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EX-32 - SECTION 906 CERTIFICATION OF CEO AND CFO - OLIN Corpcert323rdqtr2009.htm
EX-31.2 - SECTION 302 CERTIFICATION OF CFO - OLIN Corpcert3123rdqtr2009.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - OLIN Corpcert3113rdqtr2009.htm
EX-10.1 - PERFORMANCE SHARE PROGRAM - OLIN Corpperfshareprog3rdqtr10q2009.htm
EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) - OLIN Corpexhibit123rdqtr2009.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.

DERIVATIVE FINANCIAL INSTRUMENTS