EXHIBIT 13
Excerpts from 1993 Annual Report to Shareholders
Olin Corporation is a Fortune 200 company concentrated primarily in chemicals,
materials and metals, defense, sporting ammunition and aerospace.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
1993 Compared to 1992
Although the economy has shown some recent signs of improvement, the recession
has continued to influence some of the company's major product lines. The
lingering effects of the recession, the inability to raise prices for certain
chemical products, the declining levels of defense procurement and intense price
competition in the metals industry have adversely impacted the company's
financial performance. Also in 1993, a series of strategic actions were
announced that resulted in a pretax charge to operations of $213 million ($132
million after tax) to cover costs for personnel reductions, business
restructurings involving the consolidations and re-alignments within divisions,
costs at sites of discontinued businesses, future environmental liabilities, and
other charges. As a result, the company reported a 1993 net loss of $92 million,
equal to $4.52 per share. Net income in 1992 was $9 million or 6 cents per share
and included an after-tax charge of $46 million for the adoption of two
financial accounting standards involving retiree benefits and income taxes.
Sales for 1993 were $2.4 billion, up slightly from 1992's level.
Chemicals
Chemicals 1993 sales were $1,117 million, up 12% from last year. This increase
was attributable in part to higher performance urethanes sales, particularly for
the new specialty urethanes coatings, and sales of a previously non-consolidated
affiliate in Europe. Segment net loss for 1993 was $94 million which included
$106 million of the 1993 charge, compared to 1992's net income of $21 million.
The decline in net income was due primarily to the poor performance from the
chlor-alkali and flexible urethanes businesses.
Despite a 3% increase in the 1993 chlorine industry operating rate to 97% of
capacity, chlor-alkali financial performance was significantly behind 1992's
level. Chlorine prices increased throughout 1993 driven by strong demand from
plastic manufacturers. Conversely, demand for caustic was sluggish and adversely
affected by over-supply conditions in the marketplace. The decline in caustic
prices was greater than the increase in chlorine prices. These factors along
with higher electricity costs (caused by severe weather conditions in the
Southeast and a certain nuclear power plant shutdown) and operating problems at
the Niachlor facility were the main contributors to the 1993 decline in chlor-
alkali's financial performance.
Sales of flexible urethanes increased over 1992's level. Higher domestic TDI
volumes and prices more than offset lower international prices and contributed
to the sales increase. Flexible polyols volumes and prices were slightly ahead
of 1992's levels. Despite the sales gains, the flexible urethanes business lost
money once again in 1993. Production problems early in the year, lower
international prices and the unfavorable performance from the company's two
Venezuelan joint ventures contributed to the additional losses.
Sales of acids, sodium hydrosulfite and other industrial chemicals in 1993
were comparable to 1992 sales, while net profits were slightly higher due
primarily to the strong demand for sodium hydrosulfite by the textile and paper
industries.
In the pool products business, 1993's financial performance was comparable to
1992. Improved weather conditions combined with sales of a previously non-
consolidated European affiliate accounted for the revenue increase. Higher
product exports and market share of bulk chemicals also contributed to
mitigating the profit impact of lower pricing due to on-going competitive
pressures. The additional volumes and the improved operating results from a
Brazilian joint venture offset the profit impact of lower prices, a less
favorable product mix and higher administrative expenses.
Specialty and organic chemicals sales were equal to last year's level, while
profits increased significantly from 1992. The company expanded its biocides
products and markets in 1993, with shipments to the Far East and other
international customers more than doubling. The combination of increased
shipments and lower raw materials costs for propylene and ethylene oxide
accounted for the improvement in sales and profitability of the specialty
surfactants business.
Sales of performance urethanes were well ahead of last year while associated
operating losses declined significantly. Higher sales volumes and a lower raw
material cost were the main contributors to the improved performance of the
polyols business. In its first full year of operations in 1993, the new
specialty urethanes coatings business built market share through competitive
pricing.
The 1994 outlook for the Chemicals segment is positive. Chlor-alkali's results
are expected to be slightly improved in 1994. Continuing strong demand for
chlorine is anticipated while at the same time adding to the over-supply
position for caustic. The pricing outlook could become more complex as a
competitor is expected to bring on additional capacity early in the year.
Flexible urethane's financial performance is anticipated to be enhanced by
increased pricing and volume. The absence of a TDI plant maintenance turnaround
and more efficient plant operations are expected to improve flexible urethanes
manufacturing performance and product availability. Continuing strong demand
from the textile and paper industries, price stability and declining raw
material costs are anticipated to have a favorable impact on sodium
hydrosulfite's 1994 performance. In addition, the sulfuric acid business is
expected to benefit from the new acid regeneration plant. In the pool products
business higher sales volumes and reduced selling and administration expenses
are expected to improve 1994's performance. New product introductions in
biocides, surfactants, custom chemicals and an expanded hydrazine solutions
business are expected to increase sales and profits of the specialty and organic
chemicals business. In performance urethanes, differentiated products with
unique characteristics could permit the
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company to maintain its market share in this business area and improve financial
performance. Sales of urethanes coatings products are estimated to double as
three new products are expected to be commercialized. In the electronic
materials business, increased demand for MQUAD, a proprietary metal package for
the semiconductor industry, is expected to be a significant contributor to a
1994 sales increase. The profit impact from the additional packaging business
along with volume and mix improvements in the company's high-purity electronic
chemicals businesses and joint venture operations are expected to contribute to
a year-to-year increase in profits.
Metals
Metals sales of $660 million declined 2% on lower metal values and reduced
levels of utility and defense-related business. The Indianapolis operations,
Mill Products and the Fabricating business, and A. J. Oster Co. (Oster) each
recorded higher volumes and improved product mix. Record commercial shipments of
brass strip were achieved in 1993. In addition, the expansion of the East Alton
mill was completed in mid-1993, contributing to improved quality and
productivity.
Metals net income was $14 million in 1993, compared to $29 million in 1992.
The 1993 income is net of a $12 million charge for costs associated with the
1993 strategic action plan. The profit decline resulted from lower sales to the
defense and utility industries and pricing pressures as a competitor brought
additional capacity on line. In addition, losses from the Langenberg joint
venture were significantly greater than the corresponding loss in 1992. In the
1993 fourth quarter, the company sold its interest in this venture to its
partner for approximately book value, avoiding a continuation of expected losses
in 1994. Offsetting these negative income factors to some degree were the strong
profit performance from the Oster and Indianapolis operations due to higher
shipments of brass strip.
With an expected stable-to-improving economy that will support an increased
demand for brass strip and strip-related products, the 1994 outlook for the
Metals segment is favorable. Sales are projected to increase due to higher metal
values, (primarily for copper), higher volumes and an improved product mix in
most operations. Sales of defense-related products are expected to decline due
to reduced government procurements. Excess domestic capacity may lower industry
operating rates and may create a very competitive pricing environment. Profits
from the additional volumes, cost reductions (including an early retirement
incentive program), profit improvement programs along with the absence of losses
from the German joint venture are expected to contribute to a slight increase in
segment net income.
Defense and Ammunition
Defense and Ammunition segment sales of $646 million were 8% behind 1992's level
due primarily to lower shipments of certain tank and medium caliber ammunition
and delays of awards/start-up of new Aerospace government programs. These
reduced sales volumes along with higher costs incurred on certain government
contracts in 1993 contributed to an 18% decline in segment net income, excluding
$14 million of the 1993 charge applicable to this segment.
The Ordnance division experienced lower shipments of certain large and medium
caliber ammunition due to shrinking defense procurements. Net income was further
impacted by higher severance costs as the division continued to resize,
reflecting the declining U.S. defense budgets. In 1993, the company entered into
negotiations to purchase the medium caliber ordnance business of GenCorp Inc.
The proposed acquisition would enable the company to become a full range medium
caliber ammunition manufacturer.
Winchester's 1993 sales decreased 2% from 1992 resulting from the completion
in 1992 of several foreign ammunition contracts and lower shipments of small
caliber military and export ammunition partially offset by higher domestic
sales. An improved product mix, higher domestic selling prices and favorable
manufacturing cost performance more than offset the reduced export profit
margins, resulting in a slight improvement in net income.
The Aerospace division financial results were mixed for 1993; sales declined
11% while net income increased 21%. Lower sales of certain solid propellant
products and canceled/delayed Department of Defense (DoD) contract awards
contributed to the sales decline. The related profit impact from lower sales was
more than offset by the absence of cost overruns on certain fixed-price
contracts and the costs of closing the Wadsworth facility, both in 1992, along
with lower operating expenses in 1993.
In 1994, sales for the Defense and Ammunition segment are projected to decline
as lower shipments of medium caliber and large caliber ammunition are expected
to offset higher export ammunition sales and new DoD awards in the Aerospace
division. Commercial ammunition sales are anticipated to be comparable to 1993's
level. Segment net income is projected to be slightly lower than in 1993. The
lower profit impact from the aforementioned sales and reduced revenues from
managing the Lake City Army Ammunition plant are expected to negate any profit
improvement from lower raw material costs and operating expenses.
U.S. Government sales amounted to $354 million in 1993, $409 million in 1992
and $453 million in 1991. Approximately 89% of
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1993 sales were to the DoD or agencies thereof. Continuing reductions in the
levels of defense procurement are currently adversely affecting the Defense and
Ammunition segment's performance and may continue to do so in future periods.
Consequently, these reductions may also adversely affect, to a lesser extent,
the company's financial performance in future years, including its income,
liquidity, capital resources and financial condition. In addition, changes in
the strategic direction of defense spending and the timing of defense
procurement may also adversely affect this segment and the company. The precise
impact of defense spending cutbacks will depend on the level of cutbacks, the
extent to which these cutbacks are in the conventional ammunition area and the
company's ability to mitigate the impact of the cutbacks with new business or by
business consolidations. The company currently provides services to the U.S.
Government in facilities management and is pursuing other business areas such as
ordnance demilitarization. In view of continuing spending cutbacks of the DoD,
the historical financial information of the Defense and Ammunition segment, and
to a lesser extent, of the company, may not be indicative of future performance.
Other Financial Data
In December 1993, the company announced a series of strategic actions consisting
of personnel reductions, business restructurings including consolidationsand re-
alignments within divisions, provisions for costs at sites of discontinued
businesses, future environmental liabilities, and other charges. As a result of
these actions, the company recorded a pretax charge to operations of $213
million ($132 million after tax) in the fourth quarter of 1993. Major components
of this charge were the following :
A. Personnel Reductions: The company expects to reduce its salaried
workforce by over 10%, or 600 people, over the next two years along with minor
reductions in the hourly workforce. An early retirement incentive program has
been put in effect for the Brass and Winchester divisions, which did not
participate in a similar program offered in 1991. The pretax charge for these
actions was $42 million.
B. Business Restructurings: The charge provided for streamlining existing
businesses by relocating and consolidating several facilities, primarily
electronic materials businesses. Additionally, a portion of the charge related
to lower estimated proceeds from asset disposals and higher costs associated
with components of the 1991 streamlining program. The company recorded a pretax
charge of $41 million for these business restructurings.
C. Discontinued Businesses and Site Maintenance Costs: The pretax charge for
discontinued businesses and site maintenance was $41 million to provide for
property maintenance, security, and product liability expenses associated with
several operations which are no longer on-going businesses. Also, a previously
decommissioned plant and warehouse will be disassembled, while associated
buildings will be modified to make them suitable for future leasing.
D. Future Environmental Liabilities: The pretax charge of $55 million
recognized future environmental liabilities resulting from additional
investigatory activities and more extensive remediation at sites. An additional
pretax charge of $24 million related to remediation costs which the company
funded and anticipated sharing with a third party, with whom the company is now
in litigation.
E. Other Charges: There were various other minor charges, including assets
write-downs and long-term disability costs, which amounted to $10 million
pretax.
The anticipated savings resulting from the workforce reductions and business
restructurings are expected to approximate $25 million in 1994 and $40 million
on an annualized basis, thereafter.
Selling and administration expenses as a percent of sales increased to 12.4%
in 1993 from 11.7% in 1992. Increased administrative, selling and promotional
efforts for new product introductions in the Chemicals and the Defense and
Ammunition segments, higher operating expenses of the electronic materials
businesses and the European affiliate were the main contributors to the
increase. Research and development expenditures, up slightly from 1992's level,
continue to be concentrated on the company's core businesses and the exploration
of new products and technologies associated with these businesses.
Interest expense in 1993 decreased slightly from 1992 due to lower short-term
interest rates in effect during 1993. The average borrowing rate on domestic
short-term debt decreased by 87 basis points from 1992.
The effective tax rate was 38.7% in 1993 and 37.5% in 1992, approximating the
combined federal and state statutory rates in each year, respectively. At
December 31,1993, the company had net deferred tax assets of $63 million,
principally comprised of alternative minimum tax credits of $40 million and
temporary differences between financial statement and tax bases of assets and
liabilities. No valuation allowance has been provided because management
believes that it is more likely than not that sufficient taxable income will be
generated in the next two to four years to allow for the realization of these
tax benefits. Such future taxable income approximates $350 million.
1992 Compared to 1991
Sales in 1992 were $2.4 billion, an increase of 4% over 1991's sales. Volumes
rose 5% as most major product lines in the Metals and Chemicals segments
experienced higher shipments while overall selling prices were 1% below 1991.
Net income for 1992 was $9 million, or 6 cents per share, which included an
after-tax charge of $46 million or $2.11 per share for the adoption of the
Statements of Financial
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Accounting Standards (SFAS) No. 106 and No. 109, retroactive to the first
quarter of 1992. The 1991 net loss of $13 million or 92 cents per share included
an after-tax charge of $80 million for a program to streamline operations and
lower costs through the sale of certain businesses and personnel reductions. The
operating results in 1992 were impacted by the weak economy, start-up and market
entry expenses for the new aliphatic diisocyanate business, delays in the
introduction of certain new chemical products and lower profitability of the
Ordnance and Aerospace businesses.
Chemicals
The 1992 sales of $996 million increased 4% over 1991 sales while segment net
income was $21 million compared to 1991's net loss of $38 million that included
an after-tax charge of $73 million for the streamlining program. Weak economic
conditions affected many of the chemicals businesses. Lower pricing and higher
costs in flexible urethanes, lower demand for specialty and organic chemicals,
the start-up and related market penetration costs of the new aliphatics business
and unfavorable results from joint ventures contributed to the 1992 decline in
net income from 1991, after excluding the charge for the streamlining program.
Chlor-alkali's financial performance was comparable to 1991. Chlor-alkali
sales were generally strong throughout 1992, although the impact of higher
volumes was offset by lower prices for chlorine and caustic soda. Related
profits were equivalent to 1991 as the impact of the lower selling prices was
offset by higher volumes and lower costs.
Flexible urethanes results were lower in 1992. Sales were 3% above 1991 as
flexible polyols sales increased and worldwide TDI volumes remained at 1991
levels. Higher raw material costs for flexible polyols more than offset the
profit contribution from additional sales. TDI profitability was impacted by
lower worldwide pricing and higher raw material costs and manufacturing
expenses.
Sales and profits of industrial chemicals were ahead of 1991 due primarily to
higher volumes. Domestic operations more than offset the unfavorable results of
the Brazilian sodium hydrosulfite facility which completed its first full year
of operations.
Pool products sales increased 8% over 1991 while profitability increased
significantly. Price increases along with higher volumes and improved mix for
certain products were the prime contributors to the stronger financial results.
Improved raw material usage and tighter control over manufacturing costs also
led to higher gross margins.
In the specialty and organic chemicals business, sales and profits were behind
1991 levels. Volume improvements in hydrazine solutions and specialty
surfactants were not sufficient to offset the sales decrease in biocides as
demand for traditional products declined due primarily to a customer adjusting
inventory levels, and the introduction of new products was delayed awaiting
toxicology and evaluation results. Costs of expanded manufacturing capacity and
operating activities for the new products in biocides and surfactants more than
offset the profit increases from hydrazine solutions and the propellant
business.
Despite a 7% increase in performance urethanes sales, operating results were
significantly worse than last year. Start-up and market-entry costs for the new
aliphatics business negated increased volumes from existing products and were
the primary factors in this product line's overall negative profit performance
on a year-to-year basis. On the positive side, quality products for the new
specialty urethanes coatings business were achieved within the first month of
operations and customer response was favorable with interest in both current
products and those under development.
Metals
Segment sales were $676 million in 1992, an increase of $114 million or 20%
above 1991, due primarily to Oster, which was acquired in August 1991, and
higher shipments of brass strip, Fineweld Tube and Somers thin-strip products.
Segment net income was $29 million, an increase of $12 million over 1991,
which included special provisions affecting a discontinued product line and
costs, primarily severance. The added profit from Oster and improved performance
from cupping, Fineweld Tube and the Indianapolis strip facility contributed to
the segment's 1992 profit increase. Segment net income was negatively impacted
by poor results from the German joint venture operations due to the depressed
European economy.
Defense and Ammunition
Defense and Ammunition sales were $704 million in 1992, down 7% from 1991 due to
contract delays/cancellations and the absence of sales from the European
sporting ammunition business which was sold in December 1991. Net income was $29
million in 1992, down 17% from 1991 due to lower profits from the Aerospace and
Ordnance divisions.
The Aerospace division sales decreased 14% due to the absence in 1992 of
production equipment sales, delays/cancellations of DoD contracts and a weak
commercial aircraft market. Net income decreased significantly from 1991. The
recognition of losses on certain government contracts, the impact of the
contract delays and the closure of a production facility contributed to the
profitability decline.
In Ordnance, tank ammunition sales were below 1991 levels which included
additional sales created by the Persian Gulf War. This decline more than offset
an increase in medium caliber sales in 1992, as Ordnance division's sales in
total lagged 1991's amounts. Net income for 1992 declined due to the reduced
tank ammunition vol-
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umes, the recognition of losses on certain contracts and expenses incurred in
connection with the Alliant Techsystems transaction. In addition, an increase in
royalty and fee income was offset by expenses associated with the clean-up of a
medium caliber test range.
Winchester's sales in 1992 increased $32 million over 1991 (after excluding
the European sporting ammunition sales) due to higher domestic and foreign
shipments. Domestic sporting ammunition sales increased over 1991 despite a very
competitive pricing environment. Military and commercial export volumes
increased significantly over last year due to new business, a weak U.S. dollar
in Europe and additional market share gains in South America and Australia.
Winchester's 1992 net income exceeded 1991's level. Strong domestic commercial
shipments did not totally offset lower commercial prices, but favorable
manufacturing performance, higher fees for managing the Lake City Army
Ammunition Plant and the profit contribution from the military and commercial
export sales increased the domestic operation's 1992 net income over 1991.
Other Financial Data
In the first quarter of 1991, the company announced a program to streamline
operations and lower costs and recorded a pretax charge of $129 million ($80
million after tax). Throughout 1991, efforts were undertaken to divest or
liquidate certain product lines and reduce personnel costs, accordingly.
Activities continued in 1992 including the divestment of several small product
lines.
Selling and administration expenses increased $17 million in 1992 to 11.7% of
sales, up slightly from 11.5% in 1991. The inclusion of Oster's operating
expenses for a full year, higher pension costs and increased selling expenses
for certain chemical products were the principal reasons for the increase on a
year-to-year basis. Research and development expenditures in 1992 decreased
slightly from 1991 levels. Customer-sponsored (contract) research increased
significantly from 1991 due to increased activities relating to new government
programs.
Interest expense in 1992 was $39 million, a decrease of $7 million or 15% from
1991, due primarily to lower average interest rates. The average interest rate
on domestic short-term debt declined to 4.2% in 1992 from 6.3% in 1991. Interest
and other income decreased by $5 million in 1992 due primarily to the
unfavorable performance of non-consolidated affiliates, particularly in South
America and Europe.
Liquidity and Investment Activity
Cash flow from operations supplemented by credit facilities and divestment
proceeds from the sale of businesses were used to finance the company's major
funding needs, namely capital projects and dividends to shareholders. Cash flow
from operating activities amounted to $137 million in 1993, $189 million in 1992
and $167 million in 1991. The decrease in 1993 was primarily attributable to
lower operating income. The effect of lower income was partially offset by
higher depreciation expense which resulted from increased capital expenditure
levels in recent years. The completion and close-out of certain government
contracts once again provided for a further liquidation of trade receivables.
Additional cash was invested in inventory in support of both realized and
anticipated expansion of the Oster business as well as introductions of new
chemical products, most notably specialty urethanes coatings. The settlement of
current liabilities other than borrowings relates to lower amounts due vendors,
increased spending for environmental remediation, and costs incurred in
executing the 1991 streamlining program. The 1992 increase in net cash generated
from operations, as compared to 1991, was attributed primarily to the collection
of receivables associated with the close-out of certain government contracts.
Net cash used for investing activities decreased from $259 million in 1991 to
$139 million in 1992 and then to $84 million in 1993. Capital spending in 1993
decreased $41 million or 24% from 1992 due to lower environmental capital
spending and the completion in 1992 of additional brass strip capacity, the new
specialty urethanes plant and the sulfuric acid regeneration plant. Capital
spending in 1992 was comparable to 1991 which included investments in the
aliphatics diisocyanate plant, the sodium hydrosulfite plant in Brazil and the
biocides expansion in Ireland. Approximately 41% of capital expenditures in 1993
and 45% in 1992 and 1991 were dedicated to new products and expansion programs.
It is expected that 1994 capital expenditures will increase approximately 10%
from 1993 mainly to support the consolidation of some electronic materials
businesses and provide additional capacity for selected product lines.
Investment spending in 1993 and 1992 was primarily for a new ethylene oxide
joint venture in Latin America, which was completed in 1993. The company's
investment in this venture and another related Latin American venture totaled
$23 million at December 31, 1993. These ventures were unprofitable in 1993 and
experienced liquidity difficulties. The company, along with its joint venture
partners, is currently attempting to resolve these difficulties in order to
protect its recorded investment. Spending in 1991 was dedicated primarily to an
expansion of the German joint venture in metals. It is expected that 1994's
investment spending will be lower than 1993's level as the expansion programs at
the company's affiliates have been completed.
During 1993 the company sold the facility and the assets of its contract
integrated circuit assembly operation (completing the divestiture phase of its
1991 streamlining program) and its interest in the German joint venture to its
partner. These divestments generated proceeds of $37 million. Throughout 1992,
several small product lines, such as urethane systems, Uralloy low profile
additives, sodium chlorite, the European and Singapore-based electronic
chemicals and the ethylene oxide unit were sold as part of the streamlining
program.
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Proceeds from the sales amounted to $42 million including $6 million
received from a prior year sale. In 1991, the company acquired Oster, a network
of metals service centers, for $80 million and sold its European sporting
ammunition business (including its shotshell manufacturing facility in Italy) to
Browning, S.A.
At December 31, 1993, the company maintained committed credit facilities with
banks of $367 million of which $208 million was available. The company believes
that these credit facilities are adequate to satisfy its liquidity needs for the
near future. In September 1993, the company entered into a new unsecured
revolving credit agreement with a group of banks, which replaced a prior $200
million credit agreement. The new agreement provides a maximum borrowing of $250
million and unless extended, expires on October 15, 1997. The company may select
various floating rate borrowing options.
In 1992, the company sold 2.76 million shares of its $1 par value Series A
Conversion Preferred Stock (Series A Stock) generating net proceeds of $111
million, which were used to reduce outstanding bank loans. In addition, the
company in 1992 sold $100 million of 8% Notes due 2002 and used the proceeds to
reduce short-term debt (most of which was incurred for working capital
purposes). The company has swapped interest payments on $50 million principal
amount of these notes to a floating rate.
In 1990, the company sold an undivided ownership interest in a designated pool
of receivables, with limited recourse, in an amount not to exceed $70 million.
An interest in new receivables is sold as collections reduce previously sold
interests. The company established certain qualifications involving the type and
term of receivables for inclusion in the pool. These qualifications had the
effect of including better-quality customer accounts in the pool, thereby
reducing the investor's risk and minimizing the likelihood of recourse. The
company's credit risk associated with the designated pool of receivables is
assessed in conjunction with the overall evaluation of trade receivables.
Reserves ascribed to these accounts are included in the "Allowance for Doubtful
Items" on the consolidated balance sheets and are not a material portion
thereof. Amounts sold were $65 million and $60 million at December 31, 1993 and
December 31, 1992, respectively.
The establishment and implementation of federal, state and local standards to
regulate air, water and land quality has affected and will continue to affect
substantially all of the company's plants. Facilities and equipment to protect
the environment do not inherently produce any significant increase in product
capacity, efficiency or revenue, and their operation generally entails
additional expense and energy consumption. Federal legislation providing for
regulation of the manufacture, transportation, use and disposal of hazardous and
toxic substances has imposed additional regulatory requirements on industry,
particularly the chemicals industry. In addition, implementation of
environmental laws, such as the Resource Conservation and Recovery Act and the
Clean Air Act, has required and will continue to require new capital
expenditures and will increase operating costs. The company employs waste
minimization and pollution prevention programs at its manufacturing sites. In
order to help finance the cleanup of waste disposal sites, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("Superfund"), imposes
a tax on the sale of various chemicals, including chlorine, caustic and certain
other chemicals produced by the company, and on the disposal of certain
hazardous wastes.
The company is party to various governmental and private environmental actions
associated with waste disposal sites and manufacturing facilities. 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. Environmental provisions charged to
income amounted to $85 million in 1993, $17 million in 1992, and $18 million in
1991. The significant increase in 1993 resulted from expanded volumes of
contaminants uncovered while remediating a particular site, combined with the
availability of more definitive data from progressing investigatory activities
concerning both the nature and extent of contamination and remediation
alternatives at other sites. Charges to income for investigatory and remedial
efforts were material to operating results in 1993, 1992, and 1991 and may be
material to net income in future years.
Cash outlays for environmental-related activities totaled $93 million in 1993
as compared with $103 million in 1992 and $90 million in 1991. During 1993, $49
million of these cash outlays were directed towards normal plant operations for
the disposal of waste and the installation, operation and maintenance of
pollution control equipment and facilities to ensure compliance with mandated
and voluntarily imposed environmental quality standards. Comparable spending for
1992 and 1991 was $62 million and $65 million, respectively. Included in the
costs for normal plant operations were environmental capital expenditures for
pollution control equipment and pollution abatement facilities. Spending for
environmental capital expenditures was $11 million in 1993 and $25 million in
both 1991 and 1992. The 1991 and 1992 environmental capital expenditures include
construction costs for a waste water treatment facility at the company's Lake
Charles plant. Historically, the company has funded its environmental capital
expenditures through cash flow from operations and expects to do so in the
future.
Cash outlays for remedial and investigatory activities associated with former
waste sites and past operations were $44 million in 1993, $41 million in 1992
and $25 million in 1991. These amounts were not charged to income but instead
were charged to reserves established for such costs identified and expensed to
income in prior years.
The company's estimated environmental liability at the end of 1993 was
attributable to 70 sites, 34 of which were on the National Priority List (NPL).
Ten sites accounted for approximately 75% of such liability and, of the
remaining sites, no one site accounted for more than three percent of such
liability. Four of these ten sites were in the investigatory stage of the
remediation process. In this stage remedial investigation and feasibility
studies are conducted by either the company, the United States Environmental
Protection Agency (EPA) or other potentially responsible parties (PRPs). At
another four of the ten sites, a Record of Decision (ROD) or its equivalent has
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been issued by either the EPA or responsible state agency and the company either
alone, or as a member of a PRP group, was engaged in performing the remedial
measures required by that ROD. At the remaining two of the ten sites, part of
the site is subject to a ROD and another part is still in the investigative
stage of remediation. All ten sites were either former manufacturing facilities
or waste sites containing contamination generated by those facilities.
Total environmental-related cash outlays for 1994 are estimated to be $90
million, of which $50 million is expected to be spent on normal plant
operations, including $10 million on capital projects, and $40 million on
investigatory and remedial efforts.
The company's consolidated balance sheets included reserves for future
environmental expenditures to investigate and remediate known sites amounting to
$131 million at December 31, 1993 and $66 million at December 31, 1992, of which
$91 million and $39 million were classified as other noncurrent liabilities,
respectively. Included in the reserve at December 31, 1993, were liabilities
anticipated to be shared with a third party, with whom the company is currently
in litigation. Those reserves 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 capital projects, site
investigation and remediation, and normal plant operations are expected to range
between $90-$105 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
time periods (sometimes lengthy) over which site remediation occurs. It is
possible that some of these matters (the outcome of which is subject to various
uncertainties) may be decided unfavorably against the company. At December 31,
1993, the company had estimated additional contingent environmental liabilities
of $19 million which were determined in accordance with generally accepted
accounting principles.
The percent of total debt to total capitalization (excluding the reduction in
equity for the Contributing Employee Ownership Plan (ESOP)) increased to 47.1%
at December 31, 1993, from 42.0% at year-end 1992 and was 48.5% at year-end
1991. The increase in 1993 was due to the reduction of shareholders' equity
stemming from the charge taken in 1993. The 1992 decrease was due to the
repayment of bank loans using proceeds from the Series A Stock offering and
proceeds from the sales of businesses.
In 1989 the company established an ESOP. The ESOP trust borrowed $100 million
($40 million from the company) to purchase 1.3 million shares of the company's
convertible preferred stock. The proceeds received by the company from the
issuance of its preferred stock were used to acquire shares of its common stock.
In 1992 and 1991, the company received $15 million and $14 million, respectively
from the ESOP trust, which has repaid in full its original loan from the
company. This loan to the ESOP was financed by the company through a long-term
credit facility, which is classified on the December 31, 1993 balance sheet as
long-term debt.
Dividends per common share were $2.20 in 1993, 1992 and 1991. Total dividends
paid on common stock amounted to $42 million in 1993 and $41 million in 1992 and
1991, while total ESOP preferred dividends, paid at an annual dividend rate of
$5.97 per share, amounted to $7 million in 1993 and $8 million in 1992 and 1991.
Dividends paid on Series A Stock were $10 million in 1993, equal to $3.64 per
share, and $9 million in 1992.
There are a variety of legal proceedings pending or threatened against the
company. It is possible that some of these matters (the outcome of which is
subject to various uncertainties) may be decided unfavorably against the
company. Certain of these matters are discussed in Item 3, Legal Proceedings of
the Form 10-K Annual Report and in other filings of the company with the
Securities and Exchange Commission, which filings are available on request from
the company.
The company periodically evaluates risk retention and insurance levels for
product liability, property damage and other potential areas of risk. Based on
the cost and availability of insurance and the likelihood of a loss occurring,
management decides the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain. The current
levels of risk retention are believed to be appropriate and are consistent with
those of other companies in the various industries in which the company
operates.
In late 1992, the Financial Accounting Standards Board issued SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," effective commencing 1994.
This standard will not have a material impact on the company's financial
position and future operating results.
18
Industry Segments
(In millions) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
CHEMICALS
Sales $1,117 $ 996 $ 960 $1,269 $1,302 $1,386 $1,232 $1,127 $1,153 $1,191
Net Income (Loss) (94) 21 (38) 42 106 68 55 37 (153) 33
Assets 1,024 1,067 982 945 977 1,034 1,028 920 867 1,057
Capital Expenditures 75 115 131 144 95 96 83 84 105 102
Depreciation 83 73 70 75 74 77 82 83 102 118
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
METALS
Sales 660 676 562 566 542 453 304 244 232 291
Net Income 14 29 17 35 19 25 20 15 12 28
Assets 430 445 436 337 326 321 225 204 184 189
Capital Expenditures 31 33 26 19 26 30 13 24 28 33
Depreciation 27 24 22 21 22 19 18 17 14 12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DEFENSE AND AMMUNITION
Sales 646 704 753 757 665 469 394 361 307 225
Net Income (Loss) 10 29 35 36 31 25 20 19 (21) 11
Assets 441 465 552 544 535 516 373 365 331 209
Capital Expenditures 26 25 20 24 21 21 19 20 19 18
Depreciation 21 20 21 20 20 15 14 11 8 5
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
CORPORATE AND OTHER
Sales -- -- -- -- -- -- -- -- 68 109
Net Income (Loss) (22) (70) (27) (29) (32) (20) (17) 4 (3) 17
Assets 35 53 42 40 66 69 59 56 216 338
Capital Expenditures -- -- -- -- -- -- -- -- 2 2
Depreciation -- -- -- -- -- -- -- -- 2 2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
CONSOLIDATED
Sales 2,423 2,376 2,275 2,592 2,509 2,308 1,930 1,732 1,760 1,816
Net Income (Loss) (92) 9 (13) 84 124 98 78 75 (165) 89
Assets 1,930 2,030 2,012 1,866 1,904 1,940 1,685 1,545 1,598 1,793
Capital Expenditures 132 173 177 187 142 147 115 128 154 155
Depreciation 131 117 113 116 116 111 114 111 126 137
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(1) Assets of Corporate and Other include
the following:
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investments $ -- $ -- $ -- $ -- $ -- $ -- $ 11 $ 7 $ 12 $ 14
Discontinued Operations, Net -- -- -- -- -- -- -- -- -- 87
Other 35 53 42 40 66 69 48 49 204 237
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 35 $ 53 $ 42 $ 40 $ 66 $ 69 $ 59 $ 56 $ 216 $ 338
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
(2) Intersegment sales, which are priced generally at prevailing prices and are
excluded from above, are not significant.
(3) Net income (loss) of each segment includes an allocation of Corporate
expenses.
(4) 1993 net income includes a charge for the strategic action plan of $132
million ($106 to Chemicals, $12 to Metals and $14 to Defense and Ammunition).
1992 net income includes a charge of $46 (allocated to Corporate and Other) for
the cumulative effect of the accounting changes. 1991 net income includes a
charge for the streamlining program of $80 ($73 to Chemicals and $7 to Metals).
1985 net income includes a charge of $230, allocated to various segments as
follows: Chemicals $174, Metals $1, Defense and Ammunition $35 and Corporate and
Other $20.
(5) Corporate and Other includes interest expense and Discontinued Operations
(the company's Ecusta paper and film businesses, which were sold in 1985), the
cumulative effect of the accounting changes in 1992 and, prior to 1985, certain
small businesses, which were subsequently sold or liquidated.
(6) See Notes to Financial Statements for information relative to industry
operating income and geographic segment data.
19
TEN-YEAR FINANCIAL SUMMARY
($ in millions, except per share data) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
OPERATIONS
Sales $ 2,423 $ 2,376 $ 2,275 $ 2,592 $ 2,509 $ 2,308 $ 1,930 $ 1,732 $ 1,760 $ 1,816
Cost of Goods Sold 2,161 1,941 1,944 2,063 1,929 1,781 1,455 1,318 1,719 1,396
Restructuring Charge 42 -- 22 -- -- -- -- -- -- --
Selling and Administration 300 279 262 316 287 289 264 252 252 256
Research and Development 41 39 41 66 66 58 62 56 54 52
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Income (Loss) (121) 117 6 147 227 180 149 106 (265) 112
Interest Expense 38 39 46 53 56 43 32 32 35 34
Interest and Other Income 9 10 15 22 21 14 10 41 18 25
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) Before Taxes (150) 88 (25) 116 192 151 127 115 (282) 103
Income Tax Provision (Benefit) (58) 33 (12) 32 68 53 49 40 (92) 29
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) from
Continuing Operations (92) 55 (13) 84 124 98 78 75 (190) 74
Cumulative Effect of
Accounting Changes -- (46) -- -- -- -- -- -- -- --
Discontinued Operations,
Net of Taxes(1) -- -- -- -- -- -- -- -- 25 15
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income (Loss) (92) 9 (13) 84 124 98 78 75 (165) 89
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
FINANCIAL POSITION
Working Capital 136 179 85 212 205 184 276 210 304 367
Property, Plant and Equipment, Net 885 934 899 829 781 801 727 720 718 796
Total Assets 1,930 2,030 2,012 1,866 1,904 1,940 1,685 1,545 1,598 1,793
Capitalization:
Short-Term Debt 121 101 178 104 155 211 50 52 47 44
Long-Term Debt 449 477 520 466 501 474 392 375 354 370
Shareholders' Equity 596 741 666 715 665 683 700 654 687 867
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Capitalization 1,166 1,319 1,364 1,285 1,321 1,368 1,142 1,081 1,088 1,281
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
PER SHARE DATA
Net Income (Loss):
Primary:
Continuing Operations (4.52) 2.17 (.92) 4.03 6.02 4.63 3.38 3.36 (8.28) 3.15
Cumulative Effect of
Accounting Changes -- (2.11) -- -- -- -- -- -- -- --
Discontinued Operations(1) -- -- -- -- -- -- -- -- 1.09 .66
Net Income (Loss) (4.52) .06 (.92) 4.03 6.02 4.63 3.38 3.36 (7.19) 3.81
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Assuming Full Dilution(2):
Continuing Operations -- -- -- 3.88 5.85 4.59 3.32 3.13 -- 2.96
Discontinued Operations(1) -- -- -- -- -- -- -- -- -- .58
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income -- -- -- 3.88 5.85 4.59 3.32 3.13 -- 3.54
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Dividends:
Common 2.20 2.20 2.20 2.15 1.95 1.70 1.60 1.525 1.50 1.365
ESOP Preferred 5.97 5.97 5.97 5.97 2.985 -- -- -- -- --
Series A Preferred (annual rate) 3.64 3.64 -- -- -- -- -- -- -- --
Shareholders' Equity(3) 27.24 33.92 35.02 37.65 34.99 33.35 31.81 30.56 29.89 37.88
Market Price of Common Stock:
High 501/2 543/4 54 605/8 681/4 60 561/4 531/4 38 331/2
Low 397/8 371/4 331/2 281/8 493/8 40 325/8 345/8 283/8 251/8
Year End 493/8 453/4 403/8 373/4 60 51 42 41 371/8 30
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
OTHER
Capital Expenditures 132 173 177 187 142 147 115 128 154 155
Depreciation 131 117 113 116 116 111 114 111 126 137
Common Dividends Paid 42 41 41 41 39 36 37 34 35 32
Purchases of Common Stock -- -- 2 6 100 84 100 83 5 33
Current Ratio 1.2 1.3 1.1 1.4 1.4 1.3 1.7 1.5 1.8 1.9
Total Debt to Total Capitalization(4) 47.1% 42.0% 48.5% 41.5% 46.2% 50.1% 38.7% 39.5% 36.9% 32.3%
Effective Tax Rate 38.7% 37.5% 48.0% 27.2% 35.4% 35.1% 38.6% 34.8% 32.6% 28.8%
Average Common Shares Outstanding 19.1 19.1 19.0 19.1 20.0 21.1 23.1 22.4 23.0 23.3
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Shareholders 13,000 13,900 14,600 15,500 16,300 17,600 20,700 20,600 22,400 24,400
Employees(5) 12,400 13,500 14,400 15,200 15,400 16,400 14,100 13,200 14,900 14,800
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
(1) Represents the company's Ecusta paper and film businesses. (2) Fully diluted
income or loss per share is not presented for 1993, 1992, 1991 and 1985 as
amounts are anti-dilutive. (3) In 1993 and 1992, calculation is based on common
shares and Series A Conversion Preferred Stock outstanding. (4) Excluding
reduction to equity for the Employee Stock Ownership Plan from 1989 through
1993. (5) Employee data excludes employees who work at government-
owned/contractor-operated facilities.
20
CONSOLIDATED BALANCE SHEETS
December 31 ($ in millions, except share data) 1993 1992
------ ------
ASSETS
CURRENT ASSETS:
Cash $ 3 $ 4
Receivables:
Trade, Less Allowance for Doubtful Items of $12 ($10 in 1992) 288 304
Other, Net 57 55
Inventories, Net of LIFO Reserve of $145 ($181 in 1992) 329 320
Other Current Assets 63 77
------ ------
Total Current Assets 740 760
Investments and Advances--Affiliated Companies at Equity 121 157
Property, Plant and Equipment, Net 885 934
Goodwill 114 126
Other Assets 70 53
------ ------
Total Assets $1,930 $2,030
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings $ 94 $ 72
Current Installments of Long-Term Debt 27 29
Accounts Payable 232 254
Income Taxes Payable 2 1
Accrued Liabilities 249 225
------ ------
Total Current Liabilities 604 581
Long-Term Senior Debt 324 352
Long-Term Subordinated Debt 125 125
Deferred Income Taxes -- 62
Other Noncurrent Liabilities 281 169
------ ------
Total Liabilities 1,334 1,289
------ ------
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $1 PER SHARE:
Authorized, 10,000,000 Shares
Series A Conversion Preferred Stock
Issued, 2,760,000 Shares 3 3
ESOP Preferred Stock
Issued, 1,194,569 Shares (1,239,328 in 1992) 92 96
ESOP Obligations (44) (60)
Common Stock, Par Value $1 Per Share:
Authorized, 60,000,000 Shares
Issued, 19,102,270 Shares (19,069,775 in 1992) 19 19
Additional Paid-In Capital 297 296
Cumulative Translation Adjustment (9) (1)
Retained Earnings 238 388
------ ------
Total Shareholders' Equity 596 741
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,930 $2,030
======= ======
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
21
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 ($ in millions, except per share amounts) 1993 1992 1991
- ----------------------------------------------------------------- ------- ------ -------
Sales $2,423 $2,376 $2,275
Operating Expenses:
Cost of Goods Sold 2,161 1,941 1,944
Restructuring Charge 42 -- 22
Selling and Administration 300 279 262
Research and Development 41 39 41
------- ------ -------
Operating Income (Loss) (121) 117 6
Interest Expense 38 39 46
Interest and Other Income 9 10 15
------- ------ -------
Income (Loss) Before Taxes (150) 88 (25)
Income Tax Provision (Benefit) (58) 33 (12)
------- ------ -------
Income (Loss) Before Cumulative Effect of Accounting Changes (92) 55 (13)
Cumulative Effect of Accounting Changes -- (46) --
------- ------ -------
Net Income (Loss) $ (92) $ 9 $ (13)
======= ====== ========
Per Share of Common Stock
Income (Loss) Before Cumulative Effect of Accounting Changes $(4.52) $2.17 $(0.92)
Cumulative Effect of Accounting Changes -- (2.11) --
------- ------ -------
Net Income (Loss)(1) $(4.52) $0.06 $(0.92)
======= ====== =======
(1) Fully diluted income or loss per share in 1993, 1992 and 1991 was anti-
dilutive.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Additional Cumulative
Shares Par Paid-In Translation Retained
($ in millions, except share data) Issued Value Capital Adjustment Earnings
- --------------------------------- ---------- ----- ---------- ----------- --------
Balance at January 1, 1991 19,001,063 $19 $180 $6 $499
Net Loss -- -- -- -- (13)
Dividends Paid:
Common Stock ($2.20 per share) -- -- -- -- (41)
ESOP Preferred Stock
($5.97 per share) -- -- -- -- (8)
Purchases and Retirements
of Stock (53,190) -- (1) -- (1)
Reduction in ESOP
Obligations -- -- -- -- --
Stock Options Exercised 46,482 -- 2 -- --
Translation Adjustment -- -- -- (3) --
Other Transactions 18,952 -- 4 -- (1)
---------- ----- ---------- ----------- --------
Balance at December 31, 1991 19,013,307 19 185 3 435
Net Income -- -- -- -- 9
Dividends Paid:
Common Stock ($2.20 per share) -- -- -- -- (41)
ESOP Preferred Stock
($5.97 per share) -- -- -- -- (8)
Series A Conversion
Preferred Stock
($3.64 per share) -- -- -- -- (9)
Issuance of Series A
Conversion Preferred Stock
(2,760,000 shares) -- -- 108 -- --
Reduction in ESOP
Obligations -- -- -- -- --
Stock Options Exercised 45,305 -- 1 -- --
Translation Adjustment -- -- -- (4) --
Other Transactions 11,163 -- 2 -- 2
---------- ----- ---------- ----------- --------
Balance at December 31, 1992 19,069,775 19 296 (1) 388
Net Loss -- -- -- -- (92)
Dividends Paid:
Common Stock ($2.20 per
share) -- -- -- -- (42)
ESOP Preferred Stock
($5.97 per share) -- -- -- -- (7)
Series A Conversion
Preferred Stock
($3.64 per share) -- -- -- -- (10)
Reduction in ESOP -- -- -- -- --
Obligations
Stock Options Exercised 19,418 -- 1 -- --
Translation Adjustment -- -- -- (3) --
Other Transactions 13,077 -- -- (5) 1
---------- ----- ---------- ----------- --------
Balance at December 31, 1993 19,102,270 $ 19 $ 297 $(9) $238
========== ===== ========== =========== ========
Preferred Stock
Series A ESOP ESOP
($ in millions, except share data) Par Value Par Value Obligations
- ------------------------------- --------- --------- ------------
Balance at January 1, 1991 $-- $100 $ (89)
Net Loss -- -- --
Dividends Paid:
Common Stock ($2.20 per share) -- -- --
ESOP Preferred Stock
($5.97 Per Share) -- -- --
Purchases and Retirements of Stock -- -- --
Reduction in ESOP Obligations -- -- 14
Stock Options Exercised -- -- --
Translation Adjustment -- -- --
Other Transactions -- (1) --
--------- --------- ------------
Balance at December 31, 1991 -- 99 (75)
Net Income -- -- --
Dividends Paid:
Common Stock ($2.20 per share) -- -- --
ESOP Preferred Stock
($5.97 per share) -- -- --
Series A Conversion
Preferred Stock
($3.64 Per Share) -- -- --
Issuance of Series A Conversion
Preferred Stock
(2,760,000 shares) 3 -- --
Reduction in ESOP
Obligations -- -- 15
Stock Options Exercised -- -- --
Translation Adjustment -- -- --
Other Transactions -- (3) --
--------- --------- ------------
Balance at December 31, 1992 3 96 (60)
Net Loss -- -- --
Dividends Paid:
Common Stock ($2.20 per share) -- -- --
ESOP Preferred Stock
($5.97 per share) -- -- --
Series A Conversion
Preferred Stock
($3.64 per share) -- -- --
Reduction in ESOP -- -- 16
Obligations
Stock Options Exercised -- -- --
Translation Adjustment -- -- --
Other Transactions -- (4) --
--------- --------- ------------
Balance at December 31, 1993 $3 $92 $ (44)
========= ========= ============
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ($ in millions) 1993 1992 1991
- --------------------------------------- ------ ----- ------
Operating Activities
Net Income (Loss) $ (92) $ 9 $ (13)
Adjustments to Reconcile Net Income (Loss) to
Net Cash
Provided by Operating Activities:
Losses (Earnings) of Non-consolidated
Affiliates 1 5 (3)
Depreciation 131 117 113
Amortization of Intangibles 8 6 7
Deferred Taxes (63) 10 (22)
Charge for 1993 Strategic Action Plan and
1991 Streamlining Program 213 -- 129
Cumulative Effect of Accounting Changes -- 46 --
Change in Assets and Liabilities Net of
Purchases and Sales of Businesses:
Receivables 13 56 1
Inventories (10) (24) (6)
Other Current Assets -- 8 (8)
Current Liabilities Other Than Borrowings (59) (60) (31)
Noncurrent Liabilities (6) 1 (8)
Other Transactions 1 15 8
------ ----- ------
Net Operating Activities 137 189 167
------ ----- ------
Investing Activities
Capital Expenditures (132) (173) (177)
Disposition of Property, Plant and Equipment 19 2 2
Business Acquired in Purchase Transaction -- -- (80)
Proceeds From Sales of Businesses 37 42 14
Other Investments (8) (10) (18)
------ ----- ------
Net Investing Activities (84) (139) (259)
------ ----- ------
Financing Activities
Long-Term Debt:
Borrowings -- 100 80
Repayments (30) (130) (43)
Short-Term Borrowings (Repayments) 22 (90) 92
Purchase of Olin Shares (4) (3) (2)
Issuance of Series A Conversion Preferred
Stock -- 111 --
Repayment from ESOP 16 15 14
Stock Options Exercised 1 1 2
Dividends Paid (59) (58) (49)
------ ----- ------
Net Financing Activities (54) (54) 94
------ ----- ------
Net (Decrease) Increase in Cash (1) (4) 2
------ ----- ------
Cash, Beginning of Year 4 8 6
------ ----- ------
Cash, End of Year $ 3 $ 4 $ 8
====== ===== ======
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
23
Notes to Financial Statements
($ in millions, except share data)
Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the company and
all majority-owned subsidiaries. Investments in 20-50% owned affiliates are
accounted for using the equity method of accounting under which investments are
recorded at cost and consist of the company's share of undistributed earnings or
losses of the affiliates.
Long-Term Contracts
Sales and cost of sales related to government contracts that extend beyond one
year are primarily recognized under the percentage-of-completion method of
accounting as costs are incurred. Profits expected to be realized on contracts
are based on the company's estimates of costs at completion compared to total
contract sales value. When the company believes the cost of completing a
contract will exceed contract-related revenues, the full amount of the
anticipated contract loss is recognized.
Inventories
Inventories are valued principally by the dollar value last-in, first-out (LIFO)
method of inventory accounting.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed on
a straight-line basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the term of the lease or the estimated
useful life of the improvement, whichever is less. Start-up costs are expensed
as incurred.
Income Taxes
In 1992, the company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," (SFAS No. 109) which requires recognition of
deferred tax liabilities and assets for differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Prior to 1992, the deferred income tax provision was based on the differences
in the timing of the recognition of transactions for financial and tax reporting
purposes.
Deferred taxes have not been provided on the undistributed earnings of foreign
subsidiaries, since the company intends to continue to reinvest these earnings.
Foreign Currency Translation
Foreign affiliates' balance sheet amounts are translated at the exchange rates
in effect at year end, and income statement amounts are translated at the
average rates of exchange prevailing during the year. Translation adjustments
are recorded as a separate component of shareholders' equity. Foreign currency
exchange losses, net of taxes, were $4 million in 1993, $3 million in 1992 and
less than $1 million in 1991.
The company has entered into foreign currency hedging transactions in order to
minimize exposure to fluctuations in foreign exchange rates. Realized and
unrealized gains and losses on hedging contracts designated as hedges of foreign
currency transactions are deferred and recognized in income in the same period
as the underlying transactions. All other realized and unrealized gains and
losses are recognized in income. At December 31, 1993 the company had $20
million in contracts to buy and $75 million in contracts to sell foreign
currencies during 1994.
Goodwill
Goodwill, the excess of the purchase price of acquired businesses over fair
value of the respective net assets, is amortized principally over 30 years on a
straight-line basis.
Financial Instruments
The fair value of the company's financial instruments approximates carrying
value. Fair values were estimated based on quoted market prices, where
available, or on current rates offered to the company for debt with similar
terms and maturities.
Earnings Per Share
Primary earnings per share are computed by dividing net income less the ESOP
preferred stock dividend requirement by the weighted average number of common
shares outstanding plus an equivalent number (one for one) of common shares,
assuming the conversion of Series A Stock. Fully diluted earnings per share
reflect the dilutive effect of stock options and assume the conversion of
outstanding ESOP preferred stock into an equivalent number of common shares at
the date of issuance. Net income was reduced by an additional ESOP contribution
(differential between the common and the ESOP preferred dividend rates under an
assumed conversion) necessary to satisfy the debt service requirement.
Average Common Shares and Common Equivalents Outstanding
Assuming
Full
Years ended December 31 (In thousands) Primary Dilution
- -------------------------------------- ------- --------
1993 21,840 23,487
1992 21,598 23,235
1991 19,001 20,618
Reclassifications
Certain reclassifications have been made to prior years' financial statements to
conform to the 1993 presentation.
Trade Receivables
In December 1990, the company entered into an agreement to sell an undivided
fractional ownership interest in a designated pool of receivables, with limited
recourse, in an amount not to exceed $70 million. At December 31, 1993 and
December 31, 1992, $65 million and $60 million of accounts receivables had been
sold under this agreement. An interest in new receivables may be sold as
collections reduce previously sold interests. The company's credit risk
associated with the designated pool of receivables was assessed in conjunction
with the overall evaluation of trade receivables. Reserves ascribed to these
accounts are included in the "Allowance for Doubtful Items" on the consolidated
balance sheets and are not a material portion thereof. Operating expenses
include fees of $2 million in 1993, 1992 and 1991 related to the sale of
receivables under this agreement.
At December 31, 1993 and December 31, 1992, trade receivables included
unbilled receivables of $73 million, related to certain government contracts
which are accounted for on the percentage-of-completion method.
Inventories
If the first-in, first-out (FIFO) method of inventory accounting had been used,
inventories would have been approximately $145 million
24
and $181 million higher than reported at December 31, 1993 and December 31,
1992, respectively. It is not practicable to separate the inventory into its
components because LIFO inventory values are determined principally by the use
of the dollar value LIFO method.
Property, Plant and Equipment
1993 1992
------ ------
Land and improvements to land $ 127 $ 119
Buildings and building equipment 296 295
Machinery and equipment 1,951 1,885
Leasehold improvements 22 30
Construction in progress 113 163
------ ------
Property, plant and equipment 2,509 2,492
Less accumulated depreciation 1,624 1,558
------ ------
Property, plant and equipment, net $ 885 $ 934
====== ======
Leased assets capitalized and included above are not significant. Maintenance
and repairs charged to operations amounted to $159 million in 1993, $152 million
in 1992 and $148 million in 1991.
Short-Term Borrowings
1993 1992
--------------- ---------------
Amount Rate Amount Rate
------ ----- ------ -----
Bank loans $53 3.4% $52 3.6%
Domestic commercial paper 30 3.4% -- --
Foreign 11 4-12% 20 4-12%
------ ----- ------ -----
$94 $72
====== ======
At December 31, 1993, the company maintained committed credit facilities with
banks of $367 million of which $208 million was available, while the comparable
1992 amounts were $376 million and $244 million, respectively.
Long-Term Debt
Due 1993 1992
----- -----
Note agreements
95-02 7.97% notes $ 56 $ 63
95-96 8.125% notes 12 18
6/02 8% notes 100 100
Industrial development and environ-
mental improvement obligations
04-17 payable at interest rates which vary
with short-term tax exempt rates 35 29
95-08 payable at interest rates of 6% to 7% 39 44
6/96 7.144% note payable 40 40
95-09 Guarantee of ESOP debt varying
with LIBOR 29 45
9/98 10% note 11 11
95-02 Mortgage, capitalized leases and
other indebtedness 2 2
----- -----
Total long-term senior debt 324 352
6/97 9.5% subordinated notes 125 125
----- -----
Total long-term debt $ 449 $ 477
===== =====
Among the provisions of the note agreements are restrictions relating to
payment of dividends and acquisition of the company's capital stock. At December
31, 1993, retained earnings of approximately $96 million were not so
restricted under the provisions.
The ESOP's purchase of preferred stock in 1989 was financed by $60 million of
notes (guaranteed by the company) and $40 million of borrowings from the
company. The loan from the company to the ESOP was financed through a long-term
credit facility. At December 31, 1993, $15 million of the Guarantee of ESOP debt
has been included in current installments of long-term debt.
In September 1993, the company entered into a new unsecured revolving credit
agreement with a group of banks, which replaced a prior $200 million credit
agreement. The new agreement provides a maximum borrowing of $250 million and
unless extended, expires on October 15, 1997. The company may select various
floating rate borrowing options.
In January 1992, the company issued 2.76 million shares of Series A Conversion
Preferred Stock. Proceeds of $111 million were used to repay bank loans
outstanding at December 31, 1991.
In June 1992, the company sold $100 million of 8% notes due 2002. The proceeds
from this issue were used to reduce outstanding short-term debt. The company
then swapped interest payments on $50 million principal amount of the notes to a
floating rate.
Annual maturities of long-term debt for the next five years are $12 million in
1994, $13 million in 1995, $53 million in 1996, $132 million in 1997 and $19
million in 1998 (excluding the expiring guarantees of ESOP debt).
Series A Preferred Stock
In January 1992, the company sold 2.76 million shares of its $1 par value Series
A Conversion Preferred Stock (Series A Stock) generating net proceeds of $111
million. Dividends on the Series A Stock are cumulative at an annual rate of
$3.64 per share. On the mandatory conversion date (March 1, 1995) each
outstanding Series A Stock will convert automatically into one share of the
company's common stock (subject to adjustment in certain events) and the right
to receive an amount of cash equal to all accrued and unpaid dividends thereon.
Automatic conversion of the outstanding Series A Stock will also occur upon
certain mergers or consolidations of the company or in connection with certain
other events. In addition, the company has the option to call the Series A
Stock, in whole or in part, for redemption prior to maturity at a predetermined
call price (payable in common stock of the company) plus an amount of cash equal
to all accrued and unpaid dividends on the Series A Stock. The predetermined
call price was $55.57 at December 31, 1993, and declines ratably to $54.18 on
January 1, 1995, and $53.95 per share thereafter.
Cost of Sales-Related Transactions
Included in cost of sales for 1993 is a pretax charge of $171 million associated
with the strategic action plan formulated during the fourth quarter. The plan
included costs of business restructurings involving the relocation and
consolidation of facilities along with lower estimated proceeds from asset
disposals and higher costs associated with components of the 1991 streamlining
program ($41 million); dismantling, product liability and on-going custodial
costs related to discontinued businesses ($41 million); future environmental
liabilities ($55 million); and other charges including asset write-downs and
long-term disability liabilities ($34 million).
25
In April 1991, the company announced a comprehensive program to streamline its
operations and lower costs. The program involved the planned sale of certain
businesses, the write-down of several assets to net realizable value and the
recording of anticipated operating losses of related businesses to disposal
date. In addition, the streamlining program included salaried personnel
reductions, accomplished largely through an early retirement incentive
initiative. The program resulted in a pretax charge of $129 million ($80 million
after tax) which was recorded in the first quarter of 1991.
Restructuring Charge
Included in the restructuring charge was $42 million in 1993 for workforce
reductions and $22 million in 1991 for salaried staff reductions, both of which
were accomplished largely through an early retirement incentive initiative.
Interest Expense
Interest incurred totaled $40 million in 1993, $43 million in 1992, and $48
million in 1991, of which $2 million was capitalized in 1993 and 1991 and $4
million in 1992.
Pension Plans and Retirement Benefits
Essentially all of the company's domestic pension plans are non-contributory
final-average-pay or flat-benefit plans and all domestic employees are covered.
The company's funding policy is consistent with the requirements of federal laws
and regulations. In 1993 and 1991, the company offered to certain qualified
employees an option to receive enriched pension benefits under the early
retirement incentive program in connection with the restructuring charge.
Components of Net Pension Expense
1993 1992 1991
----- ---- -----
Service cost (benefits earned
during the period) $ 19 $ 17 $ 16
Interest cost on the projected
benefit obligation 71 65 61
Enriched pension benefit 7 -- 8
Actual return on assets (132) (62) (204)
Actual (loss) return deferred
for later recognition 53 (12) 133
Net amortization of
unrecognized transition
asset, prior service cost and
deferred gains and losses (2) (6) (4)
----- ---- -----
Net pension expense $ 16 $ 2 $ 10
===== ==== =====
Principal Assumptions
1993 1992 1991
---- ---- ----
Weighted average discount rate 7 1/2% 8 1/2% 8 3/4%
Weighted average rate of
compensation increase 4 1/2% 5 1/2% 5 1/2%
Long-term rate of return on assets 9 1/2% 9 1/2% 9 1/2%
Funded Status of the Plans
1993 1992
------ -----
Accumulated benefit obligation
including vested benefits of $935 and $770 $ 938 $ 774
------ -----
Plan assets at fair value, primarily equity
and fixed-income securities $ 984 $ 912
Projected benefit obligation for service
rendered to date (1,002) (836)
------ -----
Assets over (under) projected
benefit obligation (18) 76
Unrecognized net transition asset (48) (55)
Unrecognized loss (gain) 18 (40)
Unrecognized prior service cost 32 17
------ -----
Net pension liability $ (16) $ (2)
====== =====
Approximately 3% of the plan assets at December 31, 1993 and December 31, 1992
represents the company's common stock.
The company's foreign subsidiaries maintain pension and other benefit plans
which are consistent with statutory practices and are not significant.
The Nonbargaining Employees Pension Plan of Olin Corporation provides that if,
within three years following a change of control of the company, any corporate
action is taken or filing made in contemplation of, among other things, a plan
termination or merger or other transfer of assets or liabilities of the plan,
and such termination, merger or transfer thereafter takes place, plan benefits
would automatically be increased for affected participants (and retired
participants) to absorb any plan surplus.
The company provides certain postretirement health care and life insurance
benefits for eligible active and retired domestic employees. Effective January
1, 1992, the company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106). SFAS 106 requires the accrual method of accounting for
postretirement health care and life insurance benefits based on actuarially
determined costs to be recognized over the period from the date of hire to the
full eligibility date of employees who are expected to qualify for such
benefits. As of January 1, 1992, the company recognized the full amount of its
estimated accumulated postretirement benefit obligation, representing the
present value of the estimated future benefits payable to current retirees and
the earned portion of estimated benefits payable to active employees after
retirement. The pretax charge to 1992 earnings was $80 million with a net income
effect of $50 million or $2.30 per share. The net income and per share amounts
have been included in the statement of income as the cumulative effect of an
accounting change.
Components of Postretirement Expense
1993 1992
----- -----
Service cost-benefits earned during year $2 $2
Interest cost on accumulated postretirement
benefit obligation 6 7
----- -----
Total expense $8 $9
===== =====
26
Unfunded Liability for Postretirement Benefits
1993 1992
---- ----
Accumulated postretirement benefit obligation:
Retirees $38 $36
Fully eligible active plan participants 11 9
Other active participants 25 35
---- ----
Cumulative accumulated postretirement benefit
obligation 74 80
Unrecognized loss (8) --
Unrecognized prior service cost 11 --
---- ----
Net postretirement benefit liability $77 $80
==== ====
The accumulated postretirement benefit obligation was determined using the
projected unit credit method and an assumed discount rate of 71/2% in 1993 and
83/4% in 1992. The assumed health care cost trend rate used for pre-65 retirees
was 131/2% in 1993 and 14% in 1992, declining 1/2% per annum to 6%. For post-65
retirees, the company provides a fixed dollar benefit which is not subject to
escalation. In 1993 the company modified certain attributes of the
postemployment medical plan including eligibility requirements, retiree
contributions and a limit (effective year 2000) on pre-65 retiree medical
coverage.
A one percent increase each year in the health care cost trend rate used would
have resulted in a less than $1 million increase in the aggregate service and
interest components of expense for the year 1993, and a $4 million increase in
the accumulated postretirement benefit obligation at December 31, 1993.
In 1991 the expense associated with providing these benefits was based on life
insurance premiums and medical claims paid. Such benefit costs approximated $7
million and were expensed as incurred.
Income Taxes
As disclosed in the Summary of Significant Accounting Policies, the company
adopted SFAS 109 as of January 1, 1992. The cumulative effect on prior years of
this change in accounting principle increased 1992 net income by $4 million or
$.19 per share and is reported separately in the consolidated statement of
income.
Components of Pretax Income (Loss)
1993 1992 1991
----- ----- -----
Domestic $(158) $ 89 $ (36)
Foreign 8 (1) 11
----- ----- -----
$(150) $ 88 $ (25)
===== ===== =====
Components of Income Tax Expense (Benefit)
1993 1992 1991
----- ----- -----
Currently payable:
Federal $ (1) $ 18 $ 6
State 3 4 3
Foreign 3 1 1
----- ----- -----
5 23 10
Deferred (63) 10 (22)
----- ----- -----
$ (58) $ 33 $ (12)
===== ===== =====
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal income
tax of 35% in 1993 and 34% in 1992 and 1991 to the income (loss) before taxes.
Effective Tax Rate Reconciliation
(Percent) 1993 1992 1991
----- ---- -----
Statutory federal tax rate (35.0) 34.0 (34.0)
Foreign income tax 2.5 (.9) (3.1)
State income taxes, net (3.4) 3.8 (4.8)
Goodwill 1.2 2.0 6.0
Equity in net income of affiliates (.5) (.3) (4.4)
Other, net (3.5) (1.1) (7.7)
----- ---- -----
Effective tax rate (38.7) 37.5 (48.0)
===== ==== =====
The cumulative amount of undistributed earnings of foreign subsidiaries, if
remitted, would result in a minimal amount of tax because of available foreign
tax credits.
Components of Deferred Tax Assets and Liabilities
1993 1992
----- -----
Deferred tax assets
Post retirement benefits $ 31 $ 30
Non-deductible reserves 150 80
Tax credit carryforwards 44 30
Other miscellaneous items 16 15
----- -----
Total deferred tax assets $ 241 $ 155
===== =====
1993 1992
----- -----
Deferred tax liabilities
Property, plant and equipment $ 133 $ 129
Other miscellaneous items 45 26
----- -----
Total deferred tax liabilities $ 178 $ 155
===== =====
Included in Other Current Assets are $46 million of net current deferred
assets. Taxable income is expected to be sufficient to recover the net benefit
within the carryforward period and, therefore, no valuation allowance was
established.
As of December 31, 1993, the company had approximately $40 million of
Alternative Minimum Tax Credits available to offset future federal income taxes
on an indefinite carryforward basis.
The components of the 1991 net deferred tax benefit consisted primarily of
accelerated depreciation, alternative minimum tax and non-deductible reserves.
Supplemental Cash Flow Information
Cash payments during the years ended 1993, 1992 and 1991 included interest of
$39 million, $43 million and $49 million and income taxes, net of refunds, of $8
million, $15 million and $17 million, respectively.
In 1991, A. J. Oster Co. was acquired for $80 million in cash. The fair value
of assets acquired was $90 million and liabilities assumed or created were $10
million.
Details of Businesses Sold
1993 1992 1991
----- ----- -----
Fair value of assets sold $ 37 $ 42 $ 32
Liabilities assumed by the purchaser -- 6 12
Note (paid) payable by the purchaser -- (6) 6
----- ----- -----
Net proceeds from sales of businesses $ 37 $ 42 $ 14
===== ===== =====
27
Employee Stock Ownership Plan
In June 1989, an amendment to the company's Thrift Plan created an Employee
Stock Ownership Plan feature and changed the name of the Thrift Plan to the
Contributing Employee Ownership Plan. The plan is a defined contribution plan
available to essentially all domestic employees which provides a match of
employee contributions. The plan purchased from the company approximately 1.3
million shares ($100 million) of a newly authorized 1.75 million share series of
the company's ESOP preferred stock, financed by $60 million of notes guaranteed
by the company and a $40 million loan from the company. This loan has been
repaid in total to the company as of December 31, 1992. At December 31, 1993
there were 1.2 million shares of ESOP preferred stock outstanding at a value of
$80.00 per share. The annual fixed dividend rate is $5.97 per share. The ESOP
preferred stock is convertible by the holder into the company's common stock on
a one-for-one basis, subject to anti-dilutive adjustments and may be redeemed at
the option of the company after July 1, 1994, or at the option of the plan under
certain circumstances (including upon payment of withdrawing plan participant
accounts or if required to meet the plan's debt payments). The company reserves
the right to satisfy the redemption in cash, marketable obligations or common
stock. Expenses related to the plan are based on ESOP preferred and common stock
allocated to participants. These costs amounted to $10 million in 1993, 1992 and
1991. Interest incurred by the plan totaled $2 million in 1993, $3 million in
1992, and $5 million in 1991, which was funded by ESOP preferred dividends. The
ESOP preferred stock is included in shareholders' equity because the company
intends to redeem the ESOP preferred stock solely with shares of the company's
common stock, and has the ability to do so.
Stock Options
Under the stock option plans, options may be granted to purchase shares of the
company's common stock at not less than fair market value at the date of grant,
and are exercisable for a period not exceeding ten years from that date. Stock
option transactions are as follows:
Option Price
Shares Per Share
------- -------------
Outstanding at January 1, 1991 653,258 $13.24-$65.00
Granted 138,460 44.38
Exercised (46,482) 16.55-49.32
Canceled (10,214) 44.38-53.50
------- -------------
Outstanding at December 31, 1991 735,022 13.24-65.00
Granted 148,125 53.00-63.60
Exercised (45,306) 13.24-49.32
Canceled (29,805) 30.82-53.50
------- -------------
Outstanding at December 31, 1992 808,036 22.14-65.00
Granted 147,030 43.25
Exercised (19,418) 28.19-44.38
Canceled (14,159) 43.25-53.50
------- -------------
Outstanding at December 31, 1993 921,489 $22.14-$65.00
======= =============
Of the outstanding options at December 31, 1993, options covering 755,449
shares are currently exercisable.
At December 31, 1993, common shares reserved for issuance under these plans
were 1,316,794 and under additional remuneration agreements were estimated to be
50,000.
Shareholder Rights Plan
In 1986, the Board of Directors adopted a Shareholder Rights Plan expiring in
1996, which is designed to prevent an acquiror from gaining control of the
company without offering a fair price to all shareholders. Each right entitles
the shareholder to buy 1/2 share of common stock of the company at an exercise
price of $50. The rights are exercisable only if a person acquires 20% or more
of the company's common stock or commences a tender or exchange offer for 30% or
more of such stock. The company can redeem the rights at $.05 per right for a
certain time period. If any person acquires 30% or more of the common stock and
in the event of certain mergers or combinations, each right will entitle the
holder to purchase stock or other property having a value of twice the exercise
price.
Segment Information
Information relative to the various industries in which the company operates
appears on page 19 and is incorporated herein by reference.
Segment Operating Income (Loss)
1993 1992 1991
------ ------ ------
Chemicals $ (165) $ 26 $ (72)
Metals 29 47 26
Defense and Ammunition 15 44 52
------ ------ ------
Total operating income (loss) $ (121) $ 117 $ 6
====== ====== ======
Geographic Segment Data
1993 1992 1991
------ ------ ------
Sales
United States $2,242 $2,222 $2,101
Foreign 181 154 174
Transfers between areas
United States 83 79 79
Foreign 16 12 11
Eliminations (99) (91) (90)
------ ------ ------
Total sales $2,423 $2,376 $2,275
====== ====== ======
Operating income (loss)
United States $ (128) $ 110 $ (6)
Foreign 6 3 8
Eliminations 1 4 4
------ ------ ------
Operating income (loss) $ (121) $ 117 $ 6
====== ====== ======
Assets
United States $1,782 $1,831 $1,824
Foreign 137 183 202
Investments 40 47 28
Corporate assets and eliminations (29) (31) (42)
------ ------ ------
Total consolidated assets $1,930 $2,030 $2,012
====== ====== ======
Sales to the U.S. government were $354 million, $409 million and $453 million
in 1993, 1992 and 1991, respectively. The Defense and Ammunition segment
accounted for approximately 83% of the government sales in 1993, 1992 and 1991.
Transfers between geographic areas are priced generally at prevailing market
prices. Export sales
28
from the United States to unaffiliated customers were $162 million, $172 million
and $175 million in 1993, 1992 and 1991, respectively.
Acquisitions
In 1991 the company acquired A.J. Oster Co. for $80 million. This acquisition
was accounted for as a purchase and accordingly, its results of operations,
which were not material, are included in the consolidated financial statements
from the date of acquisition. The net assets acquired included working capital
of $32 million, property, plant and equipment of $14 million and other assets of
$2 million.
Dispositions
During 1993, the Company sold the facility and the assets of its contract
integrated circuit assembly operation and its interest in the German joint
venture to its partner. These transactions generated cash proceeds of $37
million.
Throughout 1992, the company sold several small product lines such as urethane
systems, Uralloy low profile additives, sodium chlorite, the European and
Singapore-based electronic chemicals and its ethylene oxide unit. Proceeds from
these sales in 1992 amounted to $36 million.
In December 1991, the company sold its European sporting ammunition business,
including its shotshell manufacturing facility in Italy. This transaction
generated cash proceeds of $20 million, including $6 million received in 1992.
Environmental
The company is party to various governmental and private environmental actions
associated with waste disposal sites and manufacturing facilities. 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. Environmental provisions charged to
income amounted to $85 million in 1993, $17 million in 1992, and $18 million in
1991. The significant increase in 1993 resulted from expanded volumes of
contaminants uncovered while remediating a particular site combined with the
availability of more definitive data from progressing investigatory activities
concerning both the nature and extent of contamination and remediation
alternatives at other sites. The consolidated balance sheets include reserves
for future environmental expenditures to investigate and remediate known sites
amounting to $131 million at December 31, 1993 and $66 million at December 31,
1992, of which $91 million and $39 million are classified as other noncurrent
liabilities, respectively. Included in the reserve at December 31, 1993 are
liabilities anticipated to be shared with a third party, with whom the company
is currently in litigation.
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 time periods (sometimes lengthy)
over which site remediation occurs. It is possible that some of these matters
(the outcome of which is subject to various uncertainties) may be decided
unfavorably against the company. At December 31, 1993, the company had estimated
additional contingent environmental liabilities of $19 million which were
determined in accordance with generally accepted accounting principles.
Commitments and Contingencies
The company leases certain properties, such as manufacturing, warehousing and
office space, data processing and office equipment and railroad cars. Leases
covering these properties generally contain escalation clauses based on
increased costs of the lessor, primarily property taxes, maintenance and
insurance and have renewal or purchase options. Total rent expense charged to
operations amounted to $45 million in 1993 and $37 million in 1992 and 1991,
(sublease income is not significant). Future minimum rent payments under
operating leases having initial or remaining noncancelable lease terms in excess
of one year at December 31, 1993 are as follows (in millions): 1994-$29; 1995-
$25; 1996-$20; 1997-$17; 1998-$13; thereafter-$58.
There are a variety of legal proceedings, contractual obligations and
environmental issues, arising out of its businesses, pending or threatened
against the company. Certain information regarding these matters can be found in
the Environmental note to the consolidated financial statements; and Item 3,
Legal Proceedings and Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations in the 1993 Form 10-K, which is available on
request from the company.
29
Independent Auditors' Report
To the Board of Directors and Shareholders of Olin Corporation:
We have audited the accompanying consolidated balance sheets of Olin Corporation
and subsidiaries as of December 31, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1993. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to above,
present fairly, in all material respects, the financial position of Olin
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in the notes to financial statements, the company changed its
methods of accounting for postretirement benefits other than pensions and income
taxes in 1992.
/s/ KPMG Peat Marwick
Stamford, Connecticut
January 27, 1994
Management Report on Financial Statements
The company has prepared the accompanying consolidated financial statements and
related information for the years ended December 31, 1993, 1992, and 1991.
Management is responsible for the integrity of the financial statements, which
were prepared in conformity with generally accepted accounting principles. In
our opinion, they contain no material misstatements attributable to fraud or
error. The financial information contained elsewhere in this annual report is
consistent with the financial statements.
The company maintains internal accounting control systems designed to provide
reliable information and reasonable assurance that assets are safeguarded from
loss or unauthorized use, that fraudulent reporting would be prevented or
detected and that all transactions are properly authorized. A well-qualified
internal audit department evaluates internal accounting control systems and
monitors compliance with the company's internal control policies and procedures.
Management believes that, as of December 31, 1993, the company's system of
internal controls is adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is communicated
to all employees in the company's code of business conduct, which is publicized
throughout the company. The code of conduct addresses, among other things, the
necessity of ensuring open communication within the company; potential conflicts
of interest; compliance with all domestic and foreign laws, including those
relating to financial disclosure; and the confidentiality of proprietary
information. The company maintains a systematic program to assess compliance
with these policies.
Our independent auditors are engaged to audit and to render an opinion on the
fairness in all material respects of our consolidated financial statements
presented in conformity with generally accepted accounting principles. In
performing their audit in accordance with generally accepted auditing standards,
they evaluate the effectiveness of our internal accounting control systems,
review selected transactions and carry out other auditing procedures to the
extent they consider necessary in expressing their opinion on our financial
statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the independent auditors, management and the
company's internal auditors to review the work of each and to evaluate matters
pertinent to internal accounting controls and financial reporting, and the
nature, extent and results of auditing activities. The Audit Committee annually
recommends to the Board of Directors the appointment of independent auditors.
The independent auditors and the company's internal audit department have access
to the Audit Committee without management's presence.
/s/ John W. Johnstone, Jr. /s/ James A. Riggs
John W. Johnstone, Jr. James A. Riggs
Chairman and Senior Vice President and
Chief Executive Officer Chief Financial Officer
30
Directors
Board of Directors
Robert R. Frederick
Former President and
Chief Executive Officer,
RCA Corporation
Donald W. Griffin
President and
Chief Operating Officer
William W. Higgins
Former Senior Vice President,
The Chase Manhattan
Bank, N.A.
Robert Holland, Jr.
Chairman, ROKHER-J, Inc.
John W. Johnstone, Jr.
Chairman and
Chief Executive Officer
Jack D. Kuehler
Former Vice Chairman,
International Business Machines
Corporation
H. William Lichtenberger
Chairman and
Chief Executive Officer,
Praxair, Inc.
G. Jackson Ratcliffe, Jr.
Chairman, President
and Chief Executive Officer,
Hubbell Incorporated
William L. Read
Vice Admiral, U.S. Navy (Ret.)
John P. Schaefer
Chairman, Research Corporation
Technologies and President,
Research Corporation
Irving Shain
Former Vice President and
Chief Scientist
Eugene F. Williams, Jr.
Former Chairman, Centerre
Trust Company of St. Louis
Robert L. Yohe
Former Vice Chairman
of the Board
Committees of the Board
Audit Committee
William W. Higgins,
Chairman
G. Jackson Ratcliffe, Jr.
William L. Read
John P. Schaefer
Irving Shain
Compensation and Stock
Option Committee
G. Jackson Ratcliffe, Jr.,
Chairman
Robert R. Frederick
Robert Holland, Jr.
Jack D. Kuehler
Eugene F. Williams, Jr.
Directors Committee
Jack D. Kuehler,
Chairman
Robert R. Frederick
William W. Higgins
Eugene F. Williams, Jr.
Executive and Finance Committee
Eugene F. Williams, Jr.,
Chairman
Robert R. Frederick
Donald W. Griffin
Robert Holland, Jr.
John W. Johnstone, Jr.
Jack D. Kuehler
Robert L. Yohe
Pension Committee
Robert R. Frederick,
Chairman
G. Jackson Ratcliffe, Jr.
William L. Read
John P. Schaefer
Irving Shain
Social Responsibility Committee
John P. Schaefer,
Chairman
William W. Higgins
Robert Holland, Jr.
William L. Read
Irving Shain
Management
Corporate Management
John W. Johnstone, Jr.
Chairman and
Chief Executive Officer
Donald W. Griffin
President and
Chief Operating Officer
Joseph M. Gaffney
Senior Vice President,
Planning and Development
James G. Hascall
Senior Vice President
James A. Riggs
Senior Vice President and
Chief Financial Officer
Emanuel J. DiTeresi
Vice President and Controller
George B. Erensen
Vice President, Taxes and
Risk Management
Johnnie M. Jackson, Jr.
General Counsel-Corporate
Resources, And Secretary
Peter C. Kosche
Vice President, Human Resources
Janet M. Pierpont
Vice President and Treasurer
Linda E. Gaza
Vice President, Public Affairs
Robert A. Beyerl
Director, Internal Audit
Operations Management
Leon B. Anziano
President, Chlor-Alkali Products,
and Corporate Vice President
Gerald W. Bersett
President, Winchester, and
Corporate Vice President
Michael E. Campbell
President, Electronic Materials,
and Corporate Vice President
Angelo A. Catani
President, Ordnance, and
Corporate Vice President
Patrick J. Davey
President, Chemicals, and
Corporate Vice President
James G. Hascall
President, Brass, and Corporate
Senior Vice President
William M. Schmitt
President, Latin America and
South Africa, and
Corporate Vice President
William W. Smith
President, Aerospace, and
Corporate Vice President
Marc A. Kolpin
President, Physics International
Robert J. Tubbs
General Counsel-Operations
31
Corporate Data
Transfer Agent and Registrar
Chemical Bank
450 W. 33rd Street
New York, N.Y. 10001
Telephone: (800) 306-8594
Stock Exchange Listings
Common Stock
New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Ticker Symbol: OLN
Series A Conversion
Preferred Stock
New York Stock Exchange
Ticker Symbol: OLNPrP
Trustee for Subordinated Notes
Bankers Trust Company
Four Albany Street
New York, N.Y. 10015
Telephone: (212) 250-6112
Trustee for 8% Notes
Chemical Bank
450 W. 33rd Street
New York, N.Y. 10001
Telephone: (212) 613-7147
Commercial Paper Dealers
J.P. Morgan Securities, Inc.
60 Wall Street
New York, N.Y. 10260-0060
Telephone: (212) 648-0100
Goldman Sachs
Money Markets, L.P.
85 Broad Street
New York, N.Y. 10004
Telephone: (212) 902-8274
Dividend Reinvestment Service
Olin makes a Dividend Reinvestment Service available to its shareholders.
For information, write to:
Chemical Bank
Dividend Reinvestment Dept.
P.O. Box 24850
Church Street Station
New York, N.Y. 10249
Telephone: (800) 306-8594
Trademarks
Italicized words identifying products in this report are trademarks or
servicemarks of Olin Corporation or its subsidiaries or affiliates.
Annual Meeting
The annual meeting of the shareholders will be held on Thursday, April 28, 1994,
at 10:30 a.m., local time, at the headquarters of the corporation, 120 Long
Ridge Road, Stamford, Connecticut.
Toll Free Shareholder Information
Telephone: (800) 656-OLIN
Quarterly earnings releases, other corporate news releases, and Olin's Form 10-K
are available. Earnings are released during the third week of April, July,
October, and the fourth week of January.
Investor Contact
Richard E. Koch
Director, Investor Relations Olin Corporation
P.O. Box 1355
Stamford, CT 06904-1355
Telephone: (203) 356-3254
Credits
Design: Addison Corporate Annual Reports Inc., N.Y.C.
Photography: Jeff Smith
Printed in U.S.A. on recycled paper.
Annual Report Features
1992--Building for the Next Century
1991--The Spirit of Olin
1990--Stakeholders of Total Quality Management
1989--Building Shareholder Value
1988--Employee Dedication to Customer Service
1987--A Focus on Customer Satisfaction
Quarterly Data (unaudited)
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
Sales $592 $626 $607 $598 $2,423
Cost of goods sold 484 507 508 662 2,161
Net income (loss) 12 14 5 (123) (92)
Net income (loss) per share:
Primary .45 .57 .15 (5.69) (4.52)
Assuming full dilution .45 .57 -- -- --
Common dividends .55 .55 .55 .55 2.20
Market price of
common stock*
High 46 1/4 46 1/4 45 1/4 50 1/2 50 1/2
Low 40 3/8 42 3/8 39 7/8 41 3/4 39 7/8
1992
- ----
Sales $614 $633 $577 $552 $2,376
Cost of goods sold 490 516 482 453 1,941
Income before
accounting changes 24 21 6 4 55
Accounting changes (46) -- -- -- (46)
Net income (loss) (22) 21 6 4 9
Net income (loss) per share:
Primary:
Income before
accounting changes 1.04 .88 .18 .07 2.17
Accounting changes (2.11) -- -- -- (2.11)
Net income (loss) (1.07) .88 .18 .07 .06
Assuming full dilution -- .86 -- -- --
Common dividends .55 .55 .55 .55 2.20
Market price of
common stock*
High 54 1/4 54 3/4 47 3/4 46 54 3/4
Low 39 3/8 43 3/4 39 1/2 37 1/4 37 1/4
1991
- ----
Sales $561 $568 $551 $595 $2,275
Cost of goods sold 549 454 453 488 1,944
Net income (loss) (59) 21 15 10 (13)
Net income (loss) per share:
Primary (3.20) .98 .70 .60 (.92)
Assuming full dilution -- .96 .69 .60 --
Common dividends .55 .55 .55 .55 2.20
Market price of
common stock*
High 49 5/8 53 1/2 54 47 3/4 54
Low 33 1/2 40 1/4 46 1/4 36 5/8 33 1/2
* New York Stock Exchange composite transactions.
1993 fourth-quarter loss includes a $132 million charge for personnel
reductions, business restructurings involving consolidations and re-alignments
within divisions, costs at sites of discontinued businesses, future
environmental liabilities, and other charges.
1992 first-quarter loss includes a $46 million charge for cumulative effect
of Accounting Changes for the adoption of SFAS No. 106 and No. 109.
1991 first-quarter loss includes an $80 million charge to cover losses on
disposition and write-down of certain businesses and costs of personnel
reductions.
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