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, 2001
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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, 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, 2001, there were outstanding 43,433,924 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, except per share data)
Unaudited
March 31, December 31,
2001 2000
---------- ----------
ASSETS
- ------
Cash and cash equivalents $ 10.7 $ 56.6
Short-term investments 25.0 25.0
Accounts receivable, net 190.5 196.7
Inventories 210.8 216.4
Income taxes receivable 0.4 0.4
Other current assets 37.2 33.1
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Total current assets 474.6 528.2
Property, plant and equipment
(less accumulated depreciation
of $1,193.2 and $1,177.9) 477.8 483.0
Other assets 109.8 111.6
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Total assets $ 1,062.2 $ 1,122.8
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 17.4 $ 1.0
Accounts payable 90.3 123.8
Accrued liabilities 125.1 150.2
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Total current liabilities 232.8 275.0
Long-term debt 227.7 228.1
Deferred income taxes 85.9 79.8
Other liabilities 207.3 211.3
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares
Issued 43.5 shares (44.0 in 2000) 43.5 44.0
Additional paid-in capital 205.3 215.7
Accumulated other comprehensive loss (19.1) (16.3)
Retained earnings 78.8 85.2
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Total shareholders' equity 308.5 328.6
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Total liabilities and shareholders' equity $ 1,062.2 $ 1,122.8
========== ==========
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The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Income (Unaudited)
(In millions, except per share amounts)
Three Months
Ended March 31,
---------------
2001 2000
---- ----
Sales $ 334.2 $ 381.7
Operating Expenses:
Cost of goods sold 294.9 317.6
Selling and administration 32.2 27.6
Research and development 1.5 1.4
Loss of non-consolidated affiliates 1.4 0.5
Interest expense 3.7 3.9
Interest income 0.4 0.1
Other income 3.2 0.4
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Income before taxes 4.1 31.2
Income taxes 1.7 11.9
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Net income $ 2.4 $ 19.3
========= =========
Net income per common share:
Basic $ 0.06 $ 0.43
Diluted 0.06 0.43
Dividends per common share $ 0.20 $ 0.20
Average common shares outstanding:
Basic 43.8 45.1
Diluted 44.0 45.2
- -----------------------------------
The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows (Unaudited)
(In millions)
Three Months
Ended March 31,
---------------
2001 2000
---- ----
Operating activities
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Net income $ 2.4 $ 19.3
Adjustments to reconcile income from operations to net cash
and cash equivalents provided by operating activities
Loss of non-consolidated affiliates 1.4 0.5
Depreciation and amortization 20.4 19.4
Deferred income taxes 6.1 6.0
Change in:
Receivables 6.2 (30.6)
Inventories 5.6 (7.2)
Other current assets (4.1) 2.3
Accounts payable and accrued liabilities (49.3) (31.9)
Income taxes payable (9.3) 6.4
Noncurrent liabilities (3.8) (2.5)
Other operating activities (2.9) (3.9)
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Net operating activities (27.3) (22.2)
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Investing activities
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Capital expenditures (15.7) (14.5)
Investments and advances-affiliated companies at equity 2.9 6.3
Other investing activities (1.9) 0.5
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Net investing activities (14.7) (7.7)
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Financing activities
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Short-term debt borrowings 16.4 24.0
Long-term debt repayments (0.4) (0.5)
Purchases of Olin common stock (12.5) -
Stock options exercised 1.8 -
Dividends paid (8.8) (9.1)
Other financing activities (0.4) -
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Net financing activities (3.9) 14.4
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Net decrease in cash and cash equivalents (45.9) (15.5)
Cash and cash equivalents, beginning of period 56.6 21.0
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Cash and cash equivalents, end of period $ 10.7 $ 5.5
======= =======
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The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Tabular amounts in millions, except per share data)
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. Certain reclassifications
were made to prior year amounts to conform to the 2001 presentation. 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, 2000.
2. Inventory consists of the following:
March 31, December 31,
2001 2000
---- ----
Raw materials and supplies $127.8 $126.7
Work in process 98.5 110.7
Finished goods 63.6 59.7
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289.9 297.1
LIFO reserve (79.1) (80.7)
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Inventory, net $210.8 $216.4
====== ======
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; such valuations are not in excess of
market. Cost for other inventories has been determined principally by the
average cost and first-in, first-out (FIFO) methods. Elements of costs in
inventories include raw materials, direct labor and manufacturing overhead.
Inventories under the LIFO method are based on annual estimates of quantities
and costs as of the year-end; therefore, the condensed financial statements
at March 31, 2001, reflect certain estimates relating to inventory quantities
and costs at December 31, 2001.
3. Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
Three Months
Ended March 31,
---------------
Basic Earnings Per Share 2001 2000
------------------------ ---- ----
Basic earnings:
Net income $ 2.4 $19.3
Basic shares 43.8 45.1
Basic earnings per share:
Net income $0.06 $0.43
Three Months
Ended March 31,
---------------
Diluted Earnings Per Share 2001 2000
- -------------------------- ---- ----
Diluted earnings:
Net income $ 2.4 $19.3
Diluted shares:
Basic shares 43.8 45.1
Stock options .2 .1
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Diluted shares 44.0 45.2
===== =====
Diluted earnings per share:
Net income $0.06 $0.43
4. The Company is party to various governmental and private environmental
actions associated with waste disposal sites and manufacturing facilities.
Environmental provisions charged to income amounted to $4 in each of the
three-month periods ended March 31, 2001 and 2000. Charges to income for
investigatory and remedial efforts were material to operating results in 2000
and may be material to operating results in 2001. The consolidated balance
sheets include reserves for future environmental expenditures to investigate
and remediate known sites amounting to $109 million at March 31, 2001 and
$110 million at December 31, 2000, of which $84 million and $85 million were
classified as other noncurrent liabilities, respectively.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigatory studies, advances in technology, changes in environmental
laws and regulations and their application, the scarcity of reliable data
pertaining to identified sites, the difficulty in assessing the involvement
and financial capability of other potentially responsible parties and the
Company's ability to obtain contributions from other parties and the length
of time over which site remediation occurs. It is possible that some of these
matters (the outcomes of which are subject to various uncertainties) may be
resolved unfavorably against the Company.
5. The Board of Directors in October 1996, authorized a share repurchase program
of up to 5 million shares of Olin common stock and in April 1998, approved an
additional share repurchase program of up to an additional 5 million shares
of Olin common stock, from time to time, as market conditions warrant. Since
January 1997 the Company has repurchased 9,625,767 shares, of which 4,625,767
were under the April 1998 program. During the first three months of 2001,
618,870 shares of the Company's common stock were repurchased.
6. Segment operating income is defined as earnings before interest expense,
interest income, other income and income taxes and includes the operating
results of non-consolidated affiliates. Segment operating results include an
allocation of corporate operating expenses. Intersegment sales are not
material.
Three Months
Ended March 31,
---------------
Sales: 2001 2000
---- ----
Chlor Alkali Products $105.1 $ 94.2
Metals 173.5 225.9
Winchester 55.6 61.6
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Total Sales $334.2 $381.7
====== ======
Operating income (loss):
Chlor Alkali Products $ 4.3 $ 4.8
Metals 0.6 25.1
Winchester (0.7) 4.7
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Total operating income $ 4.2 $ 34.6
====== ======
Operating income $ 4.2 $ 34.6
Interest expense 3.7 3.9
Interest income 0.4 0.1
Other income 3.2 0.4
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Income before taxes $ 4.1 $ 31.2
====== ======
7. The Company does not provide for U.S. income taxes on foreign currency
translation adjustments in reporting comprehensive income since it does not
provide for such taxes on undistributed earnings of foreign subsidiaries. The
components of comprehensive income for the three-month periods ended March
31, 2001 and 2000 are as follows:
Three Months
Ended March 31,
---------------
2001 2000
---- ----
Net income $2.4 $19.3
Other comprehensive income:
Cumulative translation adjustment (0.3) --
Hedging activity (2.4) --
----- -----
Comprehensive income (loss) $(0.3) $19.3
===== =====
8. As of January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 137 and No. 138. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
hedging activities. SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. The accounting treatment
of changes in fair value is dependent upon whether or not a derivative
instrument is designated as a hedge and if so, the type of hedge. For
derivatives designated as a fair value hedge, the changes in the fair value
are recognized in earnings. For derivatives designated as a cash flow hedge,
the changes in fair value are recognized in other comprehensive income until
the hedged item is recognized in earnings. Ineffective portions are
recognized
currently in earnings. Unrealized gains and losses on derivatives not
qualifying for hedge accounting are recognized currently in earnings.
The Company uses cash flow hedges of commodities such as copper, zinc, nickel
and lead to provide a measure of stability in managing its exposure to price
fluctuations. The Company also uses foreign currency positions and fair
value hedges of interest rate swaps as a means of hedging these exposures.
Adoption of SFAS No. 133 on January 1, 2001 resulted in recording a pretax
$0.9 million decline in fair value to accumulated other comprehensive income.
In addition, the unfavorable ineffective portion of changes in fair value
resulted in less than a $0.1 million charge to earnings. Offsetting the
above, assets totaling $1.2 million and liabilities totaling $2.1 million
were recorded at January 1, 2001.
At March 31, 2001, other comprehensive income included a pretax decline in
fair value of $2.4 million. In addition, the unfavorable ineffective portion
of changes in fair value resulted in a $0.6 million charge to earnings.
Offsetting the above, there were assets totaling $1.7 million and liabilities
totaling $4.7 million.
The Company's foreign currency contracts and certain commodity derivatives
did not meet the criteria of SFAS No. 133 to qualify for hedge accounting.
The cumulative effect of items not qualifying for hedge accounting for the
three months ended March 31, 2001, was not material to earnings.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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CONSOLIDATED RESULTS OF OPERATIONS
Three Months
Ended March 31,
---------------
($ in millions, except per share data) 2001 2000
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Sales $334.2 $381.7
Gross Margin 39.3 64.1
Selling and Administration 32.2 27.6
Interest Expense, net 3.3 3.8
Net Income 2.4 19.3
Net Income Per Common Share:
Basic $ 0.06 $ 0.43
Diluted $ 0.06 $ 0.43
- --------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO 2000
Sales decreased 12% due to lower volumes, offset in part by higher selling
prices and metal values. Sales volumes were lower across all segments with the
biggest impact coming from the Metals segment which was heavily impacted by a
soft economy, particularly in the automotive, electrical connectors and
telecommunications markets and to a lesser extent by the strike at the East
Alton, IL facility. The price increase was primarily related to higher
Electrochemical Unit ("ECU") prices in the Chlor Alkali Products segment.
Gross margin percentage decreased from 17% in 2000 to 12% in 2001 primarily due
to lower sales volumes.
Selling and administration as a percentage of sales was 10% in 2001 up from 7%
in 2000 due to the lower sales base in 2001 as a result of the factors noted
above. Selling and administration was $4.6 million higher than in 2000 due to
higher administration expenses, primarily pension and bad debt expenses.
The decrease in operating results from the non-consolidated affiliates was due
primarily to the lower operating results from the Sunbelt joint venture, which
was adversely impacted by lower chlorine pricing.
Interest expense, net of interest income, decreased from 2000 due primarily to
higher interest income and lower short-term interest expense in 2001.
The effective tax rate increased to 41.5 % from 38.1% due to the non-deductible
expenses for the Company-owned life insurance programs.
Substantially all of the earnings per share of $0.06 in the first quarter of
2001 was comprised of non-recurring income items.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings before interest expense,
interest income, other income and income taxes and include the operating results
of non-consolidated affiliates. Segment operating results include an allocation
of corporate operating expenses.
CHLOR ALKALI PRODUCTS Three Months
Ended March 31,
---------------
($ in millions) 2001 2000
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Sales $105.1 $94.2
Operating Income 4.3 4.8
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO 2000
Sales increased 12% from 2000 primarily due to higher ECU pricing, offset in
part by lower volumes. Soft demand for chlorine in the vinyls and urethanes
segments, caused primarily by the slowdown in the general economy, combined with
high energy costs to chlor-alkali producers, has led to reduced chlor-alkali
operating rates across the industry. Demand for caustic has been less affected,
and most producers are on caustic order control. Lower operating rates as a
result of weak chlorine demand have resulted in higher caustic prices. For the
Company, average ECU prices in the first quarter of 2001 were approximately
$335, compared to $275 in the first quarter of 2000 and up from approximately
$315 in the fourth quarter of 2000. However, operating income declined 10% from
the first quarter of 2000 primarily due to the lower volumes and higher
manufacturing costs and operating expenses. The increased manufacturing costs
included higher utility and salt costs in the first quarter and higher fixed
cost absorption due to lower production volumes. Higher bad debt provision and
incentive compensation expense accounted for the increased operating expenses.
Higher equity losses in 2001 from the Sunbelt joint venture due to lower
chlorine prices, also contributed to the decrease in operating income.
METALS Three Months
Ended March 31,
---------------
($ in millions) 2001 2000
- ----------------------------------------------------
Sales $173.5 $225.9
Operating Income 0.6 25.1
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO 2000
Sales decreased 23% due to a significant decline in volumes and an unfavorable
product mix, partially offset by higher selling prices and metal values.
Metals' shipments were lower
primarily due to the economic slowdown that resulted in lower volumes across
most market segments. Automotive, coinage, electrical connectors,
telecommunications and distributor markets all had much lower demand for the
industry's products. Demand for building products was modestly lower and strip
shipments to the ammunition market were virtually flat compared to last year.
These lower volumes and an unfavorable product mix were the major contributors
to the decline in operating income. In addition, the strike at the Company's
East Alton facility, which began December 4, 2000 and ended January 21, 2001,
had a moderate adverse impact on Metals profits.
WINCHESTER Three Months
Ended March 31,
---------------
($ in millions) 2001 2000
- --------------------------------------------------------
Sales $55.6 $61.6
Operating Income (Loss) (0.7) 4.7
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO 2000
Sales in 2001 were 10% lower than 2000 due primarily to the effects of the
strike at the Company's East Alton facility. Lack of available product for
domestic commercial customers accounted for the sales decrease. As a result of
lower sales, Winchester's operating results decreased significantly from 2000.
In the first quarter of 2000, operating results included income from the Lake
City contract while the first quarter of 2001 included approximately the same
level of non-recurring income from the payment of a settlement claim.
2001 SECOND QUARTER OUTLOOK
For the three months ending June 30, 2001, diluted earnings per share is
expected to be in the 15 cent range based on expected earnings increases from
the Chlor Alkali and Winchester businesses over first-quarter levels, while the
Metals business is expected to continue to be adversely affected by depressed
economic conditions.
In Chlor Alkali, continued improvements in the Company's caustic pricing are
expected to be partially offset by weakness in chlorine prices. The combined
price movements are expected to result in a modest increase in the Company's ECU
prices from the first quarter.
Winchester expects to see normal seasonal increases in sales, and expects
substantial, sequential improvement in the seasonally strong third quarter.
Winchester has adjusted its operations to accommodate the production lost due to
the strike in the first quarter and is positioning itself for the projected peak
hunting season demand.
In the second quarter for Metals, customer demand is expected to be somewhat
lower than it was in the first quarter. The automotive, coinage, electrical
connectors, telecommunications and distributor markets are expected to remain
soft. The Company expects that the current economic
climate is going to continue into the third quarter, with the timing and the
magnitude of the recovery uncertain.
2001 FULL YEAR OUTLOOK
Based on its projected performance in the first half of 2001, the Company
expects that its full year earnings per share could be in the $1.00 range. This
forecast anticipates an economic recovery in the second half of the year.
The most significant positive factor driving the Company's performance this year
is its ECU price and the Company is estimating higher ECU prices for 2001. The
Company's forecast is based on the latest CMAI projections and an analysis of
the escalation provisions of its contracts, particularly as it applies to the
caustic soda increases, which have been announced. This forecast also assumes a
modest recovery in chlorine demand from the vinyl industry in the later part of
the year, which affects Chlor Alkali's assumed operating rates. As a result,
chlorine pricing is expected to remain depressed through the end of the third
quarter; but some improvement is expected in the fourth quarter. Caustic soda
is expected to remain in short supply. Therefore, the Company believes that its
price realizations for caustic will improve over the balance of the year,
thereby resulting in sequentially higher ECU prices through the end of the year.
ENVIRONMENTAL MATTERS
In the three months ended March 31, 2001 and 2000, the Company spent
approximately $5 million and $6 million, respectively, for investigatory and
remediation activities associated with former waste sites and past operations.
Spending for environmental investigatory and remedial efforts for the full year
2001 is estimated to be $25 million. Cash outlays for remedial and
investigatory activities associated with former waste sites and past operations
were not charged to income but instead were charged to reserves established for
such costs identified and expensed to income in prior periods. Associated costs
of investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability
to reasonably estimate future costs. Charges to income for investigatory and
remedial activities were $4 million in each of the three-month periods ended
March 31, 2001 and 2000. Charges to income for investigatory and remedial
efforts were material to operating results in 2000 and may be material to net
income in 2001 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 at March 31, 2001 and $110 million at December 31, 2000, of which
$84 million and $85 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 $45-$55 million over the next several years. While the Company does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
Three Months
Ended March 31,
---------------
Provided By (Used For) ($ in millions) 2001 2000
- ----------------------------------------------------------
Net Operating Activities $(27.3) $(22.2)
Capital Expenditures (15.7) (14.5)
Net Investing Activities (14.7) (7.7)
Purchases of Olin Common Stock (12.5) --
Net Financing Activities (3.9) 14.4
In 2001, income from continuing operations exclusive of non-cash charges,
borrowings under uncommitted bank lines of credit and cash equivalents on hand
were used to finance the Company's working capital requirements, capital
projects, dividends and the purchase of the Company's common stock.
OPERATING ACTIVITIES
In 2001, the increase in cash used by operating activities of continuing
operations was primarily attributable to lower operating income, offset in part
by a lower investment in working capital. Depressed economic conditions
impacting Brass and the effect of the strike impacting Winchester have reduced
both their current business levels, thereby reducing the Company's working
capital requirements, primarily accounts receivable.
CAPITAL EXPENDITURES
Capital spending of $15.7 million in 2001 was $1.2 million higher than 2000.
For the total year, capital spending is expected to be in the $90 million range.
The majority of the capital spending
in the first quarter of 2001 and for the total year 2001 will be on projects
that were begun in 2000, primarily in the Metals segment to expand production
capacity in its higher value added product categories, in particular high
performance alloys.
FINANCING ACTIVITIES
At March 31, 2001, the Company had available a $148.6 million line of credit
under an unsecured revolving credit agreement with a group of banks. The
Company may select various floating rate borrowing options. The Company believes
that the credit facility is adequate to satisfy its liquidity needs for the
foreseeable future. The credit facility includes various customary restrictive
covenants including restrictions related to the ratio of debt to earnings before
interest, taxes, depreciation and amortization and the ratio of earnings before
interest, taxes, depreciation and amortization to interest.
During the first three months of 2001, the Company used $12.5 million to
repurchase 618,870 shares of the Company's common stock. During the first three
months of 2000, no shares of the Company's common stock were repurchased.
The percent of total debt to total capitalization increased to 44% at March 31,
2001, from 41% at year-end 2000. The increase from year-end 2000 was due to the
increase in short-term borrowings and a lower shareholders' equity at March 31,
2001.
In 2001, the Company paid a first-quarter dividend of $0.20 per share. In April
2001, the Company's Board of Directors declared a quarterly dividend of $0.20
per share on its common stock, which is payable on June 11, 2001, to
shareholders of record on May 10, 2001.
NEW ACCOUNTING STANDARDS
As described in Item 1- Financial Statements under footnote No. 8 of the Notes
to Condensed Financial Statements, the Company adopted on January 1, 2001,
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities".
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: The information contained in
this Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Notes to Condensed Financial Statements contains
forward-looking statements that are based on management's beliefs, certain
assumptions made by management and current expectations, estimates and
projections about the markets and economy in which the Company and its
respective divisions operate. Words such as "anticipates," "expects,"
"believes," "should," "plans," "will," "forecasts," "estimates," and variations
of such words and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions ("Future Factors")
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expected or forecasted in such forward-looking
statements. The Company does not undertake any obligation to update publicly
any forward-looking statements, whether as a result of future events, new
information or otherwise. Future Factors which could cause actual results to
differ materially from those discussed in these sections and notes include but
are not limited to: general economic and business and market
conditions; competitive pricing pressures; changes in Chlor Alkali's ECU prices
from expected levels; Chlor Alkali operating rates below anticipated levels;
higher-than-expected raw material costs; higher-than-expected transportation
and/or logistics costs; a protracted work stoppage in connection with collective
bargaining negotiations with labor unions; the supply/demand balance for the
Company's products, including the impact of excess industry capacity; efficacy
of new technologies; changes in U.S. laws and regulations; failure to achieve
targeted cost reduction programs; capital expenditures, such as cost overruns,
in excess of those scheduled; environmental costs in excess of those projected;
and the occurrence of unexpected manufacturing interruptions/outages.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies, its purchases
of certain commodities and its ongoing investing and financing activities. The
risk of loss can be assessed from the perspective of adverse changes in fair
values, cash flows and future earnings. The Company has established policies
and procedures governing its management of market risks and the uses of
financial instruments to manage exposure to such risks.
The primary purpose of the Company's foreign currency hedging activities is to
manage currency risks resulting from purchase and sale commitments in foreign
currencies (principally Australian dollar and Canadian dollar) and relating to
particular anticipated purchases and sales expected to be denominated in those
same foreign currencies. Foreign currency hedging activity is not material to
the Company's consolidated financial position, results of operations or cash
flow.
Certain materials, namely copper, lead and zinc, used primarily in the Company's
Metals and Winchester segments' products are subject to price volatility.
Depending on market conditions, the Company may enter into futures contracts and
put and call option contracts in order to reduce the impact of metal price
fluctuations. As of March 31, 2001, the Company maintained open positions on
futures contracts totalling $43 million. Assuming a hypothetical 10% increase
in commodity prices which are currently hedged, the Company would experience a
$4.3 million increase in its cost of inventory purchased, which would be offset
by a corresponding increase in the value of related hedging instruments.
The Company is exposed to changes in interest rates primarily as a result of its
investing and financing activities. Investing activity is not material to the
Company's consolidated financial position, results of operations or cash flow.
The current debt structure of the Company includes primarily long-term fixed-
rate debt utilized to fund business operations and maintain liquidity. As of
March 31, 2001, the Company had long-term borrowings of $228 million of which
$35 million was at variable rates. The Company has interest rate swaps to hedge
underlying variable debt obligations. Interest rate swap activity is not
material to the Company's consolidated financial position, results of operations
or cash flow.
If the actual change in interest rates or commodities pricing is substantially
different than expected, the net impact of interest rate risk or commodity risk
on the Company's cash flow may be materially different than that disclosed
above.
The Company does not enter into any derivative financial instruments for trading
purposes.
Part II - Other Information
Item 1. Legal Proceedings.
-----------------
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not Applicable.
Item 5. Other Information.
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
10(d) Olin Supplemental Contributing Employee Ownership Plan as
amended through March 1, 2001.
10(j) Olin Corporation 1997 Stock Plan for Non-Employee Directors
as amended effective February 22, 2001.
10(w) 2001 Performance Share Program.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
(b) Reports on Form 8-K
-------------------
Form 8-K filed January 23, 2001 announcing that Olin and the
International Association of Machinists and Aerospace Workers
District 9 agreed to a new labor contract at Olin's East Alton,
Illinois facility.
Form 8-K filed February 16, 2001 announcing that a presentation would
be made at the annual Morgan Stanley Dean Witter Chemical Conference
on February 21, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLIN CORPORATION
(Registrant)
By: /s/ A. W. Ruggiero
----------------------------
Executive Vice President and
Chief Financial Officer
(Authorized Officer)
Date: May 11, 2001
EXHIBIT INDEX
Exhibit
No. Description
- --------- -----------
10(d) Olin Supplemental Contributing Employee Ownership Plan as amended
through March 1, 2001.
10(j) Olin Corporation 1997 Stock Plan for Non-Employee Directors as
amended effective February 22, 2001.
10(w) 2001 Performance Share Program.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).