EXHIBIT 13
Olin Corporation is a Fortune 200 company whose businesses are concentrated
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
1994 Compared to 1993
The selective investments made over the past several years, strategic actions
taken in 1993 and a stronger economy contributed to the company's improved
financial performance over 1993. In 1994, all divisions exceeded 1993 profit
levels with record earnings achieved in Metals, Winchester and Electronic
Materials.
Net income increased to $91 million, or $3.65 per share, from a net loss of
$92 million, or $4.52 per share, which included a charge of $132 million. Sales
in 1994 were a record $2.7 billion, up 10% from 1993, attributed primarily to
strong customer demand for most major products.
Chemicals
Sales of $1,195 million for 1994 increased 7% over 1993, while segment net
income was $42 million compared to 1993's net income of $12 million,
excluding $106 million of the 1993 charge. Improved economic conditions
favorably impacted many of the chemicals businesses. Improved pricing and
lower manufacturing costs in chlor-alkali and higher volumes in pool products
and urethanes contributed to the 1994 increase in net income from 1993.
Chlor-alkali's sales were 11% ahead of last year due to strong demand and
increased pricing. These factors along with lower manufacturing costs (raw
materials and plant fixed costs) and the implementation of profit improvement
programs resulting from reengineered processes, contributed to chlor-alkali's
improved profit performance.
In the urethanes business, strong domestic demand for polyols contributed
to the 1994 sales increase. TDI volumes were comparable to 1993's levels. The
specialty urethanes coating product line experienced higher sales volumes as
this relatively new business continued to expand internationally. Operating
results in 1994 improved as the higher volumes more than offset increases in raw
material costs and the effect of the production outage at the Lake Charles, La.
facility.
Pool products sales increased over 1993's levels as higher volumes more
than offset the impact of competitive pricing pressures. Domestic brand and bulk
volumes as well as export shipments exceeded last year's levels. Reduction in
administrative expenses were offset by additional expenditures for advertising
and promotional efforts to support brand products.
Operating results of specialty chemicals exceeded last year. Worldwide
volumes increased as a result of higher foreign sales and the introduction of
new products. The profit impact from these additional volumes was offset in part
by higher operating costs relating to toxicology studies on new products and
additional administrative personnel at foreign affiliates.
Strong demand from the semiconductor industry for the company's high-purity
electronic chemicals and its MQUAD microelectronic packaging system accounted
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for the improvement in sales and profitability of the electronic chemicals
business.
Chemicals sales and net income are expected to increase from 1994's level
due to higher volumes and improved pricing, offset in part by higher raw
material costs. Chlor-alkali's performance is expected to improve due to
continuing strong demand for caustic. Although additional volumes are estimated
to increase specialty chemicals sales, new product introductions and market
entry costs are expected to negate the profit impact from the additional
volumes. In the electronic chemicals business, volume gains due to continuing
demand from the semiconductor industry are expected to enhance 1995's
performance.
In the past, there have been legislative initiatives to study the dangers
and benefits of chlorine and chlorinated compounds. It is impossible to predict
what legislation or other initiatives, if any, may be adopted regarding chlorine
and what effect, if any, such action may have on the company.
Metals
Sales in 1994 were a record $750 million, and improved 14% over 1993 on higher
metal values and increased levels of commercial shipments, as all operations
recorded higher volumes than the previous year. Net income increased to $39
million from $26 million in 1993, excluding $12 million of the 1993 charge. The
record financial performance benefited from higher demand; additional
investments in equipment to expand capacity, improve yields and reduce
manufacturing costs; the implementation of profit improvement programs including
a reduction in the salaried workforce; and the absence of operating losses from
a joint venture disposed of in the fourth quarter of 1993.
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With an improved economy in 1994, the demand for strip products from the
automotive, housing and ammunition markets, was exceptionally strong. The
industry has not seen demand for strip reach 1994 levels in the last ten years.
The 1993 expansion of the East Alton, Ill. mill provided additional capacity to
meet this demand. Shipments of other products, such as stainless steel and
fineweld tube, also exceeded 1993's levels.
In 1995, it is expected that the economy will remain strong throughout the
year and that Metals will operate at near capacity production levels to support
the demand for brass strip. Sales are expected to increase slightly as increased
sales volumes in certain operations and higher metal values are expected to
offset lower coinage requirements. There is still excess domestic capacity,
which may lower industry operating rates and create a very competitive pricing
environment. Segment net income is estimated to be comparable to last year.
Defense and Ammunition
Sales in 1994 were $713 million, 10% ahead of 1993 due to increased shipments of
Winchester commercial ammunition and Ball Powder propellants and the inclusion
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of sales of the newly acquired medium caliber business. Net income in 1994
increased to $32 million from $24 million, excluding $14 million of the 1993
charge. The increased volumes, along with the profit contribution from the
acquisition, additional royalty income and the savings from the reduction in the
salaried workforce, contributed to the increase in segment net income.
Winchester's domestic commercial ammunition sales were exceptionally strong
throughout the year. Heavy consumer buying due in part to the fear of
restrictive legislation and taxation accounted for Winchester's record sales
level and offset decreases in military export ammunition sales. The related
profit impact from higher sales more than offset lower fees associated with
lower production volumes at the Lake City Army Ammunition Plant and accounted
for the division's record profits in 1994.
In the Ordnance Division, the integration of the newly acquired business
was implemented successfully and expanded the company's medium caliber
ammunition line of products. Ordnance's sales and profits improved over 1993 due
to the acquisition and increased Ball Powder propellant shipments. Tank
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ammunition volumes in 1994 were comparable to the prior year.
Aerospace Division sales were comparable to 1993's amount. Sales of new
products were offset by delays/cancellations of certain government funded
programs. Increased margins on certain rocket engine programs, new products and
additional royalty income contributed to higher divisional profits in 1994.
In 1995, sales for the Defense and Ammunition segment are expected to
increase with net income comparable to 1994. Demand for Winchester's commercial
ammunition is expected to remain strong, while its military ammunition shipments
are expected to surpass 1994's level. Increases in commodity costs, especially
copper, and lower fees related to reduced production volumes at Lake City are
estimated to offset the profit impact from the sales increases. Higher shipments
of large and medium caliber ammunition along with sales of new Aerospace
products are expected to more than offset lower Ball Powder propellant volumes.
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U.S. government sales amounted to $379 million in 1994, $354 million in
1993 and $409 million in 1992. Approximately 91% of 1994 sales were to the
Department of Defense (DoD) or agencies thereof. Changes in the strategic
direction of defense spending, the timing of defense procurements and specific
defense program appropriation decisions may adversely affect the performance of
this segment and the company in future years, including its income, liquidity,
capital resources and financial condition. The precise impact of these decisions
will depend upon the timing and size of changes and decisions, and the company's
ability to mitigate their impact with new business, business consolidations or
cost reductions. The company currently provides services to the U.S. government
in facilities management and ordnance demilitarization and continues to pursue
other business areas. In view of the continuing uncertainty regarding the
strategy and priorities 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 1993, the company recorded a pretax charge for a series of strategic actions
consisting of personnel reductions, business restructurings including
consolidations and realignments within divisions, provision for costs at sites
of discontinued businesses, future environmental liabilities, and other charges.
As of December 31, 1994, the planned personnel reductions had been approximately
80% completed. The remaining reductions are anticipated to occur in 1995 at an
estimated cost of $18 million. Various actions within the business restructuring
phase of the 1993 charge had been completed as of December 31, 1994. The
remaining actions, primarily the restructuring of the electronic materials
businesses, are expected to be finalized within the next two years at an
estimated cost of $18 million.
The savings resulting from the workforce reductions and business
restructurings were approximately $20 million in 1994. The expected additional
savings from the remaining actions are estimated to be $15 million on an
annualized basis thereafter.
Gross margin percentage was 19% for 1994, an increase of 1% from 1993,
excluding the charge. The increase was driven by increased volumes and cost
reduction programs (including an early retirement incentive program), but was
offset in part by increased commodity costs (copper and lead) and higher raw
materials costs.
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Selling and administration expenses as a percentage of sales decreased to
11.4% in 1994 from 12.4% in 1993. The impact from cost reduction programs and
other personnel reductions was offset by operating expenses relating to the
acquisition and higher administrative expenses. Research and development
expenditures decreased as efforts were concentrated on the company's core
businesses and on new products and technologies related to such businesses.
The decrease in 1994 average domestic short-term borrowings more than
offset the impact of increasing short-term interest rates and contributed to the
decrease in interest expense from 1993.
The effective tax rate for 1994 was 35.5%, compared to 36.5% in 1993,
excluding the effect of the charge. At December 31, 1994, the company had net
deferred tax assets of $61 million, principally comprised of alternative minimum
tax credits of $30 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 years to allow for
the realization of these tax benefits. Taxable income required for such
realization currently approximates $280 million.
In December 1987, a Federal Trade Commission (FTC) judge ruled that the
company must divest the chlorinated isocyanurates business acquired in 1985,
which included an isocyanurates manufacturing facility in South Charleston, W.
Va., a packaging facility in Livonia, Mich. and the SUN brand trademark. Over
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the years, the company has been unsuccessful in its efforts to appeal. The
company unsuccessfully attempted to modify the FTC order by proposing to the FTC
that the company sell its trichloroisocyanurate production facility in Lake
Charles, La. to BioLab, Inc. (a sale which it ultimately consummated in 1994)
instead of selling its South Charleston facility. The company entered into an
agreement in principle, in 1994, to sell the SUN brand of isocyanurates. In
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February 1995, the company signed a letter of intent for the sale of its South
Charleston and Livonia facilities to subsidiaries of Israel Chemicals Ltd. These
transactions did not have a material impact on the company's results of
operations in 1994 and are not expected to have a material adverse effect on the
results of operations for 1995.
1993 Compared to 1992
The recession 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 had 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 consolidations and realignments 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 1992. 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 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 these 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 profits were slightly higher due primarily
to the strong demand for sodium hydrosulfite by the textile and paper
industries.
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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 ongoing 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 1992'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 1992 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.
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 German 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. 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.
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.
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 profit improvement in net income.
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 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 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.
Other Financial Data
In December 1993, the company announced a series of strategic actions consisting
of personnel reductions, business restructurings including consolidations and
realignments 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 expected 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 was
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 ongoing 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 asset
write-downs and long-term disability costs, which amounted to $10 million
pretax.
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
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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, were 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's rate.
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. Taxable income required for such realization approximated $350
million.
Liquidity and Investment Activity
Cash flow from operations supplemented by credit facilities, proceeds from the
divestment of businesses and the issuance of common shares were used to finance
the company's major funding needs, namely capital projects, dividends to
shareholders and the acquisition. Cash flow from operating activities amounted
to $199 million in 1994, $137 million in 1993 and $189 million in 1992. The
1994 change in cash flow from operating activities was primarily due to
increased operating income. The increase in receivables and inventories to
support a higher level of business activity was offset in part by higher current
liabilities. Cash flow from operations was used for expenses incurred in
executing the 1993 strategic action plan. The decrease in cash flow from
operations in 1993 from 1992 was primarily attributable to lower operating
income. The effect of lower operating income was partially offset by higher
depreciation expense which resulted from increased capital spending levels in
prior years. The reduction in current liabilities related to lower amounts due
vendors, increased spending for environmental remediation and costs incurred in
executing the 1991 streamlining program.
Net cash used for investing activities was $127 million in 1994, $84
million in 1993 and $139 million in 1992. Capital spending in 1994 increased 13%
from the prior year mainly to support the consolidation of some medium caliber
ammunition operations, restore the trichloroisocyanurate production facility at
South Charleston, W. Va. and provide additional capacity for selected product
lines. Environmental capital spending in 1994 approximated last year's amount.
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 expenditures in 1995 are estimated to increase approximately 20%
from 1994 to provide additional capacity and product quality for selected
product lines. Three major projects account for the majority of this increase:
the completion of a manufacturing, distribution and laboratory complex in Mesa,
Ariz. for the electronic materials business; the integration and expansion of
TDI capacity at Lake Charles, La. and the modernization of the tube mill at
Indianapolis, Ind.
Investment spending in 1993 and 1992 was primarily for a new ethylene oxide
joint venture in Venezuela, which was completed in 1993. The company's
investment in this venture totaled $21 million at December 31, 1994. Throughout
1994, this venture continued to experience liquidity difficulties due to high
leverage. In Venezuela, general economic conditions have become unstable in
light of government actions. The government imposed currency exchange controls
in order to control capital flight and manage inflation. The company, along with
its venture partners, is currently attempting to resolve these difficulties in
order to protect its recorded investment.
In 1994, the company purchased certain assets of the medium caliber
ammunition business of GenCorp Inc.'s Aerojet Ordnance division for
approximately $25 million. This acquisition provided the company with a complete
line of improved medium caliber ammunition products as well as air dispensed
munition products. During 1994, the company sold its conductive materials
business including the manufacturing facility in Ontario, Cal. and its
trichloroisocyanurate production facility in Lake Charles, La. These
transactions generated proceeds of $41 million. 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 were sold
as part of the streamlining program. Proceeds from the sales amounted to $42
million including $6 million received from a prior year sale.
At December 31, 1994, the company maintained committed credit facilities
with banks of $303 million of which $278 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 May 1994, the company issued 2.2 million shares of common stock at a
price of $46.00. The net proceeds of $98 million were used to reduce short-term
floating-rate debt and finance the acquisition of the medium caliber ammunition
business. In 1992, the company sold 2.76 million shares of its $1 par value
Series A Conversion Preferred
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Stock (Series A Stock) generating net proceeds of $111 million, which were used
to reduce bank loans. On March 1, 1995, the outstanding Series A Stock will
convert automatically into shares of common stock on a one-for-one basis. 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 participated in a program in which it sold an
undivided ownership interest in a designated pool of receivables, with limited
recourse, in an amount not to exceed $70 million. Amounts sold were $25 million
and $65 million at December 31, 1994 and 1993, respectively. In January 1995,
the company ended its participation in this program.
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 $17 million in 1994, $85 million in 1993, and $17
million in 1992. 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 1994, 1993, and 1992 and
may be material to net income in future years.
Cash outlays for environmental-related activities totaled $82 million in
1994 as compared with $93 million in 1993 and $103 million in 1992. During 1994,
$45 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
1993 and 1992 was $49 million and $62 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 was $11 million in both 1994 and 1993 and $25 million in
1992. The 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 $37 million in 1994, $44 million in
1993 and $41 million in 1992. 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 1994 was
attributable to 78 sites, 33 of which were on the National Priority List (NPL).
Twelve 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. Six of these twelve 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) and a
Record of Decision (ROD) or its equivalent has not been issued. At another three
of the twelve sites, a ROD or its equivalent has 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 three of the twelve sites, part of the site is subject to a ROD
and another part is still in the investigative stage of remediation. All twelve
sites were either former manufacturing facilities or waste sites containing
contamination generated by those facilities.
Total environmental-related cash outlays for 1995 are estimated to be $93
million, of which $53 million is expected to be spent on normal plant
operations, including $15 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
$111 million at December 31, 1994 and $131 million at December 31, 1993, of
which $71 million and $91 million were classified as other noncurrent
liabilities, respectively. Included in the reserve at December 31, 1994 and
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.
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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 outcomes of which are subject to various uncertainties) may be resolved
unfavorably against the company. At December 31, 1994, the company had estimated
additional contingent environmental liabilities of $36 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)) decreased to
36.5% at December 31, 1994, from 47.1% at year-end 1993 and was 42.0% at year-
end 1992. Contributing to the decrease in 1994 was the issuance of the
additional 2.2 million of common shares and the liquidation of all short-term
borrowings as of December 31, 1994. The increase in 1993 was due to the
reduction of shareholders' equity stemming from the charge taken in 1993.
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, the company received $15 million 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, 1994 balance sheet as long-term debt.
Dividends per common share were $2.20 in 1994, 1993 and 1992. Total
dividends paid on common stock amounted to $44 million in 1994, $42 million in
1993 and $41 million in 1992, while total ESOP preferred dividends, paid at an
annual dividend rate of $5.97 per share, amounted to $7 million in 1994 and 1993
and $8 million in 1992. Dividends paid on Series A Stock were $10 million in
1994 and 1993, equal to $3.64 per share, and $9 million in 1992. Commencing with
the first quarter of 1995, the quarterly common stock dividend has been
increased to $.60 per share. The last dividend on the Series A Stock will be
paid in March 1995.
There are a variety of legal proceedings pending or threatened against the
company. It is possible that some of these matters (the outcomes of which are
subject to various uncertainties) may be decided unfavorably against the
company. Certain of these matters are discussed in Item 3, Legal Proceedings of
the Form 10-K Annual Report and in other filings of the company with the
Securities and Exchange Commission, which filings are available on request from
the company.
The company periodically evaluates risk retention and insurance levels for
product liability, property damage and other potential areas of risk. Based on
the cost and availability of insurance and the likelihood of a loss occurring,
management decides the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain. The current
levels of risk retention are believed to be appropriate and are consistent with
those of other companies in the various industries in which the company
operates.
18
Industry Segments
($ in millions) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals
Sales $1,195 $1,117 $ 996 $ 960 $1,269 $1,302 $1,386 $1,232 $1,127 $1,153
Net Income (Loss) 42 (94) 21 (38) 42 106 68 55 37 (153)
Assets 1,037 1,024 1,067 982 945 977 1,034 1,028 920 867
Capital Expenditures 91 75 115 131 144 95 96 83 84 105
Depreciation 82 83 73 70 75 74 77 82 83 102
- -----------------------------------------------------------------------------------------------------------------------------------
Metals
Sales 750 660 676 562 566 542 453 304 244 232
Net Income 39 14 29 17 35 19 25 20 15 12
Assets 446 430 445 436 337 326 321 225 204 184
Capital Expenditures 25 31 33 26 19 26 30 13 24 28
Depreciation 27 27 24 22 21 22 19 18 17 14
- -----------------------------------------------------------------------------------------------------------------------------------
Defense and Ammunition
Sales 713 646 704 753 757 665 469 394 361 307
Net Income (Loss) 32 10 29 35 36 31 25 20 19 (21)
Assets 521 441 465 552 544 535 516 373 365 331
Capital Expenditures 33 26 25 20 24 21 21 19 20 19
Depreciation 25 21 20 21 20 20 15 14 11 8
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate and Other
Sales -- -- -- -- -- -- -- -- -- 68
Net Income (Loss) (22) (22) (70) (27) (29) (32) (20) (17) 4 (3)
Assets 26 35 53 42 40 66 69 59 56 216
Capital Expenditures -- -- -- -- -- -- -- -- -- 2
Depreciation -- -- -- -- -- -- -- -- -- 2
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated
Sales 2,658 2,423 2,376 2,275 2,592 2,509 2,308 1,930 1,732 1,760
Net Income (Loss) 91 (92) 9 (13) 84 124 98 78 75 (165)
Assets 2,030 1,930 2,030 2,012 1,866 1,904 1,940 1,685 1,545 1,598
Capital Expenditures 149 132 173 177 187 142 147 115 128 154
Depreciation 134 131 117 113 116 116 111 114 111 126
===================================================================================================================================
(1) Intersegment sales, which are priced generally at prevailing prices and are
excluded from above, are not significant.
(2) Net income (loss) of each segment includes an allocation of Corporate
expenses.
(3) 1993 net loss includes a charge for the strategic action plan of $132 ($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 loss includes a charge for the
streamlining program of $80 ($73 to Chemicals and $7 to Metals). 1985 net loss
includes a charge of $230 ($174 to Chemicals, $1 to Metals, $35 to Defense and
Ammunition and $20 to Corporate and Other).
(4) Corporate and Other includes interest expense and Discontinued Operations
(the company's Ecusta paper and film businesses, which were sold in 1985), and
the cumulative effect of the accounting changes in 1992.
(5) See Notes to Financial Statements for information relative to industry
operating income and geographic segment data.
19
Ten-Year Financial Summary
($ in millions, except
per share data) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------
Operations
Sales $2,658 $2,423 $2,376 $2,275 $2,592 $2,509 $2,308 $1,930 $1,732 $1,760
Cost of Goods Sold 2,153 2,161 1,941 1,944 2,063 1,929 1,781 1,455 1,318 1,719
Restructuring Charge -- 42 -- 22 -- -- -- -- -- --
Selling and
Administration 302 300 279 262 316 287 289 264 252 252
Research and
Development 35 41 39 41 66 66 58 62 56 54
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 168 (121) 117 6 147 227 180 149 106 (265)
Interest Expense 37 38 39 46 53 56 43 32 32 35
Interest and Other
Income 10 9 10 15 22 21 14 10 41 18
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before
Taxes 141 (150) 88 (25) 116 192 151 127 115 (282)
Income Tax Provision
(Benefit) 50 (58) 33 (12) 32 68 53 49 40 (92)
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before
Cumulative
Effect of Accounting
Changes 91 (92) 55 (13) 84 124 98 78 75 (190)
Accounting Changes/
Discontinued
Operations/(1)/ -- -- (46) -- -- -- -- -- -- 25
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 91 (92) 9 (13) 84 124 98 78 75 (165)
==============================================================================================================================
Financial Position
Working Capital 262 136 179 85 212 205 184 276 210 304
Property, Plant and
Equipment, Net 879 885 934 899 829 781 801 727 720 718
Total Assets 2,030 1,930 2,030 2,012 1,866 1,904 1,940 1,685 1,545 1,598
Capitalization:
Short-Term Debt 29 121 101 178 104 155 211 50 52 47
Long-Term Debt 418 449 477 520 466 501 474 392 375 354
Shareholders' Equity 749 596 741 666 715 665 683 700 654 687
- ------------------------------------------------------------------------------------------------------------------------------
Total Capitalization 1,196 1,166 1,319 1,364 1,285 1,321 1,368 1,142 1,081 1,088
==============================================================================================================================
Per Share Data
Net Income (Loss):
Primary:
Income (Loss)
Before Cumulative
Effect of Accounting
Changes 3.65 (4.52) 2.17 (.92) 4.03 6.02 4.63 3.38 3.36 (8.28)
Accounting Changes/
Discontinued
Operations/(1)/ -- -- (2.11) -- -- -- -- -- -- 1.09
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)/(2)/ 3.65 (4.52) .06 (.92) 4.03 6.02 4.63 3.38 3.36 (7.19)
==============================================================================================================================
Net Income--Assuming
Full Dilution/(3)/ 3.54 -- -- -- 3.88 5.85 4.59 3.32 3.13 --
==============================================================================================================================
Dividends:
Common 2.20 2.20 2.20 2.20 2.15 1.95 1.70 1.60 1.525 1.50
ESOP Preferred 5.97 5.97 5.97 5.97 5.97 2.985 -- -- -- --
Series A Preferred
(annual rate) 3.64 3.64 3.64 -- -- -- -- -- -- --
Shareholders'
Equity/(4)/ 30.86 27.24 33.92 35.02 37.65 34.99 33.35 31.81 30.56 29.89
Market Price of
Common Stock:
High 60 1/8 50 1/2 54 3/4 54 60 5/8 68 1/4 60 56 1/4 53 1/4 38
Low 46 39 7/8 37 1/4 33 1/2 28 1/8 49 3/8 40 32 5/8 34 5/8 28 3/8
Year End 51 1/2 49 3/8 45 3/4 40 3/8 37 3/4 60 51 42 41 37 1/8
==============================================================================================================================
Other
Capital Expenditures 149 132 173 177 187 142 147 115 128 154
Depreciation 134 131 117 113 116 116 111 114 111 126
Common Dividends Paid 44 42 41 41 41 39 36 37 34 35
Purchases of Common Stock -- -- -- 2 6 100 84 100 83 5
Current Ratio 1.4 1.2 1.3 1.1 1.4 1.4 1.3 1.7 1.5 1.8
Total Debt to Total
Capitalization/(5)/ 36.5% 47.1% 42.0% 48.5% 41.5% 46.2% 50.1% 38.7% 39.5% 36.9%
Effective Tax Rate 35.5% 38.7% 37.5% 48.0% 27.2% 35.4% 35.1% 38.6% 34.8% 32.6%
Average Common Shares
Outstanding 20.5 19.1 19.1 19.0 19.1 20.0 21.1 23.1 22.4 23.0
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders 12,100 13,000 13,900 14,600 15,500 16,300 17,600 20,700 20,600 22,400
Employees/(6)/ 12,800 12,400 13,500 14,400 15,200 15,400 16,400 14,100 13,200 14,900
==============================================================================================================================
(1) 1985 represents discontinued operations of the company's Ecusta paper and
film businesses.
(2) See Series A Preferred Stock footnote in the Notes to Financial Statements.
(3) Fully diluted income or loss per share is not presented for 1993, 1992, 1991
and 1985 as amounts are anti-dilutive.
(4) In 1994, 1993 and 1992, calculation is based on common shares and Series A
Conversion Preferred Stock outstanding.
(5) Excluding reduction to equity for the Employee Stock Ownership Plan from
1989 through 1994.
(6) Employee data excludes employees who work at government-owned/contractor-
operated facilities.
20
Consolidated Balance Sheets
December 31 ($ in millions, except share data) 1994 1993
- -----------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 7 $ 3
Receivables, Net:
Trade 373 288
Other 41 57
Inventories, Net of LIFO Reserve of $178 ($145 in 1993) 386 329
Other Current Assets 73 63
- -----------------------------------------------------------------------------------------------
Total Current Assets 880 740
Investments and Advances--Affiliated Companies at Equity 103 121
Property, Plant and Equipment, Net 879 885
Goodwill 109 114
Other Assets 59 70
- -----------------------------------------------------------------------------------------------
Total Assets $2,030 $1,930
===============================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Borrowings $ -- $ 94
Current Installments of Long-Term Debt 29 27
Accounts Payable 332 232
Income Taxes Payable 4 2
Accrued Liabilities 253 249
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 618 604
Long-Term Senior Debt 293 324
Long-Term Subordinated Debt 125 125
Other Liabilities 245 281
- -----------------------------------------------------------------------------------------------
Total Liabilities 1,281 1,334
- -----------------------------------------------------------------------------------------------
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 1,110,418 Shares (1,194,569 in 1993) 86 92
ESOP Obligations (27) (44)
Common Stock, Par Value $1 Per Share:
Authorized, 60,000,000 Shares
Issued 21,516,590 Shares (19,102,270 in 1993) 21 19
Additional Paid-In Capital 400 297
Cumulative Translation Adjustment (3) (9)
Retained Earnings 269 238
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 749 596
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,030 $1,930
===============================================================================================
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
21
Consolidated Statements of Income
Years ended December 31 ($ in millions, except per share data) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
Sales $2,658 $2,423 $2,376
Operating Expenses:
Cost of Goods Sold 2,153 2,161 1,941
Restructuring Charge -- 42 --
Selling and Administration 302 300 279
Research and Development 35 41 39
- -----------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 168 (121) 117
Interest Expense 37 38 39
Interest and Other Income 10 9 10
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes 141 (150) 88
Income Tax Provision (Benefit) 50 (58) 33
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Cumulative Effect of Accounting Changes 91 (92) 55
Cumulative Effect of Accounting Changes -- -- (46)
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 91 $ (92) $ 9
=======================================================================================================================
Per Share of Common Stock
Income (Loss) Before Cumulative Effect of Accounting Changes $ 3.65 $(4.52) $ 2.17
Cumulative Effect of Accounting Changes -- -- (2.11)
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss)/(1)/ $ 3.65 $(4.52) $ 0.06
=======================================================================================================================
Fully Diluted Income (Loss) Per Share/(2)/ $ 3.54 $ -- $ --
=======================================================================================================================
(1) See Series A Preferred Stock footnote in the Notes to Financial Statements.
(2) Fully diluted income or loss per share in 1993 and 1992 was anti-dilutive.
Consolidated Statements of Shareholders' Equity
Common Stock Additional Cumulative Preferred Stock
Shares Par Paid-In Translation Retained Series A ESOP ESOP
($ in millions, except share data) Issued Value Capital Adjustment Earnings Par Value Par Value Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1992 19,013,307 $19 $185 $ 3 $435 $-- $99 $(75)
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 -- -- 3 -- --
Reduction in ESOP Obligations -- -- -- -- -- -- -- 15
Stock Options Exercised 45,305 -- 1 -- -- -- -- --
Translation Adjustment -- -- -- (4) -- -- -- --
Other Transactions 11,163 -- 2 -- 2 -- (3) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 19,069,775 19 296 (1) 388 3 96 (60)
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 -- -- -- -- -- -- -- 16
Stock Options Exercised 19,418 -- 1 -- -- -- -- --
Translation Adjustment -- -- -- (3) -- -- -- --
Other Transactions 13,077 -- -- (5) 1 -- (4) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 19,102,270 19 297 (9) 238 3 92 (44)
Net Income -- -- -- -- 91 -- -- --
Dividends Paid:
Common Stock ($2.20 per share) -- -- -- -- (44) -- -- --
ESOP Preferred Stock
($5.97 per share) -- -- -- -- (7) -- -- --
Series A Conversion Preferred Stock
($3.64 per share) -- -- -- -- (10) -- -- --
Issuance of Common Stock 2,213,750 2 96 -- -- -- -- --
Reduction in ESOP Obligations -- -- -- -- -- -- -- 17
Stock Options Exercised 87,102 -- 3 -- -- -- -- --
Translation Adjustment -- -- -- 6 -- -- -- --
Other Transactions 113,468 -- 4 -- 1 -- (6) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 21,516,590 $21 $400 $(3) $269 $ 3 $86 $(27)
====================================================================================================================================
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
22
Consolidated Statements of Cash Flows
Years ended December 31 ($ in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
Operating Activities
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 91 $ (92) $ 9
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Losses (Earnings) of Non-consolidated Affiliates (2) 1 5
Depreciation 134 131 117
Amortization of Intangibles 6 8 6
Deferred Taxes 2 (63) 10
Charge for 1993 Strategic Action Plan -- 213 --
Cumulative Effect of Accounting Changes -- -- 46
Change in Assets and Liabilities Net of Purchase and Sales of Businesses:
Receivables (64) 13 56
Inventories (49) (10) (24)
Other Current Assets (2) -- 8
Current Liabilities 63 (59) (60)
Noncurrent Liabilities 2 (6) 1
Other Transactions 18 1 15
- --------------------------------------------------------------------------------------------------------------------
Net Operating Activities 199 137 189
- --------------------------------------------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------------------------------------------
Capital Expenditures (149) (132) (173)
Disposition of Property, Plant and Equipment 8 19 2
Business Acquired in Purchase Transaction (25) -- --
Proceeds from Sales of Businesses 41 37 42
Other Investments (2) (8) (10)
- --------------------------------------------------------------------------------------------------------------------
Net Investing Activities (127) (84) (139)
- --------------------------------------------------------------------------------------------------------------------
Financing Activities
- --------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
Borrowings -- -- 100
Repayments (29) (30) (130)
Short-Term Borrowings (Repayments) (94) 22 (90)
Issuance of Common Stock 98 -- --
Issuance of Series A Conversion Preferred Stock -- -- 111
Repayment from ESOP 17 16 15
Dividends Paid (61) (59) (58)
Other Financing Activities 1 (3) (2)
- --------------------------------------------------------------------------------------------------------------------
Net Financing Activities (68) (54) (54)
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 4 (1) (4)
- --------------------------------------------------------------------------------------------------------------------
Cash, Beginning of Year 3 4 8
- --------------------------------------------------------------------------------------------------------------------
Cash, End of Year $ 7 $ 3 $ 4
====================================================================================================================
Cash Paid for Interest and Income Taxes:
Interest $ 37 $ 39 $ 43
Income Taxes, Net of Refunds $ 39 $ 8 $ 15
====================================================================================================================
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
Deferred taxes are provided 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.
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.
The company enters into forward sales and purchase contracts and currency
options to manage currency risk resulting from purchase and sale commitments
denominated in foreign currencies (principally Australian dollars, pound
sterling, Canadian dollars and Japanese yen) and relating to particular
anticipated but not yet committed sales expected to be denominated in those
currencies. Some of the contracts involve the exchange of two foreign
currencies, according to the local needs of foreign subsidiaries. All of the
currency derivatives expire within one year. At December 31, 1994, the
company had $9 million in options and contracts to buy (1993--$20 million)
and $40 million in options and contracts to sell foreign currencies (1 993--$75
million). Net unrealized gains (or losses) were less than $1 million at December
31, 1994 and 1993.
Foreign currency exchange losses, net of taxes, were $2 million in 1994, $4
million in 1993 and $3 million in 1992.
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 Conversion Preferred 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
- --------------------------------------------------------------------------
1994 23,303 24,825
1993 21,840 23,487
1992 21,598 23,235
==========================================================================
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, 1994 and 1993,
$25 million and $65 million of accounts receivables had been sold under this
agreement. 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 and are not a material portion thereof. Operating expenses
include fees of $2 million in 1994, 1993 and 1992 related to the sale of
receivables under this agreement. In January 1995, the company ended its
participation in this program.
At December 31, 1994 and 1993, trade receivables included unbilled
receivables of $71 million, and $73 million respectively, related to certain
government contracts which are accounted for on the percentage-of-completion
method.
Allowance for doubtful items was $12 million at December 31, 1994 and 1993.
Provisions charged to operations were $2 million in 1994 and $3 million in 1993
and 1992. Bad debt write-offs, net of recoveries amounted to $2 million in 1994,
$1 million in 1993, and $6 million in 1992.
24
Inventories
If the first-in, first-out (FIFO) method of inventory accounting had been
used, inventories would have been approximately $178 million and $145 million
higher than reported at December 31, 1994 and 1993, 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
1994 1993
- ----------------------------------------------------------------------
Land and improvements to land $ 126 $ 127
Buildings and building equipment 293 296
Machinery and equipment 1,910 1,951
Leasehold improvements 27 22
Construction in progress 147 113
- ----------------------------------------------------------------------
Property, plant and equipment 2,503 2,509
Less accumulated depreciation 1,624 1,624
- ----------------------------------------------------------------------
Property, plant and equipment, net $ 879 $ 885
======================================================================
Leased assets capitalized and included above are not significant.
Maintenance and repairs charged to operations amounted to $153 million in 1994,
$159 million in 1993 and $152 million in 1992.
Short-Term Borrowings
There were no outstanding short-term borrowings at December 31, 1994.
Short-term borrowings at December 31, 1993 consisted of domestic bank loans
of $53 million at an interest rate of 3.4%, foreign bank loans of $11 million
at interest rates ranging from 4% to 12% and domestic commercial paper of $30
million at an interest rate of 3.4%.
At December 31, 1994, the company maintained committed credit facilities
with banks of $303 million of which $278 million was available, while comparable
1993 amounts were $367 million and $208 million, respectively.
Long-Term Debt
Due 1994 1993
- ----------------------------------------------------------------------
Note agreements
96-02 7.97% notes $ 50 $ 56
12/96 8.125% notes 6 12
6/02 8% notes 100 100
Industrial development and environ-
mental improvement obligations
04-17 payable at interest rates of 2% to
4% which vary with short-term
tax exempt rates 35 35
96-08 payable at interest rates of 6% to 7% 39 39
6/96 7.144% note payable 40 40
96-09 Guarantee of ESOP debt varying
with LIBOR 11 29
9/05 7.75% note (10% in 1993) 11 11
96-02 Mortgage, capitalized leases and
other indebtedness 1 2
- ----------------------------------------------------------------------
Total long-term senior debt 293 324
6/97 9.5% subordinated notes 125 125
- ----------------------------------------------------------------------
Total long-term debt $418 $449
======================================================================
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, 1994, retained earnings of approximately $224 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, 1994, $16 million of the Guarantee of ESOP debt
has been included in current installments of long-term debt.
In September 1993, the company entered into an unsecured revolving credit
agreement with a group of banks, which 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 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 (6.94% at December 31, 1994).
Annual maturities of long-term debt for the next five years are $13 million
in 1995, $53 million in 1996, $132 million in 1997, $7 million in 1998 and $8
million in 1999 (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. The company has included these shares in the computation of
earnings per share under the common stock outstanding method (one-for-one).
Beginning in 1995, the common stock equivalent method is required for new
issues of such shares. Under this method, loss per share would have been $5.70
and $.39 for 1993 and 1992, respectively.
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 ongoing 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). Various
actions within the business restructuring phase of the 1993 charge had been
completed as of December 31, 1994. The remaining actions, primarily the
restructuring of the electronic material businesses are expected to be
finalized within the next two years at an estimated cost of $18 million.
25
Restructuring Charge
The 1993 strategic action plan included a restructuring charge of $42 million
in 1993 for workforce reductions which were accomplished largely through an
early retirement incentive initiative. As of December 31, 1994, the planned
workforce reductions had been approximately 80% completed. The remaining
reductions are anticipated to occur in 1995 at an estimated cost of $18
million.
Interest Expense
Interest incurred totaled $37 million in 1994, $40 million in 1993, and $43
million in 1992, of which less than $1 million was capitalized in 1994, $2
million in 1993, 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, 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
1994 1993 1992
- -----------------------------------------------------------------------
Service cost (benefits earned
during the period) $ 25 $ 19 $ 17
Interest cost on the projected
benefit obligation 68 71 65
Enriched pension benefit -- 7 --
Actual loss (return) on assets 6 (132) (62)
Actual (loss) return deferred
for later recognition (89) 53 (12)
Net amortization of unrecognized
transition asset, prior service cost
and deferred gains and losses (1) (2) (6)
- -----------------------------------------------------------------------
Net pension expense $ 9 $ 16 $ 2
=======================================================================
Principal Assumptions
1994 1993 1992
- -----------------------------------------------------------------------
Weighted average discount rate 8.5% 7.5% 8.5%
Weighted average rate of
compensation increase 4.5% 4.5% 5.5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
Funded Status of the Plans
1994 1993
- ----------------------------------------------------------
Accumulated benefit obligation
including vested benefits of
$845 and $935 $ 847 $ 938
- ----------------------------------------------------------
Plan assets at fair value, primarily
equity and fixed-income securities $ 916 $ 984
Projected benefit obligation for
service rendered to date (898) (1,002)
- ----------------------------------------------------------
Assets over (under) projected
benefit obligation 18 (18)
Unrecognized net transition asset (41) (48)
Unrecognized loss (gain) (25) 18
Unrecognized prior service cost 29 32
- ----------------------------------------------------------
Net pension liability $ (19) $ (16)
==========================================================
The company's common stock represents approximately 3% of the plan assets
at December 31, 1994 and 1993.
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" and
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
1994 1993 1992
- -------------------------------------------------------------------------------
Service cost-benefits earned
during year $ 3 $ 2 $ 2
Interest cost on accumulated
postretirement benefit obligation 5 6 7
Net amortization of unrecognized
prior service cost and deferred
gains and losses (1) -- --
Enriched postretirement benefit -- 3 --
- ------------------------------------------------------------------------------
Net postretirement expense $ 7 $11 $ 9
==============================================================================
26
Unfunded Liability for
Postretirement Benefits
1994 1993
- ---------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $39 $41
Fully eligible active plan participants 13 11
Other active participants 21 25
- ---------------------------------------------------------------------
Cumulative accumulated postretirement benefit
obligation 73 77
Unrecognized loss (6) (8)
Unrecognized prior service cost 10 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 8.5% in 1994, 7.5%
in 1993 and 8.75% in 1992. The assumed health care cost trend rate used for pre-
65 retirees was 13% in 1994 and 13.5% in 1993, declining one-half percent 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 1994, and a $4 million increase
in the accumulated postretirement benefit obligation at December 31, 1994.
Income Taxes
The company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" 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)
1994 1993 1992
- ----------------------------------------------------------------
Domestic $127 $(158) $89
Foreign 14 8 (1)
- ----------------------------------------------------------------
$141 $(150) $88
================================================================
Components of Income Tax Expense
(Benefit)
1994 1993 1992
- ----------------------------------------------------------------
Currently payable:
Federal $33 $ (1) $18
State 8 3 4
Foreign 7 3 1
- ----------------------------------------------------------------
48 5 23
Deferred 2 (63) 10
- ----------------------------------------------------------------
$50 $(58) $33
================================================================
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 1994 and 1993 and 34% in 1992 to the income (loss) before taxes.
Effective Tax Rate Reconciliation
(Percent) 1994 1993 1992
- ----------------------------------------------------------------------
Statutory federal tax rate 35.0 (35.0) 34.0
Foreign income tax .2 2.5 (.9)
State income taxes, net 3.1 (3.4) 3.8
Goodwill 1.2 1.2 2.0
Equity in net income of affiliates (.7) (.5) (.3)
Other, net (3.3) (3.5) (1.1)
- ----------------------------------------------------------------------
Effective tax rate 35.5 (38.7) 37.5
======================================================================
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
1994 1993
- ----------------------------------------------------------------------
Deferred tax assets
Postretirement benefits $ 37 $ 37
Non-deductible reserves 109 144
Tax credit carryforwards 30 44
Other miscellaneous items 19 16
- ----------------------------------------------------------------------
Total deferred tax assets $195 $241
======================================================================
Deferred tax liabilities
Property, plant and equipment $117 $133
Other miscellaneous items 17 45
- ----------------------------------------------------------------------
Total deferred tax liabilities $134 $178
======================================================================
Included in Other Current Assets at December 31, 1994 and 1993,
respectively, are $54 million and $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, 1994, the company had approximately $30 million of
Alternative Minimum Tax Credits available to offset future federal income
taxes on an indefinite carryforward basis.
Contributing Employee
Ownership Plan
The Contributing Employee Ownership 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, 1994 there were 1.1 million shares of ESOP preferred stock outstanding at
a value of $72.75 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, 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
27
to participants. These costs amounted to $10 million in 1994, 1993 and 1992.
Interest incurred by the plan totaled $1 million in 1994, $2 million in 1993,
and $3 million in 1992, which was funded by ESOP preferred dividends. The ESOP
preferred stock is included in shareholders' equity because the company intends
to redeem the outstanding ESOP preferred stock solely with shares of the
company's common stock, and has the ability to do so.
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, 1992 735,022 $13.24-$65.00
Granted 148,125 53.00-63.60
Exercised (45,305) 13.24-49.32
Canceled (29,806) 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
Granted 134,074 52.00
Exercised (87,102) 22.14-53.50
Canceled (12,857) 43.25-53.50
- -----------------------------------------------------------------------------
Outstanding at December 31, 1994 955,604 $30.82-$65.00
=============================================================================
Of the outstanding options at December 31, 1994, options covering 822,642
shares are currently exercisable.
At December 31, 1994, common shares reserved for issuance under these plans
were 1,726,222 and under additional remuneration agreements were estimated to be
44,000.
Shareholder Rights Plan
In 1986, the Board of Directors adopted a Shareholder Rights Plan expiring in
1996, which is designed to prevent an acquirer from gaining control of the
company without offering a fair price to all shareholders. Each right
entitles the shareholder to buy one-half 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)
1994 1993 1992
- --------------------------------------------------------------------
Chemicals $ 58 $(165) $ 26
Metals 64 29 47
Defense and Ammunition 46 15 44
- --------------------------------------------------------------------
Total operating income (loss) $168 $(121) $117
====================================================================
Geographic Segment Data
1994 1993 1992
- --------------------------------------------------------------------
Sales
United States $2,451 $2,242 $2,222
Foreign 207 181 154
Transfers between areas
United States 100 83 79
Foreign 16 16 12
Eliminations (116) (99) (91)
- --------------------------------------------------------------------
Total sales $2,658 $2,423 $2,376
====================================================================
Operating income (loss)
United States $ 150 $ (128) $ 110
Foreign 13 6 3
Eliminations 5 1 4
- --------------------------------------------------------------------
Operating income (loss) $ 168 $ (121) $ 117
====================================================================
Assets
United States $1,904 $1,782 $1,831
Foreign 107 137 183
Investments 34 40 47
Corporate assets and eliminations (15) (29) (31)
- --------------------------------------------------------------------
Total consolidated assets $2,030 $1,930 $2,030
====================================================================
Sales to the U.S. government were $379 million, $354 million and $409
million in 1994, 1993 and 1992, respectively. The Defense and Ammunition segment
accounted for approximately 83% of the government sales in 1994, 1993 and 1992.
Transfers between geographic areas are priced generally at prevailing market
prices. Export sales from the United States to unaffiliated customers were $168
million, $162 million and $172 million in 1994, 1993 and 1992, respectively.
Acquisition
In 1994, the company acquired certain assets of the medium caliber ammunition
business of GenCorp's Aerojet Ordnance Division for approximately $25
million. The fair value of assets acquired included working capital of $11
million and property, plant and equipment of $14 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.
28
Dispositions
In December 1987, a Federal Trade Commission (FTC) judge ruled that the
company must divest the chlorinated isocyanurates business acquired in 1985,
which included an isocyanurates manufacturing facility in South Charleston,
W. Va., a packaging facility in Livonia, Mich. and the SUN brand trademark.
---
Over the years, the company has been unsuccessful in its efforts to appeal.
The company unsuccessfully attempted to modify the FTC order by proposing to
the FTC that the company sell its trichloroisocyanurate production facility
in Lake Charles, La. to BioLab, Inc. (a sale which it ultimately consummated
in 1994) instead of selling its South Charleston facility. The company
entered into an agreement in principle, in 1994, to sell the SUN brand of
---
isocyanurates. In February 1995, the company signed a letter of intent for
the sale of its South Charleston and Livonia facilities to subsidiaries of
Israel Chemicals Ltd. These transactions did not have a material impact on
the company's results of operations in 1994 and are not expected to have a
material adverse effect on the results of operations for 1995. In addition,
during 1994, the company sold its conductive materials business including its
manufacturing facility.
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.
Throughout 1992, several small product lines were sold as part of the 1991
streamlining program.
Supplemental cash flow information on businesses sold is as follows:
1994 1993 1992
- ----------------------------------------------------------------------
Fair value of assets sold $41 $37 $42
Liabilities assumed by the purchaser -- -- 6
Note paid by the purchaser -- -- (6)
- ----------------------------------------------------------------------
Net proceeds from sales of businesses $41 $37 $42
======================================================================
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 $17 million in 1994,
$85 million in 1993, and $17 million in 1992. 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 $111 million at December
31, 1994 and $131 million at December 31, 1993, of which $71 million and $91
million are classified as other noncurrent liabilities, respectively. Included
in the reserve at December 31, 1994 and 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 outcomes of which are subject to
various uncertainties) may be resolved unfavorably against the company. At
December 31, 1994, the company had estimated additional contingent
environmental liabilities of $36 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 $52 million in 1994, $45 million in 1993 and $37
million in 1992, (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, 1994 are as follows (in
millions): 1995--$28; 1996--$24; 1997--$20; 1998--$15; 1999--$11;
thereafter--$48.
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 1994 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, 1994 and 1993 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 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 LLP
Stamford, Connecticut
January 26, 1995
Management Report on
Financial Statements
The company has prepared the accompanying consolidated financial statements and
related information for the years ended December 31, 1994, 1993, and 1992.
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, 1994, 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
William J. Alley
Chairman of the Executive
Committee and Member
of the Board of Directors,
American Brands, Inc.
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.
President and
Chief Executive Officer,
Ben & Jerry's Homemade, Inc.,
and Chairman, ROKHER-J, Inc.
Suzanne Denbo Jaffe
Managing Director,
Hamilton & Company
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
Committees
of the Board
Audit Committee
William W. Higgins,
Chairman
H. William Lichtenberger
William L. Read
John P. Schaefer
Irving Shain
Compensation and
Nominating Committee
G. Jackson Ratcliffe, Jr.,
Chairman
Robert R. Frederick
Robert Holland, Jr.
Jack D. Kuehler
Executive and
Finance Committee
Robert R. Frederick,
Chairman
Donald W. Griffin
William W. Higgins
Robert Holland, Jr.
John W. Johnstone, Jr.
Jack D. Kuehler
G. Jackson Ratcliffe, Jr.
Corporate Responsibility
Committee
John P. Schaefer,
Chairman
Robert Holland, Jr.
H. William Lichtenberger
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
Robert A. Beyerl
Vice President and Controller
George B. Erensen
Vice President, Taxes and
Risk Management
Johnnie M. Jackson, Jr.
Vice President, General
Counsel and Secretary
Peter C. Kosche
Vice President,
Human Resources
Janet M. Pierpont
Vice President and Treasurer
Linda E. Gaza
Vice President, Public Affairs
Charles W. Newton, III
Vice President, Environment
and Regulatory Affairs
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
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
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: (800) 648-8380
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) 902-8279
Dividend Reinvestment Service
Olin makes a Dividend
Reinvestment Service available
to its shareholders.
For information, write to:
Chemical Bank
JAF Building
P.O. Box 3069
New York, N.Y. 10116-3069
Trademarks
Underlined words identifying
products in this report are trade-
marks or servicemarks of Olin
Corporation or its subsidiaries
or affiliates.
Annual Meeting
The annual meeting of the share-
holders will be held on Thursday,
April 27, 1995, 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 and
other corporate news releases are
available. Earnings are released
during the third week of April,
July, October, and the fourth week
of January.
Form 10-K Available
A copy of Olin's Form 10-K, con-
taining additional information of
possible interest to shareholders
and filed with the Securities and
Exchange Commission in March
each year, will be sent without
charge to any shareholder who
requests it. Write to:
Richard E. Koch
Director, Investor Relations
Olin Corporation
P.O. Box 1355
Stamford, CT 06904-1355
Telephone: (203) 356-3254
Quarterly Data (unaudited)
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------------
Sales $605 $708 $667 $678 $2,658
Cost of goods sold 488 567 543 555 2,153
Net income 15 28 22 26 91
Net income per share:
Primary .62 1.16 .86 1.01 3.65
Assuming full dilution .62 1.10 .85 .97 3.54
Common dividends .55 .55 .55 .55 2.20
Market price of
common stock*
High 51 5/8 54 1/4 59 7/8 60 1/8 60 1/8
Low 47 1/2 46 1/4 53 3/4 50 1/4 46 1/4
1993
- --------------------------------------------------------------------------------------------------
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 1/4 54 3/4
Low 39 3/8 43 3/4 39 1/2 37 1/4 37 1/4
==================================================================================================
*New York Stock Exchange composite transactions.
1993 fourth-quarter loss includes a $132 million charge for personnel
reductions, business restructurings involving consolidations and realignments
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.
32