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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1070
OLIN CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 13-1872319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 Merritt 7, P.O. Box 4500, Norwalk, CT 06856-4500
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 750-3000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, New York Stock Exchange
par value $1 per share Chicago Stock Exchange
Pacific Exchange, Inc.
Series A Participating Cumulative New York Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
Pacific Exchange, Inc.
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of January 31, 2001, the aggregate market value of registrant's common
stock, par value $1 per share ("Common Stock") held by non-affiliates of
registrant was approximately $780,668,500.
As of January 31, 2001, 43,985,349 shares of the registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE FOLLOWING DOCUMENT ARE INCORPORATED BY REFERENCE IN THIS
FORM 10-K
AS INDICATED HEREIN:
DOCUMENT PART OF 10-K INTO WHICH INCORPORATED
-------- ------------------------------------
Proxy Statement relating to Olin's 2001
Annual Meeting of Shareholders Part III
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PART I
Item 1. BUSINESS
GENERAL
Olin Corporation is a Virginia corporation, incorporated in 1892, having its
principal executive offices in Norwalk, Connecticut. It is a manufacturer
concentrated in three business segments: Chlor Alkali Products, Metals and
Winchester. Chlor Alkali Products include chlorine and caustic soda, sodium
hydrosulfite and high strength bleach products. Metals products include copper
and copper alloy sheet, strip, welded tube and fabricated parts, and stainless
steel strip. The Metals segment also includes a network of metals service
centers in the continental U.S. and Puerto Rico. Winchester products include
sporting ammunition, canister powder, reloading components, small caliber
military ammunition and industrial cartridges.
The terms "Olin" and the "Company" mean Olin Corporation and its
subsidiaries, unless the context indicates otherwise.
Effective February 8, 1999, Olin distributed to its shareholders all of the
outstanding common stock of Arch Chemicals, Inc. ("Arch Chemicals"), a Virginia
corporation formed to hold all of Olin's specialty chemicals businesses (the
"Spin-Off").
PRODUCTS AND SERVICES
The following is a list of the principal and certain other products and
services provided by Olin and its affiliates within each industry segment.
Principal products on the basis of annual sales are highlighted in bold face.
CHLOR ALKALI PRODUCTS
MAJOR RAW
MATERIALS &
COMPONENTS FOR
PRODUCTS & SERVICES MAJOR END USES PLANTS & FACILITIES* PRODUCTS/SERVICES
-----------------------------------------------------------------------------------------------------------
CHLORINE/CAUSTIC SODA Pulp & paper processing, chemical Augusta, GA salt, electricity
manufacturing, water purification, Charleston, TN
manufacture of vinyl chloride, McIntosh, AL
bleach, swimming pool chemicals & Niagara Falls, NY
urethane chemicals
-----------------------------------------------------------------------------------------------------------
Sodium Hydrosulfite Paper, textile & clay bleaching Augusta, GA caustic soda, sulfur
Charleston, TN dioxide
Salto, Brazil
-----------------------------------------------------------------------------------------------------------
HyPure-TM- products Industrial & institutional Charleston, TN chlorine, caustic
cleaners, textile bleaching soda
-----------------------------------------------------------------------------------------------------------
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* If site is not operated by Olin or a majority-owned, direct or indirect
subsidiary, name of joint venture, affiliate or operator is indicated. Sites
manufacture, distribute or market one or more of the identified products or
services.
2
METALS
MAJOR RAW
MATERIALS &
COMPONENTS FOR
PRODUCTS & SERVICES MAJOR END USES PLANTS & FACILITIES* PRODUCTS/SERVICES
-----------------------------------------------------------------------------------------------------------
COPPER & COPPER ALLOY Electronic connectors, lead frames, Bryan, OH copper, zinc & other
SHEET & STRIP electrical components, East Alton, IL nonferrous metals
(STANDARD & HIGH communications, automotive, Indianapolis, IN
PERFORMANCE) builders' hardware, coinage, Waterbury, CT
ammunition Iwata, Japan
(Yamaha-Olin
Metal Corporation)
-----------------------------------------------------------------------------------------------------------
Network of metals Electronic connectors, electrical Allentown, PA copper & copper alloy
service centers components, communications, Alliance, OH sheet, strip, tube &
automotive, builders' hardware, Caguas, PR steel & aluminum
household products Carol Stream, IL strip
Suwanee, GA
Warwick, RI
Watertown, CT
Yorba Linda, CA
-----------------------------------------------------------------------------------------------------------
POSIT-BOND- Coinage strip & blanks East Alton, IL cupronickel, copper &
REGISTERED TRADEMARK- aluminum
CLAD METAL
-----------------------------------------------------------------------------------------------------------
ROLLED COPPER FOIL, Printed circuit boards, Waterbury, CT copper & copper alloy
COPPERBOND- electrical & electronic, sheet and strip and
REGISTERED TRADEMARK- automotive stainless steel strip
FOIL, STAINLESS
STEEL STRIP
-----------------------------------------------------------------------------------------------------------
COPPER ALLOY WELDED Utility condensers, industrial heat Cuba, MO copper alloy strip
TUBE exchangers, refrigeration & air
conditioning, builders' hardware,
automotive
-----------------------------------------------------------------------------------------------------------
Fabricated products Builders' hardware, cartridge East Alton, IL copper, copper alloy
cases, transportation, household & and stainless steel
recreational products strip
-----------------------------------------------------------------------------------------------------------
High performance, All industry market segments; New Bedford, MA all metals, metal
high reliability, computer, communications, medical, alloys, metal matrix
hermetic metal industrial, instrumentation, composites, special
packages for automotive, consumer, aerospace and alloys and glasses
microelectronics military
industry
-----------------------------------------------------------------------------------------------------------
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* If site is not operated by Olin or a majority-owned, direct or indirect
subsidiary, name of joint venture, affiliate or operator is indicated. Sites
manufacture, distribute or market one or more of the identified products or
services.
3
WINCHESTER
MAJOR RAW
MATERIALS &
COMPONENTS FOR
PRODUCTS & SERVICES MAJOR END USES PLANTS & FACILITIES* PRODUCTS/SERVICES
-----------------------------------------------------------------------------------------------------------
WINCHESTER- Hunters & recreational shooters, East Alton, IL brass, lead, steel,
REGISTERED TRADEMARK- law enforcement agencies Geelong, Australia plastic, propellant,
SPORTING AMMUNITION explosives
(SHOT-SHELLS, SMALL
CALIBER CENTERFIRE &
RIMFIRE AMMUNITION)
-----------------------------------------------------------------------------------------------------------
Small caliber Infantry and mounted weapons East Alton, IL brass, lead,
military ammunition propellant,
explosives
-----------------------------------------------------------------------------------------------------------
Government-owned Maintenance and operation of U.S. Independence, MO brass, lead,
arsenal operation Army small caliber military propellant,
(GOCO) ammunition production plant explosives,
(through March 2000) government-supplied
components
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Maintenance of U.S. Army laid-away Baraboo, WI subcontracted &
production plant government-supplied
components
-----------------------------------------------------------------------------------------------------------
Industrial products Maintenance applications in power & East Alton, IL brass, lead, plastic,
(8 gauge loads & concrete industries, Geelong, Australia propellant,
powder-actuated tool powder-actuated tools in explosives
loads) construction industry
-----------------------------------------------------------------------------------------------------------
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* If site is not operated by Olin or a majority-owned, direct or indirect
subsidiary, name of joint venture, affiliate or operator is indicated. Sites
manufacture, distribute or market one or more of the identified products or
services.
4
2000 DEVELOPMENTS
Winchester operated the U.S. Army's Lake City small caliber ammunition plant
in Independence, Missouri under a five-year contract that expired at the end of
1999. The contract represented approximately $5 million in annual pretax profits
during 1999. The Company was one of several bidders for a new ten-year,
fixed-price contract. On July 30, 1999, the Department of the Army awarded this
contract to a competitor. Olin appealed the award and lost the appeal. The
Company continued operating the plant through March 2000.
In June 2000, the Company signed a letter of intent with Occidental
Petroleum Corporation ("Occidental") to combine the companies' chlor alkali and
related businesses in a partnership. In October 2000, the Company announced that
its letter of intent had expired. The partnership negotiations were discontinued
primarily due to regulatory issues, and certain other matters on which the
parties could not agree.
The Company and the International Association of Machinists and Aerospace
Workers District #9 were unable to agree on a new labor contract for
approximately 2,700 Brass and Winchester division hourly paid employees at the
Company's East Alton, Illinois facility. The union voted to strike effective at
the expiration of the previous contract at midnight on December 3, 2000. On
January 21, 2001, the Company and the union agreed to a new labor contract and
employees returned to work on January 23, 2001.
INTERNATIONAL OPERATIONS
Olin has sales offices and subsidiaries in various countries which support
the worldwide export of products from the United States as well as overseas
production facilities. In addition, Olin has manufacturing interests in Brazil.
Yamaha-Olin Metal Corporation, a joint venture with Yamaha Corporation,
manufactures high-performance copper alloys in Japan for sale to the electronics
industry throughout the Far East. An Olin subsidiary loads and packs sporting
and industrial ammunition in Australia. See the Note "Segment Information" of
the Notes to Consolidated Financial Statements in Item 8, for geographic segment
data which are incorporated by reference.
CUSTOMERS AND DISTRIBUTION
During 2000, no single customer accounted for more than 5% of Olin's total
consolidated sales. Products which Olin sells to industrial or commercial users
or distributors for use in the production of other products constitute a major
part of Olin's total sales. Some of its products, such as sporting ammunition
and brass, are sold to a large number of users or distributors, while others,
such as chlorine and caustic soda, are sold in substantial quantities to a
relatively small number of industrial users.
Most of Olin's products and services are marketed primarily through its
sales force and sold directly to various industrial customers, the
U.S. Government and its prime contractors, to wholesalers and other
distributors.
CHLOR ALKALI PRODUCTS. Principal customers of Olin's Chlor Alkali products
include the pulp and paper industries, vinyl chloride and urethane manufacturers
and household and industrial cleaner suppliers.
METALS. Principal customers of Olin's copper and copper alloy strip, sheet
and welded tube include producers of electrical and electronic equipment,
builders' hardware and appliances, the plumbing, automotive and air-conditioning
industries and manufacturers of a variety of consumer goods.
Olin manufactures cartridge brass for its ammunition business and for other
ammunition makers. Olin also serves numerous high-technology markets through a
thin-gauge reroll operation that produces stainless steels, high-temperature
alloys and glass sealing alloys, in addition to copper and copper alloys.
Posit-Bond-Registered Trademark- clad metal has made Olin a major supplier of
metal to the U.S. Mint. Olin also sells various alloys to foreign governments
for coinage purposes.
The Metals business is also focused on the electronics market, providing
high performance and high-quality materials needed by the electronics industry
and other advanced technology customers. These materials include Olin-developed
proprietary alloys and Copperbond-Registered Trademark- treated copper foil
marketed to the printed circuit industry.
Fabricated products are principally sold to ammunition manufacturers, the
U.S. Armed Forces, building product suppliers, household product manufacturers
and automotive manufacturers.
5
WINCHESTER. The principal users of the Winchester products are recreational
shooters, hunters, law enforcement agencies, the power and concrete industries,
the construction industry, the U.S. Armed Forces and certain allied governments.
Because Olin engages in some government contracting activities and makes
sales to the U.S. Government, it is subject to extensive and complex
U.S. Government procurement laws and regulations. These laws and regulations
provide for ongoing government audits and reviews of contract procurement,
performance and administration. Failure to comply, even inadvertently, with
these laws and regulations and with laws governing the export of munitions and
other controlled products and commodities could subject Olin or one or more of
its businesses to civil and criminal penalties, and under certain circumstances,
suspension and debarment from future government contracts and the exporting of
products for a specified period of time.
COMPETITION
Olin is in active competition with businesses producing the same or similar
products, as well as, in some instances, with businesses producing different
products designed for the same uses. With respect to certain product groups,
such as ammunition and copper alloys, and with respect to certain chlor alkali
products, Olin is among the largest manufacturers or distributors in the United
States. Olin encounters competition in price, delivery, service, performance,
product innovation, product recognition and quality, depending on the product
involved.
EMPLOYEES
As of December 31, 2000, Olin had approximately 6,700 employees (excluding
approximately 100 employees at Government-owned, contractor-operated
facilities), approximately 6,600 of whom were working in the United States and
approximately 100 of whom were working in foreign countries. A majority of the
hourly-paid employees are represented, for purposes of collective bargaining, by
various labor unions. Although some labor contracts extend for as long as five
years, others are for shorter periods and therefore must be re-negotiated more
frequently. Three labor contracts are scheduled to expire in 2001. A labor
contract for employees at the Brass Division's Indianapolis, Indiana facility
expires in May 2001, a labor contract for employees at the Brass Division's
Bryan, Ohio facility expires in September 2001, and a labor contract for eight
employees at the Corporation's inactive facility in Joliet, Illinois expires on
November 15, 2001. While relations between Olin and its employees and their
various representatives are generally considered satisfactory, there can be no
assurance that new labor contracts can be concluded without work stoppages.
The Company and the International Association of Machinists and Aerospace
Workers District #9 were unable to agree on a new labor contract for
approximately 2,700 Brass and Winchester division hourly paid employees at the
Company's East Alton, Illinois facility. The union voted to strike effective at
the expiration of the previous contract at midnight on December 3, 2000. On
January 21, 2001, the Company and the union agreed to a new labor contract and
employees returned to work on January 23, 2001.
RESEARCH ACTIVITIES; PATENTS
Olin's research activities are conducted on a product-group basis at a
number of facilities. Company-sponsored research expenditures were approximately
$5 million during 2000, $7 million during 1999 and $10 million during 1998.
Olin owns, or licenses, a number of patents, patent applications and trade
secrets covering its products and processes. Olin believes that, in the
aggregate, the rights under such patents and licenses are important to its
operations, but does not consider any patent or license or group thereof related
to a specific process or product to be of material importance when viewed from
the standpoint of Olin's total business.
RAW MATERIALS AND ENERGY
Olin purchases the major portion of its raw material requirements. The
principal basic raw materials purchased by Olin for its production of chlor
alkali products are salt, electricity, and sulfur. Copper, zinc and various
other nonferrous metals are required for the metals business. Lead, brass and
propellant are the principal raw materials used in the Winchester business.
Olin's principal basic raw materials are typically purchased pursuant to
multiyear contracts. In the manufacture of ammunition, Olin uses a substantial
percentage of its own output of cartridge brass. Additional
6
information with respect to specific raw materials is set forth in the table
above under the caption "Products and Services."
Electricity is the predominant energy source for Olin's manufacturing
facilities. Most of Olin's facilities are served by utilities which generate
electricity principally from coal, hydro and nuclear power.
ENVIRONMENTAL AND TOXIC SUBSTANCES CONTROLS
2000 1999 1998
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($ IN MILLIONS)
Cash Outlays:
Remedial and Investigatory Spending (Charged to
Reserve)........................................ $30 $21 $20
Capital Spending.................................. 3 3 2
Plant Operations.................................. 17 17 17
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Total Cash Outlays.................................... $50 $41 $39
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The establishment and implementation of federal, state and local standards
to regulate air, water and land quality have affected and will continue to
affect substantially all of Olin's manufacturing locations. 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. Olin is enrolled in the United
States Environmental Protection Agency's Voluntary Industrial Toxics Reduction
Program. Olin employs waste minimization and pollution prevention programs at
its manufacturing sites.
Olin 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. Charges to income for investigatory
and remedial efforts were material to operating results in the past three years
and may be material to net income in future years. Such charges to income were
$15 million, $17 million and $16 million in 2000, 1999 and 1998, respectively.
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 years. Cash outlays for normal plant operations for the disposal
of waste and the operation and maintenance of pollution control equipment and
facilities to ensure compliance with mandated and voluntarily imposed
environmental quality standards were charged to income. Historically, Olin has
funded its environmental capital expenditures through cash flow from operations
and expects to do so in the future.
Olin's estimated environmental liability is attributable to 56 sites, 18 of
which were on the National Priority List ("NPL"). Ten sites accounted for
approximately 75% of such liability and, of the remaining sites, no one site
accounted for more than 2% of such liability. Two of these ten sites are in the
investigatory stage of the remediation process. In this stage, remedial
investigation and feasibility studies are conducted by either Olin, the United
States Environmental Protection Agency ("EPA") or other potentially responsible
parties ("PRPs") and a Record of Decision ("ROD") or its equivalent has not yet
been issued. At five of the ten sites, a ROD or its equivalent has been issued
by either the EPA or responsible state agency and Olin, 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 ten sites, part of the site is
subject to a ROD and another part is still in the investigative stage of
remediation. All ten sites were either former manufacturing facilities or waste
sites containing contamination generated by those facilities.
The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$110 million at December 31, 2000 and $125 million at December 31, 1999, of
which $85 million and $100 million were classified as other noncurrent
liabilities, respectively. Those amounts did not take into account any
discounting of future expenditures or any consideration of insurance recoveries
or advances in technology. Those liabilities are reassessed periodically to
determine if environmental
7
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.
Total environmental-related cash outlays for 2001 are estimated to be
$52 million, of which $25 million is expected to be spent on remedial and
investigatory efforts, $9 million on capital projects and $18 million on normal
plant operations.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
between $45-$55 million over the next several years. While Olin does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and Olin'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 Olin. At December 31, 2000, Olin had estimated
additional contingent environmental liabilities of $40 million.
See also Item 3, "Legal Proceedings" below, the Note "Environmental" of the
Notes to Consolidated Financial Statements contained in Item 8, and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 2. PROPERTIES
Olin has manufacturing sites at 18 separate locations in 13 states and
Puerto Rico and two manufacturing sites in two foreign countries. Most
manufacturing sites are owned although a number of small sites are leased.
Listed in the table set forth under the caption "Products and Services" are the
locations at or from which Olin's products and services are manufactured,
distributed or marketed by segment.
Olin leases warehouses, terminals and distribution offices and space for
executive and branch sales offices and service departments throughout the
country and overseas.
Item 3. LEGAL PROCEEDINGS
(a) In 1987, the EPA issued a ROD recommending remedial actions and
ecological studies with respect to mercury contamination at the site of Olin's
former mercury cell Chlor Alkali plant in Saltville, Virginia. The EPA, under
Section 122 of CERCLA, asked Olin to undertake the work called for in the ROD,
and Olin agreed to do so. In November 1988, Olin submitted to the EPA a work
plan for remedial action, including additional stormwater run-off control around
Pond #5 and construction of a wastewater treatment plant for the outfall from
Pond #5. Olin then implemented that remedial action.
Olin completed the remedial investigation and feasibility study of the
former chlorine plant site, including Ponds #5 and 6, in 1994. The EPA issued a
ROD in 1995, calling for covering the former waste ponds, treatment of run-off
from the ponds, and additional monitoring and investigation. In 1997, Olin
negotiated a consent decree with the EPA under which Olin is implementing the
ROD. The ROD does not address remediation of the former chlorine plant site or
the North Fork of the Holston River, which are the subject of the additional
studies.
Olin has completed clean-up activities at two small locations near Olin's
former plant site, the Graveyard Dump Site and the former power plant.
In October 1996, Olin met with the site's Natural Resources Trustees at the
Trustee's request. At that time, Olin indicated a willingness to cooperate in
assessing whether there are any natural resource damages to the Holston River
associated with releases from the site.
Olin believes that any liability incurred by it in this matter will not be
materially adverse to its financial condition or liquidity. See "Environmental
Matters" contained in Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
8
(b) As part of the continuing environmental investigation by federal, state
and local governments of waste disposal sites, Olin has entered into a number of
settlement agreements requiring it to contribute to the cost of the
investigation and cleanup of a number of sites. This process of investigation
and cleanup is expected to continue. See "Environmental Matters" contained in
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(c) Olin and its subsidiaries are defendants in various other legal actions
arising out of their normal business activities, none of which is considered by
management to be material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the three
months ended December 31, 2000.
EXECUTIVE OFFICERS OF OLIN CORPORATION AS OF MARCH 1, 2001
SERVED AS AN
OLIN OFFICER
NAME AND AGE OFFICE SINCE
--------------------------------------------------------------------------------------------------
Donald W. Griffin (64)........ Chairman of the Board, President and Chief 1983
Executive Officer
Anthony W. Ruggiero (59)...... Executive Vice President and Chief Financial 1995
Officer
Peter C. Kosche (58).......... Senior Vice President, Corporate Affairs 1993
George B. Erensen (57)........ Vice President and General Tax Counsel 1990
Mary E. Gallagher (35)........ Vice President and Controller 1999
Thomas M. Gura (55)........... Vice President and President, Winchester Division 1997
Johnnie M. Jackson, Jr. Vice President, General Counsel and Secretary 1995
(55)........................
John L. McIntosh (46)......... Vice President and President, Chlor Alkali 1999
Products Division
Janet M. Pierpont (53)........ Vice President and Treasurer 1990
Joseph D. Rupp (50)........... Vice President and President, Brass Division 1996
No family relationship exists between any of the above named executive
officers or between any of them and any Director of Olin. Such officers were
elected to serve as such, subject to the By-laws, until their respective
successors are chosen.
Each of the above-named executive officers, except M.E. Gallagher, T.M.
Gura, and J.L. McIntosh, has served Olin as an executive officer for not less
than the past five years.
Mary E. Gallagher was elected a Corporate Vice President on April 27, 2000.
She was elected Controller on April 29, 1999. Prior to that time, and since she
joined the Corporation in May 1996, she served as Director, Accounting and
Financial Reporting. Prior to joining the Corporation, she served as a Senior
Manager with KPMG LLP.
Thomas M. Gura was elected a Corporate Vice President on September 25, 1997.
He was appointed President of the Winchester Division on August 19, 1997. Prior
to that time, he served as Vice President, Marketing and Sales of the Brass
Division.
John L. McIntosh was elected a Corporate Vice President on February 1, 1999
and also serves as President, Chlor Alkali Products Division. Prior to that
time, since 1997, he served as Vice President, Operations for Olin's specialty
chemicals operations. He also served as Vice President, Manufacturing and
Engineering for Chlor Alkali and was Director of Manufacturing, Engineering and
Purchasing for that division from 1991 through 1997.
9
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of January 31, 2001, there were approximately 7,950 record holders of
Olin Common Stock.
Olin Common Stock is traded on the New York Stock Exchange, Chicago Stock
Exchange and Pacific Exchange, Inc.
Set forth in the Note "Other Financial Data" to the Notes to Consolidated
Financial Statements in Item 8 is information concerning the high and low sales
prices of Olin Common Stock and dividends paid on Olin Common Stock during each
quarterly period in 2000 and 1999.
10
Item 6. SELECTED FINANCIAL DATA
EIGHT-YEAR FINANCIAL SUMMARY
2000 1999 1998 1997 1996 1995 1994 1993
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($ AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
OPERATIONS
Sales..................................... $1,549 $1,395 $1,504 $1,572 $1,817 $1,886 $1,686 $1,507
Cost of Goods Sold........................ 1,277 1,215 1,239 1,276 1,455 1,541 1,425 1,447
Selling and Administration................ 127 122 123 132 155 153 139 135
Research and Development.................. 5 7 10 8 20 17 18 21
Interest Expense.......................... 16 16 17 24 27 33 27 29
Interest and Other Income (Expense)....... 7 (8) 7 15 13 (5) -- --
Gain (Loss) on Sales and Restructurings of
Businesses and Spin-off Costs........... -- -- (63) -- 179 -- -- (26)
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Income (Loss) from Continuing Operations
Before Taxes............................ 131 27 59 147 352 137 77 (151)
Income Tax Provision (Benefit)............ 50 10 21 50 125 47 26 (60)
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Income (Loss) from Continuing
Operations.............................. 81 17 38 97 227 90 51 (91)
Discontinued Operations................... -- 4 40 56 53 50 40 (1)
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Net Income (Loss)......................... 81 21 78 153 280 140 91 (92)
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FINANCIAL POSITION
Working Capital........................... 251(1) 252(1) 225(1) 273(1) 385(1) 24 88 (15)
Property, Plant and Equipment, Net........ 483 468 475 517 400 580 540 534
Total Assets.............................. 1,123 1,063 1,589 1,707 2,118 1,963 1,749 1,685
Capitalization:
Short-Term Debt....................... 1(1) 1(1) 1(1) 8(1) 137(1) 122 29 113
Long-Term Debt........................ 228(1) 229(1) 230(1) 262(1) 271(1) 406 418 449
Shareholders' Equity.................. 329 309 790 879 946 841 749 596
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Total Capitalization...................... 558 539 1,021 1,149 1,354 1,369 1,196 1,158
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PER SHARE DATA
Net Income (Loss):
Basic:
Continuing Operations............. 1.80 0.36 0.79 1.91 4.30 1.71 0.87 (2.82)
Discontinued Operations........... -- 0.09 0.85 1.11 1.04 1.04 0.96 (0.03)
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Net Income (Loss)................. 1.80 0.45 1.64 3.02 5.34 2.75 1.83 (2.85)
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Diluted:
Continuing Operations(2).......... 1.80 0.36 0.79 1.90 4.26 1.70 0.87 (2.82)
Discontinued Operations........... -- 0.09 0.84 1.10 1.01 0.97 0.96 (0.03)
---------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)................. 1.80 0.45 1.63 3.00 5.27 2.67 1.83 (2.85)
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Cash Dividends:
Common (historical)................... 0.80 0.90 1.20 1.20 1.20 1.20 1.10 1.10
Common (continuing operations)........ 0.80 0.80 0.80 0.80 0.80 0.80 0.73 0.73
ESOP Preferred (annual rate).......... -- -- -- -- 5.97 5.97 5.97 5.97
Series A Preferred (annual rate)...... -- -- -- -- -- 3.64 3.64 3.64
Shareholders' Equity(3)................... 7.48 6.87 17.25 17.98 18.13 17.03 15.43 13.62
Market Price of Common Stock:
High.................................. 23.19 19.88 49.31 51.38 48.00 38.63 30.13 25.25
Low................................... 14.19 9.50 23.88 35.38 34.88 24.25 23.00 20.00
Year End.............................. 22.13 19.81 28.31 46.88 37.63 37.13 25.75 24.75
OTHER
Capital Expenditures...................... 95 73 78 76 74 116 80 80
Depreciation.............................. 79 78 76 76 84 77 78 74
Common Dividends Paid..................... 36 41 58 61 60 57 44 42
Purchases of Common Stock................. 21 11 112 163 -- -- -- --
Current Ratio............................. 1.9 2.0 1.8 1.8 1.6 1.0 1.2 1.0
Total Debt to Total Capitalization(4)..... 41.1% 42.7% 22.6% 23.5% 30.0% 37.9% 36.5% 46.8%
Effective Tax Rate........................ 38.2% 37.0% 35.6% 34.0% 35.5% 34.3% 33.2% 40.0%
Average Common Shares Outstanding......... 44.9 45.4 47.9 50.5 50.0 47.6 41.0 38.2
Shareholders.............................. 8,000 8,600 9,200 10,600 11,300 12,000 12,100 13,000
Employees(5).............................. 6,700 6,700 6,400 6,600 6,200 7,200 7,500 7,100
---------------
In December 1996, the Company sold its isocyanates business for $565 in
cash. 1996 and prior include the operating results of the isocyanates business.
(1) Working Capital includes $57 ($21 in 1999, $50 in 1998, $157 in 1997, $518
in 1996) of Cash and Cash Equivalents and $25 ($25 in 1999 and 1998, $28 in
1997, $87 in 1996) of Short-Term Investments in 2000.
(2) Includes gain of $2.20 on sale of the isocyanates business in 1996.
(3) In 1994 and 1993, calculation is based on common shares and Series A
Conversion Preferred Stock outstanding.
(4) Excluding reduction to equity for the Employee Stock Ownership Plan from
1993 through 1996.
(5) Employee data exclude employees who work at
government-owned/contractor-operated facilities.
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
2000 1999 1998(1)
--------------------------------------------------------------------------------------------
($ IN MILLIONS,
EXCEPT PER SHARE DATA)
Sales....................................................... $1,549 $1,395 $1,504
Gross Margin................................................ 272 180 265
Selling and Administration.................................. 127 122 123
Interest Expense, net....................................... 14 14 14
Loss on Sale and Restructurings of Businesses and Spin-Off
Costs..................................................... -- -- (63)
Income from Continuing Operations........................... 81 17 38
Net Income.................................................. 81 21 78
Diluted Earnings Per Common Share:
Income from Continuing Operations....................... $ 1.80 $ 0.36 $ 0.79
Net Income.............................................. $ 1.80 $ 0.45 $ 1.63
--------------------------------------------------------------------------------------------
(1) Includes the charge for the sale of the microelectronic packaging unit at
Manteca, CA, and the restructuring of the rod, wire and tube businesses at
Indianapolis, IN ($42 pretax, $26 after tax and $0.55 diluted earnings per
share) and non-recurring costs associated with the Spin-Off of Arch
Chemicals ($21 pretax, $15 after tax and $0.32 diluted earnings per share).
BUSINESS BACKGROUND
The Company's operations are concentrated in three businesses: Chlor Alkali,
Metals and Winchester. All three are capital intensive manufacturing businesses
with growth rates closely tied to the general economy. While each segment has a
commodity element to it, where the Company's ability to influence pricing is
quite limited, the portion of the business that is strictly commodity varies by
Division. Chlor Alkali is a commodity business where all supplier products are
identical and price is the major supplier selection criteria. The Company has
little or no ability to influence prices in this large, global commodity market.
Cyclical price swings, driven by changes in supply/demand, can be abrupt and
significant and, given Olin's Chlor Alkali capacity, can lead to very
significant changes in overall Company profitability. While a majority of Metals
sales are of a commodity nature, this business has a significant volume of
specialty engineered products targeted for specific end-use markets. In these
applications, technical capability and performance differentiate the product and
play a significant role in product selection and thus price is not the only
selection criteria. Winchester also has a commodity element to its business but
a majority of Winchester ammunition is sold as consumer branded product where
there is the opportunity to differentiate certain offerings through innovative
new product development and enhanced product performance. While competitive
pricing versus other branded ammunition products is important, it is again not
the only factor in product selection.
2000 COMPARED TO 1999
Sales increased 11% due to increased selling prices and volumes and higher
metal values. Selling prices were higher across all segments with the biggest
impact related to higher Electrochemical Unit ("ECU") netbacks in the Chlor
Alkali Products segment. The increase in sales volumes was related to the Metals
segment.
Gross margin percentage increased from 13% in 1999 to 18% in 2000 primarily
due to higher ECU prices.
Selling and administration as a percentage of sales was 8% in 2000, down
from 9% in 1999, due to the higher sales base in 2000 as a result of the factors
noted above. Selling and administration was $5 million higher than in 1999 due
to higher administration expenses, primarily higher incentive compensation costs
and the fees incurred in 2000 associated with the now-discontinued chlor alkali
partnership negotiations with Occidental Petroleum Corporation ("Occidental"),
offset in part by higher pension income.
The increase in operating results from the non-consolidated affiliates was
due primarily to the improved operating results from the Sunbelt joint venture,
which was favorably impacted by the higher ECU pricing.
12
Research and development expenses decreased due to restructuring in the
fourth quarter of 1999 of the process technology department in the Chlor Alkali
segment.
The effective tax rate increased to 38.2% from 37.0%. The increase was
attributable to lower tax benefits related to export sales and increased state
income taxes, partially offset by lower cost of Company-owned life insurance
programs and a decrease in the valuation allowance related to state income tax
loss carryforward.
At midnight on December 3, 2000, a work stoppage began at the Metals and
Winchester manufacturing facilities at East Alton, IL, after the Company and the
union were unable to agree on a new labor contract. After several weeks of
negotiations, the parties entered into a new labor contract and the union
workers returned to work on January 23, 2001. The work stoppage had an adverse
impact in 2000 on the profitability of the Metals and Winchester operations
including product fulfillment issues, additional expenses and contract
settlement costs.
In June 2000, the Company signed a letter of intent with Occidental to
combine the companies' chlor alkali and related businesses in a partnership. In
October 2000, the Company announced that its letter of intent had expired. The
partnership negotiations were discontinued primarily due to regulatory issues,
and certain other matters on which the parties could not agree.
On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals businesses as Arch Chemicals. The results of operations reflect Arch
Chemicals as discontinued operations for the 1999 and 1998 periods presented.
1999 COMPARED TO 1998
Sales decreased 7% due to lower ECU prices and lower metal values, which
were offset in part by higher volumes across all business segments. Also, sales
were lower due to the shutdown of the rod, wire and tube businesses at
Indianapolis, IN, in the fourth quarter of 1998.
The gross margin percentage in 1999 was 13% compared to 18% in 1998. The
decrease in the gross margin percentage was due to the lower ECU prices offset
in part by higher volumes and improved product mix in the Brass and Winchester
segments.
Selling and Administration as a percentage of sales increased to 9% in 1999
from 8% in 1998. Selling and Administration decreased $1 million from
$123 million in 1998 to $122 million in 1999, primarily due to lower pension
related costs.
In 1999, losses of non-consolidated affiliates were $11 million compared to
break-even in 1998 due to the impact of lower ECU prices on the Company's
Sunbelt Chlor Alkali joint venture.
Interest expense, net of interest income in 1999, was equal to 1998. Lower
interest expense as a result of the repayment of debt in June of 1998 was offset
by lower interest income on lower average cash, cash equivalents and short-term
investment balances.
The effective tax rate increased from 35.6% to 37.0%. This increase was
attributable to higher non-deductible expenses related to Company-owned life
insurance programs and unrealized state income tax benefits, partially offset by
increased benefits related to foreign sales.
In the third quarter of 1998, the Company recorded a $42 million pretax
charge ($0.55 diluted EPS) related to the sale of the microelectronic packaging
unit at Manteca, CA, for $4 million in cash, and the restructuring of the rod,
wire and tube businesses at Indianapolis, IN. In the fourth quarter of 1998, the
Company recorded a $21 million pretax charge ($0.32 diluted EPS) for
non-recurring costs associated with the Spin-Off (primarily severance,
investment banking and legal fees).
13
SEGMENT OPERATING RESULTS
Segment operating income is defined as earnings before interest, other
income and income taxes and includes the operating results of non-consolidated
affiliates. Segment operating income includes an allocation of corporate
operating expenses. Segment operating results in 1998 exclude the charge for the
sale of the microelectronic packaging unit at Manteca, CA, and the restructuring
of the rod, wire and tube businesses at Indianapolis, IN ($42 million pretax)
and non-recurring costs associated with the Spin-Off ($21 million pretax).
CHLOR ALKALI PRODUCTS
2000 1999 1998
------------------------------------------------------------------------
($ IN MILLIONS)
Sales................................... $392 $336 $428
Operating Income (Loss)................. 27 (58) 55
2000 COMPARED TO 1999
Sales and operating results were higher than 1999 primarily due to higher
ECU netbacks and ongoing cost reduction initiatives. Average ECU netbacks in
2000 were approximately $300, compared to $225 in 1999. While the pricing cycle
improved, demand for chlorine decreased particularly in the second half of 2000,
primarily due to the depressed vinyl market. This weak demand along with higher
electricity rates, forced industry operating rates to decline (to approximately
88% in 2000 down from 95% in 1999), which impacted the availability of caustic.
Caustic demand was high and most suppliers were on order control or allocation.
This tight caustic market supported several price increases, which more than
offset the declining chlorine prices. Higher selling prices, lower operating
costs and improved operating results in 2000 from the Sunbelt joint venture due
to the increase in ECU prices offset the fees associated with the discontinued
chlor alkali partnership negotiations with Occidental and contributed to the
significant improvement in operating income.
1999 COMPARED TO 1998
Sales and operating results in 1999 were lower than 1998 due to lower ECU
pricing offset in part by higher volumes. ECU prices in 1999 were in the $225
range compared to the $340 range in 1998. Sales volumes were higher and
operating rates in 1999 averaged about 95% compared with about 90% in 1998.
Lower demand as a result of the Asian and the Latin American financial crisis
and increased worldwide capacity resulted in a severe downturn in the industry
pricing cycle beginning in late 1997, reaching a 25-year low in the third
quarter of 1999, and then moving up in the fourth quarter of 1999.
METALS
2000 1999 1998
------------------------------------------------------------------------
($ IN MILLIONS)
Sales................................... $880 $773 $810
Operating Income........................ 95 77 64
2000 COMPARED TO 1999
Sales in 2000 increased 14% due to increased volumes and higher metal values
and selling prices. Higher volumes and conversion selling prices increased sales
by 9% and higher metal values accounted for 5% of the improvement. Strip
shipments to the coinage, electronics and ammunition segments were higher in
2000. Distributor market (A.J. Oster Company ("Oster")) shipments were higher as
well as were those to the telecommunications market served by Aegis. Shipments
of strip to the automotive and building products markets were lower in 2000.
Higher volumes, improved pricing and a favorable product mix along with the
impact from on-going cost reduction programs more than offset the impact of the
work stoppage at East Alton and contributed to the improvement in operating
income.
14
1999 COMPARED TO 1998
Sales in 1999 were down 5% due to lower metal values and the loss of sales
associated with the shutdown of the rod, wire and tube businesses at the end of
1998, offset in part by higher volumes. Strip volumes were higher as a result of
the strength in the automotive, housing, ammunition and coinage markets. Higher
demand from the distribution market improved Oster's performance. Operating
income increased due to the shutdown of the unprofitable rod, wire and tube
businesses, overall higher volumes in the retained businesses and favorable
sales mix.
WINCHESTER
2000 1999 1998
------------------------------------------------------------------------
($ IN MILLIONS)
Sales................................... $277 $286 $266
Operating Income........................ 20 21 13
2000 COMPARED TO 1999
Sales in 2000 were slightly lower than 1999 primarily due to lower domestic
commercial ammunition volumes, offset in part by higher commercial selling
prices. After strong marketplace demand throughout 1999 and the first half of
2000, the market began softening in the third quarter due to an industry-wide
market correction. Operating income declined slightly from 1999 due to several
factors. The impact of the lower volumes, the work stoppage at East Alton,
higher consulting expenses and lower fees from the Lake City Army Ammunition
Plant more than offset the favorable impact of both higher selling prices and
Australia's improved results from foreign currency activity.
In 1999, Winchester was the operator of the U.S. Army's Lake City
small-caliber, ammunition plant in Independence, MO. The five-year contract
expired at the end of 1999 and represented approximately $5 million in annual
pretax profits during the year. On July 30, 1999, the Department of the Army
awarded this contract to a competitor. Olin filed a protest to this award. The
Company did not prevail in its protest of the contract award to operate this
plant. Therefore, the Company's contract to operate that facility ended at the
end of the first quarter of 2000.
1999 COMPARED TO 1998
Sales were up 8% due to higher volumes offset in part by lower selling
prices. Commercial sales were higher due to higher industry-wide consumer demand
partially driven by Y2K concerns and improved market share. Contract sales were
lower than the prior year due to reduced demand in the military product
categories. Operating income was higher due to increased sales volumes and lower
material costs offset in part by the lower selling prices.
2001 FULL YEAR OUTLOOK
CONSOLIDATED
The Company expects that its 2001 full year earnings per share will be in
the $1.80 range, with higher earnings from our Chlor Alkali Products business
approximately offsetting the impact of the now-settled strike at our Brass and
Winchester operations in East Alton, and the effect of a slowing economy.
CHLOR ALKALI PRODUCTS
Sales and operating income are expected to increase significantly due to
higher ECU pricing and cost reduction initiatives. Demand for chlorine is
expected to remain weak, thus exerting pressure on chlorine prices. It is
expected that demand from the vinyl sector will recover by mid-year and will
result in higher operating rates later in 2001 and into 2002. This should result
in higher ECU prices in 2001 and 2002 compared with 2000. Caustic demand is
expected to remain strong in 2001 and the improving caustic prices are expected
to offset the decline in chlorine prices during the first half of 2001.
METALS
Sales and operating income are expected to be lower in 2001 due to the
impact in the first quarter of the strike at the East Alton facility. In
addition, signs of an economic slowdown are appearing in many market segments
that Metals
15
serves, primarily the automotive, coinage, distribution and electronics markets.
The impact of the strike and the economic slowdown are expected to be the main
contributors to the decline in Metals operating performance.
WINCHESTER
Sales in 2001 are expected to be comparable to the 2000 amount. Operating
income is expected to be significantly lower in 2001 due to the impact of the
strike including higher costs resulting from the settlement of the East Alton
labor contract and the absence of profits associated with the Lake City
contract.
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: The information
contained in the 2001 Full Year Outlook sections (and subsections thereof), the
Environmental Matters section, the Liquidity, Investment Activity and Other
Financial Data section, and the Environmental and Commitments and Contingencies
notes to the Consolidated Financial Statements contains forward-looking
statements that are based on management's beliefs, certain assumptions made by
management, and current expectations, estimates and projections about the
markets and economy in which the Company and its various segments 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. Future Factors which could cause actual results to
differ materially from those discussed in these sections and notes include but
are not limited to: general economic and business and market conditions;
competitive pricing pressures; changes in Chlor Alkali's ECU prices from
expected levels; Chlor Alkali operating rates below anticipated levels;
higher-than-expected raw material costs; higher than expected transportation
and/or logistics costs; a protracted work stoppage in connection with collective
bargaining negotiations with labor unions; the supply/demand balance for the
Company's products, including the impact of excess industry capacity; efficacy
of new technologies; changes in U.S. laws and regulations; failure to achieve
targeted cost reduction programs; capital expenditures, such as cost overruns,
in excess of those scheduled; environmental costs in excess of those projected;
and the occurrence of unexpected manufacturing interruptions/outages.
DISCONTINUED OPERATIONS
1999 1998
--------------------------------------------------------------------
($ IN MILLIONS)
Sales.......................................... $73 $863
Net Income..................................... 4 40
1999 COMPARED TO 1998
On February 8, 1999, the Company completed the Spin-Off of its specialty
chemicals business as Arch Chemicals. Accordingly, 1999 includes the operating
results of Arch Chemicals for the month of January while the 1998 year includes
twelve months of operating results.
16
ENVIRONMENTAL MATTERS
2000 1999 1998
------------------------------------------------------------------------
($ IN MILLIONS)
Cash Outlays:
Remedial and Investigatory Spending
(Charged to Reserve).............. $ 30 $ 21 $ 20
Capital Spending.................... 3 3 2
Plant Operations.................... 17 17 17
------------------------------------------------------------------------
Total Cash Outlays...................... $ 50 $ 41 $ 39
------------------------------------------------------------------------
------------------------------------------------------------------------
Environmental Liabilities:
Beginning Balance................... $125 $129 $133
Charges to Income................... 15 17 16
Remedial and Investigatory
Spending.......................... (30) (21) (20)
------------------------------------------------------------------------
Ending Balance.......................... $110 $125 $129
------------------------------------------------------------------------
------------------------------------------------------------------------
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 manufacturing locations. 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.
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. Charges to income for
investigatory and remedial efforts were material to operating results in 2000,
1999, and 1998 and may be material to net income in future years. Such charges
to income were $15 million, $17 million and $16 million in 2000, 1999, and 1998
respectively.
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 years. Cash outlays for normal plant operations for the disposal
of waste and the operation and maintenance of pollution control equipment and
facilities to ensure compliance with mandated and voluntarily imposed
environmental quality standards were charged to income. Historically, the
Company has funded its environmental capital expenditures through cash flow from
operations and expects to do so in the future.
The Company's estimated environmental liability at the end of 2000 was
attributable to 56 sites, 18 of which were on the National Priority List (NPL).
Ten sites accounted for approximately 75% of such liability and, of the
remaining sites, no one site accounted for more than 2% of such liability. Two
of these ten sites are 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 five of the ten 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 ten
sites, part of the site is subject to a ROD and another part is still in the
investigative stage of remediation. All ten sites were either former
manufacturing facilities or waste sites containing contamination generated by
those facilities.
The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$110 million at December 31, 2000, and $125 million at December 31, 1999, of
which $85 million and $100 million were classified as other noncurrent
liabilities, respectively. Those amounts did not take into account any
discounting of future expenditures or any consideration of insurance recoveries
or advances in technology. Those liabilities are reassessed periodically to
determine if environmental
17
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.
Total environmental-related cash outlays for 2001 are estimated to be
$52 million, of which $25 million is expected to be spent on investigatory and
remedial efforts, $9 million on capital projects and $18 million on normal plant
operations.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects, and normal plant operations are expected to range
between $45-$55 million over the next several years. While the Company does not
anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company. At December 31,
2000, the Company had estimated additional contingent environmental liabilities
of $40 million.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
CASH FLOW DATA
PROVIDED BY (USED FOR) 2000 1999 1998
------------------------------------------------------------------------
($ IN MILLIONS)
Net Cash and Cash Equivalents Provided
By Operating Activities From
Continuing Operations................ $181 $ 42 $ 176
Net Operating Activities................ 181 23 178
Capital Expenditures.................... (95) (73) (78)
Net Investing Activities................ (88) (74) (76)
Purchases of Olin Common Stock.......... (20) (11) (112)
Net Financing Activities................ (57) 22 (209)
In 2000, cash flows from operations were used to finance the Company's
working capital requirements, capital and investment projects, dividends, and
the purchase of the Company's common stock.
OPERATING ACTIVITIES
In 2000, the increase in cash flow from operating activities of continuing
operations from 1999 was primarily attributable to higher operating income and a
lower investment in working capital, which included a tax refund. In 2000, the
Company received approximately $28 million as a result of a tax refund.
In 1999, net cash flow from operating activities was lower than 1998 due to
the lower level of operating income and the tax refund received in 1998 of
approximately $80 million related to taxes paid on capital gains in prior years.
CAPITAL EXPENDITURES
Capital spending in 2000 of $95 million was 30% higher than 1999. The
capital spending increase is primarily in the Metals segment to expand
production capacity in its higher value-added product categories, in particular
high performance alloys. These products are patented, specialty copper alloys
that provide value-added benefits to global customers in the computer,
telecommunications and automotive industries. Capital spending in 2000 was
approximately 120% of depreciation compared to 95% in 1999.
Capital spending of $73 million in 1999 was lower than 1998 due to lower
levels of capital spending associated with the implementation of the
client-server system (SAP) and certain capital expenditures in 1998 to
facilitate the
18
Spin-Off of Arch Chemicals, primarily in the information technology area.
Capital spending in 1999 was approximately 95% of depreciation compared with
about 100% in 1998. Capital spending in 2001 is expected to be approximately
equal to 2000's amount of $95 million. The majority of the capital spending in
2001 is expected to be attributable to projects, which were begun in 2000,
primarily in the Metals segment to expand production capacity for high
performance alloys.
INVESTING ACTIVITIES
During 1999, the Company completed the purchase of a manufacturer of
microelectronic packages in England and a metal distribution company in Puerto
Rico for a total of $3 million.
In 1998, the Company sold its microelectronic packaging unit at Manteca, CA,
for $4 million in cash.
FINANCING ACTIVITIES
Prior to the Spin-Off of Arch Chemicals in February 1999, the Company
borrowed $75 million under a credit facility which liability was assumed by Arch
Chemicals. The Company has used these funds for general corporate purposes,
which included share repurchases.
At December 31, 2000, the Company had an unsecured revolving credit
agreement with a group of banks with commitments totaling $165 million, all of
which was available. The Company may select various floating rate borrowing
options. This agreement expires October 15, 2002. The Company believes that the
credit facility is adequate to satisfy its liquidity needs for the foreseeable
future. The credit facility includes various customary restrictive covenants
including restrictions related to the ratio of debt to earnings before interest
expense, taxes, depreciation and amortization and the ratio of earnings before
interest expense, taxes, depreciation and amortization to interest expense.
In May of 1998, the Company repaid $38 million of 7.97% notes.
During 2000, 1999 and 1998, the Company used $20 million, $11 million and
$112 million to repurchase 1.2 million, 0.9 million and 3.1 million shares of
the Company's stock, respectively. The Board of Directors has approved two share
repurchase programs to repurchase a total of 10 million shares of the Company's
stock. It is expected that this program will be completed during 2001 with the
repurchase of 1 million shares.
The percent of total debt to total capitalization decreased to 41% at
December 31, 2000, from 43% at year-end 1999 and was 23% at year-end 1998.
Contributing to the increase in 1999 was the reduction to equity resulting from
the Spin-Off of Arch Chemicals.
Dividends per common share were $0.80 in 2000, $0.90 in 1999 and $1.20 in
1998. Total dividends paid on common stock amounted to $36 million in 2000,
$41 million in 1999 and $58 million in 1998. In 2000, the Company paid a
quarterly dividend of $0.20 per share. Prior to the Spin-Off, the Company paid a
first quarter 1999 dividend of $0.30 per share. Following the distribution of
Arch Chemicals, the quarterly dividend was reduced to $0.20 per share to reflect
the effect of the distribution.
During 1992, the Company swapped interest payments on $50 million principal
amount of its 8% notes due 2002, to a floating rate (6.46406% at December 31,
2000). In June 1995, the Company offset this transaction by swapping interest
payments to a fixed rate of 6.485%.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities." It
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The implementation date of this statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company adopted FASB
No. 133 on January 1, 2001, and will achieve hedge accounting treatment for
substantially all of the Company's business transactions whose risks are covered
using derivative instruments. The hedge accounting treatment provides for the
deferral of gains or losses on derivative instruments until such time as the
related transactions occur. The Company estimates that if it had accounted for
its derivatives in accordance with the new standard as of December 31, 2000,
assets totaling $1.2 million and liabilities totaling $2.1 million would have
been recorded on the balance sheet with an offsetting entry to Other
Comprehensive Income. The new standard does not allow for the special accounting
treatment
19
on the portion of any hedge that is not effective. The ineffectiveness, which
would have been recorded at December 31, 2000, was a loss of less than
$0.1 million.
Effective July 1, 2000, the Company adopted FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation." Adoption of
this interpretation did not have a material effect on the Company's results of
operations or financial position.
In 2000, the Emerging Issues Task Force issued No. 00-10 "Accounting for
Shipping and Handling Fees and Costs." This Issue addresses the income statement
classification for shipping and handling fees and costs. It requires the
shipping and handling fees be recorded as Sales and the shipping and handling
costs be recorded as an Operating Expense. This Issue is effective for the
fourth quarter of the fiscal year beginning after December 15, 1999 and requires
reclassification of prior period financial statements. In conformity with this
Issue, the Company charged 2000 freight expenses and reclassified prior years'
freight expenses to Cost of Goods Sold. The Company continues to record shipping
and handling fees in Sales.
DERIVATIVE FINANCIAL INSTRUMENTS
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 dollar and Canadian
dollar) 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.
At December 31, 2000, the Company had a forward contract to buy a foreign
currency with face value of $4 million and no forward contracts to sell foreign
currencies. At December 31, 1999, the Company had forward contracts to sell
foreign currencies with face values of $7 million and no forward contracts to
buy foreign currencies. The fair market value of the forward contracts to buy
and sell at December 31, 2000 and 1999 approximated the carrying values. The
Company had no outstanding option contracts at December 31, 2000 and 1999.
In accordance with Statement of Financial Accounting Standards No. 52,
("SFAS 52"), "Foreign Currency Translation," a transaction is classified as a
hedge when the foreign currency is designated as, and is effective as, a hedge
of a foreign currency commitment and the foreign currency commitment is firm. A
hedge is considered by the Company to be effective when the transaction reduces
the currency risk on its foreign currency commitments. If a transaction does not
meet the criteria to qualify as a hedge, it is considered to be speculative. For
a foreign currency commitment that is classified as a hedge, any gain or loss on
the commitment is deferred and included in the basis of the underlying
instrument. Any realized and unrealized gains or losses associated with foreign
currency commitments that are classified as speculative are recognized in the
current period and are included in Selling and Administration in the
consolidated statements of income. If a foreign currency transaction previously
considered as a hedge is terminated before the transaction date of the related
commitment, any deferred gain or loss shall continue to be deferred and included
in the basis of the underlying investment. Premiums paid for currency options
and gains or losses on forward sales and purchase contracts are not material to
operating results.
Depending on market conditions, the Company may enter into futures contracts
and put and call option contracts in order to reduce the impact of metal price
fluctuations, 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.
RISK MANAGEMENT
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
20
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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies, its purchases
of certain commodities, and its ongoing investing and financing activities. The
risk of loss can be assessed from the perspective of adverse changes in fair
values, cash flows and future earnings. The Company has established policies and
procedures governing its management of market risks and the use of financial
instruments to manage exposure to such risks.
The primary purpose of the Company's foreign currency hedging activities is
to manage currency risk resulting from purchase and sale commitments denominated
in foreign currencies (principally Australian dollar and Canadian dollar) and
relating to particular anticipated purchases and sales expected to be
denominated in those same foreign currencies. Foreign currency hedging activity
is not material to the Company's consolidated financial position, results of
operations, or cash flow.
Certain raw materials, namely copper, lead, and zinc used primarily in the
Company's Metals and Winchester segments products are subject to price
volatility. Depending on market conditions, the Company may enter into futures
contracts and put and call option contracts in order to reduce the impact of
metal price fluctuations. As of December 31, 2000, the Company maintained open
positions on futures contracts totaling $27 million. Assuming a hypothetical 10%
increase in commodity prices, which are currently hedged, the Company would
experience a $2.7 million increase in its cost of inventory purchased, which
would be offset by a corresponding increase in the value of related hedging
instruments.
The Company is exposed to changes in interest rates primarily as a result of
its investing and financing activities. Investing activity is not material to
the Company's consolidated financial position, results of operations, or cash
flow. The current debt structure of the Company is comprised primarily of
long-term fixed rate debt utilized to fund business operations and maintain
liquidity. As of December 31, 2000, the Company had long-term borrowings of
$229 million of which $35 million was at variable rates. Assuming a decrease of
100 basis points in the interest rate for borrowings of a similar nature, which
the Company becomes unable to capitalize on in the short-term as a result of the
structure of its fixed rate financing, future cash flows would be affected by
approximately $1.9 million. Assuming an increase of 100 basis points in the
interest rate for borrowings on the Company's variable rate debt instruments,
future cash flows would be negatively affected by approximately $0.4 million.
The Company has interest rate swaps to hedge underlying debt obligations.
Interest rate swap activity is not material to the Company's consolidated
financial position, results of operations, or cash flow.
If the actual change in interest or commodities pricing is substantially
different than expected, the net impact of interest rate risk or commodity risk
on the Company's cash flow may be materially different than that disclosed
above.
The Company does not enter into any derivative financial instruments for
trading purposes.
21
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT REPORT ON FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
accompanying consolidated financial statements. These financial statements have
been prepared in conformity with generally accepted accounting principles and,
where necessary, involve amounts based on management's best judgments and
estimates. Management also prepared the other information in this annual report
and is responsible for its accuracy and consistency with the financial
statements.
The Company's system of internal controls is designed to provide reasonable
assurance as to the integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition, and the prevention
and detection of fraudulent financial reporting. This system, which is reviewed
regularly, consists of written policies and procedures, an organizational
structure providing delegation of authority and segregation of responsibility
and is monitored by an internal audit department. The Company's independent
auditors also review and test the internal control system along with tests of
accounting procedures and records to the extent that they consider necessary in
order to issue their opinion on the financial statements. Management believes
that the system of internal accounting controls meets the objectives noted
above.
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 a variety of ways, including personal training sessions.
The Ethics Program is based upon a document entitled "Our Values and
Standards of Business Conduct." The standards address, 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 standards and has established confidential ways, including a
confidential telephone help-line (1-800-362-8348), for employees and suppliers
to ask questions and share concerns.
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
accounting, auditing, internal controls and financial reporting matters. The
Audit Committee annually recommends to the Board of Directors the appointment of
independent auditors, subject to shareholder approval. The independent auditors
and the Company's internal audit department have independent and free access to
the Audit Committee.
[/S/ DONALD W. GRIFFIN] [/S/ ANTHONY W. RUGGIERO]
Donald W. Griffin Anthony W. Ruggiero
Chairman, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
22
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, 2000 and 1999 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, 2000. 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 in the United States of America. 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with generally accepted accounting
principles in the United States of America.
[/S/ KPMG LLP]
Stamford, Connecticut
January 25, 2001
23
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
($ IN MILLIONS, EXCEPT PER SHARE DATA)
2000 1999
---------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents............................... $ 57 $ 21
Short-Term Investments.................................. 25 25
Receivables, Net:
Trade............................................... 181 176
Other............................................... 16 20
Inventories, Net of LIFO Reserve of $81 ($73 in 1999)... 216 208
Income Taxes Receivable................................. -- 33
Other Current Assets.................................... 33 21
---------------------------------------------------------------------------------
Total Current Assets................................ 528 504
Property, Plant and Equipment, Net.......................... 483 468
Other Assets................................................ 112 91
---------------------------------------------------------------------------------
TOTAL ASSETS................................................ $1,123 $1,063
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-Term Debt.................. $ 1 $ 1
Accounts Payable........................................ 124 115
Income Taxes Payable.................................... 2 4
Accrued Liabilities..................................... 148 132
---------------------------------------------------------------------------------
Total Current Liabilities........................... 275 252
Long-Term Debt.............................................. 228 229
Deferred Income Taxes....................................... 80 51
Other Liabilities........................................... 211 222
---------------------------------------------------------------------------------
Total Liabilities................................... 794 754
---------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Equity:
Common Stock, Par Value $1 Per Share:
Authorized, 120,000,000 Shares
Issued and Outstanding 43,980,441 Shares
(45,061,896 in 1999)............................ 44 45
Additional Paid-In Capital.............................. 216 234
Accumulated Other Comprehensive Loss.................... (16) (10)
Retained Earnings....................................... 85 40
---------------------------------------------------------------------------------
Total Shareholders' Equity.......................... 329 309
---------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,123 $1,063
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of the consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
($ IN MILLIONS, EXCEPT PER SHARE DATA)
2000 1999 1998
--------------------------------------------------------------------------------------------
Sales....................................................... $1,549 $1,395 $1,504
Operating Expenses:
Cost of Goods Sold...................................... 1,277 1,215 1,239
Selling and Administration.............................. 127 122 123
Research and Development................................ 5 7 10
Earnings (Loss) of Non-consolidated Affiliates.............. 2 (11) --
Interest Expense............................................ 16 16 17
Interest Income............................................. 2 2 3
Other Income................................................ 3 1 4
Loss on Sale and Restructurings of Businesses and Spin-off
Costs..................................................... -- -- (63)
--------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES.............. 131 27 59
Income Taxes................................................ 50 10 21
--------------------------------------------------------------------------------------------
Income from Continuing Operations........................... 81 17 38
Income from Discontinued Operations, Net of Taxes........... -- 4 40
--------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 81 $ 21 $ 78
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
Basic:
Continuing Operations................................... $ 1.80 $ 0.36 $ 0.79
Discontinued Operations................................. -- 0.09 0.85
--------------------------------------------------------------------------------------------
Total Net Income.................................... $ 1.80 $ 0.45 $ 1.64
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Diluted:
Continuing Operations................................... $ 1.80 $ 0.36 $ 0.79
Discontinued Operations................................. -- 0.09 0.84
--------------------------------------------------------------------------------------------
Total Net Income.................................... $ 1.80 $ 0.45 $ 1.63
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of the consolidated financial statements.
25
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ IN MILLIONS, EXCEPT PER SHARE DATA)
COMMON STOCK ACCUMULATED
--------------------- ADDITIONAL OTHER TOTAL
SHARES PAR PAID-IN COMPREHENSIVE RETAINED SHAREHOLDERS'
ISSUED VALUE CAPITAL LOSS EARNINGS EQUITY
---------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1998...... 48,840,234 $49 $348 $(24) $506 $ 879
Comprehensive Income:
Net Income.................. -- -- -- -- 78 78
Translation Adjustment...... -- -- -- 1 -- 1
Minimum Pension Liability
Adjustment................ -- -- -- (2) -- (2)
Comprehensive Income........ -- -- -- -- -- 77
Dividends Paid:
Common Stock ($1.20 per
share).................... -- -- -- -- (58) (58)
Stock Options Exercised......... 84,528 -- 3 -- -- 3
Stock Repurchase................ (3,096,100) (3) (109) -- -- (112)
Other Transactions.............. 94,202 -- 1 -- -- 1
---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998.... 45,922,864 46 243 (25) 526 790
Comprehensive Income:
Net Income.................. -- -- -- -- 21 21
Translation Adjustment...... -- -- -- 2 -- 2
Comprehensive Income........ -- -- -- -- -- 23
Dividends Paid:
Common Stock ($0.90 per
share).................... -- -- -- -- (41) (41)
Spin-off of Arch Chemicals,
Inc........................... -- -- -- 13 (466) (453)
Stock Repurchase................ (921,400) (1) (10) -- -- (11)
Other Transactions.............. 60,432 -- 1 -- -- 1
---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999.... 45,061,896 45 234 (10) 40 309
Comprehensive Income:
Net Income.................. -- -- -- -- 81 81
Translation Adjustment...... -- -- -- (3) -- (3)
Minimum Pension Liability
Adjustment................ -- -- -- (3) -- (3)
Comprehensive Income........ -- -- -- -- -- 75
Dividends Paid:
Common Stock ($0.80 per
share).................... -- -- -- -- (36) (36)
Stock Options Exercised......... 67,111 -- 1 -- -- 1
Stock Repurchase................ (1,162,297) (1) (19) -- -- (20)
Other Transactions.............. 13,731 -- -- -- -- --
---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000.... 43,980,441 $44 $216 $(16) $ 85 $ 329
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of the consolidated financial statements.
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
($ IN MILLIONS)
2000 1999 1998
--------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from Continuing Operations........................... $ 81 $ 17 $ 38
Adjustments to Reconcile Income from Continuing Operations
to Net Cash and Cash Equivalents Provided by Operating
Activities:
Loss (Earnings) of Non-consolidated Affiliates.......... (2) 11 --
Depreciation............................................ 79 78 76
Amortization of Intangibles............................. 2 2 2
Deferred Taxes.......................................... 17 11 104
Loss on Sale and Restructurings of Businesses and
Spin-off Costs........................................ -- -- 63
Minimum Pension Liability............................... (3) -- (2)
Change in Assets and Liabilities Net of Purchases and
Sales of Businesses:
Receivables......................................... -- (4) (5)
Inventories......................................... (8) (7) 7
Other Current Assets................................ 1 (1) 4
Accounts Payable and Accrued Liabilities............ 25 (34) (57)
Income Taxes Payable................................ 30 (1) (33)
Other Noncurrent Liabilities........................ (11) (21) 4
Other Operating Activities.................................. (30) (9) (25)
--------------------------------------------------------------------------------------------
Net Cash and Cash Equivalents Provided by Operating
Activities from Continuing Operations..................... 181 42 176
Discontinued Operations:
Net Income.............................................. -- 4 40
Change in Net Assets.................................... -- (23) (38)
--------------------------------------------------------------------------------------------
Net Operating Activities............................ 181 23 178
--------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures........................................ (95) (73) (78)
Businesses Acquired in Purchase Transactions................ -- (3) --
Proceeds from Sales of Businesses........................... -- -- 4
Purchases of Short-Term Investments......................... -- (34) (25)
Proceeds from Sale of Short-Term Investments................ -- 34 28
Investments and Advances -- Affiliated Companies at
Equity.................................................... 10 (3) (3)
Other Investing Activities.................................. (3) 5 (2)
--------------------------------------------------------------------------------------------
Net Investing Activities............................ (88) (74) (76)
--------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-Term Debt Repayments................................... (1) (1) (39)
Borrowings under Line of Credit Assumed by Arch
Chemicals, Inc............................................ -- 75 --
Purchase of Olin Common Stock............................... (20) (11) (112)
Stock Options Exercised..................................... 1 -- 3
Dividends Paid.............................................. (36) (41) (58)
Other Financing Activities.................................. (1) -- (3)
--------------------------------------------------------------------------------------------
Net Financing Activities............................ (57) 22 (209)
--------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... 36 (29) (107)
Cash and Cash Equivalents, Beginning of Year................ 21 50 157
--------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year.............. $ 57 $ 21 $ 50
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Cash Paid (Received) for Interest and Income Taxes:
Interest............................................ $ 16 $ 16 $ 17
Income Taxes, Net of Refunds........................ $ 2 $ (6) $ (31)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of the consolidated financial statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE DATA)
ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires estimates
and assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from those estimates.
In 2000, freight expenses, previously reported as a deduction from Sales, were
charged to Cost of Goods Sold; prior years' financial statements were restated
to reflect this charge. Certain reclassifications were made to prior year
amounts to conform to the 2000 presentation.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Olin
Corporation ("Olin" or "Company") and all majority-owned subsidiaries.
Investments in 20-50% owned affiliates are accounted for on the equity method.
Accordingly, the Company's share of earnings or losses of these affiliates is
included in consolidated net income.
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 included in Accumulated Other Comprehensive Loss. Where foreign affiliates
operate in highly inflationary economies, non-monetary amounts are translated at
historical exchange rates while monetary assets and liabilities are translated
at the current rate with the related adjustments reflected in the Consolidated
Statements of Income.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
SHORT-TERM INVESTMENTS
Marketable securities are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company has classified its
marketable debt securities as available-for-sale which are reported at fair
market value with unrealized gains and losses included in Shareholders' Equity
net of applicable taxes. The fair value of marketable securities is determined
by quoted market prices. Unrealized gains and losses in 2000 and 1999 were
insignificant. Realized gains and losses on sales of investments, as determined
on the specific identification method and declines in value of securities judged
to be other-than-temporary are included in Other Income in the Consolidated
Statements of Income. Interest and dividends on all securities are included in
Interest Income and Other Income, respectively.
All investments which have original maturities between three and twelve
months are considered short-term investments and consist of debt securities such
as commercial paper, time deposits, certificates of deposit, bankers
acceptances, repurchase agreements, and marketable direct obligations of the
United States Treasury and its agencies.
INVENTORIES
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting; such valuations are not in excess of
market. Cost for other inventories has been determined principally by the
average-cost and first-in, first-out (FIFO) methods. Elements of costs in
inventories include raw materials, direct labor and manufacturing overhead.
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 shorter. Start-up costs are
expensed as incurred.
28
COMPREHENSIVE INCOME
The Company calculated comprehensive income in accordance with SFAS
No. 130, "Reporting Comprehensive Income." Accumulated Other Comprehensive Loss
at December 31, 2000 includes cumulative translation adjustments of $11 ($8 at
December 31, 1999) and minimum pension liability of $5 ($2 at December 31,
1999). 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 of foreign subsidiaries.
GOODWILL
Goodwill, the excess of the purchase price of the acquired businesses over
the fair value of the respective net assets, is amortized principally over
30 years on a straight-line basis. The Company periodically reviews the value of
its goodwill to determine if any impairment has occurred. The Company assesses
the potential impairment of recorded goodwill and other long-lived assets by
comparing the undiscounted value of expected future operating cash flows in
relation to the book value of the goodwill and related long-lived assets. An
impairment would be recorded based on the estimated fair value.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties, are
adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to expense. Environmental costs are capitalized if
the costs increase the value of the property and/or mitigate or prevent
contamination from future operations.
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.
DERIVATIVE FINANCIAL INSTRUMENTS
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 dollar and Canadian
dollar) 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.
At December 31, 2000, the Company had a forward contract to buy a foreign
currency with a face value of $4 and no forward contracts to sell foreign
currencies. At December 31, 1999, the Company had forward contracts to sell
foreign currencies with face values of $7 and no forward contracts to buy
foreign currencies. The fair market value of the forward contracts to buy and
sell at December 31, 2000 and 1999 approximated the carrying values. The Company
had no outstanding option contracts at December 31, 2000 and 1999. The
counter-parties to the forward contracts are major financial institutions. The
risk of loss to the Company in the event of nonperformance by a counter-party is
not significant.
In accordance with SFAS No. 52, "Foreign Currency Translation," a
transaction is classified as a hedge when it is designated as, and is effective
as, a hedge of a foreign currency commitment and the foreign currency commitment
is firm. A hedge is considered by the Company to be effective when the
transaction reduces the currency risk on its foreign currency commitments. If a
transaction does not meet the criteria to qualify as a hedge, it is considered
to be speculative. For a foreign currency commitment that is classified as a
hedge, any gain or loss on the commitment is deferred and included in the basis
of the underlying item. 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
Consolidated Statements of Income in Selling and Administration. If a foreign
currency transaction previously considered as a hedge is terminated before the
transaction date of the related commitment, any deferred gain or loss shall
continue to be deferred and included in the basis of the underlying item.
Premiums paid for currency options and gains or losses on forward sales and
purchase contracts were not material to operating results.
29
Foreign currency exchange gains (losses), net of taxes, were less than $1 in
2000, less than $(1) in 1999 and $(1) in 1998.
Depending on market conditions, the Company may enter into futures contracts
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. At December 31,
2000, the Company has open positions in futures contracts totaling $27
(1999 -- $36). If the futures contracts had been settled on December 31, 2000,
the Company would have recognized a loss of $1. Gains (losses) on futures
contracts, net of taxes, were less than $1 in 2000, $1 in 1999 and $(2) in 1998.
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." It
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The implementation date of this statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company adopted FASB
No. 133 on January 1, 2001 and will achieve hedge accounting treatment for
substantially all of the Company's business transactions whose risks are covered
using derivative instruments. The hedge accounting treatment provides for the
deferral of gains or losses on derivative instruments until such time as the
related transactions occur. The Company estimates that if it had accounted for
its derivatives in accordance with the new standard as of December 31, 2000,
assets totaling $1.2 and liabilities totaling $2.1 would have been recorded on
the balance sheet with an offsetting entry to Other Comprehensive Income. The
new standard does not allow for the special accounting treatment on the portion
of any hedge that is not effective. The ineffectiveness, which would have been
recorded at December 31, 2000, was a loss of less than $0.1.
FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximated fair values due to the short-term maturities of
these instruments. The fair value of the Company's long-term debt was determined
based on current market rates for debt of the same risk and maturities. At
December 31, 2000, the estimated fair value of debt was $231 (1999 -- $228). The
fair values of currency forward contracts were estimated based on quoted market
prices for contracts with similar terms.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under SFAS No. 123,
"Accounting for Stock-Based Compensation." As allowed under SFAS No. 123, the
Company has chosen to continue to account for stock-based compensation cost in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Under this option, compensation cost is recorded
when the fair market value of the Company's stock at the date of grant for fixed
options exceeds the exercise price of the stock option. The Company's policy is
to grant stock options at a value equal to its common stock's fair market value
on the date of the grant. Compensation cost for restricted stock awards is
accrued over the life of the award based on the quoted market price of the
Company's stock at the date of the award.
30
EARNINGS PER SHARE
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.
COMPUTATION OF EARNINGS PER SHARE 2000 1999 1998
---------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Income from continuing operations...................... $ 81 $ 17 $ 38
---------------------------------------------------------------------------------------
Basic shares........................................... 44.9 45.4 47.6
---------------------------------------------------------------------------------------
Basic earnings per share -- continuing operations...... $1.80 $0.36 $0.79
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing operations...................... $ 81 $ 17 $ 38
---------------------------------------------------------------------------------------
Diluted shares:
Basic shares....................................... 44.9 45.4 47.6
Stock options...................................... .1 -- .3
---------------------------------------------------------------------------------------
45.0 45.4 47.9
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Diluted earnings per share -- continuing operations.... $1.80 $0.36 $0.79
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
The Board of Directors has authorized the Company to purchase up to
10 million shares of common stock of the Company under two share repurchase
programs which began in January of 1997. During 2000, 1999 and 1998 the Company
repurchased 1.2 million, 0.9 million and 3.1 million shares, respectively. It is
expected that the programs will be completed during 2001 with the repurchase of
1 million shares.
SHORT-TERM INVESTMENTS
Short-term investments, which approximate fair value were $25 at
December 31, 2000 and 1999, and represented the equity value of the
Company-owned life insurance program.
TRADE RECEIVABLES
Allowance for doubtful items was $7 and $6 at December 31, 2000 and 1999,
respectively. Provisions charged to operations were $2 in 2000 and less than $1
in 1999 and 1998. Bad debt write-offs, net of recoveries were $1 in 2000, less
than $1 in 1999 and $1 in 1998.
INVENTORIES
2000 1999
--------------------------------------------------------------------
Raw materials and supplies..................... $126 $120
Work in process................................ 111 111
Finished goods................................. 60 50
--------------------------------------------------------------------
297 281
LIFO reserves.................................. (81) (73)
--------------------------------------------------------------------
Inventory, net............................. $216 $208
--------------------------------------------------------------------
--------------------------------------------------------------------
Inventories valued using the LIFO method comprised 77% and 78% of the total
inventories at December 31, 2000 and 1999, respectively.
31
PROPERTY, PLANT AND EQUIPMENT
USEFUL LIVES 2000 1999
-------------------------------------------------------------------------------------
Land and improvements to land 10 - 20 Years............. $ 58 $ 58
Buildings and building equipment 10 - 25 Years............. 189 187
Machinery and equipment 3 - 12 Years.............. 1,329 1,278
Leasehold improvements.......................................... 4 3
Construction in progress........................................ 81 69
-------------------------------------------------------------------------------------
Property, plant and equipment............................... 1,661 1,595
Less accumulated depreciation................................... 1,178 1,127
-------------------------------------------------------------------------------------
Property, plant and equipment, net.......................... $ 483 $ 468
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Leased assets capitalized and included above are not significant.
Maintenance and repairs charged to operations amounted to $118, $116 and $109 in
2000, 1999 and 1998 respectively.
SHORT-TERM BORROWINGS
The Company has an unsecured revolving credit agreement with a group of
banks with commitments totaling $165, all of which was available at
December 31, 2000 and 1999. This agreement expires October 15, 2002. The Company
may select various floating rate borrowing options. The credit facility includes
various customary restrictive covenants including restrictions related to the
ratio of debt to earnings before interest expense, taxes, depreciation and
amortization and the ratio of earnings before interest expense, taxes,
depreciation and amortization to interest expense.
LONG-TERM DEBT
2000 1999
---------------------------------------------------------------------------------
Notes payable:
7.11%, due 2005......................................... $ 50 $ 50
7.75%, due 2005......................................... 11 11
8%, due 2002............................................ 100 100
Industrial development and environmental improvement
obligations:
Payable at interest rates of 1.60% to 6.15%, which vary
with short-term tax exempt rates, due 2004-2017....... 35 35
Payable at interest rates of 6% to 7%, due 2000-2008.... 33 34
---------------------------------------------------------------------------------
Total senior debt................................... 229 230
Amounts due within one year................................. 1 1
---------------------------------------------------------------------------------
Total long-term debt.................................... $228 $229
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
At December 31, 2000, there remained $248 unissued under the medium-term
note program registered in May 1994.
During 1992, the Company swapped interest payments on $50 principal amount
of its 8% notes due 2002 to a floating rate (6.46406% at December 31, 2000). In
June 1995, the Company offset this transaction by swapping interest payments to
a fixed rate of 6.485%. The difference between interest paid and interest
received is included as an adjustment to interest expense. A settlement of the
fair market value of the interest rate swaps as of December 31, 2000 would
result in a receipt of approximately $1. Counter-parties to interest rate swap
contracts are major financial institutions. The risk of loss to the Company in
the event of nonperformance by a counter-party is not significant.
Annual maturities of long-term debt for the next five years are $1 in 2001,
$101 in 2002, $1 in 2003, $27 in 2004 and $62 in 2005.
Interest expense incurred on short-term borrowings and long-term debt
totaled $17 in 2000, $16 in 1999 and $18 in 1998; of which $1 was capitalized in
2000 and 1998.
32
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. The Company provides certain postretirement health care and
life insurance benefits for eligible active and retired domestic employees.
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------- -----------------------
CHANGE IN BENEFIT OBLIGATION 2000 1999 2000 1999
------------------------------------------------------------------------------------------------
Benefit obligation at beginning of
year................................. $1,068 $1,180 $65 $71
Service cost........................... 21 15 2 1
Interest cost.......................... 83 79 5 5
Actuarial loss (gain).................. 51 (123) 11 (3)
Benefits paid.......................... (88) (83) (13) (9)
------------------------------------------------------------------------------------------------
Benefit obligation at end of year...... $1,135 $1,068 $70 $65
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
PENSION BENEFITS
-----------------------
CHANGE IN PLAN ASSETS 2000 1999
------------------------------------------------------------------
Fair value of plan assets at beginning of
year................................... $1,424 $1,295
Actual return on plan assets............. (44) 230
Employer contribution.................... 5 4
Asset transfers to Arch Chemicals........ -- (22)
Benefits paid............................ (88) (83)
------------------------------------------------------------------
Fair value of plan assets at end of
year................................... $1,297 $1,424
------------------------------------------------------------------
------------------------------------------------------------------
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------- -----------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
Funded status............................ $ 162 $ 356 $(70) $(65)
Unrecognized actuarial (gain) loss....... (163) (377) 20 10
Unrecognized transition obligation
(asset)................................ -- (6) -- --
Unrecognized prior service cost.......... 22 26 (3) (4)
--------------------------------------------------------------------------------------------------
Net amount recognized.................... $ 21 $ (1) $(53) $(59)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Amounts recognized in the consolidated
balance sheet consist of:
Prepaid benefit cost................. $ 57 $ 27 $ -- $ --
Accrued benefit liability............ (44) (30) (53) (59)
Accumulated other comprehensive
income............................. 8 2 -- --
--------------------------------------------------------------------------------------------------
Net amount recognized................ $ 21 $ (1) $(53) $(59)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
PRINCIPAL ASSUMPTIONS FOR PENSION AND POSTRETIREMENT BENEFITS 2000 1999
----------------------------------------------------------------------------------------
Weighted average discount rate................................. 7.75% 8.0%
Weighted average rate of compensation increase................. 4.6% 4.6%
Long-term rate of return on assets............................. 9.5% 9.5%
33
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
COMPONENTS OF NET ------------------------------ ------------------------------
PERIODIC BENEFIT COST (INCOME) 2000 1999 1998 2000 1999 1998
--------------------------------------------------------------------------------------------------------
Service cost....................... $ 21 $ 15 $ 15 $ 2 $1 $ 1
Interest cost...................... 83 79 79 5 5 5
Expected return on plan assets..... (114) (103) (99) -- -- --
Amortization of prior service
cost............................. 4 4 4 (1) -- (1)
Recognized actuarial loss (gain)... (12) (6) (6) 1 -- 1
--------------------------------------------------------------------------------------------------------
Net periodic benefit cost
(income)......................... $ (18) $ (11) $ (7) $ 7 $6 $ 6
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
The Company's common stock represents approximately 1% of the plan assets at
December 31, 2000 and 1999.
The Company's foreign subsidiaries maintain pension and other benefit plans,
which are consistent with statutory practices and are not significant.
The 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 accumulated postretirement benefit obligation was determined using the
projected unit credit method and an assumed discount rate of 7.75% in 2000 and
8% in 1999. The assumed health care cost trend rate used for pre-65 retirees was
6.5% in 2000, 7.5% in 1999 and 8% in 1998, declining one-half percent per annum
to 5%. For post-65 retirees, the Company provides a fixed dollar benefit, which
is not subject to escalation.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plan. A one-percentage-point
increase (decrease) in assumed health care cost trend rates would have a less
than $1 increase (decrease) in total service and interest cost components and a
$2 increase (decrease) in the postretirement benefit obligation.
Subsequent to the Spin-Off of Arch Chemicals on February 8, 1999, Arch
Chemicals became liable for the payment of all pension plan benefits earned by
Arch Chemicals employees prior to and following the spin-off who retire after
the spin-off. The Olin pension plan transferred assets to the Arch Chemicals
pension plan and the amount of the assets were calculated based on the relative
percentage of the Projected Benefit Obligation. Olin remains liable for
postretirement, medical and death benefits provided to all employees who retired
prior to the spin-off. Arch Chemicals is liable for the payment of all retiree
medical and death benefits earned by Arch Chemicals employees prior to and
following the spin-off who retire after the spin-off. The postretirement plan is
an unfunded plan, therefore no assets were transferred.
In connection with the Spin-Off of Arch Chemicals on February 8, 1999, the
Company transferred $7 of postretirement benefit liability to Arch Chemicals.
34
INCOME TAXES
COMPONENTS OF PRETAX INCOME FROM CONTINUING OPERATIONS 2000 1999 1998
--------------------------------------------------------------------------------------------
Domestic.................................................. $126 $24 $ 54
Foreign................................................... 5 3 5
--------------------------------------------------------------------------------------------
Pretax income............................................. $131 $27 $ 59
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
--------------------------------------------------------------------------------------------
Currently payable:
Federal............................................... $ 26 $(9) $(88)
State................................................. 5 5 3
Foreign............................................... 2 3 2
--------------------------------------------------------------------------------------------
33 (1) (83)
Deferred.................................................. 17 11 104
--------------------------------------------------------------------------------------------
Income tax expense........................................ $ 50 $10 $ 21
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
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 rate of 35% to the income from continuing operations before taxes.
EFFECTIVE TAX RATE RECONCILIATION (PERCENT) 2000 1999 1998
-----------------------------------------------------------------------------------------
Statutory federal tax rate............................... 35.0 35.0 35.0
Foreign income tax....................................... 0.1 0.5 (0.3)
Foreign sales corporation................................ (0.4) (9.0) (0.9)
Company-owned life insurance programs.................... 0.2 6.9 (5.4)
State income taxes, net.................................. 6.0 (13.0) 1.7
Change in valuation reserve.............................. (2.2) 22.2 --
Equity in net income of affiliates....................... (0.5) (2.2) (0.9)
Other, net............................................... -- (3.4) 6.4
-----------------------------------------------------------------------------------------
Effective tax rate....................................... 38.2 37.0 35.6
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES 2000 1999
---------------------------------------------------------------------------------
Deferred tax assets:
Pension and postretirement benefits..................... $ 12 $ 23
Environmental reserves.................................. 43 49
Non-deductible reserves................................. 27 37
Alternative minimum tax................................. 15 15
State net operating losses.............................. 6 10
Other miscellaneous items............................... 25 10
---------------------------------------------------------------------------------
Total deferred tax assets................................... 128 144
Valuation allowance......................................... (2) (6)
---------------------------------------------------------------------------------
Net deferred tax assets..................................... 126 138
---------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment........................... 64 59
Capital loss............................................ 80 80
Other miscellaneous items............................... 33 35
---------------------------------------------------------------------------------
Total deferred tax liabilities.............................. 177 174
---------------------------------------------------------------------------------
Net deferred tax liability.................................. $ 51 $ 36
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
35
Included in Other Current Assets at December 31, 2000 and 1999 are $29 and
$15, respectively, of net current deferred assets. The deferred tax provisions
for 2000 and 1998 do not reflect the tax effect of $2 and $1, respectively,
resulting from the additional minimum pension liability adjustment required by
SFAS No. 87, "Employers' Accounting for Pensions."
The Company has state net operating loss carryforwards of approximately
$117, which are available to offset future state taxable income, if any, through
2014. The Company also has alternative minimum tax credit carryforwards of
approximately $15, which are available to reduce future federal regular income
taxes, if any, over an indefinite period.
At December 31, 2000, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $8. No provision has been
made for U.S. or additional foreign taxes on the undistributed earnings of
foreign subsidiaries since the Company intends to continue to reinvest these
earnings. Foreign tax credits would be available to substantially reduce or
eliminate any amount of additional U.S. tax that might be payable on these
foreign earnings in the event of distributions or sale.
ACCRUED LIABILITIES
Included in accrued liabilities are the following items:
2000 1999
--------------------------------------------------------------------
Accrued compensation and employee benefits..... $ 49 $ 36
Environmental.................................. 25 25
Accrued insurance.............................. 13 14
Other.......................................... 61 57
--------------------------------------------------------------------
$148 $132
--------------------------------------------------------------------
--------------------------------------------------------------------
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 Company is matching employee contributions with
common stock. Expenses related to the plan are based on common stock allocated
to participants. These costs (primarily the Company's contributions) amounted to
$5 in 2000 and 1999 and $8 in 1998.
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.
Options granted under the 1996 Stock Option Plan and the 2000 and the 1991 Long
Term Incentive Plans vest over three years. In 2000, a one-time grant of
Performance Accelerated Vesting Stock Options for 947,000 shares was granted
with an exercise price of $18.97, which represented fair value. These options
have a term of 120 months and vest in 119 months, and can vest early, but only
if the stock price increases to $28 per share or more for 10 days in any 30
calendar day period. The 2000 Long Term Incentive Plan, the 1996 Stock Option
Plan and the 1991 Long Term Incentive Plan are the only plans with stock options
available for future grants. At December 31, 2000, total shares of 2,855,858
were available for grant under all active stock-based plans. Of this total,
stock options of 2,280,904 shares and stock awards of 574,954 shares were
available for future grants. As a result of the Spin-Off of Arch Chemicals the
outstanding Olin options as of February 8, 1999 were converted into both an
option to purchase Olin common stock and an option to purchase Arch Chemicals
common stock with an adjustment of the exercise price designed to preserve the
"intrinsic value" at the time of the spin-off. Olin will be responsible for
delivering shares of the Olin common stock upon exercise, and Arch Chemicals
will be responsible for the delivering of shares of Arch Chemicals stock upon
exercise. The
36
options maintain the original vesting schedule. The following table has been
restated to reflect the new option price of the Olin options as a result of the
transaction described above.
WEIGHTED AVERAGE
OPTION PRICE OPTION PRICE
SHARES PER SHARE PER SHARE
------------------------------------------------------------------------------------
Outstanding at January 1, 1998... 2,446,463 $13.34 - $29.69 $21.36
Granted...................... 835,700 18.33 - 29.38 27.12
Exercised.................... (84,528) 13.34 - 24.68 19.12
Canceled..................... (84,486) 16.04 - 29.38 25.75
------------------------------------------------------------------------------------
Outstanding at December 31,
1998........................... 3,113,149 13.34 - 29.69 22.85
Granted...................... 784,150 12.72 - 15.85 15.84
Exercised.................... -- -- --
Canceled..................... (218,049) 15.85 - 29.69 21.09
------------------------------------------------------------------------------------
Outstanding at December 31,
1999........................... 3,679,250 12.72 - 27.17 21.46
Granted...................... 1,943,800 18.97 18.97
Exercised.................... (67,111) 13.69 - 17.16 16.09
Canceled..................... (142,995) 15.85 - 27.17 20.22
------------------------------------------------------------------------------------
Outstanding at December 31,
2000........................... 5,412,944 $12.72 - $27.17 $20.67
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Of the outstanding options at December 31, 2000, options covering 2,839,402
shares are currently exercisable at a weighted average exercise price of $22.07
and options covering 701,000 shares are held by Arch Chemicals employees. At
December 31, 2000 and 1999, the average exercise period for the outstanding
options was 82 months and 79 months, respectively.
At December 31, 2000, common shares reserved for issuance under the 1998
Stock Option Plan, the 1991 Long Term Incentive Plan, the 1996 Stock Option
Plan, the 2000 Long Term Incentive Plan and Options Available Only for Arch
Employees were 8,243,172. An additional 200,432 shares were reserved under the
1997 Non-Employee Directors Plan and the Employee Deferral Plan, and of these
shares, approximately 102,000 shares were committed.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". As allowed by SFAS No. 123, the Company has not recognized
compensation cost for stock-based compensation arrangements. Pro forma net
income and earnings per share were calculated based on the following assumptions
as if the Company had recorded compensation expense for the stock options
granted during the year. The fair value of each option granted during 2000, 1999
and 1998 was estimated on the date of grant, using the Black-Scholes
option-pricing model with the following weighted-average assumptions used:
dividend yield of 4.21% in 2000, 5.35% in 1999 and 3.2% in 1998, risk-free
interest rate of 5.18% in 2000, 6.25% in 1999 and 5.5% in 1998, expected
volatility of 29% in 2000 and 1999 and 27% in 1998 and an expected life of
7 years. The fair value of options granted during 2000, 1999 and 1998 was $5.59,
$3.85 and $11.77, respectively. The following table shows the difference between
reported and pro forma net income and earnings per share as if the Company had
recorded compensation expense for the stock options granted during the year.
($ IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998
---------------------------------------------------------------------------------------
Net Income
As reported.................................... $ 81 $ 21 $ 78
Pro forma...................................... 77 17 72
Per Share Data:
Basic
As reported.................................... 1.80 0.45 1.64
Pro forma...................................... 1.71 0.38 1.52
Diluted
As reported.................................... 1.80 0.45 1.63
Pro forma...................................... 1.71 0.38 1.52
37
SHAREHOLDER RIGHTS PLAN
Effective February 1996, the Board of Directors adopted a new Shareholder
Rights Plan to replace the prior plan which had been adopted in 1986. This plan
is designed to prevent an acquirer from gaining control of the Company without
offering a fair price to all shareholders. Each right entitles a shareholder
(other than the acquirer) to buy one-five hundredth share of Series A
Participating Cumulative Preferred Stock at an exercise price of one hundred
twenty dollars. The rights are exercisable only if a person acquires more than
15% of the Company's common stock or if the Board of Directors so determines
following the commencement of a tender or exchange offer to acquire more than
15% of the Company's common stock. If any person acquires more than 15% of the
Company's common stock and in the event of a subsequent merger or combination,
each right will entitle the holder (other than the acquirer) to purchase stock
or other property of the acquirer having a value of twice the exercise price.
The Company can redeem the rights at $.005 per right for a certain period of
time. The rights will expire on February 27, 2006, unless redeemed earlier by
the Company.
38
SEGMENT INFORMATION
Segment operating income is defined as earnings before interest, other
income and income taxes and includes earnings of non-consolidated affiliates.
Segment operating results in 1998 exclude the charge for the sale of the
microelectronic packaging unit at Manteca, CA, and the restructuring of the rod,
wire and tube businesses at Indianapolis, IN ($42 pretax); and non-recurring
costs associated with the Spin-Off of Arch Chemicals ($21 pretax).
2000 1999 1998
--------------------------------------------------------------------------------------------
SALES:
Chlor Alkali Products................................... $ 392 $ 336 $ 428
Metals.................................................. 880 773 810
Winchester.............................................. 277 286 266
--------------------------------------------------------------------------------------------
TOTAL SALES................................................. $1,549 $1,395 $1,504
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) BEFORE LOSS ON SALE AND
RESTRUCTURING OF BUSINESSES AND SPIN-OFF COSTS:
Chlor Alkali Products................................... $ 27 $ (58) $ 55
Metals.................................................. 95 77 64
Winchester.............................................. 20 21 13
--------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME...................................... $ 142 $ 40 $ 132
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
EQUITY INCOME (LOSS) IN AFFILIATED COMPANIES, INCLUDED IN
OPERATING INCOME:
Chlor Alkali Products................................... $ -- $ (13) $ (1)
Metals.................................................. 2 2 1
--------------------------------------------------------------------------------------------
TOTAL EQUITY INCOME IN AFFILIATED COMPANIES................. $ 2 $ (11) $ --
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
DEPRECIATION EXPENSE:
Chlor Alkali Products................................... $ 37 $ 36 $ 33
Metals.................................................. 29 30 32
Winchester.............................................. 13 12 11
--------------------------------------------------------------------------------------------
DEPRECIATION EXPENSE........................................ $ 79 $ 78 $ 76
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
AMORTIZATION EXPENSE:
Metals.................................................. $ 2 $ 2 $ 2
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
CAPITAL SPENDING:
Chlor Alkali Products................................... $ 31 $ 27 $ 31
Metals.................................................. 51 33 25
Winchester.............................................. 12 13 12
Other................................................... 1 -- 10
--------------------------------------------------------------------------------------------
TOTAL CAPITAL SPENDING...................................... $ 95 $ 73 $ 78
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
ASSETS:
Chlor Alkali Products................................... $ 250 $ 263 $ 297
Metals.................................................. 500 461 440
Winchester.............................................. 156 165 161
Other................................................... 217 174 186
Net Assets of Discontinued Operations................... -- -- 505
--------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED ASSETS................................... $1,123 $1,063 $1,589
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
INVESTMENTS & ADVANCES -- AFFILIATED COMPANIES AT EQUITY:
Chlor Alkali Products................................... $ (13) $ (3) $ 7
Metals.................................................. 7 6 5
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS & ADVANCES -- AFFILIATED COMPANIES........ $ (6) $ 3 $ 12
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
39
Segment operating income includes an allocation of corporate charges based
on various allocation methodologies. Segment assets include only those assets
which are directly identifiable to a segment and do not include such items as
cash, deferred taxes and other assets. Sales by segment substantially represent
sales for the three product lines of the Company.
GEOGRAPHIC DATA: 2000 1999 1998
--------------------------------------------------------------------------------------------
SALES
United States........................................... $1,488 $1,346 $1,465
Foreign................................................. 61 49 39
Transfers between areas
United States........................................... 14 11 10
Eliminations............................................ (14) (11) (10)
--------------------------------------------------------------------------------------------
TOTAL SALES................................................. $1,549 $1,395 $1,504
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
ASSETS
United States........................................... $1,069 $1,016 $1,039
Foreign................................................. 47 44 45
Investments............................................. 7 6 4
Eliminations............................................ -- (3) (4)
Net Assets of Discontinued Operations................... -- -- 505
--------------------------------------------------------------------------------------------
TOTAL ASSETS................................................ $1,123 $1,063 $1,589
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Transfers between geographic areas are priced generally at prevailing market
prices. Export sales from the United States to unaffiliated customers were $93,
$73, and $83 in 2000, 1999, and 1998, respectively.
DISPOSITIONS AND RESTRUCTURINGS
During 1998, the Company recorded a pretax loss of $63 related to the sale
of Olin Interconnect Technologies ($8), the restructuring of the rod, wire, and
tube businesses at Indianapolis, IN ($34) and non-recurring costs associated
with the Spin-Off of Arch Chemicals ($21).
Supplemental cash flow information on the business disposed is as follows:
1998
----------------------------------------------------------------
Proceeds.............................................. $ 4
Working capital....................................... (4)
Property, plant and equipment......................... (8)
----------------------------------------------------------------
Loss on disposition of businesses..................... $(8)
----------------------------------------------------------------
----------------------------------------------------------------
The following table summarizes the major components of the 1998 charges and
the remaining balances as of December 31, 2000, excluding the non-cash asset
write-down described below:
ACCRUED
ORIGINAL AMOUNTS RESTRUCTURING
CHARGE UTILIZED ADJUSTMENTS COSTS
-----------------------------------------------------------------------------------------------------
Employee Termination and Severance................ $14 $ (9) $ (5) $ --
Legal and Investment Banker Fees.................. 8 (8) -- --
Exit Costs........................................ 5 (3) (2) --
Other............................................. 5 (5) -- --
-----------------------------------------------------------------------------------------------------
$32 $(25) $ (7) $ --
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
40
The adjustments represent changes in estimates of the cash expenditures for
the major components of the 1998 charges. The adjustments have been used to
write-down the non-cash assets associated with the restructuring as cash
recoveries were less than the original estimate.
Since the Company was unable to sell the rod, wire, and tube businesses at
Indianapolis in 1998, the Company decided to shut down the operations, which
occurred on December 31, 1998. The Company continues to produce sheet and strip
copper-based alloys at the Indianapolis facility.
DISCONTINUED OPERATIONS
On February 8, 1999, the Company completed the spin-off of its specialty
chemicals businesses as Arch Chemicals, Inc. Under the terms of the spin-off,
the Company distributed to its holders of common stock as of the close of
business on February 1, 1999 one Arch Chemicals common share for every two
shares of Olin common stock. In February 1999 prior to the distribution, Olin
borrowed $75 under a credit facility, which liability was assumed by Arch
Chemicals.
The historical operating results of these businesses are shown net of tax as
discontinued operations in the consolidated statements of income. Accordingly,
1999 includes the operating results of Arch Chemicals for the month of January,
while 1998 includes twelve months of operating results. The discontinued
operations include an allocation of corporate overhead with the allocation based
on either effort committed or number of employees. Management believes that the
allocation methods used to allocate the costs and expenses are reasonable;
however, such allocated amounts may or may not necessarily be indicative of what
those expenses would have been had Arch Chemicals operated independently of
Olin. Interest expense was not allocated to Arch Chemicals.
The Company has entered into tax sharing agreements with Arch Chemicals
effectively providing that the Company will be responsible for the tax liability
of Arch Chemicals for the years that Arch Chemicals was included in the
Company's consolidated income tax returns. Income taxes have been allocated to
Arch Chemicals based on their pretax income and calculated on a separate company
basis pursuant to the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Income taxes allocated to the
discontinued operations were $2 and $21 in 1999 and 1998, respectively.
In addition, the Company entered into several other agreements with Arch
Chemicals, which cover such matters as technology transfers, transition
services, covenants not to compete and chlorine and caustic supply.
Condensed historical combined balance sheet and income statement data of the
discontinued operations are summarized below:
1999 1998
--------------------------------------------------------------------
Combined Statements of Income
Sales.......................................... $73 $863
Net income..................................... 4 40
ENVIRONMENTAL
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 $15 in 2000, $17 in 1999
and $16 in 1998. Charges to income for investigatory and remedial efforts were
material to operating results in 2000, 1999 and 1998. The consolidated balance
sheets include reserves for future environmental expenditures to investigate and
remediate known sites amounting to $110 at December 31, 2000, and $125 at
December 31, 1999, of which $85 and $100 were classified as other noncurrent
liabilities, respectively.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting from
investigatory studies, advances in technology, changes in environmental laws and
regulations and their application, the scarcity of reliable data pertaining to
identified sites, the difficulty in assessing the involvement and financial
capability of other potentially responsible parties and the Company's ability to
obtain contributions from other parties and the length of time over which site
remediation occurs. It is possible that some of
41
these matters (the outcomes of which are subject to various uncertainties) may
be resolved unfavorably against the Company. At December 31, 2000, the Company
had estimated additional contingent environmental liabilities of $40.
COMMITMENTS AND CONTINGENCIES
The Company leases certain properties, such as railroad cars, manufacturing,
warehousing and office space, data processing and office equipment. 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 $33 in 2000, $32 in 1999 and $38 in 1998, (sublease
income is not significant). Future minimum rent payments under operating leases
having initial or remaining non-cancelable lease terms in excess of one year at
December 31, 2000 are as follows: $18 in 2001; $16 in 2002; $14 in 2003; $13 in
2004; $12 in 2005; and $52 thereafter.
There are a variety of non-environmental legal proceedings pending or
threatened against the Company. Probable losses related to those matters have
been accrued for in the accompanying financial statements. Any contingent
amounts in excess of amounts accrued are not expected to have a material adverse
effect on results of operations, financial position or liquidity of the Company.
OTHER FINANCIAL DATA
QUARTERLY DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER YEAR
---------------------------------------------------------------------------------------------------------
Sales.............................................. $ 382 $ 397 $ 413 $ 357 $1,549
Cost of goods sold................................. 318 324 340 295 1,277
Net income......................................... 19 24 23 15 81
Net income per common share:
Basic.......................................... .43 .52 .52 .34 1.80
Diluted........................................ .43 .52 .52 .34 1.80
Common dividends per share......................... .20 .20 .20 .20 .80
Market price of common stock(1)
High........................................... 21.50 19.25 18.00 23.19 23.19
Low............................................ 14.88 14.19 15.00 16.00 14.19
1999
---------------------------------------------------------------------------------------------------------
Sales.............................................. $ 325 $ 333 $ 376 $ 361 $1,395
Cost of goods sold................................. 283 289 332 311 1,215
Income from continuing operations.................. 3 2 3 9 17
Net income......................................... 7 2 3 9 21
Per common share:
Basic
Income from continuing operations.......... .05 .05 .06 .20 .36
Net income................................. .14 .05 .06 .20 .45
Diluted
Income from continuing operations.......... .05 .05 .06 .20 .36
Net income................................. .14 .05 .06 .20 .45
Common dividends per share......................... .30 .20 .20 .20 .90
Market price of common stock(1)
High........................................... 15.75 15.19 14.81 19.88 19.88
Low............................................ 9.50 9.69 12.19 12.13 9.50
---------------------------------------------------------------------------------------------------------
(1) New York Stock Exchange composite transactions.
42
ECONOMIC VALUE ADDED PERFORMANCE MEASURE (UNAUDITED)
In 1995, the Company recognized a need to improve our total return to
shareholders. After a thorough review of our financial management systems, we
selected an innovative business management system known as Economic Value Added,
or EVA-Registered Trademark-. Developed by Stern Stewart & Company, EVA is a
highly successful management tool that builds upon and refines traditional
tools. It is designed to help maximize long-term profitability, increase return
on capital employed and operate businesses more effectively. EVA is recognized
as a reliable predictor of stock market performance over a period of time. A
positive correlation has been demonstrated between improvement in a company's
EVA and the price of its stock. EVA is a method of measuring the Company's
financial health by taking operating profit after taxes and subtracting a charge
for capital employed. The table below summarizes the Company's EVA calculation
for the years ended December 31, 2000 and 1999:
2000 1999
---------------------------------------------------------------------------------
Earnings before interest and taxes.......................... $145 $ 41
Adjustments................................................. 29 30
---------------------------------------------------------------------------------
Operating profit before taxes............................... 174 71
Cash taxes at 35%........................................... (61) (25)
---------------------------------------------------------------------------------
Net operating profit after taxes............................ 113 46
Capital charge.............................................. (76) (71)
---------------------------------------------------------------------------------
EVA......................................................... $ 37 $(25)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Average capital employed.................................... $806 $758
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Return on capital........................................... 14.0% 6.1%
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Cost of capital............................................. 9.4% 9.4%
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES
Earnings before interest and taxes ("EBIT") is calculated as pretax profits
plus interest expense, less interest income. For EVA purposes, material gains
and losses on asset or business sales and restructurings are excluded from EBIT
but instead, the related cash flows are considered permanent increases or
decreases to the capital employed and are therefore part of the capital charge
forever.
ADJUSTMENTS TO EBIT
Various adjustments are made to EBIT (as defined above) in order to
determine operating profit before taxes, make EVA a better management tool and
drive appropriate decision making and include the following:
GOODWILL is considered a permanent investment in capital employed.
Accordingly, an adjustment is made to add goodwill amortization back to EBIT
and average capital employed is adjusted such that the original amount of
goodwill purchased is included in the asset base.
LIFO (last-in first-out) based inventory is restated to a FIFO (first-in
first-out) basis to appropriately reflect the actual current investment in
inventory.
OPERATING LEASES are considered investments in capital and therefore an
adjustment is made to EBIT to remove the implicit financing cost and average
capital is increased by the net present value of the operating leases.
ENVIRONMENTAL remediation accruals are removed from EBIT and the after
tax cash cost of legacy environmental remediation expenditures is added to
the average capital base.
SPECIAL CHARGES, such as the non-recurring costs associated with the
Spin-Off of Arch Chemicals in 1998, are excluded from EBIT and the actual
cash expenditures are accounted for as a permanent increase in average
capital.
MAJOR ASSET SALES are accounted for such that the pretax book gain or
loss is excluded from EBIT and any after tax cash gain is a permanent
reduction of average capital and any after tax cash loss is a permanent
increase to average capital.
CAPITAL CHARGE
The capital charge is the EVA based average capital employed multiplied by
the cost of capital. The cost of capital is the Company's target weighted
average cost of debt and equity capital.
43
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The biographical information relating to Olin's Directors under the heading
"Item 1 -- Election of Directors" in the Proxy Statement relating to Olin's 2001
Annual Meeting of Shareholders (the "Proxy Statement") is incorporated by
reference in this Report. See also the list of executive officers following
Item 4 of this Report. The information regarding compliance with Section 16 of
the Securities Exchange Act of 1934, as amended, contained in the paragraph
entitled "Section 16(a) Beneficial Ownership Reporting Compliance" under the
heading "Security Ownership of Directors and Officers" in the Proxy Statement is
incorporated by reference in this Report.
Item 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" in the Proxy
Statement (but excluding the Report of the Compensation Committee on Executive
Compensation and the Corporate Performance Graph) is incorporated by reference
in this Report. The information under the heading "Additional Information
Regarding the Board of Directors -- Compensation of Directors" in the Proxy
Statement is incorporated by reference in this Report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning holdings of Olin stock by certain beneficial
owners contained under the heading "Certain Beneficial Owners" in the Proxy
Statement and the information concerning beneficial ownership of Olin stock by
directors and officers of Olin under the heading "Security Ownership of
Directors and Officers" in the Proxy Statement are incorporated by reference in
this Report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
44
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
Included in Item 8 above.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedules not included herein are omitted because they are inapplicable
or not required or because the required information is given in the
consolidated financial statements and notes thereto.
Separate consolidated financial statements of 50% or less owned
subsidiaries accounted for by the equity method are not summarized herein
and have been omitted because, in the aggregate, they would not constitute a
significant subsidiary.
3. EXHIBITS
Management contracts and compensatory plans and arrangements are listed
as Exhibits 10(a) through 10(q) below.
3 (a) Olin's Restated Articles of Incorporation as amended
effective May 8, 1997 -- Exhibit 3 to Olin's Form 10-Q for
the Quarter ended March 31, 1997.*
(b) By-laws of Olin as amended effective April 29,
1999 -- Exhibit 4.2 to Registration Statement
No. 333-35818.*
4 (a) Articles of Amendment designating Series A Participating
Cumulative Preferred Stock, par value $1 per
share -- Exhibit 2 to Olin's Form 8-A dated February 21,
1996, covering Series A Participating Cumulative Preferred
Stock Purchase Rights.*
(b) Rights Agreement dated as of February 27, 1996 between Olin
and Chemical Mellon Shareholder Services, LLP, Rights
Agent -- Exhibit 1 to Olin's Form 8-A dated February 21,
1996, covering Series A Participating Cumulative Preferred
Stock Purchase Rights.*
(c) Form of Senior Debt Indenture between Olin and Chemical
Bank -- Exhibit 4(a) to Form 8-K dated June 15, 1992;
Supplemental Indenture dated as of March 18, 1994 between
Olin and Chemical Bank -- Exhibit 4(c) to Registration
Statement No. 33-52771; Prospectus Supplement dated
June 17, 1992 to Prospectus dated June 16, 1992, with
respect to Olin's 8% Senior Notes Due 2002 filed under
Registration Statement No. 33-4479; and Prospectus
Supplement dated May 23, 1995 to Prospectus dated May 4,
1994 relating to Medium Term Notes, Series A filed under
Registration Statement No. 33-52771.*
(d) Form of Subordinated Debt Indenture between Olin and Bankers
Trust Company -- Exhibit 4(i) to Registration Statement
No. 33-4479.*
(e) Amended and Restated Credit Agreement, dated as of
September 30, 1993 and amended and restated as of
February 22, 1999, among Olin and the banks named
therein. -- Exhibit 4(e) to Olin's Form 10-K for 1998.*
Olin is party to a number of other instruments defining the rights of
holders of long-term debt. No such instrument authorizes an amount of
securities in excess of 10% of the total assets of Olin and its subsidiaries
on a consolidated basis. Olin agrees to furnish a copy of each instrument to
the Commission upon request.
10 (a) 1988 Stock Option Plan for Key Employees of Olin Corporation
and Subsidiaries as amended through February 23,
1995 -- Exhibit 10(b) to Olin's Form 10-K for 1994.*
(b) Amended and Restated Employee Deferral Plan, effective
November 1, 1997, as amended and restated effective as of
February 8, 1999 -- Exhibit 10(c) to Olin's Form 10-K for
1998.*
45
(c) Olin Senior Executive Pension Plan as restated February 8,
1999 -- Exhibit 10(d) to Olin's Form 10-Q for the quarter
ended September 30, 2000.*
(d) Olin Supplemental Contributing Employee Ownership Plan,
effective January 1, 1990 as amended and restated as of
February 8, 1999 -- Exhibit 10(e) to Olin's Form 10-Q for
the quarter ended March 31, 1999.*
(e) Olin Corporation Key Executive Life Insurance
Program -- Exhibit 10(b) to Olin's Form 10-Q for Quarter
ended March 31, 1986.*
(f) Form of Olin Corporation Endorsement Split Dollar Agreement
(effective January 1, 1993) -- Exhibit 10(s) to Olin's
Form 10-K for 1992.*
(g) Form of executive agreement between Olin and certain
executive officers as amended December 10,
1998 -- Exhibit 10(h) to Olin's Form 10-K for 1998.*
(h) Form of special severance agreement provided to certain
employees to become operative upon a "change in control"
event -- Exhibit 10(n) to Olin's Form 10-K for 1997.*
(i) Olin 1991 Long Term Incentive Plan, as amended through
February 23, 1995 -- Exhibit 10(u) to Olin's Form 10-K for
1994.*
(j) Amended and Restated 1997 Stock Plan for Non-Employee
Directors as amended and restated effective as of July 28,
1999 -- Exhibit 10(n) to Olin's Form 10-Q for the quarter
ended June 30, 1999.*
(k) Olin Senior Management Incentive Compensation Plan, as
amended through December 9, 1999 -- Exhibit A to Olin's 2000
Proxy Statement dated March 14, 2000.*
(l) Description of Restricted Stock Unit Awards granted under
the Olin 1991 Long Term Incentive Plan -- Exhibit 10(bb) to
Olin's Form 10-K for 1995.*
(m) Form of EVA Incentive Plan (Management Incentive
Compensation Plan) -- Exhibit 10(dd) to Olin's Form 10-K for
1996.*
(n) 1996 Stock Option Plan for Key Employees of Olin Corporation
and Subsidiaries -- Exhibit A to Olin's 1996 Proxy Statement
dated March 12, 1996.*
(o) Olin Supplementary and Deferral Benefit Pension Plan
restated as of February 8, 1999 -- Exhibit 10(s) to Olin's
Form 10-Q for the quarter ended March 31, 1999.*
(p) Form of Senior Executive Retention Agreement between Olin
and certain executive officers -- Exhibit 10(q) to Olin's
Form 10-K for 1999.*
(q) Olin Corporation 2000 Long Term Incentive
Plan -- Exhibit 10(r) to Olin's Form 10-Q for the quarter
ended June 30, 2000.*
(r) Assumption of Liabilities and Indemnity Agreement, dated
December 31, 1996, between Olin Corporation and Primex
Technologies, Inc. -- Exhibit 10(ii) to Olin's Form 10-K for
1996.*
(s) Distribution Agreement between Olin Corporation and Arch
Chemicals, Inc., dated as of February 1,
1999 -- Exhibit 2.1 to Olin's Form 8-K filed February 23,
1999.*
(t) Form of Employee Benefits Allocation Agreement between Olin
Corporation and Arch Chemicals, Inc. -- Exhibit 10(v) to
Olin's Form 10-K for 1998.*
(u) 364-Day Credit Agreement dated as of January 27, 1999, among
Arch Chemicals, Inc., Olin Corporation, the Lenders party
thereto, Bank of America, National Trust and Savings
Association, as Syndication Agent, Wachovia Bank, N.A., as
Documentation Agent, The Chase Manhattan Bank, as
Administrative Agent and Chase Securities, Inc., as
Arranger -- Exhibit 10.1 to Olin's Form 8-K filed
February 23, 1999.*
46
(v) Five-year Credit Agreement dated as of January 27, 1999,
among Arch Chemicals, Inc., Olin Corporation, the Lenders
party thereto, Bank of America, National Trust and Savings
Association, as Syndication Agent, Wachovia Bank, N.A., as
Documentation Agent, The Chase Manhattan Bank, as
Administrative Agent and Chase Securities, Inc., as
Arranger -- Exhibit 10.2 to Olin's Form 8-K filed
February 23, 1999.*
11 Computation of Per Share Earnings (included in the
Note -- "Earnings Per Share" to Notes to Consolidated
Financial Statements in Item 8.)
12 Computation of Ratio of Earnings to Fixed Charges
(unaudited).
21 List of Subsidiaries.
23 Consent of KPMG LLP dated March 7, 2001.
---------------------------------------------------------------------
* Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File
No. 1-1070 unless otherwise indicated.
Any of the foregoing exhibits are available from the Company for a
nominal charge by writing to: Mr. Richard E. Koch, Vice President, Investor
Relations and Public Affairs, Olin Corporation, 501 Merritt 7,
P.O. Box 4500, Norwalk, CT 06856-4500.
(b) REPORTS ON FORM 8-K
Form 8-K filed October 3, 2000 with respect to expiration of Letter of
Intent to form a chlor-alkali partnership between Olin Corporation and
Occidental Petroleum Corporation.
Form 8-K filed November 30, 2000 announcing a presentation to be made at the
December 5, 2000 Salomon Smith Barney Chemical Conference.
Form 8-K filed December 6, 2000 announcing: 1) that Olin and the
International Association of Machinists & Aerospace Workers District #9 were
unable to agree on a new labor contract at Olin's East Alton, Illinois facility,
and 2) in advance of Olin's presentation at the December 5, 2000 Salomon Smith
Barney Chemical Conference in New York, that Olin would provide guidance
regarding its forecasted earnings and that, as a result of Olin and the
International Association of Machinists & Aerospace Workers District #9 being
unable to agree on a new labor contract for approximately 2,700 Brass and
Winchester division hourly paid employees at Olin's East Alton, Illinois
facility, the Company now anticipates that the strike may cause fiscal 2000
results to be in the $1.80 per share range as compared with its previous
forecast of $1.85 but notes that it is premature to evaluate what effect, if
any, this strike may have on its 2001 forecast of $2.50 per share.
47
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: March 7, 2001 OLIN CORPORATION
By /s/ DONALD W. GRIFFIN
-----------------------------------------
DONALD W. GRIFFIN
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
/s/ DONALD W. GRIFFIN President and Chief
------------------------------------------ Executive Officer and March 7, 2001
DONALD W. GRIFFIN Director (Principal
Executive Officer)
/s/ WILLIAM W. HIGGINS
------------------------------------------ Director March 7, 2001
WILLIAM W. HIGGINS
/s/ RANDALL W. LARRIMORE
------------------------------------------ Director March 7, 2001
RANDALL W. LARRIMORE
/s/ STEPHEN F. PAGE
------------------------------------------ Director March 7, 2001
STEPHEN F. PAGE
/s/ G. JACKSON RATCLIFFE, JR.
------------------------------------------ Director March 7, 2001
G. JACKSON RATCLIFFE, JR.
/s/ RICHARD M. ROMPALA
------------------------------------------ Director March 7, 2001
RICHARD M. ROMPALA
Executive Vice President and
/s/ ANTHONY W. RUGGIERO Chief Financial Officer and
------------------------------------------ Director (Principal March 7, 2001
ANTHONY W. RUGGIERO Financial Officer)
/s/ MARY E. GALLAGHER Vice President and Controller
------------------------------------------ (Principal Accounting March 7, 2001
MARY E. GALLAGHER Officer)
48