bodyform10q2ndqtr2008.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended June 30, 2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
file number 1-1070
Olin
Corporation
(Exact
name of registrant as specified in its charter)
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Virginia
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13-1872319
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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190
Carondelet Plaza, Suite 1530, Clayton, MO
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63105-3443
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(Address
of principal executive offices)
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(Zip
Code)
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(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 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
June 30, 2008, 75,396,680 shares of the registrant’s common stock were
outstanding.
Part I —
Financial Information
Item 1.
Financial Statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Balance Sheets
(In
millions, except per share data)
(Unaudited)
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June
30,
2008
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December
31,
2007
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June
30,
2007
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ASSETS
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Current
Assets:
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Cash
and Cash Equivalents
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Current
Deferred Income Taxes
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Current
Assets of Discontinued Operations
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Property,
Plant and Equipment (less Accumulated Depreciation of $938.9, $912.6 and
$887.5)
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Assets
of Discontinued Operations
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LIABILITIES AND
SHAREHOLDERS’ EQUITY
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Current
Installments of Long-Term Debt
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Current
Liabilities of Discontinued Operations
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Total
Current Liabilities
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Accrued
Pension Liability
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Liabilities
of Discontinued Operations
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Commitments
and Contingencies
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Common
Stock, Par Value $1 Per Share: Authorized, 120.0
Shares;
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Issued
and Outstanding 75.4, 74.5 and 73.9 Shares
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Additional
Paid-In Capital
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Accumulated
Other Comprehensive Loss
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Retained
Earnings (Accumulated Deficit)
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Total
Shareholders’ Equity
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Total
Liabilities and Shareholders’ Equity
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The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Income
(In
millions, except per share data)
(Unaudited)
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Three Months Ended
June
30,
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Six
Months Ended
June
30,
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2008
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2007
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2008
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2007
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Selling
and Administration
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Earnings
of Non-consolidated Affiliates
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Income
from Continuing Operations before Taxes
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Income
from Continuing Operations
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Income
from Discontinued Operations, Net
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Net
Income per Common Share:
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Basic
Income per Common Share:
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Income
from Continuing Operations
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Income
from Discontinued Operations, Net
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Diluted
Income per Common Share:
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Income
from Continuing Operations
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Income
from Discontinued Operations, Net
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Dividends
per Common Share
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Average
Common Shares Outstanding:
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The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Shareholders’ Equity
(In
millions, except per share data)
(Unaudited)
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Common
Stock
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Shares
Issued
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Par
Value
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Additional
Paid-In
Capital
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Accumulated
Other
Comprehensive
Loss
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Retained
Earnings
(Accumulated
Deficit)
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Total
Shareholders’
Equity
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Balance
at January 1, 2007
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Amortization
of Prior Service Costs and Actuarial Losses, Net
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Common
Stock ($0.40 per share)
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Cumulative
Effect of Accounting Change
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Balance
at January 1, 2008
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Amortization
of Prior Service Costs and Actuarial Losses, Net
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Common
Stock ($0.40 per share)
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The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed
Statements of Cash Flows
(In
millions)
(Unaudited)
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Six Months Ended
June
30,
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2008
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2007
|
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Operating
Activities
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Income
from Discontinued Operations, Net
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Adjustments
to Reconcile Net Income to Net Cash and Cash Equivalents (Used for)
Provided by Operating Activities:
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Earnings
of Non-consolidated Affiliates
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Depreciation
and Amortization
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Qualified
Pension Plan Contribution
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Qualified
Pension Plan (Income) Expense
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Common
Stock Issued under Employee Benefit Plans
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Accounts
Payable and Accrued Liabilities
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Other
Noncurrent Liabilities
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Other
Operating Activities
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Cash
Used for Continuing Operations
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Income
from Discontinued Operations, Net
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Operating
Activities from Discontinued Operations
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Cash
Provided by Discontinued Operations
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Proceeds
from Disposition of Property, Plant and Equipment
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Proceeds
from Sale of Short-Term Investments
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|
|
Proceeds
from Sale/Leaseback of Equipment
|
|
|
|
|
|
|
|
|
Distributions
from Affiliated Companies, Net
|
|
|
|
|
|
|
|
|
Other
Investing Activities
|
|
|
|
|
|
|
|
|
Cash
(Used for) Provided by Continuing Operations
|
|
|
|
|
|
|
|
|
Investing
Activities from Discontinued Operations
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt Repayments
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Excess
Tax Benefits from Stock Options Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, Beginning of Period
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, End of Period
|
|
|
|
|
|
|
|
|
Cash
Paid for Interest and Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes, Net of Refunds
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Condensed Financial Statements are an integral part of the
condensed financial statements.
OLIN
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to
Condensed Financial Statements
(Tabular
amounts in millions, except per share data)
(Unaudited)
1.
|
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.
|
|
On
October 15, 2007, we announced we entered into a definitive agreement to
sell the Metals business to a subsidiary of Global Brass and Copper
Holdings, Inc. (Global), an affiliate of KPS Capital Partners, LP, a New
York-based private equity firm. The transaction closed on
November 19, 2007. Accordingly, for all periods presented prior
to the sale, Metals’ assets and liabilities are classified as “held for
sale” and presented separately in the Condensed Balance Sheets, and the
related operating results and cash flows are reported as discontinued
operations in the Condensed Statements of Income and Condensed Statements
of Cash Flows, respectively.
|
|
On
August 31, 2007 we acquired Pioneer Companies, Inc. (Pioneer), whose
earnings were included in the accompanying financial statements since the
date of acquisition.
|
|
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, 2007.
Certain reclassifications were made to prior year amounts to conform to
the 2008 presentation, primarily related to reporting the Metals business
as discontinued operations.
|
2.
|
Allowance
for doubtful accounts was $4.3 million at June 30, 2008, $3.0 million
at December 31, 2007, and $2.5 million at June 30,
2007. In conjunction with the acquisition of Pioneer, we
obtained receivables and related allowance for doubtful accounts of $60.5
million and $1.5 million, respectively, as of August 31, 2007.
Provisions charged to operations were $1.4 million for the three months
ended June 30, 2008 and provisions credited to operations were $0.2
million for the three months ended June 30, 2007. Provisions
charged to operations for the six months ended June 30, 2008 and 2007 were
$1.2 million and $0.1 million, respectively. Bad debt
write-offs, net of recoveries, were $(0.1) million and $0.3 million for
the six months ended June 30, 2008 and 2007,
respectively.
|
3.
|
Inventories
consisted of the following:
|
|
|
June
30,
2008
|
|
|
December 31,
2007
|
|
|
June
30,
2007
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
In
conjunction with the acquisition of Pioneer, we obtained inventories with a fair
value of $25.4 million as of August 31, 2007. 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 June 30, 2008,
reflect certain estimates relating to inventory quantities and costs at
December 31, 2008. If the first-in, first-out (FIFO) method of inventory
accounting had been used, inventories would have been approximately $67.2
million, $53.4 million and $62.0 million higher than reported at June 30,
2008, December 31, 2007, and June 30, 2007, respectively.
4.
|
Basic
and diluted income per share was computed by dividing net income by the
weighted average number of common shares outstanding. Diluted income per
share reflects the dilutive effect of stock-based
compensation.
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Computation of Basic
Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computation of Diluted
Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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5.
|
We
are party to various government and private environmental actions
associated with past manufacturing operations and former waste disposal
sites. Environmental provisions charged to income amounted to $9.7 million
and $7.0 million for the three months ended June 30, 2008 and 2007,
respectively, and $14.8 million and $13.1 million for the six months ended
June 30, 2008 and 2007, respectively. Charges to income for
investigatory and remedial efforts were material to operating results in
2007 and are expected to be material to operating results in 2008. The
condensed balance sheets included reserves for future environmental
expenditures to investigate and remediate known sites amounting to $158.5
million at June 30, 2008, $155.6 million at December 31, 2007, and
$93.0 million at June 30, 2007, of which $123.5 million, $120.6 million,
and $58.0 million were classified as other noncurrent liabilities,
respectively. In conjunction with the acquisition of Pioneer,
as of August 31, 2007 we assumed $55.4 million of environmental
liabilities associated with their current and past manufacturing
operations and former waste disposal
sites.
|
|
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 have a material adverse affect on our
financial position or results of
operations.
|
6.
|
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 six-month periods ended June 30, 2008 and 2007. At
June 30, 2008, 154,076 shares remained authorized to be
purchased.
|
7.
|
We
issued 0.6 million shares and less than 0.1 million shares with a total
value of $10.8 million and $0.8 million, representing stock options
exercised for the six months ended June 30, 2008 and 2007,
respectively. In addition, we issued 0.3 million and 0.6 million
shares with a total value of $6.5 million and $9.8 million for the six
months ended June 30, 2008 and 2007, respectively, in connection with our
Contributing Employee Ownership Plan
(CEOP).
|
8.
|
We
define segment results as income (loss) from continuing operations before
interest expense, interest income, other income, and income taxes, and
include the operating results of non-consolidated
affiliates.
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
income (expense)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
corporate and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $11.0 million
and $12.2 million for the three months ended June 30, 2008 and 2007,
respectively, and $19.1 million and $20.3 million for the six months ended
June 30, 2008 and 2007,
respectively.
|
|
(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 three and six months ended June
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.
|
9.
|
Stock-based
compensation granted included stock options, performance stock awards,
restricted stock awards, and deferred directors’
compensation. Stock-based compensation expense totaled $4.3
million and $2.9 million for the three months ended June 30, 2008 and
2007, respectively, and $7.5 million and $4.1 million for the six months
ended June 30, 2008 and 2007,
respectively.
|
|
In
2008, we granted 523,350 stock options with an exercise price of
$20.29. The fair value of each stock option granted, which
typically vests ratably over three years, was estimated on the date of
grant, using the Black-Scholes option-pricing model with the following
weighted-average assumptions used:
|
Grant
date
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
fair value (per option)
|
|
|
|
|
|
|
|
|
Dividend
yield for 2008 and 2007 was based on a historical average. Risk-free interest
rate is based on zero coupon U.S. Treasury securities rates for the expected
life of the options. Expected volatility is 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 is based
on historical exercise and cancellation patterns, and we believe that historical
experience is the best estimate of future exercise patterns.
In 2007,
a reclassification totaling $3.5 million from Additional Paid-In Capital to
Other Liabilities was made for deferred directors’ compensation that could be
settled in cash. This reclassification conforms to the accounting
treatment for stock-based compensation in Statement of Financial Accounting
Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment.”
10.
|
We
have a 50% ownership interest in SunBelt Chlor Alkali Partnership
(SunBelt), which was 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
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
June
30,
2007
|
|
Condensed
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Condensed
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of cumulative unremitted earnings of SunBelt was $27.1 million at June
30, 2008, $6.6 million at December 31, 2007, and $13.6 million at June 30,
2007. We received distributions from SunBelt totaling $6.4 million and $8.6
million in the six months ended June 30, 2008 and 2007,
respectively. We have not made any contributions in 2008 or
2007. We received net settlements of advances of $4.9 million and
$11.6 million in the six months ended June 30, 2008 and 2007,
respectively.
In
accounting for our ownership interest in SunBelt, we adjust the reported
operating results for additional 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 $1.3 million and $1.0 million for the
three months ended June 30, 2008 and 2007, respectively, and $2.3 million and
$1.9 million for the six months ended June 30, 2008 and 2007,
respectively. The operating results from SunBelt included interest
expense of $1.1 million and $1.2 million for the three months ended June 30,
2008 and 2007, respectively, and $2.2 million and $2.4 million for the six
months ended June 30, 2008 and 2007, respectively, on the SunBelt
Notes. Finally, we provide various administrative, management and
logistical services to SunBelt for which we received fees totaling $2.2 million
and $2.1 million in the three months ended June 30, 2008 and 2007,
respectively, and $4.3 million and $4.0 million in the six months ended June 30,
2008 and 2007, respectively.
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.
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 $60.9
million at June 30, 2008. 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.
11.
|
In
October 2007, we announced that we were freezing our defined benefit
pension plan for salaried and certain non-bargaining hourly
employees. Affected employees were eligible to accrue pension
benefits through December 31, 2007, but are not accruing any additional
benefits under the plan after that date. Employee service after
December 31, 2007 does count toward meeting the vesting requirements for
such pension benefits and the eligibility requirements for commencing a
pension benefit, but not toward the calculation of the pension benefit
amount. Compensation earned after 2007 similarly does not count
toward the determination of the pension benefit amounts under the defined
benefit pension plan. In lieu of continuing pension benefit
accruals for the affected employees under the pension plan, starting in
2008, 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. Most of our employees now participate in defined contribution
pension plans. Expenses of the defined contribution pension
plans were $2.4 million and $0.8 million for the three months ended June
30, 2008 and 2007, respectively, and $5.6 million and $1.3 million for the
six months ended June 30, 2008 and 2007,
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 plans provide 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.
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|
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Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
Three Months Ended
June
30,
|
|
|
Three Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of Net Periodic Benefit (Income) Cost
|
|
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|
Expected
return on plans’ assets
|
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|
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|
|
|
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|
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|
|
Amortization
of prior service cost
|
|
|
|
|
|
|
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|
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|
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|
|
Recognized
actuarial loss
|
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|
|
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|
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|
Net
periodic benefit (income) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
Six Months Ended
June
30,
|
|
|
Six Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of Net Periodic Benefit (Income) Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
Expected
return on plans’ assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
Net
periodic benefit (income) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The
service cost and the amortization of prior service cost components of pension
expense related to the employees of the operating segments were allocated to the
operating segments based on their respective estimated census
data. Therefore, the allocated portion of net periodic benefit costs
for the Metals business of $2.3 million and $4.3 million for the three and six
months ended June 30, 2007, respectively, were included in income from
discontinued operations. The allocated portion of other
postretirement benefit costs for the Metals business of $1.4 million and $2.6
million for the three and six months ended June 30, 2007, respectively, were
included in income from discontinued operations.
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. In June
2007, we recorded a curtailment charge of $0.5 million resulting from the
conversion of a portion of the Metals hourly workforce from a defined benefit
pension plan to a defined contribution pension plan. The 2007
curtailment charge was included in income from discontinued
operations.
We
account for our defined benefit pension plans using actuarial models required by
SFAS No. 87, “Employers’ Accounting for Pensions.” This model uses an
attribution approach that generally spreads the financial impact of changes to
the plan and actuarial assumptions over a period of time. Changes in
liabilities/assets due to changes in actuarial assumptions such as discount
rate, rate of compensation increases and mortality, as well as annual deviations
between what was assumed and what was experienced by the plan are treated as
gains or losses. The principle underlying the required attribution approach is
that employees render service over their average remaining service lives on a
relatively smooth basis and, therefore, the accounting for benefits earned under
the pension or non-pension postretirement benefits plans should follow the same
relatively smooth pattern. With the freezing of our defined benefit
pension plan for salaried and certain non-bargained hourly employees that became
effective January 1, 2008 and the sale of the Metals business, substantially all
defined benefit pension plan participants were inactive; therefore, actuarial
gains and losses are now being amortized based upon the remaining life
expectancy of the inactive plan participants rather than the future service
period of the active participants, which was the amortization period used prior
to 2008. At December 31, 2007, the average remaining life expectancy
of the inactive participants in the defined benefit pension plan was 19.0 years;
compared to the average remaining service lives of the active employees in the
defined benefit pension plan of 10.7 years.
In May
2007, we made a voluntary contribution to our defined benefit pension plan of
$100 million. In addition, during 2007 the asset allocation in the defined
benefit pension plan was adjusted to insulate the plan from discount rate risk
and reduce the plan’s exposure to equity investments.
12.
|
In
July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN
No. 48). This interpretation clarified the accounting for
uncertainty in income taxes recognized in the financial statements in
accordance with FASB Statement No. 109, “Accounting for Income
Taxes.” FIN No. 48 prescribed a recognition threshold and
required a measurement of a tax position taken or expected to be taken in
a tax return. This interpretation also provided guidance on the
treatment of derecognition, classification, interest and penalties,
accounting in interim periods, and
disclosure.
|
|
We
adopted the provisions of FIN No. 48 on January 1, 2007. As a
result of the implementation, we recognized a $0.1 million increase in the
liability for unrecognized tax benefits, which was accounted for as a
decrease to Retained Earnings (Accumulated Deficit). In
addition, FIN No. 48 required a reclassification of unrecognized tax
benefits and related interest and penalties from deferred income taxes to
current and long-term liabilities. At January 1, 2007, we
reclassified $19.8 million from Deferred Income Taxes to Accrued
Liabilities ($3.1 million) and Other Liabilities ($16.7
million).
|
|
As
of January 1, 2007, we had $16.5 million of gross unrecognized tax
benefits, of which $11.9 million would impact the effective tax rate, if
recognized. As of January 1, 2007, the remainder of $4.6
million would have been a reduction to goodwill, if
recognized. Upon completion of the Metals sale, the potential
reduction to goodwill would instead be recognized as income from
discontinued operations.
|
|
We
acquired $37.2 million of gross unrecognized tax benefits as part of the
Pioneer acquisition, all of which would be a reduction to goodwill, if
recognized during 2008. After adopting SFAS No. 141R, “Business
Combinations” (SFAS No. 141R) in 2009, any remaining balance of
unrecognized tax benefits would affect our effective tax rate instead of
goodwill, if recognized. The unrecognized tax benefit, net of
federal income tax benefit, totaled $36.5 million. If these tax
benefits are not recognized, the result as of June 30, 2008 would have
been cash tax payments of $16.3
million.
|
|
As
of December 31, 2007, we had $51.8 million of gross unrecognized tax
benefits (including Pioneer), of which $14.5 million would impact the
effective tax rate, if recognized. At June 30, 2008, we had $52.1 million
of gross unrecognized tax benefits (including Pioneer), of which $14.9
million would impact the effective tax rate, if recognized. If
these tax benefits are not recognized, the result would be cash tax
payments. The change for the six months ended June 30, 2008 related to
additional gross unrecognized tax benefits from ongoing income tax audits
by various taxing jurisdictions, as well as the expiration of the statute
of limitations in foreign
jurisdictions.
|
|
On
July 10, 2006, we finalized a settlement with the Internal Revenue Service
(IRS), which included the periods 1996 to 2002 and related primarily to
the tax treatment of capital losses generated in 1997. We made
payments of $46.7 million in 2006. We made payments of $0.6
million in 2007 and expect to make payments of approximately $1.5
million in 2008 to various state and local jurisdictions in conjunction
with the IRS settlement. We have filed both federal and state
amended income tax returns for years 2002 and prior to report changes to
taxable income per IRS examinations. Such tax years remain
subject to examination to the extent of the changes
reported.
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|
In
2006, the IRS commenced an examination of our U.S. income tax return for
2004. In June 2007, we reached an agreement in principle with
the IRS for the 2004 tax examination. The settlement resulted
in a reduction of income tax expense of $0.6 million in 2007 related
primarily to a favorable adjustment to our extraterritorial income
exclusion. In connection with the settlement, we paid $3.2
million to the IRS in June 2007.
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|
Our
federal income tax returns for 2004 to 2006 are open tax years under
statute of limitations. We file in numerous state and foreign
jurisdictions with varying statutes of limitation open from 2003 through
2006 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. Pioneer
tax returns for the years 2002 and forward are open for
examination. Pioneer is currently under examination by the
Canada Revenue Agency for its 2002 through 2004 tax years. We
have been notified by the IRS that it will commence an audit of Pioneer’s
2004 tax year.
|
|
As
of December 31, 2007, it was reasonably possible that our total amount of
unrecognized tax benefits would decrease by approximately $9.0 million
over the next twelve months, of which approximately $8.0 million would be
a reduction of goodwill. After adopting SFAS No. 141R in 2009,
any remaining balance of unrecognized tax benefits will affect income tax
expense instead of goodwill, if recognized. The reduction
primarily relates to settlements with tax authorities and the lapse of
federal, state, and foreign statutes of limitation. The amount
remains materially unchanged at June 30,
2008.
|
13.
|
On
August 31, 2007, we acquired Pioneer, a manufacturer of chlorine, caustic
soda, bleach, sodium chlorate, and hydrochloric acid. Pioneer
owned and operated four chlor-alkali facilities and several bleach
manufacturing facilities in North America. Under the merger
agreement, each share of Pioneer common stock was converted into the right
to receive $35.00 in cash, without interest. The aggregate
purchase price for all of Pioneer’s outstanding shares of common stock,
together with the aggregate payment due to holders of options to purchase
shares of common stock of Pioneer, was $426.1 million, which included
direct fees and
expenses.
|
The
following table summarizes the allocation of the purchase price to Pioneer’s
assets and liabilities:
|
|
August
31, 2007
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities assumed
|
|
|
|
|
|
|
|
|
|
Included
in total current assets is cash and cash equivalents of $126.4
million. Included in other liabilities are liabilities for future
environmental expenditures to investigate and remediate known sites of $55.4
million, liabilities for unrecognized tax benefits of $38.4 million, accrued
pension and postretirement liabilities of $13.5 million, asset retirement
obligations of $12.2 million and other liabilities of $1.3 million.
On March
12, 2008, we announced that, in connection with our plans to streamline our
Chlor Alkali Products manufacturing operations in Canada in order to serve our
customer base in a more cost effective manner, we would close the acquired
Dalhousie, New Brunswick, Canada chlorine, caustic soda, sodium chlorate, and
sodium hypochlorite operations. We substantially completed the closure of
the Dalhousie facility by June 30, 2008. We expect to incur cash
expenditures of $3.0 million in 2008 associated with the shutdown, which were
previously included in current liabilities on the August 31, 2007 balance
sheet.
The
following pro forma summary presents the condensed statement of operations as if
the acquisition of Pioneer had occurred at the beginning of the period
(unaudited):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pro
forma statements of operations included an increase to interest expense of $1.6
million and $3.2 million for the three and six months ended June 30, 2007,
respectively. This adjustment was calculated assuming that our borrowings
of $110 million, at an interest rate of 5.76% at the time of the merger, were
outstanding from January 1, 2007. The pro forma statements of
operations used estimates and assumptions based on information available at the
time. Management believes the estimates and assumptions to be
reasonable; however, actual results may differ significantly from this pro forma
financial information. The pro forma information does not reflect any
cost savings that might be achieved from combining the operations and is not
intended to reflect the actual results that would have occurred had the
companies actually been combined during the periods
presented.
14.
|
On
October 15, 2007, we announced we entered into a definitive agreement to
sell the Metals business to Global for $400 million, payable in
cash. The price received was subject to a customary working
capital adjustment. The transaction closed on November 19,
2007. The final loss recognized related to this
transaction will be dependent upon the final determination of the value of
working capital in the business. Based on an estimated working
capital adjustment, net cash proceeds from the transaction were $380.8
million.
|
|
The
Metals business was a reportable segment comprised of principal
manufacturing facilities in East Alton, IL and Montpelier,
OH. Metals produced and distributed copper and copper alloy
sheet, strip, foil, rod, welded tube, fabricated parts, and stainless
steel and aluminum strip. Sales for the Metals business were
$572.9 million and $1,083.1 million for the three and six months ended
June 30, 2007, respectively. Intersegment sales for the three
and six months ended June 30, 2007 were $26.0 million and $48.8 million,
respectively, representing the sale of ammunition cartridge case cups to
Winchester from Metals, at prices that approximate market, and have been
eliminated from Metals sales. In conjunction with the sale of
the Metals business, Winchester agreed to purchase the majority of its
ammunition cartridge case cups and copper-based strip requirements from
Global under a multi-year agreement with pricing, terms, and conditions
which approximate market. As the criteria to treat the related
assets and liabilities as “held for sale” were met in the third quarter of
2007, for all periods presented prior to the sale, the related assets and
liabilities were classified as “held for sale,” and the results of
operations from the Metals business have been reclassified as discontinued
operations.
|
|
The
major classes of assets and liabilities of the Metals business included in
assets “held for sale” in the Condensed Balance Sheet were as
follows:
|
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets of discontinued operations
|
|
|
|
|
Property,
plant, and equipment
|
|
|
|
|
|
|
|
|
|
Assets
of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities of discontinued operations
|
|
|
|
|
Liabilities
of discontinued operations
|
|
|
|
|
|
|
|
|
|
In
conjunction with the sale of the Metals business, we retained certain assets and
liabilities including certain assets co-located with our Winchester business in
East Alton, IL, assets and liabilities associated with former Metals
manufacturing locations, pension assets and pension and postretirement
healthcare and life insurance liabilities associated with Metals employees for
service earned through the date of sale, and certain environmental obligations
existing at the date of closing associated with current and past Metals
manufacturing operations and waste disposal sites.
15.
|
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” (SFAS No. 159), which
permitted an entity to measure certain financial assets and liabilities at
fair value. The statement’s objective was to improve financial
reporting by allowing entities to mitigate volatility in reported earnings
caused by the measurement of related assets and liabilities using
different attributes, without having to apply complex hedge accounting
provisions. This statement became effective for fiscal years
beginning after November 15, 2007 and was to be applied
prospectively. We adopted the provisions of SFAS No.
159 on January 1, 2008. As we did not elect to measure
existing assets and liabilities at fair value, the adoption of this
statement did not have an effect on our financial
statements.
|
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(SFAS No. 157). This statement did not require any new fair value
measurements, but rather, it provided enhanced guidance to other pronouncements
that require or permit assets or liabilities to be measured at fair value. The
changes to current practice resulting from the application of this statement
related to the definition of fair value, the methods used to estimate fair
value, and the requirement for expanded disclosures about estimates of fair
value. This statement became effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The
effective date for this statement for all nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis, has been delayed by one
year. Nonfinancial assets and nonfinancial liabilities that could be
impacted by this deferral include assets and liabilities initially measured at
fair value in a business combination, and intangible assets and goodwill tested
annually for impairment. We adopted the provisions of SFAS No. 157
related to financial assets and financial liabilities on January 1,
2008. The partial adoption of this statement did not have a material
impact on our financial statements. It is expected that the remaining provisions
of this statement will not have a material effect on our financial
statements.
Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties or the amount that would be
paid to transfer a liability to a new obligor, not the amount that would be paid
to settle the liability with the creditor. Where available, fair value is based
on observable market prices or parameters or derived from such prices or
parameters. Where observable prices or inputs are not available, valuation
models are applied. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or market and the instruments’
complexity.
Assets
and liabilities recorded at fair value in the condensed balance sheets are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value. Hierarchical levels, defined by SFAS No. 157 and
directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities, are as follows:
Level 1 —
Inputs were unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.
Level 2 —
Inputs (other than quoted prices included in Level 1) were either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life.
Level 3 —
Inputs reflected management’s best estimate of what market participants would
use in pricing the asset or liability at the measurement date. Consideration was
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model.
Determining
which hierarchical level an asset or liability falls within requires significant
judgment. We will evaluate our hierarchy disclosures each
quarter. The following table summarizes the financial instruments
measured at fair value in the Condensed Balance Sheet as of June 30,
2008:
|
|
Fair
Value Measurements
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
We
classified our marketable securities as available-for-sale which were reported
at fair market value with unrealized gains and losses included in Accumulated
Other Comprehensive Loss, net of applicable taxes. Fair values for
marketable securities are based upon prices and other relevant information
observable in market transactions involving identical or comparable assets or
liabilities or prices obtained from independent third-party pricing
services. The third-party pricing services employ various models that
take into consideration such market-based factors as recent sales, risk-free
yield curves, prices of similarly rated bonds, and direct discussions with
dealers familiar with these types of securities.
As of
June 30, 2008, we held corporate debt securities totaling $26.6 million of par
value with a fair value of $20.5 million. Although we continue to
receive and earn interest on these investments at the contractual rates, we
recorded an unrealized after-tax loss of $3.7 million ($6.1 million pretax) in
Accumulated Other Comprehensive Loss.
We
concluded no other than temporary impairment losses occurred as the decline in
market value is due to general market conditions. The AA-rated issuer
of these debt securities has, to date, funded all redemptions at par and
maintained short-term A1/P2 credit ratings. Given our current
liquidity and capital structure, we have the intent and ability to hold these
debt securities until maturity on April 1, 2009. We will continue to
review all investments for other-than-temporary impairment at least quarterly
and/or when circumstances or other events indicate that impairment may have
occurred. If the decline in fair value is determined to be
other-than-temporary, we would be required to record an impairment
charge.
Interest
rate swaps
The fair
value of the interest rate swaps was included in Other Assets and Long-Term Debt
as of June 30, 2008. These financial instruments were valued using
the “income approach” valuation technique. This method used valuation
techniques to convert future amounts to a single present amount. The
measurement was based on the value indicated by current market expectations
about those future amounts. We use interest rate swaps as a means of
managing interest rates on our outstanding fixed-rate debt
obligations.
Commodity
forward contracts
The fair
value of the commodity forward contracts was classified in Accrued Liabilities
as of June 30, 2008, with unrealized gains and losses included in Accumulated
Other Comprehensive Loss, net of applicable taxes. These financial
instruments were valued primarily based on prices and other relevant information
observable in market transactions involving identical or comparable assets or
liabilities including both forward and spot prices for
commodities. We use commodity forward contracts for certain raw
materials and energy costs such as copper, zinc, lead, and natural gas to
provide a measure of stability in managing our exposure to price
fluctuations.
SFAS No.
157 requires separate disclosure of assets and liabilities measured at fair
value on a recurring basis, as documented above, from those measured at fair
value on a nonrecurring basis. As of June 30, 2008, no assets or
liabilities were measured at fair value on a nonrecurring basis.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Business
Background
Our
manufacturing operations are concentrated in two business segments: Chlor Alkali
Products and Winchester. Both are capital intensive manufacturing businesses
with operating rates closely tied to the general economy. Each segment has a
commodity element to it, and therefore, our ability to influence pricing is
quite limited on the portion of the segment’s business that is strictly
commodity. Our Chlor Alkali Products segment is a commodity business where all
supplier products are similar and price is the major supplier selection
criterion. We have 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 the capacity in our
Chlor Alkali Products business, can lead to very significant changes in our
overall profitability. Winchester also has a commodity element to its business,
but a majority of Winchester ammunition is sold as a branded consumer product
where there are opportunities 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
not the only factor in product selection. The Metals business was
classified as discontinued operations during 2007 and was excluded from the
segment results.
Executive
Summary
Chlor
Alkali Products segment income improved 27% and 39% compared with the three and
six months ended June 30, 2007, respectively, which reflects the contributions
and synergies from the Pioneer acquisition and improved
pricing. Operating rates in Chlor Alkali Products for the three and
six months ended June 30, 2008 were lower than the three and six months ended
June 30, 2007 reflecting reduced levels of chlorine demand. The
reduced level of chlorine demand reflected the weakness in most customer
groups. The weakness in chlorine demand led to downward pressure on
chlorine prices.
During
the six months ended June 30, 2008, demand for caustic soda remained
strong. However, caustic soda supply was constrained because of
reduced operating rates driven by weakness in chlorine demand, resulting in a
significant supply and demand imbalance for caustic soda. This
imbalance, along with increased freight and energy costs, resulted in
unprecedented caustic soda price increase announcements.
On March
12, 2008, we announced that, in connection with our plans to streamline Chlor
Alkali manufacturing operations in Canada in order to serve our customer base in
a more cost effective manner, we would close the acquired Dalhousie, New
Brunswick, Canada chlorine, caustic soda, sodium chlorate, and sodium
hypochlorite operations. We substantially completed the closure of
the Dalhousie facility by June 30, 2008. We expect to incur cash
expenditures of $3.0 million in 2008 associated with the shutdown, which were
previously included in current liabilities on the August 31, 2007 balance
sheet. This action is expected to generate $8.0 million to $10.0
million of annual pretax savings.
Winchester’s
segment income of $9.5 million and $19.5 million for the three and six months
ended June 30, 2008, respectively, both represent record earnings for the
Winchester business. Winchester segment income improved 70% and 42%
compared with the three and six months ended June 30, 2007,
respectively. Winchester’s results reflected the combination of
improved volumes and pricing.
During
the six months ended June 30, 2008, the defined benefit pension plan generated
approximately breakeven returns. This level of returns has preserved
the over funded position that existed at December 31, 2007. The 2008
performance reflects the actions taken in 2007 to reduce the defined benefit
pension plan’s exposure to equity investments and increase exposure to fixed
income investments.
Consolidated
Results of Operations
($
in millions, except per share data)
|
|
Three
Months Ended
June
30,
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Six
Months Ended
June
30,
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2008
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2007
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2008
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2007
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Selling
and Administration
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Earnings
of Non-consolidated Affiliates
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Income
from Continuing Operations before Taxes
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Income
from Continuing Operations
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Income
from Discontinued Operations, Net
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Net
Income per Common Share:
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Basic
Income per Common Share:
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Income
from Continuing Operations
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Income
from Discontinued Operations, Net
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Diluted
Income per Common Share:
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Income
from Continuing Operations
|
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Income
from Discontinued Operations, Net
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Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
Sales for
the three months ended June 30, 2008 were $428.3 million compared with $266.2
million last year, an increase of $162.1 million, or 61%. Chlor Alkali Products
sales increased $145.8 million, or 88%, primarily due to the inclusion of
Pioneer sales totaling $138.0 million and higher ECU prices. The
combined Olin and Pioneer ECU netbacks increased 16% compared to the Olin
(without Pioneer) ECU netback in the prior year. Winchester sales
were higher by $16.3 million, or 16%, due to increased selling prices and higher
volumes.
Gross
margin increased $26.7 million, or 49%, over the three months ended June 30,
2007, as a result of improved Chlor Alkali Products gross margin, primarily due
to the contribution from Pioneer, and improved Winchester gross margin resulting
from higher selling prices and improved volumes. Gross margin was
also positively impacted by the reduction in defined benefit pension expense of
$3.9 million, which was partially offset by an increase in defined contribution
pension expense of $1.2 million. Gross margin as a percentage of
sales was 19% in 2008 and 20% in 2007.
Selling
and administration expenses for the three months ended June 30, 2008 increased
$2.8 million from the three months ended June 30, 2007 primarily due to
increased expenses associated with the acquired Pioneer operations, net of
synergies, of $5.2 million, higher management incentive compensation costs
primarily resulting from mark-to-market adjustments on stock-based compensation
of $1.0 million, a higher provision for doubtful accounts of $1.1 million, and
increased salary and benefit costs of $0.9 million. These increases
were partially offset by decreased defined benefit pension expense of $3.5
million, offset by increased defined contribution pension expense of $0.4
million, and a lower level of legal and legal-related settlement costs of $2.4
million. Selling and administration expenses as a percentage of sales
were 8% in 2008 and 12% in 2007.
Other
operating income of $0.5 million for the three months ended June 30, 2008
represented the impact of the gain realized in 2007 on an intangible asset sale
in Chlor Alkali Products, which is recognized ratably through March 2012 and the
impact of a gain realized on the sale of equipment, which is recognized ratably
through June 2009.
The
earnings of non-consolidated affiliates were $11.0 million for the three months
ended June 30, 2008, a decrease of $1.2 million from $12.2 million for the three
months ended June 30, 2007. Lower volumes at SunBelt were partially
offset by higher ECU selling prices in the three months ended June 30,
2008.
Interest
expense decreased by $1.2 million from 2007, primarily due to the effect of
lower interest rates and capitalizing $0.7 million of interest in 2008
associated with our St. Gabriel Chlor Alkali facility conversion and expansion
project.
The lower
interest income of $1.7 million for the three months ended June 30, 2008 was due
to lower short-term interest rates and lower average cash balances.
The
effective tax rate for continuing operations for the three months ended June 30,
2008 included a $0.8 million reduction in expense primarily associated with the
expiration of statutes of limitation in foreign jurisdictions. The
effective tax rate for continuing operations for the three months ended June 30,
2008 of 36.7%, which was reduced by the $0.8 million, was higher than the 35%
U.S. federal statutory rate primarily due to state income taxes, which were
offset in part by the benefit of the domestic manufacturing deduction and the
utilization of certain state tax credits. The effective tax rate for
continuing operations for the three months ended June 30, 2007 included $0.8
million of favorable adjustments related to the resolution of prior period
issues. The effective tax rate for continuing operations for the
three months ended June 30, 2007 of 34.5%, which was reduced by the $0.8
million, was lower than the 35% U.S. federal statutory rate primarily due to the
benefit of the domestic manufacturing deduction, and the utilization of certain
state tax credits, which were offset in part by state income taxes and income in
certain foreign jurisdictions being taxed at higher rates.
Income
from discontinued operations, net for the three months ended June 30, 2007 was
$13.7 million. The Metals pretax income for the three months ended
June 30, 2007 included a LIFO inventory liquidation gain of $7.8 million as part
of a Metals inventory reduction program initiated in 2007. The
effective tax rate was 37.4% for the three months ended June 30,
2007.
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
Sales for
the six months ended June 30, 2008 were $827.4 million compared with $521.7
million last year, an increase of $305.7 million, or 59%. Chlor
Alkali Products sales increased $278.8 million, or 87%, primarily due to the
inclusion of Pioneer sales totaling $265.7 million and higher ECU
prices. The combined Olin and Pioneer ECU netbacks increased 16%
compared to the Olin (without Pioneer) ECU netback in the prior
year. Winchester sales were higher by $26.9 million, or 13%, due to
increased selling prices and higher volumes.
Gross
margin increased $62.7 million, or 61%, over the six months ended June 30, 2007,
as a result of improved Chlor Alkali Products gross margin primarily due to the
contribution from Pioneer and improved Winchester gross margin from higher
selling prices and improved volumes. Gross margin was also positively
impacted by the reduction in defined benefit pension expense of $9.0 million,
which was partially offset by an increase in defined contribution pension
expense of $3.5 million. Gross margin as a percentage of sales was
20% in 2008 and 2007.
Selling
and administration expenses for the six months ended June 30, 2008 increased
$4.9 million from the six months ended June 30, 2007 primarily due to increased
expenses associated with the acquired Pioneer operations, net of synergies, of
$8.6 million, higher management incentive compensation costs primarily resulting
from mark-to-market adjustments on stock-based compensation of $3.5 million,
increased consulting costs of $1.4 million, increased salary and benefits costs
of $1.3 million, increased recruiting and relocation expense of $0.8 million and
a higher provision for doubtful accounts of $0.5 million. These
increases were partially offset by decreased defined benefit pension expense of
$6.8 million, offset by increased defined contribution pension expense of $0.8
million, and a lower level of legal and legal-related settlement costs of $5.4
million. Selling and administration expenses as a percentage of sales
were 8% in 2008 and 12% in 2007.
Other
operating income of $1.1 million for the six months ended June 30, 2008
represented the gain on the disposition of land associated with a former
manufacturing facility, the impact of the gain realized in 2007 on an intangible
asset sale in Chlor Alkali Products, which is recognized ratably through March
2012 and the impact of a gain realized on the sale of equipment, which is
recognized ratably through June 2009.
The
earnings of non-consolidated affiliates were $19.1 million for the six months
ended June 30, 2008, a decrease of $1.2 million from $20.3 million for the six
months ended June 30, 2007. Lower volumes at SunBelt were partially
offset by higher ECU selling prices in the six months ended June 30,
2008.
Interest
expense decreased by $1.7 million from 2007, primarily due to the effect of
lower interest rates and capitalizing $1.1 million of interest in 2008
associated with our St. Gabriel Chlor Alkali facility conversion and expansion
project.
The lower
interest income of $2.3 million in the six months ended June 30, 2008 was due to
lower short-term interest rates.
The
effective tax rate for continuing operations for the six months ended June 30,
2008 included a $0.6 million reduction in expense primarily associated with the
favorable resolution of prior period tax matters. The effective tax
rate for continuing operations for the six months ended June 30, 2008 of 36.5%,
which was reduced by the $0.6 million, was higher than the 35% U.S. federal
statutory rate primarily due to state income taxes, which were offset in part by
the benefit of the domestic manufacturing deduction and the utilization of
certain state tax credits. The effective tax rate for continuing
operations for the six months ended June 30, 2007 included $1.2 million of
favorable adjustments related to the resolution of prior period
issues. The effective tax rate for continuing operations for the six
months ended June 30, 2007 of 34.2%, which was reduced by the $1.2 million, was
lower than the 35% U.S. federal statutory rate primarily due to the benefit of
the domestic manufacturing deduction, and the utilization of certain state tax
credits, offset in part by state income taxes and income in certain foreign
jurisdictions being taxed at higher rates.
Income
from discontinued operations, net for the six months ended June 30, 2007 was
$20.2 million. The Metals pretax income for the six months ended June
30, 2007 included a LIFO inventory liquidation gain of $13.1 million as part of
a Metals inventory reduction program initiated in 2007. The effective
tax rate was 36.6% for the six months ended June 30, 2007.
Segment
Results
We define
segment results as income (loss) from continuing operations before interest
expense, interest income, other income, and income taxes, and include the
operating results of non-consolidated affiliates.
($
in millions)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
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|
2008
|
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|
2007
|
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|
2008
|
|
|
2007
|
|
Sales:
|
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Income
from continuing operations before taxes:
|
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Pension
income (expense)(2)
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Other
corporate and unallocated costs
|
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Income
from continuing operations before taxes
|
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(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 $11.0 million
and $12.2 million for the three months ended June 30, 2008 and 2007,
respectively, and $19.1 million and $20.3 million for the six months ended
June 30, 2008 and 2007,
respectively.
|
(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 three and six months ended June
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.
|
Chlor
Alkali Products
Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
Chlor
Alkali Products’ sales for the three months ended June 30, 2008 were $312.2
million compared to $166.4 million for the three months ended June 30, 2007, an
increase of $145.8 million, or 88%. The acquisition of Pioneer
contributed sales of $138.0 million. Chlor Alkali Products’ sales,
excluding Pioneer, increased $7.8 million, or 5%. The sales increase
was due to increased ECU pricing, partially offset by lower
volumes. The combined Olin and Pioneer chlorine and caustic soda ECU
netback, excluding SunBelt, was approximately $590 for the three months ended
June 30, 2008 compared to approximately $510 for the same period in 2007, which
did not include Pioneer. The combined Olin and Pioneer operating rate
for the three months ended June 30, 2008 was 89%, compared to the Olin (without
Pioneer) operating rate of 97% for the three months ended June 30,
2007. The lower operating rate for 2008 resulted primarily from lower
chlorine demand.
Chlor
Alkali posted segment income of $70.4 million for the three months ended June
30, 2008 (which included $24.3 million of Pioneer income), compared to $55.3
million for the same period in 2007. The three months ended June 30,
2008 Pioneer income of $24.3 million included the benefit of realized
synergies. Chlor Alkali segment income, excluding Pioneer, was lower
in 2008 by $9.2 million, or 17% primarily because of decreased volumes ($8.5
million), higher operating costs ($14.2 million), and lower SunBelt results
($1.3 million), partially offset by increased selling prices ($12.2
million). Chlor Alkali segment income for the three months ended June
30, 2008 also included a $2.6 million gain from a litigation
recovery. Operating expenses increased primarily due to increases in
distribution costs and manufacturing costs, which included higher electricity
prices.
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
Chlor
Alkali Products’ sales for the six months ended June 30, 2008 were $600.5
million compared to $321.7 million for the six months ended June 30, 2007, an
increase of $278.8 million, or 87%. The acquisition of Pioneer
contributed sales of $265.7 million. Chlor Alkali Products’ sales,
excluding Pioneer, increased $13.1 million, or 4%. The sales increase
was due to increased ECU pricing, partially offset by lower
volumes. The combined Olin and Pioneer chlorine and caustic soda ECU
netback, excluding SunBelt, was approximately $585 for the six months ended June
30, 2008 compared to approximately $505 for the same period in 2007, which did
not include Pioneer. The combined Olin and Pioneer operating rate for
the six months ended June 30, 2008 was 86%, compared to the Olin (without
Pioneer) operating rate of 92% for the six months ended June 30,
2007. The lower operating rate for 2008 resulted primarily from lower
chlorine demand.
Chlor
Alkali posted segment income of $137.4 million for the six months ended June 30,
2008 (which included $41.0 million of Pioneer income), compared to $98.5 million
for the same period in 2007. The six months ended June 30, 2008
Pioneer income of $41.0 million included the benefit of realized
synergies. Chlor Alkali segment income, excluding Pioneer, was lower
in 2008 by $2.1 million, or 2% primarily because of decreased volumes ($18.2
million), higher operating costs ($11.7 million), and lower SunBelt results
($0.9 million), partially offset by increased selling prices ($26.1
million). Chlor Alkali segment income for the six months ended June
30, 2008 also included a $2.6 million gain from a litigation
recovery. Operating expenses increased primarily due to increases in
distribution costs and manufacturing costs, which included higher electricity
prices.
Winchester
Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
Sales
were $116.1 million for the three months ended June 30, 2008 compared to $99.8
million for the three months ended June 30, 2007, an increase of $16.3 million,
or 16%. Sales of ammunition to domestic commercial customers
increased $10.6 million primarily due to higher selling
prices. Shipments to law enforcement agencies increased $5.2 million
for the three months ended June 30, 2008, while military sales decreased by $4.1
million. Sales to international customers also increased $3.2
million.
Winchester
reported segment income of $9.5 million for the three months ended June 30, 2008
compared to $5.6 million for the three months ended June 30, 2007, an increase
of $3.9 million. The increase was due to the impact of higher selling prices and
increased volumes ($14.6 million), which were partially offset by increased
commodity and other material costs and higher operating costs ($11.0
million).
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
Sales
were $226.9 million for the six months ended June 30, 2008 compared to $200.0
million for the six months ended June 30, 2007, an increase of $26.9 million, or
13%. Sales of ammunition to domestic commercial customers increased
$11.8 million primarily due to higher selling prices. Shipments to
law enforcement agencies increased $10.1 million for the six months ended June
30, 2008, while military sales remained constant from 2007. Sales to
international customers also increased $4.0 million.
Winchester
reported segment income of $19.5 million for the six months ended June 30, 2008
compared to $13.7 million for the six months ended June 30, 2007, an increase of
$5.8 million. The increase was due to the impact of higher selling prices and
increased volumes ($24.7 million), which were partially offset by increased
commodity and other material costs and higher operating costs ($19.1
million).
Corporate/Other
Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
For the
three months ended June 30, 2008, pension income included in Corporate/Other was
$3.6 million compared to pension expense of $2.0 million for the three months
ended June 30, 2007. The $5.6 million decrease in corporate pension expense was
due to the combination of a 25-basis point increase in the discount rate, the
voluntary contribution made to our defined benefit pension plan of $100
million in May 2007, the favorable performance on plan assets in 2007, the
benefits of the plan freeze for salary and non-bargained hourly employees, which
became effective January 1, 2008, and the increase in the amortization period of
actuarial losses. This decrease was partially offset by 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. On a total company basis, defined benefit
pension income for the three months ended June 30, 2008 was $1.9 million
compared to defined benefit pension expense of $8.3 million for the three months
ended June 30, 2007. This defined benefit pension cost reduction was
partially offset by higher defined contribution pension costs. Total
company defined contribution pension expense for the three months ended June 30,
2008 was $2.4 million compared to $0.8 million for the three months ended June
30, 2007.
For the
three months ended June 30, 2008, charges to income for environmental
investigatory and remedial activities were $9.7 million compared with $7.0
million in 2007. This provision relates primarily to expected future
investigatory and remedial activities associated with past manufacturing
operations and former waste disposal sites.
For the three months ended June 30,
2008, other corporate and unallocated costs were $17.4 million compared with
$18.2 million in 2007, a decrease of $0.8 million, or 4%. Legal and
legal-related settlement expenses decreased $2.4 million, partially offset by
increased stock-based compensation expense of $1.7 million primarily resulting
from mark-to-market adjustments.
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
For the
six months ended June 30, 2008, pension income included in Corporate/Other was
$8.1 million compared to pension expense of $3.5 million for the six months
ended June 30, 2007. The $11.6 million decrease in corporate pension expense was
due to the combination of a 25-basis point increase in the discount rate, the
voluntary contribution made to our defined benefit pension plan of $100
million in May 2007, the favorable performance on plan assets in 2007, the
benefits of the plan freeze for salary and non-bargained hourly employees, which
became effective January 1, 2008, and the increase in the amortization period of
actuarial losses. This decrease was partially offset by 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. On a total company basis, defined benefit
pension income for the six months ended June 30, 2008 was $4.9 million compared
to defined benefit pension expense of $15.7 million for the six months ended
June 30, 2007. This defined benefit pension cost reduction was
partially offset by higher defined contribution pension costs. Total
company defined contribution pension expense for the six months ended June 30,
2008 was $5.6 million compared to $1.3 million for the six months ended June 30,
2007.
For the
six months ended June 30, 2008, charges to income for environmental
investigatory and remedial activities were $14.8 million compared with $13.1
million in 2007. This provision relates primarily to expected future
investigatory and remedial activities associated with past manufacturing
operations and former waste disposal sites.
For the six months ended June 30, 2008,
other corporate and unallocated costs were $33.9 million compared with $35.9
million in 2007, a decrease of $2.0 million, or 6%. Legal and
legal-related settlement expenses decreased $6.1 million, partially offset by
increased stock-based compensation expense of $3.9 million primarily resulting
from mark-to-market adjustments.
Outlook
Earnings
from continuing operations in the third quarter of 2008 are projected to be in
the $0.65 to $0.70 per diluted share range.
Chlor
Alkali Products earnings in the third quarter of 2008 are expected to improve
compared to the three months ended June 30, 2008, due to higher operating rates
and improved ECU netbacks. The seasonal strength of the industrial
bleach business is contributing to the expected higher operating
rates.
During
the three months ended June 30, 2008, we announced four caustic soda price
increases that totaled $410 per ton. While we do expect caustic soda
prices to improve in the third quarter of 2008 compared to the three months
ended June 30, 2008, we expect to realize additional benefits from these price
increases in the fourth quarter of 2008. The pricing in many of our
caustic soda contracts is based on published market indices. During
the three months ended March 31, 2008, the $80 per ton price increase was not
reflected in the published first quarter market indices, causing many customers
to not see full implementation until the third quarter of
2008. Similarly, the most recent $160 per ton price increase was not
reflected in the published second quarter market indices, delaying its
implementation until the fourth quarter of 2008. In addition, many of
our caustic soda contracts contain provisions that limit the amount of an
increase that can be implemented in a specific quarter. The impact of
these limitations will be to delay the implementation of some of the announced
caustic soda price increases. While we have seen improvements in
caustic soda pricing during the three months ended June 30, 2008, we have
continued to experience weaker chlorine prices. Chlorine prices
declined in the three months ended June 30, 2008 compared to the three months
ended March 31, 2008, and we expect the decline to continue through the balance
of 2008 and into the first half of 2009. Taking into account all
these issues, we currently expect ECU netbacks in the third quarter of 2008 to
improve compared to the second quarter of 2008 and expect continued sequential
ECU netback improvement into 2009.
We expect
Chlor Alkali Products operating rates in the third quarter of 2008 to improve
from the three months ended June 30, 2008 level of 89% to the low-to-mid 90%
range. This improvement is partially due to the seasonal
strength of our bleach business. Third quarter bleach shipments are
expected to increase 20% compared to the three months ended June 30, 2008 and
over 50% compared to the three months ended March 31, 2008.
Winchester
earnings in the third quarter of 2008 are expected to be consistent with
earnings experienced in the first two quarters of 2008.
During
the three months ended June 30, 2008, Winchester completed the relocation of
approximately half of its military packing operations from its East Alton, IL
facility to its Oxford, MS facility. This relocation, which
involves approximately 100 employees, is expected to be completed by September
30, 2008 and is expected to generate annual cost savings of approximately $2
million.
For the
three months ended June 30, 2008, charges to income for environmental
investigatory and remedial activities were $9.7 million. We expect
these expenses for the third and fourth quarters of 2008 to be 30% to 40% lower
than this level. We currently estimate charges to income for
environmental investigatory and remedial activities for the full year to be in
the $25 million to $30 million range, compared to $37.9 million in
2007.
We
believe the 2008 effective tax rate will be in the 35% to 36%
range. The rate reflects the reduction in expense primarily
associated with the favorable resolution of prior period tax
matters.
Environmental
Matters
($
in millions)
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June
30, 2008 June 30,
2007
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Reserve
for Environmental Liabilities:
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Remedial
and Investigatory Spending
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Currency
Translation Adjustments
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Environmental
investigatory and remediation activities spending was associated with former
waste disposal sites and past manufacturing operations. Spending in 2008 for
investigatory and remedial efforts, the timing of which is subject to regulatory
approvals and other uncertainties, is estimated to be in the $35 million range.
Cash outlays for remedial and investigatory activities associated with former
waste disposal sites and past manufacturing operations were not charged to
income, but instead, were charged to reserves established for such costs
identified and expensed to income in prior periods. Associated costs of
investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability
to reasonably estimate future costs. Our ability to estimate future costs
depends on whether our investigatory and remedial activities are in preliminary
or advanced stages. With respect to unasserted claims, we accrue liabilities for
costs that, in our experience, we may incur to protect our interest against
those unasserted claims. Our accrued liabilities for unasserted claims amounted
to $2.1 million at June 30, 2008. With respect to asserted claims, we accrue
liabilities based on remedial investigation, feasibility study, remedial action,
and Operation, Maintenance and Monitoring (OM&M) expenses that, in our
experience, we may incur in connection with the asserted claims. Required site
OM&M expenses are estimated and accrued in their entirety for required
periods not exceeding 30 years, which reasonably approximates the typical
duration of long-term site OM&M. Charges to income for
investigatory and remedial efforts were material to operating results in 2007
and are expected to be material to operating results in 2008 and future
years.
Our
condensed balance sheets included liabilities for future environmental
expenditures to investigate and remediate known sites amounting to $158.5
million at June 30, 2008, $155.6 million at December 31, 2007, and $93.0
million at June 30, 2007, of which $123.5 million, $120.6 million, and $58.0
million were classified as other noncurrent liabilities,
respectively. As part of the Pioneer acquisition, as of August 31,
2007, we assumed $55.4 million of environmental liabilities associated with
their current and past manufacturing operations and former waste disposal
sites. These amounts do not take into account any discounting of
future expenditures or any consideration of insurance recoveries or advances in
technology. These liabilities are reassessed periodically to
determine if environmental circumstances have changed and/or remediation efforts
and our estimate of related costs have changed. As a result of these
reassessments, future charges to income may be made for additional
liabilities.
Annual
environmental-related cash outlays for site investigation and remediation,
capital projects, and normal plant operations are expected to range between
approximately $50 million to $60 million over the next several years, $20
million to $40 million of which is for investigatory and remedial efforts, which
are expected to be charged against reserves recorded on our balance sheet. While
we do not anticipate a material increase in the projected annual level of our
environmental-related cash outlays, there is always the possibility that such an
increase 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, changes in regulatory
authorities, the scarcity of reliable data pertaining to identified sites, the
difficulty in assessing the involvement and financial capability of other PRPs,
and 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 have a material adverse affect on our
financial position or results of operations.
Legal
Matters and Contingencies
We, and
our subsidiaries, are defendants in various legal actions (including proceedings
based on alleged exposures to asbestos) incidental to our past and current
business activities. While we believe that none of these legal actions will
materially adversely affect our financial position, in light of the inherent
uncertainties of litigation, we cannot at this time determine whether the
financial impact, if any, of these matters will be material to our 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 SFAS No. 5, “Accounting for
Contingencies,” and therefore do not record gain contingencies and recognize
income until it is earned and realizable.
Liquidity,
Investment Activity and Other Financial Data
Cash
Flow Data
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Six Months Ended
June
30,
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Provided
By (Used For) ($ in millions)
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2008
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2007
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Cash
used for continuing operations
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Cash
provided by discontinued operations
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Operating
Activities
For the
six months ended June 30, 2008, cash used for operating activities from
continuing operations improved by $66.6 million from 2007 primarily due to the
$100.0 million contribution to our defined benefit pension plan made in 2007 and
higher earnings in 2008. These improvements in operating cash flows
were offset by increased working capital. In the six months ended
June 30, 2008, working capital increased $117.1 million compared with an
increase of $55.0 million in 2007. Receivables increased from
December 31, 2007 by $49.0 million, primarily as a result of increased selling
prices in both the Chlor Alkali and Winchester
businesses. Inventories increased from December 31, 2007 by $44.1
million due to a seasonal increase and higher raw material costs in
Winchester. The 2008 cash from operations was also affected by a
$27.8 million increase in cash tax payments.
Investing
Activities
Capital
spending of $71.5 million in the six months ended June 30, 2008 was $49.3
million higher than in the corresponding period in 2007. The increase was
primarily due to spending of $37.2 million for the St. Gabriel Chlor Alkali
facility conversion and expansion project. For the total year, we
expect our capital spending to be approximately $200 million to $210
million. We expect depreciation to be in the $70 million range for
full-year 2008.
On
January 31, 2007, we entered into a sale/leaseback agreement for chlorine
railcars in our Chlor Alkali Products segment that were acquired in 2005 and
2006. We received proceeds from the sale of $14.8
million.
During
the six months ended June 30, 2007, we sold $50.0 million of short-term
investments, which were purchased during the six months ended June 30,
2006.
The 2008
decrease in distributions from affiliated companies primarily reflected the
impact of SunBelt’s lower operating results and net cash advanced from
SunBelt.
Financing
Activities
In March
2008, we repaid industrial development and environmental improvement tax exempt
bonds, which matured totaling $7.7 million that were issued through the parish
of Calcasieu, LA and the town of McIntosh, AL. In January 2008, we
repaid the remaining $2.1 million of the 2.75% Convertible Senior Subordinated
Notes due 2027 acquired from Pioneer.
We issued
0.3 million and 0.6 million shares of common stock with a total value of
$6.5 million and $9.8 million to the CEOP for the six months ended June 30, 2008
and 2007, respectively. These shares were issued to satisfy the
investment in our common stock resulting from employee contributions, our
matching contributions and re-invested dividends. We issued 0.6 million shares
and less than 0.1 million shares with a total value of $10.8 million and $0.8
million representing stock options exercised for the six months ended June 30,
2008 and 2007, respectively.
The
percent of total debt to total capitalization decreased to 25.6% at June 30,
2008, from 28.1% at December 31, 2007. The decrease was due primarily to the
higher shareholders’ equity resulting from the net income for the six months
ended June 30, 2008 and a lower level of outstanding debt at June 30,
2008.
In
the first two quarters of 2008 and 2007, we paid a quarterly dividend of
$0.20 per share. In July 2008, our board of directors declared a dividend
of $0.20 per share on our common stock, payable on September 10, 2008 to
shareholders of record on August 11, 2008.
The
payment of cash dividends is subject to the discretion of our board of directors
and will be determined in light of then-current conditions, including our
earnings, our operations, our financial condition, our capital requirements, and
other factors deemed relevant by our board of directors. In the future, our
board of directors may change our dividend policy, including the frequency or
amount of any dividend, in light of then-existing conditions.
Liquidity
and Other Financing Arrangements
Our
principal sources of liquidity are from cash and cash equivalents, short-term
investments, cash flow from operations, and short-term borrowings under
our revolving credit facility and borrowings under our accounts receivable
securitization facility (Accounts Receivable Facility). We also have access to
the debt and equity markets.
Cash flow
from operations is variable as a result of both the seasonal and the cyclical
nature of our operating results, which have been affected by seasonal and
economic cycles in many of the industries we serve, such as vinyls, urethanes,
and pulp and paper. Cash flow from operations is affected by changes in ECU
selling prices caused by changes in the supply/demand balance of chlorine and
caustic, resulting in the chlor alkali business having significant leverage on
our earnings and cash flow. For example, assuming all other costs remain
constant and internal consumption remains approximately the same, a $10 per ECU
selling price change equates to an approximate $17 million annual change in our
revenues and pretax profit when we are operating at full capacity, including the
capacity acquired with Pioneer.
As of
June 30, 2008, we held corporate debt securities totaling $26.6 million of par
value with a fair value of $20.5 million. Although we continue to
receive and earn interest on these investments at the contractual rates, we
recorded an unrealized after-tax loss of $3.7 million ($6.1 million pretax) in
Accumulated Other Comprehensive Loss. We concluded no other than
temporary impairment losses occurred as the decline in market value is due to
general market conditions. The AA-rated issuer of these debt
securities has, to date, funded all redemptions at par and maintained short-term
A1/P2 credit ratings. Given our current liquidity and capital
structure, we have the intent and ability to hold these debt securities until
maturity on April 1, 2009.
In August
2007, we entered into a $35 million letter of credit facility to assume the
various Pioneer letters of credit issued principally to support the acquisition
of equipment and materials for the St. Gabriel Chlor Alkali facility conversion
and expansion project.
On
October 29, 2007, we entered into a new five-year senior revolving credit
facility of $220 million, which replaced a $160 million senior revolving credit
facility. During the first quarter of 2008, we increased our senior
revolving credit facility by $20 million to $240 million by adding an additional
lending institution. The credit facility will expire in October
2012. We have the option to expand the $240 million senior revolving
credit facility by an additional $60 million by adding a maximum of two
additional lending institutions each year. At June 30, 2008, we had
$194.8 million available under this senior revolving credit facility, because we
had issued $45.2 million of letters of credit under a $110 million
subfacility. Under the senior revolving credit facility, we may
select various floating rate borrowing options. The facility includes
various customary restrictive covenants, including restrictions related to the
ratio of debt to earnings before interest expense, taxes, depreciation and
amortization (leverage ratio) and the ratio of earnings before interest expense,
taxes, depreciation and amortization to interest expense (coverage
ratio).
At June
30, 2008, we had letters of credit of $76.5 million outstanding, of which $45.2
million were issued under our $240 million senior revolving credit
facility. These letters of credit were used to support certain
long-term debt, capital expenditure commitments, workers compensation insurance
policies, and plant closure and post-closure obligations.
On July
25, 2007, we established a 364-day Accounts Receivable Facility, renewable
annually for five years. The $100 million Accounts Receivable
Facility provides for the sale of our eligible trade receivables to third party
conduits through a wholly-owned, bankruptcy-remote, special purpose entity that
is consolidated for financial statement purposes. As of June 30,
2008, we had nothing drawn under the Accounts Receivable Facility, which expires
in July 2012. At June 30, 2008, we had $100.0 million available under
the Accounts Receivable Facility based on eligible trade
receivables. On July 25, 2008, we reduced the Accounts Receivable
Facility to $75 million.
Our
current debt structure is used to fund our business operations. As of June 30,
2008, we had borrowings of $248.7 million, of which $4.7 million was issued at
variable rates. We have entered into interest rate swaps on $101.6 million of
our underlying fixed-rate debt obligations, whereby we agree to pay variable
rates to a counterparty who, in turn, pays us fixed rates. The counterparty to
these agreements is a major financial institution. We have designated the swap
agreements as fair value hedges of the risk of changes in the value of
fixed-rate debt due to changes in interest rates for a portion of our fixed-rate
borrowings. Accordingly, the swap agreements have been recorded at their fair
market value of $6.0 million and are included in Other Assets on the
accompanying Condensed Balance Sheets, with a corresponding increase in the
carrying amount of the related debt. No gain or loss has been recorded as the
contracts met the criteria to qualify for hedge accounting treatment with no
ineffectiveness. Commitments from banks under our revolving credit facility and
Accounts Receivable Facility are additional sources of liquidity.
On
December 31, 1997, we entered into a long-term, sulfur dioxide supply
agreement with Alliance Specialty Chemicals, Inc. (Alliance), formerly known as
RFC S02, Inc. Alliance has
the obligation to deliver annually 36,000 tons of sulfur dioxide. Alliance owns
the sulfur dioxide plant, which is located at our Charleston, TN facility and is
operated by us. The price for the sulfur dioxide is fixed over the life of the
contract, and under the terms of the contract, we are obligated to make a
monthly payment of approximately $0.2 million regardless of the amount of sulfur
dioxide purchased. Commitments related to this agreement are approximately $2.4
million per year for 2008 through 2011 and $0.6 million in 2012. This supply
agreement expires in 2012.
We, and
our partner, PolyOne, own equally SunBelt. Oxy Vinyls is
required to purchase 250,000 tons of chlorine from SunBelt based on a formula
related to its market price. Prior to July 2007, PolyOne had an ownership
interest in Oxy Vinyls. We market the excess chlorine and all of the
caustic soda produced. The construction of this plant and equipment was financed
by the issuance of $195.0 million of Guaranteed Senior Secured Notes due 2017.
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.
We have
guaranteed the Series O Notes, and PolyOne 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 notes was $60.9 million at June
30, 2008. 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.
We
guarantee debt and other obligations under agreements with our affiliated
companies. In the normal course of business, we guarantee the
principal and interest under a $0.3 million line of credit of one of our
wholly-owned foreign affiliates. At June 30, 2008, December 31, 2007,
and June 30, 2007, our wholly-owned foreign affiliate had no borrowings
outstanding under this line of credit, which would be utilized for working
capital purposes.
New
Accounting Standards
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” (SFAS No. 161), an amendment to SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” (SFAS No.
133). The statement requires enhanced disclosures that expand the
disclosure requirements in SFAS No. 133 about an entity’s derivative instruments
and hedging activities. It will require more robust qualitative
disclosures and expanded quantitative disclosures. This statement
will be effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. It is expected that this statement will not have a
material effect on our financial statements.
In
December 2007, the FASB issued SFAS No. 141R. This statement requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction, establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires additional disclosures by the
acquirer. Under this statement, all business combinations will be
accounted for by applying the acquisition method. This statement will
be effective for us on January 1, 2009 and will be applied to business
combinations occurring after the effective date. Earlier application
is prohibited. We are continuing to evaluate the effect of this
statement on our financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” (SFAS No. 160). This statement
will require noncontrolling interests (previously referred to as minority
interests) to be treated as a separate component of equity, not as a liability
or other item outside of permanent equity. The statement applies to
the accounting for noncontrolling interests and transactions with noncontrolling
interest holders in consolidated financial statements. This statement
will be effective for us on January 1, 2009. Earlier application is
prohibited. This statement will be applied prospectively to all
noncontrolling interests, including any that arose before the effective date
except that comparative period information must be recast to classify
noncontrolling interests in equity, attribute net income and other comprehensive
income to noncontrolling interests, and provide additional required
disclosures. It is expected that this statement will not have a
material effect on our financial statements.
In
February 2007, the FASB issued SFAS No. 159, which permitted an entity to
measure certain financial assets and liabilities at fair value. The
statement’s objective was to improve financial reporting by allowing entities to
mitigate volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes, without having to apply
complex hedge accounting provisions. This statement became effective
for fiscal years beginning after November 15, 2007 and was to be applied
prospectively. We adopted the provisions of SFAS No. 159 on January
1, 2008. As we did not elect to measure existing assets and
liabilities at fair value, the adoption of this statement did not have an effect
on our financial statements.
In
September 2006, the FASB issued SFAS No. 157. This statement did not
require any new fair value measurements, but rather, it provided enhanced
guidance to other pronouncements that require or permit assets or liabilities to
be measured at fair value. The changes to current practice resulting
from the application of this statement related to the definition of fair value,
the methods used to estimate fair value, and the requirement for expanded
disclosures about estimates of fair value. This statement became
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The effective date for this
statement for all nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis has been delayed by one year. Nonfinancial
assets and nonfinancial liabilities that could be impacted by this deferral
include assets and liabilities initially measured at fair value in a business
combination, and intangible assets and goodwill tested annually for
impairment. We adopted the provisions of SFAS No. 157 related to
financial assets and financial liabilities on January 1,
2008. The partial adoption of this statement did not have a material
impact on our financial statements. It is expected that the remaining
provisions of this statement will not have a material effect on our financial
statements.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
We are
exposed to market risk in the normal course of our business operations due to
our purchases of certain commodities, our ongoing investing and financing
activities, and our operations that use foreign currencies. The risk of loss can
be assessed from the perspective of adverse changes in fair values, cash flows,
and future earnings. We have established policies and procedures governing our
management of market risks and the uses of financial instruments to manage
exposure to such risks.
Energy
costs, including electricity used in our Chlor Alkali Products segment, and
certain raw materials and energy costs, namely copper, lead, zinc, electricity,
and natural gas used primarily in our Winchester segment, are subject to price
volatility. Depending on market conditions, we may enter into futures contracts
and put and call option contracts in order to reduce the impact of commodity
price fluctuations. As of June 30, 2008, we maintained open positions on futures
contracts totaling $80.9 million ($66.4 million at December 31, 2007 and
$40.2 million at June 30, 2007). Assuming a hypothetical 10% increase in
commodity prices which are currently hedged, we would experience a $8.1 million
($6.6 million at December 31, 2007 and $4.0 million at June 30, 2007)
increase in our cost of inventory purchased, which would be partially offset by
a corresponding increase in the value of related hedging
instruments.
We are
exposed to changes in interest rates primarily as a result of our investing and
financing activities. Investing activity is not material to our consolidated
financial position, results of operations, or cash flows. Our current
debt structure is used to fund business operations and commitments from banks
under our revolving credit facility and our Accounts Receivable Facility are
sources of liquidity. As of June 30, 2008, December 31, 2007, and June
30, 2007, we had long-term borrowings of $248.7 million, $259.0 million, and
$250.8 million, respectively, of which $4.7 million at June 30, 2008 and
December 31, 2007 and $2.9 million at June 30, 2007, were issued at variable
rates. As a result of our fixed-rate financings, we entered into floating
interest rate swaps in order to manage interest expense and floating interest
rate exposure to optimal levels. We have entered into $101.6 million of such
swaps, whereby we agree to pay variable rates to a counterparty who, in turn,
pays us fixed rates. In all cases, the underlying index for the variable rates
is the six-month London InterBank Offered Rate (LIBOR). Accordingly, payments
are settled every six months and the terms of the swaps are the same as the
underlying debt instruments.
Assuming
no changes in the $106.3 million of variable-rate debt levels from December 31,
2007, we estimate that a hypothetical change of 100-basis points in the LIBOR
interest rates from 2007 would impact interest expense by $1.1 million on an
annualized pretax basis.
The
following table reflects the swap activity related to certain debt obligations
as of June 30, 2008:
Underlying
Debt Instrument
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Swap
Amount
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Date of Swap
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June
30,
2008
Floating Rate
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($ in millions)
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Industrial
development and environmental improvement obligations at fixed interest
rates of 6.625 % to 6.75%, due 2008-2017
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(a) Actual
rate is set in arrears. We project the rate will fall within the range
shown.
These
interest rate swaps reduced interest expense by $0.9 million and $0.3 million
for the six months ended June 30, 2008 and 2007, respectively.
If the
actual change in interest rates or commodities pricing is substantially
different than expected, the net impact of interest rate risk or commodity risk
on our cash flow may be materially different than that disclosed
above.
We do not
enter into any derivative financial instruments for speculative
purposes.
Item 4.
Controls and Procedures
Our chief
executive officer and our chief financial officer evaluated the effectiveness of
our disclosure controls and procedures as of June 30, 2008. Based on
that evaluation, our chief executive officer and chief financial officer have
concluded that, as of such date, our disclosure controls and procedures were
effective to ensure that information Olin is required to disclose in the reports
that it files or submits with the SEC under the Securities Exchange Act of 1934
is recorded, processed, summarized, and reported within the time periods
specified in the Commission’s rules and forms, and to ensure that information we
are required to disclose in such reports is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended June 30, 2008, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
Item
4T. Controls and Procedures
Not
applicable.
Cautionary
Statement Regarding Forward-Looking Statements
This
quarterly report on Form 10-Q includes forward-looking statements. These
statements relate to analyses and other information that are based on
management’s beliefs, certain assumptions made by management, forecasts of
future results, and current expectations, estimates and projections about the
markets and economy in which we and our various segments operate. The statements
contained in this quarterly report on Form 10-Q that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties.
We have
used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,”
“plan,” “estimate,” “project,” and variations of such words and similar
expressions in this quarterly report to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions, which are difficult to
predict and many of which are beyond our control.
Therefore,
actual outcomes and results may differ materially from those matters expressed
or implied in such forward looking-statements. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of future
events, new information or otherwise.
The
risks, uncertainties and assumptions involved in our forward-looking statements
many of which are discussed in more detail in our filings with the SEC,
including our Annual Report on Form 10-K for the year ended December 31,
2007, include, but are not limited to the following:
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sensitivity
to economic, business and market conditions in the United States and
overseas, including economic instability or a downturn in the sectors
served by us, such as ammunition, housing, vinyls and pulp and paper, and
the migration by United States customers to low-cost foreign
locations;
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•
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the
cyclical nature of our operating results, particularly declines in average
selling prices in the chlor alkali industry and the supply/demand balance
for our products, including the impact of excess industry capacity or an
imbalance in demand for our chlor alkali
products;
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economic
and industry downturns that result in diminished product demand and excess
manufacturing capacity in any of our segments and that, in many cases,
result in lower selling prices and
profits;
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costs
and other expenditures in excess of those projected for environmental
investigation and remediation or other legal
proceedings;
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unexpected
litigation outcomes;
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the
effects of any declines in global equity markets on asset values and any
declines in interest rates used to value the liabilities in our pension
plan;
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•
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the
occurrence of unexpected manufacturing interruptions and outages,
including those occurring as a result of labor disruptions and production
hazards;
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•
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new
regulations or public policy changes regarding the transportation of
hazardous chemicals and the security of chemical manufacturing
facilities;
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higher-than-expected
raw material, energy, transportation, and/or logistics costs;
and
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•
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an
increase in our indebtedness or higher-than-expected interest rates,
affecting our ability to generate sufficient cash flow for debt
service.
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You
should consider all of our forward-looking statements in light of these factors.
In addition, other risks and uncertainties not presently known to us or that we
consider immaterial could affect the accuracy of our forward-looking
statements.
Part II -
Other Information
Item 1.
Legal Proceedings.
Not
Applicable.
Item 1A.
Risk Factors.
Not
Applicable.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not
applicable.
(b) Not
applicable.
(c)
Issuer
Purchases of Equity Securities
Period
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Total Number of
Shares (or Units)
Purchased(1)
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Average Price
Paid per Share
(or
Unit)
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Total Number of
Shares (or Units)
Purchased as
Part of
Publicly
Announced
Plans
or Programs
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Maximum
Number of
Shares
(or Units) that
May Yet Be
Purchased
Under the Plans or
Programs
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(1)
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On
April 30, 1998, the issuer announced a share repurchase program
approved by the board of directors for the purchase of up to
5 million shares of common stock. Through June 30, 2008, 4,845,924
shares had been repurchased, and 154,076 shares remain available for
purchase under that program, which has no termination
date.
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Item 3.
Defaults Upon Senior Securities.
Not
Applicable.
Item 4.
Submission of Matters to a Vote of Security Holders.
The
Company held its Annual Meeting of Shareholders on April 24, 2008. Of
the 74,610,462 shares of Common Stock entitled to vote at such meeting,
64,968,421 shares were present for purposes of a quorum. At the
meeting, shareholders elected to the Board of Directors Richard A. Rompala and
Joseph D. Rupp as Class II directors with terms expiring in 2011. The
terms of office of the following directors continued after the Annual Meeting of
Shareholders: Donald W. Bogus, C. Robert Bunch, Randall W. Larrimore,
John M. B. O’Connor, Anthony W. Ruggiero, and Philip J. Schulz. Mr.
Ruggiero resigned effective June 30, 2008. Votes cast for and votes
withheld in the election of Directors were as follows:
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Votes For
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Votes Withheld
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Richard
M. Rompala
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62,484,921
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2,483,500
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Joseph
D. Rupp
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62,380,789
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2,587,632
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There
were no abstentions or broker nonvotes.
The
shareholders ratified the appointment of KPMG LLP as the independent registered
public accounting firm for the Corporation for 2008. Voting for the
resolution ratifying the appointment were 63,707,092 shares. Voting
against were 987,575 shares. Abstaining were 273,754
shares. There were no broker nonvotes.
Item 5.
Exhibits.
12
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Computation
of Ratio of Earnings to Fixed Charges (Unaudited)
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31.1
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Section
302 Certification Statement of Chief Executive Officer
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31.2
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Section
302 Certification Statement of Chief Financial Officer
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32
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Section
906 Certification Statement of Chief Executive Officer and Chief Financial
Officer
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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OLIN
CORPORATION
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(Registrant)
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By:
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/s/
John E. Fischer
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Vice President and Chief Financial Officer
(Authorized
Officer)
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Date:
July 28, 2008
EXHIBIT
INDEX
Exhibit No.
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Description
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12
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Computation
of Ratio of Earnings to Fixed Charges (Unaudited)
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31.1
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Section
302 Certification Statement of Chief Executive Officer
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31.2
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Section
302 Certification Statement of Chief Financial Officer
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32
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Section
906 Certification Statement of Chief Executive Officer and Chief Financial
Officer
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