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 June 30, 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 July 31, 2001, there were outstanding 43,439,986 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
June 30, December 31,
2001 2000
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ASSETS
- ------
Cash and cash equivalents $ 3.8 $ 56.6
Short-term investments 25.0 25.0
Accounts receivable, net 199.2 196.7
Inventories 232.6 216.4
Income taxes receivable 18.5 0.4
Other current assets 39.1 33.1
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Total current assets 518.2 528.2
Property, plant and equipment
(less accumulated depreciation
of $1,211.9 and $1,177.9) 493.4 483.0
Other assets 133.7 111.6
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Total assets $ 1,145.3 $ 1,122.8
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 189.8 $ 1.0
Accounts payable 89.3 123.8
Income taxes payable 1.1 1.6
Accrued liabilities 140.9 148.6
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Total current liabilities 421.1 275.0
Long-term debt 131.0 228.1
Deferred income taxes 90.4 79.8
Other liabilities 200.8 211.3
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares
Issued 43.4 shares (44.0 in 2000) 43.4 44.0
Additional paid-in capital 204.2 215.7
Accumulated other comprehensive loss (22.3) (16.3)
Retained earnings 76.7 85.2
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Total shareholders' equity 302.0 328.6
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Total liabilities and shareholders' equity $ 1,145.3 $ 1,122.8
========== ==========
___________________________________
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 Six Months
Ended June 30, Ended June 30,
------------------ ------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales $324.5 $396.9 $658.7 $778.6
Operating Expenses:
Cost of goods sold 282.1 324.4 577.0 642.0
Selling and administration 25.6 32.0 57.8 59.6
Research and development 1.3 1.4 2.8 2.8
Earnings (loss) of non-consolidated affiliates (0.9) 0.9 (2.3) 0.4
Interest expense 4.1 4.0 7.8 7.9
Interest income - 0.2 0.4 0.3
Other income 0.3 1.6 3.5 2.0
------ ------ ------ ------
Income before taxes 10.8 37.8 14.9 69.0
Income taxes 4.2 14.5 5.9 26.4
------ ------ ------ ------
Net income $ 6.6 $ 23.3 $ 9.0 $ 42.6
====== ====== ====== ======
Net income per common share:
Basic $ 0.15 $ 0.52 $ 0.21 $ 0.95
Diluted 0.15 0.52 0.20 0.94
Dividends per common share $ 0.20 $ 0.20 $ 0.40 $ 0.40
Average common shares outstanding:
Basic 43.4 45.1 43.7 45.1
Diluted 43.5 45.2 43.8 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)
Six Months
Ended June 30,
-------------------
2001 2000
---- ----
Operating activities
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Net income $ 9.0 $ 42.6
Adjustments to reconcile income from operations to net cash
and cash equivalents provided by operating activities
(Earnings) loss of non-consolidated affiliates 2.3 (0.4)
Depreciation and amortization 41.5 39.0
Deferred income taxes 10.6 8.1
Change in:
Receivables 10.3 (36.9)
Inventories 5.4 4.0
Other current assets (5.8) 0.9
Accounts payable and accrued liabilities (58.0) (9.2)
Income taxes payable (13.6) 8.1
Noncurrent liabilities (11.9) (8.4)
Other operating activities (4.7) (8.1)
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Net operating activities (14.9) 39.7
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Investing activities
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Capital expenditures (36.3) (32.4)
Business acquired in purchase transaction (48.3) -
Investments and advances-affiliated companies at equity 0.7 5.6
Other investing activities (4.8) (2.0)
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Net investing activities (88.7) (28.8)
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Financing activities
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Short-term debt borrowings 84.7 -
Long-term debt repayments (4.2) (0.5)
Purchases of Olin common stock (14.1) -
Stock options exercised 2.3 0.9
Dividends paid (17.5) (18.0)
Other financing activities (0.4) (0.3)
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Net financing activities 50.8 (17.9)
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Net decrease in cash and cash equivalents (52.8) (7.0)
Cash and cash equivalents, beginning of period 56.6 21.0
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Cash and cash equivalents, end of period $ 3.8 $ 14.0
====== ======
___________________________________
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:
June 30, December 31,
2001 2000
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Raw materials and supplies $ 122.2 $ 126.7
Work in process 109.3 110.7
Finished goods 74.9 59.7
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306.4 297.1
LIFO reserve (73.8) (80.7)
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Inventory, net $ 232.6 $ 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 June 30, 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 Six Months
Ended June 30, Ended June 30,
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Basic Earnings Per Share 2001 2000 2001 2000
------------------------ ---- ---- ---- ----
Basic earnings:
Net income $ 6.6 $ 23.3 $ 9.0 $ 42.6
Basic shares 43.4 45.1 43.7 45.1
Basic earnings per share:
Net income $ 0.15 $ 0.52 $ 0.21 $ 0.95
Three Months Six Months
Ended June 30, Ended June 30,
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Diluted Earnings Per Share 2001 2000 2001 2000
-------------------------- ---- ---- ---- ----
Diluted earnings:
Net income $ 6.6 $ 23.3 $ 9.0 $ 42.6
Diluted shares:
Basic shares 43.4 45.1 43.7 45.1
Stock options .1 .1 .1 .1
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Diluted shares 43.5 45.2 43.8 45.2
====== ====== ====== ======
Diluted earnings per share:
Net income $ 0.15 $ 0.52 $ 0.20 $ 0.94
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 million in each
of the three-month periods ended June 30, 2001 and 2000, and $7 million in
each of the six-month periods ended June 30, 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 $107
million at June 30, 2001 and $110 million at December 31, 2000, of which
$82 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
9,701,767 shares, of which 4,701,767 were under the April 1998 program.
During the first six months of 2001, 694,870 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 Six Months
Ended June 30, Ended June 30,
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Sales: 2001 2000 2001 2000
---- ---- ---- ----
Chlor Alkali Products $ 105.2 $ 97.9 $ 210.3 $ 192.1
Metals 156.9 231.6 330.4 457.5
Winchester 62.4 67.4 118.0 129.0
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Total Sales $ 324.5 $ 396.9 $ 658.7 $ 778.6
======= ======= ======= =======
Operating income:
Chlor Alkali Products $ 12.1 $ 7.0 $ 16.4 $ 11.8
Metals 0.2 28.4 0.8 53.5
Winchester 2.3 4.6 1.6 9.3
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Total operating income $ 14.6 $ 40.0 $ 18.8 $ 74.6
======= ======= ======= =======
Operating income $ 14.6 $ 40.0 $ 18.8 $ 74.6
Interest expense 4.1 4.0 7.8 7.9
Interest income --- 0.2 0.4 0.3
Other income 0.3 1.6 3.5 2.0
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Income before taxes $ 10.8 $ 37.8 $ 14.9 $ 69.0
======= ======= ======= =======
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 and six-month
periods ended June 30, 2001 and 2000 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
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2001 2000 2001 2000
---- ---- ---- ----
Net income $ 6.6 $23.3 $ 9.0 $ 42.6
Other comprehensive income:
Cumulative translation adjustment (0.7) (2.0) (1.0) (2.0)
Hedging activity (2.6) --- (5.0) ---
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Comprehensive income (loss) $ 3.3 $21.3 $ 3.0 $ 40.6
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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 June 30, 2001, other comprehensive income included a pretax decline in
fair value of $5.0 million. In addition, the unfavorable ineffective
portion of changes in fair value resulted in a $0.8 million charge to
earnings for the six-month period ended June 30, 2001. Offsetting the
above, there were assets totaling $1.9 million and liabilities totaling
$7.7 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-month and six-month periods ended June 30, 2001 was not material to
earnings.
9. In June 2001, the Company acquired the stock of Monarch Brass & Copper
Corp. ("Monarch") for approximately $49 million. Monarch was a privately
held, specialty brass manufacturer headquartered in Waterbury, CT with
annual revenues of approximately $95 million. It produces and distributes
an array of high performance copper alloys and other materials used for
applications in electronics, telecommunications, automotive and building
products. The cash paid was financed through the Company's credit lines.
The purchase price exceeded the fair value of the identifiable net assets
acquired by $20 million, which is being amortized on a straight-line basis
over 30 years. The acquisition has been accounted for using the purchase
method of accounting. The operating results of Monarch, which have been
included in the accompanying financial statements since the date of
acquisition, were not material.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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CONSOLIDATED RESULTS OF OPERATIONS
Three Months Six Months
Ended June 30, Ended June 30,
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($ in millions, except per share data) 2001 2000 2001 2000
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Sales $324.5 $396.9 $658.7 $778.6
Gross Margin 42.4 72.5 81.7 136.6
Selling and Administration 25.6 32.0 57.8 59.6
Net Income 6.6 23.3 9.0 42.6
Net Income Per Common Share:
Basic $0.15 $0.52 $0.21 $0.95
Diluted $0.15 $0.52 $0.20 $0.94
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THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales decreased 18.2% due to lower volumes, offset in part by higher selling
prices. 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, coinage, building products, electronics and
telecommunications industries. The increase in selling prices was primarily
related to higher Electrochemical Unit ("ECU") prices in the Chlor Alkali
Products segment.
Gross margin percentage decreased from 18% in 2000 to 13% in 2001 primarily due
to lower sales volumes.
Selling and administration as a percentage of sales was 8% in 2001 and 2000.
Selling and administration was $6.4 million lower than in 2000 due to lower
incentive compensation costs and bad debt expenses and fees incurred in 2000
associated with the discontinued chlor alkali partnership negotiations.
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.
The effective tax rate increased to 38.9% from 38.4% due to the non-deductible
expenses for the Company-owned life insurance programs.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales decreased 15% due to lower volumes, offset in part by higher selling
prices. 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, coinage, building products,
electronics and telecommunications industries and to a lesser extent by the
strike at the East Alton, IL facility. The price increase was primarily related
to higher ECU prices in the Chlor Alkali Products segment.
Gross margin percentage decreased from 18% in 2000 to 12% in 2001 primarily due
to lower sales volumes.
Selling and administration as a percentage of sales was 9% in 2001 up from 8% in
2000 due to the lower sales base in 2001 as a result of the factors noted above.
Selling and administration was $1.8 million lower than in 2000 due to lower
incentive compensation costs and fees incurred in 2000 associated with the
discontinued chlor alkali partnership negotiations.
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.
The effective tax rate increased to 39.6% from 38.3% due to the non-deductible
expenses for the Company-owned life insurance programs.
Non-recurring income items in the first quarter accounted for approximately
$0.06 of the year-to-date earnings per share in 2001.
SEGMENT OPERATING RESULTS
Segment operating results are defined as earnings before interest expense,
interest income, other income and income taxes and include the operating results
of non-consolidated affiliates. Segment operating results include an allocation
of corporate operating expenses.
CHLOR ALKALI PRODUCTS Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
($ in millions) 2001 2000 2001 2000
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Sales $105.2 $97.9 $210.3 $192.1
Operating Income 12.1 7.0 16.4 11.8
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales increased 7% 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. For example, the industry's average
operating rate for the second quarter of 2001 was in the low to mid 80% range
(compared to mid 90% range in 2000). Soft market conditions have caused a slight
decrease in the Company's ECU netback from approximately $335 in the first
quarter of 2001 to approximately $330 in the second quarter. This compares with
the Company's ECU netback of approximately $295 in the second quarter of 2000.
Operating income increased significantly in 2001 as higher selling prices more
than offset lower volumes and higher manufacturing costs and higher joint
venture equity losses. The increased manufacturing costs included higher utility
and salt costs and higher fixed cost absorption due to lower production volumes.
Operating results from the Sunbelt joint venture in 2001 were unfavorable due to
lower chlorine prices.
Sales in each of the first and second quarters of 2001 were about equal, while
second quarter operating income increased significantly over first quarter 2001
levels. The first quarter of 2001 was negatively impacted by higher
manufacturing costs such as energy costs and distribution costs, by
non-recurring costs for the purchase of salt and increased operating expenses
due to higher bad debt expense and incentive compensation costs.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales increased 9% from 2000 primarily due to higher ECU pricing, offset in part
by lower volumes. The Company's average ECU prices in the first six months of
2001 were approximately $330, compared to $285 in the first half of 2000. The
factors mentioned above, which contributed to the improved 2001 second quarter
operating income also contributed to the 2001 year-to-date improvement in
operating income.
METALS Three Months Six Months
Ended June 30, Ended June 30,
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($ in millions) 2001 2000 2001 2000
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Sales $156.9 $231.6 $330.4 $457.5
Operating Income 0.2 28.4 0.8 53.5
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales decreased 32% due primarily to a significant decline in volumes. Metals'
profits were significantly lower primarily due to the economic slowdown, which
resulted in loss of substantial volumes throughout its businesses. Orders from
most end-use customers served by the Company's strip operations were
significantly behind last year's levels. Automotive, coinage, electrical
connectors, telecommunications and distributor customers had much lower demand
for the industry's products. Demand for building products was modestly lower
while strip shipments to the ammunition market were virtually flat compared to
last year. These lower volumes and an unfavorable product mix were the major
contributors to the decline in operating income.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales decreased 28% due to a significant decline in volumes. The factors
mentioned above, which contributed to the lower 2001 second quarter operating
income also contributed to the 2001 year-to-date decline in operating income.
In addition, the strike at the Company's East Alton facility had a moderate
adverse impact on Metals' profits.
WINCHESTER Three Months Six Months
Ended June 30, Ended June 30,
------------- -------------
($ in millions) 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Sales $62.4 $67.4 $118.0 $129.0
Operating Income 2.3 4.6 1.6 9.3
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales in 2001 were 7% lower than 2000 due primarily to softer market conditions,
particularly for domestic commercial products. Due to market conditions, overall
pricing has declined. Contract sales decreased from last year due to lower
military shipments in the quarter. Primarily as a result of lower sales volumes
and selling prices, Winchester's operating income decreased significantly in
2001.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000
Sales in 2001 were 9% lower than 2000 due primarily to the impact of soft
domestic commercial demand in the second quarter and the effects of the strike
at the Company's East Alton facility in the first quarter. As a result of lower
sales volumes and prices along with the impact of the strike, Winchester's
operating results decreased significantly from 2000.
2001 THIRD QUARTER OUTLOOK
For the three months ending September 30, 2001, diluted earnings per share are
expected to be in the 5 cent range before the previously announced pretax
restructuring charge currently expected to be in the $40 to $50 million range,
that the Company plans to record in the third quarter. The Company expects
higher earnings from its Winchester business over second-quarter levels to be
more than offset by lower operating results from its Chlor Alkali and Brass
businesses ("Brass") because of depressed economic conditions exacerbated by the
normal seasonal reduction in its Brass customers' orders during the summer
months.
For the third quarter, Winchester expects to see seasonal increases in sales,
but the overall ammunition market has been soft this year as well.
In Chlor Alkali, the Company expects that the continued soft economy will
adversely affect its chlorine and caustic pricing, resulting in a modest
decrease in its ECU prices from second-quarter levels.
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.
In the third quarter for Metals, the Company projects that overall demand from
its customers will be lower than it was in the second quarter due to normal
seasonality. Many of the Company's customers take shutdowns of several weeks
during the course of the summer. In addition, several of the Company's Brass
operations are shutdown for a period of time in July. Therefore, demand from the
automotive, coinage, electrical
connectors, telecommunications and distributor customers is expected to remain
soft. There are some parts of the business that are showing some signs of
improvement and others are still trending lower. It is hard to judge at this
point, whether there is a discernible trend or just minor inventory adjustments.
These lower sales are expected to have a negative impact on the Company's
operating results and will likely cause the Brass business to lose money in the
third quarter given the soft market conditions the Company has been
experiencing.
2001 FULL YEAR OUTLOOK
The Company expects that its earnings per share for 2001 will be in the $.50
range before the restructuring charge. The Company's markets have been difficult
to project this year and in particular the chlor alkali market which has a large
impact on the Company's earnings. The Company believes that with some seasonal
recovery in the order flow from its Brass customers, some benefits of the
restructuring program and some improvement in the chlor alkali market it can
achieve its 50 cent forecast for the year.
In the fourth quarter, the Company forecasts that its earnings per share will
increase from third quarter levels. The Company expects that its Brass business
will return to profitability since its customers' order patterns normally
improve in that timeframe and that the Company will begin to benefit from the
cost reductions associated with its restructuring program. In addition, the
Company is forecasting some improvement in its ECU prices and volumes in Chlor
Alkali.
ENVIRONMENTAL MATTERS
In the six months ended June 30, 2001 and 2000, the Company spent approximately
$12 million and $13 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 $30 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 $7 million in each of the six-month periods ended June
30, 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
$107 million at June 30, 2001 and $110 million at December 31, 2000, of which
$82 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-$55 million over the next several years. While the Company does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
Six Months
Ended June 30,
--------------
Provided By (Used For) ($ in millions) 2001 2000
- ---------------------------------------------------------------------
Net Operating Activities $(14.9) $39.7
Capital Expenditures (36.3) (32.4)
Net Investing Activities (88.7) (28.8)
Purchases of Olin Common Stock (14.1) --
Net Financing Activities 50.8 (17.9)
In 2001, income from continuing operations exclusive of non-cash charges,
borrowings under committed and uncommitted bank lines of credit and cash
equivalents on hand were used to finance the Company's working capital
requirements, capital and investment 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 and a higher
investment in working capital. The liquidation of higher 2000 year-end accounts
payable and accrued liability balances was the main contributor to the increased
working capital requirements. Additionally, the current accounts payable and
accrued liability levels are lower than normal due to the lower volume of Brass
business resulting from the impact of the soft economy on its markets.
INVESTING ACTIVITIES
Capital spending of $36.3 million in 2001 was $3.9 million higher than 2000. For
the total year, capital spending is expected to be in the $75 million range. The
majority of the capital spending in the first half 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.
In June 2001, the Company acquired the stock of Monarch Brass & Copper Corp.
("Monarch") for approximately $49 million. Monarch was a privately held,
specialty brass manufacturer headquartered in Waterbury, CT with annual revenues
of approximately $95 million. It produces and distributes an array of high
performance copper alloys and other materials used for applications in
electronics, telecommunications, automotive and building products. The cash paid
was financed through the Company's credit lines. The purchase price exceeded the
fair value of the identifiable net assets acquired by $20 million, which is
being amortized on a straight-line basis over 30 years.
FINANCING ACTIVITIES
At June 30, 2001, the Company had available a $120 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 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. The Company believes that the credit facility is adequate to
satisfy its liquidity needs for the foreseeable future.
During the first half of 2001, the Company used $14.1 million to repurchase
694,870 shares of the Company's common stock. During the first half of 2000, no
shares of the Company's common stock were repurchased.
The percent of total debt to total capitalization increased to 52% at June 30,
2001, from 41% at year-end 2000. The increase from year-end 2000 was due to the
increase in short-term borrowings and lower shareholders' equity at June 30,
2001.
In 2001, the Company paid a first and second-quarter dividend of $0.20 per
share. In July 2001, the Company's Board of Directors declared a quarterly
dividend of $0.20 per share on its common stock, which is payable on September
10, 2001, to shareholders of record on August 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 (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities".
During the third quarter of 2001, the Financial Accounting Standards Board is
expected to issue SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also specifies criteria that intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of this statement. Goodwill amortization for the six months ended
June 30, 2001 approximated $0.7 million. Statement 142 will also require that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." At this time, it
is not practical to reasonably estimate the impact of adopting these statements
on the Company's financial statements.
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; 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 June 30, 2001, the Company maintained open positions on
futures contracts totalling $55 million. Assuming a hypothetical 10% increase in
commodity prices which are currently hedged, the Company would experience a $5.5
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 June 30, 2001, the Company had long-term borrowings of $234 million of which
$36 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.
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 26,
2001. Of the 43,821,410 shares of Common Stock entitled to vote at such meeting,
at least 40,241,888 shares were present for purposes of a quorum. At the
meeting, shareholders elected to the Board of Directors Randall W. Larrimore and
Anthony W. Ruggiero as Class I directors with terms expiring in 2004. Votes cast
for and votes withheld in the election of Directors were as follows:
Votes For Votes Withheld
--------- --------------
R. W. Larrimore 39,324,868 917,020
A. W. Ruggiero 39,108,865 1,133,023
There were no abstentions or broker nonvotes.
The shareholders also ratified the appointment of KPMG LLP as
independent auditors for the Corporation for 2001. Voting for the resolution
ratifying the appointment were 38,754,910 shares. Voting against were 1,240,415
shares. Abstaining were 246,563 shares. There were no broker nonvotes.
Item 5. Other Information.
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
12. Computation of Ratio of Earnings to Fixed Charges
(Unaudited).
(b) Reports on Form 8-K
Form 8-K filed April 5, 2001 announcing a conference call to
review first quarter results on Friday, April 27, 2001 at 9:00
AM.
Form 8-K filed May 8, 2001 announcing the posting of prepared
remarks for a presentation to be made at the Merrill Lynch
Chemical Conference on May 10, 2001 on the registrant's web
site.
Form 8-K filed May 17, 2001 announcing the signing of a
definitive agreement to acquire Monarch Brass & Copper Corp.,
a privately held specialty brass manufacturer headquartered in
Waterbury, Connecticut.
Form 8-K filed June 5, 2001 announcing the completion of
Olin's acquisition of the stock of Monarch Brass & Copper
Corp. for approximately $49 million.
Form 8-K filed June 26, 2001 reaffirming the second quarter
earnings forecast, revising expectations for the year,
announcing a restructuring charge and announcing a conference
call to discuss the above to be held on Tuesday, June 26, 2001
at 10:30 a.m. Eastern time.
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: August 13, 2001
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).