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 March 31, 1996
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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 to
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Commission file number 1-1070
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Olin Corporation
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(Exact name of registrant as specified in its charter)
Virginia 13-1872319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Merritt 7, Norwalk, CT 06856
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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 No
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As of April 30, 1996 there were outstanding 24,893,459 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)
March 31, December 31,
1996 1995
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ASSETS
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Cash $ 5.5 $ 7.5
Accounts receivable, net 591.6 554.9
Inventories 428.6 409.7
Other current assets 78.4 79.7
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Total current assets 1,104.1 1,051.8
Investments and advances 78.8 79.8
Property, plant and equipment
(less accumulated depreciation
of $1,723.4 and $1,706.8) 932.4 955.7
Goodwill 119.3 120.6
Other assets 73.5 63.9
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Total assets $2,308.1 $2,271.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Short-term borrowings and current
installments of long-term debt $ 160.5 $ 122.1
Accounts payable 270.4 352.1
Other current liabilities 329.8 281.2
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Total current liabilities 760.7 755.4
Long-term senior debt 286.3 286.2
Long-term subordinated debt 125.0 125.0
Other liabilities 261.1 263.9
Shareholders' equity:
Preferred stock, par value $1 per share:
Authorized 10.0 shares.
ESOP Preferred Stock
Issued 1.0 shares 75.7 77.3
Guaranteed ESOP obligations (22.0) (22.0)
Common stock, par value $1 per share:
Authorized 60.0 shares.
Issued 24.9 shares (24.7 in 1995) 24.9 24.7
Additional paid-in capital 429.6 422.5
Cumulative translation adjustment (4.9) (4.3)
Retained earnings 371.7 343.1
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Total shareholders' equity 875.0 841.3
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Total liabilities and
shareholders' equity $2,308.1 $2,271.8
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<FN>
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The accompanying Notes to Condensed Financial Statements are an integral
part of the condensed financial statements.
</FN>
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Income
(In millions, except per share amounts)
Three Months
Ended March 31,
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1996 1995
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Sales $789.4 $766.1
Operating expenses:
Cost of goods sold 608.8 613.0
Selling and administration 100.6 79.4
Research and development 11.1 7.3
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Operating income 68.9 66.4
Interest expense 10.2 10.3
Interest and other income 11.1 3.4
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Income before taxes 69.8 59.5
Income taxes 24.8 21.1
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Net income 45.0 38.4
Preferred dividends 1.5 1.6
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Net income available to
common shareholders $ 43.5 $ 36.8
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Per share of common stock:
Primary $1.75 $1.52
Fully diluted $1.70 $1.46
Dividends $0.60 $0.60
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Average common shares and
common equivalents outstanding 24.8 24.3
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<FN>
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The accompanying Notes to Condensed Financial Statements are an integral
part of the condensed financial statements.
</FN>
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
Three Months
Ended March 31,
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1996 1995
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Operating activities
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Net income $45.0 $38.4
Earnings of non-consolidated affiliates (2.3) (1.0)
Depreciation and amortization 38.4 34.8
Deferred taxes 2.4 4.4
Changes in assets and liabilities
net of sale of business:
Receivables (39.6) (90.2)
Inventories (21.5) (19.5)
Other current assets 1.3 0.9
Current liabilities (45.3) (15.5)
Noncurrent liabilities (0.5) 1.7
Other operating activities (10.6) 0.4
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Net operating activities (32.7) (45.6)
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Investing activities
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Capital expenditures (22.2) (36.8)
Disposition of property, plant and equipment 20.8 -
Proceeds from sale of business 5.5 -
Other investments 0.5 0.2
Other investing activities - 0.6
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Net investing activities 4.6 (36.0)
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Financing activities
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Long-term debt repayments - (0.1)
Short-term borrowings 38.4 97.2
Stock options exercised 4.0 0.1
Dividends paid (16.4) (17.1)
Other financing activities 0.1 (0.1)
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Net financing activities 26.1 80.0
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Net decrease in cash (2.0) (1.6)
Cash, beginning of period 7.5 7.0
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Cash, end of period $ 5.5 $ 5.4
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<FN>
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The accompanying Notes to Condensed Financial Statements are an
integral part of the condensed financial statements.
</FN>
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, 1995.
2. Inventories are valued principally by the dollar value last-in,
first-out (LIFO) method of inventory accounting. It is not
practicable, therefore, to separate the inventory into its
components (raw materials, work-in-process and finished products).
Inventories under the LIFO method are based on annual determination
of quantities and costs as of the year-end; therefore, the
consolidated financial statements at March 31, 1996, reflect
certain estimates relating to inventory quantities and costs at
December 31, 1996.
3. An Employee Stock Ownership Plan (ESOP) was established in June
1989. The ESOP purchased from the company approximately 1.3
million shares ($100 million) of a newly authorized 1.75 million
share series of the company's ESOP preferred stock, financed by $60
million of notes guaranteed by the company (of which $22 million is
outstanding at March 31, 1996), and $40 million of borrowings from
the company.
At March 31, 1996, there were approximately 1.0 million shares of
ESOP preferred stock outstanding at a value of $88.75 per share.
The quarterly fixed dividend rate is $1.4925 per share. The ESOP
preferred stock is convertible by the ESOP Trustee into the
company's common stock on a one-for-one basis, subject to anti-
dilutive adjustments, and may be redeemed at the option of the
company, or at the option of the plan under certain circumstances
(including upon payment of withdrawing plan participant accounts or
if required to meet the plan's debt payments). The company
reserves the right to satisfy the redemption in cash, marketable
obligations or common stock. The ESOP preferred stock is included
in shareholders' equity because the company intends to redeem the
outstanding ESOP preferred stock solely with shares of the
company's common stock, and has the ability to do so.
4. Primary earnings per share are computed by dividing net income less
the ESOP preferred dividend requirement by the weighted average
number of common shares outstanding. Fully diluted earnings per
share reflect the dilutive effect of stock options and assume the
conversion of outstanding ESOP preferred stock into an equivalent
number of common shares at the date of issuance. Net income was
reduced by an additional ESOP contribution (differential between
the common and the ESOP preferred dividend rates under an assumed
conversion) necessary to satisfy the debt service requirement.
5. In January 1996, the company sold its corporate headquarters. This
transaction generated a gain of approximately $7 million, which was
reported in Interest and Other Income. In March 1996, the company
sold its Electrostatics business. This transaction did not have a
material impact on the company's results of operations.
6. Effective January 1, 1996, the company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." The adoption of this standard did not have a
material impact on the company's financial position and its
operating results.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
(in millions, except per share data)
CONSOLIDATED Three Months
Ended March 31,
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1996 1995
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Sales $789.4 $766.1
Gross Margin 180.6 153.1
Selling and Administration 100.6 79.4
Research and Development 11.1 7.3
Operating Income 68.9 66.4
Net Income 45.0 38.4
Net Income per Share
Primary 1.75 1.52
Fully Diluted 1.70 1.46
Sales increased 3% as higher selling prices and the inclusion of sales of the
OCG acquisition more than offset the impact of lower volumes in the Defense
and Ammunition segment and lower metal values and volumes in the Metals
segment.
Gross margin percentage increased to 23% from 20%, as higher selling prices
and an improved product mix more than offset increased raw material and
manufacturing costs.
Selling and administration expenses as a percentage of sales increased from
10.4% to 12.7%. The increase was primarily attributable to charges to provide
for claims and certain legal matters in the Defense and Ammunition segment,
the inclusion of the OCG's operating expenses and additional advertising and
promotional activities in pool products.
Research and development expenses increased as a result of the OCG acquisition.
During the quarter the company completed the sale of its corporate headquarters.
The gain of approximately $7 million, which was reported in Interest and Other
Income, was offset by charges to provide for claims and certain legal matters,
mentioned above.
CHEMICALS Three Months
Ended March 31,
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1996 1995
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Sales $414.5 $350.9
Operating Income 61.9 31.9
Sales and operating income increased 18% and 94%, respectively, due primarily
to higher demand and pricing for most products. Chlor-Alkali's improved
performance was driven by higher sales volume and pricing for caustic.
Toluene diisocyanate (TDI) was the main contributor to urethanes' improved
performance due to higher sales volumes and pricing and the absence of costs
associated with a scheduled maintenance outage last year. Pool products
results were favorably impacted by higher prices and an improved product mix
which more than offset the impact of lower sales volumes due to the divestment
of the chlorinated isocyanurates business and additional promotional activities.
In the ethylene oxide and propylene oxide derivatives businesses, increased
demand and pricing for most products along with lower raw material costs
contributed to its favorable performance. Higher sales volumes contributed to
the improved performance of the specialty urethanes coating business. Micro-
electronic Materials sales and operating income increased substantially over the
prior year. This improvement reflects the impact of the OCG acquisition and
higher demand for electronic chemical products and services. In addition, sales
of MQUAD[R], the company's proprietary electronic package, were substantially
ahead of last year. In February 1996, Microelectronic Materials opened a new
semiconductor chemicals manufacturing plant in Mesa, AZ. This $30 million
state-of-the-art facility will expand the company's capacity by more than 50%
for its existing high-purity semiconductor chemicals and its new lines of
next-generation, parts-per-trillion chemicals.
METALS Three Months
Ended March 31,
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1996 1995
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Sales $225.7 $239.6
Operating Income 17.1 23.6
Sales and operating income decreased 6% and 28%, respectively. Sales decreased
due to lower metal values and shipments as the industry returned to more normal
demand levels for strip products after two years of record demand. In addition
to the impact of lower demand for strip, operating income was also impacted by
the lower demand for tubing and fabricated products. Year-to-year improvements
were recorded by the Somers operation, which had strong CopperBond[R] foil and
alloy shipments. At the Indianapolis plant, the modernization of the seamless
copper alloy tube facility is expected to be on-stream in the second half of
the year and should increase capacity and improve quality.
DEFENSE AND AMMUNITION Three Months
Ended March 31,
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1996 1995
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Sales $149.2 $175.6
Operating Income (Loss) (10.1) 10.9
Sales decreased 15% from 1995, principally attributable to lower sales of
domestic sporting ammunition and medium caliber ammunition, and reduced
commercial Ball Powder[R] shipments. The operating loss of $10.1 million
resulted from the sales decrease and approximately $7 million of charges to
provide for claims and certain legal matters. Winchester's financial
performance was significantly behind 1995 levels due to higher raw material
costs and lower sales as major customers have delayed purchases due to an
industry-wide price increase. Ordnance operating results were behind last
year due to lower shipments of commercial Ball Powder[R] propellant and
certain medium caliber ammunition. Aerospace's financial performance
improved primarily due to lower operating expenses.
Changes in the strategic direction of defense spending, the timing of defense
procurements and specific defense program appropriation decisions may adversely
affect the performance of the Defense and Ammunition segment and the company in
future years, including its income, liquidity, capital resources and financial
condition. The precise impact of these decisions will depend upon the timing
and size of changes and decisions, and the company's ability to mitigate their
impact with new business, business consolidations or cost reductions. In view
of the continuing uncertainty regarding the size, content and priorities of the
annual Department of Defense budget, the historical financial information of
the Defense and Ammunition segment, and to a lesser extent, of the company, may
not be indicative of future performance.
ENVIRONMENTAL
In the 1996 first quarter, the company spent approximately $6 million for
investigatory and clean-up activities associated with former waste sites and
past operations. Spending for environmental investigatory and remedial efforts
for the full year 1996 is estimated to be $35 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;
$4 million was charged to income in 1996. Associated costs of investigatory
and remedial activities are provided for in accordance with generally accepted
accounting principles governing probability and the ability to reasonably
estimate future costs. Charges to income for investigatory and remedial
efforts were material to operating results in 1995 and may be material to net
income in 1996 and future years.
The company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting
to $109 million and $111 million at March 31, 1996 and December 31, 1995, of
which $74 million and $76 million was classified as other noncurrent
liabilities, respectively. Those amounts did not take into account any
discounting of future expenditures or any consideration of insurance recoveries
or advances in technology. Those liabilities are reassessed periodically to
determine if environmental circumstances have changed and/or remediation
efforts and their costs can be better estimated. As a result of these
reassessments, future charges to income may be made for additional liabilities.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
between $85-$100 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 time periods (sometimes lengthy) 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.
LITIGATION
There is a variety of legal proceedings pending or threatened against the
company. It is possible that some of these matters (the outcomes of which are
subject to various uncertainties) may be decided unfavorably against the
company. Certain of these matters are discussed in Item 3, Legal Proceedings
of the 1995 Form 10-K Annual Report and in other filings of the company with
the Securities and Exchange Commission, which filings are available on request
from the company.
LIQUIDITY, INVESTMENT ACTIVITY and OTHER FINANCIAL DATA
Cash Flow Data Three Months
Provided by(used for)(in millions) Ended March 31,
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1996 1995
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Net Operating Activities $(32.7) $(45.6)
Capital Expenditures (22.2) (36.8)
Net Investing Activities 4.6 (36.0)
Net Financing Activities 26.1 80.0
Cash flow from operations, proceeds from the sales of assets and the use of
credit facilities financed the company's seasonal working capital requirements,
capital expenditures and dividends. At March 31, 1996, the company maintained
committed credit facilities with banks of $351 million of which $257 million
was available. The company believes that these credit facilities are adequate
to satisfy its liquidity needs for the near future. Cash flow from operations
improved due to higher operating income and improved working capital
management.
Capital spending of $22.2 million in 1996 was 40% lower than last year's
comparable period as funds were spent in 1995 on the TDI plant maintenance
turnaround. Total year capital spending, including environmental capital
spending of $17 million, is estimated to decrease 10-20% from 1995 due to a
planned reduction to control capital costs. Historically, the company has
funded its environmental capital spending through cash flow from operations
and expects to do so in the future. Proceeds from the sale of the corporate
headquarters and the divestment of the Electrostatics business approximated
$26 million.
At March 31, 1996, the percent of total debt to total capitalization
(excluding the reduction in equity for the Contributing Employee Ownership
Plan) was 38.9%, up from 38.2% at year-end 1995 and down from 40.8% at
March 31, 1995. The increase from year-end 1995 is attributable to higher
short-term borrowings to finance seasonal working capital requirements.
1996 OUTLOOK
Cautionary Statement under Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995: Reference is made to "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in
Item 7 of Olin's 1995 Form 10-K. The information contained in the "1996
Outlook" sections of such Item 7 is forward looking and involves risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those discussed in the
"1996 Outlook" sections include but are not limited to: competitive pricing
pressures, including Olin's ability to maintain recent chemical and Winchester
price increases; higher than expected raw material and commodity costs; the
supply/demand balance for the company's products, including the impact of
excess industry capacity; any recession in the U.S. economy; failure to
complete capital projects as scheduled; changes in scheduled maintenance at
certain chemical plants; higher than expected legal expenses and cost
overruns; and failure to achieve targeted cost reduction programs.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3. Bylaws, as amended, effective April 25, 1996.
10(a). Retirement Plan for Non-Employee Directors of Olin Corporation (As
Amended through April 25, 1996).
(b). 1996 Stock Option Plan for Key Employees of Olin Corporation and
Subsidiaries (Incorporated by reference to Exhibit A to Olin's Proxy
Statement, dated March 12, 1996, relating to the 1996 Annual Meeting
of Shareholders (SEC File No. 1-1070)).
11. Computation of Per Share Earnings (Unaudited).
12(a). Computation of Ratio of Earnings to Fixed Charges (Unaudited).
12(b). Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (Unaudited).
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K
Except for a Current Report on Form 8-K, dated February 21, 1996, with
respect to Item 5 thereof which was filed on February 21, 1996, no reports
on Form 8-K were filed during the quarter ended March 31, 1996.
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
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A.W. Ruggiero
Senior Vice President and
Chief Financial Officer
(Authorized Officer)
Date: May 13, 1996
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3. Bylaws, as amended, effective April 25, 1996.
10(a). Retirement Plan for Non-Employee Directors of Olin Corporation (As
Amended through April 25, 1996).
(b). 1996 Stock Option Plan for Key Employees of Olin Corporation and
Subsidiaries (Incorporated by reference to Exhibit A to Olin's Proxy
Statement, dated March 12, 1996, relating to the 1996 Annual Meeting
of Shareholders (SEC File No. 1-1070)).
11. Computation of Per Share Earnings (Unaudited).
12(a). Computation of Ratio of Earnings to Fixed Charges (Unaudited).
12(b). Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (Unaudited).
27. Financial Data Schedule.