bodyform10q3rdqrt2007.htm


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 
 
FORM 10-Q
 
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2007
 
OR
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
 
Commission file number 1-1070

Olin Corporation
(Exact name of registrant as specified in its charter)

 
 
Virginia
13-1872319
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
 
190 Carondelet Plaza, Suite 1530, Clayton, MO
63105-3443
(Address of principal executive offices)
(Zip Code)
 
(314) 480-1400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act).
 
Large Accelerated Filer  x    Accelerated Filer  ¨    Non-accelerated Filer  ¨
 
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x
 
As of September 30, 2007, 74,193,331 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)
 
 
 
September 30,
2007
 
 
December 31,
2006
 
 
September 30,
2006
 
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
        Cash and Cash Equivalents
 
$
42.1
 
 
$
199.8
 
 
$
142.9
 
Short-Term Investments
 
 
26.6
 
 
 
76.6
 
 
 
76.6
 
        Receivables, Net
 
 
234.2
 
 
 
135.4
 
 
 
156.3
 
Inventories
 
 
114.0
 
 
 
82.7
 
 
 
90.6
 
        Current Deferred Income Taxes
 
 
18.9
 
 
 
8.9
 
 
 
 
Other Current Assets
 
 
31.2
 
 
 
19.3
 
 
 
13.3
 
        Current Assets of Discontinued Operations
 
 
385.7
 
 
 
402.2
 
 
 
433.5
 
Total Current Assets
 
 
852.7
 
 
 
924.9
 
 
 
913.2
 
Property, Plant and Equipment (less Accumulated Depreciation of $903.1, $874.6 and $871.3)
 
 
481.5
 
 
 
253.5
 
 
 
236.3
 
Prepaid Pension Costs
 
 
 
 
 
 
 
 
328.3
 
Deferred Income Taxes
 
 
101.4
 
 
 
117.3
 
 
 
126.1
 
Other Assets
 
 
26.1
 
 
 
12.3
 
 
 
13.6
 
Goodwill
 
 
299.1
 
 
 
 
 
 
 
Assets of Discontinued Operations
 
 
195.9
 
 
 
334.2
 
 
 
338.9
 
Total Assets
 
$
1,956.7
 
 
$
1,642.2
 
 
$
1,956.4
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current Installments of Long-Term Debt
 
$
70.6
 
 
$
1.7
 
 
$
1.7
 
        Accounts Payable
 
 
113.4
 
 
 
87.9
 
 
 
108.8
 
Income Taxes Payable
 
 
24.1
 
 
 
4.8
 
 
 
12.0
 
        Accrued Liabilities
 
 
222.0
 
 
 
167.4
 
 
 
144.5
 
Current Liabilities of Discontinued Operations
 
 
179.9
 
 
 
151.7
 
 
 
147.2
 
           Total Current Liabilities
 
 
610.0
 
 
 
413.5
 
 
 
414.2
 
Long-Term Debt
 
 
360.1
 
 
 
252.2
 
 
 
252.5
 
Accrued Pension Liability
 
 
141.6
 
 
 
234.4
 
 
 
576.7
 
Other Liabilities
 
 
314.4
 
 
 
189.7
 
 
 
160.5
 
Liabilities of Discontinued Operations
 
 
9.0
 
 
 
9.1
 
 
 
9.1
 
Total Liabilities
 
 
1,435.1
 
 
 
1,098.9
 
 
 
1,413.0
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 
        Common Stock, Par Value $1 Per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Authorized, 120.0 Shares; Issued and Outstanding 74.2, 73.3 and 72.9 Shares
 
 
74.2
 
 
 
73.3
 
 
 
72.9
 
        Additional Paid-In Capital
 
 
736.4
 
 
 
721.6
 
 
 
713.7
 
Accumulated Other Comprehensive Loss
 
 
(287.0
)
 
 
(318.5
)
 
 
(297.9
)
       (Accumulated Deficit) Retained Earnings
 
 
(2.0
)
 
 
66.9
 
 
 
54.7
 
Total Shareholders’ Equity
 
 
521.6
 
 
 
543.3
 
 
 
543.4
 
Total Liabilities and Shareholders’ Equity
 
$
1,956.7
 
 
$
1,642.2
 
 
$
1,956.4
 
 
 The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements.


2



OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Income
(In millions, except per share data)
(Unaudited)
  
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Sales
 
$
350.3
 
 
$
273.7
 
 
$
872.0
 
 
$
792.6
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Cost of Goods Sold
 
 
282.5
 
 
 
213.0
 
 
 
702.4
 
 
 
598.0
 
Selling and Administration
 
 
30.3
 
 
 
31.4
 
 
 
92.7
 
 
 
95.0
 
Other Operating Income
 
 
0.3
 
 
 
 
 
 
0.5
 
 
 
0.7
 
Operating Income
 
 
37.8
 
 
 
29.3
 
 
 
77.4
 
 
 
100.3
 
Earnings of Non-consolidated Affiliates
 
 
14.1
 
 
 
12.3
 
 
 
34.4
 
 
 
37.1
 
Interest Expense
 
 
6.0
 
 
 
5.1
 
 
 
15.9
 
 
 
15.3
 
Interest Income
 
 
2.7
 
 
 
2.5
 
 
 
9.2
 
 
 
8.4
 
Other Income
 
 
 
 
 
0.3
 
 
 
0.2
 
 
 
1.3
 
Income from Continuing Operations before Taxes
 
 
48.6
 
 
 
39.3
 
 
 
105.3
 
 
 
131.8
 
Income Tax Provision (Benefit)
 
 
15.9
 
 
 
(11.4
)
 
 
34.1
 
 
 
23.7
 
Income from Continuing Operations
 
 
32.7
 
 
 
50.7
 
 
 
71.2
 
 
 
108.1
 
Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Income from Discontinued Operations, Net
 
 
9.5
 
 
 
5.5
 
 
 
29.7
 
 
 
14.8
 
Loss on Disposal of Discontinued Operations, Net
 
 
(125.4
)
 
 
 
 
 
(125.4
)
 
 
 
Net (Loss) Income
 
$
(83.2
)
 
$
56.2
 
 
$
(24.5
)
 
$
122.9
 
Net (Loss) Income per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Basic (Loss) Income per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from Continuing Operations
 
$
0.44
 
 
$
0.70
 
 
$
0.96
 
 
$
1.49
 
            Income from Discontinued Operations, Net
 
 
0.13
 
 
 
0.07
 
 
 
0.41
 
 
 
0.21
 
Loss on Disposal of Discontinued Operations, Net
 
 
(1.69
)
 
 
 
 
 
(1.70
)
 
 
 
        Net (Loss) Income
 
$
(1.12
)
 
$
0.77
 
 
$
(0.33
)
 
$
1.70
 
Diluted (Loss) Income per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Income from Continuing Operations
 
$
0.44
 
 
$
0.70
 
 
$
0.96
 
 
$
1.49
 
Income from Discontinued Operations, Net
 
 
0.12
 
 
 
0.07
 
 
 
0.40
 
 
 
0.20
 
            Loss on Disposal of Discontinued Operations, Net
 
 
(1.68
)
 
 
 
 
 
(1.69
)
 
 
 
Net (Loss) Income
 
$
(1.12
)
 
$
0.77
 
 
$
(0.33
)
 
$
1.69
 
Dividends per Common Share
 
$
0.20
 
 
$
0.20
 
 
$
0.60
 
 
$
0.60
 
Average Common Shares Outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Basic
 
 
74.1
 
 
 
72.7
 
 
 
73.8
 
 
 
72.4
 
Diluted
 
 
74.6
 
 
 
72.8
 
 
 
74.2
 
 
 
72.6
 
 
 The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements.


3





OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
Issued
 
 
Par
Value
 
 
Additional
Paid-In
Capital
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
(Accumulated
Deficit)
 
 
Total
Shareholders’
Equity
 
Balance at January 1, 2006
 
 
71.9
 
 
$
71.9
 
 
$
683.8
 
 
$
(304.4
)
 
$
(24.7
)
 
$
426.6
 
Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122.9
 
 
 
122.9
 
Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
0.3
 
 
 
 
 
 
0.3
 
        Net Unrealized Gain
 
 
 
 
 
 
 
 
 
 
 
6.2
 
 
 
 
 
 
6.2
 
Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
129.4
 
Dividends Paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock ($0.60 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(43.5
)
 
 
(43.5
)
Common Stock Issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Options Exercised
 
 
0.2
 
 
 
0.2
 
 
 
4.2
 
 
 
 
 
 
 
 
 
4.4
 
        Employee Benefit Plans
 
 
0.7
 
 
 
0.7
 
 
 
12.2
 
 
 
 
 
 
 
 
 
12.9
 
Other Transactions
 
 
0.1
 
 
 
0.1
 
 
 
0.9
 
 
 
 
 
 
 
 
 
1.0
 
Stock-Based Compensation
 
 
 
 
 
 
 
 
12.6
 
 
 
 
 
 
 
 
 
12.6
 
Balance at September 30, 2006
 
 
72.9
 
 
$
72.9
 
 
$
713.7
 
 
$
(297.9
)
 
$
54.7
 
 
$
543.4
 
Balance at January 1, 2007
 
 
73.3
 
 
$
73.3
 
 
$
721.6
 
 
$
(318.5
)
 
$
66.9
 
 
$
543.3
 
Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Net Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(24.5
)
 
 
(24.5
)
Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
0.8
 
 
 
 
 
 
0.8
 
        Net Unrealized Gain
 
 
 
 
 
 
 
 
 
 
 
8.1
 
 
 
 
 
 
8.1
 
Pension Liability Adjustment, Net
 
 
 
 
 
 
 
 
 
 
 
22.6
 
 
 
 
 
 
22.6
 
        Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.0
 
Dividends Paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Common Stock ($0.60 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(44.3
)
 
 
(44.3
)
Common Stock Issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Stock Options Exercised
 
 
0.1
 
 
 
0.1
 
 
 
1.4
 
 
 
 
 
 
 
 
 
1.5
 
Employee Benefit Plans
 
 
0.7
 
 
 
0.7
 
 
 
12.2
 
 
 
 
 
 
 
 
 
12.9
 
        Other Transactions
 
 
0.1
 
 
 
0.1
 
 
 
1.8
 
 
 
 
 
 
 
 
 
1.9
 
Stock-Based Compensation
 
 
 
 
 
 
 
 
(0.6
)
 
 
 
 
 
 
 
 
(0.6
)
Cumulative Effect of Accounting Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.1
)
 
 
(0.1
)
Balance at September 30, 2007
 
 
74.2
 
 
$
74.2
 
 
$
736.4
 
 
$
(287.0
)
 
$
(2.0
)
 
$
521.6
 
 
 The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements.


4


 

OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
(Unaudited)
 
 
 
Nine Months Ended
September 30,
 
 
 
2007
 
 
2006
 
Operating Activities
 
 
 
 
 
 
Net (Loss) Income
 
$
(24.5
)
 
$
122.9
 
Loss (Income) from Discontinued Operations, Net
 
 
95.7
 
 
 
(14.8
)
Adjustments to Reconcile Net (Loss) Income to Net Cash and Cash Equivalents Provided by (Used for) Operating Activities:
 
 
 
 
 
 
 
 
        Earnings of Non-consolidated Affiliates
 
 
(34.4
)
 
 
(37.1
)
Other Operating Income – Gain on Disposition of Real Estate
 
 
 
 
 
(0.7
)
        Stock-Based Compensation
 
 
4.4
 
 
 
4.3
 
Depreciation and Amortization
 
 
31.2
 
 
 
28.6
 
        Deferred Income Taxes
 
 
29.5
 
 
 
(43.0
)
Qualified Pension Plan Contributions
 
 
(100.0
)
 
 
(80.0
)
        Qualified Pension Plan Expense
 
 
18.0
 
 
 
26.5
 
Common Stock Issued under Employee Benefit Plans
 
 
2.6
 
 
 
2.6
 
        Change in:
 
 
 
 
 
 
 
 
Receivables
 
 
(39.6
)
 
 
(25.9
)
            Inventories
 
 
(5.8
)
 
 
(10.6
)
Other Current Assets
 
 
(9.4
)
 
 
(3.8
)
            Accounts Payable and Accrued Liabilities
 
 
(6.1
)
 
 
43.1
 
Income Taxes Payable
 
 
9.2
 
 
 
(11.1
)
            Other Assets
 
 
4.8
 
 
 
9.9
 
Other Noncurrent Liabilities
 
 
26.7
 
 
 
(17.1
)
       Other Operating Activities
 
 
6.4
 
 
 
2.2
 
Cash Provided by (Used for) Continuing Operations
 
 
8.7
 
 
 
(4.0
)
            Discontinued Operations:
 
 
 
 
 
 
 
 
Income from Discontinued Operations, Net
 
 
29.7
 
 
 
14.8
 
               Operating Activities from Discontinued Operations
 
 
70.8
 
 
 
(35.9
)
Cash Provided by (Used for) Discontinued Operations
 
 
100.5
 
 
 
(21.1
)
           Net Operating Activities
 
 
109.2
 
 
 
(25.1
)
Investing Activities
 
 
 
 
 
 
 
 
Capital Expenditures
 
 
(40.1
)
 
 
(35.6
)
Business Acquired through Purchase Transaction
 
 
(426.1
)
 
 
 
Cash Acquired through Business Acquisition
 
 
126.4
 
 
 
 
Proceeds from Disposition of Property, Plant and Equipment
 
 
0.3
 
 
 
1.2
 
Purchase of Short-Term Investments
 
 
 
 
 
(76.6
)
Proceeds from Sale of Short-Term Investments
 
 
50.0
 
 
 
 
Proceeds from Sale/Leaseback of Equipment
 
 
14.8
 
 
 
 
Distributions from Affiliated Companies, Net
 
 
24.5
 
 
 
36.2
 
Other Investing Activities
 
 
0.7
 
 
 
(0.7
)
Cash Used for Continuing Operations
 
 
(249.5
)
 
 
(75.5
)
        Investing Activities from Discontinued Operations
 
 
(12.2
)
 
 
(12.2
)
Net Investing Activities
 
 
(261.7
)
 
 
(87.7
)
Financing Activities
 
 
 
 
 
 
 
 
Long-Term Debt:
 
 
 
 
 
 
 
 
        Borrowings
 
 
30.0
 
 
 
 
Repayments
 
 
(1.7
)
 
 
(1.1
)
Issuance of Common Stock
 
 
10.3
 
 
 
10.3
 
Stock Options Exercised
 
 
1.5
 
 
 
4.4
 
Excess Tax Benefits from Stock Options Exercised
 
 
0.6
 
 
 
0.7
 
Dividends Paid
 
 
(44.3
)
 
 
(43.5
)
Deferred Debt Issuance Costs
 
 
(1.6
)
 
 
(18.8
)
Net Financing Activities
 
 
(5.2
)
 
 
(48.0
)
            Net Decrease in Cash and Cash Equivalents
 
 
(157.7
)
 
 
(160.8
)
Cash and Cash Equivalents, Beginning of Period
 
 
199.8
 
 
 
303.7
 
Cash and Cash Equivalents, End of Period
 
$
42.1
 
 
$
142.9
 
Cash Paid for Interest and Income Taxes:
 
 
 
 
 
 
 
 
            Interest
 
$
9.4
 
 
$
11.9
 
Income Taxes, Net of Refunds
 
$
17.9
 
 
$
79.4
 

 The accompanying Notes to Condensed Financial Statements are an integral part of the condensed financial statements.
 

5


 
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Financial Statements
(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 two Canadian manufacturing facilities, 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 our Metals segment to a subsidiary of Global Brass and Copper Holdings, Inc., an affiliate of KPS Capital Partners, LP.  Accordingly, for all periods presented, these 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 are 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, 2006. Certain reclassifications were made to prior year amounts to conform to the 2007 presentation, primarily related to reporting our Metals segment as discontinued operations.
 
2.
Allowance for doubtful accounts was $3.3 million at September 30, 2007, $2.7 million at December 31, 2006, and $3.4 million at September 30, 2006. At September 30, 2007, allowance for doubtful accounts included $1.4 million from the Pioneer acquisition.  We are continuing to evaluate the fair value of Pioneer’s allowance for doubtful accounts and would expect that an adjustment to the initial allocation of the purchase price will be required when our assessment is completed.  Provisions credited to operations were $0.6 million and $0.5 million for the three months ended September 30, 2007 and 2006, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2007 and 2006, respectively. Bad debt write-offs, net of recoveries, were $0.3 million and $(0.1) million for the nine months ended September 30, 2007 and 2006, respectively.
 
3.
Inventory consists of the following:
 
 
 
September 30,
2007
 
 
December 31,
2006
 
 
September 30,
2006
 
    Supplies
 
$
29.2
 
 
$
18.4
 
 
$
17.9
 
Raw materials
 
 
40.2
 
 
 
29.8
 
 
 
35.0
 
    Work in process
 
 
22.9
 
 
 
18.3
 
 
 
19.8
 
Finished goods
 
 
84.2
 
 
 
65.1
 
 
 
68.2
 
 
 
 
176.5
 
 
 
131.6
 
 
 
140.9
 
LIFO reserve
 
 
(62.5
)
 
 
(48.9
)
 
 
(50.3
)
    Inventory, net
 
$
114.0
 
 
$
82.7
 
 
$
90.6
 
 
6

At September 30, 2007, inventories included $27.0 million from the Pioneer acquisition.  We are continuing to evaluate the fair value of Pioneer’s inventories and would expect that an adjustment to the initial allocation of the purchase price will be required when our assessment is completed.  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 include raw materials, direct labor, and manufacturing overhead. Inventories under the LIFO method are based on annual estimates of quantities and costs as of year-end; therefore, the condensed financial statements at September 30, 2007, reflect certain estimates relating to inventory quantities and costs at December 31, 2007. If the first-in, first out (FIFO) method of inventory accounting had been used, inventories would have been approximately $62.5 million, $48.9 million and $50.3 million higher than reported at September 30, 2007, December 31, 2006, and September 30, 2006, respectively.
 
4.
Basic and diluted income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the dilutive effect of stock-based compensation.
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Computation of Basic (Loss) Income per Share
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
32.7
 
 
$
50.7
 
 
$
71.2
 
 
$
108.1
 
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net
 
 
9.5
 
 
 
5.5
 
 
 
29.7
 
 
 
14.8
 
        Loss on disposal of discontinued operations, net
 
 
(125.4
)
 
 
 
 
 
(125.4
)
 
 
 
Net (loss) income
 
$
(83.2
)
 
$
56.2
 
 
$
(24.5
)
 
$
122.9
 
Basic shares
 
 
74.1
 
 
 
72.7
 
 
 
73.8
 
 
 
72.4
 
Basic (loss) income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Income from continuing operations
 
$
0.44
 
 
$
0.70
 
 
$
0.96
 
 
$
1.49
 
Income from discontinued operations, net
 
 
0.13
 
 
 
0.07
 
 
 
0.41
 
 
 
0.21
 
        Loss on disposal of discontinued operations, net
 
 
(1.69
)
 
 
 
 
 
(1.70
)
 
 
 
Net (loss) income
 
$
(1.12
)
 
$
0.77
 
 
$
(0.33
)
 
$
1.70
 
Computation of Diluted (Loss) Income per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic shares
 
 
74.1
 
 
 
72.7
 
 
 
73.8
 
 
 
72.4
 
Stock-based compensation
 
 
0.5
 
 
 
0.1
 
 
 
0.4
 
 
 
0.2
 
Diluted shares
 
 
74.6
 
 
 
72.8
 
 
 
74.2
 
 
 
72.6
 
Diluted (loss) income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Income from continuing operations
 
$
0.44
 
 
$
0.70
 
 
$
0.96
 
 
$
1.49
 
Income from discontinued operations, net
 
 
0.12
 
 
 
0.07
 
 
 
0.40
 
 
 
0.20
 
        Loss on disposal of discontinued operations, net
 
 
(1.68
)
 
 
 
 
 
(1.69
)
 
 
 
Net (loss) income
 
$
(1.12
)
 
$
0.77
 
 
$
(0.33
)
 
$
1.69
 
 
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 $16.2 million and $6.2 million for the three months ended September 30, 2007 and 2006, respectively, and $29.3 million and $16.3 million for the nine months ended September 30, 2007 and 2006, respectively.  The three and nine months ended September 30, 2007 provision includes a $7.8 million increase in costs at a former waste disposal site resulting from revised remediation estimates resulting from negotiations with a government agency.  Charges to income for investigatory and remedial activities for the three and nine months ended September 30, 2006 included $0.9 million in recoveries from third parties of costs incurred and expensed in prior periods.  Charges to income for investigatory and remedial efforts were material to operating results in 2006 and have been material to operating results in 2007. The consolidated balance sheets include reserves for future environmental expenditures to investigate and remediate known sites amounting to $137.0 million at September 30, 2007, $90.8 million at December 31, 2006, and $98.7 million at September 30, 2006, of which $102.0 million, $55.8 million, and $63.7 million were classified as other noncurrent liabilities, respectively.  The 2007 environmental liabilities include $36.5 million from the Pioneer acquisition.  We are continuing to evaluate the fair value of Pioneer’s environmental liabilities and would expect that an adjustment to the initial allocation of the purchase price will be required when our assessment is completed.
 
7

Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible parties (PRPs), our ability to obtain contributions from other parties, and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial position or results of operations.
 
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 nine-month periods ended September 30, 2007 and 2006. At September 30, 2007, 154,076 shares remain authorized to be purchased.
 
7.
We issued 0.1 million and 0.2 million shares with a total value of $1.5 million and $4.4 million, representing stock options exercised for the nine months ended September 30, 2007 and 2006, respectively. In addition, we issued 0.7 million shares with a total value of $12.9 million for both the nine months ended September 30, 2007 and 2006 in connection with our Contributing Employee Ownership Plan (CEOP).
 
8.
Other operating income consists of miscellaneous operating income items which are related to our business activities and gains (losses) on the disposition of property, plant, and equipment.  Other operating income of $0.3 million and $0.5 million for the three and nine months ended September 30, 2007, respectively, represents the impact of the gain realized on an intangible asset sale in Chlor Alkali Products, which will be recognized ratably through March 2012.  Other operating income for the nine months ended September 30, 2006 included a $0.7 million gain on the disposition of a former manufacturing plant.
 
9.
We define segment results as income (loss) before interest expense, interest income, other income, and income taxes, and include the operating results of non-consolidated affiliates.

 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Sales:
 
 
 
 
 
 
 
 
 
 
 
 
Chlor Alkali Products
 
$
221.3
 
 
$
169.1
 
 
$
543.0
 
 
$
512.3
 
        Winchester
 
 
129.0
 
 
 
104.6
 
 
 
329.0
 
 
 
280.3
 
Total sales
 
$
350.3
 
 
$
273.7
 
 
$
872.0
 
 
$
792.6
 
Income from continuing operations before taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chlor Alkali Products(1)
 
$
70.7
 
 
$
63.0
 
 
$
169.2
 
 
$
204.1
 
        Winchester
 
 
10.0
 
 
 
5.9
 
 
 
23.7
 
 
 
13.1
 
Corporate/Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Pension expense(2)
 
 
(0.6
)
 
 
(3.7
)
 
 
(4.1
)
 
 
(11.6
)
Environmental provision
 
 
(16.2
)
 
 
(6.2
)
 
 
(29.3
)
 
 
(16.3
)
            Other corporate and unallocated costs
 
 
(12.3
)
 
 
(17.4
)
 
 
(48.2
)
 
 
(52.6
)
Other operating income
 
 
0.3
 
 
 
 
 
 
0.5
 
 
 
0.7
 
        Interest expense
 
 
(6.0
)
 
 
(5.1
)
 
 
(15.9
)
 
 
(15.3
)
Interest income
 
 
2.7
 
 
 
2.5
 
 
 
9.2
 
 
 
8.4
 
        Other income
 
 
 
 
 
0.3
 
 
 
0.2
 
 
 
1.3
 
Income from continuing operations before taxes
 
$