final10qq32008.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, 2008
 
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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
 
As of September 30, 2008, 76,883,897 shares of the registrant’s common stock were outstanding.
 

 


 
 
1

 
 


Part I — Financial Information
 
Item 1. Financial Statements.
 
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions, except per share data)
(Unaudited)
 
   
September 30,
2008
   
December 31,
2007
   
September 30,
2007
 
ASSETS
                 
Current Assets:
                 
Cash and Cash Equivalents
 
$
  200.2
   
$
306.0
   
$
42.1
 
Short-Term Investments
   
     
26.6
     
26.6
 
Receivables, Net
   
  264.4
     
202.0
     
234.2
 
Inventories
   
  146.1
     
106.7
     
114.0
 
Current Deferred Income Taxes
   
  1.5
     
15.0
     
18.9
 
Other Current Assets
   
  18.4
     
14.7
     
31.2
 
Current Assets of Discontinued Operations
   
     
     
385.7
 
Total Current Assets
   
  630.6
     
671.0
     
852.7
 
Property, Plant and Equipment (less Accumulated Depreciation of $950.3, $912.6 and $903.1)
   
  592.1
     
503.6
     
481.5
 
Prepaid Pension Costs
   
  160.9
     
139.7
     
 
Deferred Income Taxes
   
  45.1
     
26.3
     
101.4
 
Other Assets
   
  66.2
     
58.9
     
26.1
 
Goodwill
   
  303.7
     
301.9
     
299.1
 
Assets of Discontinued Operations
   
     
     
195.9
 
Total Assets
 
$
  1,798.6
   
$
1,701.4
   
$
1,956.7
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current Liabilities:
                       
Current Installments of Long-Term Debt
 
$
   
$
9.8
   
$
70.6
 
Accounts Payable
   
  138.5
     
150.6
     
113.4
 
Income Taxes Payable
   
  2.1
     
3.1
     
24.1
 
Accrued Liabilities
   
  241.1
     
244.7
     
222.0
 
Current Liabilities of Discontinued Operations
   
     
     
179.9
 
Total Current Liabilities
   
  381.7
     
408.2
     
610.0
 
Long-Term Debt
   
  249.7
     
249.2
     
360.1
 
Accrued Pension Liability
   
  51.2
     
50.5
     
141.6
 
Other Liabilities
   
  334.4
     
329.8
     
314.4
 
Liabilities of Discontinued Operations
   
     
     
9.0
 
Total Liabilities
   
  1,017.0
     
1,037.7
     
1,435.1
 
Commitments and Contingencies
                       
Shareholders’ Equity:
                       
Common Stock, Par Value $1 Per Share:  Authorized, 120.0 Shares;
                       
Issued and Outstanding 76.9, 74.5 and 74.2 Shares
   
  76.9
     
74.5
     
74.2
 
Additional Paid-In Capital
   
  794.4
     
742.0
     
736.4
 
Accumulated Other Comprehensive Loss
   
  (153.5
)
   
(151.2
)
   
(287.0
)
Retained Earnings (Accumulated Deficit)
   
  63.8
     
(1.6
)
   
(2.0
)
Total Shareholders’ Equity
   
  781.6
     
663.7
     
521.6
 
Total Liabilities and Shareholders’ Equity
 
$
  1,798.6
   
$
1,701.4
   
$
1,956.7
 
 
 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,
 
   
2008
   
2007
   
2008
   
2007
 
Sales
 
$
502.9 
   
$
350.3
   
$
1,330.3 
   
$
872.0
 
Operating Expenses:
                               
Cost of Goods Sold
   
380.7 
     
281.8
     
1,042.0 
     
700.1
 
Selling and Administration
   
35.6 
     
31.0
     
104.5 
     
95.0
 
Other Operating Income
   
0.4 
     
0.3
     
1.5 
     
0.5
 
Operating Income
   
87.0 
     
37.8
     
185.3 
     
77.4
 
Earnings of Non-consolidated Affiliates
   
12.0 
     
14.1
     
31.1 
     
34.4
 
Interest Expense
   
3.3 
     
6.0
     
11.5 
     
15.9
 
Interest Income
   
1.0 
     
2.7
     
5.2 
     
9.2
 
Other (Expense) Income
   
(26.4 
)
   
     
(26.1 
)
   
0.2
 
Income from Continuing Operations before Taxes
   
70.3 
     
48.6
     
184.0 
     
105.3
 
Income Tax Provision
   
32.6 
     
15.9
     
73.5 
     
34.1
 
Income from Continuing Operations
   
37.7 
     
32.7
     
110.5 
     
71.2
 
Discontinued Operations:
                               
Income from Discontinued Operations, Net
   
     
9.5
     
     
29.7
 
Loss on Disposal of Discontinued Operations, Net
   
     
(125.4
)
   
     
(125.4
)
Net Income (Loss)
 
$
37.7 
   
$
(83.2
)
 
$
110.5 
   
$
(24.5
)
Net Income (Loss) per Common Share:
                               
Basic Income (Loss) per Common Share:
                               
Income from Continuing Operations
 
$
0.49 
   
$
0.44
   
$
1.47 
   
$
0.96
 
Income from Discontinued Operations, Net
   
     
0.13
     
     
0.41
 
Loss on Disposal of Discontinued Operations, Net
   
     
(1.69
)
   
 
     
(1.70
)
Net Income (Loss)
 
$
0.49 
   
$
(1.12
)
 
$
1.47 
   
$
(0.33
)
Diluted Income (Loss) per Common Share:
                               
Income from Continuing Operations
 
$
0.49 
   
$
0.44
   
$
1.46 
   
$
0.96
 
Income from Discontinued Operations, Net
   
     
0.12
     
     
0.40
 
Loss on Disposal of Discontinued Operations, Net
   
     
(1.68
)
   
     
(1.69
)
Net Income (Loss)
 
$
0.49
   
$
(1.12
)
 
$
1.46 
   
$
(0.33
)
Dividends per Common Share
 
$
0.20
   
$
0.20
   
$
0.60
   
$
0.60
 
Average Common Shares Outstanding:
                               
Basic
   
76.3 
     
74.1
     
75.4 
     
73.8
 
Diluted
   
76.7 
     
74.6
     
75.7 
     
74.2
 
 
 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, 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
 
Amortization of Prior Service Costs and Actuarial Losses, 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
 
Balance at January 1, 2008
   
74.5
   
$
74.5
   
$
742.0
   
$
(151.2
)
 
$
(1.6
)
 
$
663.7
 
Comprehensive Income:
                                               
Net Income
   
     
     
     
     
110.5 
     
110.5 
 
Translation Adjustment
   
     
     
     
(0.6 
)
   
     
(0.6 
)
Net Unrealized Loss
   
     
     
     
(8.8 
)
   
     
(8.8 
)
Amortization of Prior Service Costs and Actuarial Losses, Net
   
     
     
     
7.1 
     
     
7.1 
 
Comprehensive Income
                                           
108.2 
 
Dividends Paid:
                                               
Common Stock ($0.60 per share)
   
     
     
     
     
(45.1
)
   
(45.1 
)
Common Stock Issued for:
                                               
Stock Options Exercised
   
1.8
     
1.8
     
36.3 
     
     
     
38.1 
 
Employee Benefit Plans
   
0.5
     
0.5
     
10.8 
     
     
     
11.3 
 
Other Transactions
   
0.1
     
0.1
     
2.0 
     
     
     
2.1 
 
Stock-Based Compensation
   
     
     
3.3 
     
     
     
3.3 
 
Balance at September 30, 2008
   
76.9 
   
$
76.9 
   
$
794.4 
   
$
(153.5 
)
 
$
63.8 
   
$
781.6 
 

 
 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,
 
   
2008
   
2007
 
Operating Activities
           
Net Income (Loss)
 
$
110.5
   
$
(24.5
)
Loss from Discontinued Operations, Net
   
     
95.7
 
Adjustments to Reconcile Net Income (Loss) to Net Cash and Cash Equivalents (Used for) Provided by Operating Activities:
               
Earnings of Non-consolidated Affiliates
   
(31.1
)
   
(34.4
)
Stock-Based Compensation
   
4.9
     
4.4
 
Depreciation and Amortization
   
52.2
     
31.2
 
Deferred Income Taxes
   
(6.1
)
   
29.5
 
Qualified Pension Plan Contribution
   
     
(100.0
)
Qualified Pension Plan (Income) Expense
   
(11.0
)
   
18.0
 
Impairment of Investment in Corporate Debt Securities
   
26.6
     
 
Common Stock Issued under Employee Benefit Plans
   
3.4
     
2.6
 
Change in:
               
Receivables
   
(60.9
)
   
(39.6
)
Inventories
   
(39.7
)
   
(5.8
)
Other Current Assets
   
(3.7
)
   
(9.4
)
Accounts Payable and Accrued Liabilities
   
(42.3
)
   
(6.1
)
Income Taxes Payable
   
(8.2
)
   
9.2
 
Other Assets
   
1.6
     
4.8
 
Other Noncurrent Liabilities
   
11.1
     
26.7
 
Other Operating Activities
   
(7.8
)
   
6.4
 
Cash (Used for) Provided by Continuing Operations
   
(0.5
)
   
8.7
 
Discontinued Operations:
               
Income from Discontinued Operations, Net
   
     
29.7
 
Operating Activities from Discontinued Operations
   
     
70.8
 
Cash Provided by Discontinued Operations
   
     
100.5
 
Net Operating Activities
   
(0.5
)
   
109.2
 
Investing Activities
               
Capital Expenditures
   
(123.4
)
   
(40.1
)
Business Acquired through Purchase Transaction
   
     
(426.1
)
Cash Acquired through Business Acquisition
   
     
126.4
 
Proceeds from Disposition of Property, Plant and Equipment
   
0.5
     
0.3
 
Proceeds from Sale of Short-Term Investments
   
     
50.0
 
Proceeds from Sale/Leaseback of Equipment
   
     
14.8
 
Distributions from Affiliated Companies, Net
   
20.9
     
24.5
 
Other Investing Activities
   
(0.6
)
   
0.7
 
Cash Used for Continuing Operations
   
(102.6
)
   
(249.5
)
Investing Activities from Discontinued Operations
   
     
(12.2
)
Net Investing Activities
   
(102.6
)
   
(261.7
)
Financing Activities
               
Long-Term Debt:
               
Borrowings
   
     
30.0
 
Repayments
   
(9.8
)
   
(1.7
)
Issuance of Common Stock
   
7.9
     
10.3
 
Stock Options Exercised
   
38.1
     
1.5
 
Excess Tax Benefits from Stock Options Exercised
   
6.2
     
0.6
 
Dividends Paid
   
(45.1
)
   
(44.3
)
Deferred Debt Issuance Costs
   
     
(1.6
)
Net Financing Activities
   
(2.7
)
   
(5.2
)
Net Decrease in Cash and Cash Equivalents
   
(105.8
)
   
(157.7
)
Cash and Cash Equivalents, Beginning of Period
   
306.0
     
199.8
 
Cash and Cash Equivalents, End of Period
 
$
200.2
   
$
42.1
 
Cash Paid for Interest and Income Taxes:
               
Interest
 
$
8.7
   
$
9.4
 
Income Taxes, Net of Refunds
 
$
60.8
   
$
17.9
 

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 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.

2.  
Allowance for doubtful accounts receivable consisted of the following:

   
Nine Months Ended
September 30,
 
   
2008
   
2007
 
Balance at beginning of year
 
$
3.0
   
$
2.7
 
Provisions charged (credited)
   
2.9
     
(0.5
)
Write-offs, net of recoveries
   
0.1
     
(0.3
)
Pioneer acquisition
   
(1.5
)
   
1.4
 
Currency translation adjustments
   
(0.1
)
   
 
Balance at end of period
 
$
4.4
   
$
3.3
 


Provisions charged to operations for the three months ended September 30, 2008 were $1.7 million.  Provisions credited to operations for the three months ended September 30, 2007 were $0.6 million.


 
 
6

 
 


3.  
Inventories consisted of the following:
 
   
September 30,
2008
   
December 31,
2007
   
September 30,
2007
 
Supplies
 
$
25.3
   
$
24.9
   
$
29.2
 
Raw materials
   
53.2
     
40.6
     
40.2
 
Work in process
   
31.9
     
21.4
     
22.9
 
Finished goods
   
104.7
     
73.2
     
84.2
 
     
215.1
     
160.1
     
176.5
 
LIFO reserve
   
(69.0
)
   
(53.4
)
   
(62.5
)
Inventories, net
 
$
146.1
   
$
106.7
   
$
114.0
 
 
In conjunction with the acquisition of Pioneer, we obtained inventories with a fair value of $25.1 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 September 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 $69.0 million, $53.4 million and $62.5 million higher than reported at September 30, 2008, December 31, 2007, and September 30, 2007, respectively.

4.  
Basic and diluted income (loss) per share was computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted income (loss) per share reflects the dilutive effect of stock-based compensation.
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Computation of Basic Income (Loss) per Share
                       
Income from continuing operations
 
$
37.7
   
$
32.7
   
$
110.5
   
$
71.2
 
Discontinued operations:
                               
Income from discontinued operations, net
   
     
9.5
     
     
29.7
 
Loss on disposal of discontinued operations, net
   
     
(125.4
)
   
     
(125.4
)
Net income (loss)
 
$
37.7
   
$
(83.2
)
 
$
110.5
   
$
(24.5
)
Basic shares
   
76.3
     
74.1
     
75.4
     
73.8
 
Basic income (loss) per share:
                               
Income from continuing operations
 
$
0.49
   
$
0.44
   
$
1.47
   
$
0.96
 
Income from discontinued operations, net
   
     
0.13
     
     
0.41
 
Loss on disposal of discontinued operations, net
   
     
(1.69
)
   
     
(1.70
)
Net income (loss)
 
$
0.49
   
$
(1.12
)
 
$
1.47
   
$
(0.33
)
Computation of Diluted Income (Loss) per Share
                               
Diluted shares:
                               
Basic shares
   
76.3
     
74.1
     
75.4
     
73.8
 
Stock-based compensation
   
0.4
     
0.5
     
0.3
     
0.4
 
Diluted shares
   
76.7
     
74.6
     
75.7
     
74.2
 
Diluted income (loss) per share:
                               
Income from continuing operations
 
$
0.49
   
$
0.44
   
$
1.46
   
$
0.96
 
Income from discontinued operations, net
   
     
0.12
     
     
0.40
 
Loss on disposal of discontinued operations, net
   
     
(1.68
)
   
     
(1.69
)
Net income (loss)
 
$
0.49
   
$
(1.12
)
 
$
1.46
   
$
(0.33
)

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 $6.4 million and $16.2 million for the three months ended September 30, 2008 and 2007, respectively, and $21.2 million and $29.3 million for the nine months ended September 30, 2008 and 2007, respectively.  Charges to income for investigatory and remedial efforts were material to operating results in 2007 and have been material to operating results in 2008. The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $161.1 million at September 30, 2008, $155.6 million at December 31, 2007, and $137.0 million at September 30, 2007, of which $126.1 million, $120.6 million, and $102.0 million were classified as other noncurrent liabilities, respectively.  In conjunction with the acquisition of Pioneer, as of August 31, 2007 we assumed $57.5 million of environmental liabilities associated with their current and past manufacturing operations and former waste disposal sites.
 
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 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 nine-month periods ended September 30, 2008 and 2007. At September 30, 2008, 154,076 shares remained authorized to be purchased.

7.  
We issued 1.8 million shares and 0.1 million shares with a total value of $38.1 million and $1.5 million, representing stock options exercised for the nine months ended September 30, 2008 and 2007, respectively. In addition, we issued 0.5 million and 0.7 million shares with a total value of $11.3 million and $12.9 million for the nine months ended September 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
September 30,
   
Nine Months Ended
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Sales:
                       
Chlor Alkali Products
 
$
362.1
   
$
221.3
   
$
962.6
   
$
543.0
 
Winchester
   
140.8
     
129.0
     
367.7
     
329.0
 
Total sales
 
$
502.9
   
$
350.3
   
$
1,330.3
   
$
872.0
 
Income from continuing operations before taxes:
                               
Chlor Alkali Products(1)
 
$
103.6
   
$
70.7
   
$
241.0
   
$
169.2
 
Winchester
   
9.8
     
10.0
     
29.3
     
23.7
 
Corporate/Other:
                               
Pension income (expense)(2)
   
5.2
     
(0.6
)
   
13.3
     
(4.1
)
Environmental provision
   
(6.4
)
   
(16.2
)
   
(21.2
)
   
(29.3
)
Other corporate and unallocated costs
   
(13.6
)
   
(12.3
)
   
(47.5
)
   
(48.2
)
Other operating income
   
0.4
     
0.3
     
1.5
     
0.5
 
Interest expense
   
(3.3
)
   
(6.0
)
   
(11.5
)
   
(15.9
)
Interest income
   
1.0
     
2.7
     
5.2
     
9.2
 
Other (expense) income(3)
   
(26.4
)
   
     
(26.1
)
   
0.2
 
Income from continuing operations before taxes
 
$
70.3
   
$
48.6
   
$
184.0
   
$
105.3
 

 
(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 $12.0 million and $14.1 million for the three months ended September 30, 2008 and 2007, respectively, and $31.1 million and $34.4 million for the nine months ended September 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 nine months ended September 30, 2008 included a curtailment charge of $0.8 million resulting from the conversion of our McIntosh, AL chlor alkali hourly workforce from a defined benefit pension plan to a defined contribution pension plan.

 
(3)
Other (expense) income for the three and nine months ended September 30, 2008 included an impairment charge of the full value of a $26.6 million investment in corporate debt securities.  We are currently unable to utilize the capital loss resulting from the impairment of these corporate debt securities; therefore, no tax benefit was recognized during the period for the impairment loss.


 
 
8

 
 

9.  
Stock-based compensation granted included stock options, performance stock awards, restricted stock awards, and deferred directors’ compensation.  Stock-based compensation expense totaled $0.4 million and $3.2 million for the three months ended September 30, 2008 and 2007, respectively, and $7.9 million and $7.3 million for the nine months ended September 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
 
Dividend yield
   
4.34
%
   
4.37
%
Risk-free interest rate
   
3.21
%
   
4.81
%
Expected volatility
   
32
%
   
35
%
Expected life (years)
   
7.0
     
7.0
 
Grant fair value (per option)
 
$
4.52
   
$
4.46
 
 
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
 
September 30,
2008
   
December 31,
2007
   
September 30,
2007
 
Condensed Balance Sheet Data:
                 
Current assets
 
$
41.6
   
$
27.8
   
$
47.3
 
Noncurrent assets
   
112.1
     
109.6
     
108.6
 
Current liabilities
   
20.3
     
21.1
     
23.1
 
Noncurrent liabilities
   
109.8
     
109.7
     
121.9
 

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
   
2008
 
2007
 
2008
   
2007
Condensed Income Statement Data:
                 
Sales
 
$
47.0
 
$
51.9
 
$
136.5
   
$
136.1
Gross profit
   
25.4
   
30.5
   
69.9
     
77.0
Net income
   
20.3
   
25.1
   
53.6
     
61.1

The amount of cumulative unremitted earnings of SunBelt was $23.6 million, $6.6 million and $10.9 million at September 30, 2008, December 31, 2007, and September 30, 2007, respectively. We received distributions from SunBelt totaling $18.3 million and $22.5 million in the nine months ended September 30, 2008 and 2007, respectively.  We have not made any contributions in 2008 or 2007.  We received net settlements of advances of $20.9 million and $24.5 million in the nine months ended September 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 $1.0 million and $0.9 million for the three months ended September 30, 2008 and 2007, respectively, and $3.3 million and $2.8 million for the nine months ended September 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 September 30, 2008 and 2007, respectively, and $3.3 million and $3.6 million for the nine months ended September 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 in the three months ended September 30, 2008 and 2007, and $6.5 million and $6.2 million in the nine months ended September 30, 2008 and 2007, respectively.
 

 
 
9

 
 

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 September 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 $2.8 million and $0.6 million for the three months ended September 30, 2008 and 2007, respectively, and $8.7 million and $1.9 million for the nine months ended September 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.

   
Pension Benefits
   
Other Postretirement Benefits
 
   
Three Months Ended
September 30,
   
Three Months Ended
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Components of Net Periodic Benefit (Income) Cost
                       
Service cost
 
$
1.7
   
$
4.7
   
$
0.2