on stock as the stock price was up about $7 from the end of the year to the end of March. And we've also commented that pension was going to be a – was going to have – pension income would be lower $10 million for the year and the first quarter was about $2 million of that.

Okay. Thank you.

Thank you. And the next question comes from John Roberts with UBS.

Thank you. Where are you in the process of negotiating renewal in Dow's contract with Shintech versus finding some other option there?

John, we had in our 10-K the comment that we had exercised the option on that ethylene – third tranche of ethylene. It's obviously not going to be received until 2020, but I would take that as an indication that we reached an agreement to extend that contract and we have a need for the ethylene.

Okay. So there're no further negotiations with Shintech required?

That's correct.

Okay. And then in your guidance for the step-up in second half earnings relative to the first half, is it roughly half Chlor Alkali Vinyls and half the seasonal Winchester and lower benzene, lower propylene et cetera. Just trying to think about the size of the big buckets for the second half step-up over first half?

We gave you one big bucket, which was 65% to 85%, which is all Chlor Alkali Vinyls and Products associated with lower turnaround costs and better ethylene pricing. On top of that, there's an element of higher caustic soda and chlorine prices offset by EDC prices. So I would say, in round numbers, it's probably 75% Chlor Alkali Products and Vinyls (sic) [Chlor Alkali Products and Vinyls] and 25% Winchester and Epoxy.

Thank you.

Thank you. And the next question comes from Kevin McCarthy with Vertical Research.

Yes. Good morning. With regard to Winchester, I think you had commented you expect higher Military sales in the back half of the year. Could you shed some light on the magnitude of that as well as the pressure volumetrically you're experiencing on the commercial side of the business?

Well, I'd say on the Military contract that we have an opportunity in the back half of the year to have sales that are up in the 30% to 40% range. I think, on a volume basis, we probably seeing 15% to 20% decline in Winchester's commercial sales in the first quarter. I don't – we don't necessarily believe that's going to sustain itself all year. I mean, in the fourth quarter of last year, we saw a pretty significant decline year-over-year. So as we get further out into the year, the comparables get much easier for Winchester on the commercial side. What we did say, we expect commercial demand to continue to be weak in Q2.

Okay. Thank you for that. And then second question, if I may. Did your hedge positions have any material impact on your earnings in the first quarter and what would your outlook be in that regard for the second quarter?

They did not have a material impact, and as we look at where natural gas is today or where our copper and lead are today, I think, I would answer the same thing for the second quarter.

Excellent. Thank you very much.

Thank you. And the next question comes from Dmitry Silversteyn with Longbow.

Good morning. A couple of questions to follow-up. First of all on the expectations, which you provided for the second half of the year of lower propylene and benzene pricing. What is that based on in terms of contracts that you're signing already or visibility that you have on second half pricing or is it just a matter of the year-over-year headwind dying down in the second half of the year and not necessarily pricing being down?

Yeah. I think, Dmitry, this is Pat Dawson. First of all, this is all based on what we see coming out of IHS on propylene, benzene. We have very – we have a lot of freedom on pricing in our midstream and downstream part of the business. As I mentioned earlier, we are – we have the majority of our product indexed to propylene and benzene in the upstream part of the business that mitigates any of that risk.

Okay. I guess, I'm trying to understand your comment on the second half of the year price declines that I thought I heard, but maybe not. Okay. Just a quick follow-up on the dividend policy. You've been paying a $0.20 dividend for much of those 300 odd quarters in a row. Any thought being given to either increasing the payout ratio or in some other way driving dividend increases or is this – does this have to wait until your – get your balance sheet in better shape?

I was going to answer it that way by saying, our priority right at the moment is to pay down debt.

Okay. And what level of debt do we need to get to as a multiple of EBITDA to, for you to consider a different dividend policy?

Well, we've talked about that our targeted debt to EBITDA mid-cycle needs to be in the 1.5 times to 2 times range.

All right. Thank you.

Thank you. And the next question comes from Richard O'Reilly with Revere Associates.

Oh, good morning. Thank you, gentlemen. Two quick questions, the first one, I might be asking you to repeat this, but the Freeport maintenance expense, is that a incremental $25 million versus the first quarter or is that just the absolute number for Freeport?

It is an incremental number that covers both incremental maintenance expense and the impact of lost production.

Okay. What was the expense then in the first quarter, if you had given that?

We did not give that.

Okay. So, but at $25 million incremental to what it was in the first quarter, okay.

That's correct.

Okay. Fine. Second question is, you kind of said it quickly at the beginning, but you said your full year guidance now you think it's on the plus 5% side versus plus-minus. You might have done this, but is there anything that you're pointing to that gets you to the plus side versus plus-minus?

Well, we went through our view of the second half and the comparability to the first half...

Okay.

...and we talked about the difference in turnaround costs, the difference in ethylene and we talked about the favorable pricing. We talked about, we think both Epoxy and Winchester are going to be stronger in the second half than the first half and the only real negative we had was we expect EDC pricing to be lower in the second half than the first half.

But we're speaking in general, all those are just adding up to be on the plus side now versus – versus what are they...

That's correct.

...versus what you were seeing in January. Okay. Fine. Okay. Because I don't know that you gave first quarter guidance in January or not, so I don't know the first quarter....

We have not given any quarterly guidance for the year. Our guidance was a $1 billion plus or minus.

Well, you're right. Okay. Fine. Now what you've given us for the second quarter and here. Okay. Thanks a lot, guys.

Okay.

Thank you. And as we have no more questions, I would like to return the call to John Fischer for any closing remarks.

Yes, thank you for joining us today and we look forward to talking to you in the 90 days about our second quarter results. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.