<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, 1999
------------------------------------------------
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
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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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 750-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, 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, 1999, there were outstanding 45,051,194 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,
1999 1998
ASSETS ---- ----
- ------
<S> <C> <C>
Cash and cash equivalents $ 36.4 $ 50.2
Short-term investments 20.0 25.5
Accounts receivable, net 236.3 192.0
Inventories 196.8 198.8
Income taxes receivable 3.2 33.2
Other current assets 16.6 18.1
--------- ---------
Total current assets 509.3 517.8
Investments and advances - affiliated companies at equity 1.5 11.9
Property, plant and equipment
(less accumulated depreciation
of $1,136.8 and $1,074.7) 461.8 475.0
Other assets 60.1 67.8
Net assets of discontinued operations - 504.5
--------- ---------
Total assets $ 1,032.7 $ 1,577.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.0 $ 1.0
Accounts payable 104.8 118.1
Accrued liabilities 156.0 173.2
--------- ---------
Total current liabilities 261.8 292.3
Long-term debt 229.2 230.2
Other liabilities 217.7 264.3
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares
Issued 45.1 shares (45.9 in 1998) 45.1 45.9
Additional paid-in capital 233.5 242.8
Accumulated other comprehensive loss (9.9) (24.8)
Retained earnings 55.3 526.3
--------- ---------
Total shareholders' equity 324.0 790.2
--------- ---------
Total liabilities and
shareholders' equity $ 1,032.7 $ 1,577.0
========= =========
</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,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 354.1 $ 383.0 $ 973.7 $1,090.3
Cost of goods sold 309.7 320.3 843.9 892.4
Selling and administration 31.4 32.5 93.9 97.1
Research and development 2.0 2.6 6.1 7.3
Earnings(loss) of non-consolidated affiliates (2.9) (1.7) (8.8) 1.6
Interest expense 4.2 4.0 12.1 13.5
Interest income 0.2 0.5 1.8 1.9
Other income 0.3 0.4 1.0 1.3
Loss on sales and restructuring of businesses - 42.0 - 42.0
-------- ------- ------- --------
Income(loss) from continuing operations before taxes 4.4 (19.2) 11.7 42.8
Income tax provision(benefit) 1.8 (7.9) 4.7 13.8
-------- ------- ------- --------
Income(loss) from continuing operations 2.6 (11.3) 7.0 29.0
Income from discontinued operations, net of taxes - 4.1 4.4 41.5
-------- ------- ------- --------
Net income(loss) $ 2.6 $ (7.2) $ 11.4 $ 70.5
======== ======= ======= ========
Net income(loss) per common share:
Basic:
Continuing operations $ 0.06 $ (0.24) $ 0.16 $ 0.60
Discontinued operations - 0.09 0.09 0.87
-------- ------- ------- --------
Total net income(loss) $ 0.06 $ (0.15) $ 0.25 $ 1.47
======== ======= ======= ========
Diluted:
Continuing operations $ 0.06 $ (0.24) $ 0.16 $ 0.60
Discontinued operations - 0.09 0.09 0.86
-------- ------- ------- --------
Total net income(loss) $ 0.06 $ (0.15) $ 0.25 $ 1.46
======== ======= ======= ========
Dividends per common share $ 0.20 $ 0.30 $ 0.70 $ 0.90
Average common shares outstanding:
Basic 45.2 47.5 45.5 48.0
Diluted 45.2 47.5 45.5 48.3
</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,
-------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities
- --------------------
Income from continuing operations $ 7.0 $ 29.0
Adjustments to reconcile income from continuing operations to
net cash and cash equivalents provided by operating activities
Loss (earnings) of non-consolidated affiliates 8.8 (1.6)
Depreciation and amortization 58.4 59.4
Deferred taxes (4.1) 74.9
Loss on sales and restructuring of businesses - 42.0
Change in:
Receivables (44.3) (45.5)
Inventories 2.0 0.6
Other current assets 0.2 5.3
Accounts payable and accrued liabilities (25.0) (50.2)
Income taxes payable 16.5 (13.9)
Noncurrent liabilities (32.1) (6.2)
Other operating activities 5.8 4.5
---------- --------
Net cash and cash equivalents provided(used) by operating
activities from continuing operations (6.8) 98.3
Discontinued operations:
Net income 4.4 41.5
Change in net assets (7.3) (18.0)
---------- --------
Net operating activities (9.7) 121.8
---------- --------
Investing activities
- --------------------
Capital expenditures (44.0) (40.2)
Purchases of short-term investments (28.4) (22.8)
Proceeds from sale of short-term investments 33.9 17.5
Investments and advances-affiliated companies at equity 1.7 2.1
Other investing activities 1.9 (3.5)
---------- --------
Net investing activities (34.9) (46.9)
---------- --------
Financing activities
- --------------------
Long-term debt repayments (1.0) (38.1)
Short-term debt repayments - (0.9)
Purchases of Olin common stock (11.3) (75.8)
Borrowings under line of credit assumed by Arch Chemicals, Inc. 75.0 -
Stock options exercised - 2.5
Dividends paid (31.9) (43.3)
Other financing actdvities - (0.2)
---------- --------
Net financing activities 30.8 (155.8)
---------- --------
Net decrease in cash and cash equivalents (13.8) (80.9)
Cash and cash equivalents, beginning of period 50.2 156.8
---------- --------
Cash and cash equivalents, end of period $36.4 $ 75.9
---------- --------
</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
(Tabular amounts in millions, except per share data)
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, 1998.
2. Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials and supplies $128.7 $113.1
Work in process 89.2 102.4
Finished goods 44.1 46.5
------ ------
262.0 262.0
LIFO reserve (65.2) (63.2)
------ ------
Inventory, net $196.8 $198.8
====== ======
</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. Costs of other inventories have been determined
principally by the average cost and first-in, first-out (FIFO) methods.
Elements of costs in inventories include raw material, direct labor and
manufacturing overhead. Inventories under the LIFO method are based on annual
estimates of quantities and costs as of the year-end; therefore, the condensed
financial statements at September 30, 1999, reflect certain estimates relating
to inventory quantities and costs at December 31, 1999.
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 1999 1998 1999 1998
- ------------------------ -------- -------- --------- --------
<S> <C> <C> <C> <C>
Basic earnings:
Income (loss) from continuing operations $ 2.6 $(11.3) $ 7.0 $29.0
Net income (loss) $ 2.6 $ (7.2) $11.4 $70.5
Basic shares 45.2 47.5 45.5 48.0
Basic earnings per share: $0.06 $(0.24) $0.16 $0.60
Continuing operations $0.06 $(0.15) $0.25 $1.47
Net income (loss)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
Diluted Earnings Per Share 1999 1998 1999 1998
- -------------------------- -------- ---------- --------- --------
<S> <C> <C> <C> <C>
Diluted earnings:
Income (loss) from continuing operations $ 2.6 $(11.3) $ 7.0 $29.0
Net income (loss) $ 2.6 $ (7.2) $11.4 $70.5
Diluted shares:
Basic shares 45.2 47.5 45.5 48.0
Stock options - - - 0.3
----- ------ ----- -----
Diluted shares 45.2 47.5 45.5 48.3
===== ====== ===== =====
Diluted earnings per share: $0.06 $(0.24) $0.16 $0.60
Continuing operations $0.06 $(0.15) $0.25 $1.46
Net income (loss)
</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-month and nine-month periods ended September 30, 1999
and 1998, respectively. Charges to income for investigatory and remedial
efforts were material to operating results in 1998 and may be material to
operating results in 1999. The consolidated balance sheets include reserves
for future environmental expenditures to investigate and remediate known
sites amounting to $131 million at September 30, 1999 and $129 million at
December 31, 1998, of which $106 million and $99 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 7,844,600 shares, of which 2,844,600 were under the April 1998
program. During the first nine months of 1999, the Company repurchased
921,400 shares for $11.3 million.
6. In the third quarter of 1998, the Company recorded a $42 million pretax
charge ($0.55 diluted EPS) related to the sale of the microelectronic
packaging unit at Manteca, CA and the restructuring of the rod, wire and tube
businesses at Indianapolis, IN.
7. Segment operating income is defined as earnings before interest income,
interest expense, other income and income taxes and includes earnings
(losses) of non-consolidated affiliates. Segment operating results include an
allocation of corporate operating expenses and exclude the $42 million charge
in the third quarter of 1998 for the sale of the microelectronic packaging
unit at Manteca, CA and the restructuring of the rod, wire and tube
businesses at Indianapolis, IN. Intersegment sales are not material.
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Sales:
Chlor Alkali Products $ 65.0 $ 94.9 $194.5 $ 285.6
Metals 193.6 199.6 566.8 607.3
Winchester 95.5 88.5 212.4 197.4
------ ------ ------ --------
Total Sales $354.1 $383.0 $973.7 $1,090.3
====== ====== ====== ========
Operating income (loss):
Chlor Alkali Products $(17.4) $ 8.9 $(49.9) $ 44.8
Metals 15.9 8.7 55.6 41.0
Winchester 9.6 8.3 15.3 9.3
------ ------ ------ --------
Total operating income $ 8.1 $ 25.9 $ 21.0 $ 95.1
====== ====== ====== ========
Operating income $ 8.1 $ 25.9 $ 21.0 $ 95.1
Interest expense 4.2 4.0 12.1 13.5
Interest income 0.2 0.5 1.8 1.9
Other income 0.3 0.4 1.0 1.3
Loss on sales and restructuring of businesses - 42.0 - 42.0
------ ------ ------ --------
Income (loss) from continuing operations before taxes $ 4.4 $(19.2) $ 11.7 $ 42.8
====== ====== ====== ========
</TABLE>
8. 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 of foreign subsidiaries. The components of
comprehensive income for the three-month and nine-month periods ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- -----------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income (loss) $ 2.6 $(7.2) $11.4 $70.5
Other comprehensive income (loss):
Cumulative translation adjustment (0.2) 1.6 1.4 (1.7)
----- ----- ----- -----
Comprehensive income (loss) $ 2.4 $(5.6) $12.8 $68.8
===== ===== ===== =====
</TABLE>
9. On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals businesses as Arch Chemicals, Inc. ("Arch Chemicals"). Under the terms
of the Spin-Off, the Company distributed to its holders of common stock of
record at the close of business on February 1, 1999, one Arch Chemicals common
share for every two shares of Olin common stock. The results of operations have
been restated to reflect Arch Chemicals as discontinued operations for all
periods presented. For the first nine months of 1999, net income from
discontinued operations includes one month of operating results while the
comparable nine-month period in 1998 includes nine months of operating results.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions, except per share data) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $354.1 $383.0 $973.7 $1,090.3
Gross Margin 44.4 62.7 129.8 197.9
Selling and Administration 31.4 32.5 93.9 97.1
Interest Expense, net 4.0 3.5 10.3 11.6
Loss on Sales and Restructuring of Business -- 42.0 -- 42.0
Income (Loss) from Continuing Operations 2.6 (11.3) 7.0 29.0
Net Income (Loss) 2.6 (7.2) 11.4 70.5
Net Income (Loss) Per Common Share:
Diluted
Continuing Operations $ 0.06 $(0.24) $ 0.16 $ 0.60
Net Income (Loss) $ 0.06 $(0.15) $ 0.25 $ 1.46
- -----------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales decreased 8% due to lower selling prices and metal values, which were
partially offset by increased volumes. The decrease in selling prices was
primarily related to lower Electrochemical Unit ("ECU") prices in the Chlor
Alkali Products segment. Also, sales were lower due to the shutdown of the rod,
wire and tube businesses at Indianapolis, IN, in the fourth quarter of 1998.
Sales volumes were higher in all segments.
Gross margin percentage decreased from 16% in 1998 to 13% in 1999 primarily due
to lower ECU prices.
Selling and Administration as a percentage of sales was 9% in 1999 up from 8% in
1998 due to the lower sales base in 1999 as a result of the factors noted above.
The decrease in operating results from the non-consolidated affiliates was due
primarily to the operating loss from the Sunbelt joint venture, which was
negatively impacted by the lower ECU pricing.
Interest expense, net of interest income, increased from 1998 due primarily to
higher interest income in 1998 due to higher average cash, cash equivalents and
short-term investment balances.
In the third quarter of 1998, the Company recorded a $42 million pretax charge
($0.55 diluted EPS) related to the sale of the microelectronic packaging unit at
Manteca, CA and the restructuring of its rod, wire and tube businesses at
Indianapolis, IN.
<PAGE>
Excluding the charge for the sales and restructuring of the businesses, the
effective tax rate increased to 40.0% from 34.6% due to higher non-deductible
expenses related to Company-owned life insurance programs.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales decreased 11% due to lower ECU prices and metal values, the shutdown of
the rod, wire and tube businesses and the sale of the microelectronics packaging
operation in Manteca, CA, offset in part by higher volumes in all segments.
Gross margin percentage decreased from 18% in 1998 to 13% in 1999 primarily due
to lower ECU prices.
Selling and Administration as a percentage of sales was 10% in 1999 up from 9%
in 1998 due to the lower sales base in 1999 as a result of the factors noted
above. Selling and Administration, however, was $3.2 million lower than in 1998
due to lower administrative expenses, primarily pension and management incentive
compensation expenses.
The decrease in operating results from the non-consolidated affiliates was due
primarily to the operating loss from the Sunbelt joint venture, which was
negatively impacted by the lower ECU pricing.
Interest expense, net of interest income, decreased from 1998 due to lower
interest expense as a result of the repayment of the $38 million of 7.97% notes
in May 1998.
Excluding the charge for the sales and restructuring of the businesses, the
effective tax rate increased to 40.0% from 34.9% due to higher non-deductible
expenses related to Company-owned life insurance programs.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings (losses) before interest
income, interest expense, other income and income taxes and include earnings
(losses) of non-consolidated affiliates. Segment operating results include an
allocation of corporate operating expenses and exclude the $42 million charge in
the third quarter of 1998 for the sale of the microelectronic packaging unit at
Manteca, CA and the restructuring of the rod, wire and tube businesses at
Indianapolis, IN.
<TABLE>
<CAPTION>
CHLOR ALKALI PRODUCTS Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 65.0 $ 94.9 $194.5 $285.6
Operating (Loss) Income (17.4) 8.9 (49.9) 44.8
</TABLE>
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales and operating results were lower than 1998 primarily due to lower ECU
pricing, offset in part by higher volumes and cost reduction initiatives. The
Chlor Alkali industry continued to experience one of the worst pricing cycles in
the history of the business. Average ECU prices in the third quarter of 1999
were approximately $210, compared to $335 in the third quarter of 1998. In
addition to the lower pricing, higher equity losses in 1999 from the Sunbelt
joint venture due to the decline in ECU prices, contributed to the decline in
operating results.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales and operating results were lower than 1998 primarily due to lower ECU
pricing, offset in part by higher volumes and cost reduction initiatives.
Average ECU prices for the first nine months of 1999 were approximately $215,
compared to $350 in 1998.
<TABLE>
<CAPTION>
METALS Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $193.6 $199.6 $566.8 $607.3
Operating Income 15.9 8.7 55.6 41.0
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales decreased 3% due to lower metal values and the shutdown of the rod, wire
and tube businesses at Indianapolis, IN in the fourth quarter of 1998, offset in
part by increased volumes from brass strip operations and the A.J. Oster Company
("Oster"). Demand remained strong for the majority of the Company's markets.
Strip shipments to the automotive and coinage markets exceeded last year's
levels, while increased demand from the distribution market improved Oster's
performance. The electronics market, although rebounding in the Far East, was
below 1998 levels while the ammunition and housing markets remain at 1998
levels. Operating income improved from 1998 due to higher volumes, cost
reductions and the successful shutdown of the unprofitable rod, wire and tube
businesses.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales decreased 7% due primarily to lower metal values and the shutdown of the
rod, wire and tube businesses, more than offsetting higher strip volumes.
Strong demand from the automotive, coinage and ammunition markets resulted in
higher brass strip volumes. Strip shipments to the electronics and
telecommunications markets were below last year's levels. Operating income
improved due to the shutdown of the unprofitable rod, wire and tube businesses,
favorable sales mix, and lower administrative and operating expenses. Oster,
which experienced a slowdown in the early part of the year, has recovered over
the last two quarters, but on a year-to-date basis is below 1998 profit levels.
<PAGE>
<TABLE>
<CAPTION>
WINCHESTER Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $95.5 $88.5 $212.4 $197.4
Operating Income 9.6 8.3 15.3 9.3
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales in 1999 were 8% higher than 1998 due to higher volumes of commercial
ammunition, which more than offset lower selling prices in some product lines
and a decline in military sales. Operating income improved significantly from
1998 due to higher sales volumes and lower commodity costs.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
Sales in 1999 were 8% higher than 1998 due to higher commercial ammunition
volumes partially offset by lower military sales and lower selling prices in
some product lines. Operating income improved significantly from 1998 due to
higher sales volumes, manufacturing cost reductions and lower commodity costs
which more than offset lower management fees from the Lake City Ammunition Plant
due to a reduction in volumes.
Winchester is the operator of the U.S. Army's Lake City small caliber ammunition
plant in Independence, MO. The current five-year contract expires at the end of
this year and represents approximately $5 million in annual pretax profits. The
Company was one of several bidders for a new ten-year, fixed price contract to
commence at the end of the existing contract with Olin. On July 30, 1999, the
Department of the Army awarded this contract to a competitor. Olin has filed a
protest to this award. A decision is expected during the fourth quarter of
1999. If the Company ultimately loses the contract award, it will continue
operating the plant until at least the end of the first quarter of 2000.
1999 OUTLOOK
Although Chlor Alkali prices remained at depressed levels during the third
quarter, price increases announced in the third quarter are expected to improve
the Company's ECU prices in the fourth quarter, with additional improvement
likely next year as well. For the remainder of the year, demand is expected to
remain strong in most brass strip segments of our business, primarily
automotive, housing, ammunition and coinage. Some improvement is expected in the
electronics segment. With rising ECU prices and continuing strong performance
from Metals and Winchester, the Company expects that its fourth quarter earnings
per share will be in the 15 to 20 cent range.
DISCONTINUED OPERATIONS
On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals businesses as Arch Chemicals, Inc. ("Arch Chemicals") (the "Spin-
Off"). Under the terms of the Spin-Off, the Company distributed to its holders
of common stock of record at the close of business on February 1, 1999, one Arch
Chemicals common share for every two shares of Olin common stock. For the first
nine months of 1999, net income includes one month of operating results of
<PAGE>
the specialty chemicals business while the comparable nine-month period in 1998
includes nine months of operating results.
ENVIRONMENTAL MATTERS
In the nine months ended September 30, 1999 and 1998, the Company spent
approximately $10 million and $14 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
1999 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 $12 million for the nine months ended September 30,
1999 and 1998. Charges to income for investigatory and remedial efforts were
material to operating results in 1998 and may be material to net income in 1999
and future years.
The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$131 million at September 30, 1999 and $129 million at December 31, 1998, of
which $106 million and $99 million were classified as other noncurrent
liabilities, respectively. 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 $50 to $60 million over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
<PAGE>
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
Provided By (Used For) ($ in millions) 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Net Cash and Cash Equivalents Provided By
(Used For) Operating Activities
from Continuing Operations $ (6.8) $ 98.3
Net Operating Activities (9.7) 121.8
Capital Expenditures (44.0) (40.2)
Net Investing Activities (34.9) (46.9)
Purchases of Olin Common Stock (11.3) (75.8)
Net Financing Activities 30.8 (155.8)
</TABLE>
In 1999, income from continuing operations exclusive of non-cash charges,
borrowings under a line of credit assumed by Arch Chemicals and cash and cash
equivalents on hand were used to finance the Company's working capital
requirements, capital and investment projects, dividends and the purchase of the
Company's common stock.
OPERATING ACTIVITIES
In 1999, the increase in cash used by operating activities of continuing
operations was primarily attributable to lower operating income, the payment of
a liability resulting from the sale of a former business, and certain cash
expenditures which were accrued at December 31, 1998 and related to the Spin-Off
of Arch Chemicals, primarily legal and investment banking fees, and the absence
of a tax refund of approximately $80 million in the third quarter of 1998.
CAPITAL EXPENDITURES
Capital spending of $44.0 million in 1999 was $3.8 million higher than 1998.
For the total year, capital spending is expected to be in the $75 to $80 million
range and should approximate annual depreciation expense.
FINANCING ACTIVITIES
At September 30, 1999, the Company had available a $165 million line of credit
under an unsecured revolving credit agreement with a group of banks. As a
result of the Spin-Off in February of 1999, the Company amended its revolving
credit agreement reducing the aggregate commitments from $250 million to $165
million. The Company may select various floating rate borrowing options. The
Company believes that the credit facility is adequate to satisfy its
<PAGE>
liquidity needs for the foreseeable future. The credit facility includes various
customary restrictive covenants including restrictions related to the ratio of
debt to earnings before interest, taxes, depreciation and amortization and the
ratio of earnings before interest, taxes, depreciation and amortization to
interest.
During 1999, the Company used $11.3 million to repurchase 921,400 shares of the
Company's common stock, bringing the cumulative total shares repurchased to
7,844,600 since January 1997. This compares to 1998 when the Company used $75.8
million to repurchase 1,815,600 shares.
Prior to the Spin-Off in February, 1999, the Company borrowed $75 million under
a credit facility which liability was assumed by Arch Chemicals. The Company
has used a portion of and intends to use the balance of these funds for general
corporate purposes, which may include share repurchases and future acquisitions.
The percent of total debt to total capitalization increased to 42% at September
30, 1999, from 29% at year-end 1998 and 22% at September 30, 1998, primarily due
to the reduction to equity resulting from the Spin-Off.
In 1999, the Company paid first, second and third quarter dividends of $0.30,
$0.20 and $0.20 per share, respectively. As announced previously, following the
Spin-Off, the Company's quarterly dividend is expected to be $0.20 per share.
In October 1999, the Company's Board of Directors declared a quarterly dividend
of $0.20 per share on its common stock, which is payable on December 10, 1999,
to shareholders of record on November 10, 1999.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board ("FASB") 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. The FASB has postponed the implementation date of this statement, which
will now be effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
Effective January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and Statement of Position 98-5, "Reporting on the Costs of Start-
up Activities." Adoption of these statements did not have a material effect on
the Company's results of 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 segment 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 segment 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
segment and corporate
<PAGE>
levels with periodic assessments made by independent parties which are reported
to the Board. As a result of the Spin-Off of Arch Chemicals, the Company entered
into an Information Technology Services Agreement with Arch Chemicals
stipulating that Arch Chemicals will provide various information technology
related services including maintenance of the centralized computer center and
the wide area network as well as provide services in support of the Company's
Year 2000 initiative.
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. 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 area, 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 segment, a client-server system, SAP, for
core business requirements as a vehicle to obtain certain improvements in the
business processes. With the exception of the Metals segment, 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 most domestic functions
and locations (except Metals) transferred to SAP. In the few instances where
SAP was not utilized, replacement systems were implemented in the first half of
1999. Offshore processing systems will continue using existing systems. All
systems have been examined; and those requiring Year 2000 upgrades were
completed by the end of the third quarter of 1999.
The Metals segment is addressing the Year 2000 issue by converting existing
programs to be compliant. The conversion and testing were completed in July
1999.
In the manufacturing area, 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. All major items identified as having a
Year 2000 compliance issue, have been remediated, tested and placed in
operations.
The supply chain area 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
has completed a review of single source and critical suppliers. During 1999,
the Company will continue to re-evaluate its suppliers on a periodic basis.
<PAGE>
Personal computers, networks, and PBXs 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 utilized
software tools to test the entire PC inventory for Year 2000 compliance. This
test work was completed during the second quarter of 1999. The Company's wide
area network is Year 2000 compliant as are all of its PBX and voice mail
systems.
The Company believes its Year 2000 initiative is on track and has addressed all
significant Year 2000 issues. Additional assessments of all significant issues
will continue throughout 1999.
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's operating units have migrated to Year 2000 compliant solutions and
have significantly reduced their potential risk.
The Company will continue to monitor progress against plans in the business
systems, manufacturing, infrastructure, and supply chain areas, and take
corrective action as required.
Nonetheless, in the unlikely occurrence of some unforeseen event, emergency
teams skilled in each of the disciplines have been formed in the second 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.
During the fourth quarter of 1999, the Company expects to spend less than $1
million on Year 2000 initiative costs inclusive of the cost for deploying SAP
and Peoplesoft and related infrastructure.
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, the Company
believes, but there can be no guarantee, that there will not be 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. If a broad interruption of rail or
utility services were to occur, it would likely have a material adverse effect
on the Company's operations, as it would interfere with the Company's ability to
produce products, ship materials and finished goods and fulfill customer orders.
<PAGE>
CAUTIONARY STATEMENTS UNDER FEDERAL SECURITIES LAWS: The information contained
in the 1999 Outlook section, the Environmental Matters section, the Liquidity,
Investment Activity and Other Financial Data section (and subsections thereof),
and 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 respective divisions operate. Words such
as "anticipates," "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 does not undertake
any 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
and market conditions; lack of moderate growth in the U.S. economy; worsening
business conditions as a result of the Asian and Latin American financial
turmoil; competitive pricing pressures; increases in Chlor Alkali's ECU prices
below expected levels; Chlor Alkali operating rates below current levels;
higher-than-expected raw material costs; 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; efficacy of new technologies; changes in U.S. laws and
regulations; failure to achieve targeted cost reduction programs; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies, its purchases
of certain commodities and its ongoing investing and financing activities. The
risk of loss can be assessed from the perspective of adverse changes in fair
values, cash flows and future earnings. The Company has established policies
and procedures governing its management of market risks and the uses of
financial instruments to manage exposure to such risks.
The primary purpose of the Company's foreign currency hedging activities is to
manage currency risks resulting from purchase and sale commitments in foreign
currencies (principally Australian dollar and Canadian dollar) and relating to
particular anticipated purchases and sales expected to be denominated in those
same foreign currencies. Foreign currency hedging activity is not material to
the Company's consolidated financial position, results of operations or cash
flow.
Certain materials, namely copper, lead and zinc, used primarily in the Company's
Metals and Winchester segments' products are subject to price volatility.
Depending on market conditions, the Company may enter into futures contracts and
put and call option contracts in order to reduce the impact of metal price
fluctuations. As of September 30, 1999, the Company maintained open positions
on futures contracts totalling $43 million. Assuming a hypothetical 10%
increase in
<PAGE>
commodity prices which are currently hedged, the Company would experience a $4.3
million increase in its cost of inventory purchased, which would be offset by a
corresponding increase in the value of related hedging instruments.
The Company is exposed to changes in interest rates primarily as a result of its
investing and financing activities. Investing activity is not material to the
Company's consolidated financial position, results of operations or cash flow.
The financing activities of the Company are comprised primarily of long-term
fixed-rate debt utilized to fund business operations and to maintain liquidity.
As of September 30, 1999, the Company had long-term borrowings of $230 million
outstanding at varying fixed rates. The Company has interest rate swaps to
hedge underlying debt obligations. Interest rate swap activity is not material
to the Company's consolidated financial position, results of operations or cash
flow.
If the actual change in interest rates or commodities pricing is substantially
different than expected, the net impact of interest rate risk or commodity risk
on the Company's cash flow may be materially different than that disclosed
above.
The Company does not enter into any derivative financial instruments for trading
purposes.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings.
-----------------
(a) In 1979, an action was commenced in the U.S. District Court
in New York by the United States against Occidental Chemical Corporation (then
known as Hooker Chemical & Plastics Corporation) ("Oxychem"), certain related
companies, Olin and the City of Niagara Falls, New York, alleging that chemical
wastes were migrating in violation of environmental laws or regulations from a
site in Niagara Falls where Oxychem and Olin own adjacent, inactive chemical
waste landfills. In 1980, the State of New York (the "State") filed a complaint
as co-plaintiff in the same action based upon essentially the same factual
allegations as in the suit brought by the United States. Olin and Oxychem have
settled with the EPA and the State, in an agreement approved by the court on
September 24, 1999, under which Olin and Oxychem will pay federal and state
oversight costs on the project, and costs relating to natural resource damages
and wetland mitigation. Olin's share of these costs is estimated to be
approximately $4 million. See "Environmental Matters" contained in Part I, Item
2--Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not Applicable.
Item 5. Other Information.
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
12. Computation of Ratio of Earnings to Fixed Charges
(Unaudited).
<PAGE>
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
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
------------------------
Executive Vice President and
Chief Financial Officer
(Authorized Officer)
Date: November 12, 1999
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)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
------ -------
<S> <C> <C>
Earnings:
Income from continuing operations before taxes $ 11.7 $ 42.8
Add (deduct):
Equity in income of non-consolidated affiliates - (1.6)
Interest capitalized, net of amortization 0.3 (0.1)
Fixed charges as described below 20.1 23.4
------ ------
Total $ 32.1 $ 64.5
====== ======
Fixed Charges:
Interest expense $ 12.1 $ 13.5
Estimated interest factor in rent expense 8.0 9.9
------ ------
Total $ 20.1 $ 23.4
====== ======
Ratio of earnings to fixed charges 1.6 2.8
====== =======
</TABLE>
<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
SEPTEMBER 30, 1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 36,400
<SECURITIES> 20,000
<RECEIVABLES> 236,300
<ALLOWANCES> 0
<INVENTORY> 196,800
<CURRENT-ASSETS> 509,300
<PP&E> 1,598,600
<DEPRECIATION> (1,136,800)
<TOTAL-ASSETS> 1,032,700
<CURRENT-LIABILITIES> 261,800
<BONDS> 229,200
0
0
<COMMON> 45,100
<OTHER-SE> 278,900
<TOTAL-LIABILITY-AND-EQUITY> 1,032,700
<SALES> 973,700
<TOTAL-REVENUES> 973,700
<CGS> 843,900
<TOTAL-COSTS> 843,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,100
<INCOME-PRETAX> 11,700
<INCOME-TAX> 4,700
<INCOME-CONTINUING> 7,000
<DISCONTINUED> 4,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,400
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
</TABLE>
