-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DtC22MxniQBIzizH7IN8R/Y/ftgTUxItt2TRZNCSAE41+1msfNo7s+hB8ULVo7y6 xpe7ofw10d0LcCORwiLajw== 0000950130-97-001000.txt : 19970314 0000950130-97-001000.hdr.sgml : 19970314 ACCESSION NUMBER: 0000950130-97-001000 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970313 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLIN CORP CENTRAL INDEX KEY: 0000074303 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 131872319 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01070 FILM NUMBER: 97555859 BUSINESS ADDRESS: STREET 1: 501 MERRITT 7 STREET 2: P O BOX 4500 CITY: NORWALK STATE: CT ZIP: 06856 BUSINESS PHONE: 2033562000 FORMER COMPANY: FORMER CONFORMED NAME: OLIN MATHIESON CHEMICAL CORP DATE OF NAME CHANGE: 19691008 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-1070 OLIN CORPORATION (Exact name of registrant as specified in its charter) Virginia 13-1872319 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 06856-4500 (Zip Code) 501 Merritt 7 P.O. Box 4500 Norwalk, CT (Address of principal executive offices) Registrant's telephone number, including area code: (203) 750-3000 ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- Common Stock New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Series A Participating Cumulative New York Stock Exchange Preferred Stock Purchase Rights Chicago Stock Exchange Pacific Stock Exchange ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ---------------- 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 . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] ---------------- As of January 31, 1997, the aggregate market value of registrant's voting stock held by non-affiliates of registrant was approximately $1,895,146,250. ---------------- As of January 31, 1997, 52,297,507 shares of the registrant's common stock were outstanding. ---------------- DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE IN THIS FORM 10-K AS INDICATED HEREIN: PART OF 10-K DOCUMENT INTO WHICH INCORPORATED -------- ----------------------- 1996 Annual Report to Shareholders of Olin Parts I, II, and IV Proxy Statement relating to Olin's 1997 Part III Annual Meeting of Shareholders - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL Olin Corporation is a Virginia corporation, incorporated in 1892, having its principal executive offices in Norwalk, Connecticut. It is a manufacturer concentrated in chemicals, metals and ammunition. The chemicals segment is divided into three areas or divisions: Chlor-Alkali, Chemicals and Microelectronic Materials. Chlor-alkali includes chlor-alkali products, sodium hydrosulfite and high strength bleach products. Chemicals includes pool chemicals, biocides, acids, hydrazine, polyols, propylene glycols and surfactants and fluids. Microelectronic Materials includes image-forming and related specialty chemicals and electronic interconnect materials and services. The metals and ammunition segment is divided into two divisions: the Brass Division and the Winchester Division. Products in the metals and ammunition segment include copper and copper alloy sheet, strip, rod, wire, tube and fabricated parts, stainless steel strip and sporting ammunition. Information as to the sales and assets attributable to each of Olin's industry segments for each of the last ten fiscal years appears on page 24 of the 1996 Annual Report to Shareholders of Olin ("Shareholders Report") and in Exhibit 13 hereto. Such information in Exhibit 13 with respect to the last three fiscal years is incorporated by reference in this Report.* Information as to operating income of Olin's industry segments for each of the last three fiscal years contained on page 24 of the Share-holders Report and in Exhibit 13 hereto is incorporated herein by reference as contained in Exhibit 13. The figures and information contained under the captions "Customers and Distribution," "Employees," "Research Activities; Patents," "Environmental and Toxic Substances Controls" and in Item 2 hereof do not include figures relating to Olin's Ordnance and Aerospace Divisions which were spunoff as part of Primex Technologies, Inc. effective December 31, 1996. The term "Olin" as used herein means Olin Corporation and its subsidiaries unless the context indicates otherwise. - -------- * Except for material contained in Exhibit 13 hereto and incorporated herein by reference to such exhibit, the Shareholders Report is not "filed" as part of this Report. 2 PRODUCTS AND SERVICES The following is a list of the principal and certain other products and services provided by Olin and its affiliates as of December 31, 1996 within each industry segment. Principal products on the basis of annual sales are highlighted in bold face. Businesses which were transferred to Primex Technologies, Inc. ("Primex") in connection with the spinoff of Primex on December 31, 1996 are not included. CHEMICALS
MAJOR RAW MATERIALS PRODUCT LINE OR & COMPONENTS FOR DIVISION PRODUCTS & SERVICES MAJOR END-USES PLANTS & FACILITIES* PRODUCTS/SERVICES - --------------- ------------------- ----------------- -------------------- ------------------- Chlor-alkali Chlor-alkali CHLORINE/CAUSTIC Pulp & paper Augusta, GA salt, SODA processing, Charleston, TN electricity chemical McIntosh, AL manufacturing, Niagara Falls, water NY (Niachlor)** purification, manufacture of vinyl chloride, bleach, swimming pool chemicals & urethane chemicals - ----------------------------------------------------------------------------------------------- Other Chlor- Sodium Paper, textile & Augusta, GA caustic soda, alkali Hydrosulfite clay bleaching Charleston, TN sulfur dioxide Products Salto, Brazil ----------------------------------------------------------------------------------- HyPure(TM) Industrial & Charleston, TN chlorine, products institutional caustic cleaners, textile soda bleaching - ----------------------------------------------------------------------------------------------- Chemicals EO/PO Flexible polyols Intermediate for Brandenburg, KY propylene Derivative flexible foam Punta Camacho, oxide, Products used in Venezuela ethylene oxide, furniture, Ibaraki-ken, glycerine bedding, carpet Japan underlay, (Asahi-Olin transportation, Ltd.) packaging ----------------------------------------------------------------------------------- Specialty Elastomers, Brandenburg, KY propylene polyols adhesives, Ibaraki-ken, oxide, coatings, Japan ethylene oxide, sealants & rigid (Asahi-Olin glycerine foam Ltd.) Punta Camacho, Venezuela ----------------------------------------------------------------------------------- Urethane systems Packaging & Ibaraki-ken, polyols, insulation Japan methylene (Asahi-Olin diphenyl Ltd.) diisocyanate Salto, Brazil Singapore (Asahi-Olin Singapore Pte. Ltd.) ----------------------------------------------------------------------------------- Anionic & Household, indus- Brandenburg, KY ethylene oxide, nonionic trial & Punta Camacho, propylene oxide surfactants, institutional Venezuela glycols, cleaners, glycol ethers, basestocks for fluids water based met- al- working/hydraulic fluids - ----------------------------------------------------------------------------------------------- Acids Virgin & Petroleum Beaumont, TX sulfur, oxygen regenerated refining, pulp & Shreveport, LA sulfuric acid paper chemicals - ----------------------------------------------------------------------------------------------- Pool HTH(R), SOCK- Residential & Charleston, TN chlorine, lime, Chemicals IT(R) commercial pool Igarassu, Brazil caustic soda PULSAR(R), SUPER sanitizing, water (Nordesclor SOCK-IT(R), purification S.A.) DURATION(R) & Salto, Brazil CCH(R) CALCIUM Kempton Park, HYPOCHLORITE S. Africa (Aquachlor (Proprietary) Ltd.) ----------------------------------------------------------------------------------- PACE(R) Residential & Amboise, France chlorine, CHLORINATED commercial pool caustic ISOCYANURATES sanitizing, water soda, urea purification
- ------------------------------------------------------------------------------- * If site is not operated by Olin or a majority-owned, direct or indirect subsidiary, name of joint venture, affiliate or operator is indicated. Sites manufacture, distribute or market one or more of the identified products or services. ** Subsequent to December 1996, Olin acquired its partner's interest in Niachlor. 3 CHEMICALS (CONT'D)
MAJOR RAW MATERIALS PRODUCT LINE OR & COMPONENTS FOR DIVISION PRODUCTS & SERVICES MAJOR END-USES PLANTS & FACILITIES* PRODUCTS/SERVICES - --------------- ------------------- ---------------- ----------------------- ------------------- Hydrazine Hydrazine Intermediate in Lake Charles, LA chlorine, solutions & blowing agents & McIntosh, AL caustic hydrazine-based agricultural soda, ammonia, propellants chemicals; dimethylamine, boiler water monomethylamine treatment, rocket & satellite propellants - ----------------------------------------------------------------------------------------------------- Biocides Omacide(R), Antidandruff Rochester, NY pyridine, zinc IPBC, agents Swords, Ireland & copper salts, Triadine(R) in shampoo, pre- chlorine, iodine Biocides, servative in Zinc metal working Omadine(R), fluids, coat- Copper ings, adhesives, Omadine(R) & plastics, anti- Sodium fouling agent in Omadine(R) marine paints Biocides ----------------------------------------------------------------------------------------------- Custom Finished Rochester, NY chemicals products for manufacturing agricultural, photo- graphic, hair dye & general chemical industries - ----------------------------------------------------------------------------------------------------- Microelectronic Materials Electronic High purity Used as process Chandler, AZ various acids Chemicals acids & aids in Mesa, AZ & solvents, solvents, semiconductor Seward, IL ammonia-based dopants, manufacturing etchants vapor deposition chemicals, specialty etchants ----------------------------------------------------------------------------------------------- Photoresists & Used as Brandenburg, KY diazo compounds, polyimides semiconductor East Providence, RI rubber polymers, components Tempe, AZ novolak and/or as Zwijndrecht, Belgium polymers, process aids in Shizuoka, Japan solvents, semiconductor (Fuji-Hunt Electronics photoinitiators, manufacturing & Technology Co., Ltd.) polyimide flat panel Basel, Switzerland polymers displays Hsin-chu, Taiwan (Fuji-Hunt Electronics Technology Co., Ltd.)
- -------------------------------------------------------------------------------- * If site is not operated by Olin or a majority-owned, direct or indirect subsidiary, name of joint venture, affiliate or operator is indicated. Sites manufacture, distribute or market one or more of the identified products or services. 4 CHEMICALS (CONT'D)
MAJOR RAW MATERIALS PRODUCT LINE & COMPONENTS FOR OR DIVISION PRODUCTS & SERVICES MAJOR END-USES PLANTS & FACILITIES* PRODUCTS/SERVICES ------------ ------------------------ ------------------------ -------------------- --------------------- Interconnect High performance Integrated circuits & Manteca, CA specialty aluminum Materials integrated circuit multi-chip modules for alloys & specialty packaging materials computer, adhesives telecommunications, instrumentation & automotive products ---------------------------------------------------------------------------------------------- High performance, All industry market New Bedford, MA all metals, metal high reliability, segments; computer, (Aegis, Inc.) alloys, metal hermetic metal communications, medical, matrix composites, packages for the industrial, special alloys and microelectronics instrumentation, glasses industry automotive, consumer, aerospace and military - ------------------------------------------------------------------------------------------------------------ METALS AND AMMUNITION Olin Brass COPPER & COPPER ALLOY Electronic connectors, Bryan, OH copper, zinc & SHEET & STRIP lead frames, electrical East Alton, IL other nonferrous (STANDARD & HIGH components, Indianapolis, IN metals PERFORMANCE) communications, Waterbury, CT automotive, builders' Iwata, Japan hardware, coinage, (Yamaha-Olin ammunition Metal Corporation) ------------------------------------------------------------------------------------------------------ Network of metals Electronic connectors, Allentown, PA copper & copper alloy service centers electrical components, Alliance, OH sheet, strip, rod, communications, Caguas, PR tube & steel & automotive, builders' Carol Stream, IL aluminum strip hardware, household Warwick, RI products Watertown, CT Yorba Linda, CA ------------------------------------------------------------------------------------------------------ Beryllium copper strip High performance East Alton, IL beryllium copper electronic applications ------------------------------------------------------------------------------------------------------ POSIT-BOND(R) CLAD METAL Coinage strip & blanks East Alton, IL cupronickel, copper & aluminum ------------------------------------------------------------------------------------------------------ ROLLED COPPER FOIL, Printed circuit boards, Waterbury, CT copper, zinc & other COPPERBOND(R) FOIL, electrical & electronic, nonferrous metals, STAINLESS STEEL STRIP automotive stainless steel ------------------------------------------------------------------------------------------------------ COPPER ALLOY SEAMLESS Utility condensers, Cuba, MO copper, zinc & other & WELDED TUBE industrial heat Indianapolis, IN nonferrous metals exchangers, refrigeration & air conditioning, builders' hardware, automotive ------------------------------------------------------------------------------------------------------ Fabricated products Builders' hardware, East Alton, IL brass & stainless cartridge cases, shaped steel strip charge cones, transportation, household & recreational products ------------------------------------------------------------------------------------------------------ Copper & copper alloy Fasteners, electrical & Indianapolis, IN copper, zinc & other rod & wire electronic connectors, nonferrous metals transportation, plumbing & builders' hardware - ------------------------------------------------------------------------------------------------------------
* If site is not operated by Olin or a majority-owned, direct or indirect subsidiary, name of joint venture, affiliate or operator is indicated. Sites manufacture, distribute or market one or more of the identified products or services. 5 METALS AND AMMUNITION (CONT'D)
MAJOR RAW MATERIALS PRODUCT LINE & COMPONENTS FOR OR DIVISION PRODUCTS & SERVICES MAJOR END-USES PLANTS & FACILITIES* PRODUCTS/SERVICES ------------ ----------------------- ------------------------ -------------------- ----------------------- Winchester(R) WINCHESTER(R) SPORTING Hunters & recreational East Alton, IL brass, lead, steel, AMMUNITION (SHOT- shooters, law Geelong, Australia plastic, propellant, SHELLS, SMALL CALIBER enforcement explosives CENTERFIRE & RIMFIRE agencies AMMUNITION) --------------------------------------------------------------------------------------------------------- Small caliber military Infantry and mounted East Alton, IL brass, lead, ammunition weapons propellant, explosives --------------------------------------------------------------------------------------------------------- Government-owned Maintenance and Independence, MO brass, lead, arsenal operation (GOCO) operation of propellant, explosives, U.S. Army small caliber government-supplied military components ammunition production plant ---------------------------------------------------------------------------------- Maintenance of U.S. Army Baraboo, WI subcontracted & laid-away production government-supplied plant components --------------------------------------------------------------------------------------------------------- Industrial products (8 Maintenance applications East Alton, IL brass, lead, plastic, gauge loads & powder- in Geelong, Australia propellant, explosives actuated tool loads) power & concrete industries, powder-actuated tools in construction industry
- -------------------------------------------------------------------------------- * If site is not operated by Olin or a majority-owned, direct or indirect subsidiary, name of joint venture, affiliate or operator is indicated. Sites manufacture, distribute or market one or more of the identified products or services. 6 1996 DEVELOPMENTS On February 1, 1996, Olin and The Geon Company announced that they will jointly construct a chlor-alkali plant at Olin's existing McIntosh, Alabama site. On October 10, 1996, Olin announced, among other things, Board of Directors' approval for the sale of Olin's isocyanate businesses to ARCO Chemical Company ("ARCO"), the putting up for sale of Olin's polyol, glycol and surfactant businesses, including production and related facilities located at its Doe Run facility at Brandenburg, Kentucky, and the use of a portion of the proceeds from these expected divestments to purchase up to 10% of Olin's Common Stock in the open market from time to time as market conditions warrant. The stock repurchase program began in January 1997. Effective October 30, 1996, the shares of Olin Common Stock split two-for- one for shareholders of record on October 21, 1996. On December 4, 1996, Olin completed the sale to ARCO of Olin's isocyanate businesses for $565 million in cash. The sale included all assets at Olin's Lake Charles, Louisiana facility used in the manufacture of toluene diisocyanate, aliphatic isocyanates and nitric acid. On December 9, 1996, Olin's Board of Directors authorized the distribution to holders of Olin Common Stock of one share of Primex Technologies, Inc.'s common stock for every ten shares of Olin Common Stock held as of the record date of December 19, 1996. The Securities and Exchange Commission also declared effective the Form 10 Registration Statement in connection with this distribution. The distribution of Primex Technologies, Inc. ("Primex") common stock was effective December 31, 1996, with Primex stock certificates being distributed beginning on January 6, 1997. Primex officially began business as a separate entity on January 1, 1997. On December 10, 1996, Olin announced that it had reached an agreement in principle to purchase DuPont's 50% share of the companies' joint venture Niachlor chlor-alkali plant in Niagara Falls, New York. Terms of the proposed transaction were not disclosed. The transaction was consummated in early 1997. On December 12, 1996, Olin redeemed its outstanding ESOP Preferred Shares, $1.00 par value per share, by exchanging them for shares of its Common Stock. The ESOP Preferred Shares were available only to employees through the Olin Corporation Contributing Employee Ownership Plan ("CEOP"). The Trustee of the CEOP received shares of Olin Common Stock equal in value to $85.75 for each ESOP Preferred Share held, $85.75 being the appraised value of the ESOP Preferred Shares as of December 10, 1996 as determined by the CEOP's independent appraiser. There were approximately 878,000 shares of ESOP Preferred Shares outstanding and approximately 1.87 million shares of Common Stock were issued in the redemption. INTERNATIONAL OPERATIONS Olin has sales offices and subsidiaries in various countries which support the worldwide export of products from the United States as well as overseas production facilities. In addition, Olin has manufacturing interests, both direct and through joint ventures, in several foreign countries. An Olin subsidiary in Ireland manufactures biocides for personal care and industrial applications; a Brazilian subsidiary manufactures urethane systems and solution sodium hydrosulfite. A microelectronic materials subsidiary located in Belgium manufactures certain chemicals for the semiconductor industry. Hydrochim, S.A., a French subsidiary, is an isocyanurate repacking operation. Etoxyl, C.A., a Venezuelan subsidiary, manufactures urethane polyols, surfactants and other specialty chemicals. 7 A group of Olin subsidiaries markets photoresists, polyimides and other image-forming chemicals throughout Europe. A joint venture with Fuji Photo Film Co., Ltd. manufactures photoresists, developers and flat panel display chemicals in Japan and markets them throughout the Far East. Nordesclor S.A., a joint venture with S.A. Industrias Votorantim, a Brazilian company, manufactures calcium hypochlorite. Through a joint venture with Sentrachem Limited, Olin has an interest in a plant in South Africa for the production of HTH(R) pool chemicals. Olin through a joint venture with Asahi Glass Company Ltd. has an interest in a plant in Japan for the production of urethane polyols and other specialty chemicals. Olin also has an interest in a plant in Venezuela for the production of ethylene oxide and ethylene glycol through a joint venture with Corimon, C.A., S.A.C.A., Petroquimica de Venezuela S.A. and the International Finance Corporation. Yamaha-Olin Metal Corporation, a joint venture with Yamaha Corporation, manufactures high-performance copper alloys in Japan for sale to the electronics industry throughout the Far East. An Olin subsidiary loads and packs sporting and industrial ammunition in Australia. The geographic segment data contained in the Note "Segment Information" of the Notes to Financial Statements on page 36 of the Shareholders Report and Exhibit 13 hereto are incorporated by reference in this Report as contained in Exhibit 13. CUSTOMERS AND DISTRIBUTION During 1996, no single customer accounted for more than 4% of Olin's total consolidated sales. Products which Olin sells to industrial or commercial users or distributors for use in the production of other products constitute a major part of Olin's total sales. Some of its products, such as pool chemicals, sporting ammunition and brass, are sold to a large number of users or distributors, while others, such as certain industrial chemicals, are sold in substantial quantities to a relatively small number of industrial users. Most of Olin's products and services are marketed primarily through its sales force and sold directly to various industrial customers, the U.S. Government and its prime contractors, to wholesalers and other distributors. Chemicals. Principal customers of Olin's chemicals products include the pulp and paper industries, vinyl chloride manufacturers, household and industrial cleaner suppliers, municipal and industrial wastewater treatment companies, specialty chemical manufacturers, urethane foam suppliers, automotive companies, packaging suppliers, the refrigeration industry, manufacturers of adhesives, coatings, elastomers and sealants, suppliers of various consumer products including shampoos and swimming pool sanitizers, semiconductor manufacturers, and defense contractors. Principal customers of Olin's interconnect materials business are suppliers to semiconductor manufacturers and major computer and telecommunications manufacturers. Metals and Ammunition. Principal customers of Olin's copper and copper alloy strip, sheet, rod, wire and seamless and welded tube include producers of electrical and electronic equipment, builders' hardware and appliances, the plumbing, automotive and air-conditioning industries and manufacturers of a variety of consumer goods. Olin manufactures cartridge brass for its ammunition business and for other ammunition makers. Olin also serves numerous high-technology markets through a thin-gauge reroll operation that produces stainless steels, high-temperature alloys and glass sealing alloys, in addition to copper and copper alloys. Posit-Bond(R) clad metal has made Olin a major supplier of metal to the U.S. Mint. Olin also sells various alloys to foreign governments for coinage purposes. 8 The metal products business is also focused on the electronics market, providing high performance and high-quality materials needed by the electronics industry and other advanced technology customers. These materials include Olin-developed proprietary alloys and Copperbond(R) treated copper foil marketed to the printed circuit industry. Fabricated products are principally sold to ammunition manufacturers, the U.S. Armed Forces, building product suppliers, household product manufacturers and automotive manufacturers. The principal users of the Winchester Division's products are recreational shooters, hunters, law enforcement agencies, the power and concrete industries, the construction industry, the U.S. Armed Forces and certain foreign governments. Because several of its businesses engage in government contracting activities and make sales to the U.S. Government, Olin is subject to extensive and complex U.S. Government procurement laws and regulations. These laws and regulations provide for ongoing government audits and reviews of contract procurement, performance and administration. Failure to comply, even inadvertently, with these laws and regulations and with laws governing the export of munitions and other controlled products and commodities could subject Olin or one or more of its businesses to civil and criminal penalties, and under certain circumstances, suspension and debarment from future government contracts and the exporting of products for a specified period of time. COMPETITION Olin is in active competition with businesses producing the same or similar products, as well as, in some instances, with businesses producing different products designed for the same uses. With respect to certain product groups, such as ammunition and copper alloys, and with respect to certain individual products, such as pool chemicals and chlor-alkali, Olin is one of the largest manufacturers or distributors in the United States. With respect to its many other products, Olin's share of total domestic sales varies greatly. EMPLOYEES As of December 31, 1996, Olin had approximately 9,300 employees (excluding approximately 1,250 employees at Government-owned, contractor-operated facilities and excluding employees of disposed businesses), approximately 8,500 of whom were working in the United States and approximately 800 of whom were working in foreign countries. A majority of the hourly-paid employees are represented, for purposes of collective bargaining, by various labor unions. Some labor contracts extend for as long as five years, but during each year new agreements must be negotiated in a number of Olin's plants. No major labor contracts are scheduled to expire in 1997. While relations between Olin and its employees and their various representatives are generally considered satisfactory, there can be no assurance that new labor contracts can be concluded without work stoppages. No major work stoppages have occurred in the last three years. RESEARCH ACTIVITIES; PATENTS Olin's research activities are conducted both on a product-group and corporate-wide basis at a number of facilities. Company-sponsored research expenditures were approximately $39 million during 1996, $34 million during 1995 and $30 million during 1994. Olin owns, or is licensed under, a number of patents, patent applications and trade secrets covering its products and processes. Olin believes that, in the aggregate, the rights under such patents and licenses are important to its operations, but does not consider any patent or license or group thereof related to a specific process or product to be of material importance when viewed from the standpoint of Olin's total business. 9 RAW MATERIALS AND ENERGY Olin purchases the major portion of its raw material requirements. The principal basic raw materials purchased by Olin for its production of chemicals are various hydrocarbons, salt, lime, electricity, propylene oxide, ethylene oxide, sulfur and ammonia. Copper, zinc and various other nonferrous metals are required for the metals business. Lead, brass and propellant are the principal raw materials used in the ammunition business. Olin's principal basic raw materials are typically purchased pursuant to multiyear contracts. In addition, Olin uses many chemicals produced in its own operations as raw materials, intermediates or processing agents in the production of various other chemical products. In the manufacture of ammunition, Olin uses a substantial percentage of its own output of cartridge brass. Additional information with respect to specific raw materials is set forth in the table above under the caption entitled "Products and Services." Electricity is the predominant energy source for Olin's manufacturing facilities. Most of Olin's facilities are served by utilities which generate electricity principally from coal, hydro and nuclear power. ENVIRONMENTAL AND TOXIC SUBSTANCES CONTROLS The establishment and implementation of federal, state and local standards to regulate air, water and land quality has affected and will continue to affect substantially all of Olin's manufacturing locations. Federal legislation providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances has imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws, such as the Resource Conservation and Recovery Act and the Clean Air Act, has required and will continue to require new capital expenditures and will increase operating costs. Olin is enrolled in the U.S. EPA's Voluntary Industrial Toxics Reduction Program. Olin employs waste minimization and pollution prevention programs at its manufacturing sites.
1996 1995 1994 ---- ---- ---- (IN MILLIONS) Cash Outlays: Remedial and Investigatory Spending...................... $30 $25 $37 Capital Spending......................................... 6 8 10 Plant Operations......................................... 35 34 32 --- --- --- Total Cash Outlays......................................... $71 $67 $79 === === ===
Olin is party to various governmental and private environmental actions associated with waste disposal sites and manufacturing facilities. 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 efforts were material to operating results in 1996, 1995 and 1994 and may be material to net income in future years. Such charges to income were $70 million, $24 million and $17 million in 1996, 1995 and 1994, respectively. In connection with the sale of the isocyanates business at Olin's Lake Charles, LA facility, a $53 million provision was recorded to provide for contractual liabilities related to future environmental spending at the Lake Charles site. 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 years. Cash outlays for normal plant operations for the disposal of waste and the operation and maintenance of pollution control equipment and facilities to ensure compliance with mandated and voluntarily imposed environmental quality standards were charged to income. Historically, Olin has funded its environmental capital expenditures through cash flow from operations and expects to do so in the future. 10 Olin's estimated environmental liability at the end of 1996 was attributable to 55 sites, 24 of which were on the National Priority List ("NPL"). Ten sites accounted for approximately 80% of such liability and, of the remaining sites, no one site accounted for more than three percent of such liability. One of these ten sites was in the investigatory stage of the remediation process. In this stage, remedial investigation and feasibility studies are conducted by either Olin, the United States Environmental Protection Agency ("EPA") or other potentially responsible parties ("PRP's") and a Record of Decision ("ROD") or its equivalent has not been issued. At another seven of the ten sites, a ROD or its equivalent has been issued by either the EPA or responsible state agency and Olin, either alone or as a member of a PRP group, was engaged in performing the remedial measures required by that ROD. At the remaining two of the ten sites, part of the site is subject to a ROD and another part is still in the investigative stage of remediation. All ten sites were either former manufacturing facilities or waste sites containing contamination generated by those facilities. Total environmental-related cash outlays for 1997 are estimated to be $75 million, of which $35 million is expected to be spent on investigatory and remedial efforts, $10 million on capital projects and $30 million on normal plant operations. Annual environmental-related cash outlays for site investigation and remediation, capital projects and normal plant operations are expected to range between $75-90 million over the next several years. While Olin 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 Olin'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 Olin. See also Item 3, "Legal Proceedings" below, the Note "Environmental" of the Notes to Financial Statements contained in the Shareholders Report and Exhibit 13 hereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated in this Report for additional information regarding environmental matters affecting Olin. ITEM 2. PROPERTIES Olin has manufacturing sites at 26 separate locations in 16 states and Puerto Rico and six manufacturing sites in six foreign countries. Most manufacturing sites are owned although a number of small sites are leased. Listed under Item 1 above in the table set forth under the caption "Products and Services" are the locations at or from which Olin's products and services are manufactured, distributed or marketed by segment. Olin leases warehouses, terminals and distribution offices and space for executive and branch sales offices and service departments throughout the country and overseas. ITEM 3. LEGAL PROCEEDINGS (a) In December 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 are migrating in violation of environmental laws or regulations from a site 11 in Niagara Falls where Oxychem and Olin own adjacent, inactive chemical waste landfills. The United States is seeking injunctive relief and an order requiring Oxychem and Olin, among other things, to secure the landfill site, install a leachate collection system and treat whatever leachate is collected, as well as an order requiring Oxychem and Olin to place $16.5 million in trust or provide a bond to ensure that the site will be secured. The United States is also seeking civil penalties for each day of alleged violation of the Clean Water Act which currently has a maximum daily penalty of $25,000. In November 1980, the State of New York 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. The State is seeking $100 million in compensatory damages and $100 million in punitive damages. The State is also requesting a court order to abate the alleged nuisance and penalties of $10,000 per day for alleged violations of each of four provisions of New York's Environmental Conservation Law. In 1983, the State filed a motion to amend its complaint to include a count under CERCLA (Comprehensive Environmental Response, Compensation and Liability Act of 1980) alleging damage to natural resources. In 1986, the Department of Justice filed a motion to amend its complaint to include a CERCLA and SARA (Superfund Amendments and Reauthorization Act of 1986) count. Oxychem and Olin have filed in opposition to the motions and the court has deferred a ruling on both motions. The U.S. Environmental Protection Agency ("EPA") notified Olin and Oxychem of an aggregate of $4,600,000 in agency oversight costs on the project plus $1,900,000 for pre-judgment interest. Under a stipulation entered into by all parties in 1984, Olin and Oxychem undertook a site remedial investigation which was completed in October 1988. Subsequently, the parties entered into a further stipulation under which Oxychem and Olin conducted a feasibility study of possible remedial measures. The remedial investigation and feasibility study was completed in July 1990. On September 24, 1990, EPA issued a Proposed Remedial Action Plan and on September 29, 1990, a Record of Decision ("ROD"). The EPA selected remedy was estimated to cost $30 million. On September 30, 1991, the EPA issued an administrative order directing Olin and Oxychem to implement the remedy identified in the September 29, 1990 Record of Decision. Olin and Oxychem have commenced performance of the remedy identified in such order. The cost of any remedy is expected to be shared by Olin and Oxychem in an agreed-upon proportion. Olin believes that any liability incurred by it in this matter will not be materially adverse to its financial condition or liquidity and, with respect to non-environmental claims, its results of operations. See "Environmental Matters" contained in Item 7--Management's Discussion and Analysis and Financial Condition and Results of Operations. (b) In June 1987, the EPA issued a ROD recommending remedial actions and ecological studies with respect to mercury contamination at the site of Olin's former mercury cell chlor-alkali plant in Saltville, Virginia. In August 1987, EPA, under Section 122 of CERCLA, asked Olin to undertake the work called for in the ROD, and Olin agreed to do so. Olin's commitment was required to be incorporated into a Consent Decree to be filed with a federal district court. EPA's draft of the Consent Decree included a proposed $1.4 million Clean Water Act penalty for past unpermitted discharges from a muck pond at the site, as well as $570,000 in reimbursement of past EPA costs. In response to Olin's request, EPA agreed to reduce the costs to $456,000 and to sever the penalty from the CERCLA action, making it the subject of separate negotiations after execution of the Consent Decree. In 1988, the proposed $1.4 million Clean Water Act penalty was severed from the Consent Decree entered into by Olin and filed with the U.S. District Court for the Western District of Virginia, and the EPA has taken no further action with respect to any proposed penalty. Pursuant to the Decree, in November 1988 Olin submitted to EPA, Region III, a work plan for remedial action, including additional stormwater run-on control around Pond #5 and construction of a wastewater treatment plant for the outfall from Pond #5. Olin also submitted for EPA approval a work plan for further remedial investigation of the impact of mercury from the site on groundwater flowing into the North Fork Holston River and its sediment from the site to a point twenty-seven miles downstream at the Tennessee border. During 1989 work plans 12 pursuant to the Consent Decree between EPA and Olin were approved by EPA. Payment of past EPA costs of $228,000 plus interest was made on November 21, 1989, in accordance with the Consent Decree. On September 5, 1991, EPA advised Olin of potential liability for contaminated soils which were being removed in conjunction with construction of the Rte. 634 bridge in Saltville. Olin and EPA signed a Consent Order authorizing Olin to do the soil removal, which has been completed. Olin completed the remedial investigation and feasibility study of the former chlorine plant site, including Ponds # 5 and 6, in 1994. On January 18, 1995, EPA issued a Proposed Remedial Action Plan for a 30-day public comment period. The plan called for a cap to be constructed over Pond #5, and the excavation and retorting of soil and sediment from the former chlorine plant site. Olin filed comments with the EPA during the public comment period in support of alternatives to the proposed remediation plan for the site. EPA issued a Record of Decision on September 29, 1995, recognizing in substantial part Olin's comments. The Record of Decision calls for covering the former waste ponds, treatment of runoff from the ponds, and additional monitoring and investigation. Olin is presently engaged in negotiations with EPA over the terms of a consent decree under which Olin will implement the Record of Decision and pay approximately $455,000 for EPA's past response costs. The Record of Decision does not address remediation of the former chlorine plant site or the river, which are the subject of the additional investigation. On August 29, 1994, EPA notified Olin of the company's potential liability with respect to the "Graveyard Dump Site," located north of the former plant site. The site is relatively small, occupying about one half acre. EPA's investigation found about 20 capacitors and miscellaneous debris scattered around the site as well as evidence of PCB contamination in the soils. That work is substantially complete. Negotiations with EPA ensued and Olin and EPA signed an Administrative Order by Consent, effective January 5, 1995, in which Olin agreed to perform certain response activities at the site, primarily the removal and disposal of PCB- contaminated electrical equipment and soils. On March 15, 1995, EPA notified Olin of liability for lead and asbestos present at the former steam-generating plant (power plant) at the site. On July 11, 1995, Olin and EPA entered into an Administrative Order on Consent in which Olin agreed to remove asbestos and lead, and demolish the power plant. The work is expected to be completed during 1997. Olin has agreed with the site's Natural Resources Trustees to assess whether there are any natural resource damages to the Holston River associated with releases from the site. EPA has notified Olin of additional EPA oversight costs in the amount of approximately $1,225,000 for the period 1990-1995. Olin believes that any liability incurred by it in this matter will not be materially adverse to its financial condition or liquidity. See "Environmental Matters" contained in Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations. (c) As part of the continuing environmental investigation by federal, state and local governments of waste disposal sites, Olin has entered into a number of settlement agreements requiring it to contribute to the cost of the investigation and cleanup of a number of sites. This process of investigation and cleanup is expected to continue. See "Environmental Matters" contained in Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations. (d) Olin and its subsidiaries are defendants in various other legal actions arising out of their normal business activities, none of which is considered by management to be material. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the three months ended December 31, 1996. Executive Officers of Olin Corporation as of March 1, 1997
SERVED AS AN OLIN NAME AND AGE OFFICE OFFICER SINCE - ------------ ------ ------------- Donald W. Griffin (60).. Chairman of the Board, President and Chief 1983 Executive Officer Michael E. Campbell Executive Vice President 1987 (49)................... Peter C. Kosche (54).... Senior Vice President 1993 Anthony W. Ruggiero Senior Vice President and Chief Financial 1995 (55)................... Officer Leon B. Anziano (54).... Vice President and President, Chlor-Alkali 1993 Products Division Douglas J. Cahill (37).. Vice President and President, Winchester 1996 Division George B. Erensen (53).. Vice President, Taxes and Risk Management 1990 Johnnie M. Jackson, Jr. Vice President, General Counsel and 1995 (51)................... Secretary Louis S. Massimo (39)... Vice President and Controller 1996 Janet M. Pierpont (49).. Vice President and Treasurer 1990 Joseph D. Rupp (46)..... Vice President and President, Brass 1996 Division Steven T. Warshaw (48).. Vice President and President, Olin 1996 Microelectronic Materials Division
No family relationship exists between any of the above named executive officers or between any of them and any Director of Olin. Such officers were elected to serve as such, subject to the By-Laws, until their respective successors are chosen. Each of the above-named executive officers, except L.B. Anziano, D.J. Cahill, J.M. Jackson, Jr., P.C. Kosche, L.S. Massimo, A.W. Ruggiero, J.D. Rupp and S.T. Warshaw, has served Olin as an executive officer for not less than the past five years. Leon B. Anziano was elected a Corporate Vice President on April 29, 1993. Prior to that time, since 1988, he has served Olin in the following management capacities: Group Vice President & General Manager, Industrial Chemicals; Group Vice President & General Manager, Urethanes; and President, Basic Chemicals Division. Douglas J. Cahill was elected a Corporate Vice President on January 1, 1996. He was appointed President of the Winchester Division on July 1, 1995. Prior to that time, he served as General Manager of the Chemicals Division's pool business. Johnnie M. Jackson, Jr. was elected a Corporate Vice President on April 27, 1995. Prior to that time, since 1989, he has served Olin in the following capacities: General Counsel--Corporate Resources and Secretary, Associate General Counsel--Corporate Resources and Secretary and Deputy General Counsel. Peter C. Kosche was elected a Corporate Senior Vice President on January 1, 1996 and had been a Corporate Vice President since 1993. Prior to 1993 and since 1988, he has served Olin in the following management capacities: General Manager, Pool Chemicals; and Division Vice President, Materials Management. 14 Louis S. Massimo was elected Controller effective April 1, 1996 and, in addition, a Corporate Vice President effective January 1, 1997. Since November 1994 until April 1996, he had served as Olin's Director of Corporate Accounting. Prior to that time, he was an Audit Senior Manager for KPMG Peat Marwick LLP. Anthony W. Ruggiero joined Olin on August 30, 1995 and was elected a Corporate Senior Vice President and Chief Financial Officer on September 29, 1995. From 1990 to 1995, he served as Senior Vice President and Chief Financial Officer of The Reader's Digest Association, Inc. Joseph D. Rupp was elected a Corporate Vice President on January 1, 1996 and also serves as President, Brass Division. Prior to that time, since 1985, he served as Vice President, Manufacturing and Engineering for the Brass Division. Steven T. Warshaw was elected a Corporate Vice President on January 1, 1996 and serves as President, Olin Microelectronic Materials Division. Prior to that time, since 1990, he has served Olin as Senior Vice President and General Manager, Olin Electronic Materials, President, OCG Microelectronic Materials, Vice President and General Manager, Performance Urethanes. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of January 31, 1997, there were approximately 11,213 record holders of Olin Common Stock. Olin Common Stock is traded on the New York, Chicago and Pacific Stock Exchanges. Information concerning the high and low sales prices of Olin Common Stock and dividends paid on Olin Common Stock during each quarterly period in 1996 and 1995 appears on page 38 of the Shareholders Report and in Exhibit 13 hereto and is incorporated herein by reference as contained in Exhibit 13. Among the provisions of Olin's agreements with its long-term lenders are restrictions relating to payment of dividends and acquisition of Common Stock. At December 31, 1996, retained earnings of approximately $284 million were not so restricted. ITEM 6. SELECTED FINANCIAL DATA The information relating to the last five fiscal years contained under the caption "Ten-Year Financial Summary" appearing on page 25 of the Shareholders Report and in Exhibit 13 hereto is incorporated by reference in this Report as contained in Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 17 through 23 of the Shareholders Report and in Exhibit 13 hereto is incorporated by reference in this Report as contained in Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of Olin Corporation and subsidiaries and the related notes thereto together with the report thereon of KPMG Peat Marwick LLP dated January 30, 1997, appearing on pages 26 through 39 of the Shareholders Report and in Exhibit 13 hereto, are incorporated by reference in this Report as contained in Exhibit 13. 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The biographical information relating to Olin's Directors under the heading "Item 1--Election of Directors" in the Proxy Statement relating to Olin's 1997 Annual Meeting of Shareholders ("Proxy Statement") is incorporated by reference in this Report. See also the list of executive officers following Item 4 of this Report. The information regarding compliance with Section 16 of the Securities Exchange Act of 1934, as amended, contained in the paragraph entitled "Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Security Ownership of Directors and Officers" in the Proxy Statement is incorporated by reference in this Report. ITEM 11. EXECUTIVE COMPENSATION The information under the heading "Executive Compensation" in the Proxy Statement (but excluding the Report of the Compensation and Nominating Committee on Executive Compensation appearing on pages 12 through 13 of the Proxy Statement and the graph appearing on page 16 of the Proxy Statement) is incorporated by reference in this Report. The information under the headings "Additional Information Regarding the Board of Directors--Compensation of Directors," and "Additional Information Regarding the Board of Directors-- Directors Retirement Plan" in the Proxy Statement is incorporated by reference in this Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning holdings of Olin stock by certain beneficial owners contained under the heading "Certain Beneficial Owners" in the Proxy Statement and the information concerning beneficial ownership of Olin stock by Directors and officers of Olin under the heading "Security Ownership of Directors and Officers" in the Proxy Statement are incorporated by reference in this Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. FINANCIAL STATEMENTS Consolidated financial statements of Olin Corporation and subsidiaries and the related notes thereto together with the report thereon of KPMG Peat Marwick LLP dated January 30, 1997, appearing on pages 26 through 39 of the Shareholders Report and in Exhibit 13 hereto are incorporated by reference in this Report as contained in Exhibit 13. 2. FINANCIAL STATEMENT SCHEDULES Schedules not included herein are omitted because they are inapplicable or not required or because the required information is given in the consolidated financial statements and notes thereto. 16 Separate financial statements of 50% or less owned subsidiaries accounted for by the equity method are not summarized herein and have been omitted because, in the aggregate, they would not constitute a significant subsidiary. 3. EXHIBITS Management contracts and compensatory plans and arrangements are listed as Exhibits 10(a) through 10(ff) below. 2(a) Asset Purchase Agreement, dated October 9, 1996, between Olin Corporation and ARCO Chemical Company and Amendment No. 1 thereto, dated December 4, 1996--Exhibits 2(a) and 2(b) to Olin's Form 8-K, dated December 19, 1996.* 2(b) Distribution Agreement, dated as of December 30, 1996, between Olin Corporation and Primex Technologies, Inc.--Exhibit 2 to Olin's Form 8-K, dated January 15, 1997.* 3(a) Olin's Restated Articles of Incorporation as amended effective February 27, 1996--Exhibit 3(a) to Olin's Form 10-K for 1995.* (b) By-Laws of Olin as amended effective October 31, 1996--Exhibit 3 to Olin's Form 10-Q for the Quarter ended September 30, 1996.* 4(a) Articles of Amendment designating Series A Participating Cumulative Preferred Stock, par value $1 per share--Exhibit 2 to Olin's Form 8-A dated February 21, 1996, covering Series A Participating Cumulative Preferred Stock Purchase Rights.* (b) Rights Agreement dated as of February 27, 1996 between Olin and Chemical Mellon Shareholder Services, LLP, Rights Agent--Exhibit 1 to Olin's Form 8-A dated February 21, 1996, covering Series A Participating Cumulative Preferred Stock Purchase Rights.* (c) Form of Senior Debt Indenture between Olin and Chemical Bank-- Exhibit 4(a) to Form 8-K dated June 15, 1992; Supplemental Indenture dated as of March 18, 1994 between Olin and Chemical Bank--Exhibit 4(c) to Registration Statement No. 33-52771; Prospectus Supplement dated June 17, 1992 to Prospectus dated June 16, 1992, with respect to Olin's 8% Senior Notes Due 2002 filed under Registration Statement No. 33-4479; and Prospectus Supplement dated May 26, 1995 to Prospectus dated May 4, 1994 relating to Medium Term Notes, Series A filed under Registration Statement No. 33-52771.* (d) Form of Subordinated Debt Indenture between Olin and Bankers Trust Company--Exhibit 4(i) to Registration No. 33-4479; and Prospectus Supplement dated June 17, 1987 to Prospectus dated February 3, 1987, with respect to Olin's 9 1/2% Subordinated Notes Due 1997 filed under Registration Statement No. 33-4479.* (e) Credit Agreement, dated as of September 30, 1993, among Olin and the banks named therein--Exhibit 4 to Olin's Form 10-Q for the Quarter ended September 30, 1993.* (f) Letters, dated December 15, 1993, amending the Credit Agreement, dated as of September 30, 1993--Exhibit 4(f) to Olin's Form 10-K for 1993.* (g) Amendment, dated April 11, 1995, to Credit Agreement, dated as of September 30, 1993--Exhibit 4 to Olin's Form 10-Q for the Quarter ended June 30, 1995.* (h) Second Amendment, dated October 26, 1996, amending the Credit Agreement, dated as of September 30, 1993.
- -------- * Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-1070 unless otherwise indicated. 17 Olin is party to a number of other instruments defining the rights of holders of long-term debt. No such instrument authorizes an amount of securities in excess of 10% of the total assets of Olin and its subsidiaries on a consolidated basis. Olin agrees to furnish a copy of each instrument to the Commission upon request. 10(a) 1980 Stock Option Plan for Key Employees of Olin Corporation and Subsidiaries, as amended--Exhibit 10(a) to Olin's Form 10-K for 1991.* (b) 1988 Stock Option Plan for Key Employees of Olin Corporation and Subsidiaries as amended through February 23, 1995--Exhibit 10(b) to Olin's Form 10-K for 1994.* (c) Olin Corporation Performance Unit Plan, as amended April 24, 1986--Exhibit 10(a) to Olin's Form 10-Q for Quarter ended March 31, 1986.* (d) Olin Corporate Incentive Compensation Plan--Exhibits 1(b) and 2(b) to Registration No. 2-64811.* (e) Olin Deferred Salary Plan, effective January 1, 1983--Exhibit 10(f) to Olin's Form 10-K for 1993.* (f) Form of Directors' deferral plan--Exhibit 10(g) to Olin's Form 10-K for 1993.* (g) Amendments to Olin Corporation Performance Unit Plan, Corporate Incentive Compensation Plan, Deferred Salary Plan and Directors' deferral plan, adopted September 29, 1988--Exhibit 10(j) to Olin's Form 10-K for 1988.* (h) Amendment to Olin Corporation Performance Unit Plan, adopted May 25, 1989--Exhibit 10(b) to Olin's Form 10-Q for Quarter ended June 30, 1989.* (i) Amendment to Olin Corporation Performance Unit Plan, adopted September 26, 1991--Exhibit 10(j) to Olin's Form 10-K for 1991.* (j) Amendment to Olin Corporation Performance Unit Plan, adopted December 16, 1993--Exhibit 10(k) to Olin's Form 10-K for 1993.* (k) Deferral elections with respect to certain acquisitions or "change of control events"--Exhibit 10(h) to Olin's Form 10-K for 1986.* (l) Olin Senior Executive Pension Plan with amendments--Exhibit 10(l) to Olin's Form 10-K for 1994.* (m) Olin Supplementary Contributing Employee Ownership Plan, effective January 1, 1990 with amendments--Exhibit 10(m) to Olin's Form 10-K for 1994.* (n) Form of arrangement to credit 100 shares of Olin Common Stock to certain Directors in each year from 1985 through 1994--Exhibit 10(n) to Olin's Form 10-K for 1994.* (o) Olin Corporation Key Executive Life Insurance Program--Exhibit 10(b) to Olin's Form 10-Q for Quarter ended March 31, 1986.* (p) Form of Olin Corporation Endorsement Split Dollar Agreement (effective January 1, 1993)--Exhibit 10(s) to Olin's Form 10-K for 1992.* (q) Form of executive agreement between Olin and certain executive officers-- Exhibit 10(q) to Olin's Form 10-K for 1994.* (r) Form of amendment to executive agreement between Olin and certain executives. (s) Form of special severance agreement provided to certain employees to become operative upon a "change in control event" as amended September 26, 1996. (t) Retirement Plan for Non-Employee Directors of Olin Corporation, as amended through April 25, 1996--Exhibit 10(a) to Olin's Form 10-Q for Quarter ended March 31, 1996.*
- -------- * Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-1070 unless otherwise indicated. 18 (u) Change in Control elections regarding both the Directors' deferral plan and the arrangement to credit 100 shares of Olin Common Stock to certain Directors--Exhibit 10(z) to Olin's Form 10-K for 1989.* (v) Olin 1991 Long Term Incentive Plan, as amended through February 23, 1995--Exhibit 10(u) to Olin's Form 10-K for 1994.* (w) Description of 1991 Performance Unit Awards granted under the Olin 1991 Long Term Incentive Plan--Exhibit 10(w) to Olin's Form 10-K for 1991.* (x) Description of 1992 Performance Unit Awards granted under the Olin 1991 Long Term Incentive Plan--Exhibit 10(z) to Olin's Form 10-K for 1992.* (y) Description of Performance Share Awards granted under the Olin 1991 Long Term Incentive Plan--Exhibit 10 to Olin's Form 10-Q for the quarter ended June 30, 1993.* (z) Board Resolution adopted April 25, 1991 regarding payment of deferred amounts--Exhibit 10(y) to Olin's Form 10-K for 1991.* (aa) Olin Corporation 1994 Stock Plan for Non-employee Directors-- Exhibit 10(a) to Olin's Form 10-Q for Quarter ended March 31, 1994.* (bb) Olin Senior Management Incentive Compensation Plan as amended April 27, 1995--Exhibit 10(b) to Olin's Form 10-Q for Quarter ended March 31, 1995.* (cc) Description of Restricted Stock Unit Awards granted under the Olin 1991 Long Term Incentive Plan--Exhibit 10(bb) to Olin's Form 10-K for 1995.* (dd) Form of EVA Incentive Plan (Management Incentive Compensation Plan). (ee) 1996 Stock Option Plan for Key Employees of Olin Corporation and Subsidiaries--Exhibit A to Olin's 1996 Proxy Statement dated March 12, 1996.* (ff) Olin Corporation 1997 Stock Plan for Non-employee Directors. (gg) Asset Purchase Agreement, dated October 9, 1996, between Olin Corporation and ARCO Chemical Company and Amendment No. 1 thereto, dated December 4, 1996--Exhibits 2(a) and 2(b) to Olin's Form 8-K, dated December 19, 1996.* (hh) Distribution Agreement, dated as of December 30, 1996 between Olin Corporation and Primex Technologies, Inc.--Exhibit 2 to Olin's Form 8-K, dated January 15, 1997.* (ii) Assumption of Liabilities and Indemnity Agreement, dated December 31, 1996, between Olin Corporation and Primex Technologies, Inc. 11. Computation of Per Share Earnings (unaudited) 12. Computation of Ratio of Earnings to Fixed Charges (unaudited). 13. Excerpts from the 1996 Annual Report to Shareholders. 21. List of Subsidiaries. 23. Consent of KPMG Peat Marwick LLP dated March 12, 1997. 27(a) Financial Data Schedule. 27(b) Restated Financial Data Schedule. 27(c) Restated Financial Data Schedule.
(b) REPORTS ON FORM 8-K Except for (i) a Form 8-K dated October 10, 1996 filed on October 11, 1996 with respect to Item 5 and (ii) a Form 8-K dated December 19, 1996 filed on December 19, 1996 with respect to Items 2 and 5, no reports on Form 8-K were filed during the quarter ended December 31, 1996. - -------- * Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-1070 unless otherwise indicated. 19 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 Date: March 12, 1997 /s/ Donald W. Griffin By................................... DONALD W. GRIFFIN CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE --------- ----- /s/ Donald W. Griffin ..................................... DONALD W. GRIFFIN Chairman of the Board, President and Chief Executive Officer and Director (Principal Executive Officer) /s/ Richard E. Cavanagh ..................................... RICHARD E. CAVANAGH Director /s/ William W. Higgins ..................................... WILLIAM W. HIGGINS Director /s/ Suzanne Denbo Jaffe ..................................... SUZANNE DENBO JAFFE Director /s/ John W. Johnstone, Jr. ..................................... JOHN W. JOHNSTONE, JR. Director /s/ Jack D. Kuehler ..................................... JACK D. KUEHLER Director ..................................... H. WILLIAM LICHTENBERGER Director /s/ G. Jackson Ratcliffe, Jr. ..................................... G. JACKSON RATCLIFFE, JR. Director /s/ William L. Read ..................................... WILLIAM L. READ Director
20
SIGNATURE TITLE --------- ----- /s/ John P. Schaefer ..................................... JOHN P. SCHAEFER Director /s/ Louis S. Massimo ..................................... LOUIS S. MASSIMO Vice President and Controller (Principal Accounting Officer) /s/ Anthony W. Ruggiero ..................................... ANTHONY W. RUGGIERO Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Date: March 12, 1997 21 [LOGO] PRINTED ON RECYCLED PAPER EX-4.(H) 2 SECOND AMENDMENT TO THE CREDIT AGREEMENT Exhibit 4(h) October 26, 1996 The Boatmen's National Bank of St. Louis P.O. Box 236 St. Louis, MO 63166 Attention: Timothy L. Drone, Vice President & Manager Bank of Boston Connecticut Corporate Banking 1 Landmark Square Stamford, CT 06901 Attention: Jo Ann Keller, Director The Chase Manhattan Bank, N.A. One Chase Plaza New York, NY 10081 Attention: Scott S. Ward, Vice President Citibank, N.A. 399 Park Avenue, 8th Floor New York, NY 10043 Attention: Goran Sare, Vice President 2 Credit Suisse New York Branch 12 East 49th Street New York, NY 10017 Attention: Lynn Allegaert Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260-0060 Attention: Martin R. Atkin, Managing Director Re: Second Amendment and Waiver --------------------------- Dear Sirs: We refer to the Credit Agreement, dated as of September 30, 1993, as amended effective May 1, 1995 ("Credit Agreement"), among Olin Corporation ("Borrower"), Bank of Boston Connecticut, Citibank, N.A., Credit Suisse, Morgan Guaranty Trust Company of New York, The Boatmen's National Bank of St. Louis and The Chase Manhattan Bank, N.A. Capitalized terms utilized but not defined herein have the meanings specified in the Credit Agreement. The following sets forth the agreement of the undersigned to waive provisions of the Credit Agreement with respect to the spinoff to the Borrower's shareholders of the Borrower's Ordnance and Aerospace Divisions as specified below and to amend Section 4.01(e) of the Credit Agreement: 1. The Borrower has informed the Banks that it proposes to spinoff to its shareholders the business and assets of its Ordnance and Aerospace Divisions, including the subsidiaries relating thereto. The spinoff would be effectuated by the declaration of a dividend in the form of the shares of a recently-formed corporation ("Newco"), a Virginia corporation and wholly-owned Subsidiary of the Borrower, to which the assets and certain liabilities of these Divisions will be transferred prior to the spinoff. The Borrower has requested that the Banks consent to the proposed spinoff notwithstanding the provisions of the Credit Agreement. Notwithstanding anything to the contrary contained in the Credit Agreement, the Lenders hereby consent to the proposed spinoff described herein, agree that the proposed spinoff shall not constitute an Event of Default under the Credit Agreement and waive compliance with any provisions thereof in connection therewith. 2. The text contained in Section 4.01(e) is hereby deleted and replaced with "(e) [Intentionally Left Blank]". 3 3. Except as amended or waived hereby, the provisions of the Credit Agreement remain in full force and effect. 4. This second amendment and waiver shall become effective as of October 31, 1996 provided it is approved by the Banks as required by Section 8.01 of the Credit Agreement at any time. The Borrower confirms that the representations and warranties contained in Section 4.01 of the Credit Agreement are correct as though made on and as of the date hereof (for this purpose the term "Agreement" as used in Section 4.01 shall mean the Credit Agreement as amended hereby). Kindly confirm by your signature below your agreement to the foregoing. BORROWER -------- OLIN CORPORATION By ----------------------------------------- Title: Vice President and Treasurer Commitment BANKS - ---------- ----- $ 20,000,000 BANK OF BOSTON CONNECTICUT By: ---------------------------------------- Name: Title: $ 50,000,000 CITIBANK, N.A. By: ---------------------------------------- Name: Title: 4 $ 20,000,000 CREDIT SUISSE By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: $ 40,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ---------------------------------------- Name: Title: $ 30,000,000 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: $ 90,000,000 THE CHASE MANHATTAN BANK, N.A. By: ---------------------------------------- Name: Title: $250,000,000 Total of the Commitments EX-10.(R) 3 FORM OF AMENDMENT TO EXECUTIVE AGREEMENT Exhibit 10(r) Form of Amendment to Executive Agreement [Date] [Executive] [Address] Re: Amendment No. 1 to Executive Agreement -------------------------------------- Dear ____________: Reference is made to the Executive Agreement, dated (Date) (the "Agreement"), between you and Olin Corporation. Effective as of the date of this letter, the Agreement is hereby amended as follows: (1) the reference in Paragraph 1(d)(ii) to "under Olin's management incentive compensation plan ("MICP")" shall be changed to "actually paid under Olin's short-term annual incentive compensation plans or programs ("ICP")" and (2) all references to "MICP" shall be changed to "ICP". Please indicate your acceptance by signing below and returning a copy to Johnnie Jackson. Except as amended hereby, the Agreement remains in full force and effect. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Very truly yours, OLIN CORPORATION By: _______________________________ Accepted: ________________________ EX-10.(S) 4 FORM OF SPECIAL SEVERANCE AGREEMENT Exhibit 10(s) Form of Special Severance Agreement (As amended September 26, 1996) [Date] - --------------------- - --------------------- - --------------------- Dear __________: The following supersedes and replaces in its entirety our letter agreement of ________ with you relating to severance in the event of a Change in Control of Olin Corporation ("Olin"). 1. This agreement shall be binding immediately upon its execution and delivery, but it shall not be operative unless and until there has been a Change in Control of Olin Corporation ("Olin"), as defined below. In the event that this agreement shall not have become operative by September 30, 1999, it shall not thereafter become operative or be of any force or effect, notwithstanding the occurrence of a Change in Control, unless the Board of Directors of Olin shall have taken action expressly to reapprove this agreement. 2. For purposes of this agreement, the following definitions apply: (a) "Change in Control" means: (i) Olin ceases to be, directly or indirectly, owned by at least 1,000 stockholders; (ii) a person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a "person" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act"), other than Olin, a majority-owned subsidiary of Olin or an employee benefit plan of Olin or such subsidiary, become(s) the "beneficial owner" (as defined in Rule 13d-3 under the Act) of 20% or more of the outstanding voting stock of Olin; (iii) during any period of two consecutive years, individuals who at the beginning of such period constitute Olin's Board of Directors (together with any new Director whose election by 2 Olin's Board of Directors or whose nomination for election by Olin's stockholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Directors then in office; or (iv) all or substantially all of the business of Olin is disposed of pursuant to a merger, consolidation or other transaction in which the Company is not the surviving corporation or Olin combines with another company and is the surviving corporation (unless the shareholders of Olin immediately following such merger, consolidation, combination, or other transaction beneficially own, directly or indirectly, more than 50% of the voting stock or other ownership interests of (x) the entity or entities, if any, that succeed to the business of the Company or (y) the combined company). (b) "Cause includes dishonesty, misconduct, insubordination or violation of, or extended deviation from, any reasonable Olin rule or policy. (c) "Olin" includes a successor of Olin Corporation (whether direct or indirect) by purchase, merger, consolidation or otherwise. (d) "Termination" means termination by Olin of your employment within 18 months following a Change in Control other than for Cause. Anything herein to the contrary notwithstanding, the following shall also be deemed a "Termination" for purposes of this agreement: (i) termination of your employment with Olin at your election within 24 months following a Change in Control, because Olin shall have changed your position within Olin to a position involving a diminution in your status, level of reporting, or compensation as in effect immediately prior to the Change in Control, or to a position which requires a relocation on your part and Olin shall not have offered to reimburse you fully for all of your relocation costs; (ii) termination of your employment with Olin at your election within 24 months following a Change in Control, if at the time you are at least 55 and have at least 10 years of creditable service under an Olin retirement plan and Olin shall have required you to relocate your principal office to a location 3 outside of the general area in which it was located immediately prior to the Change in Control. 3. (a) In the event of your Termination, Olin will pay you an amount ("Special Severance") equal to the sum of: (i) 12 months salary at the higher of your base rate of salary in effect at Olin immediately prior to the Change in Control or on the date of Termination; plus (ii) an amount equal to the greater of (a) the average of your bonus awards under Olin's incentive compensation plan for the three calendar years immediately preceding the year in which Termination occurs or (b) your standard award for the year in which Termination occurs. (b) During the 12-month period following your Termination, you and your dependents shall continue to be entitled to coverage under the medical and dental insurance plans of Olin, and you shall continue to be entitled to coverage under the life insurance plans (other than travel/accident) of Olin, in which you participated prior to Termination. (c) Payment of Special Severance will be made to you (i) over a twelve month period in equal monthly installments commencing with the month following the month in which your Termination occurs or (ii) at your election, within 30 days of the date of your Termination in a lump sum discounted to present value at a discount rate of 7- 1/2% per annum applied to each future payment from the time it would have ordinarily become payable pursuant to clause (i) to the date of your Termination; provided, however, there shall be deducted from amounts payable to you under paragraph (a) all amounts in the nature of severance paid to you under the applicable severance policy of Olin or under any special arrangements which may have been entered into by you with Olin with respect to termination of your Olin employment. (d) Nothing in this Agreement shall be deemed to limit any provision of the Performance Unit Plan, a stock option plan or other employee benefit plan of Olin which may apply in the event of a Change in Control. (e) You shall accrue no vacation during the 12 months following the date of Termination but shall be entitled to payment for accrued and unused vacation for the then current year. 4 (f) You shall not be entitled to an MICP award for the calendar year of Termination if Termination occurs during the first calendar quarter. If Termination occurs during or after the second calendar quarter, you shall be entitled to prorated MICP award for the calendar year of Termination which shall be determined by multiplying your then current MICP standard by a fraction the numerator of which is the number of weeks in the calendar year prior to the Termination and the denominator of which is 52. You shall accrue no MICP award during the 12 months following the date of Termination. For purposes of this paragraph, "MICP" shall mean the annual cash incentive plan or program in effect at the time of Termination. 4. The amount of payments provided for in this agreement shall not be reduced by the amount of compensation, if any, which you may receive from other employers following your Termination. 5. In the event that after a Change in Control your operating unit is to be sold and you are to be transferred to the purchaser of such operating unit, and your prospective new employer will not agree to assume this agreement in its entirety, then you shall be entitled to terminate your employment with Olin prior to the sale and receive from Olin the payments contemplated by paragraph 3 above, unless Olin shall have agreed to pay you the difference between the amount of such payments your prospective new employer is prepared to assume and the amount payable hereunder. 6. Anything in this agreement to the contrary notwithstanding: (a) In the event that you cease to be employed by Olin for any reason, whether at your election or that of Olin, prior to a Change in Control, this agreement shall not thereafter become operative or be of any force or effect notwithstanding the occurrence of a Change in Control. 7. No Employment Rights. This Agreement shall not be deemed to confer -------------------- upon you a right to continued employment with Olin. - --------------------------------------------------- 8. Disputes/Arbitration. --------------------- (a) Any dispute or controversy arising under or in connection with this agreement shall be settled exclusively by arbitration at Olin's corporate headquarters in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid during the pendency of any dispute or controversy arising under or in connection with this agreement. (b) Olin shall pay all reasonable legal fees and expenses which you may incur to enforce this agreement unless you had no reasonable basis for the claim. Should 5 Olin dispute your entitlement to such fees and expenses, the burden of proof shall be on Olin to establish that you had no reasonable basis for the claim. Very truly yours, OLIN CORPORATION By: ------------------------ Agreed: - ------------------------ Signature - ------------------------ Please Print Name EX-10.(DD) 5 FORM OF EVA INCENTIVE PLAN Exhibit 10(dd) FORM OF EVA(R) INCENTIVE PLAN (Management Incentive Compensation Plan) ARTICLE I STATEMENT OF PURPOSE -------------------- 1.1 The purpose of the EVA Incentive Plan (the "Plan") is to provide a system of incentive compensation which will promote the maximization of Economic Value Added ("EVA") over the long term. In order to align management incentives with shareholder interests, incentive compensation will reward the creation of value. This Plan will tie incentive compensation to EVA and, thereby, reward management for creating value and penalize management for destroying value. 1.2 EVA is the performance measure of value creation for Olin Corporation (the "Company"). Managers create value when they employ capital in an endeavor that generates a return that exceeds the cost of the capital employed. Managers destroy value when they employ capital in an endeavor that generates a return that is less than the cost of capital employed. By imputing the cost of capital upon the operating profits generated by a business group, EVA measures the total value created (or destroyed) by management. The Plan will reward increases in EVA and penalize decreases over time. ARTICLE II DEFINITIONS ----------- Unless the context provides a different meaning, the following terms shall have the following meanings: "ACT" means the Securities Exchange Act of 1934, as amended. "ACTUAL EVA" means, with respect to an EVA Center for a fiscal year, the EVA of such center for such year as calculated by the Chief Financial Officer. "BANK BALANCE" means, with respect to a Participant, a bookkeeping record of the net balance of the amounts credited to and debited against such Participant's Bonus Bank following the end of each fiscal year. For a Participant's first year of participation in the Plan, such Participant's Bank Balance shall initially be equal to zero. "BONUS BANK" means, with respect to a Participant, a bookkeeping record of an account to which Declared Bonuses are credited, or debited as the case may be, from EVA(R) is a registered trademark of Stern Stewart & Co. time to time under the Plan and from which bonus payments to such Participant are debited. "BONUS MULTIPLE" means, with respect to a Participant for a fiscal year, the Participant's Performance Multiple plus the Participant's Target Multiple for such year, except in the case of a Participant who has a Combined Performance Multiple for such year, the Performance Multiple shall be the Combined Performance Multiple for such Participant for such year. "CAPITAL" means, with respect to an EVA Center for a fiscal year, the investment made (both equity and debt) in such center, as determined by the Chief Financial Officer for such year. Each component of Capital will be measured by computing an average balance based on the ending monthly balance for the twelve months of a fiscal year. "CAPITAL CHARGE" means, with respect to an EVA Center for a fiscal year, the deemed opportunity cost of employing Capital in the business of such EVA Center for such year, as determined by the Chief Financial Officer. The Capital Charge is computed as follows: Capital Charge = Capital x Cost of Capital "CAUSE" shall mean (i) dishonesty; (ii) theft or other criminal conduct; (iii) insubordination; (iv) violation of, or deviation from, any Company or facility work rule, or (v) other misconduct deemed by the Company to be of a serious nature warrranting termination. "CHANGE IN CONTROL" means that any of the following events shall have occurred: (i) the Company ceases to be, directly or indirectly, owned by at least 1,000 shareholders; (ii) a person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a group (or a "person" within the meaning of Sections 13(d)(3) of the Act), other than the Company, a majority-owned subsidiary of the Company or an employee benefit plan (or related trust) of the Company or such subsidiary, become(s)the "beneficial owner" (as defined in Rule 13(d)(3) under the Act) of 20% or more of the then outstanding voting stock of the Company; (iii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Company's Board of Directors (together with any new Director whose election by the Company's Board of Directors or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for 2 election was previously so approved) cease for any reason to constitute a majority of the Directors then in office; or (iv) the Company's Board of Directors determines that a tender offer for the Company's shares indicates a serious intention by the offeror to acquire control of the Company. "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of the Company as designated by the Board of Directors of the Company from time to time. "CHIEF FINANCIAL OFFICER" means the Chief Financial Officer of the Company as designated by the Board of Directors of the Company from time to time. "COMBINED PERFORMANCE MULTIPLE" means, with respect to a Participant who is assigned to a Participating Group which has more than one EVA Center, in any fiscal year, the sum of the Performance Multiples for such centers for such year as weighted for such Participating Group. "COMMITTEE" means the Compensation and Nominating Committee of the Board of Directors of the Company or such other committee as such Board may designate from time to time. "COMPANY" means Olin Corporation, a Virginia corporation, and its successors and assigns, including any corporation with which the Company is merged or consolidated. "CORPORATE OFFICER" means a corporate officer of the Company, elected by the Board of Directors of the Company, who is not an assistant officer. "COST OF CAPITAL" means for a fiscal year the weighted average of the cost of debt and the cost of equity for such year, as determined by the Chief Financial Officer. The Cost of Capital will be reviewed at least annually and revised if it has changed significantly. Calculations will be carried to one decimal point. "DECLARED BONUS" means, with respect to a Participant for a fiscal year, the bonus earned by such Participant for such year and is equal to the Participant's Initial Declared Bonus for such year except if the Participant's Participating Group has a Value Driver Factor, such Participant's Declared Bonus shall be equal to the sum of (i) the EVA- weighted portion of the Initial Declared Bonus for such year plus (ii) the product of the non-EVA weighted portion of the Initial Declared Bonus for such year multiplied by the Value Driver Factor for such year; provided that in all cases prior to a Change in Control the Company in its sole discretion may reduce a positive Declared Bonus of any and all Participants to any amount (but no less than zero) prior to the crediting of such Declared Bonus to the Participant's Bonus Bank. 3 "EVA" means, with respect to an EVA Center for a fiscal year, NOPAT of such EVA Center for such year minus Capital Charge of such EVA Center for such year, all as calculated by the Chief Financial Officer. EVA may be positive or negative. "EVA CENTER" means those centers or business groups, including the Company, for which EVA is separately calculated, such centers to be determined annually by the Company for a fiscal year. "EXPECTED IMPROVEMENT IN EVA" means the constant EVA improvement that is added to shift the target up each year as determined by the Company from time to time. This is determined by the expected growth in EVA per year with respect to an EVA Center. With respect to the Corporate EVA Center, the Expected Improvement shall be $______. "INITIAL DECLARED BONUS" means, with respect to a fiscal year for a Participant, the product of the Participant's Target Incentive for such year multiplied by such Participant's Bonus Multiple for such year. "LEVERAGE FACTOR" with respect to an EVA Center for a fiscal year is the negative (positive) deviation from Target EVA necessary before a zero (two times Target) bonus is earned as determined by the Committee from time to time. The Leverage Factor for the Corporate EVA Center for 1996 shall be $______. "NOPAT" means, with respect to an EVA Center for a fiscal year, the net operating profit after taxes for such fiscal year, as determined by the Chief Financial Officer. "PARTICIPANT" means for a fiscal year each salaried employee who is designated as a Participant, in the case of Corporate Officers of the Company, by the Committee, and in all other cases, by the Chief Executive Officer or his designee. "PARTICIPATING GROUP" means for a fiscal year a business division or subunit of a business division which are uniquely identified for the purpose of bonus awards under this Plan and are so designated by the Company from time to time as a Participating Group. "PERFORMANCE MULTIPLE" means, with respect to an EVA Center for a fiscal year, the difference between the Actual EVA of such center for such year and the Target EVA of such center for such year divided by the Leverage Factor for such center for such year, plus, in the case of a Participant who is assigned to a Participating Group which has more than one EVA Center, the Participant's Target Multiple for such year. "PLAN" means this EVA Incentive Plan, as amended from time to time. "TARGET EVA" means, with respect to an EVA Center for the initial year, of such center the level of EVA as determined by the Company. With respect to the Corporate EVA Center for 1996, the Target EVA shall be $______. 4 After the initial year of an EVA Center, the Target EVA for such center for each succeeding fiscal year is revised according to the following formula: Target EVA = ((Prior Fiscal Year's Actual EVA + Prior Fiscal Year's Target EVA)divided by 2)) + Expected Improvement in EVA; provided such Target EVA shall be adjusted to reflect any change in the Cost of Capital for such succeeding fiscal year as provided in the EVA Business Management System prepared by Stern Stewart & Co. "TARGET INCENTIVE" means, with respect to a Participant for a fiscal year, the Target Incentive for such Participant for such fiscal year as determined by the Committee in the case of Participants who are Corporate Officers of the Company at the time of determination and in all other cases by the Chief Executive Officer or his designee. "TARGET MULTIPLE" means 1.0 for each Participant except in the first four years during which a Participant participates in the Plan, the Target Multiple shall be 1.5. "VALUE DRIVER FACTOR" is based on an assessment of individual and/or group performance as determined annually by the Company. ARTICLE III DETERMINATION AND DISTRIBUTION OF BONUSES ----------------------------------------- 3.1 DETERMINATIONS. For each fiscal year of the Company beginning with the -------------- 1996 fiscal year, the Company shall determine with respect to such fiscal year (1) the persons who will be Participants, (2) the Participating Group for each such Participant, (3) the Target Incentive for each Participant, (4) the minimum and maximum values of the Value Driver Factor, if any, for each Participant, (5) the EVA Center or EVA Centers for each Participating Group, (6) if there is more than one EVA Center for a Participating Group, the weight each EVA Center will carry in determining the Bonus Multiple of such Participating Group and (7) Cost of Capital for each EVA Center. As soon as practicable following the close of such fiscal year, the Company shall determine the following with respect to such fiscal year for each Participant: (1) Actual EVA and Performance Multiple for each EVA Center, (2) the Performance Multiple or Combined Performance Multiple, as the case may be, for each Participating Group, (3) the Bonus Multiple, (4) the Value Driver Factor, (5) the Initial Declared Bonus, (6) the Declared Bonus and (7) the Capital Charge for each EVA Center. The Committee on behalf of the Company shall determine the Initial Declared Bonus, Value Driver Factor (if any) and the Declared Bonus for Participants who are Corporate Officers at the time of determination. Capital, Cost of Capital, Capital Charge, Expected Improvement in EVA, Leverage Factor and Target EVA may be adjusted from time to time for a fiscal year to reflect extraordinary or nonrecurring charges or financial developments. 5 3.2 DISTRIBUTION. As soon as practicable, following the close of each fiscal ------------ year of the Company but no later than March 15 following such close, the Company shall: (1) Add the Declared Bonus for such fiscal year (including any negative bonuses) to the Bonus Bank. (2) Pay out a prescribed portion of any positive Bank Balance in accordance with the distribution ratio shown below and (3) Carry the remaining Bank Balance (positive or negative) forward to the next fiscal year. The prescribed distribution ratios for the Bonus Bank for a Participant are: First year of Plan participation 67% Second year of Plan participation 50% Third year of Plan participation 40% Fourth and subsequent years of Plan participation 33% If the first period of participation for a Participant is less than six months, then the first year distribution ratio (i.e. 67%) applies to this period and the full subsequent year of participation. Thereafter, the distribution ratios are as above. Notwithstanding the foregoing, the Company may, as it determines in its sole discretion, reduce the distribution ratio for any and all Participants at any time prior to payment of the distribution from the Bonus Bank for a fiscal year; provided the Committee shall make such determination in the case of any Corporate Officer. 3.3 NEGATIVE BONUS BANK. If, as a result of negative EVA, a Bonus Bank has a ------------------- deficit, no Participant shall be required, at any time, to reimburse his or her Bonus Bank. 3.4 LUMP SUM. All distributions from the Plan shall be made in a cash lump sum -------- unless payment is deferred in a timely manner by the Participant with the consent of the Company under the Company's bonus deferral policy as in effect from time to time. 3.5 INTEREST. No interest shall be paid on or accrue to any Bank Balance. -------- ARTICLE IV PARTICIPATION, TRANSFERS AND TERMINATIONS ----------------------------------------- 4.1 PARTICIPANT MATTERS. Unless otherwise expressly reserved to the Committee ------------------- or the Chief Financial Officer and except in cases affecting the Chief Executive Officer, the Chief Executive Officer or his designee on behalf of the Company shall determine all Plan matters with respect to all Participants. 4.2 TRANSFERS. A Participant who transfers his or her employment from one --------- Participating Group of the Company to another Participating Group shall retain his or her Bonus Bank and will be eligible to receive future Plan bonuses in accordance with the 6 provisions of the Plan. During the year of transfer, the Initial Declared Bonus and Declared Bonus for such Participant shall be pro rated based on time spent in each Participating Group. 4.3 RETIREMENT, DISABILITY OR DEATH. If during a fiscal year a Participant ------------------------------- terminates employment with the Company by virtue of electing to receive early or normal retirement benefits under one of the Company's pension plans, receiving disability payments under the Company's long-term disability benefits program or death, such Participant shall receive the positive Bank Balance, if any. The Participant will receive his or her balance as soon as practical after qualifying for receipt of benefit payments under the Company's long-term disability benefits program or pension plan or dying, as the case may be. Payments of such balance made under this Section 4.3 shall not be included in any pension calculation. 4.4 INVOLUNTARY TERMINATION WITHOUT CAUSE. A Participant whose employment is ------------------------------------- terminated by the Company or any subsidiary without Cause shall forfeit his or her Bonus Bank and any Bank Balance unless a different determination is made by the Company. Any payments of such balance made under this Section 4.4 shall not be included in any pension calculation. 4.5 VOLUNTARY TERMINATION. In the event that a Participant voluntarily --------------------- terminates employment with the Company or any of its subsidiaries, the right of participant to his or her Bonus Bank and any Bank Balance shall be forfeited unless a different determination is made by the Company. Any payments of such balance made under this Section 4.5 shall not be included in any pension calculation. 4.6 INVOLUNTARY TERMINATION FOR CAUSE. In the event of termination of --------------------------------- employment for Cause, the right of the Participant to the Bonus Bank and any Bank Balance shall be forfeited unless a different determination is made by the Company. Any payments of such balance made under this Section 4.6 shall not be included in any pension calculation. 4.7 BREACH OF AGREEMENT. Notwithstanding any other provision of the Plan or ------------------- any other agreement, in the event that a Participant shall breach any non- competition agreement or provision relating to the Company or breach any agreement with respect to the post-employment conduct of such Participant, including those contained in any benefit or incentive plan or award, the Bonus Bank held by such Participant shall be forfeited. 4.8 CHANGE IN CONTROL. Upon a Change in Control, the Plan shall terminate and ----------------- positive Bank Balances shall be paid to Participants. Any payments of such balance made under this Section 4.8 shall not be included in any pension calculation. 4.9 NO GUARANTEE. Participation in the Plan provides no guarantee that ------------ payments under the Plan will be paid. Selection as a Participant is no guarantee that payments under the Plan will be paid or that selection as a Participant will be made for the subsequent fiscal year. 7 ARTICLE V GENERAL PROVISIONS ------------------ 5.1 WITHHOLDING OF TAXES. The Company shall have the right to withhold the -------------------- amount of taxes, which in the determination of the Company, are required to be withheld under law with respect to any amount due or paid under the Plan. 5.2 EXPENSES. All expenses and costs in connection with the adoption and -------- administration of the Plan shall be borne by the Company out of its general funds. 5.3 CLAIMS FOR BENEFITS. Participants who terminate service for any reason ------------------- will be deemed to have made a claim for benefits and no written claim will be required. Claims for benefits will be decided by the Chief Executive Officer or, in the case of a claim pertaining to the Chief Executive Officer, by the Committee (collectively referred to as the "Adjudicator"). If the Adjudicator believes that a terminated Participant is not entitled to benefits, it shall notify the Participant in writing of the denial of benefits within 90 days of the Participant's termination of service. In the event that a claim is wholly or partially denied, the Participant or his representative will receive a written explanation of the reason for denial. The Participant or his representative may request a review of the denied claim within 60 days of receipt of the denial and, in connection therewith, may review pertinent documents and submit comments in writing. Upon receipt of an appeal, the Adjudicator shall decide the appeal within 60 days of receipt. The decision on appeal shall be in writing, shall include specific reasons for the decision and shall refer to pertinent provisions of the Plan on which the decision is based. In reaching its decision, the Adjudicator shall have complete discretionary authority to determine all questions arising in the interpretation and administration of the Plan and to construe the terms of the Plan, including any doubtful or disputed terms and the eligibility of a Participant for benefits. 5.4 ACTION TAKEN IN GOOD FAITH. The Company may employ attorneys, consultants, -------------------------- accountants or other persons and the Company's directors and officers shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or Chief Executive Officer in good faith shall be final and binding upon all employees, the Company and all other interested parties. No member of the Committee, nor any officer, director, employee or representative of the Company, or any of its affiliates acting on behalf of or in conjunction with the Committee, shall be personally liable for any action, determination, or interpretation, whether of commission or omission, taken or made with respect to the Plan. 5.5 RIGHTS PERSONAL TO EMPLOYEE. Any rights provided to an employee under the --------------------------- Plan shall be personal to such employee, shall not be transferable (except by will or pursuant to the laws of descent or distribution), and shall be exercisable during his lifetime, only by such employee. 8 5.6 DISTRIBUTION. Upon termination of the Plan or suspension for a period of ------------ more than 90 days, the positive Bank Balance of each Participant shall be distributed as soon as practicable but in no event later than 90 days from such event. The Committee, in its sole discretion, may accelerate distribution of the balance of any Bonus Bank, in whole or in part, at any time without penalty. 5.7 NON-ALLOCATION OF AWARD. In the event of a suspension or termination of ----------------------- the Plan during any fiscal year, as provided herein at Section 10.1, the Declared Bonus for such year shall be deemed forfeited and no portion thereof shall be allocated to Participants. In the event of a suspension, any such forfeiture shall not affect the calculation of EVA in any subsequent year. ARTICLE VI LIMITATIONS ----------- 6.1 NO CONTINUED EMPLOYMENT. Nothing contained herein shall provide any ----------------------- employee with any right to continued employment or in any way abridge the rights of the Company and its subsidiaries to determine the terms and conditions of employment and whether to terminate employment of any employee. Neither the establishment of the Plan or the grant of an award or bonus hereunder shall be deemed to constitute an express or implied contract of employment for any period of time or in any way abridge the rights of the Company or any of its subsidiaries to determine the terms and conditions of employment or to terminate the employment of any employee with or without cause at any time. 6.2 NO VESTED RIGHTS. Except as otherwise expressly provided herein, no ---------------- employee or other person shall have any claim of right (legal, equitable, or otherwise) to any award, allocation, or distribution or any right, title, or vested interest in any amounts in his Bonus Bank and no officer or employee of the Company or any subsidiary or any other person shall have any authority to make representations or agreements to the contrary. No interest conferred herein to a Participant shall be assignable or subject to any lien or pledge or any claim by a Participant's creditors. The right of the Participant to receive a distribution thereunder shall be an unsecured claim against the general assets of the Company and the Participant shall have no rights in or against any specific assets of the Company as the result of participation hereunder. 6.3 NOT PART OF OTHER BENEFITS. The benefits provided in this Plan shall not -------------------------- be deemed a part of any other benefit provided by the Company or any of its subsidiaries to its employees. Neither the Company nor any of its subsidiaries assumes any obligation to Participants except as specified herein. 6.4 OTHER PLANS. Nothing contained herein shall limit the Company and its ----------- subsidiaries' power or the Committee's power to grant bonuses to employees of the Company or any of its subsidiaries, whether or not Participants in this Plan. 9 6.5 UNFUNDED PLAN. This Plan is unfunded and is maintained by the Company in ------------- part to provide deferred compensation to a select group of management and highly compensated employees. Nothing herein shall create or be conjured to create a trust or separate fund of any kind, or a fiduciary relationship between the Company (or any of its subsidiaries) and any Participant. ARTICLE VII AUTHORITY --------- 7.1 Full and sole power and authority to interpret and administer this Plan shall be vested in the Committee which shall have the sole authority to make rules and regulations for the administration of the Plan. The Committee may from time to time make such decisions and adopt such rules and regulations for implementing the Plan as it deems appropriate for any Participant under the Plan. Any decision taken by the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be final, conclusive and binding upon all Participants and any person claiming under or through them. The Committee may delegate its power and authority with respect to the Plan to the Chief Executive Officer from time to time as it determines. ARTICLE VIII NOTICE ------ 8.1 Any notice to be given pursuant to the provisions of the Plan shall be in writing and directed to the appropriate recipient thereof at his business address or office location. ARTICLE IX EFFECTIVE DATE -------------- 9.1 This Plan shall be effective as of January 1, 1996. ARTICLE X AMENDMENTS ---------- 10.1 This Plan may be amended, suspended or terminated in whole or in part at any time from time to time at the sole discretion of the Committee; provided, however, that no such change in the Plan shall be effective to eliminate or diminish the distribution of any award that has been allocated to the Bonus Bank of a Participant prior to the date of such amendment, suspension or termination. Notice of any such amendment, suspension of termination shall be given promptly to each Participant. 10 ARTICLE XI APPLICABLE LAW -------------- 11.1 This Plan shall be construed in accordance with the provisions of the laws of the State of Connecticut. Adopted as of January 1, 1996 OLIN CORPORATION By: Peter C. Kosche Senior Vice President, Corporate Affairs 11 EX-10.(FF) 6 1997 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS Exhibit 10(ff) OLIN CORPORATION 1997 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSE The purpose of the Olin Corporation 1997 Stock Plan for Non-employee Directors is to promote the long-term growth and financial success of Olin Corporation by attracting and retaining Non-employee Directors of outstanding ability and by promoting a greater identity of interest between its Non-employee Directors and its shareholders. 2. DEFINITIONS The following capitalized terms utilized herein have the following meanings: "Annual Grant Participant" means a Non-employee Director who is not eligible for any other pension benefits from the Company, including, but not limited to, benefits from the Olin Employees Pension Plan, the Olin Senior Executive Pension Plan or another pension plan of the Company. "Board" means the Board of Directors of the Company. "Change in Control" means any of the following: (i) the Company ceases to be, directly or indirectly, owned by at least 1,000 shareholders; (ii) a person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a "person" within the meaning of Section 13(d)(3) of the 1934 Act, other than the Company, a majority-owned subsidiary of the Company or an employee benefit plan (or related trust) of the Company or such subsidiary, become(s) the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of 20% or more of the then outstanding voting stock of the Company; or (iii) during any period of two consecutive years, individuals who at the 2 beginning of such period constitute the Board (together with any new director whose election by the Board or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office. "Committee" means the Compensation and Nominating Committee (or its successor) of the Board. The Board may act at anytime in lieu of the Committee. "Common Stock" means the Company's Common Stock, $1.00 par value per share. "Company" means Olin Corporation, a Virginia corporation, and any successor. "Fair Market Value" means, with respect to a date, on a per share basis, the average of the high and the low price of a share of Common Stock "regular way" reported on the consolidated tape of the New York Stock Exchange on such date or if the New York Stock Exchange is closed on such date, the next preceding date on which it is open. "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time. "Non-employee Director" means a member of the Board who is not an employee of the Company or any subsidiary thereof. "One-time Grant Participant" means the Directors with an accrued benefit under the Retirement Plan for Non-employee Directors of Olin Corporation ("Retirement Plan") as of December 31, 1996, as shown on Exhibit 1 hereto; provided such Director waives his rights with respect to the Retirement Plan. (See Exhibit 1 for the present value of each such Director's accrued benefit as of December 31, 1996). "Plan" means the Olin Corporation 1997 Stock Plan for Non-employee Directors. "Stock Account" means a Non-employee Director account established under the Olin Corporation 1994 Stock Plan for Non-employee Directors to which shares of Common Stock have been or are to be credited in the form of stock, or in the absence of such account an account established under this 3 Plan for a Non-employee Director to which shares of Common Stock have been or are to be credited in the form of stock. "Termination Date" means the date the Non-employee Director ceases to be a member of the Board. 3. TERM The Plan shall become effective January 1, 1997. Once effective, the Plan shall operate and shall remain in effect until terminated by action of the Board as provided in Section 9 hereof. 4. ADMINISTRATION Full power and authority to construe, interpret and administer the Plan shall be vested in the Committee. Decisions of the Committee shall be final, conclusive and binding upon all parties. 5. PARTICIPATION All Annual Grant Participants shall participate in the Annual Stock Grant provisions of the Plan pursuant to Section 6(a). All One-time Grant Participants shall participate in the One-time Stock Grant provisions of the Plan pursuant to Section 6(b). 6. GRANTS AND DEFERRALS (a) Annual Stock Grant. Subject to the terms and conditions of the Plan, ------------------ each Annual Grant Participant shall be credited with 500 shares of Common Stock on January 1 of each calendar year beginning in 1997. To be entitled to such credit in any calendar year, an Annual Grant Participant must be serving as such on January 1 of such year. In the event a person becomes an Annual Grant Participant subsequent to January 1 of a calendar year, such Annual Grant Participant, on the first day of the calendar month following his or her becoming such, shall be credited with that number of shares (rounded up to the next whole share in the event of a fractional share) of Common Stock equal to one-twelfth of 500 times the number of whole calendar months remaining in such calendar year following the date he or she becomes an Annual Grant Participant. Actual receipt of all shares credited 4 under this Section 6(a) shall be deferred and each Annual Grant Participant shall receive a credit to his or her Stock Account in the amount of such credit and on the date of such credit. An Annual Grant Participant may elect in accordance with Section 6(c) to defer receipt of all or any portion of such shares (including dividends thereon payable in accordance with Section 6(c)(2)) to a date or dates following such Annual Grant Participant's Termination Date. Except with respect to any shares so deferred, certificates representing such shares shall be delivered to the Annual Grant Participant (or in the event of death, to his or her beneficiary designated pursuant to Section 6(g)) as soon as practicable following his or her Termination Date. (b) One-time Stock Grant. Subject to the terms and conditions of the Plan, -------------------- each One-time Grant Participant shall be credited as of January 15, 1997, with that number of shares (rounded up to the next whole share in the event of a fractional share) of Common Stock equal to the present value of his or her accrued benefit under the Retirement Plan for Non-employee Directors of Olin Corporation as of December 31, 1996, divided by the Fair Market Value per share on January 15, 1997. Actual receipt of all shares credited under this Section 6(b) shall be deferred and each One-time Grant Participant shall receive a credit to his or her Stock Account in the amount of such credit on January 15, 1997. A One-time Grant Participant may elect in accordance with Section 6(c) to defer receipt of all or any portion of such shares (including dividends thereon payable in accordance with Section 6(c)(2)) to a date or dates following such One-time Grant Participant's Termination Date. Except with respect to any shares so deferred, certificates representing such shares shall be delivered to the One-time Grant Participant (or in the event of death, to his or her beneficiary designated pursuant to Section 6(g)) as soon as practicable following his or her Termination Date. (c) Elections. (1) All elections under Sections 6(a) and 6(b) shall (A) be --------- made in writing and delivered to the Secretary of the Company and (B) be irrevocable. All elections shall be made before December 31 of the year prior to the year in which the shares of Common Stock are to be granted (or, in the case of an individual who becomes an Annual Grant Participant during a calendar year, before the last day of the calendar month of his or her becoming such). 5 Deferral elections shall specify the future date or dates on which deferred shares are to be distributed and the method of distribution (single distribution or annual installments of approximately equal amounts (up to 10)). A Non- employee Director's election with respect to shares credited pursuant to Section 6(a) of the Olin Corporation 1994 Stock Plan for Non-employee Directors ("1994 Stock Plan") shall also apply to the shares credited pursuant to Sections 6(a) and (b) hereof. (2) Dividends. Each time a cash dividend is paid on the Common Stock, a Non-employee Director who has shares credited to his or her Stock Account shall receive the cash dividend attributable to the shares so credited unless such director shall have elected to defer receipt thereof as provided in Sections 6(a) and 6(b). A Non-employee Director electing to defer such dividends shall receive a credit for such dividends on the dividend payment date to his or her Stock Account. The amount of the dividend credit shall be the number of shares (rounded to the nearest one-hundredth of a share) determined by multiplying the dividend amount per share by the number of shares credited to such Non-employee Director's Stock Account as of the record date for the dividend and dividing the product by the Fair Market Value per share on the dividend payment date. (d) Payouts. Stock Accounts shall be paid out in shares of Common Stock. ------- Certificates representing shares credited to a Stock Account shall be delivered to the Non-employee Director as soon as practicable following his or her Termination Date or such later date or dates to which distribution has been deferred and consistent therewith. (e) No Stock Rights. Except as expressly provided herein, the crediting of --------------- shares of Common Stock to a Stock Account shall confer no rights upon such Non- employee Director, as a shareholder of the Company or otherwise, with respect to the shares held in such Stock Account, but shall confer only the right to receive such shares credited as and when provided herein. (f) Change in Control. Notwithstanding anything to the contrary in this ----------------- Plan or any election, in the event a Change in Control occurs, shares credited to Stock Accounts shall be promptly distributed to Non-employee Directors. 6 (g) Beneficiaries. A Non-employee Director may designate at any time and ------------- from time to time a beneficiary for his or her Stock Account in the event his or her Stock Account may be paid out following his or her death. Such designation shall be in writing and received by the Company prior to the death to be effective. A beneficiary designation made under the 1994 Stock Plan shall apply to the Plan. 7. LIMITATIONS AND CONDITIONS (a) Total Number of Shares. The total number of shares of Common Stock that ---------------------- may be issued to Non-employee Directors under the Plan is 75,000. Such total number of shares may consist, in whole or in part, of authorized but unissued shares. The foregoing number may be increased or decreased by the events set forth in Section 8 below. No fractional shares shall be issued hereunder. (b) No Additional Rights. Nothing contained herein shall be deemed to -------------------- create a right in any Non-employee Director to remain a member of the Board, to be nominated for reelection or to be reelected as such or, after ceasing to be such a member, to receive any shares of Common Stock under the Plan which are not already credited to his or her account. 8. STOCK ADJUSTMENTS In the event of any merger, consolidation, stock or other non-cash dividend, extraordinary cash dividend, split-up, spin-off, combination or exchange of shares or recapitalization or change in capitalization, or any other similar corporate event, the Committee may make such adjustments in (i) the aggregate number of shares of Common Stock that may be issued under the plan as set forth in Section 7(a), the number of shares that may be issued to a Non- employee Director with respect to any year as set forth in Section 6(a) and the number of shares held in Stock Accounts and (ii) the class of shares that may be issued under the Plan, as the Committee shall deem appropriate in the circumstances. The determination by the Committee as to the terms of any of the foregoing adjustments shall be final, conclusive and binding for all purposes of the Plan. 7 9. AMENDMENT AND TERMINATION This Plan may be amended, suspended or terminated by action of the Board. No termination of the Plan shall adversely affect the rights of any Non-employee Director with respect to any amounts otherwise payable or credited to his or her Stock Account. 10. NONASSIGNABILITY No right to receive any payments under the Plan or any amounts credited to a Non-employee Director's Stock Account shall be assignable or transferable by such Non-employee Director other than by will or the laws of descent and distribution or pursuant to a domestic relations order. The designation of a beneficiary under Section 6(g) by a Non-employee Director does not constitute a transfer. 11. UNSECURED OBLIGATION Benefits payable under this Plan shall be an unsecured obligation of the Company. 8 Exhibit 1 Accrued Benefits Under the Retirement Plan for Non-Employee Directors of Olin ----------------------------------------------------------------------------- Corporation ----------- ================================================================================ PRESENT VALUE OF ACCRUED BENEFIT AS OF DECEMBER 31, NON-EMPLOYEE DIRECTOR 1996 Richard E. Cavanagh $ 74,000 William W. Higgins $144,000 Suzanne Denbo Jaffe $ 90,000 Jack D. Kuehler $181,000 H. William Lichtenberger $144,000 G. Jackson Ratcliffe $138,000 William L. Read $253,000 John P. Schaefer $155,000 ================================================================================ EX-10.(II) 7 ASSUMPTION OF LIABILITIES & INDEMNITY AGREEMENT Exhibit 10(ii) ASSUMPTION OF LIABILITIES AND INDEMNITY AGREEMENT This Assumption of Liabilities and Indemnity Agreement (this "Agreement") is entered into as of December 31, 1996 by and between PRIMEX TECHNOLOGIES, INC., a Virginia corporation, having its executive offices at 10101 Ninth Street North, St. Petersburg, Florida 33716-3807 ("Primex"), and OLIN CORPORATION, a Virginia corporation, having its executive offices at 501 Merritt 7, Norwalk, Connecticut 06851 ("Olin") (Primex and Olin each being referred to as a "Party" and collectively as the "Parties"). WITNESSETH: WHEREAS, Olin and Primex have entered into that certain Distribution Agreement dated as of December 30, 1996 concerning the spin-off of Primex from Olin (the "Distribution Agreement"); and WHEREAS, Olin and Primex desire to allocate certain liabilities and obligations associated with their respective businesses; NOW, THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the Parties hereby agree as follows: I. PRIMEX ASSUMPTION AND INDEMNITY. Primex shall solely assume, and shall indemnify and hold harmless Olin from and against: A. All claims, damages, losses, liabilities, fines, penalties, costs and expenses (including reasonable attorneys' fees and disbursements) (collectively, "Liabilities") arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of Primex on or after the Effective Time (as defined in the Distribution Agreement) except for the matter described in Article II.B below; B. All Liabilities associated with the matters, current sites and businesses described in Exhibit I, including, without limitation, those Liabilities in connection with the removal, remediation or control of environmental conditions at or associated with any of the sites identified therein. C. All Liabilities arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of Olin's Aerospace and Ordnance Divisions (including their respective constituent Olin subsidiaries) prior to the Effective Time that are continued by Primex following the Distribution (as defined in the Distribution Agreement) except for the matter described in Article II.B below. D. All Liabilities arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of the discontinued businesses and former sites related to Olin's Aerospace and Ordnance Divisions (including their respective constituent Olin subsidiaries) identified in Exhibit II, including, without limitation, Liabilities in connection with the removal, remediation or control of environmental conditions at any of the sites identified thereby and except for those matters described in Article II.B and E below. E. All Liabilities arising out of or resulting from or any of the agreements and guarantees identified in Exhibit III except with respect to the Partnership Agreement referred to in such Exhibit III only those Liabilities accruing on or after the date the partnership interest under such Partnership Agreement was transferred to Primex. F. All Liabilities for employee benefits for which Primex is responsible pursuant to Article VI of the Distribution Agreement. G. All Liabilities arising out of, in connection with, or related to any of the contracts with the U.S. Government, or any instruments or agreements related thereto, that Olin was obligated to guarantee pursuant to the novation of such contracts to Primex or its subsidiaries. II. OLIN ASSUMPTION AND INDEMNITY. Olin shall solely assume, and shall indemnify and hold harmless Primex from and against: A. All Liabilities arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of Olin on or after the Effective Time; B. Civil settlements, monetary judgments and legal fees and costs (excluding without limitation obligations to fulfill the offset requirement), in each case incurred and paid after the Effective Time, all in connection with the Belgium Legal Matter described in Exhibit IV. C. All other Liabilities arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of Olin prior to the Effective Time except for those described in Article I above. D. All claims and Liabilities for employee benefits for which Olin is responsible pursuant to Article VI of the Distribution Agreement. E. All Liabilities arising out of, associated with, or resulting from the activities, business, operations, assets, properties, conduct or status of Ravenna Army Ammunition Plant in Ravenna, Ohio and the Badger Army Ammunition Plant in Baraboo, Wisconsin, including without limitation close-out costs, unfunded pension costs, and unfunded retiree benefit cost. F. All Liabilities arising out of or resulting from the Partnership Agreement referred to in Exhibit III hereto that accrued prior to the date the partnership interest arising under such Partnership Agreement was transferred to Primex. III. INSURANCE MATTERS. The amount which any indemnifying Party is or may be required to pay to any indemnified Party hereunder shall be reduced (including, without limitation, retroactively) by any proceeds of insurance policies or other amounts actually recovered by or on behalf of such indemnified Party in reduction of the related Liability. If an indemnified Party shall have received the payment (an "Indemnity Payment") required by this Agreement from an indemnifying Party in respect of any Liability and shall subsequently actually receive proceeds of insurance policies or other amounts in respect of such Liability, then such indemnified Party shall pay to such indemnifying Party a sum equal to the amount actually received (up to but not in excess of the amount of any Indemnity Payment made hereunder). An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto, or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a benefit they would not otherwise be entitled to receive in the absence of the indemnification provisions hereof by virtue of the indemnification provisions hereof. IV. PROCEDURES FOR INDEMNIFICATION. A. THIRD PARTY CLAIMS. If a claim or demand is made against an indemnified Party by any person who is not a party to this Agreement (a "Third Party Claim") as to which such indemnified Party is entitled to indemnification pursuant to this Agreement, such indemnified Party shall notify the indemnifying Party in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within 15 business days) after receipt by such indemnified Party of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying Party shall have been actually prejudiced as a result of such failure (except that the indemnifying Party shall not be liable for any expenses incurred during the period in which the indemnified Party failed to give such notice). Thereafter, the indemnified Party shall deliver to the indemnifying Party, promptly (and in any event within 15 business days) after the indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified Party relating to the Third Party Claim. If a Third Party Claim is made against an indemnified Party, the indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges in writing its obligation to indemnify the indemnified Party therefor, to assume the defense thereof with counsel selected by the indemnifying Party; provided, however, that such counsel is not reasonably objected to by the indemnified Party. Should the indemnifying Party so elect to assume the defense of a Third Party Claim, the indemnifying Party shall not be liable to the indemnified Party for legal or other expenses subsequently incurred by the indemnified Party in connection with the defense thereof. If the indemnifying Party assumes such defense, the indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying Party, it being understood that the indemnifying Party shall control such defense. The indemnifying Party shall be liable for the fees and expenses of counsel employed by the indemnified Party for any period during which the indemnifying Party has failed to assume the defense thereof (other than during the period prior to the time the indemnified Party shall have given notice of the Third Party Claim as provided above). If the indemnifying Party so elects to assume the defense of any Third Party Claim, the indemnified Party shall cooperate with the indemnifying Party in the defense or prosecution thereof. If the indemnifying Party acknowledges in writing its obligation to indemnify the indemnified Party for a Third Party Claim, then in no event will the indemnified Party admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the indemnifying Party's prior written consent; provided, however, that the indemnified Party shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the indemnifying Party if the indemnified Party releases the indemnifying Party from its indemnification obligation hereunder with respect to such Third Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the indemnifying Party. If the indemnifying Party acknowledges in writing its obligation to indemnify the indemnified Party for a Third Party Claim, the indemnified Party will agree to any settlement, compromise or discharge of a Third Party Claim that the indemnifying Party may recommend and that by its terms obligates the indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim and releases the indemnified Party completely in connection with such Third Party Claim and that would not otherwise adversely affect the indemnified Party; provided, however, that the indemnified Party may refuse to agree to any such settlement, compromise or discharge if the indemnified Party agrees that the indemnifying Party's indemnification obligation with respect to such Third Party Claim shall not exceed the amount that would be required to be paid by or on behalf of the indemnifying Party in connection with such settlement, compromise or discharge. Notwithstanding the foregoing, the indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred by the indemnified Party in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the indemnified Party which the indemnified Party reasonable determines, after conferring with its counsel, cannot be separated from any related claim for money damages. If such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the indemnifying Party shall be entitled to assume the defense of the portion relating to money damages. B. INDEMNIFICATION PAYMENTS. Indemnification required by this Agreement, shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or loss, liability, claim, damages or expense is incurred. C. OTHER ADJUSTMENTS. (1) The amount of any indemnification obligation with respect to any Third Party Claim ("Indemnity Obligation") shall be (x) increased to take into account any net tax cost actually incurred by the indemnified Party arising from any payments received from the indemnifying Party (grossed up for such increase) and (y) reduced to take into account any net tax benefit actually realized by the indemnified Party arising from the incurrence or payment of any such Indemnity Obligation. In computing the amount of such tax cost or tax benefit, the indemnified Party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any payment with respect to an Indemnity Obligation or the incurrence or payment of any Indemnity Obligation. (2) In addition to any adjustments required pursuant to Article III hereof or clause (1) of this paragraph C., if the amount of any Indemnity Obligation shall, at any time subsequent to the payment required by this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the indemnified Party to the indemnifying Party up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnity Obligation. V. CONSOLIDATION, MERGER, TRANSFER, OR LEASE. Neither Party shall consolidate with or merge into any other person, or convey, transfer or lease its properties and assets substantially as an entirety to any other person, and neither Party shall permit any person to consolidate with or merge into it or convey, transfer or lease its properties and assets substantially as an entirety to said Party unless: A. In any case in which either Party shall consolidate with or merge into another person or convey, transfer or lease its properties and assets substantially as an entirety to any person, the person formed by such consolidation or into which said Party is merged or the person which acquires by conveyance or transfer, or which leases the properties and assets of said Party substantially as an entirety shall (i) be a corporation, (ii) be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and (iii) expressly assume, by an instrument satisfactory to the other Party, each and every obligation of said Party to be performed or observed hereunder; B. In the case Primex is the Party involved, after giving effect to such transaction, the person formed by such consolidation or into which Primex is merged or the person which acquires by conveyance, transfer or lease the properties and assets of Primex substantially as an entirety must have consolidated stockholders' equity, as determined in accordance with generally accepted accounting principles, at least equal to the consolidated stockholders' equity of Primex immediately prior to the consummation of such transaction; and C. Said Party shall have delivered to the other Party a Certificate executed by its Chief Executive Officer and Chief Financial Officer stating that such consolidation, merger, conveyance, transfer or lease comply with this Article V and that all conditions precedent herein relating to such transaction have been complied with. VI. NOTICES. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To Olin Corporation: 501 Merritt 7 P.O. Box 4500 Norwalk, CT 06851 Attn: General Counsel To Primex: 10101 Ninth Street North St. Petersburg, FL 33716-3807 Attn: General Counsel VII. DISPUTE RESOLUTION. In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, including, without limitation, any claim based on contract, tort, statute or constitution (collectively, "Agreement Disputes"), the General Counsels of the relevant Parties or their designees shall negotiate in good faith for a reasonable period of time to settle such Agreement Dispute. If after such reasonable period such General Counsels or their designees are unable to settle such Agreement Dispute (and in any event after 60 days have elapsed from the time the relevant Parties began such negotiations), such Agreement Dispute shall be determined, at the request of any relevant party, by arbitration conducted in St. Louis, Missouri before and in accordance with the then-existing Rules for Commercial Arbitration of the American Arbitration Association (the "Rules"), and any judgment or award rendered by the arbitrator shall be final, binding and nonappealable (except upon grounds specified in 9 U.S.C. 10(a) as in effect on the date hereof), and judgment may be entered by any state or Federal court having jurisdiction thereof in accordance with Section 9.19 hereof. Unless the arbitrator otherwise determines, the pre-trial discovery of the then-existing Federal Rules of Civil Procedure and the then-existing Rules 12, 13, and 13.1 of the Rules of the United States District Court for the Southern District of Illinois shall apply to any arbitration hereunder. Any controversy concerning whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation or enforceability of this Section VII shall be determined by the arbitrator. The arbitrator shall be a retired or former judge of any United States District Court or Court of Appeals or such other qualified person as the relevant Parties may agree to designate, provided such individual has had substantial professional experience with regard to settling commercial disputes. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable. The designation of a situs or a governing law for this Agreement or the arbitration shall not be deemed an election to preclude application of the Federal Arbitration Act, if it would be applicable. In his award the arbitrator shall allocate, in his discretion, among the Parties to the arbitration all costs of the arbitration, including, without limitation, the fees and expenses of the arbitrator and reasonable attorneys' fees, costs and expert witness expenses of the Parties. The undersigned agree to comply with any award made in any such arbitration proceedings that has become final in accordance with the Rules and agree to the entry of a judgment in any jurisdiction upon any award rendered in such proceedings becoming final under the Rules. The arbitrator shall be entitled, if appropriate, to award any remedy in such proceedings, including, without limitation, monetary damages, specific performance and all other forms of legal and equitable relief; provided, however, the arbitrator shall not be entitled to award punitive damages. VIII. CONSENT TO JURISDICTION. Without limiting the provisions of Section VII hereof, each of the Parties irrevocably submits to the exclusive personal jurisdiction and venue of (a) the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, and (b) the United States District Court for the Southern District of Illinois for the purposes of any suit, action or other pro ceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of Illinois or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois. Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party's respective address set forth above shall be effective service of process for any action, suit or proceeding in Illinois with respect to any matters to which it has submitted to jurisdiction in this Section VIII. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, or (ii) the United States District Court for the Southern District of Illinois, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. IX. SURVIVAL. All the indemnity obligations under this Agreement shall survive indefinitely. X. GENERAL. A. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the Exhibits, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. B. AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the Parties. C. WAIVER. The failure of either Party to require strict performance by the other Party of any provision in this Agreement will not waive or diminish that Party's right to demand strict performance thereafter of that or any other provision hereof. D. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. E. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois, excluding its choice of law provisions. F. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. G. ATTORNEY FEES. A Party in breach of this Agreement shall, on demand, indemnify and hold harmless the other Parties hereto for and against all out-of- pocket expenses, including, without limitation, legal fees, incurred by such other Party by reason of the enforcement and protection of its rights under this Agreement. The payment of such expenses is in addition to any other relief to which such other Party may be entitled hereunder or otherwise. H. TITLE AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. I. EXHIBITS. The Exhibits shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized representatives of Olin and Primex as of the date first above written. PRIMEX TECHNOLOGIES, INC. OLIN CORPORATION By: /s/George H. Pain By: /s/Johnnie M. Jackson, Jr. ----------------- -------------------------- George H. Pain Johnnie M. Jackson, Jr. Vice President Vice President, General Counsel and Secretary EXHIBIT I A. GENERAL LITIGATION AND CLAIMS 1. Weiser Security Services, Inc. vs. Olin Corporation (Pinellas County, District Court), Case No. 94-6662-CO-41. This is a breach of contract action brought by former contractor Weiser against Olin for the hiring of security guards previously employed by Weiser in violation of non-compete covenants in the contract. 2. Conco Claim. Conco, Inc. has submitted a claim against Olin in excess of $400,000 for expenses incurred in producing subcontract metal ammunition cans to defective government specifications. 3. Wharton Realty Associates, L.L.C. v. Biltmore Realty Co., Inc., Valentec International, Inc. General Defense Corporation d/b/a Flinchbaugh Operations, Olin Corporation, et. al. (Pending in Superior Court of New Jersey, Morris County, Law Division) Docket No. L-3505-94. This is a suit by a former landlord of GDC at Rockaway Industrial Complex in Wharton, New Jersey, where GDC leased a building from 1979 to 1984, to recover the expense of remediating hydrocarbon contamination around a heating oil tank near the building. Olin recently settled this matter. 4. Iran BALL POWDER[R] Plant. (Potential Litigation) The Ministry of Defense, Tehran, Iran, has requested arbitration of a dispute over U.S. Government cancellation of a 1974 contract between MOD and Olin to construct a BALL POWDER[R] plant in Iran. U.S. State Department regulations prohibit performance of the contract by Olin. 5. Pease vs. OAC (Wrongful Termination, Age Discrimination & Damages). Superior Court State of Washington, County of King. Damages not specified. Plaintiff's counsel has notified OAC of his intent to voluntarily dismiss the case "without prejudice". Plaintiff could refile anytime prior to May 1997. 6. Multi-year II Contract Defective Pricing Claim. Administrative Contracting Officer. The claim amount is $600,000.00 which is to be negotiated. OAC has agreed to adjust the contract price. The amount has not been negotiated. Currently there is no outside counsel representing Olin. 7. Threatened Litigation (McCann). McCann was a short service employee hired in 1992 as the Environmental Health and Safety Coordinator. In late 1994 his performance deteriorated, and the company decided to terminate him. After the decision but before the implementation, McCann came into the office and announced that he had cancer which required treatment, for which he needed to be on disability leave. Upon his return to work in January, 1995, he was terminated. He was offered additional severance and other benefits, in return for which he signed a release. His attorney now claims that he was terminated for his involvement in a co-worker's worker's compensation claim for $60,000. 9. Eddie Hill vs. KASL Enterprises et al. Plaintiff alleges he lost his hand in a trash compactor made by General Defense (Autopak). Autopak was sold by General Defense before it was acquired by Olin. The case is pending in Wayne County (Detroit), Michigan. 10. Stewart vs. Olin. The Illinois Department of Human Rights has filed a Complaint with the Illinois Human Rights Commission on behalf of Donald Stewart, a current employee at Marion, alleging discrimination with respect to terms and conditions of employment by Stewart's foreman. 11. Benedicta Lusk vs. Olin Corporation. Lusk is a female management-level employee at Downey (former 30mm Program Manager) who has filed a charge with EEO. 12. George Alcantara v. Olin Corporation. Alcantara a former hourly maintenance employee, has filed a charge with the California Department of Fair Employment and Housing, alleging national origin discrimination in connection with his recent layoff from the Downey facility. Alcantara is Mexican-American. 13. Western Processing Site, Washington. Olin Aerospace has obligations to make payments toward remediation pursuant to a 1986 Consent Decree. 14. Aqua-Tech Environmental, Inc. Hamilton Technology, Inc., a former subsidiary of General Defense Corporation, is a PRP at this site in South Carolina. 15. Maxey Flats. Hamilton Watch Company (HWC) is a PRP at the Maxey Flats Nuclear Disposal Site in Flemming County, Kentucky. Hamilton Watch Company was sold to SSIH of Bienne, Switzerland by General Defense Corporation (GDC) in 1973 prior to Olin's acquisition of GDC in 1988. SSIH is believed to have assumed all of HWC's liabilities. B. CURRENT SITES AND BUSINESSES 1. St. Petersburg, Florida. (Corporate headquarters and systems management operation for large caliber ammunition.) 2. Red Lion, Pennsylvania. (Manufacturing and research and development facility for large caliber ammunition metal and composite parts.) 3. Redmond, Washington. (Design, manufacturing and test facility for space, solid propellant and electronic products, office facilities and research and development laboratory.) 4. St. Marks, Florida. (Manufacturing facility for Ball Powder propellant and Research and development laboratory.) 5. Marion, Illinois. (Loading, assembly and packing of medium caliber ammunition, Manufacturing and test facility for solid propellant products, and demilitarization services research and development laboratory.) 6. San Leandro, California. (Pulsed power research and development laboratory, and test facilities; pulsed power and advanced warhead engineering and management.) 7. Downey, California. (Manufacturing facility for medium caliber ammunition components and air dispensed munitions components. System management and research and development.) 8. Moses Lake, Washington. (Manufacturing and test facility for solid propellant products.) 9. Camden, Arkansas, (Test range, support for the ammunition business.) 10. Tracy California. (Manufacturing and test facility for advanced anti-armor warhead systems.) 11. Lucerne, Switzerland (Design, development and testing of anti-armor warhead systems for the Swiss Government.) EXHIBIT II ORDNANCE-RELATED IDENTIFIED DISCONTINUED BUSINESSES AND FORMER PLANT SITES East Petersburg, PA (former Hamilton Technologies, Inc. (HTI) plant site) [a/k/a "East Petersburg - GDC"] Lancaster, PA (former HTI plant site) [a/k/a "Stoney Battery Road - HTI"] Lancaster, PA (former HTI plant site) [a/k/a "Clock Towers"] Largo, FL (former GDC plant site) [a/k/a "Largo - GDC"] Socorro, NM (testing of DU projectiles) Wharton, NJ (research and development facility) [a/k/a "Valentec Site"] AEROSPACE-RELATED DISCONTINUED BUSINESSES AND FORMER PLANT SITES Bellevue, WA (construction and management of energy conservation systems) [Trans Energy Systems, Inc.] Bellevue, WA (former offices) [Pacific Electro Dynamics, Inc.] Manhattan Beach, CA (offices for classified project) [Martin & Stern, Inc.] Netherlands (offices) Palo Alto, CA (offices and light manufacturing) [Larse Corporation] Preston, WA (explosives manufacturing and test site) [Explosives Corporation of America] Reston (and surrounding area), VA (offices) [Martin & Stern, Inc.] Santa Clara, CA (offices and light manufacturing) [Larse Corporation] Seattle, WA (former offices) [Rocket Research Company] Various gas well leases in West Virginia and Ohio (servicing at gas well sites) [Petroleum Technology Corporation] Wadsworth, OH (metal parts manufacturing) Any sites or businesses discovered by Primex or Olin after the Effective Time that are related solely to the businesses comprising Primex on the Effective Time. EXHIBIT III 1. Facility Lease, dated December 29, 1986, between The Connecticut National Bank, as Trustee, and Physics International Company, as previously amended and otherwise amended from time to time. 2. Ground Sublease, dated December 29, 1986, between The Connecticut National Bank, as Trustee, and Physics International Company, as amended from time to time. 3. Agreement of Guaranty No. 1, dated December 29, 1986, between Olin Corporation and The Connecticut National Bank, as Trustee, as amended from time to time. 4. Agreement of Guaranty No. 2, dated December 29, 1986, between Olin Corporation and The Connecticut National Bank, as Trustee, as previously amended and otherwise amended from time to time. 5. Trust Agreement, dated as of December 29, 1986, between Merced Associates and The Connecticut National Bank, as amended from time to time. 6. Partnership Agreement, dated as of December 29, 1986, between Maryland National Leasing Corporation and Olin Financial Services Inc., as amended from time to time. 7. Note Purchase and Participation Agreement, dated as of March 9, 1987, among The Connecticut National Bank, Physics International Company, and various insurance companies named therein. 8. Indenture, dated as of December 29, 1986, between D. Heben Porteus, David H. Haig, Fred C. Weyand, and Paul Mullin Ganley, as Trustees, The Connecticut National Bank, as Trustee, and Merced Associates. 9. Purchase and Assignment Agreement, dated as of December 29, 1986, among Connecticut National Bank, as Trustee, Merced Associates and Physics International Company. 10. Credit Agreement, dated as of December 23, 1996, among Olin Corporation, Primex Technologies, Inc., the Banks Parties thereto and Morgan Guarranty Trust Company of New York as Agent, and the notes relating thereto. EXHIBIT IV BELGIUM LEGAL MATTER. The Company is involved in a contract dispute with the Belgium Ministry of Defense related to a 1985 sale of tank ammunition. The Belgium Ministry of Defense has alleged improprieties committed by the Belgium national who represented Olin in the transaction. Based on these allegations, the Belgium Ministry of Defense withheld final payment on the contract and the Company agreed to extend a letter of credit related to the contract guarantee pending a decision by the Belgium courts of the underlying contract dispute. The trial court ruled against the Company. The decision has been appealed. In the event that the trial court's decision is sustained, the resultant liability is estimated at approximately $4.5 million. EX-11 8 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Computation of Per Share Earnings (Unaudited) Primary earnings per share is computed by dividing net income less the ESOP preferred stock dividend requirement (to the date of its redemption in 1996), and the redemption adjustment (excess of fair value over book value of ESOP shares redeemed) by the weighted average number of common shares outstanding. In December 1996, the company redeemed the ESOP preferred stock with shares of the company stock of equivalent value. On March 1, 1995, the Series A stock was converted on a one-for-one basis into common stock. In 1994, common shares outstanding included an equivalent number (one-for-one) of common shares, assuming the conversion of Series A stock. Fully diluted earnings per share reflects the dilutive effect of stock options and assumes the conversion of outstanding ESOP preferred stock, until its redemption in December 1996, into an equivalent number of common shares at the date of issuance. Net income was reduced by an additional ESOP contribution (differential between the common and the ESOP preferred dividend rates under an assumed conversion) necessary to satisfy the debt service requirement.
Years Ended December 31 --------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Primary earnings per share ($ in millions except per share data) - -------------------------- Primary earnings: Continuing operations: Income from continuing operations $ 288 $ 134 $ 79 Less: ESOP preferred dividend, net of tax benefit (4) (6) (6) Redemption adjustment (8) - - -------- -------- -------- Income from continuing operations $ 276 $ 128 $ 73 ======== ======== ======== Discontinued operations: Income (loss) from discontinued operations $ (8) $ 6 $ 12 Less redemption adjustment (1) - - -------- -------- -------- Income (loss) from discontinued operations $ (9) $ 6 $ 12 ======== ======== ======== Primary shares: (in thousands) Weighted average shares outstanding 49,992 48,866 46,606 ======== ======== ======== Primary earnings (loss) per share: Continuing operations $ 5.52 $ 2.63 $ 1.57 Discontinued operations (0.18) 0.12 0.26 -------- -------- -------- Total $ 5.34 $ 2.75 $ 1.83 ======== ======== ======== Fully diluted earnings per share - -------------------------------- Fully diluted earnings: Income from continuing operations $ 288 $ 134 $ 79 Less additional ESOP contribution (4) (3) (3) -------- -------- -------- Income from continuing operations $ 284 $ 131 $ 76 ======== ======== ======== Income (loss) from discontinued operations $ (8) $ 6 $ 12 ======== ======== ======== Fully diluted shares: (in thousands) Weighted average number of common shares outstanding and common stock equivalents 49,992 48,866 46,606 Common shares issuable assuming the conversion of outstanding ESOP preferred stock at the date of issuance 1,950 2,262 2,880 Common shares issuable under stock options and additional remuneration agreements which have a dilutive effect on per share earnings 369 164 164 -------- -------- -------- Adjusted number of common shares outstanding 52,311 51,292 49,650 ======== ======== ======== Fully diluted earnings (loss) per share: Continuing operations $ 5.43 $ 2.56 $ 1.53 Discontinued operations (0.16) 0.11 0.24 -------- -------- -------- Total $ 5.27 $ 2.67 $ 1.77 ======== ======== ========
EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12 OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (a) (Unaudited) (In millions) Years Ended December 31, --------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ Earnings: Income (loss) from continuing operations before taxes $446 $204 $119 $(154) $70 Add (deduct): Income taxes of 50% owned affiliates 3 3 4 3 1 Equity in (earnings) loss of less than 50% owned affiliates (2) (1) 3 5 6 Dividends received from less than 50% owned affiliates 2 1 - - - Interest capitalized, net of amortization - 1 1 (1) (4) Fixed charges as described below 48 53 46 47 48 ------ ------ ------ ------ ------ Total $497 $261 $173 $(100) $121 ====== ====== ====== ====== ====== Fixed charges: Interest expense $30 $36 $30 $33 $36 Estimated interest factor in rent expense 18 17 16 14 12 ------ ------ ------ ------ ------ Total $48 $53 $46 $47 $48 ====== ====== ====== ====== ====== Ratio of earnings to fixed charges(b) 10.4 4.9 3.8 - 2.5 ====== ====== ====== ====== ====== ----------------------------------------------------------------------------------------------
(a) Computation of ratio of earnings to fixed charges has been restated to reflect the spin-off of Primex Technologies, Inc. (b) In the twelve months ended December 31, 1993, earnings were inadequate to cover fixed charges by $147 million, In 1993, the Company recorded an after-tax charge of $124 million for personnel reductions, business restructurings involving consolidations and re-alignments within divisions, costs at sites of discontinued businesses, future environmental liabilities, and other charges. EX-13 10 EXCERPTS FROM 1996 ANNUAL REPORT TO SHAREHOLDERS Today, Olin businesses are leading producers and marketers of high performance chemicals, metals, microelectronic materials and sporting ammunition. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS CONSOLIDATED ($ in millions, except per share data) 1996 1995 1994 - -------------------------------------------------------------------------------- Sales $2,638 $2,665 $2,268 Gross Margin 617 550 424 Selling and Administration 319 293 256 Interest Expense 29 35 28 Interest and Other Income 216 16 9 Income from Continuing Operations 288 134 79 Net Income 280 140 91 Per Common Share: Primary Income from Continuing Operations $ 5.52 $ 2.63 $ 1.57 Net Income $ 5.34 $ 2.75 $ 1.83 Fully Diluted Income from Continuing Operations $ 5.43 $ 2.56 $ 1.53 Net Income $ 5.27 $ 2.67 $ 1.77 - -------------------------------------------------------------------------------- Notes: - --Results of operations have been restated to reflect the spin-off of Primex Technologies, Inc. and earnings per share have been restated for two-for-one stock split. - --1996 Interest and Other Income includes a pretax gain of $188 million ($115 million after tax, $2.20 fully diluted E.P.S.) on the sale of the isocyanates business at Lake Charles, LA in December. 1996 Compared to 1995 Sales decreased 1% while net income reached record levels, increasing 18%, excluding a $115 million gain from the sale of the isocyanates business. The decrease in sales was attributable to a 2% decrease in volume and a 3% decrease in metal values offset by a 2% improvement in pricing and a 2% increase due to the inclusion of OCG for a full year. Net income was enhanced by lower raw material costs and improved product mix. In 1996, record operating results were achieved by both the Chlor Alkali and Chemicals divisions. Gross margin percentage was 23%, an increase of 2% due to price increases in several Chemical product lines, higher caustic volumes, lower raw materials costs and an improved product mix. Selling and administration expenses as a percentage of sales increased to 12% from 11%. Selling and administration expenses increased in amount due primarily to the inclusion of OCG's operating expenses for a full year, expenses related to the spin-off of Primex Technologies, Inc., higher costs related to incentive compensation programs and higher sales promotion and advertising expenses for Pool Products and Winchester sporting ammunition. This increase was offset in part by the impact of cost reduction programs. Research and development expenditures increased due to the inclusion of OCG's research and development expenses for a full year in 1996. Interest expense decreased due to lower average short-term borrowings and lower average interest rates. Interest and other income increased due to the gains on the sale of the isocyanates business and the company's corporate headquarters combined with the favorable performance of the nonconsolidated affiliates. The effective tax rate increased to 35% from 34%. The increase was mainly attributable to the gain on the sale of the isocyanates business. At December 31, 1996, the company had net deferred tax assets of $135 million, primarily comprised of temporary differences between financial statement and tax bases of assets and liabilities. No valuation allowance has been provided because management believes that it is more likely than not that there will be sufficient taxable income to allow for the realization of these tax benefits. In December of 1996, the company sold its isocyanates business to ARCO Chemical Company ("ARCO") for $565 million in cash. The sale included all assets at the company's Lake Charles, LA facility used in the manufacture and sale of toluene diisocyanate, aliphatic isocyanates and nitric acid. In connection with the transaction, the company recorded a pretax gain of $188 million ($115 million after tax gain) which is included in Interest and Other Income. The company's results of operations for 1996 and 1995 include sales of $296 million and $255 million and operating income of $52 million and $19 million, respectively, from the isocyanates business. On December 31, 1996, the company completed the spin-off of its Ordnance and Aerospace businesses as Primex Technologies, Inc. ("Primex"). Under the terms of the spin-off, the company distributed to its holders of common stock of record at the close of business on December 19, 1996, one Primex common share for every ten shares of Olin common stock. The results of operations have been restated to reflect Primex as discontinued operations for all periods presented. 1995 Compared to 1994 Sales and net income increased 18% and 54%, respectively. The sales increase was attributed to an 8% improvement in pricing (exclusive of higher metal values), a 3% increase in sales volume and 3% increase due to the inclusion of OCG's sales for six months. Past strategic investments were a key factor in meeting the increased demand. In addition to the impact of increased volume and pricing, net income was enhanced by prior years' initiatives to restructure and reengineer the company and reduce costs. In 1995, record results were achieved by Brass, Chlor Alkali and the Microelectronic Materials divisions. Gross margin percentage was 21%, an increase of 2%. Higher caustic and TDI prices more than offset increased raw material and manufacturing costs. Selling and administration expenses as a percentage of sales were 11% in both years. Selling and administration expenses increased 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) in amount due primarily to additional information processing costs, the inclusion of the operating expenses of acquired businesses and higher costs related to short-term incentive compensation programs. This increase was offset in part by the impact of cost reduction programs. Research and development expenditures increased as a result of the OCG acquisition. Excluding the impact of OCG, research and development expenses decreased 10% through cost reduction programs and a better focus in the Chemicals product lines on the development of new and differentiated products. Interest expense increased due to higher average interest rates on higher average borrowings. The favorable performance of non-consolidated affiliates, particularly in Japan, increased interest and other income. The effective tax rate was 34% in 1995 and 1994. At December 31, 1995, the company had net deferred tax assets of $61 million, primarily comprised of temporary differences between financial statement and tax bases of assets and liabilities. In 1995, the company completed the sales of its Sun(R) brand trademark and its chlorinated isocyanurates business including a manufacturing plant in South Charleston, WV and a related operation in Livonia, MI. These transactions did not have a material impact on the company's results of operations for 1995. In 1995, the company acquired the remaining 50% of OCG Microelectronic Materials, a joint venture formed by Ciba-Geigy and the company in 1990, for approximately $65 million. In addition, the company acquired the remaining 51% of Etoxyl, C.A., a Latin American joint venture. The purchase price for Etoxyl is contingent upon the future earnings of this venture. CHEMICALS RESULTS OF OPERATIONS ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Sales $1,586 $1,501 $1,195 Operating Income 207 140 52 - -------------------------------------------------------------------------------- 1996 Compared to 1995 Sales and operating income increased 6% and 48%, respectively. The sales increase was due to the inclusion of sales of OCG for a full year and higher pricing which more than offset lower volumes. The sales improvement reflected the record performances by the Chlor Alkali and Chemicals divisions which more than offset the shortfall in Microelectronic Materials. Higher pricing in several product lines was the most significant factor in the operating income improvement. Higher caustic volumes and chlorine pricing, lower utility costs and operating expenses contributed to Chlor Alkali's record performance. Higher pricing in several product lines contributed to Chemicals' record performance. Operating results of the isocyanates business were at record levels even though 1996 included 11 months of operations from the isocyanates business which was sold to ARCO in December. Higher international demand and prices were the main contributors to this improvement. Higher sales volumes resulting from increased product offerings and strong international demand contributed to the improved performance of the specialty urethanes coating business. Pool Products sales decreased, while profits were significantly ahead of last year. Increased pricing was more than offset by lower volumes due to production capacity constraints and the sale of the chlorinated isocyanurates business in late 1995. Increased pricing along with higher Pace volumes contributed to increased profits. Higher prices for glycols and polyols, lower raw materials costs and reduced manufacturing and operating costs contributed to ethylene oxide/propylene oxide (EO/PO) derivative products' favorable performance. Operating results of specialty chemicals exceeded last year. Worldwide volumes increased as a result of higher foreign sales and new product sales. The profit impact from these additional volumes was offset in part by higher-priced purchased materials due to limited production capacity and higher operating costs for toxicology studies. Microelectronic Materials' sales increased due to the inclusion of OCG's sales for twelve months in 1996 compared to six months in 1995. The positive impact of the inclusion of OCG in operating results was more than offset by the negative impact of the downturn in the semiconductor industry, higher costs associated with the delays in the start-up of the new Mesa, AZ facility and development costs for a new semiconductor package. 1995 Compared to 1994 Sales and operating income increased 26% and 169%, respectively. This improvement reflected the improved performances by the Chlor Alkali and Microelectronic Materials divisions and the improved operating results of the isocyanates business. In Chlor Alkali, demand remained strong throughout the year. Caustic pricing continued to improve, while chlorine prices remained stable. Plant operating manufacturing rates were close to capacity and lower manufacturing costs were aided by cost reduction initiatives from reengineering programs. Operating results of the isocyanates business exceeded last year. Worldwide TDI prices more than offset the effects of a scheduled plant maintenance turnaround. Specialty urethanes coating product line sales nearly doubled due to stronger worldwide demand, but new product introductions and market-entry costs negatively impacted its operating results. Pool Products sales increased 10%, while profits were slightly below last year. Increases in sales volume and pricing were more than offset by higher raw material and other costs. In EO/PO derivative products, the combination of higher prices and volumes of flexible polyols and a lower raw material cost contributed to its financial improvement. In specialty chemicals, biocides had record volumes on a variety of products, reflecting the continual growth of this business. 18 In Microelectronic Materials, electronic chemicals sales more than doubled and profits increased significantly due to the strong demand from the semiconductor industry for the company's high-purity electronic chemicals and the inclusion of OCG's operating results. Sales of its MQUAD(R) packaging system increased but operating results were adversely affected by costs associated with the introduction of its new Metal Ball Grid Array (MBGA(R)) package. METALS AND AMMUNITION RESULTS OF OPERATIONS ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Sales $ 1,052 $1,164 $ 1,073 Operating Income 52 83 86 - -------------------------------------------------------------------------------- 1996 Compared to 1995 Sales and operating income decreased 10% and 37%, respectively. Sales decline was due to lower metal values and lower demand for brass products and a significant decrease in commercial ammunition sales. Operating income declined due to the lower volumes. Reduced volumes in the electronics, ammunition and utilities businesses contributed to Brass' sales decline. Operating income decreased due to the lower volumes and the start-up cost associated with the new tube mill at Indianapolis, IN. The A.J. Oster (Oster) operations achieved a record performance due to higher shipments. Winchester's domestic commercial ammunition sales were significantly lower in the first half of the year, but were equal to 1995 levels in the second half. Military ammunition sales were well below the prior year level due to the substantial completion in 1995 of several large contracts. The significant decrease in operating results was primarily attributable to the profit impact from the lower volumes which offset the impact of lower commodity costs. 1995 Compared to 1994 Sales improved 8% while operating income decreased 3%. Sales improvement was due to higher metal values, improved product mix and selling prices as the demand for brass strip exceeded the historical average and more than offset the reduced shipments of Winchester's domestic commercial ammunition. Operating income declined due to the lower Winchester commercial sales and higher commodity costs. Increased sales, lower manufacturing costs and the benefit from cost reduction programs were the main contributors to Brass' operating profit increase. New financial records were established by several operations, such as Indianapolis, Oster and Somers Thin Strip. The Indianapolis operation's improvement was due to an improved product mix in its strip, rod, wire and tube businesses. Oster benefited from the automotive and electronics demand. A strong electronics market contributed to Somers' financial improvement. Winchester's domestic commercial ammunition sales declined significantly. In 1995, the marketplace for commercial sporting ammunition adjusted for the heavy consumer buying patterns that occurred in 1994 as a result of a concern over restrictive legislation and taxation. Domestic and military export ammunition business achieved record sales performance and partially offset the commercial sales decrease. The profit impact from the lower commercial sales and the effect of higher commodity costs, primarily copper, accounted for the significant decrease in operating income. 1997 OUTLOOK CONSOLIDATED The company's 1997 sales and net income are expected to be slightly lower than 1996, excluding the gain on the sale of the isocyanates business. The absence of sales from the isocyanates business sold in 1996 is expected to be offset in part by sales increases in Microelectronic Materials, Winchester and certain Chemicals product lines. Earnings per share is expected in the $3.00 range, assuming a 10% decline in Chlor Alkali's ECU pricing and with anticipated profit increases in Microelectronic Materials, Pool Products, Biocides and Winchester. These profit improvements along with the company's acquisition of the balance of Niachlor and the interest income on the proceeds from the disposed businesses are expected to offset in part the lost earnings on the businesses sold in 1996 and to be sold in 1997. In addition, the company's share repurchase program, which commenced in January 1997, is expected to be beneficial to earnings per share. CHEMICALS Chemicals segment sales and operating income are expected to decrease due primarily to the sale of the isocyanates businesses. Chlor Alkali's performance is expected to decrease from 1996 levels due to lower caustic prices and the start-up costs of the new Sunbelt project with the Geon Company. Plant operating rates are expected to be almost equal to 1996 levels as demand for chlorine and caustic is estimated to moderate slightly. Subsequent to December 31, 1996, the company acquired the remaining 50% of Niachlor (a joint venture) which will contribute additional revenues and profits in 1997. Estimated higher volumes in Pool Products is expected to enhance its operating performance and more than offset the impact of expected higher raw material and packaging costs. In the specialty chemicals business, sales and operating income are expected to increase due to higher volumes, which will offset additional operating expenses for new product introductions and market-entry costs. In the EO/PO derivative products, the company announced in 1996 that it will seek a buyer for its polyol, glycol and surfactants businesses at its Doe Run facility in Brandenburg, KY. The company expects to complete this transaction during 1997. As the semiconductor industry rebounds from its worst slump in 10 years, stronger demand for electronic chemicals and lower manufacturing costs are expected to enhance Microelectronic Materials' performance. During 1997, the company will expand its ultra high-purity chemicals plant and distribution center in Zwijndrecht, Belgium. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Metals and Ammunition Sales for the Metals and Ammunitions segment are expected to increase slightly. Assuming that the consumption level in the metals industry will mirror the levels achieved over the past three years, Brass sales are estimated to increase slightly as higher volumes offset lower average metal values. Over-capacity in the metals industry is expected to create a competitive pricing environment. Demand for Winchester's commercial ammunition is expected to increase as the marketplace returns to more normal levels from the 1994 buying frenzy and its subsequent market adjustment during the past two years. New product offerings and an increased presence in the marketplace are also expected to contribute to Winchester's sales increase. Operating income is expected to increase due to an expected turnaround in the electronics industry, higher commercial ammunition volumes, expected lower product costs and increased market share. Cautionary Statement under Federal Securities Laws: The information in the 1997 Outlook section (and subsections thereof), the Environmental Matters section, the Liquidity, Investment Activity and Other Financial Data section, and the Environmental note and the Commitments and Contingencies note to the Consolidated Financial Statements contains forward-looking statements that are based on management's beliefs, certain assumptions made by management and current expectations, estimates and projections about the markets and economy in which the company and its various divisions operate. Words such as "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 undertakes no obligation to update publicly any forward- looking statements, whether as a result of future events, new information or otherwise. Future factors which could cause actual results to differ materially from those discussed in these sections and notes include but are not limited to: lack of moderate growth in the U.S. economy or even a slight recession in 1997; competitive pricing pressures; the company's ability to maintain chemical price increases; higher start-up cost than expected for the Sunbelt project; greater than 10% decline in Chlor Alkali's ECU prices; higher-than-expected raw material costs for certain chemical product lines; discontinuance of the recovery from the 1996 semiconductor industry downturn and lack of growth in this industry; a downturn in many of the markets the company serves such as electronics, automotive, ammunition and housing; the supply/demand balance for the company's products, including the impact of excess industry capacity; failure to achieve targeted cost reduction programs; unsuccessful entry into new markets for electronic chemicals; capital expenditures, such as cost overruns, in excess of those scheduled; environmental costs in excess of those projected; and the occurrence of unexpected manufacturing interruptions/outages. DISCONTINUED OPERATIONS RESULTS OF OPERATIONS ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Sales $471 $508 $416 Operating Income 2 21 29 Net Income (Loss) (8) 6 12 - -------------------------------------------------------------------------------- 1996 Compared to 1995 Sales declined 7%, principally attributable to lower shipments of combined effects munitions, Ball Powder(R) propellant, and electromagnetic systems, which more than offset higher tank ammunition sales to international customers. The lower sales levels of combined effects munitions and electromagnetic systems reflect the completion of major programs during 1996. Sales of commercial Ball Powder(R) propellant declined 17% as sporting ammunition customers drastically reduced their purchases. In 1994 and 1995, heavy consumer buying patterns for sporting ammunition were driven by a concern over the threat of restrictive legislation and taxation, which increased the demand for Ball Powder(R) propellant. Net income was adversely impacted by the lower sales volumes and the provision for the settlement of claims relating to a government investigation of certain testing irregularities at the Marion, IL facility and the charge for a Belgian contract dispute. 1995 Compared to 1994 Sales increased 22% primarily due to additional shipments of medium caliber ammunition, strong demand for electronic and solid propellant products and sales under a combined effects munitions contract. Net income decreased 50% due to higher operating expenses and additional costs incurred on certain start-up and discontinued programs. A provision for the settlement of claims relating to a government investigation at the Marion, IL facility along with higher legal and consulting fees associated with this investigation also reduced 1995's net income. ENVIRONMENTAL MATTERS ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Cash Outlays: Remedial and Investigatory Spending $30 $25 $37 Capital Spending 6 8 10 Plant Operations 35 34 32 - -------------------------------------------------------------------------------- Total Cash Outlays $71 $67 $79 - -------------------------------------------------------------------------------- 20 The establishment and implementation of federal, state and local standards to regulate air, water and land quality has affected and will continue to affect substantially all of the company's manufacturing locations. Federal legislation providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances has imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws, such as the Resource Conservation and Recovery Act and the Clean Air Act, has required and will continue to require new capital expenditures and will increase operating costs. The company employs waste minimization and pollution prevention programs at its manufacturing sites. The company is party to various governmental and private environmental actions associated with waste disposal sites and manufacturing facilities. 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 efforts were material to operating results in 1996, 1995, and 1994 and may be material to net income in future years. Such charges to income were $70 million, $24 million and $17 million in 1996, 1995 and 1994, respectively. In connection with the sale of the isocyanates business at the company's Lake Charles, LA facility, a $53 million provision was recorded to provide for contractual liabilities related to future environmental spending at the Lake Charles site. 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 years. Cash outlays for normal plant operations for the disposal of waste and the operation and maintenance of pollution control equipment and facilities to ensure compliance with mandated and voluntarily imposed environmental quality standards were charged to income. Historically, the company has funded its environmental capital expenditures through cash flow from operations and expects to do so in the future. The company's estimated environmental liability at the end of 1996 was attributable to 55 sites, 24 of which were on the National Priority List (NPL). Ten sites accounted for approximately 80% of such liability and, of the remaining sites, no one site accounted for more than 3% of such liability. One of these ten sites was in the investigatory stage of the remediation process. In this stage, remedial investigation and feasibility studies are conducted by either the company, the United States Environmental Protection Agency (EPA) or other potentially responsible parties (PRPs) and a Record of Decision (ROD) or its equivalent has not been issued. At seven of the ten sites, a ROD or its equivalent has been issued by either the EPA or responsible state agency and the company either alone, or as a member of a PRP group, was engaged in performing the remedial measures required by that ROD. At the remaining two of the ten sites, part of the site is subject to a ROD and another part is still in the investigative stage of remediation. All ten sites were either former manufacturing facilities or waste sites containing contamination generated by those facilities. The company's consolidated balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to $148 million at December 31, 1996 and $108 million at December 31, 1995, of which $113 million and $73 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. Total environmental-related cash outlays for 1997 are estimated to be $75 million, of which $35 million is expected to be spent on investigatory and remedial efforts, $10 million on capital projects and $30 million on normal plant operations. Annual environmental-related cash outlays for site investigation and remediation, capital projects, and normal plant operations are expected to range between $75-$90 million over the next several years. While the company does not anticipate a material increase in the projected annual level of its environmental-related costs, there is always the possibility that such increases may occur in the future in view of the uncertainties associated with environmental exposures. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and 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. At December 31, 1996, the company had estimated additional contingent environmental liabilities of $35 million. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA CASH FLOW DATA Provided By (Used For) ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Net Cash and Cash Equivalents Provided by Operating Activities from Continuing Operations $ 266 $ 210 $ 176 Net Operating Activities 271 187 148 Capital Expenditures (126) (182) (131) Net Investing Activities 274 (199) (77) Net Financing Activities (29) 13 (67) - -------------------------------------------------------------------------------- Cash flows from operations, proceeds from sales of businesses and borrowings under the line of credit assumed by Primex were used to pay down long-term debt and short-term borrowings as well as finance the company's major funding needs, namely capital and investment projects, dividends to shareholders and the purchase of short-term investments. Operating Activities In 1996, the increase in cash flow from operating activities of continuing operations was primarily attributable to higher operating income and a reduced investment in working capital compared to 1995. In 1995, the increase in cash flow from operating activities from continuing operations was primarily attributable to higher operating income. Capital Expenditures Capital spending in 1996 decreased 31% from the prior year due to planned reduction to control capital costs. Also contributing to this lower level of spending was the completion of two significant projects in 1995. Capital spending in 1995 increased 39% from the prior year mainly to provide additional capacity and improve product quality for selected product lines. Funds were spent for the following: the manufacturing, distribution and laboratory complex in Mesa, AZ for the Microelectronic Materials business and the modernization of the seamless tube and wire facilities at Indianapolis, IN. In addition, funds were used to relocate the corporate headquarters to Norwalk, CT. Capital spending in 1997 is estimated to approximate 1996 levels. In October 1996, the company's Board of Directors approved a capital project to expand the size of the Microelectronic Materials' ultra high-purity chemicals plant and distribution center in Zwijndrecht, Belgium to better serve the semiconductor industry in Europe. This expansion is expected to be completed in 1998. Investing Activities In December 1996, the company sold its isocyanates business for $565 million in cash. The sale includes all assets at the company's Lake Charles, LA facility used in the manufacture and sale of toluene diisocyanate, aliphatic isocyanates and nitric acid. Also in 1996, the company sold its electrostatics business, which generated proceeds of $6 million. Proceeds of $23 million from the disposition of property, plant and equipment consisted primarily from the sale of the corporate headquarters. In 1995, the company completed its acquisition for approximately $65 million of Ciba-Geigy's 50% share of OCG, a joint venture formed by Ciba-Geigy and the company in 1990. Also, the company acquired the remaining 51% of Etoxyl, C.A., a Latin American joint venture. The purchase price is contingent upon the future earnings of this venture. During 1995, the company sold its Sun(R) brand trademark and its dry sanitizer plant in South Charleston, WV, and a related tableting operation in Livonia, MI. These divestments generated proceeds of $49 million. During 1994, the company sold its conductive materials business including the manufacturing facility in Ontario, CA and its trichloroisocyanurate production facility in Lake Charles, LA. These transactions generated proceeds of $41 million. On December 31, 1996, the company made an advance payment to E.I. du Pont de Nemours and Company (DuPont) of $75 million in connection with its anticipated purchase of the remaining 50% of Niachlor (a joint venture formed by DuPont and the company in 1984), which is included in Investments and Advances- Affiliated Companies at Equity in the December 31, 1996 Consolidated Balance Sheet. Subsequent to December 31, 1996, the company consummated this transaction for approximately $77 million. This acquisition will be accounted for as a purchase in 1997 and consists primarily of property, plant and equipment. In 1996, the company along with the Geon Company formed a joint venture (Sunbelt) to construct and operate a Chlor Alkali plant at the company's existing McIntosh, AL site. Geon will consume all of the chlorine produced by the project and the company will be responsible for marketing the caustic soda. The company invested approximately $27 million in this venture during 1996 and expects to invest approximately $71 million in 1997. The plant start-up associated with this venture is estimated to be in late 1997. 22 In 1995 and 1994, investment spending was minimal. The company's investment in the ethylene oxide joint venture in Latin America totaled $19 million at December 31, 1996. Throughout 1996, this venture continued to experience liquidity difficulties due to high leverage. In Venezuela, general economic conditions have been unstable. The government imposed currency exchange controls in order to control capital flight and manage inflation. The company, along with its venture partners, continued to address these difficulties in order to protect its recorded investment. In December 1996, the company purchased $87 million of short-term investment securities using a portion of the proceeds from the sale of the isocyanates business. Financing Activities At December 31, 1996, the company maintained committed credit facilities with banks of $256 million, all of which was available. The company believes that these credit facilities are adequate to satisfy its liquidity needs for the near future. In June 1995, the company sold $50 million of 7.11% notes due June 2005. The proceeds from this issue were used to reduce short-term debt incurred for working capital purposes. Included in the $256 million committed credit facility is an unsecured revolving credit agreement with a group of banks which provides a maximum borrowing of $250 million, and expires in May 2000. The company may select various floating rate borrowing options. Prior to the distribution, Primex Technologies, Inc. assumed a $160 million credit facility established by the company, under which the company had borrowed $125 million. The company will use these funds to reduce its own borrowings in 1997. In 1996, the board of directors authorized the company to purchase up to 10% of the company's common stock. A portion of the proceeds from the sales of the businesses will be used for this program, which began in January 1997. The percent of total debt to total capitalization (excluding the reduction in equity for the Contributing Employee Ownership Plan (ESOP)) decreased to 30% at December 31, 1996, from 38% at year-end 1995 and was 37% at year-end 1994. Contributing to the decrease in 1996 was the liquidation of all short-term borrowings as of December 31, 1996 and the repayment of the 7.077% note payable in mid 1996. In 1989 the company established an ESOP. The ESOP trust borrowed $100 million ($40 million from the company) to purchase 1.3 million shares of the company's convertible preferred stock. The proceeds received by the company from the issuance of its preferred stock were used to acquire shares of its common stock. The ESOP trust has repaid in full its original loan from the company. This loan to the ESOP was financed by the company through a long-term credit facility and was repaid in July 1996. In December 1996, the Board of Directors approved the redemption of all outstanding ESOP preferred stock with common stock of equivalent value. Approximately 1.87 million shares of common stock at a per share value of $40.19 were issued in exchange for approximately .9 million shares of ESOP preferred stock at a per share value of $85.75. The annual fixed dividend rate was $5.97 per share and during 1996, dividends were paid in the first three quarters. Dividends per common share were $1.20 in 1996 and 1995 and $1.10 in 1994. Total dividends paid on common stock amounted to $60 million in 1996, $57 million in 1995 and $44 million in 1994, while total ESOP preferred dividends amounted to $4 million in 1996, $6 million in 1995 and $7 million in 1994. Dividends paid on Series A Stock were $3 million in 1995 and $10 million in 1994 (equal to $3.64 per share). On March 1, 1995, 2.76 million shares of the company's $1 par value Series A Conversion Preferred Stock was converted into shares of common stock on a one- for-one basis. The last dividend on these preferred shares was paid in March 1995. During 1992, the company swapped interest payments on $50 million principal amount of its 8% notes due 2002 to a floating rate (5.618% at December 31, 1996). In June 1995, the company offset this transaction by swapping interest payments to a fixed rate of 6.485%. The company periodically evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Based on the cost and availability of insurance and the likelihood of a loss occurring, management decides the amount of insurance coverage to purchase from unaffiliated companies and the appropriate amount of risk to retain. The current levels of risk retention are believed to be appropriate and are consistent with those of other companies in the various industries in which the company operates. 23 INDUSTRY SEGMENTS
($ in millions) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 - --------------------------------------------------------------------------------------------------------------------- CHEMICALS Sales $1,586 $1,501 $1,195 $ 1,117 $ 996 $ 960 $1,269 $1,302 $1,386 $1,232 Operating Income (Loss) 207 140 52 (166) 25 (74) 43 142 98 77 Assets 1,058 1,223 1,037 1,024 1,067 982 945 977 1,034 1,028 Capital Expenditures 78 126 91 75 115 131 144 95 96 83 Depreciation 86 81 82 83 73 70 75 74 77 82 - --------------------------------------------------------------------------------------------------------------------- METALS AND AMMUNITION Sales 1,052 1,164 1,073 951 972 869 854 809 681 467 Operating Income 52 83 86 36 68 46 65 54 67 65 Assets 648 639 601 564 587 597 506 491 484 391 Capital Expenditures 45 52 40 44 44 34 28 33 38 20 Depreciation 38 37 35 34 30 29 28 29 26 23 - --------------------------------------------------------------------------------------------------------------------- CORPORATE AND OTHER Assets 633 320 282 251 293 325 320 336 340 217 Capital Expenditures 3 4 -- -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Sales 2,638 2,665 2,268 2,068 1,968 1,829 2,123 2,111 2,067 1,699 Operating Income (Loss) 259 223 138 (130) 93 (28) 108 196 165 142 Assets 2,339 2,182 1,920 1,839 1,947 1,904 1,771 1,804 1,858 1,636 Capital Expenditures 126 182 131 119 159 165 172 128 134 103 Depreciation 124 118 117 117 103 99 103 103 103 105 - ---------------------------------------------------------------------------------------------------------------------
Intersegment sales, which are priced generally at prevailing prices and are excluded from above, are not significant. Segment operating income has been restated for the corporate expenses previously allocated to the discontinued businesses. Operating income (loss) of each segment includes an allocation of corporate expenses. 1993 operating loss includes a charge for the strategic action plan of $200 ($171 to Chemicals and $29 to Metals and Ammunition). 1991 operating loss includes a charge for the streamlining program of $129 ($118 to Chemicals and $11 to Metals and Ammunition). Corporate and Other includes principally cash and cash equivalents, short-term investments and the net assets of discontinued operations. The Winchester division has been included with the Brass division to form the Metals and Ammunition segment. See Notes to Financial Statements for information relative to geographic segment data. 24 TEN-YEAR FINANCIAL SUMMARY
($ and shares in millions, except per share data) 1996 1995 1994 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- OPERATIONS Sales $ 2,638 $ 2,665 $ 2,268 $ 2,068 $ 1,968 $ 1,829 $ 2,123 $ 2,111 Cost of Goods Sold 2,021 2,115 1,844 1,862 1,612 1,587 1,690 1,613 Restructuring Charge -- -- -- 38 -- 22 -- -- Selling and Administration 319 293 256 262 230 213 267 244 Research and Development 39 34 30 36 33 35 58 58 - ------------------------------------------------------------------------------------------------------------------------- Operating Income (Loss) 259 223 138 (130) 93 (28) 108 196 Interest Expense 29 35 28 30 31 37 42 44 Interest and Other Income 216 16 9 6 8 15 22 21 - ------------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Taxes 446 204 119 (154) 70 (50) 88 173 Income Tax Provision (Benefit) 158 70 40 (61) 25 (25) 23 60 - ------------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Changes 288 134 79 (93) 45 (25) 65 113 Accounting Changes -- -- -- -- (40) -- -- -- Discontinued Operations (8) 6 12 1 4 12 19 11 - ------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) 280 140 91 (92) 9 (13) 84 124 - ------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working Capital 510(1) 153 164 60 78 (49) 83 90 Property, Plant and Equipment, Net 657 841 765 787 826 791 721 674 Total Assets 2,339 2,182 1,920 1,839 1,947 1,904 1,771 1,804 Capitalization: Short-Term Debt 139(1) 122 29 121 101 178 104 155 Long-Term Debt 276(1) 411 418 449 477 520 466 501 Shareholders' Equity 946 841 749 596 741 666 715 665 - ------------------------------------------------------------------------------------------------------------------------- Total Capitalization 1,361 1,374 1,196 1,166 1,319 1,364 1,285 1,321 - ------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Net Income (Loss): Primary: Continuing Operations 5.52 2.63 1.57 (2.28) .86 (.78) 1.51 2.72 Accounting Changes -- -- -- -- (.93) -- -- -- Discontinued Operations (0.18) 0.12 0.26 .02 .10 .32 .51 .29 - ------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) 5.34 2.75 1.83 (2.26) .03 (.46) 2.02 3.01 - ------------------------------------------------------------------------------------------------------------------------- Fully Diluted: Continuing Operations 5.43 2.56 1.53 -- -- -- 1.46 2.65 Discontinued Operations (0.16) 0.11 0.24 -- -- -- .48 .28 - ------------------------------------------------------------------------------------------------------------------------- Net Income(2) 5.27 2.67 1.77 -- -- -- 1.94 2.93 - ------------------------------------------------------------------------------------------------------------------------- Cash Dividends: Common 1.20 1.20 1.10 1.10 1.10 1.10 1.08 .98 ESOP Preferred (annual rate) 5.97 5.97 5.97 5.97 5.97 5.97 5.97 5.97 Series A Preferred (annual rate) -- 3.64 3.64 3.64 3.64 -- -- -- Shareholders' Equity(3) 18.13 17.03 15.43 13.62 16.96 17.51 18.83 17.50 Market Price of Common Stock: High 48 385/8 301/8 251/4 273/8 27 303/8 341/8 Low 347/8 241/4 23 20 185/8 163/4 141/8 243/4 Year End 375/8 371/8 253/4 243/4 227/8 201/4 187/8 30 - ------------------------------------------------------------------------------------------------------------------------- OTHER Capital Expenditures 126 182 131 119 159 165 172 128 Depreciation 124 118 117 117 103 99 103 103 Common Dividends Paid 60 57 44 42 41 41 41 39 Purchases of Common Stock -- -- -- -- -- 2 6 100 Current Ratio 1.6 1.2 1.3 1.1 1.2 1.0 1.2 1.2 Total Debt to Total Capitalization(4) 30.4% 38.2% 36.5% 47.1% 42.0% 48.5% 41.5% 46.2% Effective Tax Rate 35.4% 34.3% 33.6% 39.6% 35.7% 50.0% 26.1% 34.7% Average Common Shares Outstanding 50.0 48.8 41.0 38.2 38.2 38.0 38.2 40.0 - ------------------------------------------------------------------------------------------------------------------------- Shareholders 11,300 12,000 12,100 13,000 13,900 14,600 15,500 16,300 Employees(5) 9,300 10,400 10,300 10,100 10,800 11,400 12,100 13,200 - ------------------------------------------------------------------------------------------------------------------------- ($ and shares in millions, except per share data) 1988 1987 - ------------------------------------------------------- OPERATIONS Sales $ 2,067 $ 1,699 Cost of Goods Sold 1,596 1,275 Restructuring Charge -- -- Selling and Administration 254 230 Research and Development 52 52 - ------------------------------------------------------- Operating Income (Loss) 165 142 Interest Expense 33 23 Interest and Other Income 14 9 - ------------------------------------------------------- Income (Loss) from Continuing Operations Before Taxes 146 128 Income Tax Provision (Benefit) 51 49 - ------------------------------------------------------- Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Changes 95 79 Accounting Changes -- -- Discontinued Operations 3 (1) - ------------------------------------------------------- Net Income (Loss) 98 78 - ------------------------------------------------------- FINANCIAL POSITION Working Capital 84 221 Property, Plant and Equipment, Net 696 646 Total Assets 1,858 1,636 Capitalization: Short-Term Debt 211 50 Long-Term Debt 474 392 Shareholders' Equity 683 700 - ------------------------------------------------------- Total Capitalization 1,368 1,142 - ------------------------------------------------------- PER SHARE DATA Net Income (Loss): Primary: Continuing Operations 2.25 1.72 Accounting Changes -- -- Discontinued Operations .07 (.03) - ------------------------------------------------------- Net Income (Loss) 2.32 1.69 - ------------------------------------------------------- Fully Diluted: Continuing Operations 2.23 1.69 Discontinued Operations .07 (.03) - ------------------------------------------------------- Net Income(2) 2.30 1.66 - ------------------------------------------------------- Cash Dividends: Common .85 .80 ESOP Preferred (annual rate) -- -- Series A Preferred (annual rate) -- -- Shareholders' Equity(3) 16.68 15.91 Market Price of Common Stock: High 30 281/8 Low 20 163/8 Year End 251/2 21 - ------------------------------------------------------- OTHER Capital Expenditures 134 103 Depreciation 103 105 Common Dividends Paid 36 37 Purchases of Common Stock 84 100 Current Ratio 1.2 1.6 Total Debt to Total Capitalization(4) 50.1% 38.7% Effective Tax Rate 34.9% 38.3% Average Common Shares Outstanding 42.2 46.2 - ------------------------------------------------------- Shareholders 17,600 20,700 Employees(5) 14,400 12,400 - -------------------------------------------------------
(1) Working Capital includes $524 of Cash and Cash Equivalents and $87 of Short-Term Investments in 1996. (2) Fully diluted income or loss per share is not presented for 1993, 1992 and 1991 as amounts are anti-dilutive. (3) In 1994, 1993 and 1992, calculation is based on common shares and Series A Conversion Preferred Stock outstanding. (4) Excluding reduction to equity for the Employee Stock Ownership Plan from 1989 through 1996. (5) Employee data excludes employees who work at government-owned/contractor- operated facilities and includes employees of acquired businesses of 450 in 1995 and excludes employees of disposed businesses of 680 in 1996. 25 CONSOLIDATED BALANCE SHEETS December 31 ($ in millions, except share data) 1996 1995 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 524 $ 8 Short-Term Investments 87 -- Receivables, Net: Trade 259 345 Other 62 56 Inventories, Net of LIFO Reserve of $154 ($184 in 1995) 315 360 Other Current Assets 89 73 - -------------------------------------------------------------------------------- Total Current Assets 1,336 842 INVESTMENTS AND ADVANCES--AFFILIATED COMPANIES AT EQUITY 174 80 PROPERTY, PLANT AND EQUIPMENT, NET 657 841 OTHER ASSETS 172 136 NET ASSETS OF DISCONTINUED OPERATIONS -- 283 - -------------------------------------------------------------------------------- TOTAL ASSETS $2,339 $2,182 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-Term Borrowings $ -- $ 56 Current Installments of Long-Term Debt 139 66 Accounts Payable 268 310 Income Taxes Payable 127 5 Accrued Liabilities 292 252 - -------------------------------------------------------------------------------- Total Current Liabilities 826 689 LONG-TERM SENIOR DEBT 276 286 LONG-TERM SUBORDINATED DEBT -- 125 OTHER LIABILITIES 291 241 - -------------------------------------------------------------------------------- Total Liabilities 1,393 1,341 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred Stock, Par Value $1 Per Share: Authorized, 10,000,000 Shares ESOP Preferred Stock Issued 1,003,843 Shares in 1995 -- 77 Common Stock, Par Value $1 Per Share: Authorized, 60,000,000 Shares Issued 52,202,759 Shares (49,418,410 in 1995) 52 49 Additional Paid-In Capital 494 398 ESOP Obligations (5) (22) Cumulative Translation Adjustment (9) (4) Retained Earnings 414 343 - -------------------------------------------------------------------------------- Total Shareholders' Equity 946 841 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,339 $2,182 - -------------------------------------------------------------------------------- The accompanying Notes to Financial Statements are an integral part of the financial statements. 26 CONSOLIDATED STATEMENTS OF INCOME Years ended December 31 ($ in millions, except per share data) 1996 1995 1994 - -------------------------------------------------------------------------------- SALES $2,638 $2,665 $2,268 OPERATING EXPENSES: Cost of Goods Sold 2,021 2,115 1,844 Selling and Administration 319 293 256 Research and Development 39 34 30 - -------------------------------------------------------------------------------- OPERATING INCOME 259 223 138 Interest Expense 29 35 28 Interest and Other Income 216 16 9 - -------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 446 204 119 Income Taxes 158 70 40 - -------------------------------------------------------------------------------- Income from Continuing Operations 288 134 79 Income (Loss) from Discontinued Operations, Net of Taxes (8) 6 12 - -------------------------------------------------------------------------------- NET INCOME 280 140 91 Preferred Dividends 4 6 7 - -------------------------------------------------------------------------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 276 $ 134 $ 84 - -------------------------------------------------------------------------------- NET INCOME (LOSS) PER COMMON SHARE: Primary: Continuing Operations $ 5.52 $ 2.63 $ 1.57 Discontinued Operations (0.18) .12 .26 - -------------------------------------------------------------------------------- Net Income $ 5.34 $ 2.75 $ 1.83 - -------------------------------------------------------------------------------- Fully Diluted: Continuing Operations $ 5.43 $ 2.56 $ 1.53 Discontinued Operations (0.16) .11 .24 - -------------------------------------------------------------------------------- Net Income $ 5.27 $ 2.67 $ 1.77 - -------------------------------------------------------------------------------- The accompanying Notes to Financial Statements are an integral part of the financial statements. 27 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Cumulative Preferred Stock -------------------- --------------------- Shares Par Paid-In Translation Retained Series A ESOP ESOP ($ in millions, except share data) Issued Value Capital Adjustment Earnings Par Value Par Value Obligations - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1994 38,204,540 $38 $278 $(9) $ 238 $ 3 $ 92 $(44) Net Income -- -- -- -- 91 -- -- -- Dividends Paid: Common Stock ($1.10 per share) -- -- -- -- (44) -- -- -- ESOP Preferred Stock ($5.97 per share) -- -- -- -- (7) -- -- -- Series A Conversion Preferred Stock ($3.64 per share) -- -- -- -- (10) -- -- -- Issuance of Common Stock 4,427,500 5 93 -- -- -- -- -- Reduction in ESOP Obligations -- -- -- -- -- -- -- 17 Stock Options Exercised 174,204 -- 3 -- -- -- -- -- Translation Adjustment -- -- -- 6 -- -- -- -- Other Transactions 226,936 -- 4 -- 1 -- (6) -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 43,033,180 43 378 (3) 269 3 86 (27) Net Income -- -- -- -- 140 -- -- -- Dividends Paid: Common Stock ($1.20 per share) -- -- -- -- (57) -- -- -- ESOP Preferred Stock ($5.97 per share) -- -- -- -- (6) -- -- -- Series A Conversion Preferred Stock ($3.64 per share) -- -- -- -- (3) -- -- -- Conversion of Series A Conversion Preferred Stock 5,520,000 5 (2) -- -- (3) -- -- Reduction in ESOP Obligations -- -- -- -- -- -- -- 5 Stock Options Exercised 612,936 1 12 -- -- -- -- -- Translation Adjustment -- -- -- (1) -- -- -- -- Other Transactions 252,294 -- 10 -- -- -- (9) -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 49,418,410 49 398 (4) 343 -- 77 (22) Net Income -- -- -- -- 280 -- -- -- Dividends Paid: Common Stock ($1.20 per share) -- -- -- -- (60) -- -- -- ESOP Preferred Stock ($5.97 per share) -- -- -- -- (4) -- -- -- Issuance of ESOP Preferred Stock -- -- -- -- -- -- 9 -- Redemption of ESOP Preferred Stock 2,343,401 2 84 -- -- -- (86) -- Spin-off of Primex Technologies, Inc. -- -- -- -- (145) -- -- -- Reduction in ESOP Obligations -- -- -- -- -- -- -- 17 Stock Options Exercised 347,232 1 10 -- -- -- -- -- Translation Adjustment -- -- -- (5) -- -- -- -- Other Transactions 93,716 -- 2 -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 52,202,759 $52 $494 $(9) $ 414 $-- $ -- $ (5) - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of the financial statements. 28 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ($ in millions) 1996 1995 1994 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES - -------------------------------------------------------------------------------- Income from Continuing Operations $ 288 $ 134 $ 79 Adjustments to Reconcile Income from Continuing Operations to Net Cash and Cash Equivalents Provided by Operating Activities: Earnings of Non-consolidated Affiliates (9) (6) (2) Depreciation 124 118 117 Amortization of Intangibles 6 4 3 Deferred Taxes (74) 4 4 Gain on Disposition of Business (188) -- -- Change in Assets and Liabilities Net of Purchase and Sales of Businesses: Receivables 20 (56) (64) Inventories (9) (13) (18) Other Current Assets 6 (6) (2) Accounts Payable and Accrued Liabilities (38) 33 34 Income Taxes Payable 122 2 5 Noncurrent Liabilities 11 9 5 Other Operating Activities 7 (13) 15 - -------------------------------------------------------------------------------- Net Cash and Cash Equivalents Provided by Operating Activities from Continuing Operations 266 210 176 Discontinued Operations: Net Income (Loss) (8) 6 12 Change in Net Assets 13 (29) (40) - -------------------------------------------------------------------------------- Net Operating Activities 271 187 148 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES - -------------------------------------------------------------------------------- Capital Expenditures (126) (182) (131) Disposition of Property, Plant and Equipment 23 -- 8 Business Acquired in Purchase Transaction -- (65) -- Proceeds From Sales of Businesses 571 49 41 Purchases of Short-Term Investments (87) -- -- Investments and Advances--Affiliated Companies at Equity (102) 1 (2) Other Investing Activities (5) (2) 7 - -------------------------------------------------------------------------------- Net Investing Activities 274 (199) (77) - -------------------------------------------------------------------------------- FINANCING ACTIVITIES - -------------------------------------------------------------------------------- Long-Term Debt: Borrowings -- 50 -- Repayments (62) (25) (29) Short-Term Borrowings (Repayments) (56) 34 (94) Borrowings under Line of Credit Assumed by Primex Technologies, Inc. 125 -- -- Issuance of Common Stock -- -- 98 Repayment from ESOP 17 5 17 Stock Options Exercised 11 13 3 Dividends Paid (64) (66) (61) Other Financing Activities -- 2 (1) - -------------------------------------------------------------------------------- Net Financing Activities (29) 13 (67) - -------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents 516 1 4 - -------------------------------------------------------------------------------- Cash and Cash Equivalents, Beginning of Year 8 7 3 - -------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Year $ 524 $ 8 $ 7 - -------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION Cash Paid for Interest and Income Taxes: Interest $40 $44 $37 Income Taxes, Net of Refunds $104 $67 $39 - --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of the financial statements. 29 NOTES TO FINANCIAL STATEMENTS ($ in millions, except share data) ACCOUNTING POLICIES The preparation of the consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform with the 1996 presentation. In addition, the financial statements have been restated to reflect the spin-off of Primex Technologies, Inc. and share data has been restated to reflect the stock split, effective October 30, 1996. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. Investments in 20-50% owned affiliates are accounted for on the equity method. Accordingly, the company's share of earnings or losses of these affiliates is included in consolidated net income. FOREIGN CURRENCY TRANSLATION Foreign affiliates' balance sheet amounts are translated at the exchange rates in effect at year end, and income statement amounts are translated at the average rates of exchange prevailing during the year. Translation adjustments are recorded as a separate component of shareholders' equity. CASH AND CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. SHORT-TERM INVESTMENTS Marketable debt securities are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the company has classified its marketable debt securities as available-for-sale which are reported at fair market value with unrealized gains and losses included in Shareholders' Equity net of applicable taxes. The fair value of marketable securities are determined by quoted market prices. Realized gains and losses on sales of investments, as determined on specific identification method and declines in value of securities judged to be other-than-temporary are included in Interest and Other Income in the Consolidated Statement of Income. Interest and dividends on all securities are included in Interest and Other Income. All investments which have original maturities between three and twelve months are considered short-term investments and consist of debt securities such as commercial paper, time deposits, certificates of deposit, bankers acceptances, repurchase agreements, and marketable direct obligations of the United States Treasury. INVENTORIES Inventories are valued principally by the dollar value last-in, first-out (LIFO) method of inventory accounting; in aggregate, such valuations are not in excess of market. Elements of costs in inventories include raw materials, direct labor and manufacturing overhead. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is less. Start-up costs are expensed as incurred. GOODWILL Goodwill, the excess of the purchase price of acquired businesses over fair value of the respective net assets, is amortized principally over 30 years on a straight-line basis. The company periodically reviews the value of its goodwill to determine if any impairment has occurred. The company measures the potential impairment of recorded goodwill by the undiscounted value of expected future operating cash flows in relation to its net capital investment in the subsidiary. An impairment would be recorded based on the estimated fair value. ENVIRONMENTAL LIABILITIES AND EXPENDITURES Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and exclusive of claims against third parties, are adjusted periodically as assessment and remediation efforts progress or additional technical or legal information becomes available. Environmental remediation costs are charged to expense. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations. INCOME TAXES Deferred taxes are provided for differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. 30 DERIVATIVE FINANCIAL INSTRUMENTS The company enters into forward sales and purchase contracts and currency options to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies (principally Australian dollar, Belgian franc, Canadian dollar and Japanese yen) and relating to particular anticipated but not yet committed sales expected to be denominated in those currencies. All of the currency derivatives expire within one year and are for United States dollar equivalents. At December 31, 1996, the company had options and contracts to sell foreign currencies with face values of $12 (1995 - $29) and $32 (1995 - $41), respectively. In addition, the company had options and contracts to buy foreign currencies with face values of $15 (1995 - $13) and $23 (1995 - $11), respectively. The counterparties to the options and contracts are major financial institutions. The risk of loss to the company in the event of nonperformance by a counterparty is not significant. Premiums paid for currency options and gains or losses on forward sales and purchase contracts are not material to operating results. Foreign currency exchange losses, net of taxes, were $4 in 1996, $1 in 1995, and $2 in 1994. FINANCIAL INSTRUMENTS Fair values are estimated based on quoted market prices, where available, or on current rates offered to the company for debt with similar terms and maturities. At December 31, 1996, the estimated fair value of debt was $421 (1995 - $495). The fair value of the company's other financial instruments approximates carrying value. STOCK-BASED COMPENSATION In 1996, the company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." As allowed under SFAS No. 123, the company has chosen to continue to account for stock-based compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under this opinion, compensation cost is recorded when the excess of the fair market value of the company's stock at the date of grant for fixed options exceeds the exercise price of the stock option. The company's policy is to grant stock options at a value equal to its common stock's fair market value on the date of grant. Compensation cost for restricted stock awards is accrued over the life of the award based on the quoted market price of the company's stock at the date of the award. EARNINGS PER SHARE Primary earnings per share are computed by dividing net income less the ESOP preferred stock dividend requirement (to the date of its redemption in 1996), and the redemption adjustment (excess of fair value over book value of ESOP shares redeemed) by the weighted average number of common shares outstanding. In December 1996, the company redeemed the ESOP preferred stock with shares of common stock of equivalent value. On March 1, 1995, the Series A stock was converted on a one-for-one basis into common stock. In 1994, common shares outstanding included an equivalent number (one-for-one) of common shares, assuming the conversion of Series A stock. Fully diluted earnings per share reflect the dilutive effect of stock options and assume the conversion of outstanding ESOP preferred stock, until its redemption in December 1996, into an equivalent number of common shares at the date of issuance. Net income was reduced by an additional ESOP contribution (differential between the common and the ESOP preferred dividend rates under an assumed conversion) necessary to satisfy the debt service requirement. AVERAGE COMMON SHARES AND COMMON EQUIVALENTS OUTSTANDING Fully Years ended December 31 (In thousands) Primary Diluted - -------------------------------------------------------------------------------- 1996 49,992 52,311 1995 48,866 51,292 1994 46,606 49,650 - -------------------------------------------------------------------------------- MARKETABLE SECURITIES The following is a summary of the fair market value of available-for-sale short-term investments as of December 31, 1996: 1996 - -------------------------------------------------------------------------------- Tax exempt $ 6 Certificates of deposit 40 Commercial paper 19 Government and government agencies 20 Other 2 - -------------------------------------------------------------------------------- Total $87 - -------------------------------------------------------------------------------- TRADE RECEIVABLES Allowance for doubtful items was $11 and $13 at December 31, 1996 and 1995, respectively. Provisions charged to operations were $1 in 1996, $3 in 1995 and $2 in 1994. Bad debt write-offs, net of recoveries, amounted to $3 in 1996 and $2 in 1995 and 1994. 31 NOTES TO FINANCIAL STATEMENTS (continued) INVENTORIES 1996 1995 - -------------------------------------------------------------------------------- Raw materials and supplies $ 153 $ 167 Work in process 144 168 Finished goods 172 209 - -------------------------------------------------------------------------------- 469 544 LIFO reserve (154) (184) - -------------------------------------------------------------------------------- Inventory, net $ 315 $ 360 - -------------------------------------------------------------------------------- Inventories valued using the LIFO method comprised 71% and 76% of the total inventories at December 31, 1996 and 1995, respectively. If the first-in, first- out (FIFO) method of inventory accounting had been used, inventories would have been approximately $154 and $184 higher than reported at December 31, 1996 and 1995, respectively. PROPERTY, PLANT AND EQUIPMENT Useful Lives 1996 1995 - -------------------------------------------------------------------------------- Land and improvements to land 10-20 Years $ 79 $109 Buildings and building equipment 10-25 Years 257 266 Machinery and equipment 3-12 Years 1,532 1,802 Leasehold improvements 8 9 Construction in progress 134 220 - -------------------------------------------------------------------------------- Property, plant and equipment 2,010 2,406 Less accumulated depreciation 1,353 1,565 - -------------------------------------------------------------------------------- Property, plant and equipment, net $ 657 $ 841 - -------------------------------------------------------------------------------- Leased assets capitalized and included above are not significant. Maintenance and repairs charged to operations amounted to $149, $158 and $144 in 1996, 1995 and 1994, respectively. SHORT-TERM BORROWINGS There were no short-term borrowings at December 31, 1996. Short-term borrowings at December 31, 1995 consisted of domestic bank loans of $46 at an interest rate of 5.95% and domestic commercial paper of $10 at an interest rate of 5.97%. At December 31, 1996, the company maintained committed credit facilities with banks of $256, all of which was available, while comparable 1995 amounts were $309 and $253, respectively. LONG-TERM DEBT 1996 1995 - -------------------------------------------------------------------------------- Notes payable: 7.077%, due 1996 $ -- $ 40 7.11%, due 2005 50 50 7.75%, due 2005 11 11 7.97%, due 1997-2002 44 50 8%, due 2002 100 100 Industrial development and environmental improvement obligations: Payable at interest rates of 2% to 6% which vary with short-term tax exempt rates, due 2004-2017 35 35 Payable at interest rates of 6% to 7%, due 1997-2008 38 39 Guarantee of ESOP debt varying with LIBOR, due 1997 5 22 Notes floating with LIBOR, due 1999-2009 5 5 Mortgage, capitalized leases and other indebtedness 2 -- - -------------------------------------------------------------------------------- Total senior debt 290 352 Subordinated notes 9.5%, due 1997 125 125 - -------------------------------------------------------------------------------- 415 477 Amounts due within one year 139 66 - -------------------------------------------------------------------------------- Total long-term debt $ 276 $ 411 - -------------------------------------------------------------------------------- Among the provisions of certain note agreements are restrictions relating to payment of dividends and acquisition of the company's capital stock. At December 31, 1996, retained earnings of approximately $284 were not so restricted under the provisions. The ESOP's purchase of preferred stock in 1989 was financed by $60 of notes (guaranteed by the company) and $40 of borrowings from the company. The loan from the company to the ESOP was financed through a long-term credit facility which was repaid in July 1996. Included in the $256 committed credit facility is an unsecured revolving credit agreement with a group of banks, which provides a maximum borrowing of $250, and expires in May 2000. The company may select various floating rate borrowing options. In June 1995, the company sold $50 of 7.11% notes with a maturity date of June 2005. The proceeds from this issue were used to reduce short-term debt incurred for working capital purposes. There remains $248 unissued under the medium-term note program registered in May 1994. During 1992, the company swapped interest payments on $50 principal amount of its 8% notes due 2002 to a floating rate (5.618% at December 31, 1996). In June 1995, the company offset this transaction by swapping interest payments to a fixed rate of 6.485%. Counterparties to interest rate swap contracts are major financial institutions. The risk of loss to the company in the event of nonperformance by a counterparty is not significant. 32 Annual maturities of long-term debt for the next five years are $139 in 1997, $7 in 1998 and $8 in 1999, 2000 and 2001. Interest expense incurred on short-term borrowings and long-term debt totaled $31 in 1996, $36 in 1995 and $28 in 1994, of which $2 was capitalized in 1996, $1 in 1995, and less than $1 in 1994. PENSION PLANS AND RETIREMENT BENEFITS Essentially all of the company's domestic pension plans are non-contributory final-average-pay or flat-benefit plans and all domestic employees are covered. The company's funding policy is consistent with the requirements of federal laws and regulations. COMPONENTS OF NET PENSION EXPENSE 1996 1995 1994 - ------------------------------------------------------------------------------- Service cost (benefits earned during the period) $ 28 $ 23 $ 25 Interest cost on the projected benefit obligation 78 73 68 Actual loss (return) on assets (127) (260) 6 Actual (loss) return deferred for later recognition 35 174 (89) Net amortization of unrecognized transition asset, prior service cost and deferred gains and losses 1 (2) (1) - ------------------------------------------------------------------------------- Net pension expense $ 15 $ 8 $ 9 - ------------------------------------------------------------------------------- PRINCIPAL ASSUMPTIONS 1996 1995 1994 - -------------------------------------------------------------------------------- Weighted average discount rate 8.0% 7.5% 8.5% Weighted average rate of compensation increase 4.5% 4.5% 4.5% Long-term rate of return on assets 9.5% 9.5% 9.5% - -------------------------------------------------------------------------------- FUNDED STATUS OF THE PLANS 1996 1995 - -------------------------------------------------------------------------------- Accumulated benefit obligation including vested benefits of $1,015 and $983 $ 1,017 $ 985 - -------------------------------------------------------------------------------- Plan assets at fair value, primarily equity and fixed-income securities $ 1,174 $ 1,115 Projected benefit obligation for service rendered to date (1,078) (1,047) - -------------------------------------------------------------------------------- Assets over projected benefit obligation 96 68 Unrecognized net transition asset (28) (35) Unrecognized (gain) (138) (87) Unrecognized prior service cost 36 28 - -------------------------------------------------------------------------------- Net pension liability $ (34) $ (26) - -------------------------------------------------------------------------------- The company's common stock represents approximately 3% and 4% of the plan assets at December 31, 1996 and 1995, respectively. The company's foreign subsidiaries maintain pension and other benefit plans which are consistent with statutory practices and are not significant. The Pension Plan of Olin Corporation provides that if, within three years following a change of control of the company, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus. In addition to the net pension expense above, during 1996 the company recorded a $6 curtailment loss in connection with the sale of the isocyanates business and the spin-off of the Ordnance and Aerospace divisions as Primex Technologies, Inc. The company provides certain postretirement health care and life insurance benefits for eligible active and retired domestic employees. COMPONENTS OF POSTRETIREMENT EXPENSE 1996 1995 1994 - ------------------------------------------------------------------------------- Service cost-benefits earned during year $ 3 $ 3 $ 3 Interest cost on accumulated postretirement benefit obligation 5 4 4 Net amortization of unrecognized prior service cost and deferred gains and losses (1) (1) (1) - ------------------------------------------------------------------------------- Net postretirement expense $ 7 $ 6 $ 6 - ------------------------------------------------------------------------------- 33 NOTES TO FINANCIAL STATEMENTS (continued) UNFUNDED LIABILITY FOR POSTRETIREMENT BENEFITS 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $32 $42 Fully eligible active plan participants 15 9 Other active participants 20 16 - -------------------------------------------------------------------------------- Cumulative accumulated postretirement benefit obligation 67 67 Unrecognized loss (5) (7) Unrecognized prior service cost 6 9 - -------------------------------------------------------------------------------- Net postretirement benefit liability $68 $69 - -------------------------------------------------------------------------------- The accumulated postretirement benefit obligation was determined using the projected unit credit method and an assumed discount rate of 8% in 1996, 7.5% in 1995 and 8.5% in 1994. The assumed health care cost trend rate used for pre-65 retirees was 11% in 1996, 12.5% in 1995 and 13% in 1994, declining one-half percent per annum to 5.5%. For post-65 retirees, the company provides a fixed dollar benefit which is not subject to escalation. A one percent increase each year in the health care cost trend rate used would have resulted in a $1 increase in the aggregate service and interest components of expense for the year 1996, and a $5 increase in the accumulated postretirement benefit obligation at December 31, 1996. During 1996 in connection with the spin-off of Primex Technologies, Inc., the company transferred $8 of net postretirement benefit liability to Primex Technologies, Inc. INCOME TAXES COMPONENTS OF PRETAX INCOME FROM CONTINUING OPERATIONS 1996 1995 1994 - -------------------------------------------------------------------------------- Domestic $409 $172 $105 Foreign 37 32 14 - -------------------------------------------------------------------------------- Pretax income $446 $204 $119 - -------------------------------------------------------------------------------- COMPONENTS OF INCOME TAX EXPENSE (BENEFIT) 1996 1995 1994 - -------------------------------------------------------------------------------- Currently payable: Federal $185 $43 $23 State 36 13 6 Foreign 11 10 7 - -------------------------------------------------------------------------------- 232 66 36 Deferred (74) 4 4 - -------------------------------------------------------------------------------- Income tax expense $158 $70 $40 - -------------------------------------------------------------------------------- The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax of 35% to the income from continuing operations before taxes. EFFECTIVE TAX RATE RECONCILIATION (Percent) 1996 1995 1994 - ------------------------------------------------------------------------------- Statutory federal tax rate 35.0 35.0 35.0 Foreign income tax (1.0) (.8) .1 State income taxes, net 3.3 3.7 2.4 Equity in net income of affiliates (.4) (.6) (.9) Other, net (1.5) (3.0) (3.0) - ------------------------------------------------------------------------------- Effective tax rate 35.4 34.3 33.6 - ------------------------------------------------------------------------------- COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets Postretirement benefits $ 40 $ 37 Environmental reserves 57 42 Non-deductible reserves 81 52 Tax credit carryforwards -- 5 Other miscellaneous items 17 19 - -------------------------------------------------------------------------------- Total deferred tax assets $195 $155 - -------------------------------------------------------------------------------- Deferred tax liabilities Property, plant and equipment $ 54 $ 88 Other miscellaneous items 6 6 - -------------------------------------------------------------------------------- Total deferred tax liabilities $ 60 $ 94 - -------------------------------------------------------------------------------- Included in Other Current Assets at December 31, 1996 and 1995 are $76 and $53, respectively, of net current deferred assets. Taxable income is expected to be sufficient to recover the net benefit therefore, no valuation allowance was established. At December 31, 1996, the company's share of the cumulative undistributed earnings of foreign subsidiaries was approximately $103. No provision has been made for U.S. or additional foreign taxes on the undistributed earnings of foreign subsidiaries since the company intends to continue to reinvest these earnings. Foreign tax credits would be available to substantially reduce or eliminate any amount of additional U.S. tax that might be payable on these foreign earnings in the event of distributions or sale. CONTRIBUTING EMPLOYEE OWNERSHIP PLAN The Contributing Employee Ownership Plan is a defined contribution plan available to essentially all domestic employees which provides a match of employee contributions. The plan purchased from the company approximately 1.3 million shares ($100) of a newly authorized 1.75 million share series of the company's ESOP preferred stock, financed by $60 of notes guaranteed by the company and a $40 loan from the company. This loan has been repaid in total to the company as of December 31, 1992. In December 1996, the Board of Directors approved the redemption of all outstanding 34 shares of ESOP preferred stock with common stock of equivalent value. Upon redemption of the ESOP preferred stock, the company is matching employee contributions with common stock. The annual fixed preferred dividend rate was $5.97 per share and during 1996, dividends were paid in the first three quarters. Expenses related to the plan are based on ESOP preferred and common stock allocated to participants. These costs amounted to $11 in 1996, $12 in 1995, and $9 in 1994. Interest incurred by the plan totaled $1 in 1996, 1995 and 1994, which was funded by ESOP preferred dividends. STOCK OPTIONS Under the stock option plans, options may be granted to purchase shares of the company's common stock at not less than fair market value at the date of grant, and are exercisable for a period not exceeding ten years from that date. Options granted under the 1996 stock option plan vest over three years. Stock option transactions are as follows:
Weighted Average Option Price Option Price Shares Per Share Per Share - ----------------------------------------------------------------------------------- Outstanding at January 1, 1994 1,842,978 $11.07-$32.50 $24.41 Granted 268,148 26.00 26.00 Exercised (174,204) 11.07-26.75 21.68 Canceled (25,714) 21.63-26.75 24.94 - ------------------------------------------------------------------- Outstanding at December 31, 1994 1,911,208 15.41-32.50 24.87 Granted 272,508 27.82-32.41 27.99 Exercised (612,936) 15.41-31.80 24.43 Canceled (16,512) 15.41-27.82 25.05 - ------------------------------------------------------------------- Outstanding at December 31, 1995 1,554,268 21.18-31.82 25.59 Granted 1,441,641 39.17-40.46 39.18 Exercised (347,232) 21.63-27.82 25.07 Canceled (250,958) 23.87-39.17 37.61 - ------------------------------------------------------------------- Outstanding at December 31, 1996 2,397,719 $21.18-$40.46 $32.06 ===================================================================================
Of the outstanding options at December 31, 1996, options covering 1,313,169 shares are currently exercisable. At December 31, 1996, common shares reserved for issuance under these plans were 5,345,386 and under additional remuneration agreements were estimated to be 85,000. In 1996, the company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." As allowed by SFAS No. 123, the company has not recognized compensation cost for stock-based compensation arrangements. Pro forma net income and earnings per share were calculated based on the following assumptions as if the company had recorded compensation expense for the stock options granted during the year. The fair value of each option granted during 1996 and 1995 was estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions used: dividend yield of 4.0% (4.2% in 1995), risk-free interest rate of 6.5%, expected volatility of 22% (20% in 1995) and an expected life of 7 years. The difference between reported and pro forma net income and earnings per share for 1996 and 1995 was not material. COMMON STOCK The Board of Directors approved a two-for-one split of the company's common stock, effective October 30, 1996, for all shareholders of record on October 21, 1996. Shareholders' Equity has been restated to give retroactive recognition to the stock split by reclassifying from additional paid-in capital to common stock the par value of the additional shares as a result of the stock split. In connection with the spin-off of Primex, its employees were allowed to transfer their account balances from the company's CEOP into Primex's savings and retirement plan. The company issued approximately .3 million shares of common stock at a per share value of $40.50 in exchange for .2 million shares of ESOP preferred stock at a per share value of $85.63 at the time of the transfer. In December, the company's board of directors approved the redemption of all outstanding shares of ESOP preferred stock with common stock of equivalent value. Approximately 1.87 million shares of common stock at a per share value of $40.19 were issued in exchange for approximately .9 million shares of ESOP preferred stock at a per share value of $85.75. SHAREHOLDER RIGHTS PLAN Effective February 1996, the Board of Directors adopted a new Shareholder Rights Plan to replace the prior plan which had been adopted in 1986. Like the former plan, the new plan is designed to prevent an acquiror from gaining control of the company without offering a fair price to all shareholders. Each right entitles a shareholder (other than the acquiror) to buy one-five hundredth share of Series A Participating Cumulative Preferred Stock at an exercise price of one hundred twenty dollars. The rights are exercisable only if a person acquires more than 15% of the company's common stock or if the Board of Directors so determines following the commencement of a tender or exchange offer to acquire more than 15% of the company's common stock. If any person acquires more than 15% of the company's common stock and in the event of a subsequent merger or combination, each right will entitle the holder (other than the acquiror) to purchase stock or other property of the acquiror having a value of twice the exercise price. The company can redeem the rights at $.005 per right for a certain period of time. The rights will expire on February 27, 2006, unless earlier redeemed by the company. 35 NOTES TO FINANCIAL STATEMENTS (continued) SEGMENT INFORMATION Information relative to the various industries in which the company operates appears on page 24 and is incorporated herein by reference. GEOGRAPHIC SEGMENT DATA 1996 1995 1994 - ------------------------------------------------------------------------------- Sales United States $2,251 $2,357 $2,061 Foreign 387 308 207 Transfers between areas United States 158 102 74 Foreign 12 16 16 Eliminations (170) (118) (90) - ------------------------------------------------------------------------------- Total sales $2,638 $2,665 $2,268 =============================================================================== Operating income United States $ 231 $ 198 $ 125 Foreign 28 25 13 - ------------------------------------------------------------------------------- Operating income $ 259 $ 223 $ 138 =============================================================================== Assets United States $1,492 $1,699 $1,610 Foreign 230 198 107 Investments 38 43 34 Corporate assets and eliminations 579 242 169 - ------------------------------------------------------------------------------- Total consolidated assets $2,339 $2,182 $1,920 =============================================================================== Transfers between geographic areas are priced generally at prevailing market prices. Export sales from the United States to unaffiliated customers were $212, $213 and $152 in 1996, 1995 and 1994, respectively. ACQUISITIONS On December 31, 1996, the company made an advance payment to E. I. du Pont de Nemours and Company (DuPont) of $75 in connection with its anticipated purchase of the remaining 50% of Niachlor (a joint venture formed by DuPont and the company in 1984), which is included in Investments and Advances-Affiliated Companies at Equity in the December 31, 1996 Consolidated Balance Sheet. Subsequent to December 31, 1996, the company consummated this transaction for approximately $77. This acquisition will be accounted for as a purchase in 1997 and consists primarily of property, plant and equipment. In 1995, the company acquired the remaining 50% of OCG Microelectronic Materials, a joint venture formed by Ciba-Geigy and the company in 1990, for approximately $65. In addition, the company acquired the remaining 51% of Etoxyl, C.A., a Latin American joint venture. The purchase price is contingent upon the future earnings of this entity. These acquisitions were accounted for as purchases and accordingly, their results of operations, which were not material, are included in the consolidated financial statements from the dates of acquisition. Supplemental cash flow information on businesses acquired is as follows: 1995 - -------------------------------------------------------------------------------- Working capital $ 39 Property, plant and equipment 45 Other assets 14 Goodwill 17 Debt (27) Investments and advances - affiliated companies (23) - -------------------------------------------------------------------------------- Purchase price $ 65 ================================================================================ DISPOSITIONS In December of 1996 the company sold its isocyanates business for $565 in cash. The sale included all assets at the company's Lake Charles, LA facility used in the manufacture and sale of toluene diisocyanate, aliphatic isocyanates and nitric acid. In connection with the transaction, the company recorded a pre-tax gain of $188 ($115 after tax gain) which is included in Interest and Other Income. The company's results of operations for 1996 and 1995 included sales of $296 and $255 and operating income of $52 and $19, respectively, from the isocyanates business. Supplemental cash flow information on businesses disposed is as follows: 1996 - -------------------------------------------------------------------------------- Proceeds $ 571 Working capital (123) Property, plant and equipment (177) Other assets (5) Other liabilities (78) - -------------------------------------------------------------------------------- Gain on disposition of businesses $ 188 ================================================================================ Also in 1996 the company announced it will seek a buyer for its polyol, glycol and surfactants businesses at its Doe Run facility at Brandenburg, KY. The company expects to complete this transaction during 1997. During 1995, the company sold its dry sanitizer plant in South Charleston, WV, a related tableting operation in Livonia, MI, and Sun(R) brand of isocyanurates completing the final steps to comply with the Federal Trade Commission order to divest chlorinated isocyanurate pool chemical assets that were acquired in 1985. These transactions did not have a material impact on the company's results of operations. During 1994, the company sold its trichloroisocyanurate production facility and conductive materials business including its manufacturing facility. These transactions did not have a material impact on the company's results of operations. 36 DISCONTINUED OPERATIONS On December 31, 1996, the company completed the spin-off of its Ordnance and Aerospace businesses as Primex Technologies, Inc. ("Primex"). Under the terms of the spin-off, the company distributed to its holders of common stock as of the close of business on December 19, 1996, one Primex common share for every ten shares of Olin common stock. The spin-off distribution reduced shareholders' equity by $145, which represents the book value of the net assets of Primex as of December 31, 1996. The historical operating results of these businesses are shown net of tax as discontinued operations in the consolidated statements of income. Net assets of discontinued operations in the consolidated balance sheet include those assets and liabilities attributable to the Ordnance and Aerospace businesses. The historical results for the discontinued operations include an allocation of the company's interest expense based on an assumed debt level providing a debt to capital ratio similar to that of the company as well as a level of debt that Primex could maintain on an independent basis in the future. The allocated debt of $125 represents the amount borrowed by the company under a credit facility established by the company and assumed by Primex prior to the distribution on December 31, 1996. The cash received by the company under this credit facility will be used to liquidate its existing debt. The company and Primex have entered into a tax sharing agreement effectively providing that the company will be responsible for the tax liability of Primex for the years that Primex was included in the company's consolidated income tax returns. Income taxes have been allocated to Primex based on its pretax income and calculated on a separate Company basis pursuant to the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Income taxes allocated to Primex were $2, $7, $10 in 1996, 1995 and 1994, respectively. In addition, the company and Primex have entered into several other agreements which cover such matters as technology transfers, transition services, covenants not to compete and powder and component supplies. Condensed historical combined balance sheet and income statement data of the discontinued operations are summarized below: 1996 1995 - -------------------------------------------------------------------------------- Combined Balance Sheets Total assets $374 $381 Total liabilities 229 98 Equity 145 283 ================================================================================ 1996 1995 1994 - -------------------------------------------------------------------------------- Combined Statements of Income Sales $471 $508 $416 Operating income 2 21 29 Net income (loss) (8) 6 12 ================================================================================ ENVIRONMENTAL 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 $70 in 1996, $24 in 1995, and $17 in 1994. In connection with the sale of the isocyanates business at the company's Lake Charles, LA facility, a $53 provision was recorded to provide for contractual liabilities related to future environmental spending at the Lake Charles site. Charges to income for investigatory and remedial efforts were material to operating results in 1996, 1995 and 1994. The consolidated balance sheets include reserves for future environmental expenditures to investigate and remediate known sites amounting to $148 at December 31, 1996 and $108 at December 31, 1995, of which $113 and $73 are 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. At December 31, 1996, the company had estimated additional contingent environmental liabilities of $35. COMMITMENTS AND CONTINGENCIES The company leases certain properties, such as manufacturing, warehousing and office space, data processing and office equipment and railroad cars. Leases covering these properties generally contain escalation clauses based on increased costs of the lessor, primarily property taxes, maintenance and insurance and have renewal or purchase options. Total rent expense charged to operations amounted to $55 in 1996, $51 in 1995 and $49 in 1994, (sublease income is not significant). Future minimum rent payments under operating leases having initial or remaining noncancelable lease terms in excess of one year at December 31, 1996 are as follows: $24 in 1997; $21 in 1998; $16 in 1999; $13 in 2000; $9 in 2001; and $36 thereafter. There are a variety of non-environmental legal proceedings pending or threatened against the company. Those matters that are probable have been accrued for in the accompanying financial statements. Any contingent amounts in excess of amounts accrued are not expected to have a material adverse effect on results of operations, financial position or liquidity of the company. 37 OTHER FINANCIAL DATA QUARTERLY DATA (UNAUDITED)
First Second Third Fourth 1996 Quarter Quarter Quarter Quarter Year - --------------------------------------------------------------------------------------------- Sales $693 $702 $652 $ 591 $ 2,638 Cost of goods sold 529 529 501 462 2,021 Income from continuing operations 51 51 41 145 288 Net income 45 52 38 145 280 Per common share: Primary Income from continuing operations .99 .99 .78 2.76 5.52 Net income .87 1.01 .72 2.74 5.34 Fully diluted Income from continuing operations .96 .96 .75 2.76 5.43 Net income .85 .98 .70 2.74 5.27 Pro forma net income(1) .70 .90 .50 .50 2.60 Common dividends .30 .30 .30 .30 1.20 Market price of common stock(2) High 44 3/8 48 45 1/4 45 1/8 48 Low 34 7/8 42 3/8 36 1/2 37 1/8 34 7/8 ============================================================================================= 1995 - --------------------------------------------------------------------------------------------- Sales $666 $678 $682 $639 $2,665 Cost of goods sold 534 528 548 505 2,115 Income from continuing operations 36 42 30 26 134 Net income 38 44 31 27 140 Per common share: Primary Income from continuing operations .70 .84 .59 .50 2.63 Net income .76 .87 .61 .51 2.75 Fully diluted Income from continuing operations .68 .80 .58 .50 2.56 Net income .73 .83 .60 .51 2.67 Common dividends .30 .30 .30 .30 1.20 Market price of common stock(2) High 27 1/8 28 7/8 36 3/8 38 5/8 38 5/8 Low 24 1/4 25 1/4 25 1/2 31 3/4 24 1/4 ================================================================================================
(1) Pro forma net income per share for 1996 represents income from continuing operations adjusted to exclude the net effect of the operations ($.47 per share) of the isocyanates business and Primex and the gain ($2.20 per share) on the sale of the isocyanates business. Pro forma net income per share excludes the impact of interest income that would have been earned on the proceeds from the sale. (2) New York Stock Exchange composite transactions. 38 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Olin Corporation: We have audited the accompanying consolidated balance sheets of Olin Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the financial position of Olin Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Stamford, Connecticut January 30, 1997 MANAGEMENT REPORT ON FINANCIAL STATEMENTS Management is responsible for the preparation and integrity of the accompanying consolidated financial statements. These financial statements have been prepared in conformity with generally accepted accounting principles and, where necessary, involve amounts based on management's best judgments and estimates. Management also prepared the other information in this annual report and is responsible for its accuracy and consistency with the financial statements. The company's system of internal controls is designed to provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. This system, which is reviewed regularly, consists of written policies and procedures, an organizational structure providing delegation of authority and segregation of responsibility and is monitored by an internal audit department. The company's independent auditors also review and test the internal control system along with tests of accounting procedures and records to the extent that they consider necessary in order to issue their opinion on the financial statements. Management believes that the system of internal accounting controls meets the objectives noted above. Management also recognizes its responsibility for fostering a strong ethical climate so that the company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is communicated to all employees in a variety of ways, including personal training sessions. The Ethics Program is based upon a document called "The Standards of Ethical Business Practices." The standards address, among other things, the necessity of ensuring open communication within the company; potential conflicts of interest; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The company maintains a systematic program to assess compliance with these standards. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent auditors, management and the company's internal auditors to review the work of each and to evaluate accounting, auditing, internal controls and financial reporting matters. The Audit Committee annually recommends to the Board of Directors the appointment of independent auditors, subject to shareholder approval. The independent auditors and the company's internal audit department have independent and free access to the Audit Committee. /s/ Donald W. Griffin /s/ Anthony W. Ruggiero Donald W. Griffin Anthony W. Ruggiero Chairman, Senior Vice President and President and Chief Financial Officer Chief Executive Officer 39 EX-21 11 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF OLIN CORPORATION -------------------------------- (as of December 31, 1996) PERCENTAGE OF DIRECT/ JURISDICTION INDIRECT OWNERSHIP WHERE BY OLIN OF VOTING SUBSIDIARY ORGANIZED SECURITIES - ---------- ------------ --------------------- A.J. Oster Caribe, Inc. Delaware 100% A.J. Oster Company Rhode Island 100% A.J. Oster Foils, Inc. Delaware 100% A.J. Oster West, Inc. Rhode Island 100% Bridgeport Brass Corp. (1) Indiana 100% Bryan Metals, Inc. (2) Ohio 100% Doe Run Gas Transmission Company Kentucky 100% Etoxyl, C.A. Venezuela 100% Hydrochim, S.A. France 100% N.V. Olin Hunt Specialty Products Belgium 100% N.V. Olin Hunt Trading Belgium 100% Olin Microelectronic Chemicals, Inc. Delaware 100% Olin Microelectronic Materials Limited United Kingdom 100% Olin Australia Limited Australia 100% Olin Brasil Ltda. Brazil 100% Olin Canada Inc. Canada 100% Olin Chemicals B.V. Netherlands 100% Olin Corporation N.Z. Limited New Zealand 100% Olin Electronic Chemicals, Inc. Pennsylvania 100% Olin Engineered Systems, Inc. Delaware 100% Olin Export Trading Corporation Virgin Islands 100% Olin Financial Services, Inc. Delaware 100% Olin GmbH Germany 100% Olin Hunt Specialty Products, Inc. Delaware 100% Olin Hunt Sub. I Corp. Delaware 100% Olin Industrial (Hong Kong) Limited Hong Kong 100% Olin Japan, Inc. Japan 100% Olin Kimya, A.S. Turkey 75% Olin Mexico, S.A. de C.V. Mexico 100% Olin Microelectronic Materials AG Switzerland 100% Olin Microelectronic Materials N.V. Belgium 100% Olin Microelectronic Materials S.A. France 100% Olin Pte. Ltd. Singapore 100% Olin Quimica S.A. Delaware 100% Olin S.A. France 100% Olin S.r.l. Italy 100% Olin Sunbelt, Inc. Delaware 100% Olin (U.K.) Limited United Kingdom 100% Superior Pool Products, Inc. Delaware 100% There are omitted from the foregoing list the names of certain subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Subsidiaries which were transferred to Primex Technologies, Inc. in the spinoff are also not included. - ------ 1. d/b/a "Olin Brass, Indianapolis" and "Olin Brass, Indianapolis Facility" in States of CA, IL, IN, NJ, NC, OH, PA, RI and TX. 2. d/b/a "Bryan Metals of Ohio" in NJ. EX21. EX-23 12 CONSENT OF KPMG PEAT MARWICK LLP DATED 3/12/97 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS ------------------------------- The Board of Directors Olin Corporation: We consent to incorporation by reference in Registration Statements No. 33-4479 and No. 33-52771 on Form S-3 and Nos. 33-28593, 33-00159, 33-40346, 33-41202, 33-55187, 33-52681, 333-05097, 333-17629 and 333-18619 on Form S-8 of Olin Corporation of our report dated January 30, 1997, relating to the consolidated balance sheets of Olin Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report is incorporated by reference in the December 31, 1996 annual report on Form 10-K of Olin Corporation. KPMG Peat Marwick LLP Stamford, Connecticut March 12, 1997 EX-27.(A) 13 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Financial Statements contained in Item 8 of Form 10-K for the period ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. Figures are rounded to the nearest 1,000,000 (except EPS). 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 524 87 270 (11) 315 1,336 2,010 (1,353) 2,339 826 276 0 0 52 894 2,339 2,638 2,638 2,021 2,021 0 1 29 446 158 288 (8) 0 0 280 5.34 5.27 Primary and fully diluted earnings per share from continuing operations were $5.52 and $5.43, respectively.
EX-27.(B) 14 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule has been restated as required by Item 601(c)(2)(iii) of Regulation S-K to reflect the spin-off of Primex Technologies, Inc., effective December 31, 1996. Share data has been restated to reflect the stock split, effective October 30, 1996. Figures are rounded to the nearest 1,000,000 (except EPS) 1,000,000 9-MOS 6-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996 5 5 6 0 0 0 365 418 411 0 0 0 363 388 384 861 933 924 2,372 2,409 2,399 (1,576) (1,603) (1,579) 2,162 2,235 2,230 710 803 707 276 277 411 0 0 0 77 74 76 50 50 50 823 801 749 2,162 2,235 2,230 2,047 1,395 693 2,047 1,395 693 1,559 1,058 529 1,559 1,058 529 0 0 0 0 0 0 23 16 8 216 155 77 73 53 26 143 102 51 (8) (5) (6) 0 0 0 0 0 0 135 97 45 2.60 1.88 0.87 2.53 1.83 0.85 Primary and fully diluted earnings per share include discontinued operations.
EX-27.(C) 15 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule has been restated as required by Item 601(c)(2)(iii) of Regulation S-K to reflect the spin-off of Primex Technologies, Inc., effective December 31, 1996. Share data has been restated to reflect the stock split, effective October 30, 1996. Such Item does not require balance sheet information for fiscal year 1994 to be included and zero's have been inserted in lieu of such information for such year. Figures are rounded to the nearest 1,000,000 (except EPS) 1,000,000 YEAR 9-MOS 6-MOS 3-MOS YEAR DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1994 JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1994 DEC-31-1995 SEP-30-1995 JUN-30-1995 MAR-31-1995 DEC-31-1994 8 6 4 5 0 0 0 0 0 0 358 392 389 370 0 (13) 0 0 0 0 360 355 361 345 0 842 863 852 821 0 2,406 2,432 2,329 2,291 0 (1,565) (1,587) (1,547) (1,522) 0 2,182 2,204 2,109 2,068 0 689 732 656 653 0 411 426 426 423 0 0 0 0 0 0 77 80 84 84 0 49 49 49 49 0 715 696 669 637 0 2,182 2,204 2,109 2,068 0 2,665 2,026 1,344 666 2,268 2,665 2,026 1,344 666 2,268 2,115 1,610 1,062 534 1,844 2,115 1,610 1,062 534 1,844 0 0 0 0 0 3 0 0 0 2 35 26 17 8 28 204 164 118 54 119 70 56 40 18 40 134 108 78 36 79 6 5 4 2 12 0 0 0 0 0 0 0 0 0 0 140 113 82 38 91 2.75 2.24 1.63 0.76 1.83 2.67 2.16 1.56 0.73 1.77 Primary and fully diluted earnings per share include discontinued operations.
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