<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 SEPTEMBER 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
--------------------------------------------------
COMMISSION FILE NUMBER 1-1070
--------------------------------------------------------
OLIN CORPORATION
- --------------------------------------------------------------------------------
(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 October 31, 1998, there were outstanding 46,795,628 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)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 81.4 $ 165.8
Short-term investments 33.4 28.1
Accounts receivable, net 395.2 350.1
Inventories 328.6 347.3
Other current assets 38.5 44.7
-------- --------
Total current assets 877.1 936.0
Investments and advances 27.9 30.9
Property, plant and equipment
(less accumulated depreciation
of $1,602.1 and $1,528.2) 806.2 795.0
Other assets 105.2 183.5
-------- --------
Total assets $1,816.4 $1,945.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.3 $ 9.2
Accounts payable 200.8 255.9
Accrued liabilities 265.9 247.1
-------- --------
Total current liabilities 468.0 512.2
Long-term debt 235.7 268.0
Other liabilities 280.8 286.9
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares.
Issued 47.2 shares (48.8 in 1997) 47.2 48.8
Additional paid-in capital 277.5 347.7
Cumulative translation adjustment (25.4) (23.7)
Retained earnings 532.6 505.5
-------- --------
Total shareholders' equity 831.9 878.3
-------- --------
Total liabilities and
shareholders' equity $1,816.4 $1,945.4
======== ========
</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 Income (Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $582.0 $607.9 $1,768.2 $1,831.5
Operating expenses:
Cost of goods sold 470.1 469.9 1,373.9 1,411.4
Selling and administration 73.4 71.7 224.9 219.1
Research and development 7.0 7.6 20.5 22.2
Interest expense 4.2 5.9 13.9 20.4
Interest income 0.8 1.1 2.7 9.8
Other income 1.0 4.2 10.0 12.6
Loss on sales and restructurings of businesses 42.0 - 42.0 -
------ ------ -------- --------
Income (loss) before taxes (12.9) 58.1 105.7 180.8
Income tax provision (benefit) (5.7) 20.1 35.2 62.4
------ ------ -------- --------
Net income (loss) $ (7.2) $ 38.0 $ 70.5 $ 118.4
====== ====== ======== ========
Net income (loss) per common share:
Basic $(0.15) $ 0.76 $ 1.47 $ 2.32
Diluted $(0.15) $ 0.75 $ 1.46 $ 2.30
Dividends per common share $ 0.30 $ 0.30 $ 0.90 $ 0.90
Average common shares outstanding:
Basic 47.5 49.9 48.0 51.0
Diluted 47.5 50.3 48.3 51.4
</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>
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities
- --------------------
Net income $ 70.5 $118.4
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities
Earnings of non-consolidated affiliates (3.8) (7.4)
Depreciation and amortization 93.8 90.2
Deferred taxes 80.4 21.8
Loss on sales and restructurings of businesses 42.0 -
Change in assets and liabilities net of
purchases and sales of businesses:
Receivables (45.1) (90.7)
Inventories 18.6 (20.3)
Other current assets 6.1 (2.6)
Accounts payable and accrued liabilities (64.5) (74.0)
Income taxes payable (13.9) (124.6)
Noncurrent liabilities (11.8) (41.6)
Other operating activities 6.0 14.9
------- -------
Net operating activities 178.3 (115.9)
------- -------
Investing activities
- --------------------
Capital expenditures (93.7) (74.4)
Business acquired in purchase transaction - (2.0)
Purchase of short-term investments (22.8) (84.9)
Proceeds from sale of short-term investments 17.5 170.2
Investments and advances-affiliated companies at equity 2.1 (77.0)
Other investing activities (8.4) (2.2)
------- -------
Net investing activities (105.3) (70.3)
------- -------
Financing activities
- ---------------------
Long-term debt repayments (37.9) (138.5)
Purchases of Olin common stock (75.8) (127.1)
Repayment from ESOP - 5.0
Stock options exercised 2.5 8.6
Dividends paid (43.3) (46.1)
Other financing activities (2.9) (3.2)
------- -------
Net financing activities (157.4) (301.3)
------- -------
Net decrease in cash and cash equivalents (84.4) (487.5)
Cash and cash equivalents, beginning of period 165.8 523.5
------- -------
Cash and cash equivalents, end of period $ 81.4 $ 36.0
======= =======
</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:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------- -------------------------------
<S> <C> <C>
Raw materials and supplies $ 153.8 $ 158.1
Work in process 129.8 128.7
Finished goods 177.4 197.7
------------------------------- -------------------------------
461.0 484.5
LIFO reserve (132.4) (137.2)
------------------------------- -------------------------------
Inventory, net $ 328.6 $ 347.3
=============================== ===============================
</TABLE>
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
September 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.
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
------------------------------------ -----------------------------------
Basic Earnings Per Share 1998 1997 1998 1997
- ------------------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic earnings:
Net income (loss) $ (7.2) $38.0 $70.5 $118.4
Basic shares 47.5 49.9 48.0 51.0
Basic earnings (loss) per share $(0.15) $0.76 $1.47 $ 2.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Diluted Earnings Per Share
- -------------------------------------------
Diluted earnings:
Net income (loss) $ (7.2) $38.0 $70.5 $118.4
Diluted shares:
Basic shares 47.5 49.9 48.0 51.0
Stock options and
remuneration agreements - 0.4 0.3 0.4
--------------- --------------- --------------- ---------------
Diluted shares 47.5 50.3 48.3 51.4
=============== =============== =============== ===============
Diluted earnings (loss) per share $(0.15) $0.75 $1.46 $ 2.30
=============== =============== =============== ===============
</TABLE>
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 $12
million for the three and nine months ended September 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 $134 million and $136 million at September 30, 1998 and December 31, 1997,
respectively of which $104 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 5,642,700 shares, of which 642,700 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 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. A hedge is considered by the Company to be effective when the
transaction reduces the currency risk on its foreign currency commitments. If
a transaction does not meet the criteria to qualify as a hedge, it is
considered to be speculative. For a foreign currency commitment that is
classified as a hedge, any gain or loss on the commitment is deferred and
included in the basis of the underlying instrument. Any realized and
unrealized gains or losses associated with foreign currency commitments that
are classified as speculative are recognized in the current period and are
included in selling and administration in the condensed statements of income.
If a foreign currency transaction previously considered as a hedge is
terminated before the
<PAGE>
transaction date of the related commitment, any deferred gain or loss shall
continue to be deferred and included in the basis of the underlying
instrument. Premiums paid for currency options and gains or losses on forward
sales and purchase contracts are not material to operating results.
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 September 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 nine-month periods ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $(7.2) $38.0 $70.5 $118.4
Other Comprehensive income:
Cumulative translation adjustment 1.6 (4.0) (1.7) (8.2)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $(5.6) $34.0 $68.8 $110.2
=============== =============== =============== ===============
</TABLE>
8. On July 29, 1998 the Board of Directors approved in principle a plan to
distribute the Company's specialty chemical businesses (the "Distribution")
to its shareholders as a separate public company. Such separate company has
been named Arch Chemicals, Inc. ("Arch"). Olin expects the Distribution to be
completed by the end of the first quarter of 1999, after the appropriate
approvals of third parties and the receipt of an opinion of its counsel that
the receipt of the Arch shares by Olin shareholders will be tax-free, and
that no gain or loss with respect to the Arch shares will be recognized by
Olin on the Distribution. Olin will retain its Chlor-Alkali, Brass and
Winchester businesses. The specialty chemicals businesses had sales of $695
million for the nine months ended September 30, 1998 and $930 million for the
year 1997.
<PAGE>
9. In September 1998, the Company recorded a $42 million pretax charge ($26.2
million after tax) to earnings in connection with the sale or restructuring
of its rod, wire and tube businesses and its microelectronic packaging
business. On October 26, 1998, the Company completed the sale of its
microelectronic packaging unit at Manteca, California. In early November
1998, the Company announced that it was unable to conclude negotiations to
sell its rod, wire and tube businesses at Indianapolis, Indiana and will
therefore, restructure these operations by early next year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(in millions, except per share data)
CONSOLIDATED Three Months Nine Months
Ended September 30 Ended September 30
-------------------------------- -----------------------------------
1998 1997 1998 1997
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales $582.0 $607.9 $1,768.2 $1,831.5
Gross Margin 111.9 138.0 394.3 420.1
Selling & Administration 73.4 71.7 224.9 219.1
Interest Expense, net 3.4 4.8 11.2 10.6
Other Income 1.0 4.2 10.0 12.6
Loss on Sales and Restructurings
of Businesses 42.0 - 42.0 -
Net Income (Loss) (7.2) 38.0 70.5 118.4
Net Income (Loss) per Common Share:
Basic $(0.15) $ 0.76 $ 1.47 $ 2.32
Diluted $(0.15) $ 0.75 $ 1.46 $ 2.30
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 4% primarily due to a decrease in selling prices and metal
values.
Gross margin percentage was 19% in 1998 down from 23% in 1997 due to the
impact of lower selling prices in Chlor-Alkali and Water Chemicals and higher
electricity and other costs in Chlor-Alkali.
Selling and administration expenses were 13% of sales in 1998 compared with
12% in 1997. 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 and the Sunbelt Chlor-
Alkali joint venture with Geon which was negatively impacted by low chlorine
pricing.
Excluding the charge for the sales and restructurings of the businesses,
the effective tax rate approximated 34.5% in 1998 and 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 3% primarily due to a 1% decrease in selling prices and a
2% decrease in metal values.
Gross margin percentage was 22% in 1998 compared with 23% in 1997 due to
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.
Excluding the charge for the sales and restructurings of the businesses,
the effective tax rate approximated 34.5% in 1998 and 1997.
<PAGE>
SPIN-OFF OF SPECIALTY CHEMICAL BUSINESSES
On July 29, 1998 the Board of Directors approved in principle a plan to
distribute the Company's specialty chemical businesses (the "Distribution") to
its shareholders as a separate public company. Such separate company has been
named Arch Chemicals, Inc. ("Arch"). Olin expects the Distribution to be
completed by the end of the first quarter of 1999, after the appropriate
approvals of third parties and the receipt of an opinion of its counsel that the
receipt of the Arch shares by Olin shareholders will be tax-free, and that no
gain or loss with respect to the Arch shares will be recognized by Olin on the
Distribution. Olin will retain its Chlor-Alkali, Brass and Winchester
businesses. The specialty chemical businesses had sales of $695 million for the
nine months ended September 30, 1998 and $930 million for the year 1997.
SALES AND RESTRUCTURING OF BUSINESSES
In September 1998, the Company recorded a $42 million pretax charge ($26.2
million after tax, $0.55 diluted earnings per share) to earnings in connection
with the sale or restructuring of its rod, wire and tube businesses and its
microelectronic packaging business. On October 26, 1998, the Company completed
the sale of its microelectronic packaging unit at Manteca, California. In early
November 1998, the Company announced that it was unable to conclude negotiations
to sell its rod, wire and tube businesses at Indianapolis, Indiana and will
therefore, restructure these operations by early next year.
1998 OUTLOOK
Diluted earnings per share for the full year 1998 is expected to be in the
$2.50 range excluding the impact of the $0.55 per share charge for the sale and
restructuring of the businesses in the third quarter of 1998. This earnings
estimate assumes, among other things, that Chlor-Alkali operating rates will
remain at current levels and that Electrochemical Unit (ECU) does not fall more
than anticipated 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.
The following compares sales and operating income for the three and nine
months ending September 30, 1998 to 1997 excluding the charge in the third
quarter of 1998 for the sales and restructuring of the businesses mentioned
above.
<TABLE>
<CAPTION>
CHEMICALS Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $301.5 $331.3 $988.8 $1,023.5
Operating Income 13.6 43.1 98.9 138.5
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 9% due to a 7% decrease in volumes and a 2% decrease in
selling prices. Lower sales were due primarily to sales of the surfactants,
fluids, non-urethane polypropylene glycol and polyethylene glycol businesses
("Surfactants") which were sold to BASF in November 1997 and the conversion of
the flexible polyol businesses to a tolling operation. Operating income
decreased 68% due to lower earnings in Chlor-Alkali and the specialty chemical
businesses.
Chlor-Alkali's operating income was substantially lower due to lower ECU
pricing and volumes, primarily caused by the Asian economic crisis. Chlorine
pricing into the vinyl market was significantly lower than anticipated. In
addition, the unseasonably hot weather in the southeast resulted in higher
electricity costs and contributed to the decline in operating income.
In the specialty chemical businesses, the operating results varied.
Microelectronic Chemicals reported a loss in the third quarter of 1998, due to
lower volumes as a result of the semiconductor industry slowdown and higher
administrative expenses for information technology systems. Water Chemicals
operating income was lower due to lower selling prices of calcium hypochlorite
and higher costs for depreciation and other fixed plant spending. In
Performance Chemicals, operating income was lower due
<PAGE>
to lower sales volumes of antidandruff agents particularly from the Asian
markets, higher operating expenses and lower raw material costs.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 3% due primarily to a decrease in Performance Chemicals
volumes. Lower sales resulted from the sale of surfactants and the conversion
of the polyol business to a tolling operation. Operating income decreased 29%.
In Chlor-Alkali, sales and operating income were lower due to lower volumes
(primarily caustic soda) and lower chlorine pricing due to the weak vinyl
market. Caustic soda volumes to the pulp and paper industry were lower due to
unseasonably wet weather in the early part of 1998. Higher-than-normal
electricity costs adversely affected operating income.
In the specialty chemical businesses the operating results varied. A
slower-than-expected recovery period for the semiconductor industry resulted in
reduced volumes and along with start-up costs for the Company's new process
chemicals facility in Belgium and higher administrative expenses for information
technology systems contributed to Microelectronic Chemicals operating loss. For
the full year, lower demand in the electronics industry may result in
Microelectronic Chemicals 1998 operating results below 1997. Water Chemicals
sales were about equal but operating income was lower due to lower selling
prices of calcium hypochlorite and higher manufacturing costs, including higher
depreciation expense and increased operating expenses. 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 Water Chemicals along with higher manufacturing costs,
including depreciation expense, are expected to result in unfavorable earnings
comparisons from 1998 to 1997. In Performance Chemicals, operating income
improved due to the conversion of the flexible polyol business to a tolling
operation and lower raw material costs, and was offset in part by higher fixed
costs associated with the anticipated biocide expansion, lower antidandruff
agent volumes to the Asian market, and higher administration expense for
additional international personnel and legal expenses.
<TABLE>
<CAPTION>
METALS AND AMMUNITION Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $280.5 $276.6 $779.4 $808.0
Operating Income 17.9 15.6 50.0 40.3
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales increased 1% due to an 8% increase in volumes offset in part by a 5%
decrease in metal values and a 2% decrease in selling prices. The volume
increase was attributable to both the metals and Winchester businesses. Metals
sales declined due to lower metal price pass-throughs, while operating income
was about equal to last year. Strong demand from the housing industry and
higher demand from ammunition and coinage customers offset lower demand from the
automotive sector in part due to the General Motors strike. Winchester's sales
were higher due to increased volumes partially offset by lower prices and
operating income was significantly higher as a result of higher sales volumes
and lower manufacturing and operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 4% primarily due to lower metal values and operating income
increased 24%. 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.
<PAGE>
ENVIRONMENTAL
In the nine months ended September 30, 1998, the Company spent
approximately $14 million 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 $25 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 $12 million for the three and nine
months ended September 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
$134 million at September 30, 1998 and $136 million at December 31, 1997, of
which $104 million and $106 million were classified as other noncurrent
liabilities, respectively. These amounts did not take into account any
discounting of future expenditures, any consideration of insurance recoveries or
any advances in technology. These liabilities are reassessed periodically to
determine if environmental circumstances have changed or if the costs of
remediation efforts 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 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
<TABLE>
<CAPTION>
CASH FLOW DATA Nine Months
Provided by/(Used for) (in millions) Ended September 30
----------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Net Operating Activities $ 178.3 $(115.9)
Capital Expenditures (93.7) (74.4)
Net Investing Activities (105.3) (70.3)
Purchases of Olin Common Stock (75.8) (127.1)
Net Financing Activities (157.4) (301.3)
</TABLE>
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 account receivables due to the seasonal Water Chemicals
and Winchester business along with lower accounts payable and accrued
liabilities, were the main contributors to the increase in working capital. In
the third quarter of 1998 the Company received approximately $80 million as a
result of a tax refund of taxes paid on capital gains in prior years. Cash used
for operating activities in 1997 was for an increase in
<PAGE>
working capital resulting from higher receivable levels associated with the
Niachlor acquisition and seasonal Water Chemicals and Winchester receivables,
and tax payments on the sale of the isocyanates business.
INVESTING ACTIVITIES
Capital spending of $93.7 million in 1998 was 26% higher than 1997 in order
to provide additional capacity in the microelectronic chemicals business and for
the biocide products. Capital spending for 1998 is estimated to increase
approximately 15-30% from 1997 in order to provide this additional capacity.
FINANCING ACTIVITIES
At September 30, 1998, the Company maintained committed credit facilities
with banks of $261 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 nine months ended September 30, 1998, the Company used $75.8
million to repurchase 1,815,600 shares of its common stock, bringing the
cumulative total shares repurchased to 5,642,700 since January 1997.
At September 30, 1998, the percent of total debt to total capitalization
was 22.2%, down from 24.0% at year-end 1997 and 23.5% at September 30, 1997.
The decrease from December 31, 1997 was due to the repayment of $37.5 million on
May 1, 1998.
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
financial statements along with additional information on products and services,
geographic areas and major customers. The Company will comply with the new
standard for the year ended December 31, 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employers' Disclosures about Pensions and Other Post Retirement Benefits,
an amendment to FASB Statements No. 87, 88, and 106," which modifies the
disclosure requirements related to pensions and other post retirement benefits.
The statement is effective for fiscal years beginning after December 15, 1997.
The Company will comply with the new standard for the year ended December 31,
1998.
In 1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities." It requires an
entity to 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 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 133, SOP 98-1 and SOP 98-5, the
Company may consider early adoption of one or more of these pronouncements.
<PAGE>
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to adopt the euro as their common legal currency and to
establish fixed conversion rates between their existing sovereign currencies and
the euro. The Company does not expect the conversion to the euro to have a
material impact on its business, operations, or financial position.
YEAR 2000 COMPUTER SYSTEMS
The Company views the impact of the Year 2000 as a critical business issue.
It manages the process by having each business identify its own Year 2000 issues
and develop appropriate corrective action steps, while instituting a series of
management processes that coordinate and manage the process across business
boundaries and the corporate center. The process includes corporate oversight
and provides for consistent attention to progress made against planned
activities and a forum for issue resolution at the business and corporate levels
with periodic assessments made by independent parties which are periodically
reported to the Board.
The Company recognizes that the Year 2000 issue is not limited to computer
programs normally associated with the processing of business information, but
can also be found in certain equipment and processes used in manufacturing and
operation of facilities. Furthermore, it also recognizes that the potential
exists for Year 2000 issues within the supply chain. The Company's approach was
to subdivide the program into four distinct segments: 1) Business Systems; 2)
Manufacturing; 3) Supply Chain; and 4) Infrastructure.
In the business systems segment, the Company has positioned itself very
favorably with respect to software and equipment that is Year 2000 compliant.
In 1994, the Company began implementing a Year 2000 compliant client-server
system, Peoplesoft, to address payroll and human resource needs and it presently
uses such system in all businesses. In 1993, the Company began implementing for
all domestic businesses, except the metals division, a client-server system,
SAP, for core business requirements as a vehicle to obtain certain improvements
in the business processes. SAP is currently utilized in a majority of its
domestic businesses. Since SAP was also a certified Year 2000 compliant
solution, migration plans were adjusted to take advantage of the business
benefit while eliminating the cost of remediating old legacy system code.
Deployment has been aggressive with all domestic functions and locations
transferred to SAP with the exception of the Microelectronic Chemicals business
which is scheduled for January 1999. In the few instances where SAP is not
utilized, replacement systems are scheduled for June 1999. Offshore processing
systems will continue using existing systems until conversion to SAP during 2000
and beyond. All systems have been examined with Year 2000 upgrades targeted for
completion by the second quarter of 1999.
The Metals division is addressing the Year 2000 issue by converting
existing programs to be compliant. It has completed code converting it's entire
software portfolio, and is currently heavily engaged in the testing phase of
it's plan. Completion of all systems is targeted for June 1999.
In the manufacturing segment, plant level employees and independent
assessments were used to identify places where embedded systems exist and
categorize them by the potential impact to the business. Forty-eight items,
which have the potential for causing process shutdowns or unsafe conditions,
remain to be remediated or replaced in the manufacturing segment. The plan,
which takes maximum advantage of "planned outages" in order to minimize impact
on operations, targets completion by May 1999.
The supply chain segment has seen much activity in terms of assessing
vendor Year 2000 preparedness, identifying alternate sources, as well as
insertion of certain Year 2000 compliance language in all purchase orders
issued. The Company is expecting to complete a review of single source and
critical suppliers by year-end 1998. During 1999, the Company will continue to
re-evaluate its suppliers on a periodic basis.
Personal computers, networks, and PBX's represent the majority of items in
the Company's infrastructure segment. The Company has deployed new Pentium Year
2000 compliant equipment in large numbers to support its SAP deployment program
and for internal standards compliance. In addition, the Company is currently
utilizing software tools to test the entire PC inventory for Year 2000
compliance and this is expected to be completed by year end 1998. The Company's
wide area network is already Year 2000 compliant as is most of it's PBX's and
voice mail systems. The non-compliant equipment is planned to be replaced with
compliant versions as leases expire but no later than June 1999.
The Company believes its Year 2000 initiative is on track to address all
significant Year 2000 issues by the middle of 1999, and is supported by the
findings of an independent assessment completed in July 1998. Plans include
additional assessments throughout 1999.
<PAGE>
Plans for a worst case scenario in the unlikely event of a major failure
due to a Year 2000 problem which causes significant disruptions to business
operations have been formulated. In the area of business systems, management
believes that the Company, with most of its' operating units already migrated to
Year 2000 compliant solutions, has already significantly reduced its' potential
risk. As added protection, software migration plans to new releases of SAP and
Peoplesoft, which are planned in 1999, include Year 2000 testing scenarios. It
will continue to monitor progress in the system testing of the converted legacy
systems and will redirect existing resources and / or utilize outside assistance
in the event of slippage against plans.
The Company continues to focus attention to the manufacturing segment. It
has deployed several independent initiatives to identify embedded systems,
develop comprehensive equipment lists, and obtain vendor certifications of Year
2000 compliance. It has developed plans for further testing with respect to key
manufacturing equipment and systems, during periods of scheduled outages.
The Company will continue to monitor progress against plans in the business
systems, manufacturing, infrastructure, and supply chain segments, and take
corrective action should slippage occur. The use of vendor-supplied Year 2000
compliant solutions, coupled with substantive pre-testing of key systems and a
strong management commitment and oversight are the cornerstone of the Company's
Year 2000 program.
Nonetheless, in the unlikely occurrence of some unforeseen event,
divisional emergency teams skilled in each of the disciplines will be formed
during the last half of 1999. They will be deployed to assist local personnel
in the event of a Year 2000 issue at the turn of the millennium.
The Company does not expect Year 2000 initiative costs to exceed $10
million exclusive of the cost for deploying SAP and Peoplesoft and related
infrastructure over the next 15 months. Decisions were made to deploy SAP and
Peoplesoft independent of the Year 2000 issue.
The dates on which the Company believes the Year 2000 Project will be
completed and the SAP computer systems will be implemented are based on
Management's best estimates, which are derived utilizing numerous assumptions of
future events, including the continued availability of certain resources, third-
party modification plans and other factors. However, there can be no guarantee
that these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Year 2000 Project.
Specific factors that might cause differences between the estimates and actual
results include, but are not limited to, the availability and cost of personnel
trained in these areas, the ability to locate and correct all relevant computer
codes, timely responses to and corrections by third-parties and suppliers, the
ability to implement interfaces between the new systems and the systems not
being replaced, and similar uncertainties. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-parties and the interconnection of global
businesses, the Company cannot ensure its ability to timely and cost-effectively
resolve the problems associated with the Year 2000 issue that may affect its
operations and business, or expose it to third-party liability.
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS
The information in this Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the Notes to Condensed
Financial Statements 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
"believes," "estimates," "expects," "forecasts," "plans," "projects," "should,"
"will," 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: general economic and business conditions; lack of moderate
growth in the U.S. economy or even a slight recession in 1998; worsening
business conditions as a result of the Asian financial crisis; competitive
pricing pressures; the Company's ability to maintain chemical price increases;
declines in Chlor-Alkali's ECU prices beyond those estimated; Chlor-Alkali
operating rates below current levels; higher-than-expected raw material costs
<PAGE>
for certain chemical product lines; increased foreign competition in the
calcium hypochlorite markets; lack of stability in the semiconductor industry; 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 overruns, in excess of those
scheduled; environmental costs in excess of those projected; and the occurrence
of unexpected manufacturing interruption/outages.
Part 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
<PAGE>
Part II - Other Information
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.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 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: /s/A.W. Ruggiero
----------------
A.W. Ruggiero
Senior Vice President and
Chief Financial Officer
(Authorized Officer)
Date: November 13, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
<PAGE>
Exhibit 12
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
(In millions)
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
Earnings:
Income before taxes $105.7 $180.8
Add (deduct):
Equity in income of non-consolidated
affiliates (3.8) (7.4)
Dividends received from non-consolidated
affiliates 3.0 5.3
Interest capitalized, net of amortization 0.2 (0.3)
Fixed charges as described below 28.5 33.2
------ ------
Total $133.6 $211.6
------ ------
Fixed Charges:
Interest expense $ 14.4 $ 21.2
Estimated interest factor in rent expense 14.1 12.0
------ ------
Total $ 28.5 $ 33.2
====== ======
Ratio of earnings to fixed charges 4.7 6.4
=== ===
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 81,400
<SECURITIES> 33,400
<RECEIVABLES> 395,200
<ALLOWANCES> 0
<INVENTORY> 328,600
<CURRENT-ASSETS> 877,100
<PP&E> 2,408,300
<DEPRECIATION> (1,602,100)
<TOTAL-ASSETS> 1,816,400
<CURRENT-LIABILITIES> 468,000
<BONDS> 235,700
0
0
<COMMON> 47,200
<OTHER-SE> 784,700
<TOTAL-LIABILITY-AND-EQUITY> 1,816,400
<SALES> 1,768,200
<TOTAL-REVENUES> 1,768,200
<CGS> 1,373,900
<TOTAL-COSTS> 1,373,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,900
<INCOME-PRETAX> 105,700
<INCOME-TAX> 35,200
<INCOME-CONTINUING> 70,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,500
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.46
</TABLE>
