<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1070
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Olin Corporation
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(Exact name of registrant as specified in its charter)
Virginia 13-1872319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Merritt 7, Norwalk, CT 06851
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(Address of principal executive offices) (Zip Code)
(203) 750-3000
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(Registrant's telephone number, including area code)
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(Former name, address, and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------------- --------------
As of July 31, 2000, there were outstanding 45,134,583 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
June 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 14.0 $ 21.0
Short-term investments 25.0 25.0
Accounts receivable, net 233.3 196.4
Inventories 204.4 208.4
Income taxes receivable 27.1 32.7
Other current assets 19.5 20.4
-------- --------
Total current assets 523.3 503.9
Investments and advances - affiliated companies at equity (2.0) 3.4
Property, plant and equipment
(less accumulated depreciation
of $1,159.7 and $1,127.2) 462.3 467.8
Other assets 95.5 88.3
-------- --------
Total assets $1,079.1 $1,063.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.0 $ 1.0
Accounts payable 102.2 115.2
Income taxes payable 6.7 4.2
Accrued liabilities 135.7 131.9
-------- --------
Total current liabilities 245.6 252.3
Long-term debt 228.7 229.2
Deferred income taxes 58.8 50.7
Other liabilities 212.8 221.7
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares
Issued 45.1 shares 45.1 45.1
Additional paid-in capital 234.8 233.7
Accumulated other comprehensive loss (11.5) (9.5)
Retained earnings 64.8 40.2
-------- --------
Total shareholders' equity 333.2 309.5
-------- --------
Total liabilities and shareholders' equity $1,079.1 $1,063.4
======== ========
</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 Six Months
Ended June 30, Ended June 30,
------------------ -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $378.1 $314.8 $740.5 $619.6
Cost of goods sold 305.6 271.3 603.9 534.2
Selling and administration 32.0 32.0 59.6 63.3
Research and development 1.4 1.7 2.8 3.3
Earnings(loss) of non-consolidated affiliates 0.9 (3.4) 0.4 (5.9)
Interest expense 4.0 4.1 7.9 7.9
Interest income 0.2 0.9 0.3 1.6
Other income 1.6 0.6 2.0 0.7
------ ------ ------ ------
Income from continuing operations before taxes 37.8 3.8 69.0 7.3
Income taxes 14.5 1.5 26.4 2.9
------ ------ ------ ------
Income from continuing operations 23.3 2.3 42.6 4.4
Income from discontinued operations, net of taxes - - - 4.4
------ ------ ------ ------
Net income $ 23.3 $ 2.3 $ 42.6 $ 8.8
====== ====== ====== ======
Net income per common share:
Basic:
Continuing operations $ 0.52 $ 0.05 $ 0.95 $ 0.10
Discontinued operations - - - 0.09
------ ------ ------ ------
Total net income $ 0.52 $ 0.05 $ 0.95 $ 0.19
====== ====== ====== ======
Diluted:
Continuing operations $ 0.52 $ 0.05 $ 0.94 $ 0.10
Discontinued operations - - - 0.09
------ ------ ------ ------
Total net income $ 0.52 $ 0.05 $ 0.94 $ 0.19
====== ====== ====== ======
Dividends per common share $ 0.20 $ 0.20 $ 0.40 $ 0.50
Average common shares outstanding:
Basic 45.1 45.5 45.1 45.7
Diluted 45.2 45.5 45.2 45.7
</TABLE>
-----------------------------------
The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
<PAGE>
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
2000 1999
---- ----
<S> <C> <C>
Operating activities
--------------------
Income from continuing operations $42.6 $4.4
Adjustments to reconcile income from continuing operations to
net cash and cash equivalents provided by operating activities
(Earnings)loss of non-consolidated affiliates (0.4) 5.9
Depreciation and amortization 39.0 38.1
Deferred income taxes 8.1 (4.2)
Change in:
Receivables (36.9) (8.3)
Inventories 4.0 (10.0)
Other current assets 0.9 (1.2)
Accounts payable and accrued liabilities (9.2) (39.1)
Income taxes payable 8.1 17.6
Noncurrent liabilities (8.4) (0.4)
Other operating activities (8.1) (2.9)
----- -----
Net cash and cash equivalents provided(used) by operating
activities from continuing operations 39.7 (0.1)
Discontinued operations:
Net income - 4.4
Change in net assets - (7.3)
----- -----
Net operating activities 39.7 (3.0)
----- -----
Investing activities
--------------------
Capital expenditures (32.4) (24.5)
Purchases of short-term investments - (27.9)
Proceeds from sale of short-term investments - 14.3
Investments and advances-affiliated companies at equity 5.6 (0.2)
Other investing activities (2.0) 1.6
----- -----
Net investing activities (28.8) (36.7)
----- -----
Financing activities
--------------------
Long-term debt repayments (0.5) (0.4)
Purchases of Olin common stock - (8.6)
Borrowings under line of credit assumed by Arch Chemicals, Inc. - 75.0
Stock options exercised 0.9 -
Dividends paid (18.0) (22.9)
Other financing activities (0.3) -
----- -----
Net financing activities (17.9) 43.1
----- -----
Net (decrease)increase in cash and cash equivalents (7.0) 3.4
Cash and cash equivalents, beginning of period 21.0 50.2
----- -----
Cash and cash equivalents, end of period $14.0 $53.6
----- -----
</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, 1999.
2. Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------ ------
<S> <C> <C>
Raw materials and supplies $121.7 $120.1
Work in process 88.9 111.4
Finished goods 69.5 50.2
------ ------
280.1 281.7
LIFO reserve (75.7) (73.3)
------ ------
Inventory, net $204.4 $208.4
====== ======
</TABLE>
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; such valuations are not in excess of
market. Cost for other inventories has been determined principally by the
average cost and first-in, first-out (FIFO) methods. Elements of costs in
inventories include raw materials, 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 June 30, 2000, reflect certain estimates relating to inventory quantities
and costs at December 31, 2000.
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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
Basic Earnings Per Share 2000 1999 2000 1999
------------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic earnings:
Income from continuing operations $23.3 $ 2.3 $42.6 $ 4.4
Net income $23.3 $ 2.3 $42.6 $ 8.8
Basic shares 45.1 45.5 45.1 45.7
Basic earnings per share:
Continuing operations $0.52 $0.05 $0.95 $0.10
Net income $0.52 $0.05 $0.95 $0.19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
Diluted Earnings Per Share 2000 1999 2000 1999
-------------------------- ----- ----- ----- ----
<S> <C> <C> <C> <C>
Diluted earnings:
Income from continuing operations $23.3 $ 2.3 42.6 $ 4.4
Net income $23.3 $ 2.3 42.6 $ 8.8
Diluted shares:
Basic shares 45.1 45.5 45.1 45.7
Stock options .1 - .1 -
----- ----- ----- -----
Diluted shares 45.2 45.5 45.2 45.7
===== ===== ===== =====
Diluted earnings per share:
Continuing operations $0.52 $0.05 0.94 $ 0.10
Net income $0.52 $0.05 0.94 $ 0.19
</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 for the
three-month periods ended June 30, 2000 and 1999, and $7 million and $8
million for the six-month periods ended June 30, 2000 and 1999, respectively.
Charges to income for investigatory and remedial efforts were material to
operating results in 1999 and may be material to operating results in 2000.
The consolidated balance sheets include reserves for future environmental
expenditures to investigate and remediate known sites amounting to $119
million at June 30, 2000 and $125 million at December 31, 1999, of which $94
million and $100 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 six months of 2000, no shares of the Company's
common stock were repurchased.
<PAGE>
6. Segment operating income is defined as earnings before interest expense,
interest income, other income and income taxes and includes the operating
results of non-consolidated affiliates. Segment operating results include an
allocation of corporate operating expenses. Intersegment sales are not
material.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
<S> <C> <C> <C> <C>
Sales: 2000 1999 2000 1999
------ ------ ------ ------
Chlor Alkali Products $ 83.9 $ 62.6 $164.1 $129.5
Metals 228.1 190.9 450.0 373.2
Winchester 66.1 61.3 126.4 116.9
------ ------ ------ ------
Total sales $378.1 $314.8 $740.5 $619.6
====== ====== ====== ======
Operating income (loss):
Chlor Alkali Products $ 7.0 $(19.7) $ 11.8 $(32.5)
Metals 28.4 21.7 53.5 39.7
Winchester 4.6 4.4 9.3 5.7
------ ------ ------ ------
Total operating income 40.0 6.4 74.6 12.9
Interest expense 4.0 4.1 7.9 7.9
Interest income 0.2 0.9 0.3 1.6
Other income 1.6 0.6 2.0 0.7
------ ------ ------ ------
Income from continuing operations before taxes $ 37.8 $ 3.8 $ 69.0 $ 7.3
====== ====== ====== ======
</TABLE>
7. 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 six-month periods ended June 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
----- ---- ----- -----
<S> <C> <C> <C> <C>
Net income $23.3 $2.3 $42.6 $8.8
Other comprehensive income:
Cumulative translation adjustment (2.0) 0.5 (2.0) 1.6
----- ---- ----- -----
Comprehensive income $21.3 $2.8 $40.6 $10.4
===== ==== ===== =====
</TABLE>
8. On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals businesses as Arch Chemicals, Inc. For the first six months of
1999, net income from discontinued operations includes one month of operating
results.
<PAGE>
9. The Company announced that it signed a letter of intent with Occidental
Petroleum Corporation ("Occidental") to combine the companies' chlor alkali
and related businesses in a partnership with expected annual sales of
approximately $1.2 billion. Occidental's subsidiary, Occidental Chemical
Corporation, would own approximately two-thirds and the Company one-third of
the partnership. The formation of the partnership is conditional on the
execution of definitive agreements, completion of any regulatory reviews
deemed necessary or advisable by the parties and other customary closing
conditions, including the completion of a satisfactory due diligence review.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
($ in millions, except per share data) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $378.1 $314.8 $740.5 $619.6
Gross Margin 72.5 43.5 136.6 85.4
Selling and Administration 32.0 32.0 59.6 63.3
Interest Expense, net 3.8 3.2 7.6 6.3
Income from Continuing Operations 23.3 2.3 42.6 4.4
Net Income 23.3 2.3 42.6 8.8
Diluted Earnings Per Common Share:
Income From Continuing Operations $0.52 $0.05 $0.94 $0.10
Net Income $0.52 $0.05 $0.94 $0.19
---------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales increased 20% due to hig er selling prices and volumes and increased metal
values. The increase in selling prices was primarily related to higher
Electrochemical Unit ("ECU") netbacks in the Chlor Alkali Products segment.
Sales volumes were higher across all segments with the biggest impact coming
from the Metals segment.
Gross margin percentage increased from 14% in 1999 to 19% in 2000 primarily due
to higher ECU prices.
Selling and administration as a percentage of sales was 8% in 2000 down from 10%
in 1999 due to the higher sales base in 2000 as a result of the factors noted
above. Selling and administration was equal to last year as lower administration
expenses, primarily pension expense, offset fees associated with the formation
of the proposed chlor alkali partnership with Occidental Petroleum Corporation
("Occidental").
The increase in operating results from the non-consolidated affiliates was due
primarily to the improved operating results from the Sunbelt joint venture,
which was favorably impacted by the higher ECU pricing.
Interest expense, net of interest income, increased from 1999 due primarily to
lower interest income in 2000 due to lower average cash, cash equivalents and
short-term investment balances.
The effective tax rate decreased to 38.4% from 39.5% due to lower full-year
non-deductible expenses related to Company-owned life insurance programs.
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales increased 20% due to increased selling prices and volumes and higher metal
values. The increase in selling prices was primarily related to higher ECU
netbacks in the Chlor Alkali Products segment. Sales volumes were higher across
all segments with the biggest impact coming from the Metals segment.
Gross margin percentage increased from 14% in 1999 to 18% in 2000 primarily due
to higher ECU prices.
Selling and administration as a percentage of sales was 8% in 2000 down from 10%
in 1999 due to the higher sales base in 2000 as a result of the factors noted
above. Selling and administration was $3.7 million lower than in 1999 due to
lower administration expenses, primarily pension expense.
The increase in operating results from the non-consolidated affiliates was due
primarily to the improved operating results from the Sunbelt joint venture,
which was favorably impacted by the higher ECU pricing.
Interest expense, net of interest income, increased from 1999 due primarily to
lower interest income in 2000 due to lower average cash, cash equivalents and
short-term investment balances.
The effective tax rate decreased to 38.3% from 39.7% due to lower full-year
non-deductible expenses related to Company-owned life insurance programs.
CHLOR ALKALI PARTNERSHIP
The Company announced that it signed a letter of intent with Occidental to
combine the companies' chlor alkali and related businesses in a partnership with
expected annual sales of approximately $1.2 billion. Occidental's subsidiary,
Occidental Chemical Corporation, would own approximately two-thirds and the
Company one-third of the partnership. The formation of the partnership is
conditional on the execution of definitive agreements, completion of any
regulatory reviews deemed necessary or advisable by the parties and other
customary closing conditions, including the completion of a satisfactory due
diligence review.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings before interest expense,
interest income, other income and income taxes and include the operating results
of non-consolidated affiliates. Segment operating results include an allocation
of corporate operating expenses.
<PAGE>
CHLOR ALKALI PRODUCTS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- ------------------
($ in millions) 2000 1999 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $83.9 $62.6 $164.1 $129.5
Operating Income (Loss) 7.0 (19.7) 11.8 (32.5)
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales and operating results were higher than 1999 primarily due to higher ECU
netbacks and ongoing cost reduction initiatives. Average ECU netbacks in the
second quarter of 2000 were approximately $295, compared to $210 in the second
quarter of 1999. Demand for chlorine from the global vinyls and urethanes
sectors continues to be the main driver of the improvement in ECU prices
industry wide. Higher selling prices, lower costs and improved operating results
from the Sunbelt joint venture due to the increase in ECU prices more than
offset fees associated with the formation of the proposed chlor alkali
partnership with Occidental and contributed to the improvement in operating
income.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales and operating results were higher than 1999 primarily due to higher ECU
netbacks and ongoing cost reduction initiatives. Average ECU netbacks in the
first half of 2000 were approximately $285, compared to $220 in the first half
of 1999. The factors mentioned above, which contributed to the improved 2000
second-quarter operating results along with improved operating results in 2000
from the Sunbelt joint venture due to the increase in ECU prices, also
contributed to the 2000 year-to-date improvement in operating income.
METALS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- --------------
($ in millions) 2000 1999 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $228.1 $190.9 $450.0 $373.2
Operating Income 28.4 21.7 53.5 39.7
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales increased 19% with higher metal values accounting for 6% of the change and
higher selling prices and volumes accounting for the remaining 13% improvement.
Strip shipments to the electronics, ammunition and coinage markets were strong.
Volumes were higher in the distributor markets served by A.J. Oster, as were
Olin Aegis' volumes to the telecommunications industry. Higher volumes,
favorable product mix and ongoing cost reduction programs contributed to the
improvement in operating income.
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales increased 21% due to increased volumes and higher metal values. Higher
metal values increased sales by 6%, while higher selling prices and volumes
accounted for the remaining 15% improvement. Strip shipments for automotive,
ammunition and coinage products exceeded the 1999 first-half levels. Shipments
for building products were lower in 2000. Distributor market (Oster) shipments
were higher as well as those to the telecommunication market served by Aegis.
Higher volumes, improved pricing, favorable product mix and ongoing cost
reduction programs contributed to the improvement in operating income.
WINCHESTER
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
($ in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $66.1 $61.3 $126.4 $116.9
Operating Income 4.6 4.4 9.3 5.7
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales in 2000 were 8% higher than 1999 due to higher volumes of commercial and
military ammunition and higher selling prices in certain product lines.
Operating income improved from 1999 as higher commercial sales and an improved
product mix were partially offset by lower fees from the Lake City Army
Ammunition Plant contract that ended in April 2000 and higher manufacturing
costs.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999
Sales in 2000 were 8% higher than 1999 due to higher volumes of commercial and
military ammunition and higher selling prices in certain product lines.
Operating income improved significantly from 1999 due to stronger sales volumes
and pricing, an improved product mix and higher fees from the Lake City Army
Ammunition Plant. These improvements more than offset higher manufacturing costs
and consulting expenses.
2000 THIRD QUARTER OUTLOOK
For the three months ending September 30, 2000, diluted earnings per share are
expected to be about the same as the 2000 second-quarter earnings per share with
expected sequential improvement in Chlor Alkali and Winchester earnings
offsetting the normal, seasonal profit decline in the Metals business. The
Company is expecting an improvement in ECU pricing in the third quarter and
believes that further improvement is possible in the fourth quarter. The Company
also expects the third quarter to be Winchester's peak earnings quarter and that
Winchester will have its third consecutive quarter this year of favorable sales
and earnings comparisons. Although the outlook for the Metals segment remains
favorable, some normal, seasonal slowing and some inventory adjustments are
expected in the third quarter.
<PAGE>
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"). For the first three months of 1999, net income includes one month
of operating results.
ENVIRONMENTAL MATTERS
In the six months ended June 30, 2000 and 1999, the Company spent approximately
$13 million and $7 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 2000 is
estimated to be $30 million. Cash outlays for remedial and investigatory
activities associated with former waste sites and past operations were not
charged to income but instead were charged to reserves established for such
costs identified and expensed to income in prior periods. Associated costs of
investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles considering probability and the ability
to reasonably estimate future costs. Charges to income for investigatory and
remedial activities were $7 million and $8 million for the six months ended June
30, 2000 and 1999, respectively. Charges to income for investigatory and
remedial efforts were material to operating results in 1999 and may be material
to net income in 2000 and future years.
The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$119 million at June 30, 2000 and $125 million at December 31, 1999, of which
$94 million and $100 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 $40 - $50 million over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
<PAGE>
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
<TABLE>
<CAPTION> Six Months
Ended June 30,
--------------
Provided By (Used For) ($ in millions) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Net Cash and Cash Equivalents
Provided/(Used) For Operating Activities
from Continuing Operations $ 39.7 $ (0.1)
Net Operating Activities 39.7 (3.0)
Capital Expenditures (32.4) (24.5)
Net Investing Activities (28.8) (36.7)
Purchases of Olin Common Stock -- (8.6)
Net Financing Activities (17.9) 43.1
</TABLE>
In 2000, income from continuing operations exclusive of non-cash charges and
cash and cash equivalents on hand were used to finance the Company's working
capital requirements, capital projects and dividends.
OPERATING ACTIVITIES
The increase in cash provided by operating activities from continuing operations
was primarily attributable to higher operating income and a lower investment in
working capital. The lower investment in working capital in 2000 was due to
higher cash expenditures in 1999 which were accrued at December 31, 1998 and
related to the Spin-Off of Arch Chemicals and lower inventory levels in 2000.
Higher accounts receivable in 2000 were attributable to higher metal values and
ECU prices and increased volumes across all segments.
CAPITAL EXPENDITURES
Capital spending of $32.4 million in 2000 was $7.9 million higher than 1999. For
the total year, capital spending is expected to be in the $90 million range. The
increase in capital spending in the first half of 2000 and for the total year
2000 over the comparable 1999 periods is primarily in the Metals segment to
expand production capacity in its higher value added product categories, in
particular high performance alloys.
FINANCING ACTIVITIES
At June 30, 2000, the Company had available a $165 million line of credit under
an unsecured revolving credit agreement with a group of banks. At June 30, 2000,
the Company had no outstanding borrowings under the credit facility. The Company
may select various floating rate borrowing options. The Company believes that
the credit facility is adequate to satisfy its 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,
<PAGE>
taxes, depreciation and amortization and the ratio of earnings before interest,
taxes, depreciation and amortization to interest.
During the first half of 2000, no shares of the Company's common stock were
repurchased. During the first half of 1999, the Company used $8.6 million to
repurchase 724,100 shares of the Company's common stock. The Company announced
that it will resume its share repurchase program in the future when the terms
and conditions of the definitive agreements relating to the proposed
Chlor Alkali partnership are finalized and disclosed.
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 used
these funds for general corporate purposes, which included share repurchases.
The percent of total debt to total capitalization decreased to 41% at June 30,
2000, from 43% at year-end 1999 and equaled June 30, 1999's amount. The decrease
from year end 1999 was due to an increase in equity resulting from improved
operating profits.
In 2000, the Company paid a first and second quarter dividend of $0.20 per
share. Prior to the Spin-Off, the Company paid a first quarter 1999 dividend of
$.30 per share. Following the distribution of Arch Chemicals, the quarterly
dividend was reduced to $.20 per share to reflect the effect of the
distribution. In July 2000, the Company's Board of Directors declared a
quarterly dividend of $0.20 per share on its common stock, which is payable on
September 11, 2000, to shareholders of record on August 10, 2000.
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.
The Company is currently evaluating the effect this statement will have on its
financial position and results of operations in the period of adoption.
Effective July 1, 2000, the Company adopted FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation." Adoption of
this interpretation did not have a material effect on the Company's results of
operations or financial position.
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: The information contained in
the Chlor Alkali Partnership section, the 2000 Third Quarter 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," "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
<PAGE>
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 or even a slight recession in 2000;
competitive pricing pressures; changes in Chlor Alkali's ECU prices from
expected levels; Chlor Alkali operating rates below current levels;
higher-than-expected raw material costs; higher-than-expected transportation
and/or logistics costs; a downturn in any 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 June 30, 2000, the Company maintained open positions on
futures contracts totaling $43 million. Assuming a hypothetical 10% increase in
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 current debt structure of the Company includes primarily long-term
fixed-rate debt utilized to fund business operations and maintain liquidity. As
of June 30, 2000, the Company had long-term borrowings of $229 million of which
$35 million was at variable rates. The Company has interest rate swaps to hedge
underlying debt
<PAGE>
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.
-----------------
Not Applicable.
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.
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 27, 2000. Of
the 45,080,744 shares of Common Stock entitled to vote at such meeting, at least
41,776,100 shares were present for purposes of a quorum. At the meeting,
shareholders elected to the Board of Directors Mitchell E. Daniels, Jr., William
W. Higgins, and Stephen F. Page as Class III directors with terms expiring in
2003. Votes cast for and votes withheld in the election of Directors were as
follows:
Votes For Votes Withheld
---------- --------------
M. E. Daniels, Jr. 40,262,442 1,513,658
W. W. Higgins 40,288,215 1,487,885
S. F. Page 40,233,229 1,542,871
There were no abstentions or broker nonvotes.
The shareholders also approved the Olin Corporation Senior Management
Incentive Compensation Plan, as amended. Voting for the resolution approving
the Olin Corporation Senior Management Incentive Compensation Plan, as amended
were 36,606,433 shares. Voting against were 4,315,635 shares. Abstaining were
854,032 shares. There were no broker nonvotes.
The shareholders also approved the Olin Corporation 2000 Long Term
Incentive Plan. Voting for the resolution approving the Olin Corporation 2000
Long
<PAGE>
Term Incentive Plan were 33,919,068 shares. Voting against were 6,982,798
shares. Abstaining were 841,997 shares. There were 32,237 broker nonvotes.
The shareholders also ratified the appointment of KPMG LLP as independent
auditors for the Corporation for 2000. Voting for the resolution ratifying the
appointment were 40,672,677 shares. Voting against were 808,931 shares.
Abstaining were 294,493 shares. There were no broker nonvotes.
Item 5. Other Information.
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
10(r) Olin Corporation 2000 Long Term Incentive Plan
as amended through April 27, 2000.
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
June 30, 2000.
<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
----------------------------
Executive Vice President and
Chief Financial Officer
(Authorized Officer)
Date: August 11, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--------- -----------
10(r) Olin Corporation 2000 Long Term Incentive Plan as amended through
April 27, 2000.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
