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Olin Corp. Reports Operating Results (10-Q)

October 28, 2009 | About:
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10qk

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Olin Corp. (OLN) filed Quarterly Report for the period ended 2009-09-30.

Olin Corporation is a manufacturer concentrated in chemicals metals and ammunition. The chemicals segment is divided into divisions: Chlor-Alkali Chemicals and Microelectronic Materials. Chlor-alkali includes chlor-alkali products sodium hydrosulfite and high strength bleach products. Chemicals includes pool chemicals biocides hydrazine polyols propylene glycols and surfactants and fluids. Microelectronic Materials includes image-forming and electronic interconnect materials and services. The metals and ammunition segment produces copper alloy sheet strip rod wire and ammunition. Olin Corp. has a market cap of $1.22 billion; its shares were traded at around $15.56 with a P/E ratio of 6.5 and P/S ratio of 0.7. The dividend yield of Olin Corp. stocks is 5.1%. Olin Corp. had an annual average earning growth of 20.1% over the past 5 years.

Highlight of Business Operations:

Sales for the three months ended September 30, 2009 were $397.0 million compared to $502.9 million last year, a decrease of $105.9 million, or 21%. Chlor Alkali Products sales decreased $133.3 million, or 37%, due to lower ECU prices and decreased shipment volumes. Our ECU netbacks, excluding SunBelt, decreased 43% compared to the same period in the prior year. Winchester sales increased by $27.4 million, or 19%, from the three months ended September 30, 2008, primarily due to increased volumes.

Selling and administration expenses for the three months ended September 30, 2009 decreased $4.4 million, or 12%, from the three months ended September 30, 2008, primarily due to lower non-income taxes of $5.4 million, primarily resulting from a favorable resolution of a Canadian capital tax matter, lower recruiting and relocation charges of $2.3 million and a lower provision for doubtful customer accounts receivable of $0.7 million. These decreases were partially offset by increased management incentive compensation expense of $2.7 million, primarily resulting from mark-to-market adjustments on stock-based compensation, and a higher level of legal and legal-related settlement expenses of $1.5 million, which included recovery actions for environmental costs previously incurred and expensed. Selling and administration expenses as a percentage of sales were 8% in 2009 and 7% in 2008.

The effective tax rate for the three months ended September 30, 2009 included a $2.8 million reduction in expense primarily associated with the finalization of the 2008 income tax returns, which primarily resulted in lower state tax expense, and a $1.5 million reduction in expense primarily associated with the expiration of statutes of limitation in domestic jurisdictions. After giving consideration to these two items of $4.3 million, the effective tax rate for the three months ended September 30, 2009 of 37.2% was higher than the 35% U.S. federal statutory rate primarily due to state income taxes, which were offset in part by the utilization of certain state tax credits. The effective tax rate for the three months ended September 30, 2008 included expense of $10.4 million for a valuation allowance applied against the deferred tax benefit resulting from the $26.6 million capital loss carryforward generated from the impairment of corporate debt securities. The effective tax rate for the three months ended September 30, 2008 also included a $2.5 million reduction in expense primarily associated with the finalization of the 2007 income tax returns, which resulted in an increased domestic manufacturing deduction. After giving consideration to these two items of $7.9 million, the effective tax rate for the three months ended September 30, 2008 of 35.1% was higher than the 35% U.S. federal statutory rate primarily due to state income taxes, which were offset in part by the benefit of the domestic manufacturing deduction and the utilization of certain state tax credits.

Sales for the nine months ended September 30, 2009 were $1,180.6 million compared to $1,330.3 million last year, a decrease of $149.7 million, or 11%. Chlor Alkali Products sales decreased $223.7 million, or 23%, due to decreased shipment volumes and lower ECU prices. Our ECU netbacks, excluding SunBelt, decreased 10% compared to the same period in the prior year. Winchester sales increased by $74.0 million, or 20%, from the nine months ended September 30, 2008, primarily due to increased volumes.

Selling and administration expenses for the nine months ended September 30, 2009 increased $2.0 million, or 2%, from the nine months ended September 30, 2008, primarily due to a higher level of legal and legal-related settlement expenses of $5.1 million, which included recovery actions for environmental costs previously incurred and expensed, a higher provision for doubtful customer accounts receivable of $4.4 million, related to a deterioration in customer credit, and increased consulting fees of $2.6 million, partially offset by a favorable resolution of a Canadian capital tax matter of $4.6 million, lower recruiting and relocation charges of $3.9 million, and decreased management incentive compensation expense of $1.8 million. Selling and administration expenses as a percentage of sales were 9% in 2009 and 8% in 2008.

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. Additionally, the effective tax rate for the nine months ended September 30, 2009 included a $2.8 million reduction in expense primarily associated with the finalization of the 2008 income tax returns, which primarily resulted in lower state tax expense, and a $2.3 million reduction in expense primarily associated with the expiration of statutes of limitation in domestic and foreign jurisdictions and a law change in foreign jurisdictions. After giving consideration to these three items of $3.1 million, the effective tax rate for the nine months ended September 30, 2009 of 36.7%, was higher than the 35% U.S. federal statutory rate primarily due to state income taxes, which were offset in part by the utilization of certain state tax credits. The effective tax rate for the nine months ended September 30, 2008 included expense of $10.4 million for a valuation allowance applied against the deferred tax benefit resulting from the $26.6 million capital loss carryforward generated from the impairment of corporate debt securities. The effective tax rate for the nine months ended September 30, 2008 also included a $2.5 million reduction in expense primarily associated with the finalization of the 2007 income tax returns, which resulted in an increased domestic manufacturing deduction. After giving consideration to these two items of $7.9 million, the effective tax rate for the nine months ended September 30, 2008 of 35.7% was higher than the 35% U.S. federal statutory rate primarily due to state income taxes, which were offset in part by the benefit of the domestic manufacturing deduction and the utilization of certain state tax credits.

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