OLIN ANNOUNCES SECOND QUARTER EARNINGS
AND PREDICTS RECORD THIRD QUARTER OPERATING RESULTS
CLAYTON, MO, July 24, 2008 – Olin Corporation (NYSE: OLN) announced today that its sales for the second quarter of 2008 were $428.3 million, compared to $266.2 million in the second quarter of 2007. Net income from continuing operations in the second quarter of 2008 was $35.5 million, or $0.47 per diluted share, compared to $21.9 million, or $0.29 per diluted share in the second quarter of 2007.
Joseph D. Rupp, Chairman, President, and Chief Executive Officer said, “Chlor Alkali earnings improved 27% compared with the second quarter of 2007, which reflects the contributions and synergies of the Pioneer acquisition and improved pricing. These favorable developments allowed the business to overcome lower volumes and higher costs, primarily for freight and electricity. Winchester’s second quarter pretax earnings of $9.5 million represent a record second quarter for the business. Winchester’s results reflect the combination of improved volumes and pricing.”
The second quarter 2008 results included $9.7 million of environmental expenses, which was approximately 90% higher than the first quarter 2008 level and approximately 70% higher than the expected third quarter 2008 level. The increased level of environmental expenses in the second quarter 2008 primarily represented costs for remediation at a former manufacturing location. Second quarter 2008 also included approximately $5 million of non-cash stock-based compensation expense, which reflected the positive performance of our stock during the quarter. This level of expense was approximately twice the level experienced in the first quarter of 2008. Second quarter 2008 results
included a $0.8 million pretax pension curtailment charge associated with the transition of our McIntosh, Alabama chlor alkali hourly workforce from a defined benefit pension plan to a defined contribution pension plan. Finally, our second quarter 2008 tax rate included approximately $0.8 million of favorable adjustments related to the resolution of prior period issues.
Third quarter 2008 earnings are projected to be in the $0.65 to $0.70 per diluted share range. We expect that Chlor Alkali results will improve compared to the second quarter driven by higher operating rates and improved ECU netbacks. The seasonal strength of the industrial bleach business is contributing to the higher operating rates. Winchester results are expected to be in line with the results experienced in the first two quarters of 2008. Finally, we expect environmental and pension expenses to decline in the third quarter compared to the second quarter.
SEGMENT REPORTING
We define segment results as income (loss) before interest expense, interest income, other income, and income taxes and include the results of non-consolidated affiliates in segment results consistent with management’s monitoring of the operating segments.
CHLOR ALKALI PRODUCTS
Chlor Alkali Products sales for the second quarter of 2008 were $312.2 million, compared to $166.4 million in the second quarter of 2007. The increase reflects the combined impact of a 54% increase in chlorine and caustic soda volumes due to the acquisition of Pioneer, which occurred in the third quarter of 2007, and a 16% increase in combined chlorine and caustic soda prices. These increases more than offset decreased volumes, excluding Pioneer, due to lower operating rates in the second quarter of 2008, compared to the second quarter of 2007. The lower operating rates resulted from lower chlorine demand. Chlor Alkali segment income during the quarter was $70.4 million, compared to $55.3 million in the second quarter of 2007. The higher level of income reflects the higher volumes resulting from the inclusion of the Pioneer operations in the second quarter of 2008, the realization of cost synergies resulting from the integration of Pioneer, and higher selling prices, partially offset by higher electricity and distribution costs.
WINCHESTER
Winchester second quarter 2008 sales were $116.1 million, compared with $99.8 million in the second quarter of 2007. The combination of higher selling prices and higher sales volumes were responsible for the increase.
Winchester segment income for the second quarter was $9.5 million, compared to $5.6 million in the second quarter of 2007. The favorable impact of higher volumes and increased selling prices was partially offset by the continued increase in the cost of raw materials, including copper, lead, zinc, steel, and resins.
CORPORATE AND OTHER COSTS
In the second quarter of 2008, there was $3.6 million of income associated with the defined benefit pension plan recognized in the Corporate and Other segment. This income amount is net of the $0.8 million curtailment charge associated with the transition of our McIntosh, Alabama chlor alkali hourly workforce from a defined benefit pension plan to a defined contribution pension plan. Second quarter 2007 pension expense recognized in the Corporate and Other segment was $2.0 million. The year-over-year change reflects the impact of the $100 million voluntary contribution made in May of 2007, the favorable 2007 investment returns, a 25-basis point increase in the discount rate, the impact of the plan freeze for salaried and non-bargained hourly employees that became effective January 1, 2008, and an increase in the amortization period for actuarial losses.
On a total company basis, defined benefit pension plan income for the three months ended June 30, 2008 was $1.9 million, compared to expense of $8.3 million in 2007. The reduction in pension costs in 2008 was partially offset by higher defined contribution pension costs. During the second quarter of 2008, total company pension expense related to defined contribution plans was $2.4 million, compared to $0.8 million in the second quarter of 2007. The second
quarter 2007 expense did not include any expenses related to the Pioneer employees added in the third quarter of 2007.
Second quarter 2008 charges to income for environmental investigatory and remedial activities were $9.7 million, compared to $7.0 million in 2007. These charges related primarily to investigatory and remedial activities associated with former waste disposal sites and past manufacturing operations.
During the second quarter of 2008, other corporate and unallocated costs were $17.4 million, compared to $18.2 million in 2007. The decrease was primarily the result of lower legal and legal-related expenses. These expenses are primarily associated with legacy environmental matters and legal settlements. This decrease was partially offset by the higher level of non-cash stock-based compensation expense reflecting the 32% appreciation in the stock price that was experienced during the quarter.
CASH FLOW
During the second quarter of 2008, cash and cash equivalents declined by $63.5 million. This decline reflects the normal seasonal growth in receivables and inventory that occurs in both segments during the second quarter, and the impact on receivables of higher selling prices in both the Chlor Alkali and Winchester businesses. Capital spending during the quarter was $40.5 million, of which approximately 50% was associated with the St. Gabriel chlor alkali facility conversion and expansion project.
DIVIDEND
On July 24, 2008, Olin’s Board of Directors declared a dividend of $0.20 on each share of Olin common stock. The dividend is payable on September 10, 2008 to shareholders of record at the close of business on August 11, 2008. This is the 327th consecutive quarterly dividend to be paid by the Company.
CONFERENCE CALL INFORMATION
The Company’s second quarter earnings conference call with securities analysts is scheduled for 10:00 A.M. Eastern Time, Friday, July 25. The call will feature remarks by Joseph D. Rupp, Olin’s Chairman, President and Chief Executive Officer, and John E. Fischer, Olin’s Vice President and Chief Financial Officer. Anyone wishing to listen to the call may do so via the Internet by following the instructions posted under the Conference Call icon on Olin’s website, www.olin.com. Listeners should log on to the website at least 5 minutes before the call. The call will also be audio archived on the Olin website for future replay. A text of the prepared remarks from the conference call will be available on the website in the Investor section.
COMPANY DESCRIPTION
Olin Corporation is a manufacturer concentrated in two business segments: Chlor Alkali Products and Winchester. Chlor Alkali Products manufactures chlorine and caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, potassium hydroxide and bleach products. Winchester products include sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
FORWARD-LOOKING STATEMENTS
This communication includes forward-looking statements. These statements relate to analyses and other information that are based on management's beliefs, certain assumptions made by management, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which we and our various segments operate. The statements contained in this communication that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.
We have used the words "anticipate," "intend," "may," "expect," "believe," "should," "plan," "project," "estimate," and variations of such words and similar expressions in this communication to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. Relative to the dividend, the payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial conditions, our capital requirements and other factors deemed relevant by our board of directors. In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2007 include, but are not limited to, the following:
| · | sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us, such as ammunition, housing, vinyls, and pulp and paper, and the migration by United States customers to low-cost foreign locations; |
| · | the cyclical nature of our operating results, particularly declines in average selling prices in the chlor alkali industry and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products; |
| · | economic and industry downturns that result in diminished product demand and excess manufacturing capacity in any of our segments and that, in many cases, result in lower selling prices and profits; |
| · | costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings; |
| · | unexpected litigation outcomes; |
| · | the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan; |
| · | the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards; |
| · | new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities; |
| · | higher-than-expected raw material, energy, transportation, and/or logistics costs; and |
| · | an increase in our indebtedness or higher-than-expected interest rates, affecting our ability to generate sufficient cash flow for debt service. |
All of our forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.
2008 - 15
Olin Corporation
Consolidated Statements of Income (a)
News