DISPOSITION OF ISOCYANATES BUSINESSES ("TDI/ADI")
In accordance with the terms of the Asset Purchase Agreement, dated December 4,
1996, between Olin Corporation ("Olin" or "Company") and ARCO Chemical Company
("ARCO"), as amended, Olin sold its isocyanates business for $565 million in
cash. The sale included all assets at Olin's Lake Charles, LA facility used in
the manufacture and sale of TDI, ADI, and Nitric Acid.
SPIN-OFF OF PRIMEX TECHNOLOGIES, INC.
The spin-off of Olin's ordnance and aerospace businesses will become effective
on December 31, 1996. Primex Technologies, Inc. ("Primex"), which will own all
of Olin's former ordnance and aerospace businesses, will commence operations on
the following day as an independent public company. Holders of Olin Common
Stock of record as of the close of business on December 19, 1996 will receive
one Primex common share for every ten shares of Olin Common Stock held.
PRO FORMA
The following unaudited pro forma condensed consolidated information is based on
the historical consolidated financial statements of the Company adjusted to give
effect to the transactions described above.
The unaudited pro forma condensed consolidated balance sheet as of September 30,
1996 gives effect to the elimination of the disposed/spun-off businesses, as
well as other adjustments, assuming the transactions had taken place on
September 30, 1996, and the cash had been received at that time. The cash
proceeds received by the Company will be used to pay off all short-term
borrowings.
The unaudited pro forma condensed consolidated income statements for the year
ended December 31, 1995 and the nine months ended September 30, 1996 give effect
to the elimination of the disposed/spun-off businesses as well as other
adjustments, assuming the dispositions had taken place as of the beginning of
each of those periods.
The pro forma adjustments are based upon available information and certain
assumptions that Management believes are reasonable.
The following unaudited pro forma condensed consolidated financial statements
have been prepared in accordance with the rules and regulation of the Securities
and Exchange Commission. Management does not believe that this pro forma
presentation is indicative of the financial position and results which would
have occurred had the transactions occurred on the dates indicated in the pro
forma condensed consolidated financial statements because of the hypothetical
nature of the pro forma information and because the Company may have operated
its other remaining businesses differently during those periods.
OLIN CORPORATION
Pro Forma Condensed Consolidated Income Statement
September 30, 1996
(Unaudited)
(in millions, except share data)
Pro Forma
Divestments Adjustments
Historically --------------- ---------------
Reported ADI,TDI Primex (a) (b) (c) Pro Forma
------------ ------- ------ --- --- --- ---------
Sales $ 2,362 228 329 - 23 - $ 1,828
Operating Expenses:
Cost of Goods Sold 1,822 163 277 - 23 - 1,405
Selling and Administration 289 12 49 - - - 228
Research and Development 34 7 4 - - - 23
----- --- --- --- --- --- -----
Operating Income (Loss) 217 46 (1) - - - 172
Interest Expense 30 - 7 (5) - - 18
Interest and Other Income 21 (4) 1 - - - 24
----- --- --- --- --- --- -----
Income (Loss) Before Taxes 208 42 (7) 5 - - 178
Income Tax Provision 74 13 1 - - 2 62
----- --- --- --- --- --- -----
Net Income (Loss) 134 29 (8) 5 - (2) 116
Preferred Dividends 4 - - - - - 4
----- --- --- --- --- --- -----
Net Income (Loss) Available
to Common Shareholders $ 130 29 (8) 5 - (2) $ 112
===== === === === === === =====
Net Income Per Common Share:
Primary $ 2.60 $ 2.23
Fully Diluted $ 2.53 $ 2.17
Average Common Shares Outstanding:
Primary 49,772,000 49,772,000
Fully Diluted 52,208,000 52,208,000
OLIN CORPORATION
Pro Forma Condensed Consolidated Income Statement
December 31, 1995
(Unaudited)
(in millions, except share data)
Pro Forma
Divestments Adjustments
Historically --------------- ----------------
Reported ADI,TDI Primex (a) (b) (c) Pro Forma
------------ ------- ------ --- --- --- ---------
Sales $ 3,150 255 508 - 14 - $ 2,401
Operating Expenses:
Cost of Goods Sold 2,520 215 429 - 14 - 1,890
Selling and Administration 346 14 53 - - - 279
Research and Development 39 7 5 - - - 27
----- --- --- --- --- --- -----
Operating Income (Loss) 245 19 21 - - - 205
Interest Expense 44 - 9 (8) - - 27
Interest and Other Income 16 (4) 1 - - - 19
----- --- --- --- --- --- -----
Income (Loss) Before Taxes 217 15 13 8 - - 197
Income Tax Provision 77 5 7 - - 3 68
----- --- --- --- --- --- -----
Net Income (Loss) 140 10 6 8 - (3) 129
Preferred Dividends 6 - - - - - 6
----- --- --- --- --- --- -----
Net Income (Loss) Available
to Common Shareholders $ 134 10 6 8 - (3) $ 123
===== === === === === === =====
Net Income Per Common Share:
Primary $ 2.75 $ 2.53
Fully Diluted $ 2.67 $ 2.45
Average Common Shares Outstanding:
Primary 48,866,000 48,866,000
Fully Diluted 51,292,000 51,292,000
OLIN CORPORATION
Notes to Pro Forma Condensed Consolidated Income Statement
For the Nine Months Ended September 30, 1996 and Year ended December 31, 1995
(Unaudited)
The preceding pro forma income statements presents the consolidated income of
Olin for the nine months ended September 30, 1996 and year ended December 31,
1995 after eliminating the disposed TDI/ADI businesses as well as the spin-off
of Primex and after giving effect to the adjustments described below.
The adjustments made to these pro forma income statements assume that the
transactions occurred as of the beginning of each period.
It is Management's opinion that these pro forma results are not necessarily
indicative of the results which would have occurred had the dispositions been
made at the beginning of each of those periods.
HISTORICALLY REPORTED
The historically reported column represents the historical consolidated income
of Olin for the nine months ended September 30, 1996 and year ended December 31,
1995, respectively.
DIVESTMENTS
The divestments represent the historical results of the disposed and spun-off
businesses for the nine months ended September 30, 1996 and year ended
December 31, 1995.
TDI/ADI
The historical results for the TDI/ADI business comprise all of the
Company's isocyanates business conducted out of the Company's Lake Charles,
LA facility. The historical results include certain allocations of
corporate and division costs based on various methods including usage,
effort, direct labor dollars, volume of flows, headcount, checks processed,
square footage, insurance value, and gross investment. Income taxes have
been provided based on an estimate of the effective rate on a stand alone
basis. The historical results include only those allocated costs which
managment believes will be eliminated as a direct result of the
transaction. Management believes that the method used to allocate the
costs and expenses is reasonable.
In connection with the transaction, the Company expects to record an
estimated after-tax gain of $115 million which represents the sales
proceeds net of commission and other expenses less the Company's
basis in the disposed businesses. This non-recurring gain results
directly from the transaction and will be included in the Company's
results for the year ended December 31, 1996. Accordingly, such amounts
are not included in the accompanying pro forma condensed consolidated
income statement.
PRIMEX TECHNOLOGIES, INC.
The historical results for Primex represent the results of Olin's former
ordnance and aerospace divisions. The historical results for Primex
Include an allocation of Olin's consolidated debt and interest expense
related to the assigned portion of Olin's debt. The amount of debt
allocated was based on providing a debt to capital ratio similar to that
of Olin as well as a level of debt that Primex could maintain on an
independent basis in the future. The allocated debt of $125 million
represents the amount to be borrowed by Olin under a credit facility
established by Olin and assumed by Primex prior to the distribution on
December 31, 1996. The cash will be used to pay off existing Olin debt.
An assessment of corporate overhead is included in selling and
administration expenses with the allocation based on either effort
committed or number of employees. Management believes that the
allocation method used to allocate the costs and expenses is reasonable,
however, such allocated amounts may or may not necessarily be indicative
of what those costs and expenses would have been had the company
operated independently of Olin. Income taxes have been calculated based
on Primex's allocated share of Olin's consolidated income tax provision
and is calculated on a separate Company basis pursuant to the
requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
This transaction is a tax free spin-off, accordingly, no gain or loss will
be recorded by Olin.
PRO FORMA ADJUSTMENTS
(a) This adjustment eliminates the interest expense on short-term borrowings
that will be paid down with the proceeds from the divestment of TDI/ADI.
(b) This adjustment records the sales from Olin's Chlor-Alkali division to
TDI/ADI which had been eliminated in the historical consolidated income
statements as they were considered intercompany sales.
(c) This adjustment records the income tax provision on the pro forma
adjustments at the statutory rate of 38.9%.
OTHER MATTERS
The Olin board of directors authorized the use of a portion of the proceeds
from these divestitures to purchase up to 10 percent of the company's common
stock in the open market as market conditions warrant.
The effect on pro forma fully diluted earnings per share of investing the net
proceeds after repaying short-term debt (as reflected in pro forma adjustment
(a)) in an investment portfolio assumed to earn 5.5% annually would be an
increase of $0.12 and $0.15 for the nine months ended September 30, 1996 and
year ended December 31, 1995, respectively.
The effect of the share repurchase, assuming 5 million shares are purchased at
$40 per share at the beginning of the period with the remaining net proceeds
after repaying short-term debt (as reflected in pro forma adjustment (a))
invested in an investment portfolio assumed to earn 5.5% annually, on pro forma
fully diluted earnings per share would be an increase of $0.26 and $0.29 for
the nine months ended September 30, 1996 and year ended December 31, 1995,
respectively.
OLIN CORPORATION
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(Unaudited)
(in millions)
Pro Forma
Divestments Adjustment
Historically --------------- ----------
Reported ADI,TDI Primex (a) Pro Forma
------------ ------- ------ --- ---------
Current Assets:
Cash and Investments $ 5 565 - (64) $ 506
Receivables, net 543 (58) (127) - 358
Inventories 412 (50) (49) - 313
Other Current Assets 87 (1) (10) - 76
------ ---- ---- --- ------
Total Current Assets 1,047 456 (186) (64) 1,253
Property, Plant and Equipment, net 899 (167) (103) - 629
Other Assets 282 62 (63) - 281
------ ---- ---- --- ------
Total Assets $ 2,228 351 (352) (64) $ 2,163
====== ==== ==== === ======
Current Liabilities:
Short-Term Borrowings and Current
Installments of Long-Term Debt $ 207 - (125) (64) 18
Accounts Payable 218 (27) (17) - 174
Other Current Liabilities 325 210 (24) - 511
------ ---- ---- --- ------
Total Current Liabilities 750 183 (166) (64) 703
Long-Term Debt 276 - - - 276
Other Liabilities 252 53 (28) - 277
------ ---- ---- --- ------
Total Liabilities 1,278 236 (194) (64) 1,256
------ ---- ---- --- ------
Shareholders' Equity:
Preferred Stock 77 - - - 77
Common Stock 50 - - - 50
Additional Paid-In Capital 411 - - - 411
Retained Earnings 428 115 (158) - 385
Other Shareholders' Equity (16) - - - (16)
------ ---- ---- --- ------
Total Shareholders' Equity 950 115 (158) - 907
------ ---- ---- --- ------
Total Liabilities and
Shareholders' Equity 2,228 351 (352) (64) $ 2,163
====== ==== ==== === ======
OLIN CORPORATION
Notes to Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(Unaudited)
The preceding pro forma balance sheet presents the consolidated financial
position as of September 30, 1996 after eliminating the disposed TDI/ADI
businesses as well as the spin-off of Primex and after giving effect to the
adjustments described below.
The adjustments made to this pro forma income statement assume that the
transactions occurred as of September 30, 1996.
HISTORICALLY REPORTED
The historically reported column represents the historical consolidated balance
sheet as of September 30, 1996.
DIVESTMENTS
The divestments represent the historical balance sheet positions of the disposed
and spun-off businesses and the amounts related to the transactions as of
September 30, 1996.
TDI/ADI
The historical balance sheet amounts for the TDI/ADI business comprise all
of the isocyanates business and related assets at the Company's Lake
Charles, LA facility. The historical balance sheet includes all of the
asset that will be sold in the transaction. Also this column records the
proceeds from the sale of TDI/ADI net of certain liabilities related to the
sale of the businesses including certain transaction fees, environmental,
severance, and other costs directly attributable to the transaction, and
records the gain on the transaction net of applicable current and deferred
taxes. The gain on the transaction is estimated at $115 million which is
net of taxes (calculated on a financial-accounting basis) estimated at
$73 million.
PRIMEX TECHNOLOGIES, INC.
The historical balance sheet for Primex represents the accounts of Olin's
former ordnance and aerospace divisions. The historical balance sheet for
Primex includes an allocation of Olin's consolidated debt related to the
assigned portion of Olin's debt. The amount of debt allocated was based on
providing a debt to capital ratio similar to that of Olin as well as a
level of debt that Primex could maintain on an independent basis in the
future. The allocated debt of $125 million represents the amount to be
borrowed by Olin under a credit facility established by Olin and assumed by
Primex prior to the distribution on December 31, 1996. The cash will be
used to pay off existing Olin debt and is reflected accordingly in the pro
forma balance sheet.
PRO FORMA ADJUSTMENTS
(a) This adjustment records the pay down of short-term borrowings with the
proceeds from the transaction.