finalq310q2010.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, 2010

OR

 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-1070

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

   
Virginia
13-1872319
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

   
190 Carondelet Plaza, Suite 1530, Clayton, MO
63105-3443
(Address of principal executive offices)
(Zip Code)

(314) 480-1400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer  ¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x

As of September 30, 2010, 79,552,313 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,
2010
   
December 31,
2009
   
September 30,
2009
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
 
$
393.4
   
$
458.5
   
$
376.6
 
Receivables, net
   
231.1
     
183.3
     
263.6
 
Income tax receivable
   
12.5
     
19.4
     
5.0
 
Inventories
   
157.3
     
123.8
     
126.0
 
Current deferred income taxes
   
40.9
     
50.5
     
61.0
 
Other current assets
   
17.6
     
24.8
     
21.7
 
Total current assets
   
852.8
     
860.3
     
853.9
 
Property, plant and equipment (less accumulated depreciation of $1,048.2, $1,001.3 and $987.4)
   
683.8
     
695.4
     
688.9
 
Prepaid pension costs
   
33.7
     
5.0
     
21.4
 
Other assets
   
92.2
     
71.0
     
71.2
 
Goodwill
   
300.3
     
300.3
     
300.3
 
Total assets
 
$
1,962.8
   
$
1,932.0
   
$
1,935.7
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current liabilities:
                       
Current installments of long-term debt
 
$
1.8
   
$
   
$
 
Accounts payable
   
107.9
     
117.8
     
113.2
 
Accrued liabilities
   
189.5
     
193.1
     
209.1
 
Total current liabilities
   
299.2
     
310.9
     
322.3
 
Long-term debt
   
385.1
     
398.4
     
399.6
 
Accrued pension liability
   
50.4
     
56.6
     
47.7
 
Deferred income taxes
   
39.8
     
25.8
     
27.7
 
Other liabilities
   
330.9
     
318.0
     
307.8
 
Total liabilities
   
1,105.4
     
1,109.7
     
1,105.1
 
Commitments and contingencies
                       
Shareholders’ equity:
                       
Common stock, par value $1 per share:  authorized, 120.0 shares; issued and outstanding 79.6, 78.7 and 78.5 shares
   
79.6
     
78.7
     
78.5
 
Additional paid-in capital
   
840.1
     
823.1
     
818.9
 
Accumulated other comprehensive loss
   
(246.3
)
   
(248.2
)
   
(229.5
)
Retained earnings
   
184.0
     
168.7
     
162.7
 
Total shareholders’ equity
   
857.4
     
822.3
     
830.6
 
Total liabilities and shareholders’ equity
 
$
1,962.8
   
$
1,932.0
   
$
1,935.7
 

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,
 
   
2010
   
2009
   
2010
   
2009
 
Sales
 
$
432.8
   
$
397.0
   
$
1,200.5
   
$
1,180.6
 
Operating expenses:
                               
Cost of goods sold
   
366.5
     
316.4
     
1,026.7
     
934.6
 
Selling and administration
   
33.3
     
31.2
     
101.3
     
106.5
 
Other operating income
   
0.3
     
1.2
     
2.6
     
6.9
 
Operating income
   
33.3
     
50.6
     
75.1
     
146.4
 
Earnings of non-consolidated affiliates
   
11.6
     
7.1
     
22.8
     
32.9
 
Interest expense
   
6.4
     
1.9
     
19.5
     
5.2
 
Interest income
   
0.3
     
0.1
     
0.7
     
0.9
 
Other income
   
     
     
0.1
     
0.1
 
Income before taxes
   
38.8
     
55.9
     
79.2
     
175.1
 
Income tax provision
   
7.0
     
16.5
     
16.4
     
61.2
 
Net income
 
$
31.8
   
$
39.4
   
$
62.8
   
$
113.9
 
Net income per common share:
                               
Basic
 
$
0.40
   
$
0.50
   
$
0.79
   
$
1.46
 
Diluted
 
$
0.40
   
$
0.50
   
$
0.79
   
$
1.46
 
Dividends per common share
 
$
0.20
   
$
0.20
   
$
0.60
   
$
0.60
 
Average common shares outstanding:
                               
Basic
   
79.4
     
78.4
     
79.1
     
78.0
 
Diluted
   
80.2
     
78.6
     
79.8
     
78.1
 

The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.

 
3

 

OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)

         
Additional
Paid-In
Capital
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Total
Shareholders’
Equity
 
Common Stock
Shares
Issued
   
Par
Value
Balance at January 1, 2009
   
77.3
   
$
77.3
   
$
801.6
   
$
(269.4
)
 
$
95.5
   
$
705.0
 
Comprehensive income:
                                               
Net income
   
     
     
     
     
113.9
     
113.9
 
Translation adjustment
   
     
     
     
3.2
     
     
3.2
 
Net unrealized gain
   
     
     
     
32.8
     
     
32.8
 
Amortization of prior service costs and actuarial losses, net
   
     
     
     
3.9
     
     
3.9
 
Comprehensive income
                                           
153.8
 
Dividends paid:
                                               
Common stock ($0.60 per share)
   
     
     
     
     
(46.7
)
   
(46.7
)
Common stock issued for:
                                               
Stock option exercised
   
     
     
0.2
     
     
     
0.2
 
Employee benefit plans
   
1.1
     
1.1
     
12.7
     
     
     
13.8
 
Other transactions
   
0.1
     
0.1
     
2.4
     
     
     
2.5
 
Stock-based compensation
   
     
     
2.0
     
     
     
2.0
 
Balance at September 30, 2009
   
78.5
   
$
78.5
   
$
818.9
   
$
(229.5
)
 
$
162.7
   
$
830.6
 
Balance at January 1, 2010
   
78.7
   
$
78.7
   
$
823.1
   
$
(248.2
)
 
$
168.7
   
$
822.3
 
Comprehensive income:
                                               
Net income
   
     
     
     
     
62.8
     
62.8
 
Translation adjustment
   
     
     
     
(0.6
)
   
     
(0.6
)
Net unrealized loss
   
     
     
     
(4.9
)
   
     
(4.9
)
Amortization of prior service costs and actuarial losses, net
   
     
     
     
7.4
     
     
7.4
 
Comprehensive income
                                           
64.7
 
Dividends paid:
                                               
Common stock ($0.60 per share)
   
     
     
     
     
(47.5
)
   
(47.5
)
Common stock issued for:
                                               
Stock options exercised
   
0.2
     
0.2
     
2.3
     
     
     
2.5
 
Employee benefit plans
   
0.6
     
0.6
     
9.6
     
     
     
10.2
 
Other transactions
   
0.1
     
0.1
     
2.2
     
     
     
2.3
 
Stock-based compensation
   
     
     
2.9
     
     
     
2.9
 
Balance at September 30, 2010
   
79.6
   
$
79.6
   
$
840.1
   
$
(246.3
)
 
$
184.0
   
$
857.4
 

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,
 
   
2010
   
2009
 
Operating Activities
           
Net income
 
$
62.8
   
$
113.9
 
Adjustments to reconcile net income to net cash and cash equivalents provided by (used for) operating activities:
               
Earnings of non-consolidated affiliates
   
(22.8
)
   
(32.9
)
Other operating income – gains on disposition of property, plant and equipment
   
(1.5
)
   
(5.5
)
Stock-based compensation
   
5.1
     
4.3
 
Depreciation and amortization
   
64.8
     
50.5
 
Deferred income taxes
   
22.1
     
51.1
 
Qualified pension plan contributions
   
(7.3
)
   
(2.0
)
Qualified pension plan income
   
(18.4
)
   
(16.4
)
Common stock issued under employee benefit plans
   
1.0
     
1.6
 
Change in:
               
Receivables
   
(47.8
)
   
(50.6
)
Income taxes receivable
   
6.9
     
(5.6
)
Inventories
   
(33.5
)
   
5.4
 
Other current assets
   
0.1
     
0.9
 
Accounts payable and accrued liabilities
   
10.4
     
(21.2
)
Other assets
   
(1.6
)
   
2.5
 
Other noncurrent liabilities
   
0.9
     
5.7
 
Other operating activities
   
(0.1
)
   
(1.5
)
Net operating activities
   
41.1
     
100.2
 
Investing Activities
               
Capital expenditures
   
(63.4
)
   
(122.3
)
Proceeds from disposition of property, plant and equipment
   
2.9
     
7.1
 
Distributions from affiliated companies, net
   
9.5
     
29.1
 
Other investing activities
   
(0.5
)
   
3.3
 
Net investing activities
   
(51.5
)
   
(82.8
)
Financing Activities
               
Long-term debt:
               
Borrowings
   
     
150.3
 
Repayments
   
(18.9
)
   
 
Issuance of common stock
   
9.2
     
12.2
 
Stock options exercised
   
2.3
     
0.1
 
Excess tax benefits from stock options exercised
   
0.2
     
0.1
 
Dividends paid
   
(47.5
)
   
(46.7
)
Deferred debt issuance cost
   
     
(3.3
)
Net financing activities
   
(54.7
)
   
112.7
 
Net (decrease) increase in cash and cash equivalents
   
(65.1
)
   
130.1
 
Cash and cash equivalents, beginning of period
   
458.5
     
246.5
 
Cash and cash equivalents, end of period
 
$
393.4
   
$
376.6
 
Cash paid (received) for interest and income taxes:
               
Interest
 
$
20.0
   
$
7.3
 
Income taxes, net of refunds
 
$
(5.6
)
 
$
17.5
 
Non-cash investing activities:
               
Capital expenditures included in accounts payable and accrued liabilities
 
$
10.0
   
$
2.4
 

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
(Unaudited)

DESCRIPTION OF BUSINESS

Olin Corporation is a Virginia corporation, incorporated in 1892.  We are a manufacturer concentrated in two business segments:  Chlor Alkali Products and Winchester.  Chlor Alkali Products, with nine U.S. manufacturing facilities and one Canadian manufacturing facility, produces chlorine and caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, bleach products and potassium hydroxide.  Winchester, with its principal manufacturing facility in East Alton, IL, produces and distributes sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

We have prepared the condensed financial statements included herein, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  The preparation of the consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes.  In our opinion, these financial statements reflect all adjustments (consisting only of normal accruals), which are necessary to present fairly the results for interim periods.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate.  We recommend that you read these condensed financial statements in conjunction with the financial statements, accounting policies, and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2009.  Certain reclassifications were made to prior year amounts to conform to the 2010 presentation.

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES

We evaluate the collectibility of accounts receivable based on a combination of factors.  We estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience.  This estimate is periodically adjusted when we become aware of a specific customer's inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable.  While we have a large number of customers that operate in diverse businesses and are geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and, therefore, the need to revise estimates for the provision for doubtful accounts could occur.

Allowance for doubtful accounts receivable consisted of the following:
   
September 30,
 
   
2010
   
2009
 
   
($ in millions)
 
Balance at beginning of year
 
$
3.3
   
$
5.0
 
Provisions charged
   
0.2
     
7.3
 
Recoveries (write-offs), net
   
0.1
     
(6.5
)
Balance at end of period
 
$
3.6
   
$
5.8
 

Provisions credited to operations were $0.6 million for the three months ended September 30, 2010.  Provisions charged to operations were $1.0 million for the three months ended September 30, 2009.

 
6

 

INVENTORIES

Inventories consisted of the following:
   
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
   
($ in millions)
 
Supplies
 
$
29.3
   
$
29.0
   
$
28.0
 
Raw materials
   
59.8
     
52.2
     
53.7
 
Work in process
   
27.8
     
23.0
     
25.6
 
Finished goods
   
103.3
     
77.8
     
75.4
 
     
220.2
     
182.0
     
182.7
 
LIFO reserve
   
(62.9
)
   
(58.2
)
   
(56.7
)
Inventories, net
 
$
157.3
   
$
123.8
   
$
126.0
 

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, 2010, reflect certain estimates relating to inventory quantities and costs at December 31, 2010.  If the first-in, first-out (FIFO) method of inventory accounting had been used, inventories would have been approximately $62.9 million, $58.2 million and $56.7 million higher than reported at September 30, 2010, December 31, 2009, and September 30, 2009, respectively.

EARNINGS PER SHARE

Basic and diluted net income per share are computed by dividing net income by the weighted average number of common shares outstanding.  Diluted net income per share reflects the dilutive effect of stock-based compensation.

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Computation of Basic Income per Share
 
($ and shares in millions, except per share data)
 
Net income
 
$
31.8
   
$
39.4
   
$
62.8
   
$
113.9
 
Basic shares
   
79.4
     
78.4
     
79.1
     
78.0
 
Basic net income per share
 
$
0.40
   
$
0.50
   
$
0.79
   
$
1.46
 
Computation of Diluted Income per Share
                               
Diluted shares:
                               
Basic shares
   
79.4
     
78.4
     
79.1
     
78.0
 
Stock-based compensation
   
0.8
     
0.2
     
0.7
     
0.1
 
Diluted shares
   
80.2
     
78.6
     
79.8
     
78.1
 
Diluted net income per share
 
$
0.40
   
$
0.50
   
$
0.79
   
$
1.46
 

The computation of dilutive shares from stock-based compensation does not include 0.6 million and 0.1 million shares for the three months ended September 30, 2010 and 2009, respectively, and 0.6 million and 0.2 million shares for the nine months ended September 30, 2010 and 2009, respectively, as their effect would have been anti-dilutive.

 
7

 

ENVIRONMENTAL

We are party to various government and private environmental actions associated with past manufacturing facilities and former waste disposal sites.  Charges to income for investigatory and remedial efforts were material to operating results in 2010 and 2009.  The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $170.5 million, $166.1 million, and $167.1 million at September 30, 2010, December 31, 2009, and September 30, 2009, respectively, of which $146.5 million, $131.1 million, and $132.1 million, respectively, were classified as other noncurrent liabilities.

Environmental provisions charged (credited) to income, which are included in cost of goods sold, were as follows:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
($ in millions)
 
Charges to income
 
$
8.6
   
$
5.5
   
$
14.7
   
$
18.3
 
Recoveries from third parties of costs incurred and expensed in prior periods
   
(0.2
)
   
(44.3
)
   
(5.6
)
   
(45.1
)
Total environmental expense (income)
 
$
8.4
   
$
(38.8
)
 
$
9.1
   
$
(26.8
)

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.

SHAREHOLDERS’ EQUITY

Our board of directors, in April 1998, authorized a share repurchase program of up to 5 million shares of our common stock.  We have repurchased 4,845,924 shares under the April 1998 program.  There were no share repurchases during the nine month periods ended September 30, 2010 and 2009.  At September 30, 2010, 154,076 shares remained authorized to be purchased.

We issued 0.2 million shares and less than 0.1 million shares with a total value of $2.5 million and $0.2 million, representing stock options exercised for the nine months ended September 30, 2010 and 2009, respectively.  In addition, we issued 0.6 million and 1.1 million shares with a total value of $10.2 million and $13.8 million for the nine months ended September 30, 2010 and 2009, respectively, in connection with our Contributing Employee Ownership Plan (CEOP).  These shares were issued to satisfy the investment in our common stock resulting from employee contributions, our matching contributions, retirement contributions and re-invested dividends.  Effective January 1, 2010, we suspended our matching contributions on all salaried and certain non-bargained hourly employees’ contributions.

 
8

 
The following table represents the activity included in accumulated other comprehensive loss:
 
   
Foreign
Currency
Translation
Adjustment
   
Unrealized
Gains (Losses)
on Derivative
Contracts
(net of taxes)
   
Pension and
Postretirement
Benefits
(net of taxes)
   
Accumulated
Other Comprehensive
Loss
 
   
($ in millions)
 
Balance at January 1, 2009
 
$
(5.1
)
 
$
(25.0
)
 
$
(239.3
)
 
$
(269.4
)
Unrealized gains
   
3.2
     
18.3
     
     
21.5
 
Reclassification adjustments into income
   
     
14.5
     
3.9
     
18.4
 
Balance at September 30, 2009
 
$
(1.9
)
 
$
7.8
   
$
(235.4
)
 
$
(229.5
)
Balance at January 1, 2010
 
$
(0.5
)
 
$
11.6
   
$
(259.3
)
 
$
(248.2
)
Unrealized losses
   
(0.6
)
   
(0.8
)
   
     
(1.4
)
Reclassification adjustments into income
   
     
(4.1
)
   
7.4
     
3.3
 
Balance at September 30, 2010
 
$
(1.1
)
 
$
6.7
   
$
(251.9
)
 
$
(246.3
)

Pension and postretirement benefits (net of taxes) activity in other comprehensive loss included the amortization of prior service costs and actuarial losses.

Unrealized gains and losses on derivative contracts (net of taxes) activity in other comprehensive loss included a deferred tax (benefit) provision for the nine months ended September 30, 2010 and 2009 of $(3.0) million and $20.9 million, respectively.  Pension and postretirement benefits (net of taxes) activity in other comprehensive loss included a deferred tax provision for the nine months ended September 30, 2010 and 2009 of $4.5 million and $5.2 million, respectively.

SEGMENT INFORMATION

We define segment results as income before interest expense, interest income, other operating 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,
 
   
2010
   
2009
   
2010
   
2009
 
Sales:
 
($ in millions)
 
Chlor Alkali Products
 
$
275.3
   
$
228.8
   
$
763.9
   
$
738.9
 
Winchester
   
157.5
     
168.2
     
436.6
     
441.7
 
Total sales
 
$
432.8
   
$
397.0
   
$
1,200.5
   
$
1,180.6
 
Income before taxes:
                               
Chlor Alkali Products(1)
 
$
44.0
   
$
3.9
   
$
80.7
   
$
120.2
 
Winchester
   
18.8
     
23.0
     
59.4
     
59.1
 
Corporate/other:
                               
Pension income(2)
   
7.0
     
6.3
     
18.2
     
16.8
 
Environmental (expense) income(3)
   
(8.4
)
   
38.8
     
(9.1
)
   
26.8
 
Other corporate and unallocated costs
   
(16.8
)
   
(15.5
)
   
(53.9
)
   
(50.5
)
Other operating income(4)
   
0.3
     
1.2
     
2.6
     
6.9
 
Interest expense(5)
   
(6.4
)
   
(1.9
)
   
(19.5
)
   
(5.2
)
Interest income
   
0.3
     
0.1
     
0.7
     
0.9
 
Other income
   
     
     
0.1
     
0.1
 
Income before taxes
 
$
38.8
   
$
55.9
   
$
79.2
   
$
175.1
 

(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 $11.6 million and $7.1 million for the three months ended September 30, 2010 and 2009, respectively, and $22.8 million and $32.9 million for the nine months ended September 30, 2010 and 2009, respectively.
 
 
9

 

(2)
The service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data.  All other components of pension costs are included in corporate/other and include items such as the expected return on plan assets, interest cost, and recognized actuarial gains and losses.  Pension income for the nine months ended September 30, 2010 included a charge of $1.3 million associated with an agreement to withdraw our Henderson, NV chlor alkali hourly workforce from a multi-employer defined benefit pension plan.

(3)
Environmental (expense) income for the three months ended September 30, 2010 and 2009 included $0.2 million and $44.3 million, respectively, of recoveries from third parties for costs incurred and expensed in prior periods.  Environmental (expense) income for the nine months ended September 30, 2010 and 2009 included $5.6 million and $45.1 million, respectively, of recoveries from third parties for costs incurred and expensed in prior periods.

(4)
Other operating income for the nine months ended September 30, 2010 and 2009 included $1.5 million and $1.8 million, respectively, of gains on the disposal of assets primarily associated with the St. Gabriel, LA conversion and expansion project.  Other operating income for the nine months ended September 30, 2009 also included a $3.7 million gain on the sale of land.

(5)
Interest expense was reduced by capitalized interest of $0.4 million and $3.6 million for the three months ended September 30, 2010 and 2009, respectively, and $0.8 million and $9.1 million for the nine months ended September 30, 2010 and 2009, respectively.

STOCK-BASED COMPENSATION

Stock-based compensation granted includes stock options, performance stock awards, restricted stock awards, and deferred directors’ compensation.  Stock-based compensation expense was as follows:
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
($ in millions)
 
Stock-based compensation
 
$
2.2
   
$
1.9
   
$
7.9
   
$
6.8
 
Mark-to-market adjustments
   
0.9
     
2.7
     
1.1
     
0.5
 
Total expense
 
$
3.1
   
$
4.6
   
$
9.0
   
$
7.3
 

The fair value of each stock option granted, which typically vests ratably over three years, but not less than one year, was estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions used:

Grant date
 
2010
   
2009
 
Dividend yield
   
4.32
%
   
4.26
%
Risk-free interest rate
   
3.00
%
   
2.32
%
Expected volatility
   
42
%
   
40
%
Expected life (years)
   
7.0
     
7.0
 
Grant fair value (per option)
 
$
4.61
   
$
3.85
 
Exercise price
 
$
15.68
   
$
14.28
 
Shares granted
   
803,750
     
866,250
 

Dividend yield for 2010 and 2009 was based on a historical average.  Risk-free interest rate was based on zero coupon U.S. Treasury securities rates for the expected life of the options.  Expected volatility was based on our historical stock price movements, as we believe that historical experience is the best available indicator of the expected volatility.  Expected life of the option grant was based on historical exercise and cancellation patterns, as we believe that historical experience is the best estimate of future exercise patterns.

 
10

 

INVESTMENTS – AFFILIATED COMPANIES

We have a 50% ownership interest in SunBelt Chlor Alkali Partnership (SunBelt), which is accounted for using the equity method of accounting.  The condensed financial positions and results of operations of SunBelt in its entirety were as follows:

100% Basis
 
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
Condensed balance sheet data:
 
($ in millions)
 
Current assets
 
$
45.7
   
$
16.1
   
$
36.4
 
Noncurrent assets
   
82.5
     
94.1
     
97.6
 
Current liabilities
   
23.4
     
21.4
     
22.0
 
Noncurrent liabilities
   
85.3
     
85.3
     
97.5
 

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Condensed income statement data:
 
($ in millions)
 
Sales
 
$
51.6
   
$
36.9
   
$
120.6
   
$
135.1
 
Gross profit
   
24.2
     
14.9
     
47.2
     
68.5
 
Net income
   
19.4
     
9.6
     
35.2
     
53.2
 

The amount of cumulative unremitted earnings of SunBelt was $19.5 million, $3.5 million and $14.5 million at September 30, 2010, December 31, 2009, and September 30, 2009, respectively.  We received distributions from SunBelt totaling $9.6 million and $25.8 million for the nine months ended September 30, 2010 and 2009, respectively.  We have not made any contributions in 2010 or 2009.

In accounting for our ownership interest in SunBelt, we adjust the reported operating results for depreciation expense in order to conform SunBelt’s plant and equipment useful lives to ours.  Beginning January 1, 2007, the original machinery and equipment of SunBelt had been fully depreciated in accordance with our useful asset lives, thus resulting in lower depreciation expense.  The lower depreciation expense increased our share of SunBelt’s operating results by $0.9 million and $1.0 million for the three months ended September 30, 2010 and 2009, respectively, and $2.6 million and $2.7 million for the nine months ended September 30, 2010 and 2009, respectively.  The operating results from SunBelt included interest expense of $0.8 million and $1.0 million for the three months ended September 30, 2010 and 2009, respectively, and $2.6 million and $3.0 million for the nine months ended September 30, 2010 and 2009, respectively, on the SunBelt Notes.  Finally, we provide various administrative, management and logistical services to SunBelt for which we received fees totaling $2.4 million and $2.1 million for the three months ended September 30, 2010 and 2009, respectively, and $6.9 million and $6.3 million for the nine months ended September 30, 2010 and 2009, 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 semi-annually 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.


 
11

 

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 $48.8 million at September 30, 2010.  In the event SunBelt cannot make any of these payments, we would be required to fund the payment on the Series O Notes.  In certain other circumstances, we may also be required to repay the SunBelt Notes prior to their maturity.  We and PolyOne have agreed that, if we or PolyOne intend to transfer our respective interests in SunBelt and the transferring party is unable to obtain consent from holders of 80% of the aggregate principal amount of the indebtedness related to the guarantee being transferred after good faith negotiations, then we and PolyOne will be required to repay our respective portions of the SunBelt Notes.  In such event, any make whole or similar penalties or costs will be paid by the transferring party.

In addition to SunBelt, we have two other investments, which are accounted for under the equity method.  The following table summarizes our investments in our non-consolidated equity affiliates:
   
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
   
($ in millions)
 
SunBelt
 
$
7.4
   
$
(4.1
)
 
$
(0.3
)
Bay Gas
   
14.1
     
12.6
     
11.8
 
Bleach joint venture
   
11.4
     
11.1
     
11.3
 
Investments in equity affiliates
 
$
32.9
   
$
19.6
   
$
22.8
 

The following table summarizes our equity earnings of non-consolidated affiliates:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
($ in millions)
 
SunBelt
 
$
10.6
   
$
5.8
   
$
20.2
   
$
29.3
 
Bay Gas
   
0.5
     
0.5
     
1.5
     
1.2
 
Bleach joint venture
   
0.5
     
0.8
     
1.1
     
2.4
 
Equity earnings of non-consolidated affiliates
 
$
11.6
   
$
7.1
   
$
22.8
   
$
32.9
 

We received net distributions from our non-consolidated affiliates of $9.5 million and $29.1 million for the nine months ended September 30, 2010 and 2009, respectively.

LONG-TERM DEBT

In September 2010, we redeemed industrial development and environmental improvement tax exempt bonds (industrial revenue bonds) totaling $18.9 million, with maturity dates of February 2016 and March 2016.  We paid a premium of $0.4 million to the bond holders, which was included in interest expense.  We also recognized a $0.3 million deferred gain in interest expense related to the interest rate swaps, which were terminated in April, 2010, on these industrial revenue bonds.

In August 2009, we sold $150.0 million of 8.875% Senior Notes (2019 Notes) with a maturity date of August 15, 2019.  The 2019 Notes were issued at 99.19% of par value, providing a yield to maturity to investors of 9.0%.  Interest is paid semi-annually in arrears on each February 15 and August 15.  Proceeds of $145.5 million, after expenses of $3.3 million, from the 2019 Notes were used to further strengthen our long-term liquidity.

PENSION PLANS AND RETIREMENT BENEFITS

Most of our employees participate in defined contribution pension plans.  We provide a contribution to an individual retirement contribution account maintained with the CEOP primarily equal to 5% of the employee’s eligible compensation if such employee is less than age 45, and 7.5% of the employee’s eligible compensation if such employee is age 45 or older.  Expenses of the defined contribution pension plans were $3.3 million and $3.0 million for the three months ended September 30, 2010 and 2009, respectively, and $10.5 million and $10.0 million for the nine months ended September 30, 2010 and 2009, respectively.

 
12

 

A portion of our bargaining hourly employees continue to participate in our domestic defined benefit pension plans under a flat-benefit formula.  Our funding policy for the defined benefit pension plans is consistent with the requirements of federal laws and regulations.  Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with statutory practices.  Our defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger, or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).

We also provide certain postretirement health care (medical) and life insurance benefits for eligible active and retired domestic employees.  The health care plans are contributory with participants’ contributions adjusted annually based on medical rates of inflation and plan experience.

   
Pension Benefits
   
Other Postretirement
Benefits
 
   
Three Months Ended
September 30,
   
Three Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Components of Net Periodic Benefit (Income) Cost
 
($ in millions)
 
Service cost
 
$
1.5
   
$
1.4
   
$
0.3
   
$
0.1
 
Interest cost
   
24.4
     
25.5
     
0.8
     
0.9
 
Expected return on plans’ assets
   
(34.6
)
   
(33.8
)
   
     
 
Amortization of prior service cost
   
0.1
     
0.1
     
     
 
Recognized actuarial loss
   
3.3
     
2.4
     
0.5
     
0.4
 
Net periodic benefit (income) cost
 
$
(5.3
)
 
$
(4.4
)
 
$
1.6
   
$
1.4
 

   
Pension Benefits
   
Other Postretirement
Benefits
 
   
Nine Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Components of Net Periodic Benefit (Income) Cost
 
($ in millions)
 
Service cost
 
$
4.5
   
$
4.3
   
$
1.0
   
$
0.9
 
Interest cost
   
73.9
     
76.9
     
2.8
     
3.1
 
Expected return on plans’ assets
   
(103.9
)
   
(101.4
)
   
     
 
Amortization of prior service cost
   
0.4
     
0.4
     
(0.1
)
   
(0.1
)
Recognized actuarial loss
   
9.7
     
7.1
     
1.9
     
1.7
 
Net periodic benefit (income) cost
 
$
(15.4
)
 
$
(12.7
)
 
$
5.6
   
$
5.6
 

We made contributions to our foreign defined benefit pension plan of $7.3 million and $2.0 million for the nine months ended September 30, 2010 and 2009, respectively.  In March 2010, we recorded a charge of $1.3 million associated with an agreement to withdraw our Henderson, NV chlor alkali hourly workforce from a multi-employer defined benefit pension plan.

 
13

 

INCOME TAXES

The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of 35% to income before taxes.
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
Effective Tax Rate Reconciliation (Percent)
 
2010
   
2009
   
2010
   
2009
 
Statutory federal tax rate
   
35.0
%
   
35.0
%
   
35.0
%
   
35.0
%
Foreign rate differential
   
(0.6
)
   
(2.5
)
   
(0.4
)
   
(0.9
)
Domestic manufacturing/export tax incentive
   
0.8
     
(0.9
)
   
     
(0.3
)
Dividends paid to CEOP
   
(1.0
)
   
(0.3
)
   
(1.4
)
   
(0.7
)
State income taxes, net
   
2.0
     
2.8
     
1.7
     
2.6
 
Change in tax contingencies
   
(16.1
)
   
(2.2
)
   
(11.4
)
   
(0.9
)
Change in valuation allowance
   
0.3
     
     
(1.6
)
   
1.1
 
Return to provision
   
(2.6
)
   
(2.6
)
   
(1.9
)
   
(0.8
)
Other, net
   
0.2
     
0.2
     
0.7
     
(0.1
)
Effective tax rate
   
18.0
%
   
29.5
%
   
20.7
%
   
35.0
%

The effective tax rates for the three months ended September 30, 2010 and 2009 included the cumulative effect of changes to our annual estimated effective tax rate from prior quarters.

The effective tax rate for the three and nine months ended September 30, 2010 included an expense of $0.1 million and a benefit of $1.3 million, respectively, related to changes in the valuation allowance recorded against the foreign tax credit carryforward deferred tax asset generated by our Canadian operations.  The effective tax rate for the nine months ended September 30, 2009 included expense of $2.0 million for a valuation allowance recorded against the foreign tax credit carryforward deferred tax asset generated by our Canadian operations.

As of September 30, 2010, we had $42.4 million of gross unrecognized tax benefits, all of which would have a net $40.1 million impact on the effective tax rate, if recognized.  The amount of unrecognized tax benefits was as follows:
   
September 30,
2010
 
   
($ in millions)
 
Balance at beginning of year
 
$
50.8
 
Increases for prior year tax positions
   
0.2
 
Decreases for prior year tax positions
   
(0.3
)
Increases for current year tax positions
   
1.8
 
Decreases for current year tax positions
   
(0.1
)
Decreases due to settlement with taxing authorities
   
(2.2
)
Reductions due to statute of limitations
   
(7.8
)
Balance at end of period
 
$
42.4
 

As of September 30, 2010, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $9.6 million over the next twelve months.  The anticipated reduction primarily relates to settlements with taxing authorities and the expiration of federal, state, and foreign statutes of limitation.


 
14

 

Our federal U.S. and Canadian income tax returns for 2006 to 2009 are open tax years under the statute of limitations.  We file in numerous states, Canadian provinces and foreign jurisdictions with varying statutes of limitation.  The tax years 2004 through 2009 are open depending on each jurisdiction’s unique statute of limitation.  The Internal Revenue Service (IRS) completed an audit of our U.S. income tax return for 2006.  The Canada Revenue Agency recently completed an audit of a portion of our Canadian tax returns for the 2005 to 2007 tax years.  No issues arose that required an additional tax liability to be recognized.  We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position.

DERIVATIVE FINANCIAL INSTRUMENTS

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 use of financial instruments to manage exposure to such risks.  Accounting Standards Codification (ASC) 815 “Derivatives and Hedging” (ASC 815), formerly SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.  We use hedge accounting treatment for substantially all of our business transactions whose risks are covered using derivative instruments.  In accordance with ASC 815, we designate commodity forward contracts as cash flow hedges of forecasted purchases of commodities and certain interest rate swaps as fair value hedges of fixed-rate borrowings.  We do not enter into any derivative instruments for trading or speculative purposes.

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.  The majority of our commodity derivatives expire within one year.  Those commodity contracts that extend beyond one year correspond with raw material purchases for long-term fixed-price sales contracts.

We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies (principally Canadian dollar and Euro).  All of the currency derivatives expire within one year and are for United States dollar equivalents.  Our foreign currency forward contracts do not meet the criteria to qualify for hedge accounting.  We had forward contracts to sell foreign currencies with a notional value of $0.2 million, $0.3 million and $1.4 million at September 30, 2010, December 31, 2009 and September 30, 2009, respectively.  We had forward contracts to buy foreign currencies with a notional value of $1.3 million, $1.7 million and $2.0 million at September 30, 2010, December 30, 2009 and September 30, 2009, respectively.

In 2001 and 2002, we entered into interest rate swaps on $75 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates.  The counterparty to these agreements is Citibank, N.A., a major financial institution.  In January 2009, we entered into a $75 million fixed interest rate swap with equal and opposite terms as the $75 million variable interest rate swaps on the 9.125% senior notes due 2011 (2011 Notes).  We have agreed to pay a fixed rate to a counterparty who, in turn, pays us variable rates.  The counterparty to this agreement is Bank of America, a major financial institution.  The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which will be recognized through 2011.  As of September 30, 2010, $3.5 million of this gain was included in long-term borrowings.  In January 2009, we de-designated our $75 million interest rate swaps that had previously been designated as fair value hedges.  The $75 million variable interest rate swaps and the $75 million fixed interest rate swap do not meet the criteria for hedge accounting.  All changes in the fair value of these interest rate swaps are recorded currently in earnings.

 
15

 

Cash flow hedges

ASC 815 requires that all derivative instruments be recorded on the balance sheet at their fair value.  For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive loss until the hedged item is recognized in earnings.  Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.

We had the following notional amount of outstanding commodity forward contracts that were entered into to hedge forecasted purchases:

   
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
   
($ in millions)
 
Copper
 
$
26.0
   
$
34.1
   
$
36.1
 
Zinc
   
3.4
     
3.2
     
3.2
 
Lead
   
19.7
     
17.0
     
13.7
 
Natural gas
   
6.7
     
7.1
     
4.4
 

As of September 30, 2010, the counterparty to $33.5 million of these commodity forward contracts was Wells Fargo, a major financial institution.

We use cash flow hedges for certain raw material and energy costs such as copper, zinc, lead, and natural gas to provide a measure of stability in managing our exposure to price fluctuations associated with forecasted purchases of raw materials and energy used in the company's manufacturing process.  At September 30, 2010, we had open positions in futures contracts through 2013.  If all open futures contracts had been settled on September 30, 2010, we would have recognized a pretax gain of $10.9 million.

If commodity prices were to remain at September 30, 2010 levels, approximately $7.5 million of deferred gains would be reclassified into earnings during the next twelve months.  The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur.

Fair value hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.  We include the gain or loss on the hedged items (fixed-rate borrowings) in the same line item, interest expense, as the offsetting loss or gain on the related interest rate swaps.  As of September 30, 2010, December 31, 2009 and September 30, 2009, the total notional amounts of our interest rate swaps designated as fair value hedges were $132.7 million, $26.6 million and $26.6 million, respectively.  In April 2010, Citibank, N.A. terminated $18.9 million of interest rate swaps on our industrial revenue bonds due in 2016.  The result was a gain of $0.4 million, which would have been recognized through 2016.  In September 2010, the industrial revenue bonds were redeemed by us, and as a result, the remaining $0.3 million gain was recognized in interest expense during the three months ended September 30, 2010.  In March 2010, we entered into $125.0 million of interest rate swaps on the 6.75% senior notes due 2016 (2016 Notes).

We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels.  These interest rate swaps are treated as fair value hedges.  The accounting for gains and losses associated with changes in fair value of the derivative and the effect on the condensed financial statements will depend on the hedge designation and whether the hedge is effective in offsetting changes in fair value of cash flows of the asset or liability being hedged.  We have entered into $132.7 million of such swaps, whereby we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates.  The counterparty to these agreements is Citibank, N.A., a major financial institution.  In all cases, the underlying index for the variable rates is 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.

 
16

 

Financial statement impacts

We present our derivative assets and liabilities in our condensed balance sheets on a net basis.  We net derivative assets and liabilities whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts.  We use these agreements to manage and substantially reduce our potential counterparty credit risk.

The following table summarizes the location and fair value of the derivative instruments on our condensed balance sheets.  The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:

 
Asset Derivatives
 
Liability Derivatives
 
     
Fair Value
     
Fair Value
 
Derivatives Designated as Hedging Instruments
Balance
Sheet
Location
 
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
Balance
Sheet
Location
 
September 30,
2010
   
December 31,
2009
   
September 30,
2009
 
     
($ in millions)
     
($ in millions)
 
Interest rate contracts
Other assets
 
$
10.8
   
$
1.4
   
$
2.0
 
Long-term debt
 
$
14.3
   
$
6.9
   
$
8.2
 
Commodity contracts – gains
Other current assets
   
10.6
     
17.7
     
13.0
 
Accrued liabilities
   
     
     
(0.2
)
Commodity contracts – losses
Other current assets
   
(0.2
)
   
(0.2
)
   
(1.3
)
Accrued liabilities
   
     
     
 
     
$
21.2
   
$
18.9
   
$
13.7
     
$
14.3
   
$
6.9
   
$
8.0
 

Derivatives Not Designated as Hedging Instruments
                                       
Interest rate contracts
Other assets
 
$
4.7
   
$
6.0
   
$
6.6
 
Other liabilities
 
$
1.3
   
$
0.9
   
$
0.8
 
Commodity contracts – losses
Other current assets
   
     
     
 
Accrued liabilities
   
0.8
     
     
0.2
 
Foreign currency contracts
Other current assets
   
     
     
 
Accrued liabilities
   
0.1
     
0.1
     
0.1
 
     
$
4.7
   
$
6.0
   
$
6.6
     
$
2.2
   
$
1.0
   
$
1.1
 
                                                     
Total derivatives(1)
   
$
25.9
   
$
24.9
   
$
20.3
     
$
16.5
   
$
7.9
   
$
9.1
 

(1)         Does not include the impact of cash collateral received from or provided to counterparties.

 
17

 

The following table summarizes the effects of derivative instruments on our condensed statements of income:

     
Amount of Gain (Loss)
   
Amount of Gain (Loss)
 
     
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
Location of Gain (Loss)
 
2010
   
2009
   
2010
   
2009
 
Derivatives – Cash Flow Hedges
   
($ in millions)
 
Recognized in other comprehensive loss (effective portion)
———
 
$
12.9
   
$
14.0
   
$
(1.2
)
 
$
29.8
 
                                   
Reclassified from accumulated other comprehensive loss into income (effective portion)
Cost of goods sold
 
$
(1.1
)
 
$
(1.0
)
 
$
6.6
   
$
(23.9
)
     
$
(1.1
)
 
$
(1.0
)
 
$
6.6
   
$
(23.9
)
Derivatives – Fair Value Hedges
                                 
Interest rate contracts
Interest expense
 
$
1.9
   
$
0.9
   
$
4.7
   
$
2.5
 
     
$
1.9
   
$
0.9
   
$
4.7
   
$
2.5
 
Derivatives Not Designated as Hedging Instruments
                                 
Interest rate contracts
Interest expense
 
$
0.1
   
$
0.1
   
$
0.3
   
$
(0.3
)
Commodity contracts
Cost of goods sold
   
(0.9
)
   
(0.2
)
   
(1.2
)
   
(2.2
)