SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-1070
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OLIN CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 13-1872319
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(State or other jurisdiction of (I.R.S. Employer
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
501 Merritt 7, Norwalk, CT 06851
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(Address of principal executive offices) (Zip Code)
(203) 750-3000
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X NO
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As of April 30, 1998, there were outstanding 47,992,229 shares of the
registrant's common stock.
Part I - Financial Information
Item 1. Financial Statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions)
Unaudited
March 31, December 31,
1998 1997
---- ----
ASSETS
- ------
Cash and cash equivalents $ 53.5 $ 165.8
Short-term investments 21.0 28.1
Accounts receivable, net 388.4 350.1
Inventories 361.3 347.3
Other current assets 43.3 44.7
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Total current assets 867.5 936.0
Investments and advances 38.3 30.9
Property, plant and equipment
(less accumulated depreciation
of $1,553.5 and $1,528.2) 785.1 795.0
Other assets 182.1 183.5
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Total assets $1,873.0 $1,945.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term borrowings and current
installments of long-term debt $ 7.5 $ 9.2
Accounts payable 204.0 255.9
Income taxes payable 18.9 5.4
Accrued liabilities 231.7 241.7
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Total current liabilities 462.1 512.2
Long-term debt 268.0 268.0
Other liabilities 278.3 286.9
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share:
Authorized 120.0 shares.
Issued 48.1 shares (48.8 in 1997) 48.1 48.8
Additional paid-in capital 313.0 347.7
Cumulative translation adjustment (26.4) (23.7)
Retained earnings 529.9 505.5
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Total shareholders' equity 864.6 878.3
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Total liabilities and
shareholders' equity $1,873.0 $1,945.4
========= =========
___________________________________
The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Income (Unaudited)
(In millions, except per share amounts)
Three Months
Ended March 31,
-----------------------------
1998 1997
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Sales $573.1 $591.2
Operating expenses:
Cost of goods sold 431.9 449.9
Selling and administration 76.6 72.4
Research and development 6.8 7.4
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Operating income 57.8 61.5
Interest expense 5.0 7.5
Interest income 1.5 6.0
Other income 5.3 3.8
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Income before taxes 59.6 63.8
Income taxes 20.5 22.0
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Net income $ 39.1 $ 41.8
================ =================
Net income per common share:
Basic $0.81 $0.81
Diluted $0.80 $0.80
Dividends per common share $0.30 $0.30
Average common shares outstanding:
Basic 48.6 51.9
Diluted 49.0 52.2
___________________________________
The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows (Unaudited)
(In millions)
Three Months
Ended March 31,
---------------
1998 1997
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Operating activities
- --------------------
Net income $39.1 $41.8
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities
Earnings of non-consolidated affiliates (2.8) (2.2)
Depreciation and amortization 30.5 26.7
Deferred taxes 3.9 1.8
Change in assets and liabilities net of
purchases and sales of businesses:
Receivables (38.3) (94.2)
Inventories (14.0) (12.3)
Other current assets 1.4 (1.6)
Accounts payable and accrued liabilities (61.9) (39.7)
Income taxes payable 13.5 (99.5)
Noncurrent liabilities (6.6) (14.1)
Other operating activities (5.6) (0.7)
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Net operating activities (40.8) (194.0)
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Investing activities
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Capital expenditures (19.3) (13.9)
Business acquired in purchase transaction - (2.0)
Purchase of short-term investments (9.4) (21.3)
Proceeds from sale of short-term investments 16.5 20.7
Investments and advances-affiliated companies at equity (4.6) (8.6)
Other investing activities (1.0) 0.1
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Net investing activities (17.8) (25.0)
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Financing activities
- --------------------
Long-term debt repayments (1.7) (5.0)
Short-term borrowings - 1.2
Purchase of Olin common stock (38.8) (41.4)
Repayment from ESOP - 5.0
Stock options exercised 2.0 1.2
Dividends paid (14.7) (15.7)
Other financing activities (0.5) -
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Net financing activities (53.7) (54.7)
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Net decrease in cash and cash equivalents (112.3) (273.7)
Cash and cash equivalents, beginning of period 165.8 523.5
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Cash and cash equivalents, end of period $53.5 $249.8
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___________________________________
The accompanying Notes to Condensed Financial Statements are an integral part of
the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements included herein have been prepared by the
company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of the company,
reflect all adjustments (consisting only of normal accruals) which are
necessary to present fairly the results for interim periods. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the company believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements, accounting policies and the notes thereto and management's
discussion and analysis of financial condition and results of operations
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. Inventory consists of the following:
March 31, December 31,
1998 1997
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Raw materials and supplies $ 153.1 $ 158.1
Work in process 128.8 128.7
Finished goods 211.3 197.7
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493.2 484.5
LIFO reserve (131.9) (137.2)
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Inventory, net $ 361.3 $ 347.3
======= =======
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; in aggregate, such valuations are not
in excess of market. Elements of costs in inventories include raw material,
direct labor and manufacturing overhead. Inventories under the LIFO method
are based on annual determination of quantities and costs as of the year-end;
therefore, the condensed financial statements at March 31, 1998, reflect
certain estimates relating to inventory quantities and costs at December 31,
1998.
3. Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
Three Months
Ended March 31,
---------------
1998 1997
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Basic Earnings Per Share
------------------------
Basic earnings:
Net income $39.1 $41.8
Basic shares 48.6 51.9
Basic earnings per share $0.81 $0.81
Diluted Earnings Per Share
- --------------------------
Diluted earnings:
Net income $39.1 $41.8
Diluted shares:
Basic shares 48.6 51.9
Stock options and remuneration agreements 0.4 0.3
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Diluted shares 49.0 52.2
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Diluted earnings per share $0.80 $0.80
4. The company is party to various governmental and private environmental
actions associated with waste disposal sites and manufacturing facilities.
Environmental provisions charged to income amounted to $4 million for the
three months ended March 31, 1998 and 1997. Charges to income for
investigatory and remedial efforts were material to operating results in 1997
and may be material to operating results in 1998. The consolidated balance
sheets include reserves for future environmental expenditures to investigate
and remediate known sites amounting to $136 million at March 31, 1998 and
December 31, 1997, of which $106 million was classified as other noncurrent
liabilities.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigatory studies, advances in technology, changes in environmental
laws and regulations and their application, the scarcity of reliable data
pertaining to identified sites, the difficulty in assessing the involvement
and financial capability of other potentially responsible parties and the
company's ability to obtain contributions from other parties and the length
of time over which site remediation occurs. It is possible that some of these
matters (the outcomes of which are subject to various uncertainties) may be
resolved unfavorably against the company.
5. In April 1998, the Board of Directors authorized an additional share
repurchase program of up to 5 million shares of Olin common stock, from time
to time, as conditions warrant.
6. 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 Belgian franc, Canadian
dollar, Irish punt and Japanese yen) and relating to particular anticipated
but not yet committed purchases and sales expected to be denominated in those
currencies. All of the currency derivatives expire within one year and are
for United States dollar equivalents. The counterparties to the options and
contracts are major financial institutions. The risk of loss to the company
in the event of nonperformance by a counterparty is not significant. In
accordance with Statement of Financial Accounting Standards No. 52, Foreign
Currency Translation (SFAS 52), a transaction is classified as a hedge when
the foreign currency transaction is designated as, and is effective as, a
hedge of a foreign currency commitment and the foreign currency commitment is
firm. If a transaction does not meet the criteria to qualify as a hedge, it
is considered to be speculative. For foreign currency commitments that are
classified as a hedge, any gain or loss on the commitment is deferred
until it matures. Any unrealized gains or losses associated with foreign
currency commitments that are classified as speculative are recognized in the
current period. Foreign currency gains and losses realized are included in
the income statement in Selling and Administration. If a foreign currency
transaction previously considered as a hedge is terminated or matures before
the transaction date of the related commitment, any deferred gain or loss
shall continue to be deferred until the transaction date of the commitment.
During 1992, the company swapped interest payments on $50 million
principal amount of its 8% notes due 2002 to a floating rate (6.0625% at
March 31, 1998). In June 1995, the company offset this transaction by
swapping interest payments to a fixed rate of 6.485%. Counterparties to the
interest rate swap contracts are major financial institutions. The risk of
loss to the company in the event of nonperformance by a counterparty is not
significant. The company records the net difference between the interest
spreads as Interest Expense in the income statement.
Depending on market conditions, the company may enter into futures
contracts and put and call options in order to reduce the impact of metal
price fluctuations, principally in copper, lead and zinc. In accordance with
SFAS No. 80, "Accounting for Futures Contracts," futures contracts are
classified as a hedge when the item to be hedged exposes the company to price
risk and the futures contract reduces that risk exposure. Futures contracts
that relate to transactions that are expected to occur are accounted for as a
hedge when the significant characteristics and expected terms of the
anticipated transaction are identified and it is probable that the
anticipated transaction will occur. If a transaction does not meet the
criteria to qualify as a hedge, it is considered to be speculative. Any gains
or losses associated with futures contracts which are classified as
speculative are recognized in the current period. If a futures contract that
has been accounted for as a hedge is closed or matures before the date of the
anticipated transaction, the accumulated change in value of the contract is
carried forward and included in the measurement of the related transaction.
Option contracts are accounted for in the same manner that futures contracts
are accounted for.
7. As of January 1, 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income," which established standards for the reporting and
display of comprehensive income and its components in the financial
statements. The company does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes on
undistributed earnings on foreign subsidiaries. The components of
comprehensive income for the three-month periods ended March 31, 1998 and
1997 are as follows:
1998 1997
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Net income $39.1 $41.8
Other comprehensive income:
Cumulative translation adjustments (2.7) (5.7)
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Comprehensive income $36.4 $36.1
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
----------------------
RESULTS OF OPERATIONS
(in millions, except per share data)
Three Months
Ended March 31,
--------------
CONSOLIDATED 1998 1997
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Sales $573.1 $591.2
Gross Margin 141.2 141.3
Selling and Administration 76.6 72.4
Operating Income 57.8 61.5
Interest Income 1.5 6.0
Other Income 5.3 3.8
Net Income 39.1 41.8
Net Income per Common Share:
Basic 0.81 0.81
Diluted 0.80 0.80
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO 1997
Sales decreased 3% due primarily to a decrease in metal values.
Selling and administration expenses as a percentage of sales were 13% in 1998
and 12% in 1997. Selling and administrative expenses increased in amount due to
higher administration expenses for information technology systems and business
planning and development activities.
The decrease in interest income is due to the amount of income earned on the
lower average levels of cash, cash equivalents and short-term investments.
The increase in other income is due primarily to the favorable performance of
the non-consolidated affiliates.
The effective tax rate approximated 34.5% in 1998 and 1997.
CHEMICALS
Three Months
Ended March 31,
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1998 1997
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Sales $319.3 $327.2
Operating Income 42.1 49.4
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO 1997
Sales decreased 2% as a 3% decrease in volumes was partially offset by a 1%
increase in prices. Operating income decreased 15%. In Chlor-Alkali sales and
operating income decreased as lower volumes (primarily caustic soda) were
partially offset by higher pricing for chlorine and caustic soda. Sales volumes
were lower due to a variety of factors including railroad transportation
problems, reduced customer demand caused by rainy weather and reduced Asian
demand for some of our customers' products. Pool Products' operating income
decreased significantly due to lower volumes and pricing. Exports of calcium
hypochlorite from Chinese producers have disrupted the supply/demand balance and
affected prices on a worldwide basis. Higher manufacturing costs, including
depreciation expense, also have negatively impacted Pool Products' performance.
For the total year, estimated lower volumes and pricing in Pool Products along
with higher manufacturing costs, including depreciation expense, are expected to
decrease its operating income. Excluding the impact of its divested businesses,
Performance Urethanes & Organics' operating performance improved due to the
restructuring of this business along with lower raw materials costs. Despite a
slower-than-expected recovery period for the semiconductor industry, increased
volumes along with the inclusion of Aegis Inc.'s operating results contributed
to Microelectronic Materials' improved performance. Higher
volumes and pricing were the primary contributors to the improved
performance in the Hydrazine and the Sulfuric Acid businesses.
METALS and AMMUNITION
Three Months
Ended March 31,
---------------
1998 1997
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Sales $253.8 $264.0
Operating Income 15.7 12.1
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO 1997
Sales decreased 4% as a 7% decrease in metal values was partially offset by a 3%
increase in volumes. Operating income increased 30%. Brass' sales decreased as
lower metal values more than offset the higher volumes resulting from the strong
demand from the automotive and housing markets and improved demand from the
ammunition market. These additional volumes along with higher earnings at A.J.
Oster resulting from higher shipments contributed to Brass' improved operating
income. In Winchester, increased domestic commercial ammunition sales were more
than offset by lower sales in Australia. The Australian market is suffering
from lower demand and dealer inventory build-ups as several major distributors
are liquidating stocks in response to the restrictive gun legislation. The
profit impact from the domestic sales along with improved plant operating
performance and lower costs contributed to Winchester's improved operating
results.
ENVIRONMENTAL
In the first three months of 1998, the company spent approximately $4 million
for investigatory and remediation activities associated with former waste sites
and past operations. Spending for environmental investigatory and remedial
efforts for the full year 1998 is estimated to be $30 million. Cash outlays for
remedial and investigatory activities associated with former waste sites and
past operations were not charged to income but instead were charged to reserves
established for such costs identified and expensed to income in prior periods.
Associated costs of investigatory and remedial activities are provided for in
accordance with generally accepted accounting principles governing probability
and the ability to reasonably estimate future costs. Charges to income for
investigatory and remedial activities were $4 million for the three months ended
March 31, 1998. Charges to income for investigatory and remedial efforts were
material to operating results in 1997 and may be material to net income in 1998
and future years.
The company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$136 million at March 31, 1998 and December 31, 1997, of which $106 million was
classified as other noncurrent liabilities. Those amounts did not take into
account any discounting of future expenditures or any consideration of insurance
recoveries or advances in technology. Those liabilities are reassessed
periodically to determine if environmental circumstances have changed and/or
remediation efforts and their costs can be better estimated. As a result of
these reassessments, future charges to income may be made for additional
liabilities.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
between $65-$90 million over the next several years. While the company does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the
uncertainties associated with environmental exposures. Environmental exposures
are difficult to assess for numerous reasons, including the identification of
new sites, developments at sites resulting from investigatory studies, advances
in technology, changes in environmental laws and regulations and their
application, the scarcity of reliable data pertaining to identified sites, the
difficulty in assessing the involvement and the financial capability of other
potentially responsible parties and the company's ability to obtain
contributions from other parties and the lengthy time periods over which site
remediation occurs. It is possible that some of these matters (the outcomes of
which are subject to various uncertainties) may be resolved unfavorably against
the company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
Cash Flow Data Three Months
Used for (in millions) Ended March 31,
-----------------------
1998 1997
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Net Operating Activities $(40.8) $(194.0)
Capital Expenditures (19.3) (13.9)
Net Investing Activities (17.8) (25.0)
Purchases of Olin Common Stock (38.8) (41.4)
Net Financing Activities (53.7) (54.7)
Operating income and cash and cash equivalents on hand were used to finance the
company's seasonal working capital requirements, capital and investment
projects, dividends and the repurchase of Olin common stock.
OPERATING ACTIVITIES
Cash used for operating activities in 1998 was for an increase in working
capital and lower operating income. Lower accounts payable and accrued
liability levels along with higher accounts receivables due to the seasonal Pool
Products business, were the main contributors to the increase in working
capital. Cash used for operating activities in 1997 was for an increase in
working capital resulting from higher receivable levels associated with the
Niachlor acquisition, tax payments on the sale of the isocyanates business and
lower operating income.
INVESTING ACTIVITIES
Capital spending of $19.3 million in 1998 was 39% higher than 1997. Capital
spending for 1998 is estimated to increase approximately 15-30% from 1997 in
order to provide additional capacity for certain Chemicals product lines,
particularly in Microelectronic Materials and Biocides. Microelectronic
Materials' high-purity chemical plant in Belgium was completed in April 1998.
FINANCING ACTIVITIES
At March 31, 1998, the company maintained committed credit facilities with banks
of $254 million, all of, which was available. The company believes that these
credit facilities are adequate to satisfy its liquidity needs for the near
future.
During the first quarter of 1998, the company used $39 million to repurchase
833,500 shares of its common stock, bringing the cumulative total shares
repurchased to 4,660,600 under a program approved by the board of directors in
late 1996. It is expected that this program will be completed during the second
quarter of 1998. In April 1998, the board of directors authorized an additional
share repurchase program of up to 5 million shares of common stock.
At March 31, 1998, the percent of total debt to total capitalization was 24.2%,
up from 24.0% at year-end 1997 and down from 30.6% at March 31, 1997. The
decrease from March 31, 1997 was due to the repayment of the 9.5% subordinated
notes ($125 million in June 1997).
On May 1, 1998, the company prepaid its 7.97% notes for approximately $39
million representing primarily principal and accrued interest. The early
retirement of these notes did not have a material impact on the results of
operations.
NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued SFAS No.131,
"Disclosure about Segments of an Enterprise and Related Information," which
establishes standards for the way that segment information is to be disclosed in
the financial statements along with additional information on products and
services, geographic areas and major customers. The company is still assessing
the disclosure requirements of this standard, which is effective for the periods
beginning after December 15, 1997.
YEAR 2000 COMPUTER SYSTEMS
The company is in the process of upgrading its information technology systems
and implementing SAP. As a result it is reviewing all internal processes and
hardware and software issues. In addition, it is analyzing the issues relating
to the Year 2000 and is also discussing with its vendors and customers the
possibility of any interface difficulties, which may affect the company. With
respect to the Year 2000, no significant concerns have been identified to date.
While management expects the costs associated with information technology
systems will increase over the next few years and will be higher than those in
previous years, the additional costs are not expected to be material.
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS
The information in the Results of Operations section, Environmental Matters
section and the Liquidity, Investment Activity and Other Financial Data sections
(and subsections thereof) contains forward-looking statements that are based on
management's beliefs, certain assumptions made by management and current
expectations, estimates and projections about the markets and economy in which
the company and its various divisions operate. Words such as "expects,"
"believes," "should," "plans," "will," "estimates," and variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expected or forecasted in such forward-looking
statements. The company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of future events, new
information or otherwise. Information on Future Factors which could cause
actual results to differ materially from those discussed in these sections
appears within such sections and in the last sentence of the section "1998
Outlook -- Cautionary Statement under Federal Securities Laws" contained in Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations of the company's 1997 Form 10-K (page 20 of the 1997 Annual Report to
Shareholders), such last sentence being incorporated by reference herein.
Part 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
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3. By-laws as amended effective April 30, 1998.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March
31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLIN CORPORATION
(Registrant)
By: A.W. Ruggiero
---------------------------
A.W. Ruggiero
Senior Vice President and
Chief Financial Officer
(Authorized Officer)
Date: May 13, 1998
EXHIBIT INDEX
Exhibit
No. Description
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3. By-laws as amended effective April 30, 1998.
12. Computation of Ratio of Earnings to Fixed Charges (Unaudited).
27. Financial Data Schedule.