SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
--------------------------------------------------For the quarterly period ended March 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TOFor the transition period from to
-----------------------------------------
Commission file number 1-1070
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COMMISSION FILE NUMBER 1-1070
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OLIN CORPORATIONOlin Corporation
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(Exact name of registrant as specified in its charter)
Virginia 13-1872319
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(State or other jurisdiction of (I.R.S. Employer
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.incorporation or organization) Identification No.)
501 Merritt 7, Norwalk, CT 06851
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(Address of principal executive offices) (Zip Code)
(203) 750-3000
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(Registrant's telephone number, including area code)
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(Former name, 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 NONo
----- -----
As of October 31, 1998,April 30, 1999, there were outstanding 46,795,62845,517,235 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
September 30,March 31, December 31,
1999 1998
1997
---- ------------- ------------
ASSETS
- ------
Cash and cash equivalents $ 81.467.0 $ 165.850.2
Short-term investments 33.4 28.140.3 25.5
Accounts receivable, net 395.2 350.1198.5 192.0
Inventories 328.6 347.3206.9 198.8
Income taxes receivable 3.2 33.2
Other current assets 38.5 44.717.1 18.1
-------- --------
Total current assets 877.1 936.0533.0 517.8
Investments and advances 27.9 30.9- affiliated companies at equity 7.0 11.9
Property, plant and equipment
(less accumulated depreciation
of $1,602.1$1,110.2 and $1,528.2) 806.2 795.0$1,074.7) 465.2 475.0
Other assets 105.2 183.564.4 67.8
Net assets of discontinued operations - 504.5
-------- --------
Total assets $1,816.4 $1,945.4$1,069.6 $1,577.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 1.31.0 $ 9.21.0
Accounts payable 200.8 255.990.1 118.1
Income taxes payable 10.7 5.1
Accrued liabilities 265.9 247.1150.6 168.1
-------- --------
Total current liabilities 468.0 512.2252.4 292.3
Long-term debt 235.7 268.0229.8 230.2
Other liabilities 280.8 286.9242.6 264.3
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares.shares
Issued 47.245.7 shares (48.8(45.9 in 1997) 47.2 48.81998) 45.7 45.9
Additional paid-in capital 277.5 347.7
Cumulative translation adjustment (25.4) (23.7)240.8 242.8
Accumulated other comprehensive loss (10.2) (24.8)
Retained earnings 532.6 505.568.5 526.3
-------- --------
Total shareholders' equity 831.9 878.3344.8 790.2
-------- --------
Total liabilities and
shareholders' equity $1,816.4 $1,945.4$1,069.6 $1,577.0
======== ========
- --------------------------------------------------
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
Nine Months
Ended September 30, Ended September 30,
-------------------March 31,
----------------------
1999 1998
1997 1998 1997
---- ---- ---- ----------- -------
Sales $582.0 $607.9 $1,768.2 $1,831.5
Operating expenses:$ 304.8 $ 359.1
Cost of goods sold 470.1 469.9 1,373.9 1,411.4262.9 287.4
Selling and administration 73.4 71.7 224.9 219.130.9 33.9
Research and development 7.0 7.6 20.5 22.22.0 1.6
Earnings(loss) of non-consolidated affiliates (2.5) 2.0
Interest expense 4.2 5.9 13.9 20.43.8 4.8
Interest income 0.8 1.1 2.7 9.80.7 1.2
Other income 1.0 4.2 10.0 12.6
Loss on sales and restructurings of businesses 42.0 - 42.0 -
------ ------0.1 0.3
-------- --------
Income (loss)from continuing operations before taxes (12.9) 58.1 105.7 180.83.5 34.9
Income tax provision (benefit) (5.7) 20.1 35.2 62.4
------ ------taxes 1.4 12.1
-------- --------
Income from continuing operations 2.1 22.8
Income from discontinued operations, net of taxes 4.4 16.3
-------- --------
Net income (loss) $ (7.2)6.5 $ 38.0 $ 70.5 $ 118.4
====== ======39.1
======== ========
Net income (loss) per common share:
Basic $(0.15)Basic:
Continuing operations $ 0.760.05 $ 1.470.47
Discontinued operations 0.09 0.34
-------- --------
Total net income $ 2.32
Diluted $(0.15)0.14 $ 0.750.81
======== ========
Diluted:
Continuing operations $ 1.460.05 $ 2.300.46
Discontinued operations 0.09 0.34
-------- --------
Total net income $ 0.14 $ 0.80
======== ========
Dividends per common share $ 0.30 $ 0.30
$ 0.90 $ 0.90
Average common shares outstanding:
Basic 47.5 49.9 48.0 51.045.9 48.6
Diluted 47.5 50.3 48.3 51.445.9 49.0
- --------------------------------------------------
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)
NineThree Months
Ended September 30,
-------------------March 31,
-------------------------
1999 1998
1997
---- ----
------- --------
Operating activities
- --------------------
Net income $ 70.5 $118.42.1 $ 22.8
Adjustments to reconcile net income from continuing operations to
net cash and cash equivalents provided by operating activities
EarningsLoss(earnings) of non-consolidated affiliates (3.8) (7.4)2.5 (2.0)
Depreciation and amortization 93.8 90.218.6 19.2
Deferred taxes 80.4 21.8
Loss on sales and restructurings of businesses 42.0 -(4.2) (1.6)
Change in assets and liabilities net of
purchases and sales of businesses:in:
Receivables (45.1) (90.7)(6.5) (2.7)
Inventories 18.6 (20.3)(8.1) (10.6)
Other current assets 6.1 (2.6)(0.3) 0.8
Accounts payable and accrued liabilities (64.5) (74.0)(45.5) (32.8)
Income taxes payable (13.9) (124.6)22.5 13.5
Noncurrent liabilities (11.8) (41.6)(3.1) 0.9
Other operating activities 6.0 14.93.7 (2.7)
------- -------
Net cash and cash equivalents provided (used) by operating
activities from continuing operations (18.3) 4.8
Discontinued operations:
Net income 4.4 16.3
Change in net assets (7.3) (67.6)
------- -------
Net operating activities 178.3 (115.9)(21.2) (46.5)
------- -------
Investing activities
- --------------------
Capital expenditures (93.7) (74.4)
Business acquired in purchase transaction - (2.0)
Purchase(8.3) (7.9)
Purchases of short-term investments (22.8) (84.9)(25.2) (9.4)
Proceeds from sale of short-term investments 17.5 170.210.4 16.5
Investments and advances-affiliated companies at equity 2.1 (77.0)2.4 (4.7)
Other investing activities (8.4) (2.2)1.1 (1.7)
------- -------
Net investing activities (105.3) (70.3)(19.6) (7.2)
------- -------
Financing activities
- -----------------------------------------
Long-term debt repayments (37.9) (138.5)(0.4) -
Short-term debt repayments - (0.8)
Purchases of Olin common stock (75.8) (127.1)
Repayment from ESOP(3.2) (38.8)
Borrowings under line of credit assumed by Arch Chemicals, Inc. 75.0 - 5.0
Stock options exercised 2.5 8.6- 2.0
Dividends paid (43.3) (46.1)(13.8) (14.7)
Other financing activities (2.9) (3.2)- (0.5)
------- -------
Net financing activities (157.4) (301.3)57.6 (52.8)
------- -------
Net decreaseincrease(decrease) in cash and cash equivalents (84.4) (487.5)16.8 (106.5)
Cash and cash equivalents, beginning of period 165.8 523.550.2 156.8
------- -------
Cash and cash equivalents, end of period $ 81.467.0 $ 36.050.3
======= =======
- --------------------------------------------------
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,Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of the company,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 companyCompany 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'sCompany's Annual Report on Form 10-K for the year ended
December 31, 1997.1998.
2. Inventory consists of the following:
September 30,March 31, December 31,
1999 1998
1997
------------------------------- ---------------------------------------- ------------
Raw materials and supplies $ 153.8 $ 158.1$120.6 $113.1
Work in process 129.8 128.787.6 102.4
Finished goods 177.4 197.7
------------------------------- -------------------------------
461.0 484.558.9 46.5
------ ------
267.1 262.0
LIFO reserve (132.4) (137.2)
------------------------------- -------------------------------(60.2) (63.2)
------ ------
Inventory, net $ 328.6 $ 347.3
=============================== ===============================$206.9 $198.8
====== ======
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; in aggregate, such valuations are not
in excess of market. Costs of other inventories have been determined
principally by the average cost and first-in, first-out (FIFO) methods.
Elements of costs in inventories include raw material, direct labor and
manufacturing overhead. Inventories under the LIFO method are based on annual
determinationestimates of quantities and costs as of the year-end; therefore, the
condensed financial statements at September 30, 1998,March 31, 1999, reflect certain estimates
relating to inventory quantities and costs at December 31, 1998.1999.
3. Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
Three Months
Nine months
Ended September 30, Ended September 30,
------------------------------------ -----------------------------------March 31,
-----------------
Basic Earnings Per Share 1999 1998 1997 1998 1997
- ------------------------ --------------- --------------- --------------- ------------------- -----
Basic earnings:
Income from continuing operations $ 2.1 $22.8
Net income (loss) $ (7.2) $38.0 $70.5 $118.46.5 $39.1
Basic shares 47.5 49.9 48.0 51.045.9 48.6
Basic earnings (loss) per share $(0.15) $0.76 $1.47share:
Continuing operations $0.05 $ 2.320.47
Net income $0.14 $ 0.81
Three Months
Nine months
Ended September 30, Ended September 30,
------------------------------------ -----------------------------------March 31,
----------------
1999 1998
1997 1998 1997
--------------- --------------- --------------- ------------------- ----
Diluted Earnings Per Share
- ---------------------------------------------------------------------
Diluted earnings:
Income from continuing operations $ 2.1 $22.8
Net income (loss) $ (7.2) $38.0 $70.5 $118.46.5 $39.1
Diluted shares:
Basic shares 47.5 49.9 48.0 51.045.9 48.6
Stock options and
remuneration agreements - 0.4 0.3 0.4
--------------- --------------- --------------- ---------------.4
------ ------
Diluted shares 47.5 50.3 48.3 51.4
=============== =============== =============== ===============45.9 49.0
====== ======
Diluted earnings (loss) per share $(0.15) $0.75 $1.46share:
Continuing operations $ 2.30
=============== =============== =============== ===============0.05 $ 0.46
Net Income $ 0.14 $ 0.80
4. The companyCompany is party to various governmental and private environmental
actions associated with waste disposal sites and manufacturing facilities.
Environmental provisions charged to income amounted to $4 million and $12
million for the
three and nine months ended September 30, 1998March 31, 1999 and 1997,
respectively.1998. Charges to income for
investigatory and remedial efforts were material to operating results in 19971998
and may be material to operating results in 1998.1999. The consolidated balance
sheets include reserves for future environmental expenditures to investigate
and remediate known sites amounting to $134 million and $136$129 million at September 30, 1998March 31, 1999 and
December 31, 1997,
respectively1998, of which $104$99 million and $106 million werewas classified as other noncurrent
liabilities, respectively.liabilities.
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'sCompany'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.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 companyCompany has
repurchased 5,642,7007,223,200 shares, of which 642,7002,223,200 were under the April 1998
program.
6. The company enters into forwardSegment operating income is defined as earnings before interest, other income
and income taxes and includes earnings (losses) of non-consolidated
affiliates. Segment operating results include an allocation of corporate
operating expenses. Intersegment 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. A hedge is considered by the Company to be effective when the
transaction reduces the currency risk on its foreign currency commitments. If
a transaction does not meet the criteria to qualify as a hedge, it is
considered to be speculative. For a foreign currency commitment that is
classified as a hedge, any gain or loss on the commitment is deferred and
included in the basis of the underlying instrument. Any realized and
unrealized gains or losses associated with foreign currency commitments that
are classified as speculative are recognized in the current period and are
included in selling and administration in the condensed statements of income.
If a foreign currency transaction previously considered as a hedge is
terminated before the
transaction date of the related commitment, any deferred gain or loss shall
continue to be deferred and included in the basis of the underlying
instrument. Premiums paid for currency options and gains or losses on forward
sales and purchase contracts are not material tomaterial.
Three Months
Ended March 31,
---------------
1999 1998
---- ----
Sales:
Chlor Alkali Products $ 66.9 $ 96.1
Metals 182.3 211.3
Winchester 55.6 51.7
------ ------
Total sales $304.8 $359.1
====== ======
Operating income(loss):
Chlor Alkali Products $(12.8) $ 21.7
Metals 18.0 18.2
Winchester 1.3 (1.7)
------ ------
Total operating results.
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 September 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 asincome $ 6.5 $ 38.2
====== ======
Operating income $ 6.5 $ 38.2
Interest Expense in theexpense 3.8 4.8
Interest 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 matures0.7 1.2
Other income 0.1 0.3
------ ------
Income from continuing operations 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.taxes $ 3.5 $ 34.9
====== ======
7. As of January 1, 1998, the companyCompany 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 companyCompany does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes on
undistributed earnings onof foreign subsidiaries. The components of
comprehensive income for the three-month and nine-month periods ended September 30,March 31, 1999 and
1998 and 1997 are as follows:
Three Months
Nine months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------March 31,
-------------------
1999 1998
1997 1998 1997
--------------- --------------- --------------- -------------------- -----
Net income (loss) $(7.2) $38.0 $70.5 $118.4$ 6.5 $39.1
Other Comprehensive income:comprehensive income (loss):
Cumulative translation adjustment 1.6 (4.0) (1.7) (8.2)
--------------- --------------- --------------- ---------------1.1 (2.7)
----- -----
Comprehensive income (loss) $(5.6) $34.0 $68.8 $110.2
=============== =============== =============== ===============$ 7.6 $36.4
===== =====
8. On July 29, 1998 the Board of Directors approved in principle a plan to
distribute the Company's specialty chemical businesses (the "Distribution")
to its shareholders as a separate public company. Such separate company has
been named Arch Chemicals, Inc. ("Arch"). Olin expects the Distribution to be
completed by the end of the first quarter ofFebruary 8, 1999, after the appropriate
approvals of third parties and the receipt of an opinion of its counsel that
the receipt of the Arch shares by Olin shareholders will be tax-free, and
that no gain or loss with respect to the Arch shares will be recognized by
Olin on the Distribution. Olin will retain its Chlor-Alkali, Brass and
Winchester businesses. The specialty chemicals businesses had sales of $695
million for the nine months ended September 30, 1998 and $930 million for the
year 1997.
9. In September 1998, the Company recorded a $42 million pretax charge ($26.2
million after tax) to earnings in connection with the sale or restructuring
of its rod, wire and tube businesses and its microelectronic packaging
business. On October 26, 1998, the Company completed the saleSpin-Off of its microelectronic packaging unit at Manteca, California. In early November
1998,specialty
chemicals businesses as Arch Chemicals, Inc. ("Arch Chemicals"). Under the
terms of the Spin-Off, the Company announced that it was unabledistributed to conclude negotiationsits holders of common stock
of record at the close of business on February 1, 1999, one Arch Chemicals
common share for every two shares of Olin common stock. The results of
operations have been restated to sell its rod, wire and tube businesses at Indianapolis, Indiana and will
therefore, restructure thesereflect Arch Chemicals as discontinued
operations by early next year.for all periods presented. The 1999 first quarter net income from
discontinued operations includes one month of operating results while the
comparable quarter in 1998 includes three months of operating results.
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and
--------------------------------------------------------------- Results of Operations.
----------------------
Operations
-------------------------
CONSOLIDATED RESULTS OF OPERATIONS
(in
Three Months
Ended March 31,
----------------
($ in millions, except per share data) CONSOLIDATED Three Months Nine Months
Ended September 30 Ended September 30
-------------------------------- -----------------------------------1999 1998
1997 1998 1997
------------- ------------- --------------- ---------------- ------------------------------------------------------------------
Sales $582.0 $607.9 $1,768.2 $1,831.5$304.8 $359.1
Gross Margin 111.9 138.0 394.3 420.141.9 71.7
Selling &and Administration 73.4 71.7 224.9 219.130.9 33.9
Interest Expense, net 3.4 4.8 11.2 10.6
Other3.1 3.6
Income 1.0 4.2 10.0 12.6
Loss on Sales and Restructurings
of Businesses 42.0 - 42.0 -from Continuing Operations 2.1 22.8
Net Income (Loss) (7.2) 38.0 70.5 118.4Per Common Share: 6.5 39.1
Basic
Income from Continuing Operations $ 0.05 $ 0.47
Net Income (Loss) per Common Share:
Basic $(0.15) $ 0.760.14 $ 1.470.81
Diluted
Income from Continuing Operations $ 2.32
Diluted $(0.15)0.05 $ 0.750.46
Net Income $ 1.460.14 $ 2.300.80
- ------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998MARCH 31, 1999 COMPARED TO 19971998
Sales decreased 4% primarily15% due to a decrease inlower selling prices and metal values. The decrease
in selling prices was primarily related to lower Electrochemical Unit ("ECU")
prices in the Chlor Alkali Products segment. Also, sales were lower due to the
shut down of the rod, wire and tube business at Indianapolis, IN in the fourth
quarter of 1998 and the sale of the microelectronics packaging operation in
Manteca, CA.
Gross margin percentage was 19%decreased from 20% in 1998 downto 14% in 1999 primarily due
to lower ECU prices.
Selling and Administration as a percentage of sales was 10% in 1999 up from 23%9%
in 19971998 due to the impactlower sales base in 1999 as a result of lower selling prices in Chlor-Alkali and Water Chemicals and higher
electricity and other costs in Chlor-Alkali.ECU prices.
Selling and administration expenses were 13% of salesAdministration was $3 million lower than in 1998 compared with
12%due to lower
administrative expenses, primarily pension and management compensation expenses.
Interest expense, net of interest income, decreased from 1998 due to lower
interest expense as a result of the repayment in 1997. Higher expenses for information technology systemsMay of 1998 of $38 million of
7.97% notes offset in part by lower interest income in 1999 due to lower average
cash, cash equivalent and business
planning and development activities were offset by cost reduction efforts in
other administrative areas.short-term investment balances.
The decrease in other income isoperating results from the non-consolidated affiliates was due
primarily to the unfavorable
performance of the non-consolidated affiliates in Asia andoperating loss from the Sunbelt Chlor-
Alkali joint venture, with Geon which was
negatively impacted by low chlorinethe lower ECU pricing.
Excluding the charge for the sales and restructurings of the businesses,
theThe effective tax rate approximated 34.5% in 1998increased to 40.0% from 34.7% due to higher non-
deductible expenses related to company-owned life insurance programs.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings (losses) before interest,
other income and 1997.
NINEincome taxes and include earnings (losses) of non-consolidated
affiliates. Segment operating results include an allocation of corporate
operating expenses.
CHLOR ALKALI PRODUCTS Three Months
Ended March 31,
-----------------
($ in millions) 1999 1998
- -------------------------------------------------
Sales $ 66.9 $96.1
Operating (Loss) Income (12.8) 21.7
THREE MONTHS ENDED SEPTEMBER 30, 1998MARCH 31, 1999 COMPARED TO 19971998
Sales decreased 3%and operating results were lower than 1998 primarily due to a 1% decreaselower pricing.
Average ECU prices in selling prices and a
2% decrease in metal values.
Gross margin percentage was 22% in 1998 compared with 23% in 1997 due to
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.
Excluding the charge for the sales and restructurings of the businesses,
the effective tax rate approximated 34.5% in 1998 and 1997.
SPIN-OFF OF SPECIALTY CHEMICAL BUSINESSES
On July 29, 1998 the Board of Directors approved in principle a plan to
distribute the Company's specialty chemical businesses (the "Distribution") to
its shareholders as a separate public company. Such separate company has been
named Arch Chemicals, Inc. ("Arch"). Olin expects the Distribution to be
completed by the end of the first quarter of 1999 afterwere approximately $230,
compared to $370 in the appropriate
approvalsfirst quarter of third parties and the receipt of an opinion of its counsel that the
receipt1998. Lingering effects of the Arch shares by Olin shareholders will be tax-free,Asian
situation and that no
gain or loss with respectnew chlor-alkali industry capacity additions have caused an
oversupply of chlorine and caustic, thereby exerting downward pressure on
pricing. The Company expects these influences to continue for several more
quarters.
METALS Three Months
Ended March 31,
-----------------
($ in millions) 1999 1998
- ------------------------------------------------
Sales $182.3 $211.3
Operating Income 18.0 18.2
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO 1998
Sales decreased 14% due primarily to lower metal values. Lower sales due to the
Arch shares will be recognized by Olin onshut down of the
Distribution. Olin will retain its Chlor-Alkali, Brass and Winchester
businesses. The specialty chemical businesses had sales of $695 million for the
nine months ended September 30, 1998 and $930 million for the year 1997.
SALES AND RESTRUCTURING OF BUSINESSES
In September 1998, the Company recorded a $42 million pretax charge ($26.2
million after tax, $0.55 diluted earnings per share) to earnings in connection
with the sale or restructuring of its rod, wire and tube businessesbusiness at Indianapolis, IN in the fourth
quarter of 1998 and itsthe sale of the Company's microelectronic packaging
operation at Manteca, CA, also contributed to the sales decline. Lower demand
from the distribution market adversely impacted the sales performance at A.J.
Oster Company and was the primary reason for the slight decline in segment
operating income. The year-over-year comparisons are expected to improve over
the balance of the year primarily due to the benefits of the shut down of the
unprofitable rod, wire and tube business.
WINCHESTER Three Months
Ended March 31,
-----------------
($ in millions) 1999 1998
- -----------------------------------------------
Sales $55.6 $51.7
Operating Income (Loss) 1.3 (1.7)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO 1998
Sales in 1999 were 8% higher than 1998 due to higher volumes in the commercial
markets, particularly in the retail and mass merchant channels offset in part by
lower selling prices in some product lines. Higher demand for centerfire rifle
and pistol products was driven by new product introductions and competitive
pricing. Operating income improved significantly from
1998 due to higher sales and lower manufacturing and commodity costs. In
Australia, profits were higher due in part to lower operating expenses.
Winchester is the operator of the U.S. Army's Lake City small caliber ammunition
plant in Independence, MO. The current five-year contract expires at the end of
this year. The Company is one of several bidders for a new ten-year, fixed price
contract, which the government expects to award during the third quarter of
1999.
1999 OUTLOOK
Lingering effects of the Asian situation and new Chlor-Alkali industry capacity
additions have significantly impacted the Company's Chlor-Alkali Products
business. The Company expects these influences to continue for several more
quarters, resulting in quarterly earnings per share in the 5 to 10 cent range,
if the Company's ECU prices continue at current levels.
DISCONTINUED OPERATIONS
On October 26, 1998,February 8, 1999, the Company completed the saleSpin-Off of its microelectronic packaging unit at Manteca, California. In early
November 1998,specialty
chemicals businesses as Arch Chemicals, Inc. ("Arch Chemicals") (the "Spin-
Off"). Under the terms of the Spin-Off, the Company announced that it was unabledistributed to conclude negotiations
to sell its rod, wire and tube businessesholders
of common stock of record at Indianapolis, Indiana and will
therefore, restructure these operations by early next year.
1998 OUTLOOK
Diluted earnings perthe close of business on February 1, 1999, one Arch
Chemicals common share for the full year 1998 is expected to be in the
$2.50 range excluding the impactevery two shares of Olin common stock. The 1999 first
quarter net income includes one month of operating results of the $0.55 per share charge forspecialty
chemicals businesses while the sale and
restructuringcomparable quarter in 1998 includes three months
of the businesses in the third quarter of 1998. This earnings
estimate assumes, among other things, that Chlor-Alkali operating rates will
remain at current levels and that Electrochemical Unit (ECU) does not fall more
than anticipated 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.
The following compares sales and operating income forresults.
ENVIRONMENTAL MATTERS
In the three and nine
months ending September 30, 1998 to 1997 excluding the charge in the third
quarter of 1998 for the sales and restructuring of the businesses mentioned
above.
CHEMICALS Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
Sales $301.5 $331.3 $988.8 $1,023.5
Operating Income 13.6 43.1 98.9 138.5
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 9% due to a 7% decrease in volumes and a 2% decrease in
selling prices. Lower sales were due primarily to sales of the surfactants,
fluids, non-urethane polypropylene glycol and polyethylene glycol businesses
("Surfactants") which were sold to BASF in November 1997 and the conversion of
the flexible polyol businesses to a tolling operation. Operating income
decreased 68% due to lower earnings in Chlor-Alkali and the specialty chemical
businesses.
Chlor-Alkali's operating income was substantially lower due to lower ECU
pricing and volumes, primarily caused by the Asian economic crisis. Chlorine
pricing into the vinyl market was significantly lower than anticipated. In
addition, the unseasonably hot weather in the southeast resulted in higher
electricity costs and contributed to the decline in operating income.
In the specialty chemical businesses, the operating results varied.
Microelectronic Chemicals reported a loss in the third quarter of 1998, due to
lower volumes as a result of the semiconductor industry slowdown and higher
administrative expenses for information technology systems. Water Chemicals
operating income was lower due to lower selling prices of calcium hypochlorite
and higher costs for depreciation and other fixed plant spending. In
Performance Chemicals, operating income was lower due
to lower sales volumes of antidandruff agents particularly from the Asian
markets, higher operating expenses and lower raw material costs.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 3% due primarily to a decrease in Performance Chemicals
volumes. Lower sales resulted from the sale of surfactants and the conversion
of the polyol business to a tolling operation. Operating income decreased 29%.
In Chlor-Alkali, sales and operating income were lower due to lower volumes
(primarily caustic soda) and lower chlorine pricing due to the weak vinyl
market. Caustic soda volumes to the pulp and paper industry were lower due to
unseasonably wet weather in the early part of 1998. Higher-than-normal
electricity costs adversely affected operating income.
In the specialty chemical businesses the operating results varied. A
slower-than-expected recovery period for the semiconductor industry resulted in
reduced volumes and along with start-up costs for the Company's new process
chemicals facility in Belgium and higher administrative expenses for information
technology systems contributed to Microelectronic Chemicals operating loss. For
the full year, lower demand in the electronics industry may result in
Microelectronic Chemicals 1998 operating results below 1997. Water Chemicals
sales were about equal but operating income was lower due to lower selling
prices of calcium hypochlorite and higher manufacturing costs, including higher
depreciation expense and increased operating expenses. 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 Water Chemicals along with higher manufacturing costs,
including depreciation expense, are expected to result in unfavorable earnings
comparisons from 1998 to 1997. In Performance Chemicals, operating income
improved due to the conversion of the flexible polyol business to a tolling
operation and lower raw material costs, and was offset in part by higher fixed
costs associated with the anticipated biocide expansion, lower antidandruff
agent volumes to the Asian market, and higher administration expense for
additional international personnel and legal expenses.
METALS AND AMMUNITION Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
Sales $280.5 $276.6 $779.4 $808.0
Operating Income 17.9 15.6 50.0 40.3
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales increased 1% due to an 8% increase in volumes offset in part by a 5%
decrease in metal values and a 2% decrease in selling prices. The volume
increase was attributable to both the metals and Winchester businesses. Metals
sales declined due to lower metal price pass-throughs, while operating income
was about equal to last year. Strong demand from the housing industry and
higher demand from ammunition and coinage customers offset lower demand from the
automotive sector in part due to the General Motors strike. Winchester's sales
were higher due to increased volumes partially offset by lower prices and
operating income was significantly higher as a result of higher sales volumes
and lower manufacturing and operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Sales decreased 4% primarily due to lower metal values and operating income
increased 24%. 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 nine months ended September 30,March 31, 1999 and 1998, the Company spent
approximately $14$4 million for investigatory and remediation activities associated
with former waste sites and past operations. Spending for environmental
investigatory and remedial efforts for the full year 19981999 is estimated to be $25$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 $12 million for the three and nine
months ended September 30, 1998, respectively.March 31, 1999 and 1998. Charges to income
for investigatory and remedial efforts were material to operating results in
19971998 and may be material to net income in 19981999 and future years.
The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$134$129 million at September 30, 1998March 31, 1999 and $136 million at December 31, 1997,1998, of which $104$99 million and $106 million werewas
classified as other noncurrent liabilities, respectively. Theseliabilities. Those amounts did not take into
account any discounting of future expenditures or any consideration of insurance
recoveries or any advances in technology. TheseThose liabilities are reassessed
periodically to determine if environmental circumstances have changed and/or if the costs of
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$50 to $60 million over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and the financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
NineThree Months
Ended March 31,
-----------------
Provided by/By (Used For)(Used for) (in$ in millions) Ended September 30
----------------------------------------1999 1998
1997
----------------- ------------------ --------------------------------------------------------------------
Net Cash and Cash Equivalents
Provided by (Used for) Operating
Activities from Continuing Operations $(18.3) $ 178.3 $(115.9)4.8
Net Operating Activities (21.2) (46.5)
Capital Expenditures (93.7) (74.4)(8.3) (7.9)
Net Investing Activities (105.3) (70.3)(19.6) (7.2)
Purchases of Olin Common Stock (75.8) (127.1)(3.2) (38.8)
Net Financing Activities (157.4) (301.3)57.6 (52.8)
OperatingIn 1999, income from continuing operations exclusive of non-cash charges,
borrowings under a line of credit assumed by Arch Chemicals and cash and cash
equivalents on hand were used to finance the Company's seasonal working capital
requirements, capital and investment projects, payment of debt, dividends and the repurchasepurchase of Olinthe
Company's common stock.
OPERATING ACTIVITIES
Cash generated byIn 1999, the decrease in cash flow from operating activities in 1998of continuing
operations was used for an increase in
working capital. Higher account receivables dueprimarily attributable to the seasonal Water Chemicalslower operating income and Winchester business along with lower accounts payable and accrued
liabilities, were the main contributors to the increasea higher
investment in working capital. In the thirdfirst quarter of 19981999 the Company received approximatelymade
certain cash expenditures which were accrued at December 31, 1998, related to
the Spin-Off of Arch Chemicals, primarily legal and investment banking fees.
CAPITAL EXPENDITURES
Capital spending of $8.3 million in 1999 was $.4 million higher than 1998. For
the total year, capital spending is expected to be in the $80 million asrange and
should approximate annual depreciation expense.
FINANCING ACTIVITIES
At March 31, 1999, the Company has available a $165 million line of credit under
an unsecured revolving credit agreement with a group of banks. As a result of
a tax refundthe Spin-Off in February of taxes paid on capital gains in prior years. 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 Water Chemicals and Winchester receivables,
and tax payments on the sale of the isocyanates business.
INVESTING ACTIVITIES
Capital spending of $93.7 million in 1998 was 26% higher than 1997 in order
to provide additional capacity in the microelectronic chemicals business and for
the biocide products. Capital spending for 1998 is estimated to increase
approximately 15-30% from 1997 in order to provide this additional capacity.
FINANCING ACTIVITIES
At September 30, 1998,1999, the Company maintained committedamended its revolving credit
facilities
with banks of $261agreement reducing the aggregate commitments from $250 million all of which was available.to $165 million.
The Company may select various floating rate borrowing options. The Company
believes that thesethe credit facilities arefacility is adequate to satisfy its liquidity needs for
the nearforeseeable future. The credit facility includes various customary
restrictive covenants including restrictions related to the ratio of debt to
earnings before interest, taxes, depreciation and amortization and the ratio of
earnings before interest, taxes, depreciation and amortization to interest.
During the nine months ended September 30, 1998,1999, the Company used $75.8$3.2 million to repurchase 1,815,600300,000 shares of itsthe
Company's common stock, bringing the cumulative total shares repurchased to
5,642,7007,223,200 since January 1997.
At September 30, 1998,Prior to the Spin-Off in February, 1999, the Company borrowed $75 million under
a credit facility which liability was assumed by Arch Chemicals. The Company has
used a portion of and intends to use the balance of these funds for general
corporate purposes, which may include share repurchases and future acquisitions.
The percent of total debt to total capitalization was 22.2%, downincreased to 40% at March 31,
1999, from 24.0%29% at year-end 19971998 and 23.5%24% at September 30, 1997.
The decrease from DecemberMarch 31, 1997 was due1998. Contributing to the
repaymentincrease in 1999 was the reduction to equity resulting from the Spin-Off.
The Company paid a first quarter 1999 dividend of $37.5 million$0.30 per share on May 1, 1998.March 10,
1999 to shareholders of record on January 19, 1999. As announced previously,
following the Spin-Off, the Company's annual dividend is expected to be $0.80
per share. In April 1999, the Company's Board of Directors declared a quarterly
dividend of $.20 per share on its common stock, and the Board of Directors of
Arch Chemicals, Inc. declared a dividend of $.10 per equivalent Olin share ($.20
per Arch Chemicals, Inc. share). Accordingly, those stockholders who retained
their Olin and Arch Chemicals stock, will receive, in the aggregate, the same
total quarterly dividend of $.30 as before the Spin-Off. The Board of Directors
of either company, however, could change the dividend rate on the shares of
their respective companies at any time in the future.
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
financial statements along with additional information on products and services,
geographic areas and major customers. The Company will comply with the new
standard for the year ended December 31, 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employers' Disclosures about Pensions and Other Post Retirement Benefits,
an amendment to FASB Statements No. 87, 88, and 106," which modifies the
disclosure requirements related to pensions and other post retirement benefits.
The statement is effective for fiscal years beginning after December 15, 1997.
The Company will comply with the new standard for the year ended December 31,
1998.
In 1998, the Financial Accounting Standards Board issued Statement No. 133
("Statement 133") "Accounting for Derivative Instruments and Hedging
Activities." It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. 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,Effective January 1, 1999, the American Institute of Certified Public Accountants ("AICPA")
issuedCompany adopted Statement of Position 98-1 ("SOP"SOP
98-1") 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 positionUse" and resultsStatement of operations in the period of adoption.
Also in 1998, the AICPA issued SOPPosition 98-5, "Reporting on the Costs of Start-upStart-
up Activities." This SOP requires the expensingAdoption of certain costs such as pre-
operating expenses and organizational costs associated withthese
statements did not have a material effect on the Company's start-
up activities, and is effective for fiscal years beginning after December 15,
1998. The effectresults of adoption is required to be accounted for as a cumulative
effect of change in accounting principle. 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 133, SOP 98-1 and SOP 98-5, the
Company may consider early adoption of oneoperations
or more of these pronouncements.
financial position.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to adoptadopted the euroEuro as their common legal currency and to
establishestablished fixed conversion
rates between their existing sovereign currencies and the euro.Euro. The Company
does not expect the conversion to the euroEuro to have a material impact on its
business, operations, or financial position.
YEAR 2000 COMPUTER SYSTEMS
The Company views the impact of the Year 2000 as a critical business issue. It
manages the process by having each business segment identify its own Year 2000
issues and develop appropriate corrective action steps, while instituting a
series of management processes that coordinate and manage the process across
business segment boundaries and the corporate center. The process includes
corporate oversight and provides for consistent attention to progress made
against planned activities and a forum for issue resolution at the business
segment and corporate levels with periodic assessments made by independent
parties which are periodically
reported to the Board. As a result of the Spin-Off of Arch
Chemicals, the Company entered into an Information Technology Services Agreement
with Arch Chemicals stipulating that Arch Chemicals will provide various
information technology related services including maintenance of the centralized
computer center and the wide area network as well as provide services in support
of the Company's Year 2000 initiative.
The Company recognizes that the Year 2000 issue is not limited to computer
programs normally associated with the processing of business information, but
can also be found in certain equipment and processes used in manufacturing and
operation of facilities. Furthermore, itIt also recognizes that the potential exists for Year
2000 issues within the supply chain. The Company's approach was to subdivide
the program into four distinct segments: 1) Business Systems; 2) Manufacturing;
3) Supply Chain; and 4) Infrastructure.
In the business systems segment,area, the Company has positioned itself very favorably
with respect to software and equipment that is Year 2000 compliant. In 1994,
the Company began implementing a Year 2000 compliant client-server system,
Peoplesoft, to address payroll and human resource needs and it presently uses
such system in all businesses. In 1993, the Company began implementing for all
domestic businesses, except the metals division,Metals segment, a client-server system, SAP, for
core business requirements as a vehicle to obtain certain improvements in the
business processes. With the exception of the Metals segment, SAP is currently
utilized in a majority of its domestic businesses. Since SAP was also a
certified Year 2000 compliant solution, migration plans were adjusted to take
advantage of the business benefit while eliminating the cost of remediating old
legacy system code. Deployment has been aggressive with all domestic functions
and locations (except Metals) transferred to SAP with the exception of the Microelectronic Chemicals business
which is scheduled for January 1999.SAP. In the few instances where
SAP is not utilized, replacement systems are scheduled for June 1999. Offshore
processing systems will continue using existing systems until conversion to SAP during 2000
and beyond.systems. All systems have been
examined with Year 2000 upgrades targeted for completion by the second quarter
of 1999.
The Metals divisionsegment is addressing the Year 2000 issue by converting existing
programs to be compliant. It has completed code converting it'sits entire software
portfolio, and is currently heavily engaged in the testing phase of it'sits plan.
Completion of all systems is targeted for June 1999.
In the manufacturing segment,area, plant level employees and independent assessments
were used to identify places where embedded systems exist and categorize them by
the potential impact to the business. Forty-eightSix items, which have the potential
for causing process shutdownsshut downs or unsafe conditions, remain to be remediated or
replaced in the manufacturing segment.replaced. The plan, which takes maximum advantage of "planned outages" in order
to minimize the impact on operations, targets completion by MayJune 1999.
The supply chain segmentarea has seen much activity in terms of assessing vendor Year
2000 preparedness, identifying alternate sources, as well as insertion of
certain Year 2000 compliance language in all purchase orders issued. The Company
is expecting to completehas completed a review of single source and critical suppliers by year-end 1998.suppliers. During 1999,
the Company will continue to re-evaluate its suppliers on a periodic basis.
Personal computers, networks, and PBX's represent the majority of items in the
Company's infrastructure segment. The Company has deployed new Pentium Year 2000
compliant equipment in large numbers to support its SAP deployment program and
for internal standards compliance. In addition, the Company is currently
utilizing software tools to test the entire PC inventory for Year 2000
compliance and this is expected to be completed by year end 1998.the first quarter of 1999.
The Company's wide area network is already Year 2000 compliant as is most of it's PBX'sits
PBX and voice mail systems. The non-compliant equipment is planned to be
replaced with compliant versions as leases expire, but no later than June 1999.
The Company believes its Year 2000 initiative is on track to address all
significant Year 2000 issues by the middle of 1999, and is supported by the
findings of an independent assessment completed in JulyDecember 1998. Plans include
additional assessments throughout 1999.
Plans for a worst case scenario in the unlikely event of a major failure due to
a Year 2000 problem which causes significant disruptions to business operations
have been formulated. In the area of business systems, management believes that
the Company, with most of its'its operating units already migrated to Year 2000
compliant solutions, has already significantly reduced its'its potential risk. As
added protection, software migration plans to new releases of SAP and
Peoplesoft, which are planned in 1999, include Year 2000 testing scenarios. ItThe
Company will continue to monitor progress in the system testing of the converted
legacy systems and will redirect existing resources and / and/or utilize outside
assistance in the event of slippage against plans.
The Company continues to focus attention toon the manufacturing segment.area. It has
deployed several independent initiatives to identify embedded systems, develop
comprehensive equipment lists, and obtain vendor certifications of Year 2000
compliance. It has developed plans for further testing with respect to key
manufacturing equipment and systems, during periods of scheduled outages.
The Company will continue to monitor progress against plans in the business
systems, manufacturing, infrastructure, and supply chain segments,areas, and take
corrective action should slippage occur. The use of vendor-supplied Year 2000
compliant solutions, coupled with substantive pre-testing of key systems and a
strong management commitment and oversight are the cornerstone of the Company's
Year 2000 program.
Nonetheless, in the unlikely occurrence of some unforeseen event,
divisional emergency
teams skilled in each of the disciplines will be formed during the last half of
1999. They will be deployed to assist local personnel in the event of a Year
2000 issue at the turn of the millennium.
The Company does not expect Year 2000 initiative costs to exceed $10$5 million
exclusiveinclusive of the cost for deploying SAP and Peoplesoft and related
infrastructure over the next 15 months. Decisions were made to deploy SAP and
Peoplesoft independent of the Year 2000 issue.during 1999.
The dates on which the Company believes the Year 2000 Project will be completed
and the SAP computer systems will be implemented are based on Management'smanagement's best
estimates, which are derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-
partythird-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Year 2000 Project.
Specific factors that might cause differences between the estimates and actual
results include, but are not limited to, the availability and cost of personnel
trained in these areas, the ability to locate and correct all relevant computer
codes, timely responses to and corrections by third-parties and suppliers, the
ability to implement interfaces between the new systems and the systems not
being replaced, and similar uncertainties. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-partiesthird parties and the interconnection of global
businesses, the Company cannot ensure its ability to timely and cost-effectively
resolve the problems associated with the Year 2000 issue that may affect its
operations and business, or expose it to third-party liability.
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWSLAWS: The information contained in
this Item 2 - Management's Discussionthe 1999 Outlook section (and subsections thereof), the Environmental Matters
section, the Liquidity, Investment Activity and Analysis ofOther Financial Condition and Results of Operations,Data section,
and the NotesEnvironmental and Commitments and Contingencies notes to Condensedthe
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 variousrespective divisions and profit centers operate. Words such as
"believes," "estimates,"anticipates," "expects," "forecasts,"believes," "should," "plans," "projects,"will," "should,"forecasts,"
"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 nodoes not undertake
any obligation to update publicly any forward-looking statements, whether as a
result of future events, new information or otherwise. Future factorsFactors which
could cause actual results to differ materially from those discussed in these
sections and notes include
but are not limited to: general economic and business and market conditions;
lack of moderate growth in the U.S. economy or even a slight recession in 1998;1999;
worsening business conditions as a result of the Asian and Latin American
financial crisis;turmoil; competitive pricing pressures; the Company's ability to maintain chemical price increases;
declines in Chlor-Alkali'sChlor Alkali's ECU
prices beyond those estimated; Chlor-Alkalibelow current levels; Chlor Alkali operating rates below the 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;costs; a downturn in many of the
markets the Company serves such as electronics, automotive, ammunition and
housing; the supply/demand balance for the Company's products, including the
impact of excess industry capacity; efficacy of new technologies; changes in
U.S. laws and regulations; failure to achieve targeted cost reduction programs;
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 interruption/interruptions/outages.
PartITEM 3. QuantitativeQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies, its purchases
of certain commodities and Qualitative Disclosures about Market Risk.
Not Applicable.its ongoing investing and financing activities. The
risk of loss can be assessed from the perspective of adverse changes in fair
values, cash flows and future earnings. The Company has established policies
and procedures governing its management of market risks and the uses of
financial instruments to manage exposure to such risks.
The primary purpose of the Company's foreign currency hedging activities is to
manage currency risks resulting from purchase and sale commitments in foreign
currencies (principally Australian dollar and Canadian dollar) and relating to
particular anticipated purchases and sales expected to be denominated in those
same foreign currencies. Foreign currency hedging activity is not material to
the Company's consolidated financial position, results of operations or cash
flow.
Certain materials, namely copper, lead and zinc, used primarily in the Company's
Metals and Winchester segments' products are subject to price volatility.
Depending on market conditions, the Company may enter into futures contracts and
put and call option contracts in order to reduce the impact of metal price
fluctuations. As of March 31, 1999, the Company maintained open positions on
futures contracts totalling $45 million. Assuming a hypothetical 10% increase
in commodity prices which are currently hedged, the Company would experience a
$4.5 million increase in its cost of inventory purchased, which would be offset
by a corresponding increase in the value of related hedging instruments.
The Company is exposed to changes in interest rates primarily as a result of its
investing and financing activities. Investing activity is not material to the
Company's consolidated financial position, results of operations or cash flow.
The financing activities of the Company are comprised primarily of long-term
fixed-rate debt utilized to fund business operations and to maintain liquidity.
As of March 31, 1999, the Company had long-term borrowings of $231 million
outstanding at varying fixed rates. The Company has interest rate swaps to
hedge underlying debt obligations. Interest rate swap activity is not material
to the Company's consolidated financial position, results of operations or cash
flow.
If the actual change in interest rates or commodities pricing is substantially
different than expected, the net impact of interest rate risk or commodity risk
on the Company's cash flow may be materially different than that disclosed
above.
The Company does not enter into any derivative financial instruments for trading
purposes.
Part II - Other Information
Item 1. Legal Proceedings.
-----------------
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not Applicable.
Item 5. Defaults Upon Senior Securities.
-------------------------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
3(b) Bylaws of Olin as amended effective April 29, 1999.
10(d) Olin Senior Executive Pension Plan, as Restated as of
February 8, 1999.
10(e) Olin Supplemental Contributing Employee Ownership Plan,
effective January 1, 1990 as Amended and Restated as of
February 8, 1999.
10(s) Olin Supplementary and Deferral Benefit Pension Plan, as
Restated as of February 8, 1999.
12. Computation of Ratio of Earnings to Fixed Charges
(Unaudited).
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
February 23, 1999 with respect to a disposition
of assets (the spin-off of its specialty chemicals business to
existing shareholders).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLIN CORPORATION
(Registrant)
By: /s/A.W. A. W. Ruggiero
----------------
A.W. Ruggiero
Senior------------------------------------
Executive Vice President and
Chief Financial Officer
(Authorized Officer)
Date: November 13, 1998
May 17, 1999
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3(b) Bylaws of Olin as amended effective April 29, 1999.
10(d) Olin Senior Executive Pension Plan, as Restated as of February 8, 1999.
10(e) Olin Supplemental Contributing Employee Ownership Plan,
effective January 1, 1990 as Amended and Restated as of
February 8, 1999.
10(s) Olin Supplementary and Deferral Benefit Pension Plan, as
Restated as of February 8, 1999.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.