-----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, OwzQxsjIWpzFTL+wNt5ojhsuTTXwVTeh+nvH9F401tU8RWZZK8w/EUBg03N8zO/k SPRzS4Eca2KntnbWzOnzUw== 0000950130-98-003934.txt : 19980812 0000950130-98-003934.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950130-98-003934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: CSX SROS: NYSE SROS: PCX 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-Q SEC ACT: SEC FILE NUMBER: 001-01070 FILM NUMBER: 98682532 BUSINESS ADDRESS: STREET 1: 501 MERRITT 7 STREET 2: P O BOX 4500 CITY: NORWALK STATE: CT ZIP: 06856 BUSINESS PHONE: 2033750-3000 MAIL ADDRESS: STREET 1: OLIN CORP STREET 2: 501 MERRITT 7 PO BOX 4500 CITY: NORWALK STATE: CT ZIP: 06851 FORMER COMPANY: FORMER CONFORMED NAME: OLIN MATHIESON CHEMICAL CORP DATE OF NAME CHANGE: 19691008 10-Q 1 FORM 10-Q FOR THE PERIOD DATED ENDED JUNE 30,1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------------------------------------------- COMMISSION FILE NUMBER 1-1070 ------------------------------------------------------- OLIN CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 13-1872319 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 Merritt 7, Norwalk, CT 06851 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (203) 750-3000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO --- --- As of July 31, 1998, there were outstanding 47,735,114 shares of the registrant's common stock. Part I - Financial Information Item 1. Financial Statements. OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Balance Sheets (In millions) Unaudited June 30, December 31, 1998 1997 ASSETS ---- ---- - ------ Cash and cash equivalents $ 7.7 $ 165.8 Short-term investments 20.0 28.1 Accounts receivable, net 409.6 350.1 Inventories 349.9 347.3 Other current assets 43.8 44.7 -------- -------- Total current assets 831.0 936.0 Investments and advances 34.0 30.9 Property, plant and equipment (less accumulated depreciation of $1,583.8 and $1,528.2) 785.9 795.0 Other assets 193.5 183.5 -------- -------- Total assets $1,844.4 $1,945.4 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Short-term borrowings and current installments of long-term debt $ 1.8 $ 9.2 Accounts payable 219.3 255.9 Income taxes payable 8.3 5.4 Accrued liabilities 235.0 241.7 -------- -------- Total current liabilities 464.4 512.2 Long-term debt 236.5 268.0 Other liabilities 275.1 286.9 Commitments and contingencies Shareholders' equity: Common stock, par value $1 per share: Authorized 120.0 shares. Issued 47.7 shares (48.8 in 1997) 47.7 48.8 Additional paid-in capital 293.5 347.7 Cumulative translation adjustment (27.0) (23.7) Retained earnings 554.2 505.5 -------- -------- Total shareholders' equity 868.4 878.3 -------- -------- Total liabilities and shareholders' equity $1,844.4 $1,945.4 ======== ======== ___________________________________ The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements. OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Statements of Income (Unaudited) (In millions, except per share amounts)
Three Months Six Months Ended June 30, Ended June 30, --------------------- ------------------------ 1998 1997 1998 1997 -------- -------- ---------- --------- Sales $ 613.1 $ 632.4 $ 1,186.2 $ 1,223.6 Operating expenses: Cost of goods sold 471.9 491.6 903.8 941.5 Selling and administration 74.9 75.0 151.5 147.4 Research and development 6.7 7.2 13.5 14.6 -------- -------- --------- --------- Operating income 59.6 58.6 117.4 120.1 Interest expense 4.7 7.0 9.7 14.5 Interest income 0.4 2.7 1.9 8.7 Other income 3.7 4.6 9.0 8.4 -------- -------- -------- -------- Income before taxes 59.0 58.9 118.6 122.7 Income taxes 20.4 20.3 40.9 42.3 -------- -------- -------- -------- Net income $ 38.6 $ 38.6 $ 77.7 $ 80.4 ======== ======== ========= ========= Net income per common share: Basic $ 0.81 $ 0.75 $ 1.61 $ 1.56 Diluted $ 0.80 $ 0.75 $ 1.60 $ 1.55 Dividends per common share $ 0.30 $ 0.30 $ 0.60 $ 0.60 Average common shares outstanding: Basic 47.9 50.9 48.3 51.5 Diluted 48.3 51.2 48.7 51.7
___________________________________ The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements. OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Statements of Cash Flows (Unaudited) (In millions)
Six Months Ended June 30, --------------------- 1998 1997 ------ ------- Operating activities - -------------------- Net income $ 77.7 $ 80.4 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities Earnings of non-consolidated affiliates (4.7) (5.1) Depreciation and amortization 61.4 59.5 Deferred taxes 8.5 11.4 Change in assets and liabilities net of purchases and sales of businesses: Receivables (59.5) (93.0) Inventories (2.6) (22.7) Other current assets 0.9 (5.1) Accounts payable and accrued liabilities (43.3) (86.6) Income taxes payable 2.8 (126.5) Noncurrent liabilities (10.8) (23.0) Other operating activities (18.6) 14.4 ------ ------- Net operating activities 11.8 (196.3) Investing activities - -------------------- Capital expenditures (51.0) (37.7) Business acquired in purchase transaction - (2.0) Purchase of short-term investments (9.4) (79.4) Proceeds from sale of short-term investments 17.5 107.9 Investments and advances-affiliated companies at equity (1.5) (43.8) Other investing activities (0.1) (2.2) ------ ------- Net investing activities (44.5) (57.2) ------ ------- Financing activities - -------------------- Long-term debt repayments (38.9) (138.7) Purchases of Olin common stock (59.3) (85.9) Repayment from ESOP - 5.0 Stock options exercised 2.5 4.1 Dividends paid (29.0) (31.0) Other financing activities (0.7) (1.5) ------ ------- Net financing activities (125.4) (248.0) ------ ------- Net decrease in cash and cash equivalents (158.1) (501.5) Cash and cash equivalents, beginning of period 165.8 523.5 ------ ------- Cash and cash equivalents, end of period $ 7.7 $ 22.0 ====== =======
___________________________________ The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements. OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS 1. The condensed financial statements included herein have been prepared by the company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of the company, reflect all adjustments (consisting only of normal accruals) which are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements, accounting policies and the notes thereto and management's discussion and analysis of financial condition and results of operations included in the company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. Inventory consists of the following: June 30, December 31, 1998 1997 -------- ------------ Raw materials and supplies $ 159.3 $ 158.1 Work in process 129.1 128.7 Finished goods 195.5 197.7 ------- ------- 483.9 484.5 LIFO reserve (134.0) (137.2) ------- ------- Inventory, net $ 349.9 $ 347.3 ======= ======= Inventories are valued principally by the dollar value last-in, first-out (LIFO) method of inventory accounting; in aggregate, such valuations are not in excess of market. Elements of costs in inventories include raw material, direct labor and manufacturing overhead. Inventories under the LIFO method are based on annual determination of quantities and costs as of the year-end; therefore, the condensed financial statements at June 30, 1998, reflect certain estimates relating to inventory quantities and costs at December 31, 1998. 3. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the dilutive effect of stock options. Three Months Six Months Ended June 30, Ended June 30, ---------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Basic Earnings Per Share ------------------------ Basic earnings: Net income $38.6 $38.6 $77.7 $80.4 Basic shares 47.9 50.9 48.3 51.5 Basic earnings per share $0.81 $0.75 $1.61 $1.56 Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Diluted Earnings Per Share -------------------------- Diluted earnings: Net income $38.6 $38.6 $77.7 $80.4 Diluted shares: Basic shares 47.9 50.9 48.3 51.5 Stock options and remuneration agreements 0.4 0.3 0.4 0.2 ----- ----- ----- ----- Diluted shares 48.3 51.2 48.7 51.7 ===== ===== ===== ===== Diluted earnings per share $0.80 $0.75 $1.60 $1.55 4. The company is party to various governmental and private environmental actions associated with waste disposal sites and manufacturing facilities. Environmental provisions charged to income amounted to $4 million and $8 million for the three and six months ended June 30, 1998 and 1997, respectively. Charges to income for investigatory and remedial efforts were material to operating results in 1997 and may be material to operating results in 1998. The consolidated balance sheets include reserves for future environmental expenditures to investigate and remediate known sites amounting to $135 million and $136 million at June 30, 1998 and December 31, 1997, respectively of which $105 million and $106 million were classified as other noncurrent liabilities, respectively. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible parties and the company's ability to obtain contributions from other parties and the length of time over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably against the company. 5. In April 1998, the Board of Directors authorized an additional share repurchase program of up to 5 million shares of Olin common stock, from time to time, as conditions warrant. Since January 1997 the company has repurchased 5,106,600 shares, of which 106,000 were under the April 1998 program. 6. The company enters into forward sales and purchase contracts and currency options to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies (principally Belgian franc, Canadian dollar, Irish punt and Japanese yen) and relating to particular anticipated but not yet committed purchases and sales expected to be denominated in those currencies. All of the currency derivatives expire within one year and are for United States dollar equivalents. The counterparties to the options and contracts are major financial institutions. The risk of loss to the company in the event of nonperformance by a counterparty is not significant. In accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation (SFAS 52), a transaction is classified as a hedge when the foreign currency transaction is designated as, and is effective as, a hedge of a foreign currency commitment and the foreign currency commitment is firm. If a transaction does not meet the criteria to qualify as a hedge, it is considered to be speculative. For foreign currency commitments that are classified as a hedge, any gain or loss on the commitment is deferred until it matures. Any unrealized gains or losses associated with foreign currency commitments that are classified as speculative are recognized in the current period. Foreign currency gains and losses realized are included in the income statement in Selling and Administration. If a foreign currency transaction previously considered as a hedge is terminated or matures before the transaction date of the related commitment, any deferred gain or loss shall continue to be deferred until the transaction date of the commitment. During 1992, the company swapped interest payments on $50 million principal amount of its 8% notes due 2002 to a floating rate (6.0625% at June 30, 1998). In June 1995, the company offset this transaction by swapping interest payments to a fixed rate of 6.485%. Counterparties to the interest rate swap contracts are major financial institutions. The risk of loss to the company in the event of nonperformance by a counterparty is not significant. The company records the net difference between the interest spreads as Interest Expense in the income statement. Depending on market conditions, the company may enter into futures contracts and put and call options in order to reduce the impact of metal price fluctuations, principally in copper, lead and zinc. In accordance with SFAS No. 80, "Accounting for Futures Contracts," futures contracts are classified as a hedge when the item to be hedged exposes the company to price risk and the futures contract reduces that risk exposure. Futures contracts that relate to transactions that are expected to occur are accounted for as a hedge when the significant characteristics and expected terms of the anticipated transaction are identified and it is probable that the anticipated transaction will occur. If a transaction does not meet the criteria to qualify as a hedge, it is considered to be speculative. Any gains or losses associated with futures contracts which are classified as speculative are recognized in the current period. If a futures contract that has been accounted for as a hedge is closed or matures before the date of the anticipated transaction, the accumulated change in value of the contract is carried forward and included in the measurement of the related transaction. Option contracts are accounted for in the same manner that futures contracts are accounted for. 7. As of January 1, 1998, the company adopted SFAS No. 130, "Reporting Comprehensive Income," which established standards for the reporting and display of comprehensive income and its components in the financial statements. The company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings on foreign subsidiaries. The components of comprehensive income for the three-month and six-month periods ended June 30, 1998 and 1997 are as follows: Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 Net income $38.6 $38.6 $77.7 $80.4 Other comprehensive income: Cumulative translation adj. (0.6) 1.5 (3.3) (4.2) ----- ----- ----- ----- Comprehensive income $38.0 $40.1 $74.4 $76.2 ===== ===== ===== ===== 8. On July 30, 1998 the company announced that the board of directors has approved the spin-off of its specialty chemicals businesses to shareholders as a separate publicly traded company. The spin-off would combine the company's Microelectronic Materials, Pool Products, Biocides, Sulfuric Acid, Hydrazine and Performance Urethanes businesses in the new Specialty Chemicals company, which will be named later. Olin would retain its Chlor-Alkali, Brass and Winchester businesses. The spin-off transaction is expected to be completed during the first quarter of 1999. The Specialty Chemicals businesses had approximately $950 million in sales for the full year 1997, representing 40% of Olin's total 1997 sales. The spin-off is expected to be in the form of a dividend distribution of the shares of the new company. The board of directors will determine the distribution ratio and record and distribution dates for the spin-off at a later date. The transaction is anticipated to qualify as a tax-free distribution to Olin and its shareholders. The company will apply to the Internal Revenue Service for a ruling to that effect. The transaction is subject to numerous conditions including, among other things, the receipt of the IRS ruling, certain government and third party approvals, and review by the Securities and Exchange Commission of necessary SEC filings. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. ---------------------- RESULTS OF OPERATIONS (in millions, except per share data) Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- CONSOLIDATED 1998 1997 1998 1997 ---- ---- ---- ---- Sales $613.1 $632.4 $1,186.2 $1,223.6 Gross Margin 141.2 140.8 282.4 282.1 Selling and Administration 74.9 75.0 151.5 147.4 Operating Income 59.6 58.6 117.4 120.1 Interest Expense, net 4.3 4.3 7.8 5.8 Other Income 3.7 4.6 9.0 8.4 Net Income 38.6 38.6 77.7 80.4 Net Income per Common Share: Basic $ 0.81 $ 0.75 $ 1.61 $ 1.56 Diluted $ 0.80 $ 0.75 $ 1.60 $ 1.55 Three Months Ended June 30, 1998 Compared To 1997 Sales decreased 3% primarily due to a decrease in metal values. Gross margin percentage was 23% in 1998 compared with 22% in 1997 as lower fixed cost per unit due to higher volumes more than offset the impact of lower selling prices (primarily Pool Products). Selling and administration expenses were 12% of sales in 1998 and 1997 and were about equal in amount. Higher expenses for information technology systems and business planning and development activities were offset by cost reduction efforts in other administrative areas. The decrease in other income is due primarily to the unfavorable performance of the non-consolidated affiliates in Asia offset in part by the inclusion of the Sunbelt Chlor-Alkali joint venture with Geon. The effective tax rate approximated 34.5% in 1998 and 1997. Net income per common share increased due to the lower average number of shares in 1998. Six Months Ended June 30, 1998 Compared To 1997 Sales decreased 3% primarily due to a decrease in metal values. Gross margin percentage was 24% in 1998 compared with 23% in 1997 as lower fixed cost per unit due to higher volumes more than offset the impact of lower selling prices. Selling and administration expenses were 13% and 12% of sales in 1998 and 1997, respectively. Selling and administration increased in amount due to higher administration expenses for information technology systems and business planning and development activities. Also, 1998 includes the selling and administration expenses of Aegis, Inc. (Aegis) which was previously accounted for as a joint venture, but in October, 1997 became a wholly owned subsidiary. The increase in net interest expense is due to the lower amount of income earned on the lower average levels of cash, cash equivalents and short-term investments. The effective tax rate approximated 34.5% in 1998 and 1997. Net income per common share increased due to the lower average number of shares in 1998, offset in part by lower net income. SPIN-OFF OF SPECIALTY CHEMICALS OPERATIONS On July 30, 1998 the company announced that the board of directors has approved the spin-off of its specialty chemicals businesses to shareholders as a separate publicly traded company. The spin-off would combine the company's Microelectronic Materials, Pool Products, Biocides, Sulfuric Acid, Hydrazine and Performance Urethanes businesses in the new Specialty Chemicals company, which will be named later. Olin would retain its Chlor-Alkali, Brass and Winchester businesses. The spin-off transaction is expected to be completed during the first quarter of 1999. The Specialty Chemicals businesses had approximately $950 million in sales for the full year 1997, representing 40% of Olin's total 1997 sales. The spin-off is expected to be in the form of a dividend distribution of the shares of the new company. The board of directors will determine the distribution ratio and record and distribution dates for the spin- off at a later date. The transaction is anticipated to qualify as a tax-free distribution to Olin and its shareholders. The company will apply to the Internal Revenue Service for a ruling to that effect. The transaction is subject to numerous conditions including, among other things, the receipt of the IRS ruling, certain government and third party approvals, and review by the Securities and Exchange Commission of necessary SEC filings. 1998 OUTLOOK Diluted earnings per share for the full year 1998 is expected to be in the $3.00 range. This earnings estimate assumes, among other things, that Chlor- Alkali operating rates will remain at current levels and that Electrochemical Unit (ECU) pricing remains stable, that there is some recovery in the semiconductor industry in the fourth quarter, that the residual effects of the General Motors strike will not significantly disrupt the economy, and that there is no further deterioration in our markets due to the Asian financial turmoil. Also, there are no spin-off related transaction costs included in the estimate. CHEMICALS Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Sales $368.0 $365.0 $687.3 $692.2 Operating Income 43.2 46.0 85.3 95.4 Three Months Ended June 30, 1998 Compared to 1997 Sales increased 1% due to an increase in volumes. Higher sales due to the inclusion of the sales of Aegis in 1998 offset the lower sales in Performance Urethanes & Organics due to the divestment of the surfactants business in November, 1997. Operating income decreased 6%. In Chlor-Alkali sales and operating income were lower due to lower volumes (primarily caustic soda) and higher utility costs which were partially offset by higher ECU pricing. The lower sales volumes are primarily due to reduced Asian demand for some of our customer's products. Pool Products sales and operating income increased as strong domestic volumes, particularly for branded HTH(R) products, more than offset lower selling prices. This strong performance was driven by favorable spring weather and reflects the slow order flow in the first quarter of 1998 compared to 1997. Excluding the impact of its divested businesses, Performance Urethanes & Organics operating income improved due to the restructuring of the business along with lower raw material costs. Microelectronic Materials sales were lower due to lower volumes as a result of the semiconductor industry slowdown. Biocides operating income was lower due to reduced demand, particularly from the Asian markets. Microelectronic Materials operating income was lower due to lower sales volumes. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997 Sales decreased 1% due to a decrease in volumes. Higher sales due to the inclusion of the sales of Aegis in 1998 offset the lower sales in Performance Urethanes & Organics due to the divestment of the surfactants business in November, 1997. Operating income decreased 11%. In Chlor-Alkali sales and operating income were lower due to lower volumes (primarily caustic soda) and higher utility costs which were partially offset by higher ECU pricing. The lower sales volumes are primarily due to reduced Asian demand for some of our customer's products. Pool Products sales were about equal but operating income was lower due to lower selling prices and higher manufacturing costs, including higher depreciation expense. Exports of calcium hypochlorite from Chinese producers have disrupted the supply/demand balance and affected prices on a worldwide basis. For the total year, estimated lower volumes and pricing in Pool Products along with higher manufacturing costs, including depreciation expense, are expected to result in unfavorable earnings comparisons from 1998 to 1997. Biocides operating income is lower due to higher fixed costs associated with the anticipated business expansion. For the full year, Biocides operating income will be lower due to higher fixed costs and selling and administrative expenses incurred to support the anticipated volume growth which has not materialized due to the lower Asian demand. Excluding the impact of its divested businesses, Performance Urethanes & Organics operating income improved due to the restructuring of the business along with lower raw material costs. Despite a slower-than-expected recovery period for the semiconductor industry, increased volumes contributed to Microelectronic Materials improved performance. For the full year, lower forecasted demand in the electronics industry may result in Microelectronic Materials 1998 operating results below 1997. Higher volumes and pricing were the primary contributors to the improved operating results of Hydrazine and Sulfuric Acid. METALS AND AMMUNITION Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Sales $245.1 $267.4 $498.9 $531.4 Operating Income 16.4 12.6 32.1 24.7 THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997 Sales decreased 8% due to lower metal values. Operating income increased 30%. Metal profits declined slightly as an inventory correction at certain automotive customers and lower electronics and connector demand, in part due to the Asian turmoil, more than offset higher foreign coinage and cupping sales. Winchester's operating income was higher due to higher sales, improved manufacturing performance and lower operating costs. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997 Sales decreased 6% primarily due to lower metal values and operating income increased 30%. Brass' operating income was about equal as higher volumes from the automotive, housing and ammunition markets offset lower volumes in the electronics (leadframe) and stainless steel markets. Also, copper bond shipments were strong and several new foreign coinage contracts helped to offset weakness in the electronics markets. Winchester's operating income was higher due to favorable sales mix, improved manufacturing performance and lower operating costs. ENVIRONMENTAL In the three and six months ended June 30, 1998, the company spent approximately $4 million and $9 million, respectively for investigatory and remediation activities associated with former waste sites and past operations. Spending for environmental investigatory and remedial efforts for the full year 1998 is estimated to be $30 million. Cash outlays for remedial and investigatory activities associated with former waste sites and past operations were not charged to income but instead were charged to reserves established for such costs identified and expensed to income in prior periods. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Charges to income for investigatory and remedial activities were $4 million and $8 million for the three and six months ended June 30, 1998, respectively. Charges to income for investigatory and remedial efforts were material to operating results in 1997 and may be material to net income in 1998 and future years. The company's consolidated balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to $135 million at June 30, 1998 and $136 million at December 31, 1997, of which $105 million and $106 million were classified as other noncurrent liabilities, respectiveley. Those amounts did not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. Those liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and their costs can be better estimated. As a result of these reassessments, future charges to income may be made for additional liabilities. Annual environmental-related cash outlays for site investigation and remediation, capital projects and normal plant operations are expected to range between $65-$90 million over the next several years. While the company does not anticipate a material increase in the projected annual level of its environmental-related costs, there is always the possibility that such increases may occur in the future in view of the uncertainties associated with environmental exposures. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and the financial capability of other potentially responsible parties and the company's ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably against the company. LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA Cash Flow Data Six Months Provided by/(Used for) (in millions) Ended June 30, -------------- 1998 1997 ---- ---- Net Operating Activities $ 11.8 $(196.3) Capital Expenditures (51.0) (37.7) Net Investing Activities (44.5) (57.2) Purchases of Olin Common Stock (59.3) (85.9) Net Financing Activities (125.4) (248.0) Operating income and cash and cash equivalents on hand were used to finance the company's seasonal working capital requirements, capital and investment projects, payment of debt, dividends and the repurchase of Olin common stock. OPERATING ACTIVITIES Cash generated by operating activities in 1998 was used for an increase in working capital. Higher accounts receivables due to the seasonal Pool Products business along with lower accounts payable and accrued liabilities were the main contributors to the increase in working capital. Cash used for operating activities in 1997 was for an increase in working capital resulting from higher receivable levels associated with the Niachlor acquisition and seasonal Pool Products receivables, and tax payments on the sale of the isocyanates business. INVESTING ACTIVITIES Capital spending of $51.0 million in 1998 was 35% higher than 1997. Capital spending for 1998 is estimated to increase approximately 15-30% from 1997 in order to provide additional capacity for certain Chemicals product lines, particularly in Microelectronic Materials and Biocides. FINANCING ACTIVITIES At June 30, 1998, the company maintained committed credit facilities with banks of $262 million, all of, which was available. The company believes that these credit facilities are adequate to satisfy its liquidity needs for the near future. During the first half of 1998, the company used $59.3 million to repurchase 1,278,500 shares of its common stock, bringing the cumulative total shares repurchased to 5,105,600 since January, 1997. At June 30, 1998, the percent of total debt to total capitalization was 21.5%, down from 24.0% at year-end 1997 and 23.2% at June 30, 1997. The decrease from June 30, 1997 was due to the repayment of $39 million on May 1, 1998 and $125 million 9.5% subordinated notes in June 1997. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No.131, "Disclosure about Segments of an Enterprise and Related Information," which establishes standards for the way that segment information is to be disclosed in the financial statements along with additional information on products and services, geographic areas and major customers. The company is still assessing the disclosure requirements of this standard, which is effective for the periods beginning after December 15, 1997. In 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities." It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The company is currently evaluating the effect this statement will have on its financial position and results of operations in the period of adoption. In 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The company is currently evaluating the effect this SOP will have on its financial position and results of operations in the period of adoption. Also in 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-up Activities." This SOP requires the expensing of certain costs such as pre- operating expenses and organizational costs associated with the company's start- up activities, and is effective for fiscal years beginning after December 15, 1998. The effect of adoption is required to be accounted for as a cumulative effect of change in accounting principle. The company is still evaluating the effect of this statement on results of operations and financial position. The company does not expect however that the amount recognized as a cumulative effect of change in accounting principle, if any, would be material. After determining the effect of Statement 131, 133, SOP 98-1 and SOP 98-5, the company may consider early adoption of one or more of these pronouncements. YEAR 2000 COMPUTER SYSTEMS The company is in the process of upgrading its information technology systems and implementing SAP. As a result it is reviewing all internal processes and hardware and software issues. In addition, it is analyzing the issues relating to the Year 2000 and is also discussing with its vendors and customers the possibility of any interface difficulties, which may affect the company. With respect to the Year 2000, no significant concerns have been identified to date. While management expects the costs associated with information technology systems will increase over the next few years and will be higher than those in previous years, the additional costs are not expected to be material. CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS The information in the Results of Operations section, Environmental Matters section and the Liquidity, Investment Activity and Other Financial Data sections (and subsections thereof) contains forward-looking statements that are based on management's beliefs, certain assumptions made by management and current expectations, estimates and projections about the markets and economy in which the company and its various divisions and profit centers operate. Words such as "expects," "believes," "should," "plans," "will," "forecasts," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. The company 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 1998; worsening economic conditions in Asia; competitive pricing pressures; the company's ability to maintain chemical price increases; no increase in Chlor Alkali's ECU prices; Chlor Alkali operating rates below current levels; higher-than-expected raw material costs for certain chemical product lines; increased foreign competition in the calcium hypochlorite markets; lack of stability in the semiconductor industry; the negative effects from the General Motor's strike; 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. Part 3. Quantitative and Qualitative Disclosures about Market Risk. Not Applicable. Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- The Company held its Annual Meeting of Shareholders on April 30, 1998. Of the 48,526,200 shares of Common Stock entitled to vote at such meeting, at least 44,567,827 shares were present for purposes of a quorum. At the meeting, shareholders elected to the Board of Directors R. M. Rompala as a Class II director with a term expiring in 1999, and R. E. Cavanagh, J. W. Johnstone, Jr., J. D. Kuehler and R. W. Larrimore as Class I directors with terms expiring in 2001. Votes cast for and votes withheld in the election of Directors were as follows: Votes For Votes Withheld ---------- -------------- R. M. Rompala 43,836,414 731,413 R. E. Cavanagh 43,808,311 759,516 J. W. Johnstone, Jr. 43,568,537 999,290 J. D. Kuehler 43,774,481 793,346 R. W. Larrimore 43,817,933 749,894 There were no abstentions or broker nonvotes. The shareholders also ratified the appointment of KPMG Peat Marwick LLP as independent auditors for the Corporation for 1998. Voting for the resolution ratifying the appointment were 44,132,865 shares. Voting against were 209,057 shares. Abstaining were 225,905 shares. There were no broker nonvotes. Item 5. Other Information ----------------- For purposes of complying with Rule 14a-5(e) promulgated under the Securities Exchange Act of 1934, as amended, the registrant hereby discloses the following information: Article I, Section 9 of the registrant's By-laws provides that for a shareholder to bring a matter properly before an annual or special meeting of shareholders called by the shareholders, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be given, either by personal delivery or by United States registered or certified mail, postage prepaid, to the Secretary of the Corporation in the case of an annual meeting, not later than 90 days before the anniversary of the immediately preceding annual meeting and in the case of a special meeting called at the request of shareholders, in accordance with the procedures set forth in Section 10 of Article I of the By- laws. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting, including the complete text of any resolutions to be presented at the meeting with respect to such business, and the reasons for conducting such business at the meeting, (ii) the name and address of record of the shareholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the shareholder and any other person on whose behalf the proposal is made, and (iv) any material interest of the shareholder and any other person on whose behalf the proposal is made, in such business. In the event that a shareholder attempts to bring business before a meeting without complying with the foregoing procedure, the chairman of the meeting may declare to the meeting that the business was not properly brought before the meeting and, if he shall so declare, such business shall not be transacted. For purposes of including a shareholder proposal in the Corporation's proxy statement for the 1999 annual meeting of shareholders, the shareholder must also comply with the requirements set forth under the section "Miscellaneous - Shareholder Proposals" of the Corporation's 1998 Proxy Statement, dated March 13, 1998. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits -------- 12. Computation of Ratio of Earnings to Fixed Charges (Unaudited). 27. Financial Data Schedule. 99. Press Release, dated July 30, 1998. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLIN CORPORATION (Registrant) By: A.W. Ruggiero ------------- A.W. Ruggiero Senior Vice President and Chief Financial Officer (Authorized Officer) Date: August 11, 1998 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 12. Computation of Ratio of Earnings to Fixed Charges (Unaudited). 27. Financial Data Schedule. 99. Press Release, dated July 30, 1998. EX-12 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (Unaudited) (In millions) Six Months Ended June 30, ------------------ 1998 1997 ------ ------ Earnings: Income before taxes $118.6 $122.7 Add (deduct): Income taxes of 50% owned affiliates 0.9 1.4 Equity in income of less than 50% owned affiliates (0.7) (1.8) Dividends received from less than 50% owned affiliates 1.4 1.7 Interest capitalized, net of amortization 0.2 (0.4) Fixed charges as described below 18.7 22.9 ------ ------ Total $139.1 $146.5 ====== ====== Fixed Charges: Interest expense $ 9.7 $ 15.1 Estimated interest factor in rent expense 9.0 7.8 ------ ------ Total $ 18.7 $ 22.9 ====== ====== Ratio of earnings to fixed charges 7.4 6.4 ====== ====== EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Financial Statements contained in Item 1 of Form 10-Q for the period ended June 30, 1998 and is qualified in its entirety bY reference to such financial statements. Figures are rounded to the nearest 100,000 (except EPS). 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 7,700 20,000 409,600 0 349,900 831,000 2,369,700 (1,583,800) 1,844,400 464,400 236,500 0 0 47,700 820,700 1,844,400 1,186,200 1,186,200 903,800 903,800 0 0 9,700 118,600 40,900 77,700 0 0 0 77,700 1.61 1.60
EX-99 4 PRESS RELEASE, DATED 07/30/98 Exhibit 99 Investor Contact: Richard Koch 203-750-3254 Press Contact: William McDaniel 203-750-2619 FOR IMMEDIATE RELEASE OLIN CORPORATION TO SPIN OFF SPECIALTY CHEMICAL OPERATIONS; COMPANY REPORTS SECOND QUARTER RESULTS, DECLARES DIVIDEND NORWALK, CT, July 30, 1998 - Olin Corporation (NYSE: OLN) today announced that the board of directors has approved the spin off of Olin's specialty chemicals businesses to shareholders as a separate, publicly held company. The spin off would combine Olin's microelectronic materials, pool chemicals, biocides, sulfuric acid, hydrazine and performance urethanes businesses in the new Specialty Chemicals Company, which will be named later. Olin would retain its Chlor Alkali, Brass and Winchester businesses. The spin off transaction is expected to be completed during the first quarter of 1999. Separately, Olin reported second quarter earnings of $38.6 million, or 80 cents per share, compared to $38.6 million, or 75 cents per share, a year earlier. Earnings per share increased because of the lower number of shares outstanding as a result of the Company's share repurchase program. Because of lower metal values, sales declined to $613 million from $632 million a year earlier. Olin said that 1998 earnings per share are expected to be in the $3.00 range as a result of a greater-than-anticipated effect of the Asian financial turmoil on the semiconductor and chemical industry. Olin's board of directors also declared a regular, quarterly dividend of 30 cents per common share, the same amount as paid in the prior quarter, to be paid on September 10, 1998 to shareholders of record on August 10, 1998. This is Olin's 287th consecutive quarterly dividend. SPIN OFF OF SPECIALTY CHEMICALS Donald W. Griffin will remain chairman, president and CEO of Olin Corporation. Michael E. Campbell, currently executive vice president of Olin Corporation in charge of Olin's operations, will lead the new Specialty Chemicals Company as chief executive officer. The businesses, which will comprise the Specialty Chemicals Company, had approximately $950 million in sales in 1997, representing approximately 40% of Olin's total 1997 sales. Olin's remaining businesses had approximately $1.5 billion in sales in 1997, or 60% of total sales. "Olin today consists of two distinct businesses: basic materials and specialty chemicals," said Mr. Griffin. "Each group differs from the other in its growth potential, its customer priorities, its profit drivers, its marketplace conditions, its cyclicality, its capital needs and its access to capital. This spin off creates two companies, each with sharper management focus and increased accountability to deliver improved performance, and the financial flexibility to independently pursue their own investment opportunities. Each will be better able to compete in tomorrow's markets, and to deliver value for its shareholders and customers. "Both companies will begin their independent operations with the key components for continued success already in place: financial resources, experienced management and market-leading products," Mr. Griffin continued. "By realigning our businesses into more complementary and more focused structures, we expect to significantly enhance the performance and profitability of each, and by so doing unlock the significant value that resides in each of them. Investors will be able to focus on the specific growth and value characteristics best suited to their investment philosophies." OLIN CORPORATION Of the businesses to remain a part of Olin Corporation after the spin off, Chlor Alkali Products is the leading producer of chlorine and caustic soda in the eastern United States, and one of the largest producers of sodium hydrosulfite in North America; Olin Brass produces copper and copper alloys for electronic, automotive, construction, and decorative uses, and clad metals for use in coins; Winchester produces ammunition and related products for hunters, recreational shooters and law enforcement agencies. "Success for Olin will depend on its ability to focus its energy, creativity and resources on becoming a premier basic materials company, offering its customers outstanding customer value with the lowest cost, highest quality products in their respective markets," said Mr. Griffin. "Our focus will be on manufacturing processes, efficiencies and cost control. Olin will remain alert to synergistic acquisitions of compelling value." SPECIALTY CHEMICALS COMPANY The specialty chemicals businesses to be spun off produce, among other products, microelectronic materials and related products and services for the semiconductor industry; chemicals for pools and water sanitization systems; 2 biocides for anti-dandruff shampoos and marine and architectural coatings; sulfuric acid for the oil and petrochemical industries; hydrazine for chemical blowing agents and satellite positioning thrusters; and performance urethanes and organics for the coatings, adhesives, sealants and elastomers markets, and other downstream chemical applications. "As a separate company, the Specialty Chemicals Company will be better able to expand its customer base by offering value-added products and services," said Mr. Campbell. "Our success will depend on our ability to deliver innovative products and customized services to meet changing customer needs. Additionally, the market will be better able to evaluate the growth potential and performance of this new company." The spin-off is expected to be in the form of a dividend distribution of the shares of the new company. The board of directors will determine the distribution ratio and record and distribution dates for the spin-off at a later date. The transaction is anticipated to qualify as a tax-free distribution to Olin and its shareholders. The company will apply to the Internal Revenue Service for a ruling to that effect. The transaction is subject to numerous conditions including, among other things, the receipt of the IRS ruling, certain government and third party approvals, and review by the Securities and Exchange Commission of necessary SEC filings. SECOND QUARTER RESULTS "Our overall second quarter earnings were in-line with our expectations, with higher than expected profits from pool chemicals and performance urethanes offsetting lower than expected earnings from our microelectronic materials and chlor alkali businesses," said Mr. Griffin. "Regarding our 1998 earnings estimate, during the last month we have received and analyzed new market data and forecasts affecting customers in both our chemicals and metals businesses. The Asian turmoil will likely be reflected in the performance of our microelectronic materials, chlor alkali, biocides, performance urethanes and Brass businesses to a greater degree than we previously expected." The following commentary compares segment operating income for the second quarter of 1998 and 1997: CHEMICALS Chemicals segment operating income decreased 6% to $43.2 million in 1998, from $46.0 million in 1997. Microelectronic materials profits decreased from last year due to lower industry demand. Chlor Alkali operating income 3 trailed the same period last year due to lower volumes (in part due to reduced downstream Asian demand), higher electricity costs due to extremely hot weather in the South, partially offset by higher ECU prices. Biocides profits were reduced by lower demand, particularly from the Asian market. Pool chemicals profits increased as higher domestic, branded volumes, caused in part by favorable weather, offset lower pricing. Performance urethanes profits increased due to the restructuring of the business in 1997 and lower raw material costs. METALS AND AMMUNITION Metals and ammunition operating income increased 30% to $16.4 million, from $12.6 million. Metals profits declined slightly as an inventory correction at some automotive accounts and lower electronics and connector demand, in part due to Asia, more than offset higher foreign coinage and cupping sales. Winchester's operating results were ahead of last year as a result of higher sales, improved plant operating performance and lower costs. SHARE REPURCHASE PROGRAM During the second quarter of 1998 the company repurchased 445,000 shares of its common stock, bringing the cumulative total since January 1997 to 5,105,600 shares. Headquartered in Norwalk, CT, Olin is one of the world's leading producers of chemicals, metals, microelectronic materials and sporting ammunition. ____________ Except for historical information contained herein, the information set forth in this communication contains forward-looking statements that are based on management's beliefs, certain assumptions made by management and current expectations, estimates and projections about the markets and economy in which the company and its various divisions and profit centers operate. Words such as "expects," "believes," "should," "plans," "will," "forecasts," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. The company 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 1998; worsening economic conditions in Asia; competitive pricing pressures; the company's ability to maintain chemical price increases; no increase in Chlor Alkali's ECU prices; Chlor Alkali operating rates below current levels; higher-than-expected raw material costs for certain chemical product lines; increased foreign competition in the calcium hypochlorite markets; lack of stability in the semiconductor industry; the negative effects from the General Motor's strike; 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. 7X98 - 30 4 -----END PRIVACY-ENHANCED MESSAGE-----