<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, 2000
---------------------------------------------
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 October 31, 2000, there were outstanding 44,736,409 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, except per share data)
Unaudited
September 30, December 31,
2000 1999
-------- --------
ASSETS
------
Cash and cash equivalents $ 42.2 $ 21.0
Short-term investments 25.0 25.0
Accounts receivable, net 255.2 196.4
Inventories 195.4 208.4
Income taxes receivable 19.7 32.7
Other current assets 17.2 20.4
-------- --------
Total current assets 554.7 503.9
Property, plant and equipment
(less accumulated depreciation
of $1,166.0 and $1,127.2) 467.0 467.8
Other assets 87.8 91.7
-------- --------
Total assets $1,109.5 $1,063.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.0 $ 1.0
Accounts payable 107.1 115.2
Income taxes payable 8.6 4.2
Accrued liabilities 150.0 131.9
-------- --------
Total current liabilities 266.7 252.3
Long-term debt 228.1 229.2
Deferred income taxes 59.4 50.7
Other liabilities 207.6 221.7
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 235.0 233.7
Accumulated other comprehensive loss (11.5) (9.5)
Retained earnings 79.1 40.2
-------- --------
Total shareholders' equity 347.7 309.5
-------- --------
Total liabilities and shareholders' equity $1,109.5 $1,063.4
======== ========
-----------------------------------
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,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 392.8 $ 354.1 $ 1,133.3 $ 973.7
Cost of goods sold 319.8 309.7 923.7 843.9
Selling and administration 31.2 31.8 90.8 95.1
Research and development 1.3 1.6 4.1 4.9
Earnings(loss) of non-consolidated affiliates 0.7 (2.9) 1.1 (8.8)
Interest expense 3.9 4.2 11.8 12.1
Interest income 0.4 0.2 0.7 1.8
Other income 0.1 0.3 2.1 1.0
--------- --------- --------- ---------
Income from continuing operations before taxes 37.8 4.4 106.8 11.7
Income taxes 14.4 1.8 40.8 4.7
--------- --------- --------- ---------
Income from continuing operations 23.4 2.6 66.0 7.0
Income from discontinued operations, net of taxes - - - 4.4
--------- --------- --------- ---------
Net income $ 23.4 $ 2.6 $ 66.0 $ 11.4
========= ========= ========= =========
Net income per common share:
Basic:
Continuing operations $ 0.52 $ 0.06 $ 1.46 $ 0.16
Discontinued operations - - - 0.09
--------- --------- --------- ---------
Total net income $ 0.52 $ 0.06 $ 1.46 $ 0.25
========= ========= ========= =========
Diluted:
Continuing operations $ 0.52 $ 0.06 $ 1.46 $ 0.16
Discontinued operations - - - 0.09
--------- --------- --------- ---------
Total net income $ 0.52 $ 0.06 $ 1.46 $ 0.25
========= ========= ========= =========
Dividends per common share $ 0.20 $ 0.20 $ 0.60 $ 0.70
Average common shares outstanding:
Basic 45.1 45.2 45.1 45.5
Diluted 45.2 45.2 45.2 45.5
</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,
-------------------
2000 1999
----- -----
Operating activities
--------------------
<S> <C> <C>
Income from continuing operations $66.0 $ 7.0
Adjustments to reconcile income from continuing operations to
net cash and cash equivalents provided by operating activities
(Earnings)loss of non-consolidated affiliates (1.1) 8.8
Depreciation and amortization 59.4 58.4
Deferred income taxes 8.7 (4.1)
Change in:
Receivables (58.8) (44.3)
Inventories 13.0 2.0
Other current assets 3.2 0.2
Accounts payable and accrued liabilities 10.0 (25.0)
Income taxes payable 17.4 16.5
Noncurrent liabilities (13.5) (22.8)
Other operating activities (7.3) (3.5)
----- -----
Net cash and cash equivalents provided(used) by operating
activities from continuing operations 97.0 (6.8)
Discontinued operations:
Net income - 4.4
Change in net assets - (7.3)
----- -----
Net operating activities 97.0 (9.7)
----- -----
Investing activities
--------------------
Capital expenditures (57.1) (44.0)
Purchases of short-term investments - (28.4)
Proceeds from sale of short-term investments - 33.9
Investments and advances-affiliated companies at equity 10.7 1.7
Other investing activities (1.8) 1.9
----- -----
Net investing activities (48.2) (34.9)
----- -----
Financing activities
--------------------
Long-term debt repayments (1.1) (1.0)
Purchases of Olin common stock - (11.3)
Borrowings under line of credit assumed by Arch Chemicals, Inc. - 75.0
Stock options exercised 1.0 -
Dividends paid (27.1) (31.9)
Other financing activities (0.4) -
----- -----
Net financing activities (27.6) 30.8
----- -----
Net increase(decrease) in cash and cash equivalents 21.2 (13.8)
Cash and cash equivalents, beginning of period 21.0 50.2
----- -----
Cash and cash equivalents, end of period $42.2 $36.4
===== =====
</TABLE>
<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. Certain reclassifications
were made to prior year amounts to conform to the 2000 presentation. 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:
September 30, December 31,
2000 1999
------ -----
Raw materials and supplies $123.3 $120.1
Work in process 96.0 111.4
Finished goods 55.2 50.2
------ ------
274.5 281.7
LIFO reserve (79.1) (73.3)
------ ------
Inventory, net $195.4 $208.4
====== ======
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
September 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
Basic Earnings Per Share 2000 1999 2000 1999
------------------------ ---- ---- ---- ----
Basic earnings:
<S> <C> <C> <C> <C>
Income from continuing operations $ 23.4 $ 2.6 $ 66.0 $ 7.0
Net income $ 23.4 $ 2.6 $ 66.0 $ 11.4
Basic shares 45.1 45.2 45.1 45.5
Basic earnings per share:
Continuing operations $ 0.52 $ 0.06 $ 1.46 $ 0.16
Net income $ 0.52 $ 0.06 $ 1.46 $ 0.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
Diluted Earnings Per Share 2000 1999 2000 1999
-------------------------- ------ ------ ---- ------
Diluted earnings:
<S> <C> <C> <C> <C>
Income from continuing operations $ 23.4 $ 2.6 $ 66.0 $ 7.0
Net income $ 23.4 $ 2.6 $ 66.0 $ 11.4
Diluted shares:
Basic shares 45.1 45.2 45.1 45.5
Stock options .1 - .1 -
------ ------ ---- ------
Diluted shares 45.2 45.2 45.2 45.5
====== ====== ==== ======
Diluted earnings per share: $ 0.52 $ 0.06 $ 1.46 $ 0.16
Continuing operations $ 0.52 $ 0.06 $ 1.46 $ 0.25
Net income
</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 in each of
the three-month periods ended September 30, 2000 and 1999, and $11 million
and $12 million for the nine-month periods ended September 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 $117 million at September 30, 2000 and $125 million at December 31, 1999,
of which $92 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 October 1996, the Board of Directors authorized a share repurchase program
of up to 5 million shares of Olin common stock and in April 1998, approved an
additional share repurchase program of up to an additional 5 million shares
of Olin common stock, from time to time, as market 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 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
Sales: 2000 1999 2000 1999
------ ------ -------- ------
<S> <C> <C> <C> <C>
Chlor Alkali Products $ 85.9 $ 65.0 $ 250.0 $194.5
Metals 216.3 193.6 666.3 566.8
Winchester 90.6 95.5 217.0 212.4
------ ------ -------- ------
Total sales $392.8 $354.1 $1,133.3 $973.7
====== ====== ======== ======
Operating income (loss):
Chlor Alkali Products $ 8.3 $(17.4) $ 20.1 $(49.9)
Metals 21.7 15.9 75.2 55.6
Winchester 11.2 9.6 20.5 15.3
------ ------ -------- ------
Total operating income 41.2 8.1 115.8 21.0
Interest expense 3.9 4.2 11.8 12.1
Interest income 0.4 0.2 0.7 1.8
Other income 0.1 0.3 2.1 1.0
------ ------ -------- ------
Income from continuing operations before taxes $ 37.8 $ 4.4 $ 106.8 $ 11.7
====== ====== ======== ======
</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 nine-month periods ended
September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income $23.4 $ 2.6 $66.0 $11.4
Other comprehensive income:
Cumulative translation adjustment -- (0.2) (2.0) 1.4
----- ----- ----- -----
Comprehensive income $23.4 $ 2.4 $64.0 $12.8
===== ===== ===== =====
</TABLE>
8. On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals businesses as Arch Chemicals, Inc. For the first nine months of
1999, net income from discontinued operations includes one month of operating
results.
9. In June, 2000, the Company signed a letter of intent with Occidental
Petroleum Corporation to combine the companies' chlor alkali and related
businesses in a partnership. In October 2000, the Company announced that its
letter of intent had expired, and that the partnership negotiations were
discontinued primarily due to regulatory issues and certain other matters on
which the parties could not agree.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions, except per share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $392.8 $354.1 $1,133.3 $973.7
Gross Margin 73.0 44.4 209.6 129.8
Selling and Administration 31.2 31.8 90.8 95.1
Interest Expense, net 3.5 4.0 11.1 10.3
Income from Continuing Operations 23.4 2.6 66.0 7.0
Net Income 23.4 2.6 66.0 11.4
Diluted Earnings Per Common Share:
Income From Continuing Operations $0.52 $0.06 $1.46 $0.16
Net Income $0.52 $0.06 $1.46 $0.25
-------------------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales increased 11% due to higher selling prices and increased metal values,
offset in part by reduced volumes. The increase in selling prices was primarily
related to higher Electrochemical Unit ("ECU") netbacks in the Chlor Alkali
Products segment. Lower sales volumes in Winchester and Chlor Alkali more than
offset increased Metals shipments.
Gross margin percentage increased from 13% 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 9%
in 1999 due to the higher sales base in 2000 as a result of the factors noted
above. Selling and administration was $0.6 million lower than last year as lower
administration expenses, primarily pension expense, offset fees associated with
the chlor alkali partnership negotiations with Occidental Petroleum Corporation
("Occidental"). The partnership negotiations were discontinued in October, 2000.
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, decreased from 1999 due to interest
expense capitalized in connection with the expansion of high performance alloys
in Metals and higher interest income in 2000 due to higher average cash, cash
equivalents and short-term investment balances.
The effective tax rate decreased to 38.1% from 40.9% due to lower non-deductible
expenses related to Company-owned life insurance programs.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales increased 16% 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 13% 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 $4.3 million lower than in 1999 due to
lower administration expenses, primarily pension expense, offset in part by fees
incurred in 2000 and associated with the chlor alkali partnership negotiations
with Occidental.
The increase in operating results from the non-consolidated affiliates was due
primarily to the improved operating results from the Sunbelt joint venture,
which was favorably impacted by the higher ECU pricing.
Interest expense, net of interest income, increased from 1999 due primarily to
lower interest income in 2000 due to lower average cash, cash equivalents and
short-term investment balances.
The effective tax rate decreased to 38.2% from 40.2% due to lower non-deductible
expenses related to Company-owned life insurance programs.
CHLOR ALKALI PARTNERSHIP
In June 2000, the Company signed a letter of intent with Occidental to combine
the companies' chlor alkali and related businesses in a partnership. In October
2000, the Company announced that its letter of intent had expired. The
partnership negotiations were discontinued primarily due to regulatory issues
and certain other matters on which the parties could not agree.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings before interest expense,
interest income, other income and income taxes and include the operating results
of non-consolidated affiliates. Segment operating results include an allocation
of corporate operating expenses.
<TABLE>
<CAPTION>
CHLOR ALKALI PRODUCTS Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 85.9 $ 65.0 $ 250.0 $ 194.5
Operating Income (Loss) 8.3 (17.4) 20.1 (49.9)
</TABLE>
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales and operating results were higher than 1999 primarily due to higher ECU
netbacks, offset in part by lower volumes. Average ECU netbacks in the third
quarter of 2000 were approximately $300, compared to $210 in the third quarter
of 1999. The volume shortfall was primarily due to lower demand for chlorine
from the vinyls market, caused primarily by the slowdown in the general economy,
weaker exports, seasonality and inventory adjustments. Demand for caustic had
been less affected and therefore, caustic inventories had continued to shrink,
thereby increasing caustic prices. Higher selling prices and improved operating
results from the Sunbelt joint venture due to the increase in ECU prices, more
than offset the impact of lower volumes and fees associated with the proposed
chlor alkali partnership, resulting in a $25.7 million increase in operating
income.
NINE MONTHS ENDED SEPTEMBER 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 nine months of 2000 were approximately $290, compared to $215 in the first
nine months of 1999. Higher selling prices, lower operating costs and improved
operating results in 2000 from the Sunbelt joint venture due to the increase in
ECU prices offset the fees associated with the proposed chlor alkali partnership
and contributed to the 2000 year-to-date improvement in operating income.
<TABLE>
<CAPTION>
METALS Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 2000 1999 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 216.3 $ 193.6 $ 666.3 $ 566.8
Operating Income 21.7 15.9 75.2 55.6
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales increased 12% with higher metal values, selling prices and volumes each
accounting for one-third of the total improvement. Strip shipments to the
electronics, building products and coinage markets were higher this year, as
were A.J. Oster ("Oster") volumes to the distributor market. Aegis' shipments to
the telecommunications industry were ahead of last year. Shipments to the
automotive and ammunition markets were lower than the previous year. Higher
volumes and a favorable product mix increased Metals operating income.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales increased 18% due to increased volumes and higher metal values and selling
prices. Higher volumes increased sales by 10%, while higher metal values and
selling prices accounted for the remaining 8% improvement. Strip shipments for
coinage products were higher than the first nine months of 1999. Distributor
market (Oster) shipments were higher as well as those to the telecommunications
market served by Aegis. Shipments for building products were lower in 2000.
Higher volumes, improved pricing and a favorable product mix contributed to the
improvement in operating income.
<PAGE>
<TABLE>
<CAPTION>
WINCHESTER Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 90.6 $ 95.5 $ 217.0 $ 212.4
Operating Income 11.2 9.6 20.5 15.3
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales in 2000 were 5% lower than 1999 primarily due to lower volumes of domestic
commercial ammunition offset in part by higher domestic commercial prices and
increased military and international shipments. Operating income improved due to
higher domestic commercial selling prices and lower operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999
Sales in 2000 were slightly higher than 1999 primarily due to higher domestic
commercial ammunition selling prices. Operating income improved significantly
from 1999 due to higher selling prices, 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 FOURTH QUARTER OUTLOOK
The Company believes fourth quarter earnings per share will be in the $.40
range. The Company expects the slowing economy will affect demand in some
segments of the Metals and Chlor Alkali businesses in the fourth quarter, and
that the Company will experience a reduction in Winchester's sales, in part due
to normal seasonality. The sequential decline in Winchester's profits is the
reason for the lower fourth quarter EPS, when compared to the third quarter of
2000.
The Company believes that fourth quarter 2000 market conditions in the Chlor
Alkali segment will not be as strong as the third quarter from a volume point of
view, but will show some improvement from an ECU price point of view. Lower
demand for chlorine in the vinyls segment, caused primarily by the slowdown in
the general economy, weaker exports, seasonality and inventory adjustments, is
expected to lead to reduced chlor alkali industry operating rates in the fourth
quarter. The Company expects that higher caustic prices will slightly more than
offset the impact of lower chlorine pricing in the fourth quarter for a net
increase in the overall ECU price. The net effect of the price and volume
changes is that fourth quarter Chlor Alkali profits may be somewhat lower than
the third quarter of 2000, but nevertheless substantially higher than the fourth
quarter results in 1999.
The current outlook for the Metals business and its downstream markets is
somewhat mixed. Many of the factors which affected third quarter 2000
performance are expected to continue into the fourth quarter of 2000. However,
there will be some differences. For example, it is anticipated that stronger
performance from the Aegis operations will mitigate the effect of sequentially
lower demand for brass in ammunition and building products. Overall, the Company
expects that Metals profits in the fourth quarter will be in the same general
range as the third quarter.
<PAGE>
Because of the seasonal characteristics of the Winchester business, sales and
profits in the fourth quarter are the lowest of the year and especially low when
compared with the third quarter, which is usually the highest of the year.
Relative to the fourth quarter of 1999, the Company is projecting that
Winchester's sales will be lower in the fourth quarter of 2000. In addition, in
the fourth quarter last year, Winchester recorded significant fee income from
the Lake City Army Ammunition plant. This will result in lower fourth quarter
earnings in 2000 in comparison to the fourth quarter of 1999.
2001 FULL YEAR OUTLOOK
The Company's preliminary forecast for 2001 indicates that the Company will post
stronger earnings growth over 2000 with earnings per share increasing about 35%
to the $2.50 range. The primary driver of the Company's earnings is the selling
price of chlor alkali products, which are expected to increase in 2001. The
forecast is based on the latest CMAI projections and an analysis of the
escalation provisions of the Company's contracts, particularly as it applies to
the caustic soda increases which have been announced. It also assumes a recovery
in chlorine demand from the vinyl industry by the middle of the year, which
affects the assumed operating rates. The current spike in energy costs is not as
much of an issue for the Company as it is for some competitors. The Company's
cost structure is not particularly sensitive to natural gas prices, and the
Company's electricity is purchased from utilities that are primarily coal,
nuclear and hydro-power based.
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 nine months of 1999, net income includes one month of
operating results.
ENVIRONMENTAL MATTERS
In the nine months ended September 30, 2000 and 1999, the Company spent
approximately $19 million and $10 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 $11 million and $12 million for the nine months ended
September 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
$117 million at September 30, 2000 and $125 million at December 31, 1999, of
which $92 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
<PAGE>
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 - $50 million over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
Nine Months
Ended September 30,
-------------------
Provided By (Used For) ($ in millions) 2000 1999
----------------------------------------------------------------------------
Net Cash and Cash Equivalents
Provided/(Used) By Operating Activities
from Continuing Operations $ 97.0 $ (6.8)
Net Operating Activities 97.0 (9.7)
Capital Expenditures (57.1) (44.0)
Net Investing Activities (48.2) (34.9)
Purchases of Olin Common Stock -- (11.3)
Net Financing Activities (27.6) 30.8
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 primarily in Metals.
<PAGE>
CAPITAL EXPENDITURES
Capital spending of $57.1 million in 2000 was $13.1 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 nine months 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 September 30, 2000, the Company had available a $165 million line of credit
under an unsecured revolving credit agreement with a group of banks. At
September 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, taxes, depreciation and amortization and the ratio of
earnings before interest, taxes, depreciation and amortization to interest.
During the first nine months of 2000, no shares of the Company's common stock
were repurchased. During the first nine months of 1999, the Company used $11.3
million to repurchase 921,400 shares of the Company's common stock. In October
2000, the Company resumed its share repurchase program upon the discontinuation
of the chlor alkali partnership negotiations with Occidental.
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 40% at September
30, 2000, from 43% at year-end 1999. The decrease from year-end 1999 was due to
an increase in equity resulting from improved operating profits.
In 2000, the Company paid first, second and third quarter dividends of $0.20 per
share. Prior to the Spin-Off, the Company paid a first quarter 1999 dividend of
$0.30 per share. Following the distribution of Arch Chemicals, the quarterly
dividend was reduced to $0.20 per share to reflect the effect of the
distribution. In October 2000, the Company's Board of Directors declared a
quarterly dividend of $0.20 per share on its common stock, which is payable on
December 11, 2000, to shareholders of record on November 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 will adopt FASB No. 133 on January 1, 2001 and expects to achieve
hedge accounting treatment for substantially all of the Company's business
transactions
<PAGE>
whose risks are covered using derivative instruments. The hedge accounting
treatment provides for the deferral of gains or losses on derivative instruments
until such time as the related transactions occur. The Company estimates that if
it had accounted for its derivatives in accordance with the new standard as of
September 30, 2000, assets totaling $1.9 million would have been recorded on the
balance sheet with offsetting entries to other liabilities and Other
Comprehensive Income. The new standard does not allow for the special accounting
treatment on the portion of any hedge that is not effective. At this time the
Company does not believe that gains or losses as a result of an ineffective
hedge would have a material effect on the Company's financial statements as of
September 30, 2000.
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 2000 Fourth Quarter Outlook and the 2001 Full Year Outlook sections, 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
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 any period or
year; competitive pricing pressures; changes in Chlor Alkali's ECU prices from
expected levels; Chlor Alkali operating rates below anticipated levels;
higher-than-expected raw material costs; higher-than-expected transportation
and/or logistics costs; a protracted work stoppage in connection with collective
bargaining negotiations with labor unions; 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
<PAGE>
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, 2000, the Company maintained open positions on
futures contracts totaling $36 million. Assuming a hypothetical 10% increase in
commodity prices which are currently hedged, the Company would experience a $3.6
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 September 30, 2000, the Company had long-term borrowings of $228 million of
which $35 million was at variable 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.
-----------------
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.
---------------------------------------------------
Not Applicable.
Item 5. Other Information.
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
10(d) Olin Senior Executive Pension Plan amended as of July
27, 2000.
12. Computation of Ratio of Earnings to Fixed Charges
(Unaudited).
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
Form 8-K filed September 6, 2000 with respect to extension of
the June 28, 2000 Letter of Intent between Olin Corporation
and Occidental Petroleum Corporation to combine their
chlor-alkali and related businesses in a partnership between
Olin Corporation and Occidental's Occidental Chemical
Corporation subsidiary.
<PAGE>
Form 8-K filed July 18, 2000 with respect to June 28, 2000
Letter of Intent between Olin Corporation and Occidental
Petroleum Corporation to combine their chlor-alkali and
related businesses in a partnership between Olin Corporation
and Occidental's Occidental Chemical Corporation subsidiary.
<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: November 13, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
10(d) Olin Senior Executive Pension Plan amended as of July 27, 2000.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
