Chlor Alkali first quarter 2012 segment earnings increased 65% compared to the first quarter of 2011 and represent a record level of first quarter Chlor Alkali segment earnings. The year-over-year improvement of Chlor Alkali earnings reflects improved pricing, the 100% ownership of Sunbelt for the full quarter and increased contributions from bleach and hydrochloric acid.First quarter 2012 Winchester segment earnings declined compared to the first quarter of 2011 as improved volumes were more than offset by higher commodity costs and transition costs associated with our ongoing centerfire ammunition relocation project. In the first quarter of 2012, Olin generated adjusted EBITDA of $94.9 million, which represents the highest level of first quarter adjusted EBITDA ever. Our first quarter 2012 adjusted EBITDA increased 38% when compared to the first quarter of 2011. This is the first quarter that we've discussed EBITDA, and we believe it clarifies the impact of the capital investments that were made in 2011 and are continuing in 2012, including investments to exit mercury cell technology, the acquisition of PolyOne's 50% interest in the SunBelt joint venture, the Winchester's centerfire ammunition relocation project to Oxford, Mississippi and the bleach expansion projects. These investments have caused the annual depreciation expense to increase by approximately $35 million, or 50%, since 2009. In 2012, Olin has the opportunity to generate the highest level of adjusted EBITDA in the 120-year history of the company. Our second quarter 2012 net income is forecast to be in the $0.50 to $0.55 per diluted share range. Second quarter 2012 Chlor Alkali segment earnings are expected to improve compared to the first quarter of 2012, reflecting seasonally stronger chlorine and bleach demand, partially offset by lower prices. Second quarter 2012 earnings in the Winchester segment are expected to improve compared to the first quarter of 2012, as improved pricing and lower centerfire relocation transition costs more than offset seasonally lower volumes.
I'm going to talk about the divisions. First, Chlor Alkali. The first quarter 2012 operating rate was 80%, which is in line with the first quarter 2011 operating rate, but a significant improvement over the 70% rate that we experienced in the fourth quarter of 2011. During the first quarter of 2012, there were planned outages at 5 of our 7 Chlor Alkali manufacturing plants. In addition, there were 2 significant customer outages during the quarter, one of which was planned and one of which was unplanned. We expect the unplanned outage to continue into the second quarter and to negatively impact our second quarter chlorine volumes. The second quarter operating rate is expected to be in the mid-80% range.During the second quarter, the seasonal increase in bleach had contributed approximately 2% to our operating rate, and there are no major outages planned in the Olin system during the second quarter. The first quarter ECU netback, including SunBelt, was approximately $585 per ton, which compares to the fourth quarter 2011 ECU netback of approximately $590 per ton and the first quarter of 2011 net back of approximately $525 per ton. The decline in the netback from the fourth quarter of 2011 to the first quarter of 2012 reflects the continuation of the pattern that we've experienced beginning in the second half of 2011 in which increases in caustic soda prices were being offset by decreases in chlorine prices. During the first quarter, there was a $45-per-ton caustic soda price increase announced and a $40-per-ton chlorine increase announced. The $45-per-ton caustic soda price increase, despite being followed by the majority of producers, continues to encounter resistance, and at this point, its success is uncertain. The announced chlorine price increase was not followed by all producers, and its ultimate success is also uncertain. And as a result, we expect the second quarter 2012 ECU netback to be flat to slightly down compared to the first quarter.
Freight costs included in the first quarter of 2012, ECU netback increased 4% compared to the first quarter of 2011 but declined 5% compared to the fourth quarter of 2011 and were lower than the average cost for the full year of 2011. Based on our experience over the past several years, we do expect full year 2012 freight cost per ECU to increase when compared to 2011. And as we stated in our fourth quarter 2011 earnings conference call, we did take the step in 2011 of filing a rate case against 2 railroads. It was a step we believed necessary in the process to control freight cost. The resolution to this case will take approximately 18 to 24 months.Read the rest of this transcript for free on seekingalpha.com