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 September 30, 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 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 No
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As of October 31, 1996 there were outstanding 49,963,728 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)
September 30, December 31,
1996 1995
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ASSETS
Cash $ 5.3 $ 7.5
Accounts receivable, net 542.4 554.9
Inventories 412.1 409.7
Other current assets 87.1 79.7
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Total current assets 1,046.9 1,051.8
Investments and advances 91.3 79.8
Property, plant and equipment
(less accumulated depreciation
of $1,721.7 and $1,706.8) 899.2 955.7
Goodwill 116.4 120.6
Other assets 74.8 63.9
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Total assets $2,228.6 $2,271.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current
installments of long-term debt $ 207.0 $ 122.1
Accounts payable 217.9 352.1
Other current liabilities 325.4 281.2
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Total current liabilities 750.3 755.4
Long-term senior debt 276.3 286.2
Long-term subordinated debt - 125.0
Deferred income taxes 3.6 -
Other liabilities 248.1 263.9
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Total liabilities 1,278.3 1,430.5
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Shareholders' equity:
Preferred stock, par value $1 per share:
Authorized 10.0 shares.
ESOP Preferred Stock
Issued 1.0 shares 77.2 77.3
Guaranteed ESOP obligations (10.0) (22.0)
Common stock, par value $1 per share:
Authorized 60.0 shares.
Issued 50.0 shares (49.4 in 1995) 50.0 49.4
Additional paid-in capital 410.9 397.8
Cumulative translation adjustment (6.3) (4.3)
Retained earnings 428.5 343.1
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Total shareholders' equity 950.3 841.3
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Total liabilities and
shareholders' equity $2,228.6 $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 Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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Sales $748.6 $796.4 $2,362.0 $2,366.2
Operating expenses:
Cost of goods sold 580.6 643.9 1,822.3 1,889.6
Selling and administration 92.7 84.3 289.1 251.0
Research and development 11.1 12.1 33.5 26.5
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Operating income 64.2 56.1 217.1 199.1
Interest expense 9.3 11.4 29.8 32.9
Interest and other income 3.6 3.5 21.2 9.2
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Income before taxes 58.5 48.2 208.5 175.4
Income taxes 20.7 17.1 74.0 62.3
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Net income 37.8 31.1 134.5 113.1
Preferred dividends 1.5 1.6 4.4 4.8
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Net income available to
common shareholders $ 36.3 $ 29.5 $ 130.1 $ 108.3
==== ==== ===== =====
Per share of common stock:
Primary $0.72 $0.61 $2.60 $2.24
Fully diluted $0.70 $0.60 $2.53 $2.16
Dividends $0.30 $0.30 $0.90 $0.90
==== ==== ==== ====
Average common shares outstanding 49.8 49.0 49.8 48.8
==== ==== ==== ====
<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)
Nine Months
Ended September 30,
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1996 1995
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Operating activities
Net income $134.5 $ 113.1
Earnings of non-consolidated affiliates (6.9) (2.4)
Depreciation and amortization 111.1 105.0
Deferred taxes 5.3 7.5
Change in assets and liabilities net of
purchase and sale of businesses:
Receivables 9.5 (129.4)
Inventories (5.1) 12.7
Other current assets (7.5) 1.1
Current liabilities other than borrowings (106.4) (41.6)
Noncurrent liabilities 6.4 7.8
Other operating activities (7.5) (7.6)
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Net operating activities 133.4 66.2
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Investing activities
Capital expenditures (74.9) (132.7)
Disposition of property, plant and equipment 29.6 3.6
Proceeds from sale of business 5.5 -
Business acquired in purchase transaction - (65.0)
Other investments (13.1) (1.3)
Other investing activities (2.0) 0.6
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Net investing activities (54.9) (194.8)
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Financing activities
Long-term debt:
Borrowings - 50.0
Repayments (58.8) (8.0)
Short-term borrowings 8.7 121.9
Stock options exercised 6.3 10.3
Repayment from ESOP 12.0 1.0
Dividends paid (49.2) (49.5)
Other financing activities 0.3 0.7
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Net financing activities (80.7) 126.4
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Net decrease in cash (2.2) (2.2)
Cash, beginning of period 7.5 7.8
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Cash, end of period $ 5.3 $ 5.6
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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 September 30, 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 $10 million is outstanding at
September 30, 1996), and $40 million of borrowings from the company.
In May 1996, the Board of Directors authorized the issuance from time
to time of up to an additional 451,805 shares of ESOP Preferred Stock
to satisfy the company contribution to the Contributing Employee
Ownership Plan.
At September 30, 1996, there were approximately 1.0 million shares of
ESOP preferred stock outstanding at a value of $86.75 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 conversion ratio of two shares of common stock for one share
of preferred stock, 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.
7. With respect to the governmental investigation regarding U.S. Government
contract performance at the Ordnance Division's Marion, Illinois facility as
described in paragraph (c) of Item 3 of the company's Annual Report on Form
10-K for the year ended 1995, the following additional information is
provided: After discussions with the U.S. Attorney's Office regarding the
investigation of the performance of the contracts in question, the company
and the U.S. Attorney entered into an agreement to settle this matter on
September 11, 1996. Under the agreement, the U.S. Government agreed not to
pursue any criminal or civil claims against the company or its subsidiaries
in connection with these government contracts. The company has, without
admitting to any wrongdoing or liability, settled this matter with the
U.S. Government for $8 million.
8. On October 10, 1996 the company announced a series of strategic
initiatives. These initiatives include:
* The company will spin off its Ordnance and Aerospace divisions to
shareholders as an independent company, Primex Technologies, Inc. The
transaction, which has been approved by the company's Board of
Directors, is still subject to various approvals and is expected to be
completed around the end of 1996. The Ordnance and Aerospace divisions
together had total sales for the nine months ended September 30, 1996
and twelve months ended December 31, 1995 of approximately $330 million
and $510 million, respectively;
* The company will sell its isocyanates (TDI and ADI) businesses at Lake
Charles, LA, to ARCO Chemical Company for $565 million in cash. The
transaction, which has been approved by the Board of Directors of both
companies, is subject to regulatory approval and is expected to close at
the end of 1996 or early 1997. The isocyanates businesses at Lake
Charles had total sales for the nine months ended September 30, 1996 and
twelve months ended December 31, 1995 of approximately $230 million and
$260 million, respectively;
* The company will seek a buyer for its polyol, glycol and surfactants
businesses at its Doe Run facility at Brandenburg, KY. This transaction
is expected to be completed by the end of 1997. The polyol, glycol and
surfactants businesses at Doe Run had total sales for the nine months
ended September 30, 1996 and twelve months ended December 31, 1995 of
approximately $175 million and $185 million, respectively;
* The company will use a portion of the proceeds from these divestitures
to repurchase up to 10 percent of its outstanding common stock. Shares
are expected to be purchased from time to time in the open market, as
market conditions warrant;
* The Board of Directors approved a two-for-one split of the company's
common stock, effective October 31, 1996 for all shareholders of record
on October 21, 1996. For all periods presented, earnings per share data
and the number of common shares outstanding have been restated to
reflect the stock split. Also, shareholders' equity has been restated
to give retroactive recognition to the stock split by reclassifying from
additional paid-in capital to common stock the par value of the
additional shares as a result of the stock split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-------------------------------------------------
RESULTS OF OPERATIONS
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(in millions, except per share data)
CONSOLIDATED Three Months Nine Months
Ended September 30 Ended September 30
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1996 1995 1996 1995
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Sales $748.6 $796.4 $2,362.0 $2,366.2
Gross Margin 168.0 152.5 539.7 476.6
Selling and Administration 92.7 84.3 289.1 251.0
Research and Development 11.1 12.1 33.5 26.5
Operating Income 64.2 56.1 217.1 199.1
Net Income 37.8 31.1 134.5 113.1
Net Income per Share
Primary 0.72 0.61 2.60 2.24
Fully Diluted 0.70 0.60 2.53 2.16
<FN>
Note: Net income per share amounts have been restated to give effect to the two-
for-one common stock split, effective October 31, 1996.
</FN>
Three Months Ended September 30, 1996 Compared to 1995
- -----------------------------------------------------
Sales decreased 6% due to a 4% decrease in volumes and a 3% decrease in metal
values, which more than offset a 1% increase in selling prices.
Gross margin percentage increased to 22% from 19% due to higher selling prices,
lower raw material costs and an improved product mix.
Selling and administration expenses as a percentage of sales increased to 12.4%
from 10.6%. The increase was attributable to lower sales, an additional charge
of $3 million for the settlement of a claim in the Defense and Ammunition
segment, higher costs related to incentive compensation programs and additional
advertising and promotional efforts to increase dealer/consumer demand for
sporting ammunition.
Research and development expenses decreased due to the sale of the
Electrostatics business in the first quarter of 1996.
Interest expense decreased due to lower average short-term borrowings during the
1996 quarter.
Nine Months Ended September 30, 1996 Compared to 1995
- -----------------------------------------------------
Sales were comparable to last year's period as a 4% decrease in volumes and a 2%
decrease in metal values were offset by a 3% increase in selling prices and the
inclusion of sales of OCG (acquired in third quarter of 1995).
Gross margin percentage increased to 23% from 20%, as higher selling prices and
an improved product mix more than offset increased manufacturing and
distribution costs.
Selling and administration expenses as a percentage of sales increased to 12.2%
from 10.6%. The increase was attributable to the inclusion of OCG's operating
expenses, approximately $11 million of charges to provide for claims and certain
legal matters in the Defense and Ammunition segment, and additional advertising
and promotional efforts directed towards sporting ammunition.
Research and development expenses increased as a result of inclusion of OCG's
research and development expenses.
Interest expense decreased primarily due to lower average short-term borrowings
during 1996.
Interest and other income increased primarily due to the favorable performance
of the nonconsolidated affiliates and the gain on the sale of the company's
corporate headquarters.
CHEMICALS Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1996 1995 1996 1995
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Sales $376.6 $392.3 $1,231.0 $1,141.0
Operating Income 51.0 38.9 179.8 124.8
Three Months Ended September 30, 1996 Compared to 1995
- ------------------------------------------------------
Sales decreased 4% while operating income increased 31%. The sales decrease was
due primarily to lower volumes more than offsetting increased prices in several
product lines. Higher pricing in several product lines along with lower raw
material costs and reduced operating expenses were the most significant factors
in the operating profit improvement. Urethanes' financial performance was
enhanced by higher pricing (principally in the international markets) for
toluene diisocyanate (TDI) and lower raw material costs. Operating income for
EO/PO (ethylene oxide/propylene oxide) derivative products increased due to
higher prices for glycols and polyols and lower raw material costs. Pool
products' operating income increased due to higher prices and lower operating
expenses. Chlor-Alkali's operating income benefited from increased volumes for
chlorine and caustic and lower raw material and energy costs. Microelectronic
Materials' operating income decreased substantially due primarily to lower
volumes caused by the downturn in the semiconductor industry, start-up costs
associated with the new semiconductor chemicals manufacturing plant in Mesa,
AZ and development costs for a new semiconductor package.
Nine Months Ended September 30, 1996 Compared to 1995
- -----------------------------------------------------
Sales and operating income increased 8% and 44%, respectively. The sales
increase was due to the inclusion of sales of OCG and higher pricing which more
than offset lower volumes. Higher pricing in several product lines was the most
significant factor in the operating income improvement. Urethanes' improved
performance was driven by higher pricing and increased volumes for TDI. Higher
selling prices for glycols and polyols, lower raw material costs and reduced
manufacturing and operating costs contributed to EO/PO derivative products'
favorable performance. Pool products' operating results were favorably impacted
by higher prices and more than offset the impact of lower volumes due to the
lack of product availability. Capacity additions for HTH[R] calcium
hypochlorite are under way and are expected to increase capacity by 20% by the
end of next year. Higher sales volumes contributed to the improved financial
performance of the specialty urethane coatings business. Higher caustic volumes
and chlorine pricing, lower utility costs and operating expenses contributed to
Chlor-Alkali's increased operating income. Microelectronic Materials' sales and
operating income increased over the prior year due primarily to the inclusion of
OCG's operating results for nine months in 1996 compared to three months in
1995. Although performance is ahead of last year, operating results were
negatively impacted during the third quarter by the downturn in the
semiconductor industry, higher manufacturing costs, delays in the start-up of
the new Mesa, AZ facility and higher development costs for the new semiconductor
package. For the balance of the 1996 year, Microelectronics Materials'
operating income is expected to be substantially behind last year due to lower
semiconductor industry demand. As a result, Microelectronics Materials' total
year operating income is expected to be below 1995 level.
METALS Three Months Nine Months
Ended September 30 Ended September 30
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1996 1995 1996 1995
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Sales $187.6 $201.2 $617.9 $660.7
Operating Income 9.3 10.9 42.9 51.8
Three Months Ended September 30, 1996 Compared to 1995
- -----------------------------------------------------
Sales decreased 7% due to lower metal values and lower demand for strip
products. Operating income decreased 15% from last year. Demand for the
company's high performance alloys which are used by the electronics industry,
and the specialty metals operation at Somers was below last year, primarily as a
result of lower semiconductor industry demand. Demand for brass for ammunition
cartridge cases was also behind last year due to lower industry-wide ammunition
sales.
Nine Months Ended September 30, 1996 Compared to 1995
- ----------------------------------------------------
Sales and operating income decreased 7% and 17%, respectively. Sales decreased
due to lower metal values and lower demand for strip products. In addition to
the reduced strip business (primarily leadframe for the electronics industry),
operating income was adversely impacted by the lower levels of utility business
as well as weaker demand for ammunition products. The A.J. Oster Company's
operating income improved as the markets they serve remained fairly strong. At
the Indianapolis plant, work has been progressing on the installation of a new
seamless tube mill. This new equipment, which will increase capacity and
improve product quality, is scheduled to be in operation by year-end.
DEFENSE AND AMMUNITION Three Months Nine Months
Ended September 30 Ended September 30
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1996 1995 1996 1995
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Sales $184.4 $202.9 $513.1 $564.5
Operating Income (Loss) 3.9 6.3 (5.6) 22.5
Three Months Ended September 30, 1996 Compared to 1995
- ------------------------------------------------------
Sales and operating income decreased 9% and 38%, respectively. The sales
decline was primarily attributable to the lower sales of Ball Powder[R]
propellant and combined effects munitions. The decrease in operating income
during the quarter resulted primarily from the $3 million charge relating to the
government investigation of certain testing irregularities at the Marion, IL
facility. In Ordnance, lower Ball Powder[R] propellant and combined effects
munitions sales along with $3 million charge contributed to the decline in its
financial performance. Winchester's sales were comparable to last year, while
operating income improved due to a favorable product mix. Aerospace's operating
income improved due to the absence of charges incurred in the prior year for
programs which had been discontinued.
Nine Months Ended September 30, 1996 Compared to 1995
- -----------------------------------------------------
Sales declined 9%, principally attributable to lower shipments of domestic
sporting ammunition, Ball Powder[R] propellant, combined effects munitions and
the completion of certain Aerospace programs. The lower sales levels of
combined effects munitions and Aerospace's electromagnetic systems reflect the
completion of major programs during 1996. The operating loss includes
provisions approximating $11 million for the settlement of claims relating to a
government investigation and a trial court ruling involving a contract dispute
with the Belgium Ministry of Defense. Winchester's financial performance was
significantly behind 1995 levels due to lower domestic sporting ammunition
sales, which were partially offset by higher selling prices. Ordnance's
financial performance was behind last year due to lower sales levels and the
provisions relating to the government investigation and the contract dispute.
Aerospace's sales decreased from last year as a result of the completion of two
major production programs, while operating income improved primarily due to the
absence of development costs associated with certain discontinued programs in
1995.
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 their timing
and the size of changes, 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
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In the first nine months of 1996, the company spent approximately $20 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 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.
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 $13 million for the nine months ended
September 30, 1996. Charges to income for investigatory and remedial efforts
were material to operating results in 1995 and may be material to operating
results 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
$104 million and $111 million at September 30, 1996 and December 31, 1995, of
which $69 million and $76 million were classified as other noncurrent
liabilities, respectively. Those amounts did not take into account any
discounting of future expenditures or any consideration of insurance
recoveries or advances in technology. Those liabilities are reassessed
periodically to determine if environmental circumstances have changed
and/or remediation efforts and their costs can be better estimated. As a result
of these reassessments, future charges to income may be made for additional
liabilities.
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. Information on the settlement of the claim relating to the
government investigation at the Marion, IL facility can be found in Part II,
Item I of this Form 10-Q.
LIQUIDITY, INVESTMENT ACTIVITY and OTHER FINANCIAL DATA
- -------------------------------------------------------
Cash Flow Data Nine Months
Provided by (used for) (in millions) Ended September 30,
-------------------
1996 1995
---- ----
Net Operating Activities $133.4 $ 66.2
Capital Expenditures (74.9) (132.7)
Net Investing Activities (54.9) (194.8)
Net Financing Activities (80.7) 126.4
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 September 30, 1996, the company
maintained committed credit facilities with banks of $291 million, of which
$226 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 $74.9 million in 1996 was 44% lower than 1995.
Total year capital spending, including environmental capital spending of
$17 million, is estimated to decrease 20-30% from 1995 due to a planned
reduction to control capital costs. Also contributing to this lower level
of spending was the completion of two significant projects in 1995 to provide
additional capacity and improve product quality for selected product lines.
Historically, the company has funded its environmental capital spending
through cash flow from operations and expects to do so in the future.
In October, the company's Board of Directors approved a capital project
which would expand the size of Microelectronic Materials' ultra high-purity
chemicals plant and distribution center in Zwijndrecht, Belgium to better
serve the semiconductor industry in Europe. This expansion is expected to
be completed in 1998.
Proceeds from the sale of assets including the corporate headquarters and the
divestment of the Electrostatics business approximated $35 million.
At September 30, 1996, the percent of total debt to total capitalization
(excluding the reduction in equity for the Contributing Employee Ownership Plan)
was 33.5%, down from 38.2% at year-end 1995 and 42.8% at September 30, 1995.
STRATEGIC INITIATIVES
- ---------------------
On October 10, 1996 the company announced a series of strategic initiatives
designed to create a stronger, more focused company and generate shareholder
value. These initiatives include:
* The company will spin off its Ordnance and Aerospace divisions to
shareholders as an independent company, Primex Technologies, Inc. The
transaction, which has been approved by the company's Board of Directors,
is still subject to various approvals and is expected to be completed
around the end of 1996. The Ordnance and Aerospace divisions together
had total sales for the nine months ended September 30, 1996 and twelve
months ended December 31, 1995 of approximately $330 million and $510
million, respectively;
* The company will sell its isocyanates (TDI and ADI) businesses at Lake
Charles, LA, to ARCO Chemical Company for $565 million in cash. The
transaction, which has been approved by the Board of Directors of both
companies, is subject to regulatory approval and is expected to close at
the end of 1996 or early 1997. The isocyanates businesses at Lake Charles
had total sales for the nine months ended September 30, 1996 and twelve
months ended December 31, 1995 of approximately $230 million and $260
million, respectively;
* The company will seek a buyer for its polyol, glycol and surfactants
businesses at its Doe Run facility at Brandenburg, KY.
This transaction is expected to be completed by the end of 1997. The
polyol, glycol and surfactants businesses at Doe Run had total sales for
the nine months ended September 30, 1996 and twelve months ended
December 31, 1995 of approximately $175 million and $185 million,
respectively;
* The company will use a portion of the proceeds from these divestitures
to repurchase up to 10 percent of its outstanding common stock. Shares
are expected to be purchased from time to time in the open market, as
market conditions warrant;
* The Board of Directors approved a two-for-one split of the company's
common stock, effective October 31, 1996 for all shareholders of record
on October 21, 1996. For all periods presented, earnings per share
data and the number of common shares outstanding have been restated to
reflect the stock split. Also, shareholders' equity has been restated
to give retroactive recognition to the stock split by reclassifying
from additional paid-in capital to common stock the par value of the
additional shares as a result of the stock split.
1996 OUTLOOK
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Cautionary Statement under federal securities laws: All statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations section that do not reflect historical information are forward-
looking statements. These statements involve 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 of Item
7 of Olin's 1995 Form 10-K and in this Form 10-Q include but are not limited to:
competitive pricing pressures, including Olin's ability to maintain chemical
price increases; higher-than-expected raw material costs for certain chemical
product lines; a further decline in semiconductor industry demand; the
supply/demand balance for the company's products, including the impact of excess
industry capacity; higher than expected cost overruns and the ability to
maintain delivery schedules; failure to achieve targeted cost reduction
programs, primarily for plant maintenance costs and operating expenses in
certain chemicals product lines; and the occurrence of unexpected manufacturing
interruptions/outages.
Part II - Other Information
Item 1. Legal Proceedings.
-----------------
With respect to the governmental investigation regarding U.S. Government
contract performance at the Ordnance Division's Marion, Illinois facility as
described in paragraph (c) of Item 3 of the Corporation's Annual Report on Form
10-K for the year ended 1995, the following additional information is provided:
After discussions with the U.S. Attorney's Office regarding the investigation
of the performance of the government contracts in question, Olin and the U.S.
Attorney entered into an agreement to settle this matter on September 11, 1996.
Under the agreement, the U.S. Government agreed not to pursue any criminal or
civil claims against Olin or its subsidiaries in connection with these
government contracts. Olin has, without admitting to any wrongdoing or
liability, settled this matter with the U.S. Government for $8 million.
Item 2. Changes in Securities.
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(a) In connection with the two-for-one common stock split effective
October 31, 1996, the Board of Directors made an equitable adjustment to the
Series A Participating Cumulative Preferred Stock Purchase Rights ("Rights")
issued pursuant to a Rights Agreement, dated February 27, 1996. As a result of
the split, for each Right, the Purchase Price shall be $120, the Redemption
Price shall be one-half of one cent and the number of Preferred Shares for
which each Right is exercisable shall be increased to two one-thousandths
(2/1000th or 1/500th) of a share of Series A Participating Cumulative Preferred
Stock.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
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3. By-laws, effective October 31, 1996.
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
-------------------
No reports on Form 8-K were filed during the quarter ended September 30,
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
----------------------
A.W. Ruggiero
Senior Vice President and
Chief Financial Officer
(Authorized Officer)
Date: November 14, 1996
EXHIBIT INDEX
Exhibit
No. Description
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3. By-laws, effective October 31, 1996.
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.