Attached files
file | filename |
---|---|
EX-32 - SECTION 906 CERTIFICATION OF CEO AND CFO - OLIN Corp | cert323rdqtr2009.htm |
EX-31.2 - SECTION 302 CERTIFICATION OF CFO - OLIN Corp | cert3123rdqtr2009.htm |
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - OLIN Corp | cert3113rdqtr2009.htm |
EX-10.1 - PERFORMANCE SHARE PROGRAM - OLIN Corp | perfshareprog3rdqtr10q2009.htm |
EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) - OLIN Corp | exhibit123rdqtr2009.htm |
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
190
Carondelet Plaza, Suite 1530, Clayton, MO
|
63105-3443
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(314)
480-1400
(Registrant’s
telephone number, including area code)
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer ¨ Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
Smaller
reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As of
September 30, 2009, 78,534,446 shares of the registrant’s common stock were
outstanding.
1
Part I —
Financial Information
Item 1.
Financial Statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Balance Sheets
(In
millions, except per share data)
(Unaudited)
September
30,
2009
|
December
31,
2008
|
September
30,
2008
|
||||||||||
ASSETS
|
||||||||||||
Current
Assets:
|
||||||||||||
Cash
and Cash Equivalents
|
$
|
376.6
|
$
|
246.5
|
$
|
200.2
|
||||||
Receivables,
Net
|
263.6
|
213.0
|
264.4
|
|||||||||
Inventories
|
126.0
|
131.4
|
146.1
|
|||||||||
Current
Deferred Income Taxes
|
66.0
|
68.5
|
60.4
|
|||||||||
Other
Current Assets
|
21.7
|
10.9
|
12.9
|
|||||||||
Total
Current Assets
|
853.9
|
670.3
|
684.0
|
|||||||||
Property,
Plant and Equipment (less Accumulated Depreciation of $987.4, $956.0 and
$950.3)
|
688.9
|
629.9
|
592.1
|
|||||||||
Prepaid
Pension Costs
|
21.4
|
—
|
160.9
|
|||||||||
Deferred
Income Taxes
|
—
|
48.4
|
—
|
|||||||||
Other
Assets
|
71.2
|
70.8
|
66.2
|
|||||||||
Goodwill
|
300.3
|
300.3
|
303.7
|
|||||||||
Total
Assets
|
$
|
1,935.7
|
$
|
1,719.7
|
$
|
1,806.9
|
||||||
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
||||||||||||
Current
Liabilities:
|
||||||||||||
Accounts
Payable
|
$
|
113.2
|
$
|
145.6
|
$
|
138.5
|
||||||
Income
Taxes Payable
|
—
|
0.6
|
0.1
|
|||||||||
Accrued
Liabilities
|
209.1
|
253.6
|
237.6
|
|||||||||
Total
Current Liabilities
|
322.3
|
399.8
|
376.2
|
|||||||||
Long-Term
Debt
|
399.6
|
252.4
|
249.7
|
|||||||||
Accrued
Pension Liability
|
47.7
|
51.5
|
51.2
|
|||||||||
Deferred
Income Taxes
|
27.7
|
6.5
|
13.8
|
|||||||||
Other
Liabilities
|
307.8
|
304.5
|
334.4
|
|||||||||
Total
Liabilities
|
1,105.1
|
1,014.7
|
1,025.3
|
|||||||||
Commitments
and Contingencies
|
||||||||||||
Shareholders’
Equity:
|
||||||||||||
Common
Stock, Par Value $1 Per Share: Authorized, 120.0
Shares;
|
||||||||||||
Issued
and Outstanding 78.5, 77.3 and 76.9 Shares
|
78.5
|
77.3
|
76.9
|
|||||||||
Additional
Paid-In Capital
|
818.9
|
801.6
|
794.4
|
|||||||||
Accumulated
Other Comprehensive Loss
|
(229.5
|
)
|
(269.4
|
)
|
(153.5
|
)
|
||||||
Retained
Earnings
|
162.7
|
95.5
|
63.8
|
|||||||||
Total
Shareholders’ Equity
|
830.6
|
705.0
|
781.6
|
|||||||||
Total
Liabilities and Shareholders’ Equity
|
$
|
1,935.7
|
$
|
1,719.7
|
$
|
1,806.9
|
The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
2
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Income
(In
millions, except per share data)
(Unaudited)
Three Months Ended
September
30,
|
Nine Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Sales
|
$
|
397.0
|
$
|
502.9
|
$
|
1,180.6
|
$
|
1,330.3
|
||||||||
Operating
Expenses:
|
||||||||||||||||
Cost
of Goods Sold
|
316.4
|
380.0
|
934.6
|
1,041.2
|
||||||||||||
Selling
and Administration
|
31.2
|
35.6
|
106.5
|
104.5
|
||||||||||||
Other
Operating Income (Expense)
|
1.2
|
(0.3
|
) |
6.9
|
0.7
|
|||||||||||
Operating
Income
|
50.6
|
87.0
|
146.4
|
185.3
|
||||||||||||
Earnings
of Non-consolidated Affiliates
|
7.1
|
12.0
|
32.9
|
31.1
|
||||||||||||
Interest
Expense
|
1.9
|
3.3
|
5.2
|
11.5
|
||||||||||||
Interest
Income
|
0.1
|
1.0
|
0.9
|
5.2
|
||||||||||||
Other
Income (Expense)
|
—
|
(26.4
|
)
|
0.1
|
(26.1
|
)
|
||||||||||
Income
before Taxes
|
55.9
|
70.3
|
175.1
|
184.0
|
||||||||||||
Income
Tax Provision
|
16.5
|
32.6
|
61.2
|
73.5
|
||||||||||||
Net
Income
|
$
|
39.4
|
$
|
37.7
|
$
|
113.9
|
$
|
110.5
|
||||||||
Net
Income per Common Share:
|
||||||||||||||||
Basic
|
$
|
0.50
|
$
|
0.49
|
$
|
1.46
|
$
|
1.47
|
||||||||
Diluted
|
$
|
0.50
|
$
|
0.49
|
$
|
1.46
|
$
|
1.46
|
||||||||
Dividends
per Common Share
|
$
|
0.20
|
$
|
0.20
|
$
|
0.60
|
$
|
0.60
|
||||||||
Average
Common Shares Outstanding:
|
||||||||||||||||
Basic
|
78.4
|
76.3
|
78.0
|
75.4
|
||||||||||||
Diluted
|
78.6
|
76.7
|
78.1
|
75.7
|
The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
3
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Shareholders’ Equity
(In
millions, except per share data)
(Unaudited)
Additional
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
Shareholders’
Equity
|
|||||||||||||||||||||
Common
Stock
|
||||||||||||||||||||||||
Shares
Issued
|
Par
Value
|
|||||||||||||||||||||||
Balance
at January 1, 2008
|
74.5
|
$
|
74.5
|
$
|
742.0
|
$
|
(151.2
|
)
|
$
|
(1.6
|
)
|
$
|
663.7
|
|||||||||||
Comprehensive
Income:
|
||||||||||||||||||||||||
Net
Income
|
—
|
—
|
—
|
—
|
110.5
|
110.5
|
||||||||||||||||||
Translation
Adjustment
|
—
|
—
|
—
|
(0.6
|
)
|
—
|
(0.6
|
)
|
||||||||||||||||
Net
Unrealized Loss
|
—
|
—
|
—
|
(8.8
|
)
|
—
|
(8.8
|
)
|
||||||||||||||||
Amortization
of Prior Service Costs and Actuarial Losses, Net
|
—
|
—
|
—
|
7.1
|
—
|
7.1
|
||||||||||||||||||
Comprehensive
Income
|
108.2
|
|||||||||||||||||||||||
Dividends
Paid:
|
||||||||||||||||||||||||
Common
Stock ($0.60 per share)
|
—
|
—
|
—
|
—
|
(45.1
|
)
|
(45.1
|
)
|
||||||||||||||||
Common
Stock Issued for:
|
||||||||||||||||||||||||
Stock
Options Exercised
|
1.8
|
1.8
|
36.3
|
—
|
—
|
38.1
|
||||||||||||||||||
Employee
Benefit Plans
|
0.5
|
0.5
|
10.8
|
—
|
—
|
11.3
|
||||||||||||||||||
Other
Transactions
|
0.1
|
0.1
|
2.0
|
—
|
—
|
2.1
|
||||||||||||||||||
Stock-Based
Compensation
|
—
|
—
|
3.3
|
—
|
—
|
3.3
|
||||||||||||||||||
Balance
at September 30, 2008
|
76.9
|
$
|
76.9
|
$
|
794.4
|
$
|
(153.5
|
)
|
$
|
63.8
|
$
|
781.6
|
||||||||||||
Balance
at January 1, 2009
|
77.3
|
$
|
77.3
|
$
|
801.6
|
$
|
(269.4
|
)
|
$
|
95.5
|
$
|
705.0
|
||||||||||||
Comprehensive
Income:
|
||||||||||||||||||||||||
Net
Income
|
—
|
—
|
—
|
—
|
113.9
|
113.9
|
||||||||||||||||||
Translation
Adjustment
|
—
|
—
|
—
|
3.2
|
—
|
3.2
|
||||||||||||||||||
Net
Unrealized Gain
|
—
|
—
|
—
|
32.8
|
—
|
32.8
|
||||||||||||||||||
Amortization
of Prior Service Costs and Actuarial Losses, Net
|
—
|
—
|
—
|
3.9
|
—
|
3.9
|
||||||||||||||||||
Comprehensive
Income
|
153.8
|
|||||||||||||||||||||||
Dividends
Paid:
|
||||||||||||||||||||||||
Common
Stock ($0.60 per share)
|
—
|
—
|
—
|
—
|
(46.7
|
)
|
(46.7
|
)
|
||||||||||||||||
Common
Stock Issued for:
|
||||||||||||||||||||||||
Stock
Options Exercised
|
—
|
—
|
0.2
|
—
|
—
|
0.2
|
||||||||||||||||||
Employee
Benefit Plans
|
1.1
|
1.1
|
12.7
|
—
|
—
|
13.8
|
||||||||||||||||||
Other
Transactions
|
0.1
|
0.1
|
2.4
|
—
|
—
|
2.5
|
||||||||||||||||||
Stock-Based
Compensation
|
—
|
—
|
2.0
|
—
|
—
|
2.0
|
||||||||||||||||||
Balance
at September 30, 2009
|
78.5
|
$
|
78.5
|
$
|
818.9
|
$
|
(229.5
|
)
|
$
|
162.7
|
$
|
830.6
|
The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
4
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Cash Flows
(In
millions)
(Unaudited)
Nine Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Operating Activities
|
||||||||
Net
Income
|
$
|
113.9
|
$
|
110.5
|
||||
Adjustments
to Reconcile Net Income to Net Cash and Cash Equivalents Provided by (Used
for) Operating Activities:
|
||||||||
Earnings
of Non-consolidated Affiliates
|
(32.9
|
)
|
(31.1
|
)
|
||||
Other
Operating Income – (Gains) Losses on Disposition of Property, Plant and
Equipment
|
(5.5
|
)
|
0.6
|
|||||
Stock-Based
Compensation
|
4.3
|
4.9
|
||||||
Depreciation
and Amortization
|
50.5
|
52.2
|
||||||
Deferred
Income Taxes
|
51.1
|
(0.5
|
)
|
|||||
Qualified
Pension Plan Contributions
|
(2.0
|
)
|
—
|
|||||
Qualified
Pension Plan Income
|
(16.4
|
)
|
(11.0
|
)
|
||||
Impairment
of Investment in Corporate Debt Securities
|
—
|
26.6
|
||||||
Common
Stock Issued under Employee Benefit Plans
|
1.6
|
2.2
|
||||||
Change
in:
|
||||||||
Receivables
|
(50.6
|
)
|
(60.9
|
)
|
||||
Inventories
|
5.4
|
(39.7
|
)
|
|||||
Other
Current Assets
|
0.9
|
1.3
|
||||||
Accounts
Payable and Accrued Liabilities
|
(21.2
|
)
|
(60.8
|
)
|
||||
Income
Taxes Payable
|
(5.6
|
)
|
(1.5
|
)
|
||||
Other
Assets
|
2.5
|
1.6
|
||||||
Other
Noncurrent Liabilities
|
5.7
|
11.1
|
||||||
Other
Operating Activities
|
(1.5
|
)
|
(1.4
|
)
|
||||
Net
Operating Activities
|
100.2
|
4.1
|
||||||
Investing Activities
|
||||||||
Capital
Expenditures
|
(122.3
|
)
|
(123.4
|
)
|
||||
Proceeds
from Disposition of Property, Plant and Equipment
|
7.1
|
0.9
|
||||||
Distributions
from Affiliated Companies, Net
|
29.1
|
20.9
|
||||||
Other
Investing Activities
|
3.3
|
(0.6
|
)
|
|||||
Net
Investing Activities
|
(82.8
|
)
|
(102.2
|
)
|
||||
Financing Activities
|
||||||||
Long-Term
Debt:
|
||||||||
Borrowings
|
150.3
|
—
|
||||||
Repayments
|
—
|
(9.8
|
)
|
|||||
Issuance
of Common Stock
|
12.2
|
9.1
|
||||||
Stock
Options Exercised
|
0.1
|
31.9
|
||||||
Excess
Tax Benefits from Stock Options Exercised
|
0.1
|
6.2
|
||||||
Dividends
Paid
|
(46.7
|
)
|
(45.1
|
)
|
||||
Deferred
Debt Issuance Cost
|
(3.3
|
)
|
—
|
|||||
Net
Financing Activities
|
112.7
|
(7.7
|
)
|
|||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
130.1
|
(105.8
|
)
|
|||||
Cash
and Cash Equivalents, Beginning of Period
|
246.5
|
306.0
|
||||||
Cash
and Cash Equivalents, End of Period
|
$
|
376.6
|
$
|
200.2
|
||||
Cash
Paid for Interest and Income Taxes:
|
||||||||
Interest
|
$
|
7.3
|
$
|
8.7
|
||||
Income
Taxes, Net of Refunds
|
$
|
17.5
|
$
|
60.8
|
||||
Non-Cash
Investing Activities:
|
||||||||
Capital
Expenditures included in Accounts Payable and Accrued
Liabilities
|
$
|
2.4
|
$
|
17.7
|
The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
5
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to
Condensed Financial Statements
(Unaudited)
DESCRIPTION
OF BUSINESS
Olin
Corporation is a Virginia corporation, incorporated in 1892. We are a
manufacturer concentrated in two business segments: Chlor Alkali Products and
Winchester. Chlor Alkali Products, with nine U.S. manufacturing facilities and
one Canadian manufacturing facility, produces chlorine and caustic soda, sodium
hydrosulfite, hydrochloric acid, hydrogen, bleach products and potassium
hydroxide. Winchester, with its principal manufacturing facility in East Alton,
IL, produces and distributes sporting ammunition, reloading components, small
caliber military ammunition and components, and industrial
cartridges.
We have
prepared the condensed financial statements included herein, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). The preparation of the consolidated financial statements requires
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. In our opinion, these financial
statements reflect all adjustments (consisting only of normal accruals), which
are necessary to present fairly the results for interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, we believe
that the disclosures are appropriate. We recommend that you read these condensed
financial statements in conjunction with the financial statements, accounting
policies, and the notes thereto and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the year ended December 31, 2008. Certain reclassifications
were made to prior year amounts to conform to the 2009 presentation, including
the reclassification of certain deferred tax amounts. The December
31, 2008 goodwill amount was reduced by $1.6 million, which reflected a
reclassification of deferred taxes associated with the resolution of a Canadian
capital tax matter.
We have
evaluated all subsequent events through October 27, 2009, which represents the
filing date of this Form 10-Q with the SEC, to ensure that this Form 10-Q
includes subsequent events that should be recognized in the financial statements
as of September 30, 2009, and appropriate disclosure of subsequent events, which
were not recognized in the financial statements.
ALLOWANCE
FOR DOUBTFUL ACCOUNTS RECEIVABLES
We
evaluate the collectibility of accounts receivable based on a combination of
factors. We estimate an allowance for doubtful accounts as a
percentage of net sales based on historical bad debt experience. This
estimate is periodically adjusted when we become aware of a specific customer's
inability to meet its financial obligations (e.g., bankruptcy filing) or as a
result of changes in the overall aging of accounts receivable. While
we have a large number of customers that operate in diverse businesses and are
geographically dispersed, a general economic downturn in any of the industry
segments in which we operate could result in higher than expected defaults, and,
therefore, the need to revise estimates for the provision for doubtful accounts
could occur.
Allowance
for doubtful accounts receivable consisted of the following:
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
($
in millions)
|
||||||||
Balance
at beginning of year
|
$
|
5.0
|
$
|
3.0
|
||||
Provisions
charged
|
7.3
|
2.9
|
||||||
Write-offs,
net of recoveries
|
(6.5
|
)
|
0.1
|
|||||
Pioneer
acquisition
|
—
|
(1.5
|
)
|
|||||
Currency
translation adjustments
|
—
|
(0.1
|
)
|
|||||
Balance
at end of period
|
$
|
5.8
|
$
|
4.4
|
Provisions charged to operations were
$1.0 million and $1.7 million for the three months ended September 30, 2009 and
2008, respectively.
6
INVENTORIES
Inventories
consisted of the following:
September
30,
2009
|
December 31,
2008
|
September
30,
2008
|
||||||||||
($
in millions)
|
||||||||||||
Supplies
|
$
|
28.0
|
$
|
27.2
|
$
|
25.3
|
||||||
Raw
materials
|
53.7
|
56.4
|
53.2
|
|||||||||
Work
in process
|
25.6
|
26.6
|
31.9
|
|||||||||
Finished
goods
|
75.4
|
90.7
|
104.7
|
|||||||||
182.7
|
200.9
|
215.1
|
||||||||||
LIFO
reserve
|
(56.7
|
)
|
(69.5
|
)
|
(69.0
|
)
|
||||||
Inventories,
net
|
$
|
126.0
|
$
|
131.4
|
$
|
146.1
|
Inventories
are valued at the lower of cost or market, with cost being determined
principally by the dollar value last-in, first-out (LIFO) method of inventory
accounting. Cost for other inventories has been determined
principally by the average cost method, primarily operating supplies, spare
parts, and maintenance parts. Elements of costs in inventories included raw
materials, direct labor, and manufacturing overhead. Inventories
under the LIFO method are based on annual estimates of quantities and costs as
of year-end; therefore, the condensed financial statements at September 30,
2009, reflect certain estimates relating to inventory quantities and costs at
December 31, 2009. If the first-in, first-out (FIFO) method of inventory
accounting had been used, inventories would have been approximately $56.7
million, $69.5 million and $69.0 million higher than reported at September 30,
2009, December 31, 2008, and September 30, 2008,
respectively.
EARNINGS
PER SHARE
Basic and
diluted net income per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share
reflects the dilutive effect of stock-based compensation.
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Computation of Basic Income per
Share
|
($
and shares in millions, except per share data)
|
|||||||||||||||
Net
income
|
$
|
39.4
|
$
|
37.7
|
$
|
113.9
|
$
|
110.5
|
||||||||
Basic
shares
|
78.4
|
76.3
|
78.0
|
75.4
|
||||||||||||
Basic
net income per share
|
$
|
0.50
|
$
|
0.49
|
$
|
1.46
|
$
|
1.47
|
||||||||
Computation of Diluted Income per
Share
|
||||||||||||||||
Diluted
shares:
|
||||||||||||||||
Basic
shares
|
78.4
|
76.3
|
78.0
|
75.4
|
||||||||||||
Stock-based
compensation
|
0.2
|
0.4
|
0.1
|
0.3
|
||||||||||||
Diluted
shares
|
78.6
|
76.7
|
78.1
|
75.7
|
||||||||||||
Diluted
net income per share
|
$
|
0.50
|
$
|
0.49
|
$
|
1.46
|
$
|
1.46
|
7
ENVIRONMENTAL
We are
party to various government and private environmental actions associated with
past manufacturing facilities and former waste disposal sites.
Environmental provisions (credited) charged to income were as
follows:
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
($
in millions)
|
||||||||||||||||
Charges
to income
|
$
|
5.5
|
$
|
6.4
|
$
|
18.3
|
$
|
21.2
|
||||||||
Recoveries
from third parties of costs incurred and expensed in prior
periods
|
(44.3
|
)
|
—
|
(45.1
|
)
|
—
|
||||||||||
Total
environmental (income) expense
|
$
|
(38.8
|
)
|
$
|
6.4
|
$
|
(26.8
|
)
|
$
|
21.2
|
Environmental
(income) expense for the three and nine months ended September 30, 2009 included
$44.3 million and $45.1 million, respectively, of recoveries from third parties
for costs incurred and expensed in prior periods. Charges to income
for investigatory and remedial efforts were material to operating results in
2008 and 2009. The condensed balance sheets included reserves for future
environmental expenditures to investigate and remediate known sites amounting to
$167.1 million, $158.9 million, and $161.1 million at September 30, 2009,
December 31, 2008, and September 30, 2008, respectively, of which $132.1
million, $123.9 million, and $126.1 million, respectively, were classified as
other noncurrent liabilities.
Environmental
exposures are difficult to assess for numerous reasons, including the
identification of new sites, developments at sites resulting from investigatory
studies, advances in technology, changes in environmental laws and regulations
and their application, changes in regulatory authorities, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
(PRPs), our 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 to us, which could materially adversely affect our
financial position or results of operations.
During
the ordinary course of our business, contingencies arise resulting from an
existing condition, situation, or set of circumstances involving an uncertainty
as to the realization of a possible gain contingency. In certain instances
such as environmental projects, we are responsible for managing the cleanup and
remediation of an environmental site. There exists the possibility of
recovering a portion of these costs from other parties. We account for
gain contingencies in accordance with the provisions of Accounting Standards
Codification (ASC) 450 “Contingencies” (ASC 450), formerly SFAS No. 5,
“Accounting for Contingencies,” and therefore do not record gain contingencies
and recognize income until it is earned and realizable. During the
fourth quarter of 2009, we are anticipating a $35 million pretax recovery from
third parties for environmental costs incurred and expensed in prior
periods.
SHAREHOLDERS’
EQUITY
Our board
of directors, in April 1998, authorized a share repurchase program of up to
5 million shares of our common stock. We have repurchased 4,845,924 shares
under the April 1998 program. There were no share repurchases during the nine
month periods ended September 30, 2009 and 2008. At September 30,
2009, 154,076 shares remained authorized to be purchased.
We issued
less than 0.1 million shares and 1.8 million shares with a total value of $0.2
million and $38.1 million, representing stock options exercised for the nine
months ended September 30, 2009 and 2008, respectively. In addition, we
issued 1.1 million and 0.5 million shares with a total value of $13.8 million
and $11.3 million for the nine months ended September 30, 2009 and 2008,
respectively, in connection with our Contributing Employee Ownership Plan
(CEOP).
8
The
following table represents the activity included in accumulated other
comprehensive loss:
Foreign
Currency Translation Adjustment
|
Unrealized
Gains (Losses) on Derivative Contracts
(net
of taxes)
|
Amortization
of Prior Service Costs and Actuarial Losses
(net
of taxes)
|
Accumulated
Other Comprehensive Loss
|
||||||||||||||
($
in millions)
|
|||||||||||||||||
Balance
at January 1, 2008
|
$
|
(1.2
|
)
|
$
|
1.0
|
$
|
(151.0
|
)
|
$
|
(151.2
|
)
|
||||||
Unrealized
gains (losses)
|
(0.6
|
)
|
(6.7
|
)
|
7.1
|
(0.2
|
)
|
||||||||||
Gains
reclassified into income
|
—
|
(2.1
|
)
|
—
|
(2.1
|
)
|
|||||||||||
Balance
at September 30, 2008
|
$
|
(1.8
|
)
|
$
|
(7.8
|
)
|
$
|
(143.9
|
)
|
$
|
(153.5
|
)
|
|||||
Balance
at January 1, 2009
|
$
|
(5.1
|
)
|
$
|
(25.0
|
)
|
$
|
(239.3
|
)
|
$
|
(269.4
|
)
|
|||||
Unrealized
gains
|
3.2
|
18.3
|
3.9
|
25.4
|
|||||||||||||
Losses
reclassified into income
|
—
|
14.5
|
—
|
14.5
|
|||||||||||||
Balance
at September 30, 2009
|
$
|
(1.9
|
)
|
$
|
7.8
|
$
|
(235.4
|
)
|
$
|
(229.5
|
)
|
SEGMENT
INFORMATION
We define
segment results as income before interest expense, interest income, other income
(expense), and income taxes, and include the operating results of
non-consolidated affiliates.
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Sales:
|
($
in millions)
|
|||||||||||||||
Chlor
Alkali Products
|
$
|
228.8
|
$
|
362.1
|
$
|
738.9
|
$
|
962.6
|
||||||||
Winchester
|
168.2
|
140.8
|
441.7
|
367.7
|
||||||||||||
Total
sales
|
$
|
397.0
|
$
|
502.9
|
$
|
1,180.6
|
$
|
1,330.3
|
||||||||
Income
before taxes:
|
||||||||||||||||
Chlor
Alkali Products(1)
|
$
|
3.9
|
$
|
104.3
|
$
|
120.2
|
$
|
241.8
|
||||||||
Winchester
|
23.0
|
9.8
|
59.1
|
29.3
|
||||||||||||
Corporate/Other:
|
||||||||||||||||
Pension
income(2)
|
6.3
|
5.2
|
16.8
|
13.3
|
||||||||||||
Environmental
income (expense)(3)
|
38.8
|
(6.4
|
)
|
26.8
|
(21.2
|
)
|
||||||||||
Other
corporate and unallocated costs
|
(15.5
|
)
|
(13.6
|
)
|
(50.5
|
)
|
(47.5
|
)
|
||||||||
Other
operating income (expense)(4)
|
1.2
|
(0.3
|
) |
6.9
|
0.7
|
|||||||||||
Interest
expense(5)
|
(1.9
|
)
|
(3.3
|
)
|
(5.2
|
)
|
(11.5
|
)
|
||||||||
Interest
income
|
0.1
|
1.0
|
0.9
|
5.2
|
||||||||||||
Other
income (expense)(6)
|
—
|
(26.4
|
)
|
0.1
|
(26.1
|
)
|
||||||||||
Income
before taxes
|
$
|
55.9
|
$
|
70.3
|
$
|
175.1
|
$
|
184.0
|
(1)
|
Earnings
of non-consolidated affiliates were included in the Chlor Alkali Products
segment results consistent with management’s monitoring of the operating
segments. The earnings from non-consolidated affiliates were $7.1 million
and $12.0 million for the three months ended September 30, 2009 and 2008,
respectively, and $32.9 million and $31.1 million for the nine months
ended September 30, 2009 and 2008,
respectively.
|
9
(2)
|
The
service cost and the amortization of prior service cost components of
pension expense related to the employees of the operating segments are
allocated to the operating segments based on their respective estimated
census data. All other components of pension costs are included in
Corporate/Other and include items such as the expected return on plan
assets, interest cost, and recognized actuarial gains and
losses. Pension income for the nine months ended September 30,
2008 included a curtailment charge of $0.8 million resulting from the
conversion of our McIntosh, AL Chlor Alkali hourly workforce from a
defined benefit pension plan to a defined contribution pension
plan.
|
(3)
|
Environmental
income (expense) for the three and nine months ended September 30, 2009
included $44.3 million and $45.1 million, respectively, of recoveries from
third parties for costs incurred and expensed in prior
periods.
|
(4)
|
Other
operating income (expense) for the nine months ended September 30, 2009
included a $3.7 million gain on the sale of land and $1.8 million of gains
on the disposal of assets primarily associated with the St. Gabriel, LA
facility conversion and expansion
project.
|
(5)
|
Interest
expense was reduced by capitalized interest of $3.6 million and $1.1
million for the three months ended September 30, 2009 and 2008,
respectively, and $9.1 million and $2.2 million for the nine months ended
September 30, 2009 and 2008,
respectively.
|
(6)
|
Other
income (expense) for the three and nine months ended September 30, 2008
included an impairment charge of the full value of a $26.6 million
investment in corporate debt securities. We are currently
unable to utilize the capital loss resulting from the impairment of these
corporate debt securities; therefore, no tax benefit was recognized during
the period for the impairment loss.
|
STOCK-BASED
COMPENSATION
Stock-based compensation granted
includes stock options, performance stock awards, restricted stock awards, and
deferred directors’ compensation. Stock-based compensation expense
was as follows:
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
($
in millions)
|
||||||||||||||||
Stock-based
compensation
|
$
|
1.9
|
$
|
3.1
|
$
|
6.8
|
$
|
8.2
|
||||||||
Mark-to-market
adjustments
|
2.7
|
(2.7
|
)
|
0.5
|
(0.3
|
)
|
||||||||||
Total
expense
|
$
|
4.6
|
$
|
0.4
|
$
|
7.3
|
$
|
7.9
|
The fair
value of each stock option granted, which typically vests ratably over three
years, but not less than one year, was estimated on the date of grant, using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used:
Grant date
|
2009
|
2008
|
||||||
Dividend
yield
|
4.26
|
%
|
4.34
|
%
|
||||
Risk-free
interest rate
|
2.32
|
%
|
3.21
|
%
|
||||
Expected
volatility
|
40
|
%
|
32
|
%
|
||||
Expected
life (years)
|
7.0
|
7.0
|
||||||
Grant
fair value (per option)
|
$
|
3.85
|
$
|
4.52
|
||||
Exercise
price
|
$
|
14.28
|
$
|
20.29
|
||||
Shares
granted
|
866,250
|
523,350
|
Dividend
yield for 2009 and 2008 was based on a historical average. Risk-free interest
rate was based on zero coupon U.S. Treasury securities rates for the expected
life of the options. Expected volatility was based on our historical stock price
movements, and we believe that historical experience is the best available
indicator of the expected volatility. Expected life of the option grant was
based on historical exercise and cancellation patterns, and we believe that
historical experience is the best estimate of future exercise
patterns.
10
INVESTMENTS
– AFFILIATED COMPANIES
We have a
50% ownership interest in SunBelt Chlor Alkali Partnership (SunBelt), which is
accounted for using the equity method of accounting. The condensed financial
positions and results of operations of SunBelt in its entirety were as
follows:
100% Basis
|
September
30,
2009
|
December
31,
2008
|
September
30,
2008
|
|||||||||
Condensed
Balance Sheet Data:
|
($
in millions)
|
|||||||||||
Current
assets
|
$
|
36.4
|
$
|
22.4
|
$
|
41.6
|
||||||
Noncurrent
assets
|
97.6
|
107.7
|
112.1
|
|||||||||
Current
liabilities
|
22.0
|
19.7
|
20.3
|
|||||||||
Noncurrent
liabilities
|
97.5
|
97.5
|
109.8
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Condensed
Income Statement Data:
|
($
in millions)
|
|||||||||||||||
Sales
|
$
|
36.9
|
$
|
47.0
|
$
|
135.1
|
$
|
136.5
|
||||||||
Gross
profit
|
14.9
|
25.4
|
68.5
|
69.9
|
||||||||||||
Net
income
|
9.6
|
20.3
|
53.2
|
53.6
|
The
amount of cumulative unremitted earnings of SunBelt was $14.5 million, $12.9
million and $23.6 million at September 30, 2009, December 31, 2008, and
September 30, 2008, respectively. We received distributions from SunBelt
totaling $25.8 million and $18.3 million for the nine months ended September 30,
2009 and 2008, respectively. We have not made any contributions in
2009 or 2008.
In
accounting for our ownership interest in SunBelt, we adjust the reported
operating results for depreciation expense in order to conform SunBelt’s plant
and equipment useful lives to ours. Beginning January 1, 2007, the
original machinery and equipment of SunBelt had been fully depreciated in
accordance with our useful asset lives, thus resulting in lower depreciation
expense. The lower depreciation expense increased our share of
SunBelt’s operating results by $1.0 million for both the three months
ended September 30, 2009 and 2008, and $2.7 million and $3.3 million for the
nine months ended September 30, 2009 and 2008, respectively. The
operating results from SunBelt included interest expense of $1.0 million and
$1.1 million for the three months ended September 30, 2009 and 2008,
respectively, and $3.0 million and $3.3 million for the nine months ended
September 30, 2009 and 2008, respectively, on the SunBelt
Notes. Finally, we provide various administrative, management and
logistical services to SunBelt for which we received fees totaling $2.1 million
for both the three months ended September 30, 2009 and 2008, and $6.3 million
for both the nine months ended September 30, 2009 and 2008.
Pursuant
to a note purchase agreement dated December 22, 1997, SunBelt sold $97.5
million of Guaranteed Senior Secured Notes due 2017, Series O, and $97.5 million
of Guaranteed Senior Secured Notes due 2017, Series G. We refer to these notes
as the SunBelt Notes. The SunBelt Notes bear interest at a rate of 7.23% per
annum, payable semiannually in arrears on each June 22 and December
22.
11
We have
guaranteed the Series O Notes, and PolyOne, our partner in this venture, has
guaranteed the Series G Notes, in both cases pursuant to customary guaranty
agreements. Our guarantee and PolyOne’s guarantee are several, rather than
joint. Therefore, we are not required to make any payments to satisfy the Series
G Notes guaranteed by PolyOne. An insolvency or bankruptcy of PolyOne will not
automatically trigger acceleration of the SunBelt Notes or cause us to be
required to make payments under our guarantee, even if PolyOne is required to
make payments under its guarantee. However, if SunBelt does not make timely
payments on the SunBelt Notes, whether as a result of a failure to pay on a
guarantee or otherwise, the holders of the SunBelt Notes may proceed against the
assets of SunBelt for repayment. If we were to make debt service payments under
our guarantee, we would have a right to recover such payments from
SunBelt.
Beginning
on December 22, 2002 and each year through 2017, SunBelt is required to
repay $12.2 million of the SunBelt Notes, of which $6.1 million is attributable
to the Series O Notes. Our guarantee of these SunBelt Notes was $54.8
million at September 30, 2009. In the event SunBelt cannot make any of these
payments, we would be required to fund the payment on the Series O Notes. In
certain other circumstances, we may also be required to repay the SunBelt Notes
prior to their maturity. We and PolyOne have agreed that, if we or PolyOne
intend to transfer our respective interests in SunBelt and the transferring
party is unable to obtain consent from holders of 80% of the aggregate principal
amount of the indebtedness related to the guarantee being transferred after good
faith negotiations, then we and PolyOne will be required to repay our respective
portions of the SunBelt Notes. In such event, any make whole or similar
penalties or costs will be paid by the transferring party.
In
addition to SunBelt, we have two other investments, which are accounted for
under the equity method. The following table summarizes our
investments in our equity affiliates:
September
30,
2009
|
December
31,
2008
|
September
30,
2008
|
||||||||||
($
in millions)
|
||||||||||||
SunBelt
|
$
|
(0.3
|
)
|
$
|
(3.7
|
)
|
$
|
5.2
|
||||
Bay
Gas
|
11.8
|
10.7
|
0.5
|
|||||||||
Bleach
joint venture
|
11.3
|
12.0
|
11.7
|
|||||||||
Investments
in equity affiliates
|
$
|
22.8
|
$
|
19.0
|
$
|
17.4
|
The
following table summarizes our equity earnings of non-consolidated
affiliates:
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
($
in millions)
|
||||||||||||||||
SunBelt
|
$
|
5.8
|
$
|
11.1
|
$
|
29.3
|
$
|
30.0
|
||||||||
Bay
Gas
|
0.5
|
0.5
|
1.2
|
1.0
|
||||||||||||
Bleach
joint venture
|
0.8
|
0.4
|
2.4
|
0.1
|
||||||||||||
Equity
earnings of non-consolidated affiliates
|
$
|
7.1
|
$
|
12.0
|
$
|
32.9
|
$
|
31.1
|
We
received net distributions from our non-consolidated affiliates of $29.1 million
and $20.9 million for the nine months ended September 30, 2009 and 2008,
respectively.
LONG-TERM
DEBT
On August 19, 2009, we sold $150.0
million of 8.875% Senior Notes (2019 Notes) with a maturity date of August 15,
2019. The 2019 Notes were issued at 99.19% of par value, providing a
yield to maturity to investors of 9.0%. Interest will be paid
semi-annually beginning on February 15, 2010. Proceeds of $145.5
million, after expenses of $3.3 million, from the 2019 Notes will be used to
further strengthen our long-term liquidity given uncertain economic
times.
12
PENSION
PLANS AND RETIREMENT BENEFITS
Most of
our employees participate in defined contribution pension plans. We
provide a contribution to an individual retirement contribution account
maintained with the CEOP equal to 5% of the employee’s eligible compensation if
such employee is less than age 45, and 7.5% of the employee’s eligible
compensation if such employee is age 45 or older. Expenses of the defined
contribution pension plans were $3.0 million and $2.8 million for the three
months ended September 30, 2009 and 2008, respectively, and $10.0 million and
$8.7 million for the nine months ended September 30, 2009 and 2008,
respectively.
A portion
of our bargaining hourly employees continue to participate in our domestic
defined benefit pension plans, which are non-contributory final-average-pay or
flat-benefit plans. Our funding policy for the defined benefit pension plans is
consistent with the requirements of federal laws and regulations. Our foreign
subsidiaries maintain pension and other benefit plans, which are consistent with
statutory practices. Our defined benefit pension plan provides that if, within
three years following a change of control of Olin, any corporate action is taken
or filing made in contemplation of, among other things, a plan termination or
merger or other transfer of assets or liabilities of the plan, and such
termination, merger, or transfer thereafter takes place, plan benefits would
automatically be increased for affected participants (and retired participants)
to absorb any plan surplus (subject to applicable collective bargaining
requirements).
We also
provide certain postretirement health care (medical) and life insurance benefits
for eligible active and retired domestic employees. The health care plans are
contributory with participants’ contributions adjusted annually based on medical
rates of inflation and plan experience.
Pension
Benefits
|
Other Postretirement
Benefits
|
|||||||||||||||
Three Months Ended
September
30,
|
Three Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Components of Net Periodic Benefit (Income)
Cost
|
($
in millions)
|
|||||||||||||||
Service
cost
|
$
|
1.2
|
$
|
1.7
|
$
|
—
|
$
|
0.2
|
||||||||
Interest
cost
|
24.9
|
25.2
|
0.9
|
0.8
|
||||||||||||
Expected
return on plans’ assets
|
(33.1
|
)
|
(32.6
|
)
|
—
|
—
|
||||||||||
Amortization
of prior service cost
|
0.1
|
0.4
|
—
|
—
|
||||||||||||
Recognized
actuarial loss
|
2.3
|
2.4
|
0.4
|
0.5
|
||||||||||||
Net
periodic benefit (income) cost
|
$
|
(4.6
|
)
|
$
|
(2.9
|
)
|
$
|
1.3
|
$
|
1.5
|
Pension
Benefits
|
Other Postretirement
Benefits
|
|||||||||||||||
Nine Months Ended
September
30,
|
Nine Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Components of Net Periodic Benefit (Income)
Cost
|
($
in millions)
|
|||||||||||||||
Service
cost
|
$
|
3.7
|
$
|
5.0
|
$
|
0.8
|
$
|
1.0
|
||||||||
Interest
cost
|
74.9
|
75.6
|
2.9
|
3.0
|
||||||||||||
Expected
return on plans’ assets
|
(99.3
|
)
|
(97.8
|
)
|
—
|
—
|
||||||||||
Amortization
of prior service cost
|
0.4
|
1.2
|
(0.1
|
)
|
(0.1
|
)
|
||||||||||
Recognized
actuarial loss
|
7.0
|
7.4
|
1.8
|
2.0
|
||||||||||||
Curtailment
|
—
|
0.8
|
—
|
—
|
||||||||||||
Net
periodic benefit (income) cost
|
$
|
(13.3
|
)
|
$
|
(7.8
|
)
|
$
|
5.4
|
$
|
5.9
|
During
the nine months ended September 30, 2009, we made contributions to our
foreign defined benefit pension plan of $2.0 million. In June 2008,
we recorded a curtailment charge of $0.8 million resulting from the conversion
of our McIntosh, AL Chlor Alkali hourly workforce from a defined benefit pension
plan to a defined contribution pension plan.
13
INCOME
TAXES
The
effective tax rate for the nine months ended September 30, 2009 included expense
of $2.0 million for a valuation allowance recorded against the foreign tax
credit carryforward deferred tax asset generated by our Canadian
operations.
At
September 30, 2009, our current deferred income taxes of $66.0 million included
refundable income taxes of $5.0 million. A reclassification totaling
$58.9 million from deferred income taxes to current deferred income taxes was
made conforming deferred taxes to the classification of the underlying related
assets and liabilities at September 30, 2008.
As of
September 30, 2009, we had $49.0 million of gross unrecognized tax benefits, all
of which would impact the effective tax rate, if recognized. The
amount of unrecognized tax benefits was as follows:
September
30, 2009
|
||||
($
in millions)
|
||||
Balance
at beginning of year
|
$
|
50.2
|
||
Increases
for prior year tax positions
|
0.9
|
|||
Decrease
for prior year tax positions
|
(0.3
|
)
|
||
Increases
for current year tax positions
|
0.4
|
|||
Settlements
with taxing authorities
|
0.1
|
|||
Reductions
due to statute of limitations
|
(2.3
|
)
|
||
Balance
at end of period
|
$
|
49.0
|
As of
September 30, 2009, we believe it is reasonably possible that our total amount
of unrecognized tax benefits will decrease by approximately $8.6 million over
the next twelve months. The reduction primarily relates to
settlements with taxing authorities and the lapse of federal, state, and foreign
statutes of limitation.
Our
federal income tax returns for 2005 to 2008 are open tax years under the statute
of limitations. We file in numerous state and foreign jurisdictions
with varying statutes of limitation. The tax years 2004 through 2008
are open depending on each jurisdiction’s unique statute of
limitation. Pioneer filed income tax returns in the U.S., various
states, Canada, and various Canadian provinces. The Pioneer income
tax returns are open for examination for the years 2005 and
forward. The Internal Revenue Service (IRS) has notified us of its
intent to audit our U.S. income tax return for 2006. The IRS has also
commenced an audit of Pioneer’s 2006 and 2007 tax years in the fourth quarter of
2008. The Canada Revenue Agency has commenced an audit of Pioneer’s
Canadian tax returns for its 2005 to 2007 tax years. No issues have
arisen to date that would suggest an additional tax liability should be
recognized.