<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-1070
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OLIN CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 13-1872319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Merritt 7, Norwalk, CT 06851
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(Address of principal executive offices) (Zip Code)
(203) 750-3000
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X NO
--- ---
As of July 31, 1998, there were outstanding 47,735,114 shares of the
registrant's common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions)
Unaudited
June 30, December 31,
1998 1997
ASSETS ---- ----
- ------
Cash and cash equivalents $ 7.7 $ 165.8
Short-term investments 20.0 28.1
Accounts receivable, net 409.6 350.1
Inventories 349.9 347.3
Other current assets 43.8 44.7
-------- --------
Total current assets 831.0 936.0
Investments and advances 34.0 30.9
Property, plant and equipment
(less accumulated depreciation
of $1,583.8 and $1,528.2) 785.9 795.0
Other assets 193.5 183.5
-------- --------
Total assets $1,844.4 $1,945.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.8 $ 9.2
Accounts payable 219.3 255.9
Income taxes payable 8.3 5.4
Accrued liabilities 235.0 241.7
-------- --------
Total current liabilities 464.4 512.2
Long-term debt 236.5 268.0
Other liabilities 275.1 286.9
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares.
Issued 47.7 shares (48.8 in 1997) 47.7 48.8
Additional paid-in capital 293.5 347.7
Cumulative translation adjustment (27.0) (23.7)
Retained earnings 554.2 505.5
-------- --------
Total shareholders' equity 868.4 878.3
-------- --------
Total liabilities and
shareholders' equity $1,844.4 $1,945.4
======== ========
___________________________________
The accompanying Notes to Condensed Financial Statements are an integral
part of the condensed financial statements.
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OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Income (Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $ 613.1 $ 632.4 $ 1,186.2 $ 1,223.6
Operating expenses:
Cost of goods sold 471.9 491.6 903.8 941.5
Selling and administration 74.9 75.0 151.5 147.4
Research and development 6.7 7.2 13.5 14.6
-------- -------- --------- ---------
Operating income 59.6 58.6 117.4 120.1
Interest expense 4.7 7.0 9.7 14.5
Interest income 0.4 2.7 1.9 8.7
Other income 3.7 4.6 9.0 8.4
-------- -------- -------- --------
Income before taxes 59.0 58.9 118.6 122.7
Income taxes 20.4 20.3 40.9 42.3
-------- -------- -------- --------
Net income $ 38.6 $ 38.6 $ 77.7 $ 80.4
======== ======== ========= =========
Net income per common share:
Basic $ 0.81 $ 0.75 $ 1.61 $ 1.56
Diluted $ 0.80 $ 0.75 $ 1.60 $ 1.55
Dividends per common share $ 0.30 $ 0.30 $ 0.60 $ 0.60
Average common shares outstanding:
Basic 47.9 50.9 48.3 51.5
Diluted 48.3 51.2 48.7 51.7
</TABLE>
___________________________________
The accompanying Notes to Condensed Financial Statements are an integral
part of the condensed financial statements.
<PAGE>
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1998 1997
------ -------
<S> <C> <C>
Operating activities
- --------------------
Net income $ 77.7 $ 80.4
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities
Earnings of non-consolidated affiliates (4.7) (5.1)
Depreciation and amortization 61.4 59.5
Deferred taxes 8.5 11.4
Change in assets and liabilities net of
purchases and sales of businesses:
Receivables (59.5) (93.0)
Inventories (2.6) (22.7)
Other current assets 0.9 (5.1)
Accounts payable and accrued liabilities (43.3) (86.6)
Income taxes payable 2.8 (126.5)
Noncurrent liabilities (10.8) (23.0)
Other operating activities (18.6) 14.4
------ -------
Net operating activities 11.8 (196.3)
Investing activities
- --------------------
Capital expenditures (51.0) (37.7)
Business acquired in purchase transaction - (2.0)
Purchase of short-term investments (9.4) (79.4)
Proceeds from sale of short-term investments 17.5 107.9
Investments and advances-affiliated companies at equity (1.5) (43.8)
Other investing activities (0.1) (2.2)
------ -------
Net investing activities (44.5) (57.2)
------ -------
Financing activities
- --------------------
Long-term debt repayments (38.9) (138.7)
Purchases of Olin common stock (59.3) (85.9)
Repayment from ESOP - 5.0
Stock options exercised 2.5 4.1
Dividends paid (29.0) (31.0)
Other financing activities (0.7) (1.5)
------ -------
Net financing activities (125.4) (248.0)
------ -------
Net decrease in cash and cash equivalents (158.1) (501.5)
Cash and cash equivalents, beginning of period 165.8 523.5
------ -------
Cash and cash equivalents, end of period $ 7.7 $ 22.0
====== =======
</TABLE>
___________________________________
The accompanying Notes to Condensed Financial Statements are an
integral part of the condensed financial statements.
<PAGE>
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements included herein have been prepared by the
company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of the company,
reflect all adjustments (consisting only of normal accruals) which are
necessary to present fairly the results for interim periods. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the company believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements, accounting policies and the notes thereto and management's
discussion and analysis of financial condition and results of operations
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. Inventory consists of the following:
June 30, December 31,
1998 1997
-------- ------------
Raw materials and supplies $ 159.3 $ 158.1
Work in process 129.1 128.7
Finished goods 195.5 197.7
------- -------
483.9 484.5
LIFO reserve (134.0) (137.2)
------- -------
Inventory, net $ 349.9 $ 347.3
======= =======
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; in aggregate, such valuations are not
in excess of market. Elements of costs in inventories include raw material,
direct labor and manufacturing overhead. Inventories under the LIFO method
are based on annual determination of quantities and costs as of the year-end;
therefore, the condensed financial statements at June 30, 1998, reflect
certain estimates relating to inventory quantities and costs at December 31,
1998.
3. Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
Basic Earnings Per Share
------------------------
Basic earnings:
Net income $38.6 $38.6 $77.7 $80.4
Basic shares 47.9 50.9 48.3 51.5
Basic earnings per share $0.81 $0.75 $1.61 $1.56
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Diluted Earnings Per Share
--------------------------
Diluted earnings:
Net income $38.6 $38.6 $77.7 $80.4
Diluted shares:
Basic shares 47.9 50.9 48.3 51.5
Stock options and
remuneration agreements 0.4 0.3 0.4 0.2
----- ----- ----- -----
Diluted shares 48.3 51.2 48.7 51.7
===== ===== ===== =====
Diluted earnings per share $0.80 $0.75 $1.60 $1.55
4. The company is party to various governmental and private environmental
actions associated with waste disposal sites and manufacturing facilities.
Environmental provisions charged to income amounted to $4 million and $8
million for the three and six months ended June 30, 1998 and 1997,
respectively. Charges to income for investigatory and remedial efforts were
material to operating results in 1997 and may be material to operating
results in 1998. The consolidated balance sheets include reserves for future
environmental expenditures to investigate and remediate known sites amounting
to $135 million and $136 million at June 30, 1998 and December 31, 1997,
respectively of which $105 million and $106 million were classified as other
noncurrent liabilities, respectively.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigatory studies, advances in technology, changes in environmental
laws and regulations and their application, the scarcity of reliable data
pertaining to identified sites, the difficulty in assessing the involvement
and financial capability of other potentially responsible parties and the
company's ability to obtain contributions from other parties and the length
of time over which site remediation occurs. It is possible that some of these
matters (the outcomes of which are subject to various uncertainties) may be
resolved unfavorably against the company.
5. In April 1998, the Board of Directors authorized an additional share
repurchase program of up to 5 million shares of Olin common stock, from time
to time, as conditions warrant. Since January 1997 the company has
repurchased 5,106,600 shares, of which 106,000 were under the April 1998
program.
6. The company enters into forward sales and purchase contracts and currency
options to manage currency risk resulting from purchase and sale commitments
denominated in foreign currencies (principally Belgian franc, Canadian
dollar, Irish punt and Japanese yen) and relating to particular anticipated
but not yet committed purchases and sales expected to be denominated in those
currencies. All of the currency derivatives expire within one year and are
for United States dollar equivalents. The counterparties to the options and
contracts are major financial institutions. The risk of loss to the company
in the event of
<PAGE>
nonperformance by a counterparty is not significant. In accordance with
Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation (SFAS 52), a transaction is classified as a hedge when the
foreign currency transaction is designated as, and is effective as, a hedge
of a foreign currency commitment and the foreign currency commitment is firm.
If a transaction does not meet the criteria to qualify as a hedge, it is
considered to be speculative. For foreign currency commitments that are
classified as a hedge, any gain or loss on the commitment is deferred until
it matures. Any unrealized gains or losses associated with foreign currency
commitments that are classified as speculative are recognized in the current
period. Foreign currency gains and losses realized are included in the income
statement in Selling and Administration. If a foreign currency transaction
previously considered as a hedge is terminated or matures before the
transaction date of the related commitment, any deferred gain or loss shall
continue to be deferred until the transaction date of the commitment.
During 1992, the company swapped interest payments on $50 million
principal amount of its 8% notes due 2002 to a floating rate (6.0625% at June
30, 1998). In June 1995, the company offset this transaction by swapping
interest payments to a fixed rate of 6.485%. Counterparties to the interest
rate swap contracts are major financial institutions. The risk of loss to the
company in the event of nonperformance by a counterparty is not significant.
The company records the net difference between the interest spreads as
Interest Expense in the income statement.
Depending on market conditions, the company may enter into futures
contracts and put and call options in order to reduce the impact of metal
price fluctuations, principally in copper, lead and zinc. In accordance with
SFAS No. 80, "Accounting for Futures Contracts," futures contracts are
classified as a hedge when the item to be hedged exposes the company to price
risk and the futures contract reduces that risk exposure. Futures contracts
that relate to transactions that are expected to occur are accounted for as a
hedge when the significant characteristics and expected terms of the
anticipated transaction are identified and it is probable that the
anticipated transaction will occur. If a transaction does not meet the
criteria to qualify as a hedge, it is considered to be speculative. Any gains
or losses associated with futures contracts which are classified as
speculative are recognized in the current period. If a futures contract that
has been accounted for as a hedge is closed or matures before the date of the
anticipated transaction, the accumulated change in value of the contract is
carried forward and included in the measurement of the related transaction.
Option contracts are accounted for in the same manner that futures contracts
are accounted for.
7. As of January 1, 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income," which established standards for the reporting and
display of comprehensive income and its components in the financial
statements. The company does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes on
undistributed earnings on foreign subsidiaries. The components of
comprehensive income for the three-month and six-month periods ended June 30,
1998 and 1997 are as follows:
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
Net income $38.6 $38.6 $77.7 $80.4
Other comprehensive income:
Cumulative translation adj. (0.6) 1.5 (3.3) (4.2)
----- ----- ----- -----
Comprehensive income $38.0 $40.1 $74.4 $76.2
===== ===== ===== =====
8. On July 30, 1998 the company announced that the board of directors has
approved the spin-off of its specialty chemicals businesses to shareholders
as a separate publicly traded company. The spin-off would combine the
company's Microelectronic Materials, Pool Products, Biocides, Sulfuric Acid,
Hydrazine and Performance Urethanes businesses in the new Specialty Chemicals
company, which will be named later. Olin would retain its Chlor-Alkali, Brass
and Winchester businesses. The spin-off transaction is expected to be
completed during the first quarter of 1999. The Specialty Chemicals
businesses had approximately $950 million in sales for the full year 1997,
representing 40% of Olin's total 1997 sales. The spin-off is expected to be
in the form of a dividend distribution of the shares of the new company. The
board of directors will determine the distribution ratio and record and
distribution dates for the spin-off at a later date. The transaction is
anticipated to qualify as a tax-free distribution to Olin and its
shareholders. The company will apply to the Internal Revenue Service for a
ruling to that effect. The transaction is subject to numerous conditions
including, among other things, the receipt of the IRS ruling, certain
government and third party approvals, and review by the Securities and
Exchange Commission of necessary SEC filings.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
RESULTS OF OPERATIONS
(in millions, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
CONSOLIDATED 1998 1997 1998 1997
---- ---- ---- ----
Sales $613.1 $632.4 $1,186.2 $1,223.6
Gross Margin 141.2 140.8 282.4 282.1
Selling and Administration 74.9 75.0 151.5 147.4
Operating Income 59.6 58.6 117.4 120.1
Interest Expense, net 4.3 4.3 7.8 5.8
Other Income 3.7 4.6 9.0 8.4
Net Income 38.6 38.6 77.7 80.4
Net Income per Common Share:
Basic $ 0.81 $ 0.75 $ 1.61 $ 1.56
Diluted $ 0.80 $ 0.75 $ 1.60 $ 1.55
Three Months Ended June 30, 1998 Compared To 1997
Sales decreased 3% primarily due to a decrease in metal values.
Gross margin percentage was 23% in 1998 compared with 22% in 1997 as lower
fixed cost per unit due to higher volumes more than offset the impact of lower
selling prices (primarily Pool Products).
Selling and administration expenses were 12% of sales in 1998 and 1997 and
were about equal in amount. Higher expenses for information technology systems
and business planning and development activities were offset by cost reduction
efforts in other administrative areas.
The decrease in other income is due primarily to the unfavorable
performance of the non-consolidated affiliates in Asia offset in part by the
inclusion of the Sunbelt Chlor-Alkali joint venture with Geon.
The effective tax rate approximated 34.5% in 1998 and 1997.
Net income per common share increased due to the lower average number of
shares in 1998.
Six Months Ended June 30, 1998 Compared To 1997
Sales decreased 3% primarily due to a decrease in metal values.
Gross margin percentage was 24% in 1998 compared with 23% in 1997 as lower
fixed cost per unit due to higher volumes more than offset the impact of lower
selling prices.
Selling and administration expenses were 13% and 12% of sales in 1998 and
1997, respectively. Selling and administration increased in amount due to
higher administration expenses for information technology systems and business
planning and development activities. Also, 1998 includes the selling and
administration expenses of Aegis, Inc. (Aegis) which was previously accounted
for as a joint venture, but in October, 1997 became a wholly owned subsidiary.
The increase in net interest expense is due to the lower amount of income
earned on the lower average levels of cash, cash equivalents and short-term
investments.
The effective tax rate approximated 34.5% in 1998 and 1997.
Net income per common share increased due to the lower average number of
shares in 1998, offset in part by lower net income.
SPIN-OFF OF SPECIALTY CHEMICALS OPERATIONS
<PAGE>
On July 30, 1998 the company announced that the board of directors has
approved the spin-off of its specialty chemicals businesses to shareholders as a
separate publicly traded company. The spin-off would combine the company's
Microelectronic Materials, Pool Products, Biocides, Sulfuric Acid, Hydrazine and
Performance Urethanes businesses in the new Specialty Chemicals company, which
will be named later. Olin would retain its Chlor-Alkali, Brass and Winchester
businesses. The spin-off transaction is expected to be completed during the
first quarter of 1999. The Specialty Chemicals businesses had approximately
$950 million in sales for the full year 1997, representing 40% of Olin's total
1997 sales. The spin-off is expected to be in the form of a dividend
distribution of the shares of the new company. The board of directors will
determine the distribution ratio and record and distribution dates for the spin-
off at a later date. The transaction is anticipated to qualify as a tax-free
distribution to Olin and its shareholders. The company will apply to the
Internal Revenue Service for a ruling to that effect. The transaction is
subject to numerous conditions including, among other things, the receipt of the
IRS ruling, certain government and third party approvals, and review by the
Securities and Exchange Commission of necessary SEC filings.
1998 OUTLOOK
Diluted earnings per share for the full year 1998 is expected to be in the
$3.00 range. This earnings estimate assumes, among other things, that Chlor-
Alkali operating rates will remain at current levels and that Electrochemical
Unit (ECU) pricing remains stable, that there is some recovery in the
semiconductor industry in the fourth quarter, that the residual effects of the
General Motors strike will not significantly disrupt the economy, and that there
is no further deterioration in our markets due to the Asian financial turmoil.
Also, there are no spin-off related transaction costs included in the estimate.
CHEMICALS
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Sales $368.0 $365.0 $687.3 $692.2
Operating Income 43.2 46.0 85.3 95.4
Three Months Ended June 30, 1998 Compared to 1997
Sales increased 1% due to an increase in volumes. Higher sales due to the
inclusion of the sales of Aegis in 1998 offset the lower sales in Performance
Urethanes & Organics due to the divestment of the surfactants business in
November, 1997. Operating income decreased 6%. In Chlor-Alkali sales and
operating income were lower due to lower volumes (primarily caustic soda) and
higher utility costs which were partially offset by higher ECU pricing. The
lower sales volumes are primarily due to reduced Asian demand for some of our
customer's products. Pool Products sales and operating income increased as
strong domestic volumes, particularly for branded HTH(R) products, more than
offset lower selling prices. This strong performance was driven by favorable
spring weather and reflects the slow order flow in the first
<PAGE>
quarter of 1998 compared to 1997. Excluding the impact of its divested
businesses, Performance Urethanes & Organics operating income improved due to
the restructuring of the business along with lower raw material costs.
Microelectronic Materials sales were lower due to lower volumes as a result of
the semiconductor industry slowdown. Biocides operating income was lower due to
reduced demand, particularly from the Asian markets. Microelectronic Materials
operating income was lower due to lower sales volumes.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997
Sales decreased 1% due to a decrease in volumes. Higher sales due to the
inclusion of the sales of Aegis in 1998 offset the lower sales in Performance
Urethanes & Organics due to the divestment of the surfactants business in
November, 1997. Operating income decreased 11%. In Chlor-Alkali sales and
operating income were lower due to lower volumes (primarily caustic soda) and
higher utility costs which were partially offset by higher ECU pricing. The
lower sales volumes are primarily due to reduced Asian demand for some of our
customer's products. Pool Products sales were about equal but operating income
was lower due to lower selling prices and higher manufacturing costs, including
higher depreciation expense. Exports of calcium hypochlorite from Chinese
producers have disrupted the supply/demand balance and affected prices on a
worldwide basis. For the total year, estimated lower volumes and pricing in
Pool Products along with higher manufacturing costs, including depreciation
expense, are expected to result in unfavorable earnings comparisons from 1998 to
1997. Biocides operating income is lower due to higher fixed costs associated
with the anticipated business expansion. For the full year, Biocides operating
income will be lower due to higher fixed costs and selling and administrative
expenses incurred to support the anticipated volume growth which has not
materialized due to the lower Asian demand. Excluding the impact of its
divested businesses, Performance Urethanes & Organics operating income improved
due to the restructuring of the business along with lower raw material costs.
Despite a slower-than-expected recovery period for the semiconductor industry,
increased volumes contributed to Microelectronic Materials improved performance.
For the full year, lower forecasted demand in the electronics industry may
result in Microelectronic Materials 1998 operating results below 1997. Higher
volumes and pricing were the primary contributors to the improved operating
results of Hydrazine and Sulfuric Acid.
METALS AND AMMUNITION
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Sales $245.1 $267.4 $498.9 $531.4
Operating Income 16.4 12.6 32.1 24.7
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997
Sales decreased 8% due to lower metal values. Operating income increased
30%. Metal profits declined slightly as an inventory correction at certain
automotive customers and lower electronics and connector demand, in part due to
the Asian turmoil, more than offset higher foreign coinage and cupping sales.
Winchester's operating income
<PAGE>
was higher due to higher sales, improved manufacturing performance and lower
operating costs.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997
Sales decreased 6% primarily due to lower metal values and operating income
increased 30%. Brass' operating income was about equal as higher volumes from
the automotive, housing and ammunition markets offset lower volumes in the
electronics (leadframe) and stainless steel markets. Also, copper bond
shipments were strong and several new foreign coinage contracts helped to offset
weakness in the electronics markets. Winchester's operating income was higher
due to favorable sales mix, improved manufacturing performance and lower
operating costs.
ENVIRONMENTAL
In the three and six months ended June 30, 1998, the company spent
approximately $4 million and $9 million, respectively for investigatory and
remediation activities associated with former waste sites and past operations.
Spending for environmental investigatory and remedial efforts for the full year
1998 is estimated to be $30 million. Cash outlays for remedial and investigatory
activities associated with former waste sites and past operations were not
charged to income but instead were charged to reserves established for such
costs identified and expensed to income in prior periods. Associated costs of
investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability
to reasonably estimate future costs. Charges to income for investigatory and
remedial activities were $4 million and $8 million for the three and six months
ended June 30, 1998, respectively. Charges to income for investigatory and
remedial efforts were material to operating results in 1997 and may be material
to net income in 1998 and future years.
The company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$135 million at June 30, 1998 and $136 million at December 31, 1997, of which
$105 million and $106 million were classified as other noncurrent liabilities,
respectiveley. Those amounts did not take into account any discounting of future
expenditures or any consideration of insurance recoveries or advances in
technology. Those liabilities are reassessed periodically to determine if
environmental circumstances have changed and/or remediation efforts and their
costs can be better estimated. As a result of these reassessments, future
charges to income may be made for additional liabilities.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
between $65-$90 million over the next several years. While the company does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in
<PAGE>
assessing the involvement and the financial capability of other potentially
responsible parties and the company's ability to obtain contributions from other
parties and the lengthy time periods over which site remediation occurs. It is
possible that some of these matters (the outcomes of which are subject to
various uncertainties) may be resolved unfavorably against the company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
Cash Flow Data Six Months
Provided by/(Used for) (in millions) Ended June 30,
--------------
1998 1997
---- ----
Net Operating Activities $ 11.8 $(196.3)
Capital Expenditures (51.0) (37.7)
Net Investing Activities (44.5) (57.2)
Purchases of Olin Common Stock (59.3) (85.9)
Net Financing Activities (125.4) (248.0)
Operating income and cash and cash equivalents on hand were used to finance
the company's seasonal working capital requirements, capital and investment
projects, payment of debt, dividends and the repurchase of Olin common stock.
OPERATING ACTIVITIES
Cash generated by operating activities in 1998 was used for an increase in
working capital. Higher accounts receivables due to the seasonal Pool Products
business along with lower accounts payable and accrued liabilities were
the main contributors to the increase in working capital. Cash used for
operating activities in 1997 was for an increase in working capital resulting
from higher receivable levels associated with the Niachlor acquisition and
seasonal Pool Products receivables, and tax payments on the sale of the
isocyanates business.
INVESTING ACTIVITIES
Capital spending of $51.0 million in 1998 was 35% higher than 1997. Capital
spending for 1998 is estimated to increase approximately 15-30% from 1997 in
order to provide additional capacity for certain Chemicals product lines,
particularly in Microelectronic Materials and Biocides.
FINANCING ACTIVITIES
At June 30, 1998, the company maintained committed credit facilities with
banks of $262 million, all of, which was available. The company believes that
these credit facilities are adequate to satisfy its liquidity needs for the near
future.
During the first half of 1998, the company used $59.3 million to repurchase
1,278,500 shares of its common stock, bringing the cumulative total shares
repurchased to 5,105,600 since January, 1997.
At June 30, 1998, the percent of total debt to total capitalization was
21.5%, down from 24.0% at year-end 1997 and 23.2% at June 30, 1997. The decrease
from June 30, 1997 was due to the repayment
<PAGE>
of $39 million on May 1, 1998 and $125 million 9.5% subordinated notes in June
1997.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.131,
"Disclosure about Segments of an Enterprise and Related Information," which
establishes standards for the way that segment information is to be disclosed in
the financial statements along with additional information on products and
services, geographic areas and major customers. The company is still assessing
the disclosure requirements of this standard, which is effective for the periods
beginning after December 15, 1997.
In 1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities." It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The company is currently evaluating the effect this
statement will have on its financial position and results of operations in the
period of adoption.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The company is currently
evaluating the effect this SOP will have on its financial position and results
of operations in the period of adoption.
Also in 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-up
Activities." This SOP requires the expensing of certain costs such as pre-
operating expenses and organizational costs associated with the company's start-
up activities, and is effective for fiscal years beginning after December 15,
1998. The effect of adoption is required to be accounted for as a cumulative
effect of change in accounting principle. The company is still evaluating the
effect of this statement on results of operations and financial position. The
company does not expect however that the amount recognized as a cumulative
effect of change in accounting principle, if any, would be material.
After determining the effect of Statement 131, 133, SOP 98-1 and SOP 98-5,
the company may consider early adoption of one or more of these pronouncements.
YEAR 2000 COMPUTER SYSTEMS
The company is in the process of upgrading its information technology
systems and implementing SAP. As a result it is reviewing all internal
processes and hardware and software issues. In addition, it is analyzing the
issues relating to the Year 2000 and is also discussing with its vendors and
customers the possibility of any interface difficulties, which may affect the
company. With respect to the Year 2000, no significant concerns have been
identified to date. While management expects the costs associated with
information technology systems will increase over the next few years and will be
higher than those in previous years, the additional costs are not expected to be
material.
<PAGE>
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS
The information in the Results of Operations section, Environmental Matters
section and the Liquidity, Investment Activity and Other Financial Data sections
(and subsections thereof) contains forward-looking statements that are based on
management's beliefs, certain assumptions made by management and current
expectations, estimates and projections about the markets and economy in which
the company and its various divisions and profit centers operate. Words such as
"expects," "believes," "should," "plans," "will," "forecasts," "estimates," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expected or forecasted in such
forward-looking statements. The company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of future events,
new information or otherwise. Future factors which could cause actual results
to differ materially from those discussed in these sections and notes include
but are not limited to: lack of moderate growth in the U.S. economy or even a
slight recession in 1998; worsening economic conditions in Asia; competitive
pricing pressures; the company's ability to maintain chemical price increases;
no increase in Chlor Alkali's ECU prices; Chlor Alkali operating rates below
current levels; higher-than-expected raw material costs for certain chemical
product lines; increased foreign competition in the calcium hypochlorite
markets; lack of stability in the semiconductor industry; the negative effects
from the General Motor's strike; a downturn in many of the markets the company
serves such as electronics, automotive, ammunition and housing; the
supply/demand balance for the company's products, including the impact of excess
industry capacity; failure to achieve targeted cost reduction programs;
unsuccessful entry into new markets for electronic chemicals; capital
expenditures, such as cost overruns, in excess of those scheduled; environmental
costs in excess of those projected; and the occurrence of unexpected
manufacturing interruptions/outages.
Part 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 30, 1998.
Of the 48,526,200 shares of Common Stock entitled to vote at such meeting, at
least 44,567,827 shares were present for purposes of a quorum. At the meeting,
shareholders elected to the Board of Directors R. M. Rompala as a Class II
director with a term expiring in 1999, and R. E. Cavanagh, J. W. Johnstone, Jr.,
J. D. Kuehler and R. W. Larrimore as Class I directors with terms expiring in
2001. Votes cast for and votes withheld in the election of Directors were as
follows:
Votes For Votes Withheld
---------- --------------
R. M. Rompala 43,836,414 731,413
R. E. Cavanagh 43,808,311 759,516
J. W. Johnstone, Jr. 43,568,537 999,290
J. D. Kuehler 43,774,481 793,346
R. W. Larrimore 43,817,933 749,894
There were no abstentions or broker nonvotes.
The shareholders also ratified the appointment of KPMG Peat Marwick LLP
as independent auditors for the Corporation for 1998. Voting for the resolution
ratifying the appointment were 44,132,865 shares. Voting against were 209,057
shares. Abstaining were 225,905 shares. There were no broker nonvotes.
Item 5. Other Information
-----------------
For purposes of complying with Rule 14a-5(e) promulgated under the
Securities Exchange Act of 1934, as amended, the registrant hereby discloses the
following information: Article I, Section 9 of the registrant's By-laws
provides that for a shareholder to bring a matter properly before an annual or
special meeting of shareholders called by the shareholders, the shareholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice must be given, either by personal delivery
or by United States registered or certified mail, postage prepaid, to the
Secretary of the Corporation in the case of an annual meeting, not later than 90
days before the anniversary of the immediately preceding annual meeting and in
the case of a special meeting called at the request of shareholders, in
accordance with the procedures set forth in Section 10 of Article I of the By-
laws. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting, including the complete
text of any resolutions to be presented at the meeting with respect to such
business, and the reasons for conducting such business at the meeting, (ii) the
name and address of record of the
<PAGE>
shareholder proposing such business, (iii) the class and number of shares of the
Corporation that are beneficially owned by the shareholder and any other person
on whose behalf the proposal is made, and (iv) any material interest of the
shareholder and any other person on whose behalf the proposal is made, in such
business. In the event that a shareholder attempts to bring business before a
meeting without complying with the foregoing procedure, the chairman of the
meeting may declare to the meeting that the business was not properly brought
before the meeting and, if he shall so declare, such business shall not be
transacted.
For purposes of including a shareholder proposal in the Corporation's
proxy statement for the 1999 annual meeting of shareholders, the shareholder
must also comply with the requirements set forth under the section
"Miscellaneous - Shareholder Proposals" of the Corporation's 1998 Proxy
Statement, dated March 13, 1998.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
99. Press Release, dated July 30, 1998.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June
30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLIN CORPORATION
(Registrant)
By: A.W. Ruggiero
-------------
A.W. Ruggiero
Senior Vice President and
Chief Financial Officer
(Authorized Officer)
Date: August 11, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
99. Press Release, dated July 30, 1998.
<PAGE>
EXHIBIT 12
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
(In millions)
Six Months
Ended June 30,
------------------
1998 1997
------ ------
Earnings:
Income before taxes $118.6 $122.7
Add (deduct):
Income taxes of 50% owned affiliates 0.9 1.4
Equity in income of less than 50%
owned affiliates (0.7) (1.8)
Dividends received from less
than 50% owned affiliates 1.4 1.7
Interest capitalized, net of amortization 0.2 (0.4)
Fixed charges as described below 18.7 22.9
------ ------
Total $139.1 $146.5
====== ======
Fixed Charges:
Interest expense $ 9.7 $ 15.1
Estimated interest factor in rent expense 9.0 7.8
------ ------
Total $ 18.7 $ 22.9
====== ======
Ratio of earnings to fixed charges 7.4 6.4
====== ======
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements contained in Item 1 of Form 10-Q for the period ended
June 30, 1998 and is qualified in its entirety bY reference to such financial
statements. Figures are rounded to the nearest 100,000 (except EPS).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,700
<SECURITIES> 20,000
<RECEIVABLES> 409,600
<ALLOWANCES> 0
<INVENTORY> 349,900
<CURRENT-ASSETS> 831,000
<PP&E> 2,369,700
<DEPRECIATION> (1,583,800)
<TOTAL-ASSETS> 1,844,400
<CURRENT-LIABILITIES> 464,400
<BONDS> 236,500
0
0
<COMMON> 47,700
<OTHER-SE> 820,700
<TOTAL-LIABILITY-AND-EQUITY> 1,844,400
<SALES> 1,186,200
<TOTAL-REVENUES> 1,186,200
<CGS> 903,800
<TOTAL-COSTS> 903,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,700
<INCOME-PRETAX> 118,600
<INCOME-TAX> 40,900
<INCOME-CONTINUING> 77,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,700
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.60
</TABLE>
<PAGE>
Exhibit 99
Investor Contact: Richard Koch
203-750-3254
Press Contact: William McDaniel
203-750-2619
FOR IMMEDIATE RELEASE
OLIN CORPORATION TO SPIN OFF SPECIALTY CHEMICAL OPERATIONS;
COMPANY REPORTS SECOND QUARTER RESULTS, DECLARES DIVIDEND
NORWALK, CT, July 30, 1998 - Olin Corporation (NYSE: OLN) today announced
that the board of directors has approved the spin off of Olin's specialty
chemicals businesses to shareholders as a separate, publicly held company.
The spin off would combine Olin's microelectronic materials, pool
chemicals, biocides, sulfuric acid, hydrazine and performance urethanes
businesses in the new Specialty Chemicals Company, which will be named later.
Olin would retain its Chlor Alkali, Brass and Winchester businesses. The spin
off transaction is expected to be completed during the first quarter of 1999.
Separately, Olin reported second quarter earnings of $38.6 million, or 80
cents per share, compared to $38.6 million, or 75 cents per share, a year
earlier. Earnings per share increased because of the lower number of shares
outstanding as a result of the Company's share repurchase program. Because of
lower metal values, sales declined to $613 million from $632 million a year
earlier. Olin said that 1998 earnings per share are expected to be in the $3.00
range as a result of a greater-than-anticipated effect of the Asian financial
turmoil on the semiconductor and chemical industry.
Olin's board of directors also declared a regular, quarterly dividend of 30
cents per common share, the same amount as paid in the prior quarter, to be paid
on September 10, 1998 to shareholders of record on August 10, 1998. This is
Olin's 287th consecutive quarterly dividend.
SPIN OFF OF SPECIALTY CHEMICALS
Donald W. Griffin will remain chairman, president and CEO of Olin
Corporation. Michael E. Campbell, currently executive vice president of Olin
<PAGE>
Corporation in charge of Olin's operations, will lead the new Specialty
Chemicals Company as chief executive officer. The businesses, which will
comprise the Specialty Chemicals Company, had approximately $950 million in
sales in 1997, representing approximately 40% of Olin's total 1997 sales. Olin's
remaining businesses had approximately $1.5 billion in sales in 1997, or 60% of
total sales.
"Olin today consists of two distinct businesses: basic materials and
specialty chemicals," said Mr. Griffin. "Each group differs from the other in
its growth potential, its customer priorities, its profit drivers, its
marketplace conditions, its cyclicality, its capital needs and its access to
capital. This spin off creates two companies, each with sharper management
focus and increased accountability to deliver improved performance, and the
financial flexibility to independently pursue their own investment
opportunities. Each will be better able to compete in tomorrow's markets, and
to deliver value for its shareholders and customers.
"Both companies will begin their independent operations with the key
components for continued success already in place: financial resources,
experienced management and market-leading products," Mr. Griffin continued. "By
realigning our businesses into more complementary and more focused structures,
we expect to significantly enhance the performance and profitability of each,
and by so doing unlock the significant value that resides in each of them.
Investors will be able to focus on the specific growth and value characteristics
best suited to their investment philosophies."
OLIN CORPORATION
Of the businesses to remain a part of Olin Corporation after the spin off,
Chlor Alkali Products is the leading producer of chlorine and caustic soda in
the eastern United States, and one of the largest producers of sodium
hydrosulfite in North America; Olin Brass produces copper and copper alloys for
electronic, automotive, construction, and decorative uses, and clad metals for
use in coins; Winchester produces ammunition and related products for hunters,
recreational shooters and law enforcement agencies.
"Success for Olin will depend on its ability to focus its energy,
creativity and resources on becoming a premier basic materials company, offering
its customers outstanding customer value with the lowest cost, highest quality
products in their respective markets," said Mr. Griffin. "Our focus will be on
manufacturing processes, efficiencies and cost control. Olin will remain alert
to synergistic acquisitions of compelling value."
SPECIALTY CHEMICALS COMPANY
The specialty chemicals businesses to be spun off produce, among other
products, microelectronic materials and related products and services for the
semiconductor industry; chemicals for pools and water sanitization systems;
2
<PAGE>
biocides for anti-dandruff shampoos and marine and architectural coatings;
sulfuric acid for the oil and petrochemical industries; hydrazine for chemical
blowing agents and satellite positioning thrusters; and performance urethanes
and organics for the coatings, adhesives, sealants and elastomers markets, and
other downstream chemical applications.
"As a separate company, the Specialty Chemicals Company will be better able
to expand its customer base by offering value-added products and services," said
Mr. Campbell. "Our success will depend on our ability to deliver innovative
products and customized services to meet changing customer needs. Additionally,
the market will be better able to evaluate the growth potential and performance
of this new company."
The spin-off is expected to be in the form of a dividend distribution of
the shares of the new company. The board of directors will determine the
distribution ratio and record and distribution dates for the spin-off at a later
date. The transaction is anticipated to qualify as a tax-free distribution to
Olin and its shareholders. The company will apply to the Internal Revenue
Service for a ruling to that effect.
The transaction is subject to numerous conditions including, among other
things, the receipt of the IRS ruling, certain government and third party
approvals, and review by the Securities and Exchange Commission of necessary SEC
filings.
SECOND QUARTER RESULTS
"Our overall second quarter earnings were in-line with our expectations,
with higher than expected profits from pool chemicals and performance urethanes
offsetting lower than expected earnings from our microelectronic materials and
chlor alkali businesses," said Mr. Griffin.
"Regarding our 1998 earnings estimate, during the last month we have
received and analyzed new market data and forecasts affecting customers in both
our chemicals and metals businesses. The Asian turmoil will likely be reflected
in the performance of our microelectronic materials, chlor alkali, biocides,
performance urethanes and Brass businesses to a greater degree than we
previously expected."
The following commentary compares segment operating income for the second
quarter of 1998 and 1997:
CHEMICALS
Chemicals segment operating income decreased 6% to $43.2 million in 1998,
from $46.0 million in 1997. Microelectronic materials profits decreased from
last year due to lower industry demand. Chlor Alkali operating income
3
<PAGE>
trailed the same period last year due to lower volumes (in part due to reduced
downstream Asian demand), higher electricity costs due to extremely hot weather
in the South, partially offset by higher ECU prices. Biocides profits were
reduced by lower demand, particularly from the Asian market. Pool chemicals
profits increased as higher domestic, branded volumes, caused in part by
favorable weather, offset lower pricing. Performance urethanes profits increased
due to the restructuring of the business in 1997 and lower raw material costs.
METALS AND AMMUNITION
Metals and ammunition operating income increased 30% to $16.4 million, from
$12.6 million. Metals profits declined slightly as an inventory correction at
some automotive accounts and lower electronics and connector demand, in part due
to Asia, more than offset higher foreign coinage and cupping sales.
Winchester's operating results were ahead of last year as a result of higher
sales, improved plant operating performance and lower costs.
SHARE REPURCHASE PROGRAM
During the second quarter of 1998 the company repurchased 445,000 shares of
its common stock, bringing the cumulative total since January 1997 to 5,105,600
shares.
Headquartered in Norwalk, CT, Olin is one of the world's leading producers
of chemicals, metals, microelectronic materials and sporting ammunition.
____________
Except for historical information contained herein, the information set forth in
this communication contains forward-looking statements that are based on
management's beliefs, certain assumptions made by management and current
expectations, estimates and projections about the markets and economy in which
the company and its various divisions and profit centers operate. Words such as
"expects," "believes," "should," "plans," "will," "forecasts," "estimates," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expected or forecasted in such
forward-looking statements. The company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of future events,
new information or otherwise. Future factors which could cause actual results
to differ materially from those discussed in these sections and notes include
but are not limited to: lack of moderate growth in the U.S. economy or even a
slight recession in 1998; worsening economic conditions in Asia; competitive
pricing pressures; the company's ability to maintain chemical price increases;
no increase in Chlor Alkali's ECU prices; Chlor Alkali operating rates below
current levels; higher-than-expected raw material costs for certain chemical
product lines; increased foreign competition in the calcium hypochlorite
markets; lack of stability in the semiconductor industry; the negative effects
from the General Motor's strike; a downturn in many of the markets the company
serves such as electronics, automotive, ammunition and housing; the
supply/demand balance for the company's products, including the impact of excess
industry capacity; failure to achieve targeted cost reduction programs;
unsuccessful entry into new markets for electronic chemicals; capital
expenditures, such as cost overruns, in excess of those scheduled; environmental
costs in excess of those projected; and the occurrence of unexpected
manufacturing interruptions/outages.
7X98 - 30
4
