Item 1. Financial Statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
184.5
|
|
|
$
|
184.5
|
|
|
$
|
66.6
|
|
Receivables, net
|
782.2
|
|
|
675.0
|
|
|
790.5
|
|
Income taxes receivable
|
20.9
|
|
|
25.5
|
|
|
45.8
|
|
Inventories
|
666.2
|
|
|
630.4
|
|
|
636.2
|
|
Other current assets
|
37.2
|
|
|
30.8
|
|
|
23.8
|
|
Total current assets
|
1,691.0
|
|
|
1,546.2
|
|
|
1,562.9
|
|
Property, plant and equipment (less accumulated depreciation of $2,117.6, $1,891.6 and $1,681.2)
|
3,627.4
|
|
|
3,704.9
|
|
|
3,793.3
|
|
Deferred income taxes
|
125.2
|
|
|
119.5
|
|
|
107.0
|
|
Other assets
|
625.6
|
|
|
644.4
|
|
|
588.6
|
|
Intangible assets, net
|
605.6
|
|
|
629.6
|
|
|
671.2
|
|
Goodwill
|
2,119.5
|
|
|
2,118.0
|
|
|
2,186.3
|
|
Total assets
|
$
|
8,794.3
|
|
|
$
|
8,762.6
|
|
|
$
|
8,909.3
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
81.7
|
|
|
$
|
80.5
|
|
|
$
|
80.3
|
|
Accounts payable
|
656.1
|
|
|
570.8
|
|
|
536.4
|
|
Income taxes payable
|
7.1
|
|
|
7.5
|
|
|
8.2
|
|
Accrued liabilities
|
261.5
|
|
|
263.8
|
|
|
293.6
|
|
Total current liabilities
|
1,006.4
|
|
|
922.6
|
|
|
918.5
|
|
Long-term debt
|
3,518.9
|
|
|
3,537.1
|
|
|
3,615.5
|
|
Accrued pension liability
|
625.6
|
|
|
638.1
|
|
|
616.7
|
|
Deferred income taxes
|
1,037.6
|
|
|
1,032.5
|
|
|
1,079.3
|
|
Other liabilities
|
347.2
|
|
|
359.3
|
|
|
348.3
|
|
Total liabilities
|
6,535.7
|
|
|
6,489.6
|
|
|
6,578.3
|
|
Commitments and contingencies
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
Common stock, par value $1 per share: authorized, 240.0 shares;
issued and outstanding, 166.3, 165.4 and 165.2 shares
|
166.3
|
|
|
165.4
|
|
|
165.2
|
|
Additional paid-in capital
|
2,262.7
|
|
|
2,243.8
|
|
|
2,240.3
|
|
Accumulated other comprehensive loss
|
(485.4
|
)
|
|
(510.0
|
)
|
|
(479.3
|
)
|
Retained earnings
|
315.0
|
|
|
373.8
|
|
|
404.8
|
|
Total shareholders’ equity
|
2,258.6
|
|
|
2,273.0
|
|
|
2,331.0
|
|
Total liabilities and shareholders’ equity
|
$
|
8,794.3
|
|
|
$
|
8,762.6
|
|
|
$
|
8,909.3
|
|
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Operations
(In millions, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales
|
$
|
1,526.5
|
|
|
$
|
1,364.0
|
|
|
$
|
3,093.6
|
|
|
$
|
2,712.2
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of goods sold
|
1,404.1
|
|
|
1,236.9
|
|
|
2,797.8
|
|
|
2,412.3
|
|
Selling and administration
|
80.0
|
|
|
79.3
|
|
|
168.2
|
|
|
167.4
|
|
Restructuring charges
|
8.5
|
|
|
8.2
|
|
|
16.7
|
|
|
101.0
|
|
Acquisition-related costs
|
4.4
|
|
|
16.3
|
|
|
11.4
|
|
|
26.5
|
|
Other operating income (expense)
|
0.3
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
10.7
|
|
Operating income
|
29.8
|
|
|
23.1
|
|
|
99.4
|
|
|
15.7
|
|
Earnings of non-consolidated affiliates
|
0.5
|
|
|
0.4
|
|
|
1.0
|
|
|
0.6
|
|
Interest expense
|
52.5
|
|
|
47.6
|
|
|
104.9
|
|
|
96.1
|
|
Interest income
|
0.4
|
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
|
Loss before taxes
|
(21.8
|
)
|
|
(23.6
|
)
|
|
(3.9
|
)
|
|
(79.0
|
)
|
Income tax benefit
|
(15.9
|
)
|
|
(22.6
|
)
|
|
(11.4
|
)
|
|
(40.1
|
)
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
7.5
|
|
|
$
|
(38.9
|
)
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.24
|
)
|
Dividends per common share
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
166.1
|
|
|
165.2
|
|
|
165.8
|
|
|
165.1
|
|
Diluted
|
166.1
|
|
|
165.2
|
|
|
168.0
|
|
|
165.1
|
|
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
7.5
|
|
|
$
|
(38.9
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
15.9
|
|
|
(10.8
|
)
|
|
21.9
|
|
|
4.7
|
|
Unrealized (losses) gains on derivative contracts, net
|
(3.7
|
)
|
|
(1.8
|
)
|
|
(5.7
|
)
|
|
1.2
|
|
Amortization of prior service costs and actuarial losses, net
|
4.5
|
|
|
3.5
|
|
|
8.4
|
|
|
7.3
|
|
Total other comprehensive income (loss), net of tax
|
16.7
|
|
|
(9.1
|
)
|
|
24.6
|
|
|
13.2
|
|
Comprehensive income (loss)
|
$
|
10.8
|
|
|
$
|
(10.1
|
)
|
|
$
|
32.1
|
|
|
$
|
(25.7
|
)
|
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Retained
Earnings
|
|
Total
Shareholders’
Equity
|
|
Shares
Issued
|
|
Par
Value
|
Balance at January 1, 2016
|
165.1
|
|
|
$
|
165.1
|
|
|
$
|
2,236.4
|
|
|
$
|
(492.5
|
)
|
|
$
|
509.8
|
|
|
$
|
2,418.8
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38.9
|
)
|
|
(38.9
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
13.2
|
|
|
—
|
|
|
13.2
|
|
Dividends paid:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.40 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66.1
|
)
|
|
(66.1
|
)
|
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Other transactions
|
0.1
|
|
|
0.1
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
Balance at June 30, 2016
|
165.2
|
|
|
$
|
165.2
|
|
|
$
|
2,240.3
|
|
|
$
|
(479.3
|
)
|
|
$
|
404.8
|
|
|
$
|
2,331.0
|
|
Balance at January 1, 2017
|
165.4
|
|
|
$
|
165.4
|
|
|
$
|
2,243.8
|
|
|
$
|
(510.0
|
)
|
|
$
|
373.8
|
|
|
$
|
2,273.0
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.5
|
|
|
7.5
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
24.6
|
|
|
—
|
|
|
24.6
|
|
Dividends paid:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.40 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66.3
|
)
|
|
(66.3
|
)
|
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
0.9
|
|
|
0.9
|
|
|
14.9
|
|
|
—
|
|
|
—
|
|
|
15.8
|
|
Other transactions
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
—
|
|
|
3.4
|
|
Balance at June 30, 2017
|
166.3
|
|
|
$
|
166.3
|
|
|
$
|
2,262.7
|
|
|
$
|
(485.4
|
)
|
|
$
|
315.0
|
|
|
$
|
2,258.6
|
|
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
Operating Activities
|
|
|
|
Net income (loss)
|
$
|
7.5
|
|
|
$
|
(38.9
|
)
|
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used for) operating activities:
|
|
|
|
Earnings of non-consolidated affiliates
|
(1.0
|
)
|
|
(0.6
|
)
|
Losses on disposition of property, plant and equipment
|
0.3
|
|
|
0.5
|
|
Stock-based compensation
|
4.0
|
|
|
3.7
|
|
Depreciation and amortization
|
272.2
|
|
|
262.1
|
|
Deferred income taxes
|
(11.6
|
)
|
|
(33.2
|
)
|
Write-off of equipment and facility included in restructuring charges
|
—
|
|
|
76.6
|
|
Qualified pension plan contributions
|
(0.9
|
)
|
|
(0.7
|
)
|
Qualified pension plan income
|
(13.7
|
)
|
|
(18.7
|
)
|
Change in:
|
|
|
|
Receivables
|
(97.9
|
)
|
|
(37.4
|
)
|
Income taxes receivable/payable
|
3.3
|
|
|
(9.6
|
)
|
Inventories
|
(26.3
|
)
|
|
25.8
|
|
Other current assets
|
(10.3
|
)
|
|
15.0
|
|
Accounts payable and accrued liabilities
|
99.6
|
|
|
(57.0
|
)
|
Other assets
|
5.8
|
|
|
(1.1
|
)
|
Other noncurrent liabilities
|
(9.2
|
)
|
|
1.6
|
|
Other operating activities
|
5.6
|
|
|
(1.9
|
)
|
Net operating activities
|
227.4
|
|
|
186.2
|
|
Investing Activities
|
|
|
|
Capital expenditures
|
(150.9
|
)
|
|
(137.4
|
)
|
Business acquired in purchase transaction, net of cash acquired
|
—
|
|
|
(69.5
|
)
|
Payments under long-term supply contract
|
—
|
|
|
(85.0
|
)
|
Proceeds from disposition of property, plant and equipment
|
0.1
|
|
|
0.4
|
|
Proceeds from disposition of affiliated companies
|
—
|
|
|
4.4
|
|
Net investing activities
|
(150.8
|
)
|
|
(287.1
|
)
|
Financing Activities
|
|
|
|
Long-term debt:
|
|
|
|
Borrowings
|
1,875.0
|
|
|
—
|
|
Repayments
|
(1,890.1
|
)
|
|
(159.0
|
)
|
Stock options exercised
|
15.8
|
|
|
0.2
|
|
Dividends paid
|
(66.3
|
)
|
|
(66.1
|
)
|
Debt issuance costs
|
(11.2
|
)
|
|
—
|
|
Net financing activities
|
(76.8
|
)
|
|
(224.9
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
0.2
|
|
|
0.4
|
|
Net decrease in cash and cash equivalents
|
—
|
|
|
(325.4
|
)
|
Cash and cash equivalents, beginning of period
|
184.5
|
|
|
392.0
|
|
Cash and cash equivalents, end of period
|
$
|
184.5
|
|
|
$
|
66.6
|
|
Cash paid for interest and income taxes:
|
|
|
|
Interest, net
|
$
|
93.3
|
|
|
$
|
102.1
|
|
Income taxes, net of refunds
|
$
|
5.2
|
|
|
$
|
11.2
|
|
Non-cash investing activities:
|
|
|
|
Capital expenditures included in accounts payable and accrued liabilities
|
$
|
24.1
|
|
|
$
|
2.3
|
|
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
DESCRIPTION OF BUSINESS
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO. We are a manufacturer concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride (EDC) and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells a full range of epoxy materials, including allyl chloride, epichlorohydrin, liquid epoxy resins and downstream products such as converted epoxy resins and additives. The Winchester segment produces and sells 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 U.S. Securities and Exchange Commission (SEC). The preparation of the 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, 2016
. Certain reclassifications were made to prior year amounts to conform to the 2017 presentation.
ACQUISITION
On October 5, 2015 (the Closing Date), we completed the acquisition (the Acquisition) from The Dow Chemical Company (TDCC) of its U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses (collectively, the Acquired Business), whose operating results are included in the accompanying financial statements since the Closing Date.
We incurred costs related to the integration of the Acquired Business which consisted of advisory, legal, accounting and other professional fees of
$4.4 million
and
$16.3 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, and
$11.4 million
and
$26.5 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
For the
three
months ended
June 30, 2016
, payments of
$69.5 million
were made related to certain acquisition-related liabilities, including the final working capital adjustment.
RESTRUCTURING CHARGES
On March 21, 2016, we announced that we had made the decision to close a combined total of
433,000
tons of chlor alkali capacity across three separate locations. Associated with this action, we have permanently closed our Henderson, NV chlor alkali plant with
153,000
tons of capacity and have reconfigured the site to manufacture bleach and distribute caustic soda and hydrochloric acid. Also, the capacity of our Niagara Falls, NY chlor alkali plant has been reduced from
300,000
tons to
240,000
tons and the chlor alkali capacity at our Freeport, TX facility was reduced by
220,000
tons. This
220,000
ton reduction was entirely from diaphragm cell capacity. For the
three
months ended
June 30, 2017
and
2016
, we recorded pretax restructuring charges of
$7.4 million
and
$7.9 million
, respectively, for employee severance and related benefit costs, employee relocation costs, facility exit costs and lease and other contract termination costs related to these actions. For the
six
months ended
June 30, 2017
and
2016
, we recorded pretax restructuring charges of
$14.9 million
and
$100.1 million
, respectively, for the write-off of equipment and facility costs, lease and other contract termination costs, employee severance and related benefit costs, employee relocation costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2020 of approximately
$25 million
related to these capacity reductions. This estimate of additional restructuring charges does not include any additional charges related to a contract termination that is currently in dispute. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional
losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.
On December 12, 2014, we announced that we had made the decision to permanently close the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. This action reduced the facility’s chlor alkali capacity by
185,000
tons. Subsequent to the shut down, the plant predominantly focuses on bleach and hydrochloric acid, which are value-added products, as well as caustic soda. For the
three
months ended
June 30, 2017
and
2016
, we recorded pretax restructuring charges of
$1.1 million
and
$0.1 million
, respectively, for facility exit costs related to these actions. For the
six
months ended
June 30, 2017
and
2016
, we recorded pretax restructuring charges of
$1.8 million
and
$0.4 million
, respectively, for lease and other contract termination costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2018 of approximately
$5 million
related to the shut down of this portion of the facility.
On November 3, 2010, we announced that we made the decision to relocate the Winchester centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford, MS. Consistent with this decision in 2010, we initiated an estimated
$110 million
five-year project, which included approximately
$80 million
of capital spending. The capital spending was partially financed by
$31 million
of grants provided by the State of Mississippi and local governments. During 2016, the final rifle ammunition production equipment relocation was completed. For the
three and six
months ended
June 30, 2016
, we recorded pretax restructuring charges of
$0.2 million
and
$0.5 million
, respectively, for employee relocation costs and facility exit costs related to these actions.
The following table summarizes the 2017 and 2016 activities by major component of these restructuring actions and the remaining balances of accrued restructuring costs as of
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and job related benefits
|
|
Lease and other contract termination costs
|
|
Employee relocation costs
|
|
Facility exit costs
|
|
Write-off of equipment and facility
|
|
Total
|
|
($ in millions)
|
Balance at January 1, 2016
|
$
|
4.6
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.7
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
3.9
|
|
|
9.2
|
|
|
0.2
|
|
|
2.9
|
|
|
76.6
|
|
|
92.8
|
|
Second quarter
|
0.2
|
|
|
—
|
|
|
0.8
|
|
|
7.2
|
|
|
—
|
|
|
8.2
|
|
Amounts utilized
|
(3.6
|
)
|
|
(1.3
|
)
|
|
(1.0
|
)
|
|
(7.9
|
)
|
|
(76.6
|
)
|
|
(90.4
|
)
|
Currency translation adjustments
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Balance at June 30, 2016
|
$
|
5.1
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
17.4
|
|
Balance at January 1, 2017
|
$
|
3.4
|
|
|
$
|
7.5
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
12.7
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
—
|
|
|
5.7
|
|
|
0.2
|
|
|
2.3
|
|
|
—
|
|
|
8.2
|
|
Second quarter
|
—
|
|
|
5.8
|
|
|
0.1
|
|
|
2.6
|
|
|
—
|
|
|
8.5
|
|
Amounts utilized
|
(2.6
|
)
|
|
(2.6
|
)
|
|
(0.3
|
)
|
|
(6.6
|
)
|
|
—
|
|
|
(12.1
|
)
|
Balance at June 30, 2017
|
$
|
0.8
|
|
|
$
|
16.4
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
17.3
|
|
The following table summarizes the cumulative restructuring charges of these 2016, 2014 and 2010 restructuring actions by major component through
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
|
Winchester
|
|
Total
|
|
|
Becancour
|
|
Capacity Reductions
|
|
|
|
|
($ in millions)
|
Write-off of equipment and facility
|
|
$
|
3.5
|
|
|
$
|
76.6
|
|
|
$
|
—
|
|
|
$
|
80.1
|
|
Employee severance and job related benefits
|
|
2.7
|
|
|
5.1
|
|
|
13.1
|
|
|
20.9
|
|
Facility exit costs
|
|
3.1
|
|
|
17.8
|
|
|
2.3
|
|
|
23.2
|
|
Pension and other postretirement benefits curtailment
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
4.1
|
|
Employee relocation costs
|
|
—
|
|
|
1.7
|
|
|
6.0
|
|
|
7.7
|
|
Lease and other contract termination costs
|
|
5.3
|
|
|
25.0
|
|
|
—
|
|
|
30.3
|
|
Total cumulative restructuring charges
|
|
$
|
14.6
|
|
|
$
|
126.2
|
|
|
$
|
25.5
|
|
|
$
|
166.3
|
|
As of
June 30, 2017
, we have incurred cash expenditures of
$63.6 million
and non-cash charges of
$84.6 million
related to these restructuring actions. The remaining balance of
$17.3 million
is expected to be paid out through
2020
.
ACCOUNTS RECEIVABLES
On December 20, 2016, we entered into a three year,
$250.0 million
Receivables Financing Agreement with PNC Bank, National Association, as administrative agent (Receivables Financing Agreement). Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. As of
June 30, 2017
,
$326.1 million
of our trade receivables were pledged as collateral and we had
$210.0 million
drawn under the agreement. As of
June 30, 2017
, we had additional borrowing capacity of
$32.3 million
under the Receivables Financing Agreement. As of
December 31, 2016
,
$282.3 million
of our trade receivables were pledged as collateral and
$210.0 million
was drawn under the agreement. For the year ended
December 31, 2016
, the proceeds of the Receivables Financing Agreement were used to repay
$210.0 million
of the
$800.0 million
Sumitomo term loan facility (the Sumitomo Credit Facility). In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving credit facilities.
On June 29, 2016, we entered into a trade accounts receivable factoring arrangement which was amended on September 1, 2016 and, on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement which was amended on March 24, 2017 (collectively the AR Facilities). Pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of
$256.5 million
. We will continue to service such accounts. These receivables qualify for sales treatment under Accounting Standards Codification (ASC) 860 “Transfers and Servicing” (ASC 860) and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows. The gross amount of receivables sold for the
three
months ended
June 30, 2017
and
2016
totaled
$388.0 million
and
$26.8 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
totaled
$777.6 million
and
$26.8 million
, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of
June 30, 2017
. As of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
,
$148.4 million
,
$126.1 million
and
$26.8 million
, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES
We evaluate the collectibility of accounts receivable based on a combination of factors. We estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This estimate is periodically adjusted when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While we have a large number of customers that operate in diverse businesses and are geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and, therefore, the need to revise estimates for the provision for doubtful accounts could occur.
Allowance for doubtful accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Balance at beginning of year
|
$
|
10.1
|
|
|
$
|
6.4
|
|
Provisions charged
|
2.1
|
|
|
2.2
|
|
Write-offs, net of recoveries
|
—
|
|
|
(0.8
|
)
|
Balance at end of period
|
$
|
12.2
|
|
|
$
|
7.8
|
|
Provisions charged to operations were
$0.7 million
and
$0.8 million
for the
three
months ended
June 30, 2017
and
2016
, respectively.
INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
|
June 30,
2016
|
|
($ in millions)
|
Supplies
|
$
|
59.7
|
|
|
$
|
58.1
|
|
|
$
|
60.9
|
|
Raw materials
|
74.9
|
|
|
72.6
|
|
|
82.1
|
|
Work in process
|
133.7
|
|
|
110.7
|
|
|
102.8
|
|
Finished goods
|
445.8
|
|
|
424.9
|
|
|
423.4
|
|
|
714.1
|
|
|
666.3
|
|
|
669.2
|
|
LIFO reserve
|
(47.9
|
)
|
|
(35.9
|
)
|
|
(33.0
|
)
|
Inventories, net
|
$
|
666.2
|
|
|
$
|
630.4
|
|
|
$
|
636.2
|
|
Inventories are valued at the lower of cost and net realizable value. For U.S. inventories, inventory costs are determined principally by the last-in, first-out (LIFO) method of inventory accounting while for international inventories, inventory costs are determined principally by the first-in, first-out (FIFO) method of inventory accounting. Cost for other inventories has been determined principally by the average-cost method (primarily operating supplies, spare parts and maintenance parts). Elements of costs in inventories included raw materials, direct labor and manufacturing overhead. Inventories under the LIFO method are based on annual estimates of quantities and costs as of year-end; therefore, the condensed financial statements at
June 30, 2017
reflect certain estimates relating to inventory quantities and costs at
December 31, 2017
. The replacement cost of our inventories would have been approximately
$47.9 million
,
$35.9 million
and
$33.0 million
higher than reported at
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, respectively.
OTHER ASSETS
Included in other assets were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
|
($ in millions)
|
Investments in non-consolidated affiliates
|
$
|
27.7
|
|
|
$
|
26.7
|
|
|
$
|
25.6
|
|
Deferred debt issuance costs
|
2.8
|
|
|
2.6
|
|
|
2.9
|
|
Tax-related receivables
|
16.0
|
|
|
17.5
|
|
|
18.2
|
|
Interest rate swaps
|
4.7
|
|
|
7.7
|
|
|
3.7
|
|
Supply contracts
|
554.1
|
|
|
566.7
|
|
|
518.8
|
|
Other
|
20.3
|
|
|
23.2
|
|
|
19.4
|
|
Other assets
|
$
|
625.6
|
|
|
$
|
644.4
|
|
|
$
|
588.6
|
|
In connection with the Acquisition, Olin and TDCC entered into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin made upfront payments of
$433.5 million
on the Closing Date in order to receive ethylene at producer economics and for certain reservation fees for the option to obtain additional future ethylene supply at producer economics. The fair value of the long-term supply contracts recorded as of the Closing Date was a long-term asset of
$416.1 million
which will be amortized over the life of the contracts as ethylene is received. During 2016, one of the options to reserve additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of approximately
$209.4 million
in 2017, which will increase the value of the long-term asset. On February 27, 2017, we exercised the remaining option to reserve additional future ethylene supply and, in connection with the exercise, we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between
$425 million
and
$465 million
on or about the fourth quarter of 2020, which will increase the value of the long-term asset.
During 2016, Olin entered into arrangements to increase our supply of low cost electricity. In conjunction with these arrangements, Olin made payments of
$175.7 million
in
2016
, including
$85.0 million
for the six months ended
June 30, 2016
. The payments made under these arrangements will be amortized over the life of the contracts as electrical power is received.
Amortization expense of
$6.3 million
and
$4.4 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, and
$12.6 million
and
$8.7 million
for the
six
months ended
June 30, 2017
and
2016
, respectively, was recognized within cost of goods sold related to these supply contracts and is reflected in depreciation and amortization on the condensed statements of cash flows. The long-term supply contracts are monitored for impairment each reporting period.
GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
|
Epoxy
|
|
Total
|
|
($ in millions)
|
Balance at January 1, 2016
|
$
|
1,877.5
|
|
|
$
|
296.6
|
|
|
$
|
2,174.1
|
|
Acquisition activity
|
9.7
|
|
|
2.2
|
|
|
11.9
|
|
Foreign currency translation adjustment
|
0.2
|
|
|
0.1
|
|
|
0.3
|
|
Balance at June 30, 2016
|
$
|
1,887.4
|
|
|
$
|
298.9
|
|
|
$
|
2,186.3
|
|
Balance at January 1, 2017
|
$
|
1,831.3
|
|
|
$
|
286.7
|
|
|
2,118.0
|
|
Foreign currency translation adjustment
|
1.2
|
|
|
0.3
|
|
|
1.5
|
|
Balance at June 30, 2017
|
$
|
1,832.5
|
|
|
$
|
287.0
|
|
|
$
|
2,119.5
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
|
|
Gross Amount
|
Accumulated Amortization
|
Net
|
|
Gross Amount
|
Accumulated Amortization
|
Net
|
|
Gross Amount
|
Accumulated Amortization
|
Net
|
|
|
($ in millions)
|
Customers, customer contracts and relationships
|
|
$
|
675.0
|
|
|
$
|
(138.2
|
)
|
|
$
|
536.8
|
|
|
$
|
667.8
|
|
|
$
|
(112.9
|
)
|
|
$
|
554.9
|
|
|
$
|
672.3
|
|
|
$
|
(88.8
|
)
|
|
$
|
583.5
|
|
Trade name
|
|
7.0
|
|
|
(2.5
|
)
|
|
4.5
|
|
|
17.8
|
|
|
(12.7
|
)
|
|
5.1
|
|
|
17.9
|
|
|
(6.5
|
)
|
|
11.4
|
|
Acquired technology
|
|
85.3
|
|
|
(21.3
|
)
|
|
64.0
|
|
|
84.2
|
|
|
(15.0
|
)
|
|
69.2
|
|
|
84.9
|
|
|
(9.1
|
)
|
|
75.8
|
|
Other
|
|
2.3
|
|
|
(2.0
|
)
|
|
0.3
|
|
|
2.3
|
|
|
(1.9
|
)
|
|
0.4
|
|
|
2.3
|
|
|
(1.8
|
)
|
|
0.5
|
|
Total intangible assets
|
|
$
|
769.6
|
|
|
$
|
(164.0
|
)
|
|
$
|
605.6
|
|
|
$
|
772.1
|
|
|
$
|
(142.5
|
)
|
|
$
|
629.6
|
|
|
$
|
777.4
|
|
|
$
|
(106.2
|
)
|
|
$
|
671.2
|
|
Intangible assets with indefinite useful lives are reviewed annually in the fourth quarter and/or when circumstances or other events indicate the indefinite life is no longer supportable. In connection with the integration of the Acquired Business, in the first quarter of 2016, the K.A. Steel Chemicals Inc. trade name was changed from an indefinite life intangible asset to an intangible asset with a finite useful life of
one
year. Amortization expense of
$2.8 million
and
$5.5 million
was recognized within cost of goods sold for the
three and six
months ended
June 30, 2016
, respectively, related to the change in useful life.
EARNINGS PER SHARE
Basic and diluted net (loss) income per share are computed by dividing net (loss) income by the weighted-average number of common shares outstanding. Diluted net (loss) income per share reflects the dilutive effect of stock-based compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Computation of (Loss) Income per Share
|
(In millions, except per share data)
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
7.5
|
|
|
$
|
(38.9
|
)
|
Basic shares
|
166.1
|
|
|
165.2
|
|
|
165.8
|
|
|
165.1
|
|
Basic net (loss) income per share
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
Diluted shares:
|
|
|
|
|
|
|
|
Basic shares
|
166.1
|
|
|
165.2
|
|
|
165.8
|
|
|
165.1
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
Diluted shares
|
166.1
|
|
|
165.2
|
|
|
168.0
|
|
|
165.1
|
|
Diluted net (loss) income per share
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.24
|
)
|
The computation of dilutive shares from stock-based compensation does not include
6.9 million
shares for both the
three
months ended
June 30, 2017
and
2016
, and
1.6 million
shares and
6.9 million
shares for the
six
months ended
June 30, 2017
and
2016
, respectively, as their effect would have been anti-dilutive.
ENVIRONMENTAL
We are party to various government and private environmental actions associated with past manufacturing facilities and former waste disposal sites. The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to
$135.7 million
,
$137.3 million
and
$138.9 million
at
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, respectively, of which
$118.7 million
,
$120.3 million
and
$119.9 million
, respectively, were classified as other noncurrent liabilities.
Environmental provisions charged to income, which are included in cost of goods sold, were
$1.8 million
and
$2.4 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, and
$4.4 million
and
$5.1 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
In connection with the Acquisition, TDCC retained liabilities relating to releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
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.
COMMITMENTS AND CONTINGENCIES
We, and our subsidiaries, are defendants in various legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. As of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, our condensed balance sheets included liabilities for these legal actions of
$15.9 million
,
$13.6 million
and
$22.1 million
, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, TDCC retained liabilities related to litigation to the extent arising prior to the Closing Date. In addition to the aforementioned legal actions, we are party to a dispute relating to a contract termination. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450 “Contingencies” (ASC 450) and, therefore, do not record gain contingencies and recognize income until it is earned and realizable.
For the
six
months ended
June 30, 2016
, we recognized an insurance recovery of
$11.0 million
in other operating income (expense) for property damage and business interruption related to a 2008 chlor alkali facility incident.
SHAREHOLDERS’ EQUITY
On April 24, 2014, our board of directors authorized a share repurchase program for up to
8 million
shares of common stock that terminated on April 24, 2017. For the
six
months ended
June 30, 2017
and
2016
, no shares were purchased and retired. We purchased a total of
1.9 million
shares under the April 2014 program, and the
6.1 million
shares that remained authorized to be purchased have expired. Related to the Acquisition, for a period of two years subsequent to the Closing Date, we are subject to certain restrictions on our ability to conduct share repurchases.
We issued
0.9 million
shares and less than
0.1 million
shares representing stock options exercised for the
six
months ended
June 30, 2017
and
2016
, respectively, with a total value of
$15.8 million
and
$0.2 million
, respectively.
The following table represents the activity included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
(net of taxes)
|
|
Unrealized
Gains (Losses)
on Derivative
Contracts
(net of taxes)
|
|
Pension and
Postretirement
Benefits
(net of taxes)
|
|
Accumulated
Other Comprehensive
Loss
|
|
($ in millions)
|
Balance at January 1, 2016
|
$
|
(12.1
|
)
|
|
$
|
(6.9
|
)
|
|
$
|
(473.5
|
)
|
|
$
|
(492.5
|
)
|
Unrealized gains (losses):
|
|
|
|
|
|
|
|
First quarter
|
24.0
|
|
|
1.1
|
|
|
—
|
|
|
25.1
|
|
Second quarter
|
(14.3
|
)
|
|
(4.6
|
)
|
|
—
|
|
|
(18.9
|
)
|
Reclassification adjustments into income:
|
|
|
|
|
|
|
|
First quarter
|
—
|
|
|
3.7
|
|
|
6.1
|
|
|
9.8
|
|
Second quarter
|
—
|
|
|
1.7
|
|
|
5.9
|
|
|
7.6
|
|
Tax (provision) benefit:
|
|
|
|
|
|
|
|
First quarter
|
(8.5
|
)
|
|
(1.8
|
)
|
|
(2.3
|
)
|
|
(12.6
|
)
|
Second quarter
|
3.5
|
|
|
1.1
|
|
|
(2.4
|
)
|
|
2.2
|
|
Net Change
|
4.7
|
|
|
1.2
|
|
|
7.3
|
|
|
13.2
|
|
Balance at June 30, 2016
|
$
|
(7.4
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(466.2
|
)
|
|
$
|
(479.3
|
)
|
Balance at January 1, 2017
|
$
|
(24.1
|
)
|
|
$
|
12.8
|
|
|
$
|
(498.7
|
)
|
|
$
|
(510.0
|
)
|
Unrealized gains (losses):
|
|
|
|
|
|
|
|
First quarter
|
8.3
|
|
|
(3.1
|
)
|
|
—
|
|
|
5.2
|
|
Second quarter
|
28.1
|
|
|
(3.7
|
)
|
|
—
|
|
|
24.4
|
|
Reclassification adjustments into income:
|
|
|
|
|
|
|
|
First quarter
|
—
|
|
|
(0.1
|
)
|
|
6.6
|
|
|
6.5
|
|
Second quarter
|
—
|
|
|
(2.3
|
)
|
|
6.8
|
|
|
4.5
|
|
Tax (provision) benefit:
|
|
|
|
|
|
|
|
First quarter
|
(2.3
|
)
|
|
1.2
|
|
|
(2.7
|
)
|
|
(3.8
|
)
|
Second quarter
|
(12.2
|
)
|
|
2.3
|
|
|
(2.3
|
)
|
|
(12.2
|
)
|
Net Change
|
21.9
|
|
|
(5.7
|
)
|
|
8.4
|
|
|
24.6
|
|
Balance at June 30, 2017
|
$
|
(2.2
|
)
|
|
$
|
7.1
|
|
|
$
|
(490.3
|
)
|
|
$
|
(485.4
|
)
|
Net (loss) income and cost of goods sold included reclassification adjustments for realized gains and losses on derivative contracts from accumulated other comprehensive loss.
Net (loss) income, cost of goods sold and selling and administrative expenses included the amortization of prior service costs and actuarial losses from accumulated other comprehensive loss. This amortization is recognized equally in cost of goods sold and selling and administrative expenses.
SEGMENT INFORMATION
We define segment results as income (loss) before interest expense, interest income, other operating income (expense), and income taxes, and include the operating results of non-consolidated affiliates. Consistent with the guidance in ASC 280 “Segment Reporting” (ASC 280), we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales:
|
($ in millions)
|
Chlor Alkali Products and Vinyls
|
$
|
865.1
|
|
|
$
|
733.0
|
|
|
$
|
1,702.0
|
|
|
$
|
1,437.3
|
|
Epoxy
|
492.0
|
|
|
450.0
|
|
|
1,059.6
|
|
|
910.2
|
|
Winchester
|
169.4
|
|
|
181.0
|
|
|
332.0
|
|
|
364.7
|
|
Total sales
|
$
|
1,526.5
|
|
|
$
|
1,364.0
|
|
|
$
|
3,093.6
|
|
|
$
|
2,712.2
|
|
Income (loss) before taxes:
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
52.8
|
|
|
$
|
30.7
|
|
|
$
|
140.3
|
|
|
$
|
98.8
|
|
Epoxy
|
(8.1
|
)
|
|
—
|
|
|
(9.3
|
)
|
|
8.2
|
|
Winchester
|
19.0
|
|
|
31.2
|
|
|
44.1
|
|
|
59.9
|
|
Corporate/other:
|
|
|
|
|
|
|
|
Pension income
|
10.7
|
|
|
12.6
|
|
|
21.0
|
|
|
24.8
|
|
Environmental expense
|
(1.8
|
)
|
|
(2.4
|
)
|
|
(4.4
|
)
|
|
(5.1
|
)
|
Other corporate and unallocated costs
|
(29.7
|
)
|
|
(23.9
|
)
|
|
(63.1
|
)
|
|
(53.5
|
)
|
Restructuring charges
|
(8.5
|
)
|
|
(8.2
|
)
|
|
(16.7
|
)
|
|
(101.0
|
)
|
Acquisition-related costs
|
(4.4
|
)
|
|
(16.3
|
)
|
|
(11.4
|
)
|
|
(26.5
|
)
|
Other operating income (expense)
|
0.3
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
10.7
|
|
Interest expense
|
(52.5
|
)
|
|
(47.6
|
)
|
|
(104.9
|
)
|
|
(96.1
|
)
|
Interest income
|
0.4
|
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
|
Loss before taxes
|
$
|
(21.8
|
)
|
|
$
|
(23.6
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(79.0
|
)
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
($ in millions)
|
Stock-based compensation
|
$
|
4.2
|
|
|
$
|
1.6
|
|
|
$
|
11.5
|
|
|
$
|
6.0
|
|
Mark-to-market adjustments
|
(1.3
|
)
|
|
2.0
|
|
|
1.3
|
|
|
2.4
|
|
Total expense
|
$
|
2.9
|
|
|
$
|
3.6
|
|
|
$
|
12.8
|
|
|
$
|
8.4
|
|
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:
|
|
|
|
|
|
|
|
|
Grant date
|
2017
|
|
2016
|
Dividend yield
|
2.69
|
%
|
|
6.09
|
%
|
Risk-free interest rate
|
2.06
|
%
|
|
1.35
|
%
|
Expected volatility
|
34
|
%
|
|
32
|
%
|
Expected life (years)
|
6.0
|
|
|
6.0
|
|
Weighted-average grant fair value (per option)
|
$
|
7.78
|
|
|
$
|
1.90
|
|
Weighted-average exercise price
|
$
|
29.75
|
|
|
$
|
13.14
|
|
Shares granted
|
1,572,000
|
|
|
1,670,400
|
|
Dividend yield for
2017
and
2016
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.
DEBT
On March 9, 2017, we entered into a new five-year
$1,975.0 million
senior credit facility, which amended and restated the existing
$1,850.0 million
senior credit facility (the Senior Credit Facility). Pursuant to the agreement, the aggregate principal amount under the term loan facility was increased to
$1,375.0 million
(Term Loan Facility), and the aggregate commitments under the senior revolving credit facility were increased to
$600.0 million
(Senior Revolving Credit Facility and, together with the Term Loan Facility, the Amended Senior Credit Facility), from
$500.0 million
. In March 2017, we drew the entire
$1,375.0 million
term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from October 5, 2020 to March 9, 2022. The
$600.0 million
Senior Revolving Credit Facility includes a
$100.0 million
letter of credit subfacility. The Term Loan Facility includes amortization payable in equal quarterly installments at a rate of
5.0%
per annum for the first two years, increasing to
7.5%
per annum for the following year and to
10.0%
per annum for the last two years.
Under the Amended Senior Credit Facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the Amended Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of
June 30, 2017
, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As of
June 30, 2017
, as a result of our restrictive covenant related to the leverage ratio, the maximum additional borrowings available to us were
$547.1 million
. This limitation would restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing
Agreement. As of
June 30, 2017
, there were no other covenants or other restrictions that would have limited our ability to borrow.
On March 9, 2017, Olin issued
$500.0 million
aggregate principal amount of
5.125%
senior notes due September 15, 2027 (2027 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.
For the
six
months ended
June 30, 2017
, we recognized interest expense of
$2.7 million
for the write-off of unamortized deferred debt issuance costs related to these actions. For the
six
months ended
June 30, 2017
, we paid debt issuance costs of
$11.2 million
relating to the Amended Senior Credit Facility and the 2027 Notes.
CONTRIBUTING EMPLOYEE OWNERSHIP PLAN
The Contributing Employee Ownership Plan (CEOP) is a defined contribution plan available to essentially all domestic employees. We provide a contribution to an individual retirement contribution account maintained with the CEOP equal to an amount of between
5%
and
10%
of the employee’s eligible compensation. The defined contribution plan expense for the
three
months ended
June 30, 2017
and
2016
was
$6.0 million
and
$6.7 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
was
$12.6 million
and
$13.3 million
, respectively.
Company matching contributions are invested in the same investment allocation as the employee’s contribution. Our matching contributions for eligible employees for the
three
months ended
June 30, 2017
and
2016
were
$2.5 million
and
$2.9 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
were
$5.2 million
and
$5.6 million
, respectively.
PENSION PLANS AND RETIREMENT BENEFITS
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic employees participate in defined contribution plans. However, a portion of our bargaining hourly employees continue to participate in our domestic qualified defined benefit pension plans under a flat-benefit formula. Our funding policy for the qualified defined benefit pension plans is consistent with the requirements of federal laws and regulations. Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with statutory practices.
Our domestic qualified defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger, or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).
We also provide certain postretirement healthcare (medical) and life insurance benefits for eligible active and retired domestic employees. The healthcare plans are contributory with participants’ contributions adjusted annually based on medical rates of inflation and plan experience.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
Benefits
|
|
Three Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Components of Net Periodic Benefit (Income) Cost
|
($ in millions)
|
Service cost
|
$
|
4.1
|
|
|
$
|
2.7
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
Interest cost
|
21.5
|
|
|
21.8
|
|
|
0.4
|
|
|
0.4
|
|
Expected return on plans’ assets
|
(39.3
|
)
|
|
(39.1
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
|
0.1
|
|
|
(0.7
|
)
|
|
—
|
|
Recognized actuarial loss
|
6.8
|
|
|
5.0
|
|
|
0.7
|
|
|
0.8
|
|
Net periodic benefit (income) cost
|
$
|
(6.9
|
)
|
|
$
|
(9.5
|
)
|
|
$
|
0.7
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
Benefits
|
|
Six Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Components of Net Periodic Benefit (Income) Cost
|
($ in millions)
|
Service cost
|
$
|
8.4
|
|
|
$
|
5.9
|
|
|
$
|
0.6
|
|
|
$
|
0.7
|
|
Interest cost
|
43.2
|
|
|
44.2
|
|
|
0.8
|
|
|
0.9
|
|
Expected return on plans’ assets
|
(78.4
|
)
|
|
(78.9
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
|
0.1
|
|
|
(1.3
|
)
|
|
—
|
|
Recognized actuarial loss
|
13.4
|
|
|
10.3
|
|
|
1.3
|
|
|
1.6
|
|
Net periodic benefit (income) cost
|
$
|
(13.4
|
)
|
|
$
|
(18.4
|
)
|
|
$
|
1.4
|
|
|
$
|
3.2
|
|
We made cash contributions to our international qualified defined benefit pension plans of
$0.9 million
and
$0.7 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
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
35.0%
to income before taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Effective Tax Rate Reconciliation (Percent)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Statutory federal tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Salt depletion
|
(9.6
|
)
|
|
40.1
|
|
|
(10.2
|
)
|
|
9.6
|
|
Stock-based compensation
|
3.9
|
|
|
—
|
|
|
61.0
|
|
|
—
|
|
Foreign rate differential
|
(3.2
|
)
|
|
14.0
|
|
|
(3.7
|
)
|
|
1.5
|
|
U.S. tax on foreign earnings
|
3.2
|
|
|
(13.7
|
)
|
|
3.7
|
|
|
(1.4
|
)
|
Dividends paid to CEOP
|
(0.4
|
)
|
|
3.4
|
|
|
(0.4
|
)
|
|
0.6
|
|
State income taxes, net
|
0.4
|
|
|
21.8
|
|
|
(0.3
|
)
|
|
5.6
|
|
Change in valuation allowance
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(0.3
|
)
|
Change in tax contingencies
|
45.7
|
|
|
(20.6
|
)
|
|
251.3
|
|
|
(5.1
|
)
|
Return to provision
|
(2.3
|
)
|
|
18.9
|
|
|
(42.6
|
)
|
|
5.7
|
|
Other, net
|
0.2
|
|
|
(2.1
|
)
|
|
(1.5
|
)
|
|
(0.4
|
)
|
Effective tax rate
|
72.9
|
%
|
|
95.8
|
%
|
|
292.3
|
%
|
|
50.8
|
%
|
Under ASC 740 “Income Taxes” (ASC 740), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Based on the losses for the six months ended
June 30, 2016
and the full year pretax projections as of
June 30, 2016
, as well as the existence of large favorable permanent book-tax differences for 2016, a reliable projection of our annual effective tax rate as of June 30, 2016 was difficult to determine, producing significant variations in the customary relationship between income tax expense and pretax book income in interim periods, as a small change in forecasted pretax income could cause a significant change in the estimated annual effective tax rate. Consequently, the effective tax rates for the
three and six
months ended
June 30, 2016
were determined based on year-to-date results rather than utilizing the method of calculating an estimated annual effective tax rate which was used up until the period ended March 31, 2016 and for the
three and six
months ended
June 30, 2017
. The year-to-date actual discrete method was applied for the remainder of 2016.
The effective tax rates for both the
three and six
months ended
June 30, 2017
included a benefit of
$9.5 million
related to an agreement reached with the Internal Revenue Service (IRS) for the years 2008, 2010 to 2012 tax examinations and a benefit of
$0.9 million
and
$2.4 million
, respectively, associated with stock-based compensation. The effective tax rate for the six months ended June 30, 2017 also included
$1.0 million
of tax expense associated with prior year tax positions.
The effective tax rates for both the the
three and six
months ended
June 30, 2016
included a benefit of
$4.5 million
associated with a return to provision adjustment for the finalization of our prior years’ U.S. federal and state income tax returns. The
June 30, 2016
return to provision adjustment included
$14.2 million
of benefit primarily associated with a change in estimate related to the calculation of salt depletion and
$9.7 million
of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rates for the
three and six
months ended
June 30, 2016
also included an expense of
$4.9 million
and
$4.0 million
, respectively, related to changes in uncertain tax positions for prior tax years.
As of
June 30, 2017
, we had
$34.3 million
of gross unrecognized tax benefits, which would have a net
$32.8 million
impact on the effective tax rate, if recognized. As of
June 30, 2016
, we had
$37.5 million
of gross unrecognized tax benefits, of which
$35.8 million
would have impacted the effective tax rate, if recognized. The amount of unrecognized tax benefits was as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Balance at beginning of year
|
$
|
38.4
|
|
|
$
|
35.1
|
|
Increases for prior year tax positions
|
4.9
|
|
|
5.7
|
|
Decreases for prior year tax positions
|
(9.2
|
)
|
|
(1.8
|
)
|
Increases for current year tax positions
|
1.4
|
|
|
0.9
|
|
Settlement with taxing authorities
|
(1.0
|
)
|
|
(2.1
|
)
|
Reductions due to statute of limitations
|
(0.2
|
)
|
|
(0.3
|
)
|
Balance at end of period
|
$
|
34.3
|
|
|
$
|
37.5
|
|
In May 2017, we reached an agreement in principle with the IRS regarding their examination of our U.S. income tax returns for 2008, 2010 to 2012. The settlement resulted in a reduction of income tax expense of
$9.5 million
related primarily to favorable adjustments in uncertain tax positions for prior tax years.
As of
June 30, 2017
, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately
$1.4 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.
We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. None of our U.S. federal income tax returns are currently under examination by the IRS. In connection with the Acquisition, TDCC retained liabilities relating to taxes to the extent arising prior to the Closing Date. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:
|
|
|
|
Tax Years
|
U.S. federal income tax
|
2013 - 2016
|
U.S. state income tax
|
2006 - 2016
|
Canadian federal income tax
|
2012 - 2016
|
Brazil
|
2014 - 2016
|
Germany
|
2015 - 2016
|
China
|
2014 - 2016
|
The Netherlands
|
2014 - 2016
|
South Korea
|
2014 - 2016
|
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. ASC 815 “Derivatives and Hedging” (ASC 815) requires an entity to recognize all derivatives as either assets or liabilities in the condensed 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 derivative contracts as cash flow hedges of forecasted purchases of commodities and forecasted interest payments related to variable-rate borrowings and designate 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 and natural gas, and certain raw materials used in our production processes are subject to price volatility. Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps 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.
Olin actively manages currency exposures that are associated with net monetary asset positions, currency purchases and sales commitments denominated in foreign currencies and foreign currency denominated assets and liabilities created in the normal course of business. We enter into forward sales and purchase contracts to manage currency risk to offset our net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At
June 30, 2017
, we had outstanding forward contracts to buy foreign currency with a notional value of
$71.8 million
and to sell foreign currency with a notional value of
$90.4 million
. All of the currency derivatives expire within one year and are for U.S. dollar (USD) equivalents. The counterparties to the forward contracts are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. At
December 31, 2016
, we had outstanding forward contracts to buy foreign currency with a notional value of
$73.2 million
and to sell foreign currency with a notional value of
$100.8 million
. At
June 30, 2016
, we had outstanding forward contracts to buy foreign currency with a notional value of
$86.5 million
and to sell foreign currency with a notional value of
$117.7 million
.
Cash flow hedges
ASC 815 requires that all derivative instruments be recorded on the balance sheet at their fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive income (loss) until the hedged item is recognized in earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We had the following notional amount of outstanding commodity contracts that were entered into to hedge forecasted purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
|
($ in millions)
|
Copper
|
$
|
42.8
|
|
|
$
|
35.8
|
|
|
$
|
38.7
|
|
Zinc
|
7.9
|
|
|
8.0
|
|
|
8.0
|
|
Lead
|
—
|
|
|
3.4
|
|
|
8.4
|
|
Natural gas
|
45.0
|
|
|
54.4
|
|
|
0.4
|
|
As of
June 30, 2017
, the counterparties to these commodity contracts were Wells Fargo Bank, N.A. (Wells Fargo) (
$29.3 million
), Citibank (
$29.8 million
), Merrill Lynch Commodities, Inc. (
$27.4 million
) and JPMorgan Chase Bank, National Association (
$9.2 million
), all of which are major financial institutions.
We use cash flow hedges for certain raw material and energy costs such as copper, zinc, lead, electricity 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
June 30, 2017
, we had open positions in futures contracts through 2022. If all open futures contracts had been settled on
June 30, 2017
, we would have recognized a pretax gain of
$1.9 million
.
If commodity prices were to remain at
June 30, 2017
levels, approximately
$0.1 million
of deferred losses 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.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
, and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association and Toronto-Dominion Bank. These counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$9.6 million
and are included in other current assets and other assets on the accompanying condensed balance sheet as of
June 30, 2017
, with the corresponding gain deferred as a component of other comprehensive loss. For both the
three and six
months ended
June 30, 2017
,
$0.5 million
of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
We use interest rate swaps as a means of minimizing cash flow fluctuations that may arise from volatility in interest rates of our variable-rate borrowings. These interest rate swaps are treated as cash flow hedges. At
June 30, 2017
, we had open interest rate swaps designated as cash flow hedges with maximum terms through 2019. If all open interest rate swap contracts had been settled on
June 30, 2017
, we would have recognized a pretax gain of
$9.6 million
.
If interest rates were to remain at
June 30, 2017
levels,
$3.1 million
of deferred gains would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual interest rates 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
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, the total notional amounts of our interest rate swaps designated as fair value hedges were
$500.0 million
,
$500.0 million
and
$250.0 million
, respectively.
In April 2016, we entered into interest rate swaps on
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed-rate debt due to changes in interest rates for a portion of our fixed-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$24.9 million
and are included in other long-term liabilities on the accompanying condensed balance sheet as of
June 30, 2017
, with a corresponding decrease in the carrying amount of the related debt. For the
three
months ended
June 30, 2017
and
2016
,
$0.7 million
and
$0.5 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
,
$1.9 million
and
$0.5 million
, respectively, of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In June 2012, we terminated
$73.1 million
of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of
$2.2 million
, which will be recognized through 2017. As of
June 30, 2017
,
$0.1 million
of this gain was included in current installments of long-term debt.
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. These interest rate swaps are treated as fair value hedges. The accounting for gains and losses associated with changes in fair value of the derivative and the effect on the condensed financial statements will depend on the hedge designation and whether the hedge is effective in offsetting changes in fair value of cash flows of the asset or liability being hedged.
Financial statement impacts
We present our derivative assets and liabilities in our condensed balance sheets on a net basis whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to manage and substantially reduce our potential counterparty credit risk.
The following table summarizes the location and fair value of the derivative instruments on our condensed balance sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
|
Balance Sheet Location
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2016
|
|
|
|
|
($ in millions)
|
|
|
|
($ in millions)
|
Derivatives Designated as Hedging Instruments
|
Interest rate contracts
|
|
Other current assets
|
|
$
|
5.0
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
Current installments of long-term debt
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Interest rate contracts
|
|
Other assets
|
|
4.6
|
|
|
7.7
|
|
|
—
|
|
|
Long-term debt
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Interest rate contracts
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
Other liabilities
|
|
24.9
|
|
|
28.5
|
|
|
6.2
|
|
Commodity contracts – gains
|
|
Other current assets
|
|
4.9
|
|
|
13.2
|
|
|
—
|
|
|
Accrued liabilities
|
|
(0.1
|
)
|
|
—
|
|
|
(1.8
|
)
|
Commodity contracts – losses
|
|
Other current assets
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|
—
|
|
|
Accrued liabilities
|
|
2.3
|
|
|
—
|
|
|
4.9
|
|
|
|
|
|
$
|
13.6
|
|
|
$
|
21.1
|
|
|
$
|
3.7
|
|
|
|
|
$
|
27.2
|
|
|
$
|
28.6
|
|
|
$
|
9.6
|
|
Derivatives Not Designated as Hedging Instruments
|
Foreign exchange contracts – gains
|
|
Other current assets
|
|
$
|
1.7
|
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.7
|
)
|
Foreign exchange contracts – losses
|
|
Other current assets
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
—
|
|
|
Accrued liabilities
|
|
—
|
|
|
1.7
|
|
|
2.8
|
|
|
|
|
|
$
|
1.2
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
2.1
|
|
Total derivatives
(1)
|
|
|
|
$
|
14.8
|
|
|
$
|
21.2
|
|
|
$
|
3.8
|
|
|
|
|
$
|
27.2
|
|
|
$
|
29.8
|
|
|
$
|
11.7
|
|
|
|
(1)
|
Does not include the impact of cash collateral received from or provided to counterparties.
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
Location of Gain (Loss)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Derivatives – Cash Flow Hedges
|
|
($ in millions)
|
Recognized in other comprehensive income (loss) (effective portion):
|
|
|
|
|
|
|
|
|
Commodity contracts
|
———
|
|
$
|
(2.4
|
)
|
|
$
|
1.6
|
|
|
$
|
(7.4
|
)
|
|
$
|
2.7
|
|
Interest rate contracts
|
———
|
|
(1.3
|
)
|
|
(6.2
|
)
|
|
0.6
|
|
|
(6.2
|
)
|
|
|
|
$
|
(3.7
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
(3.5
|
)
|
Reclassified from accumulated other comprehensive loss into income (effective portion):
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
Commodity contracts
|
Cost of goods sold
|
|
1.8
|
|
|
(1.7
|
)
|
|
1.9
|
|
|
(5.4
|
)
|
|
|
|
$
|
2.3
|
|
|
$
|
(1.7
|
)
|
|
$
|
2.4
|
|
|
$
|
(5.4
|
)
|
Derivatives – Fair Value Hedges
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$
|
0.8
|
|
|
$
|
1.2
|
|
|
$
|
2.0
|
|
|
$
|
1.9
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
Foreign exchange contracts
|
Selling and administration
|
|
5.0
|
|
|
(4.2
|
)
|
|
0.5
|
|
|
(7.3
|
)
|
|
|
|
$
|
5.0
|
|
|
$
|
(4.2
|
)
|
|
$
|
0.5
|
|
|
$
|
(7.7
|
)
|
The ineffective portion of changes in fair value resulted in
zero
charged or credited to earnings for the
three and six
months ended
June 30, 2017
and
2016
.
Credit risk and collateral
By using derivative instruments, we are exposed to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes us, thus creating a repayment risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, assume no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with
high-quality counterparties. We monitor our positions and the credit ratings of our counterparties, and we do not anticipate nonperformance by the counterparties.
Based on the agreements with our various counterparties, cash collateral is required to be provided when the net fair value of the derivatives, with the counterparty, exceeds a specific threshold. If the threshold is exceeded, cash is either provided by the counterparty to us if the value of the derivatives is our asset, or cash is provided by us to the counterparty if the value of the derivatives is our liability. As of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, this threshold was not exceeded. In all instances where we are party to a master netting agreement, we offset the receivable or payable recognized upon payment of cash collateral against the fair value amounts recognized for derivative instruments that have also been offset under such master netting agreements.
FAIR VALUE MEASUREMENTS
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the condensed balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 “Fair Value Measurements and Disclosures” (ASC 820) are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
Level 1 — Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instruments’ anticipated life.
Level 3 — Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter. The following table summarizes the assets and liabilities measured at fair value in the condensed balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
Balance at June 30, 2017
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
($ in millions)
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
9.6
|
|
|
$
|
—
|
|
|
$
|
9.6
|
|
Commodity contracts
|
—
|
|
|
4.0
|
|
|
—
|
|
|
4.0
|
|
Foreign exchange contracts
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
25.0
|
|
|
$
|
—
|
|
|
$
|
25.0
|
|
Commodity contracts
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
Balance at December 31, 2016
|
|
|
|
|
|
|
|
Assets
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
9.6
|
|
|
$
|
—
|
|
|
$
|
9.6
|
|
Commodity contracts
|
—
|
|
|
11.5
|
|
|
—
|
|
|
11.5
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
28.6
|
|
|
$
|
—
|
|
|
$
|
28.6
|
|
Foreign exchange contracts
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Balance at June 30, 2016
|
|
|
|
|
|
|
|
Assets
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
3.7
|
|
|
$
|
—
|
|
|
$
|
3.7
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
Commodity contracts
|
—
|
|
|
3.1
|
|
|
—
|
|
|
3.1
|
|
Foreign exchange contracts
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
For the
six
months ended
June 30, 2017
, there were no transfers into or out of Level 1, Level 2 or Level 3.
Interest Rate Swaps
Interest rate swap financial instruments were valued using the “income approach” valuation technique. This method used valuation techniques to convert future amounts to a single present amount. The measurement was based on the value indicated by current market expectations about those future amounts. We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels.
Commodity Forward Contracts
Commodity contract financial instruments were valued primarily based on prices and other relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for commodities. We use commodity derivative contracts for certain raw materials and energy costs such as copper, zinc, lead, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations.
Foreign Currency Contracts
Foreign currency contract financial instruments were valued primarily based on relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for currencies. We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies.
Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value of our long-term debt was determined based on current market rates for debt of similar risk and maturities. The following table summarizes the fair value measurements of debt and the actual debt recorded on our condensed balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Amount recorded
on balance sheets
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in millions)
|
Balance at June 30, 2017
|
$
|
—
|
|
|
$
|
3,777.8
|
|
|
$
|
153.0
|
|
|
$
|
3,930.8
|
|
|
$
|
3,600.6
|
|
Balance at December 31, 2016
|
—
|
|
|
3,703.7
|
|
|
153.0
|
|
|
3,856.7
|
|
|
3,617.6
|
|
Balance at June 30, 2016
|
—
|
|
|
3,740.3
|
|
|
153.0
|
|
|
3,893.3
|
|
|
3,695.8
|
|
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis as required by ASC 820. There were no assets measured at fair value on a nonrecurring basis as of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In October 2015, Blue Cube Spinco Inc. (the Issuer) issued
$720.0 million
aggregate principal amount of
9.75%
senior notes due October 15, 2023 (2023 Notes) and
$500.0 million
aggregate principal amount of
10.00%
senior notes due October 15, 2025 (2025 Notes and, together with the 2023 Notes, the Notes). During 2016, the Notes were registered under the Securities Act of 1933, as amended. The Issuer was formed on March 13, 2015 as a wholly owned subsidiary of TDCC and upon closing of the Acquisition became a 100% owned subsidiary of Olin (the Parent Guarantor). The Exchange Notes are fully and unconditionally guaranteed by the Parent Guarantor.
The following condensed consolidating financial information presents the condensed consolidating balance sheets as of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, the related condensed consolidating statements of operations and comprehensive income for each of the
three and six
months ended
June 30, 2017
and
2016
, and the related statements of cash flows for the
six
months ended
June 30, 2017
and
2016
, of (a) the Parent Guarantor, (b) the Issuer, (c) the non-guarantor subsidiaries, (d) elimination entries necessary to consolidate the Parent Guarantor with the Issuer and the non-guarantor subsidiaries and (e) Olin on a consolidated basis. Investments in consolidated subsidiaries are presented under the equity method of accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
28.9
|
|
|
$
|
—
|
|
|
$
|
155.6
|
|
|
$
|
—
|
|
|
$
|
184.5
|
|
Receivables, net
|
101.7
|
|
|
—
|
|
|
680.5
|
|
|
—
|
|
|
782.2
|
|
Intercompany receivables
|
—
|
|
|
2.9
|
|
|
2,052.9
|
|
|
(2,055.8
|
)
|
|
—
|
|
Income taxes receivable
|
18.8
|
|
|
—
|
|
|
7.2
|
|
|
(5.1
|
)
|
|
20.9
|
|
Inventories
|
178.2
|
|
|
—
|
|
|
488.0
|
|
|
—
|
|
|
666.2
|
|
Other current assets
|
183.1
|
|
|
—
|
|
|
7.0
|
|
|
(152.9
|
)
|
|
37.2
|
|
Total current assets
|
510.7
|
|
|
2.9
|
|
|
3,391.2
|
|
|
(2,213.8
|
)
|
|
1,691.0
|
|
Property, plant and equipment, net
|
509.1
|
|
|
—
|
|
|
3,118.3
|
|
|
—
|
|
|
3,627.4
|
|
Investment in subsidiaries
|
6,082.7
|
|
|
3,774.0
|
|
|
—
|
|
|
(9,856.7
|
)
|
|
—
|
|
Deferred income taxes
|
151.8
|
|
|
—
|
|
|
97.8
|
|
|
(124.4
|
)
|
|
125.2
|
|
Other assets
|
46.9
|
|
|
—
|
|
|
578.7
|
|
|
—
|
|
|
625.6
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,204.3
|
|
|
—
|
|
|
(2,204.3
|
)
|
|
—
|
|
Intangible assets, net
|
0.4
|
|
|
5.7
|
|
|
599.5
|
|
|
—
|
|
|
605.6
|
|
Goodwill
|
—
|
|
|
966.3
|
|
|
1,153.2
|
|
|
—
|
|
|
2,119.5
|
|
Total assets
|
$
|
7,301.6
|
|
|
$
|
6,953.2
|
|
|
$
|
8,938.7
|
|
|
$
|
(14,399.2
|
)
|
|
$
|
8,794.3
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
0.8
|
|
|
$
|
68.8
|
|
|
$
|
12.1
|
|
|
$
|
—
|
|
|
$
|
81.7
|
|
Accounts payable
|
58.0
|
|
|
—
|
|
|
603.7
|
|
|
(5.6
|
)
|
|
656.1
|
|
Intercompany payables
|
2,055.8
|
|
|
—
|
|
|
—
|
|
|
(2,055.8
|
)
|
|
—
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
12.2
|
|
|
(5.1
|
)
|
|
7.1
|
|
Accrued liabilities
|
116.1
|
|
|
—
|
|
|
296.6
|
|
|
(151.2
|
)
|
|
261.5
|
|
Total current liabilities
|
2,230.7
|
|
|
68.8
|
|
|
924.6
|
|
|
(2,217.7
|
)
|
|
1,006.4
|
|
Long-term debt
|
822.3
|
|
|
2,487.4
|
|
|
209.2
|
|
|
—
|
|
|
3,518.9
|
|
Accrued pension liability
|
421.7
|
|
|
—
|
|
|
203.9
|
|
|
—
|
|
|
625.6
|
|
Deferred income taxes
|
—
|
|
|
237.9
|
|
|
924.1
|
|
|
(124.4
|
)
|
|
1,037.6
|
|
Long-term payables—affiliates
|
1,284.4
|
|
|
—
|
|
|
919.9
|
|
|
(2,204.3
|
)
|
|
—
|
|
Other liabilities
|
283.9
|
|
|
8.1
|
|
|
55.2
|
|
|
—
|
|
|
347.2
|
|
Total liabilities
|
5,043.0
|
|
|
2,802.2
|
|
|
3,236.9
|
|
|
(4,546.4
|
)
|
|
6,535.7
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
166.3
|
|
|
—
|
|
|
14.6
|
|
|
(14.6
|
)
|
|
166.3
|
|
Additional paid-in capital
|
2,262.7
|
|
|
4,125.7
|
|
|
4,808.2
|
|
|
(8,933.9
|
)
|
|
2,262.7
|
|
Accumulated other comprehensive loss
|
(485.4
|
)
|
|
—
|
|
|
(8.6
|
)
|
|
8.6
|
|
|
(485.4
|
)
|
Retained earnings
|
315.0
|
|
|
25.3
|
|
|
887.6
|
|
|
(912.9
|
)
|
|
315.0
|
|
Total shareholders' equity
|
2,258.6
|
|
|
4,151.0
|
|
|
5,701.8
|
|
|
(9,852.8
|
)
|
|
2,258.6
|
|
Total liabilities and shareholders' equity
|
$
|
7,301.6
|
|
|
$
|
6,953.2
|
|
|
$
|
8,938.7
|
|
|
$
|
(14,399.2
|
)
|
|
$
|
8,794.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
December 31, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
25.2
|
|
|
$
|
—
|
|
|
$
|
159.3
|
|
|
$
|
—
|
|
|
$
|
184.5
|
|
Receivables, net
|
88.3
|
|
|
—
|
|
|
586.7
|
|
|
—
|
|
|
675.0
|
|
Intercompany receivables
|
—
|
|
|
—
|
|
|
1,912.3
|
|
|
(1,912.3
|
)
|
|
—
|
|
Income taxes receivable
|
19.0
|
|
|
—
|
|
|
7.3
|
|
|
(0.8
|
)
|
|
25.5
|
|
Inventories
|
167.7
|
|
|
—
|
|
|
462.7
|
|
|
—
|
|
|
630.4
|
|
Other current assets
|
164.7
|
|
|
3.4
|
|
|
1.2
|
|
|
(138.5
|
)
|
|
30.8
|
|
Total current assets
|
464.9
|
|
|
3.4
|
|
|
3,129.5
|
|
|
(2,051.6
|
)
|
|
1,546.2
|
|
Property, plant and equipment, net
|
510.1
|
|
|
—
|
|
|
3,194.8
|
|
|
—
|
|
|
3,704.9
|
|
Investment in subsidiaries
|
6,035.2
|
|
|
3,734.7
|
|
|
—
|
|
|
(9,769.9
|
)
|
|
—
|
|
Deferred income taxes
|
133.5
|
|
|
—
|
|
|
103.5
|
|
|
(117.5
|
)
|
|
119.5
|
|
Other assets
|
48.1
|
|
|
—
|
|
|
596.3
|
|
|
—
|
|
|
644.4
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,194.2
|
|
|
—
|
|
|
(2,194.2
|
)
|
|
—
|
|
Intangible assets, net
|
0.4
|
|
|
5.7
|
|
|
623.5
|
|
|
—
|
|
|
629.6
|
|
Goodwill
|
—
|
|
|
966.3
|
|
|
1,151.7
|
|
|
—
|
|
|
2,118.0
|
|
Total assets
|
$
|
7,192.2
|
|
|
$
|
6,904.3
|
|
|
$
|
8,799.3
|
|
|
$
|
(14,133.2
|
)
|
|
$
|
8,762.6
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
0.6
|
|
|
$
|
67.5
|
|
|
$
|
12.4
|
|
|
$
|
—
|
|
|
$
|
80.5
|
|
Accounts payable
|
45.3
|
|
|
—
|
|
|
527.4
|
|
|
(1.9
|
)
|
|
570.8
|
|
Intercompany payables
|
1,882.8
|
|
|
29.5
|
|
|
—
|
|
|
(1,912.3
|
)
|
|
—
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
8.3
|
|
|
(0.8
|
)
|
|
7.5
|
|
Accrued liabilities
|
124.9
|
|
|
—
|
|
|
277.5
|
|
|
(138.6
|
)
|
|
263.8
|
|
Total current liabilities
|
2,053.6
|
|
|
97.0
|
|
|
825.6
|
|
|
(2,053.6
|
)
|
|
922.6
|
|
Long-term debt
|
913.9
|
|
|
2,413.3
|
|
|
209.9
|
|
|
—
|
|
|
3,537.1
|
|
Accrued pension liability
|
453.7
|
|
|
—
|
|
|
184.4
|
|
|
—
|
|
|
638.1
|
|
Deferred income taxes
|
—
|
|
|
223.6
|
|
|
926.4
|
|
|
(117.5
|
)
|
|
1,032.5
|
|
Long-term payables—affiliates
|
1,209.1
|
|
|
—
|
|
|
985.1
|
|
|
(2,194.2
|
)
|
|
—
|
|
Other liabilities
|
288.9
|
|
|
6.6
|
|
|
63.8
|
|
|
—
|
|
|
359.3
|
|
Total liabilities
|
4,919.2
|
|
|
2,740.5
|
|
|
3,195.2
|
|
|
(4,365.3
|
)
|
|
6,489.6
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
165.4
|
|
|
—
|
|
|
14.6
|
|
|
(14.6
|
)
|
|
165.4
|
|
Additional paid-in capital
|
2,243.8
|
|
|
4,125.7
|
|
|
4,808.2
|
|
|
(8,933.9
|
)
|
|
2,243.8
|
|
Accumulated other comprehensive loss
|
(510.0
|
)
|
|
—
|
|
|
(7.0
|
)
|
|
7.0
|
|
|
(510.0
|
)
|
Retained earnings
|
373.8
|
|
|
38.1
|
|
|
788.3
|
|
|
(826.4
|
)
|
|
373.8
|
|
Total shareholders' equity
|
2,273.0
|
|
|
4,163.8
|
|
|
5,604.1
|
|
|
(9,767.9
|
)
|
|
2,273.0
|
|
Total liabilities and shareholders' equity
|
$
|
7,192.2
|
|
|
$
|
6,904.3
|
|
|
$
|
8,799.3
|
|
|
$
|
(14,133.2
|
)
|
|
$
|
8,762.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
23.2
|
|
|
$
|
—
|
|
|
$
|
43.4
|
|
|
$
|
—
|
|
|
$
|
66.6
|
|
Receivables, net
|
98.2
|
|
|
—
|
|
|
692.3
|
|
|
—
|
|
|
790.5
|
|
Intercompany receivables
|
—
|
|
|
22.3
|
|
|
1,712.1
|
|
|
(1,734.4
|
)
|
|
—
|
|
Income taxes receivable
|
35.1
|
|
|
—
|
|
|
10.7
|
|
|
—
|
|
|
45.8
|
|
Inventories
|
175.2
|
|
|
—
|
|
|
461.0
|
|
|
—
|
|
|
636.2
|
|
Other current assets
|
146.1
|
|
|
—
|
|
|
5.4
|
|
|
(127.7
|
)
|
|
23.8
|
|
Total current assets
|
477.8
|
|
|
22.3
|
|
|
2,924.9
|
|
|
(1,862.1
|
)
|
|
1,562.9
|
|
Property, plant and equipment, net
|
494.7
|
|
|
—
|
|
|
3,298.6
|
|
|
—
|
|
|
3,793.3
|
|
Investment in subsidiaries
|
5,957.3
|
|
|
3,655.0
|
|
|
—
|
|
|
(9,612.3
|
)
|
|
—
|
|
Deferred income taxes
|
166.2
|
|
|
—
|
|
|
88.5
|
|
|
(147.7
|
)
|
|
107.0
|
|
Other assets
|
40.4
|
|
|
—
|
|
|
548.2
|
|
|
—
|
|
|
588.6
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,262.4
|
|
|
—
|
|
|
(2,262.4
|
)
|
|
—
|
|
Intangible assets, net
|
0.5
|
|
|
5.7
|
|
|
665.0
|
|
|
—
|
|
|
671.2
|
|
Goodwill
|
—
|
|
|
994.2
|
|
|
1,192.1
|
|
|
—
|
|
|
2,186.3
|
|
Total assets
|
$
|
7,136.9
|
|
|
$
|
6,939.6
|
|
|
$
|
8,717.3
|
|
|
$
|
(13,884.5
|
)
|
|
$
|
8,909.3
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
0.6
|
|
|
$
|
67.5
|
|
|
$
|
12.2
|
|
|
$
|
—
|
|
|
$
|
80.3
|
|
Accounts payable
|
59.8
|
|
|
—
|
|
|
476.6
|
|
|
—
|
|
|
536.4
|
|
Intercompany payables
|
1,734.4
|
|
|
—
|
|
|
—
|
|
|
(1,734.4
|
)
|
|
—
|
|
Income taxes payable
|
0.6
|
|
|
—
|
|
|
7.6
|
|
|
—
|
|
|
8.2
|
|
Accrued liabilities
|
133.4
|
|
|
—
|
|
|
287.9
|
|
|
(127.7
|
)
|
|
293.6
|
|
Total current liabilities
|
1,928.8
|
|
|
67.5
|
|
|
784.3
|
|
|
(1,862.1
|
)
|
|
918.5
|
|
Long-term debt
|
1,158.3
|
|
|
2,444.8
|
|
|
12.4
|
|
|
—
|
|
|
3,615.5
|
|
Accrued pension liability
|
164.1
|
|
|
—
|
|
|
452.6
|
|
|
—
|
|
|
616.7
|
|
Deferred income taxes
|
—
|
|
|
294.7
|
|
|
932.3
|
|
|
(147.7
|
)
|
|
1,079.3
|
|
Long-term payables—affiliates
|
1,277.3
|
|
|
—
|
|
|
985.1
|
|
|
(2,262.4
|
)
|
|
—
|
|
Other liabilities
|
277.4
|
|
|
—
|
|
|
70.9
|
|
|
—
|
|
|
348.3
|
|
Total liabilities
|
4,805.9
|
|
|
2,807.0
|
|
|
3,237.6
|
|
|
(4,272.2
|
)
|
|
6,578.3
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
165.2
|
|
|
—
|
|
|
15.1
|
|
|
(15.1
|
)
|
|
165.2
|
|
Additional paid-in capital
|
2,240.3
|
|
|
4,125.7
|
|
|
4,756.4
|
|
|
(8,882.1
|
)
|
|
2,240.3
|
|
Accumulated other comprehensive loss
|
(479.3
|
)
|
|
—
|
|
|
(21.1
|
)
|
|
21.1
|
|
|
(479.3
|
)
|
Retained earnings
|
404.8
|
|
|
6.9
|
|
|
729.3
|
|
|
(736.2
|
)
|
|
404.8
|
|
Total shareholders' equity
|
2,331.0
|
|
|
4,132.6
|
|
|
5,479.7
|
|
|
(9,612.3
|
)
|
|
2,331.0
|
|
Total liabilities and shareholders' equity
|
$
|
7,136.9
|
|
|
$
|
6,939.6
|
|
|
$
|
8,717.3
|
|
|
$
|
(13,884.5
|
)
|
|
$
|
8,909.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Six Months Ended June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
652.9
|
|
|
$
|
—
|
|
|
$
|
2,655.1
|
|
|
$
|
(214.4
|
)
|
|
$
|
3,093.6
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
569.5
|
|
|
—
|
|
|
2,442.7
|
|
|
(214.4
|
)
|
|
2,797.8
|
|
Selling and administration
|
68.6
|
|
|
—
|
|
|
99.6
|
|
|
—
|
|
|
168.2
|
|
Restructuring charges
|
—
|
|
|
—
|
|
|
16.7
|
|
|
—
|
|
|
16.7
|
|
Acquisition-related costs
|
11.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.4
|
|
Other operating (expense) income
|
(4.5
|
)
|
|
—
|
|
|
4.4
|
|
|
—
|
|
|
(0.1
|
)
|
Operating (loss) income
|
(1.1
|
)
|
|
—
|
|
|
100.5
|
|
|
—
|
|
|
99.4
|
|
Earnings of non-consolidated affiliates
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Equity income (loss) in subsidiaries
|
18.4
|
|
|
39.3
|
|
|
—
|
|
|
(57.7
|
)
|
|
—
|
|
Interest expense
|
21.4
|
|
|
82.8
|
|
|
4.0
|
|
|
(3.3
|
)
|
|
104.9
|
|
Interest income
|
3.0
|
|
|
—
|
|
|
0.9
|
|
|
(3.3
|
)
|
|
0.6
|
|
Income (loss) before taxes
|
(0.1
|
)
|
|
(43.5
|
)
|
|
97.4
|
|
|
(57.7
|
)
|
|
(3.9
|
)
|
Income tax (benefit) provision
|
(7.6
|
)
|
|
(30.7
|
)
|
|
26.9
|
|
|
—
|
|
|
(11.4
|
)
|
Net income (loss)
|
$
|
7.5
|
|
|
$
|
(12.8
|
)
|
|
$
|
70.5
|
|
|
$
|
(57.7
|
)
|
|
$
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Three Months Ended June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
338.1
|
|
|
$
|
—
|
|
|
$
|
1,294.7
|
|
|
$
|
(106.3
|
)
|
|
$
|
1,526.5
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
294.7
|
|
|
—
|
|
|
1,215.7
|
|
|
(106.3
|
)
|
|
1,404.1
|
|
Selling and administration
|
27.5
|
|
|
—
|
|
|
52.5
|
|
|
—
|
|
|
80.0
|
|
Restructuring charges
|
—
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
|
8.5
|
|
Acquisition-related costs
|
4.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
Other operating (expense) income
|
(4.0
|
)
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
0.3
|
|
Operating income
|
7.5
|
|
|
—
|
|
|
22.3
|
|
|
—
|
|
|
29.8
|
|
Earnings of non-consolidated affiliates
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Equity (loss) income in subsidiaries
|
(7.8
|
)
|
|
4.2
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
Interest expense
|
9.4
|
|
|
41.9
|
|
|
3.1
|
|
|
(1.9
|
)
|
|
52.5
|
|
Interest income
|
2.3
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
|
0.4
|
|
Income (loss) before taxes
|
(6.9
|
)
|
|
(37.7
|
)
|
|
19.2
|
|
|
3.6
|
|
|
(21.8
|
)
|
Income tax (benefit) provision
|
(1.0
|
)
|
|
(15.5
|
)
|
|
0.6
|
|
|
—
|
|
|
(15.9
|
)
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(22.2
|
)
|
|
$
|
18.6
|
|
|
$
|
3.6
|
|
|
$
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Six Months Ended June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
650.5
|
|
|
$
|
—
|
|
|
$
|
2,296.0
|
|
|
$
|
(234.3
|
)
|
|
$
|
2,712.2
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
560.7
|
|
|
—
|
|
|
2,085.9
|
|
|
(234.3
|
)
|
|
2,412.3
|
|
Selling and administration
|
72.8
|
|
|
—
|
|
|
94.6
|
|
|
—
|
|
|
167.4
|
|
Restructuring charges
|
0.6
|
|
|
—
|
|
|
100.4
|
|
|
—
|
|
|
101.0
|
|
Acquisition-related costs
|
25.3
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
|
26.5
|
|
Other operating (expense) income
|
(1.1
|
)
|
|
—
|
|
|
11.8
|
|
|
—
|
|
|
10.7
|
|
Operating (loss) income
|
(10.0
|
)
|
|
—
|
|
|
25.7
|
|
|
—
|
|
|
15.7
|
|
Earnings of non-consolidated affiliates
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
Equity (loss) income in subsidiaries
|
(21.2
|
)
|
|
59.3
|
|
|
—
|
|
|
(38.1
|
)
|
|
—
|
|
Interest expense
|
21.0
|
|
|
76.0
|
|
|
1.9
|
|
|
(2.8
|
)
|
|
96.1
|
|
Interest income
|
1.5
|
|
|
—
|
|
|
2.1
|
|
|
(2.8
|
)
|
|
0.8
|
|
Income (loss) before taxes
|
(50.1
|
)
|
|
(16.7
|
)
|
|
25.9
|
|
|
(38.1
|
)
|
|
(79.0
|
)
|
Income tax benefit
|
(11.2
|
)
|
|
(28.2
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
(40.1
|
)
|
Net (loss) income
|
$
|
(38.9
|
)
|
|
$
|
11.5
|
|
|
$
|
26.6
|
|
|
$
|
(38.1
|
)
|
|
$
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Three Months Ended June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
329.8
|
|
|
$
|
—
|
|
|
$
|
1,154.7
|
|
|
$
|
(120.5
|
)
|
|
$
|
1,364.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
285.4
|
|
|
—
|
|
|
1,072.0
|
|
|
(120.5
|
)
|
|
1,236.9
|
|
Selling and administration
|
36.0
|
|
|
—
|
|
|
43.3
|
|
|
—
|
|
|
79.3
|
|
Restructuring charges
|
0.3
|
|
|
—
|
|
|
7.9
|
|
|
—
|
|
|
8.2
|
|
Acquisition-related costs
|
15.1
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
|
16.3
|
|
Other operating (expense) income
|
(0.6
|
)
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
(0.2
|
)
|
Operating (loss) income
|
(7.6
|
)
|
|
—
|
|
|
30.7
|
|
|
—
|
|
|
23.1
|
|
Earnings of non-consolidated affiliates
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Equity income (loss) in subsidiaries
|
7.6
|
|
|
15.7
|
|
|
—
|
|
|
(23.3
|
)
|
|
—
|
|
Interest expense
|
10.3
|
|
|
37.8
|
|
|
0.9
|
|
|
(1.4
|
)
|
|
47.6
|
|
Interest income
|
0.7
|
|
|
—
|
|
|
1.2
|
|
|
(1.4
|
)
|
|
0.5
|
|
Income (loss) before taxes
|
(9.2
|
)
|
|
(22.1
|
)
|
|
31.0
|
|
|
(23.3
|
)
|
|
(23.6
|
)
|
Income tax (benefit) provision
|
(8.2
|
)
|
|
(14.9
|
)
|
|
0.5
|
|
|
—
|
|
|
(22.6
|
)
|
Net (loss) income
|
$
|
(1.0
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
30.5
|
|
|
$
|
(23.3
|
)
|
|
$
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Six Months Ended June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net income (loss)
|
$
|
7.5
|
|
|
$
|
(12.8
|
)
|
|
$
|
70.5
|
|
|
$
|
(57.7
|
)
|
|
$
|
7.5
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
21.9
|
|
|
—
|
|
|
21.9
|
|
Unrealized losses on derivative contracts, net
|
(5.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.7
|
)
|
Amortization of prior service costs and actuarial losses, net
|
8.0
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
8.4
|
|
Total other comprehensive income, net of tax
|
2.3
|
|
|
—
|
|
|
22.3
|
|
|
—
|
|
|
24.6
|
|
Comprehensive income (loss)
|
$
|
9.8
|
|
|
$
|
(12.8
|
)
|
|
$
|
92.8
|
|
|
$
|
(57.7
|
)
|
|
$
|
32.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Three Months Ended June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(22.2
|
)
|
|
$
|
18.6
|
|
|
$
|
3.6
|
|
|
$
|
(5.9
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
15.9
|
|
|
—
|
|
|
15.9
|
|
Unrealized losses on derivative contracts, net
|
(3.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.7
|
)
|
Amortization of prior service costs and actuarial losses, net
|
4.3
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
4.5
|
|
Total other comprehensive income, net of tax
|
0.6
|
|
|
—
|
|
|
16.1
|
|
|
—
|
|
|
16.7
|
|
Comprehensive (loss) income
|
$
|
(5.3
|
)
|
|
$
|
(22.2
|
)
|
|
$
|
34.7
|
|
|
$
|
3.6
|
|
|
$
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Six Months Ended June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net (loss) income
|
$
|
(38.9
|
)
|
|
$
|
11.5
|
|
|
$
|
26.6
|
|
|
$
|
(38.1
|
)
|
|
$
|
(38.9
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
Unrealized gains on derivative contracts, net
|
1.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
Amortization of prior service costs and actuarial losses, net
|
6.7
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
7.3
|
|
Total other comprehensive income, net of tax
|
7.9
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
13.2
|
|
Comprehensive (loss) income
|
$
|
(31.0
|
)
|
|
$
|
11.5
|
|
|
$
|
31.9
|
|
|
$
|
(38.1
|
)
|
|
$
|
(25.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Three Months Ended June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net (loss) income
|
$
|
(1.0
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
30.5
|
|
|
$
|
(23.3
|
)
|
|
$
|
(1.0
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
(10.8
|
)
|
|
—
|
|
|
(10.8
|
)
|
Unrealized losses on derivative contracts, net
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
Amortization of prior service costs and actuarial losses, net
|
3.4
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
3.5
|
|
Total other comprehensive income (loss), net of tax
|
1.6
|
|
|
—
|
|
|
(10.7
|
)
|
|
—
|
|
|
(9.1
|
)
|
Comprehensive income (loss)
|
$
|
0.6
|
|
|
$
|
(7.2
|
)
|
|
$
|
19.8
|
|
|
$
|
(23.3
|
)
|
|
$
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
Six Months Ended June 30, 2017
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net operating activities
|
$
|
124.4
|
|
|
$
|
—
|
|
|
$
|
103.0
|
|
|
$
|
—
|
|
|
$
|
227.4
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(43.9
|
)
|
|
—
|
|
|
(107.0
|
)
|
|
—
|
|
|
(150.9
|
)
|
Proceeds from disposition of property, plant and equipment
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Net investing activities
|
(43.9
|
)
|
|
—
|
|
|
(106.9
|
)
|
|
—
|
|
|
(150.8
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Borrowings
|
500.0
|
|
|
1,375.0
|
|
|
—
|
|
|
—
|
|
|
1,875.0
|
|
Repayments
|
(590.4
|
)
|
|
(1,299.7
|
)
|
|
—
|
|
|
—
|
|
|
(1,890.1
|
)
|
Stock options exercised
|
15.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.8
|
|
Dividends paid
|
(66.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66.3
|
)
|
Debt issuance costs
|
(8.3
|
)
|
|
(2.9
|
)
|
|
—
|
|
|
—
|
|
|
(11.2
|
)
|
Intercompany financing activities
|
72.4
|
|
|
(72.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net financing activities
|
(76.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(76.8
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Net increase (decrease) in cash and cash equivalents
|
3.7
|
|
|
—
|
|
|
(3.7
|
)
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, beginning of period
|
25.2
|
|
|
—
|
|
|
159.3
|
|
|
—
|
|
|
184.5
|
|
Cash and cash equivalents, end of period
|
$
|
28.9
|
|
|
$
|
—
|
|
|
$
|
155.6
|
|
|
$
|
—
|
|
|
$
|
184.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
Six Months Ended June 30, 2016
|
(In millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net operating activities
|
$
|
305.4
|
|
|
$
|
—
|
|
|
$
|
(119.2
|
)
|
|
$
|
—
|
|
|
$
|
186.2
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(26.8
|
)
|
|
—
|
|
|
(110.6
|
)
|
|
—
|
|
|
(137.4
|
)
|
Business acquired in purchase transaction, net of cash acquired
|
(69.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69.5
|
)
|
Payments under long-term supply contract
|
—
|
|
|
—
|
|
|
(85.0
|
)
|
|
—
|
|
|
(85.0
|
)
|
Proceeds from disposition of property, plant and equipment
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
Proceeds from disposition of affiliated companies
|
4.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
Net investing activities
|
(91.7
|
)
|
|
—
|
|
|
(195.4
|
)
|
|
—
|
|
|
(287.1
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Long-term debt repayments
|
(125.2
|
)
|
|
(33.8
|
)
|
|
—
|
|
|
—
|
|
|
(159.0
|
)
|
Stock options exercised
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Dividends paid
|
(66.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66.1
|
)
|
Intercompany financing activities
|
(118.8
|
)
|
|
33.8
|
|
|
85.0
|
|
|
—
|
|
|
—
|
|
Net financing activities
|
(309.9
|
)
|
|
—
|
|
|
85.0
|
|
|
—
|
|
|
(224.9
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Net decrease in cash and cash equivalents
|
(96.2
|
)
|
|
—
|
|
|
(229.2
|
)
|
|
—
|
|
|
(325.4
|
)
|
Cash and cash equivalents, beginning of period
|
119.4
|
|
|
—
|
|
|
272.6
|
|
|
—
|
|
|
392.0
|
|
Cash and cash equivalents, end of period
|
$
|
23.2
|
|
|
$
|
—
|
|
|
$
|
43.4
|
|
|
$
|
—
|
|
|
$
|
66.6
|
|
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
($ in millions, except per share data)
|
Sales
|
$
|
1,526.5
|
|
|
$
|
1,364.0
|
|
|
$
|
3,093.6
|
|
|
$
|
2,712.2
|
|
Cost of goods sold
|
1,404.1
|
|
|
1,236.9
|
|
|
2,797.8
|
|
|
2,412.3
|
|
Gross margin
|
122.4
|
|
|
127.1
|
|
|
295.8
|
|
|
299.9
|
|
Selling and administration
|
80.0
|
|
|
79.3
|
|
|
168.2
|
|
|
167.4
|
|
Restructuring charges
|
8.5
|
|
|
8.2
|
|
|
16.7
|
|
|
101.0
|
|
Acquisition-related costs
|
4.4
|
|
|
16.3
|
|
|
11.4
|
|
|
26.5
|
|
Other operating income (expense)
|
0.3
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
10.7
|
|
Operating income
|
29.8
|
|
|
23.1
|
|
|
99.4
|
|
|
15.7
|
|
Earnings of non-consolidated affiliates
|
0.5
|
|
|
0.4
|
|
|
1.0
|
|
|
0.6
|
|
Interest expense
|
52.5
|
|
|
47.6
|
|
|
104.9
|
|
|
96.1
|
|
Interest income
|
0.4
|
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
|
Loss before taxes
|
(21.8
|
)
|
|
(23.6
|
)
|
|
(3.9
|
)
|
|
(79.0
|
)
|
Income tax benefit
|
(15.9
|
)
|
|
(22.6
|
)
|
|
(11.4
|
)
|
|
(40.1
|
)
|
Net (loss) income
|
$
|
(5.9
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
7.5
|
|
|
$
|
(38.9
|
)
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.24
|
)
|
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
Sales for the
three
months ended
June 30, 2017
were
$1,526.5 million
compared to
$1,364.0 million
in the same period last year, an increase of
$162.5 million
, or
12%
. Chlor Alkali Products and Vinyls sales increased by
$132.1 million
primarily due to higher caustic soda and EDC product prices and increased volumes. Epoxy sales increased by
$42.0 million
primarily due to higher product prices. Winchester sales decreased by
$11.6 million
primarily due to decreased shipments to commercial customers, partially offset by increased shipments to military customers.
Gross margin decreased
$4.7 million
compared to the
three
months ended
June 30, 2016
. Epoxy gross margin decreased
$12.9 million
primarily due to increased raw material costs, primarily associated with benzene and propylene, partially offset by higher product prices. Winchester gross margin decreased
$12.4 million
primarily due to lower level of commercial demand for shotshell, pistol and rifle ammunition and a less favorable product mix, partially offset by increased shipments to military customers. Chlor Alkali Products and Vinyls gross margin increased by
$18.9 million
primarily due to higher caustic soda and EDC product prices and lower operating costs, partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages. Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher than the comparable prior year period. Gross margin as a percentage of sales decreased to
8%
in 2017 from
9%
in 2016.
Selling and administration expenses for the
three
months ended
June 30, 2017
were
$80.0 million
, an increase of
$0.7 million
from the same period last year. The increase was primarily due to an unfavorable foreign currency impact of $2.4 million and higher consulting and contract services of $1.7 million, partially offset by lower legal and legal-related settlement expenses of $1.3 million and lower stock-based compensation expense of $0.8 million, which includes mark-to-market adjustments. Selling and administration expenses as a percentage of sales were
5%
in
2017
and
6%
in
2016
.
Restructuring charges for the
three
months ended
June 30, 2017
and
2016
of
$8.5 million
and
$8.2 million
, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. Restructuring charges for the
three
months ended
June 30, 2016
were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS, which was completed in 2016.
Acquisition-related costs of
$4.4 million
and
$16.3 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.
Interest expense increased by
$4.9 million
for the
three
months ended
June 30, 2017
, primarily due to higher interest rates, partially offset by a lower level of debt outstanding.
The effective tax rate for the three months ended June 30, 2017 included a benefit of $9.5 million related to an agreement reached with the Internal Revenue Service (IRS) for the years 2008, 2010 to 2012 tax examinations. The effective tax rate for the three months ended June 30, 2017 also included a benefit of $0.9 million associated with stock-based compensation. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2017 of 25.2% was lower than the
35%
U.S. federal statutory rate primarily due to favorable permanent tax deduction items, such as the salt depletion deduction and tax deductible dividends paid to the Contributing Employee Ownership Plan (CEOP). The effective tax rate for the
three
months ended
June 30, 2016
included a benefit of $4.5 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The
June 30, 2016
return to provision adjustment included $14.2 million of benefit primarily associated with a change in estimate related to the calculation of salt depletion and $9.7 million of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate for the
three
months ended
June 30, 2016
also included an expense of $4.9 million related to changes in uncertain tax positions for prior tax years. After giving consideration to these items, the effective tax rate for the
three
months ended
June 30, 2016
of 97.5% was higher than the
35%
U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
Sales for the
six
months ended
June 30, 2017
were
$3,093.6 million
compared to
$2,712.2 million
in the same period last year, an increase of
$381.4 million
, or
14%
. Chlor Alkali Products and Vinyls sales increased by
$264.7 million
primarily due to higher caustic soda and EDC product prices and increased volumes. Epoxy sales increased by
$149.4 million
primarily due to higher product prices and increased volumes. Winchester sales decreased by
$32.7 million
primarily due to decreased shipments to commercial customers, partially offset by increased shipments to military customers.
Gross margin decreased
$4.1 million
compared to the
six
months ended
June 30, 2016
. Epoxy gross margin decreased
$23.9 million
primarily due to increased raw material costs, primarily associated with benzene and propylene, partially offset by higher product prices and increased volumes. Winchester gross margin decreased
$18.1 million
primarily due to lower volumes and a less favorable product mix, primarily due to lower level of commercial demand for shotshell, pistol and rifle ammunition, partially offset by increased shipments to military customers. Chlor Alkali Products and Vinyls gross margin increased by
$35.8 million
, primarily due to higher caustic soda and EDC product prices, increased volumes with a favorable product mix and lower operating costs. These increases were partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages. Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher than the comparable prior year period. Gross margin as a percentage of sales decreased to
10%
in 2017 from
11%
in 2016.
Selling and administration expenses for the
six
months ended
June 30, 2017
were
$168.2 million
, an increase of
$0.8 million
from the same period last year. The increase was primarily due to an unfavorable foreign currency impact of $4.0 million and higher stock-based compensation expense of $4.5 million, which includes mark-to-market adjustments, partially offset by lower legal and legal-related settlement expenses of $6.0 million. Selling and administration expenses as a percentage of sales were
5%
in
2017
and
6%
in
2016
.
Restructuring charges for the
six
months ended
June 30, 2017
and
2016
of
$16.7 million
and
$101.0 million
, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. For the
six
months ended
June 30, 2016
, $76.6 million of these charges were non-cash asset impairment charges for equipment and facilities. Restructuring charges for the
six
months ended
June 30, 2016
were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS, which was completed in 2016.
Acquisition-related costs of
$11.4 million
and
$26.5 million
for the
six
months ended
June 30, 2017
and
2016
, respectively, were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.
Other operating income (expense) for the
six
months ended
June 30, 2016
included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident.
Interest expense increased by
$8.8 million
for the
six
months ended
June 30, 2017
, primarily due to higher interest rates and the write-off of unamortized deferred debt issuance costs of $2.7 million associated with the redemption of the Sumitomo Credit Facility and the Senior Credit Facility. These increases were partially offset by a lower level of debt outstanding.
The effective tax rate for the six months ended June 30, 2017 included a benefit of $9.5 million related to an agreement reached with the IRS for the years 2008, 2010 to 2012 tax examinations and a benefit of $2.4 million associated with stock-based compensation. The effective tax rate for the six months ended June 30, 2017 also included $1.0 million of tax expense associated with prior year tax positions. After giving consideration to these items, the effective tax rate for the six months ended June 30, 2017 of 12.8% was lower than the
35%
U.S. federal statutory rate primarily due to favorable permanent tax deduction items, such as the salt depletion deduction and tax deductible dividends paid to the CEOP. The effective tax rate for the
six
months ended
June 30, 2016
included a benefit of $4.5 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The
June 30, 2016
return to provision adjustment included $14.2 million of benefit primarily associated with a change in estimate related to the calculation of salt depletion and $9.7 million of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate for the
six
months ended
June 30, 2016
also included an expense of $4.0 million related to changes in uncertain tax positions for prior tax years. After giving consideration to these items, the effective tax rate for the
six
months ended
June 30, 2016
of 50.1% was higher than the
35%
U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss.
Segment Results
We define segment results as income (loss) before interest expense, interest income, other operating income (expense), and income taxes, and include the operating results of non-consolidated affiliates. Consistent with the guidance in ASC 280, “Segment Reporting” (ASC 280), we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales:
|
($ in millions)
|
Chlor Alkali Products and Vinyls
|
$
|
865.1
|
|
|
$
|
733.0
|
|
|
$
|
1,702.0
|
|
|
$
|
1,437.3
|
|
Epoxy
|
492.0
|
|
|
450.0
|
|
|
1,059.6
|
|
|
910.2
|
|
Winchester
|
169.4
|
|
|
181.0
|
|
|
332.0
|
|
|
364.7
|
|
Total sales
|
$
|
1,526.5
|
|
|
$
|
1,364.0
|
|
|
$
|
3,093.6
|
|
|
$
|
2,712.2
|
|
Income (loss) before taxes:
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
(1)
|
$
|
52.8
|
|
|
$
|
30.7
|
|
|
$
|
140.3
|
|
|
$
|
98.8
|
|
Epoxy
|
(8.1
|
)
|
|
—
|
|
|
(9.3
|
)
|
|
8.2
|
|
Winchester
|
19.0
|
|
|
31.2
|
|
|
44.1
|
|
|
59.9
|
|
Corporate/other:
|
|
|
|
|
|
|
|
Pension income
(2)
|
10.7
|
|
|
12.6
|
|
|
21.0
|
|
|
24.8
|
|
Environmental expense
|
(1.8
|
)
|
|
(2.4
|
)
|
|
(4.4
|
)
|
|
(5.1
|
)
|
Other corporate and unallocated costs
|
(29.7
|
)
|
|
(23.9
|
)
|
|
(63.1
|
)
|
|
(53.5
|
)
|
Restructuring charges
(3)
|
(8.5
|
)
|
|
(8.2
|
)
|
|
(16.7
|
)
|
|
(101.0
|
)
|
Acquisition-related costs
(4)
|
(4.4
|
)
|
|
(16.3
|
)
|
|
(11.4
|
)
|
|
(26.5
|
)
|
Other operating income (expense)
(5)
|
0.3
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
10.7
|
|
Interest expense
|
(52.5
|
)
|
|
(47.6
|
)
|
|
(104.9
|
)
|
|
(96.1
|
)
|
Interest income
|
0.4
|
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
|
Loss before taxes
|
$
|
(21.8
|
)
|
|
$
|
(23.6
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(79.0
|
)
|
|
|
(1)
|
Earnings of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results consistent with management’s monitoring of the operating segments. The earnings of non-consolidated affiliates were
$0.5 million
and
$0.4 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, and
$1.0 million
and
$0.6 million
for the
six
months ended
June 30, 2017
and
2016
, 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.
|
|
|
(3)
|
Restructuring charges for the
three
months ended
June 30, 2017
and
2016
of
$8.5 million
and
$8.2 million
, respectively, and for the
six
months ended
June 30, 2017
and 2016 of
$16.7 million
and
$101.0 million
, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. For
six
months ended
June 30, 2016
, $76.6 million of these charges were non-cash asset impairment charges for equipment and facilities. Restructuring charges for the
three and six
months ended
June 30, 2016
were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed in 2016.
|
|
|
(4)
|
Acquisition-related costs for the
three and six
months ended
June 30, 2017
and
2016
were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.
|
|
|
(5)
|
Other operating income (expense) for the
six
months ended
June 30, 2016
included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident.
|
Chlor Alkali Products and Vinyls
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
Chlor Alkali Products and Vinyls sales for the
three
months ended
June 30, 2017
were
$865.1 million
compared to
$733.0 million
for the same period in
2016
, an increase of
$132.1 million
, or
18%
. The sales increase was primarily due to higher product prices ($103.8 million) and increased volumes ($28.3 million). The higher product prices were primarily related to caustic soda and EDC prices.
Chlor Alkali Products and Vinyls segment income was
$52.8 million
for the
three
months ended
June 30, 2017
compared to
$30.7 million
for the same period in
2016
, an increase of
$22.1 million
, or
72%
. Chlor Alkali Products and Vinyls segment income was higher due to higher product prices ($103.8 million) and lower operating costs ($11.1 million). These increases were partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages ($74.8 million). Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher compared to the prior year ($18.0 million). The higher product prices were primarily related to caustic soda and EDC prices. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of
$106.6 million
and
$103.4 million
for the
three
months ended
June 30, 2017
and
2016
, respectively.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
Chlor Alkali Products and Vinyls sales for the
six
months ended
June 30, 2017
were
$1,702.0 million
compared to
$1,437.3 million
for the same period in
2016
, an increase of
$264.7 million
, or
18%
. The sales increase was primarily due to increased product prices ($177.9 million) and increased volumes ($86.8 million). The higher product prices and increased volumes were primarily due to caustic soda and EDC.
Chlor Alkali Products and Vinyls segment income was
$140.3 million
for the
six
months ended
June 30, 2017
compared to
$98.8 million
for the same period in
2016
, an increase of
$41.5 million
, or
42%
. Chlor Alkali Products and Vinyls segment income was higher due to higher product prices ($177.9 million), lower operating costs ($15.0 million) and increased volumes with a favorable product mix ($5.8 million). These increases were partially offset by higher planned maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages ($102.5 million). Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher compared to the prior year ($54.7 million). The higher product prices and increased volumes were primarily related to caustic soda and EDC. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of
$211.2 million
and
$205.3 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
Epoxy
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
Epoxy sales for the
three
months ended
June 30, 2017
were
$492.0 million
compared to
$450.0 million
for the same period in
2016
, an increase of
$42.0 million
, or
9%
. The sales increase was primarily due to higher product prices ($42.0 million).
Epoxy segment loss was
$8.1 million
for the
three
months ended
June 30, 2017
, compared to breakeven for the same period in 2016, a decrease in segment results of
$8.1 million
. Epoxy segment results were lower primarily due to increased raw material costs ($56.6 million), primarily associated with benzene and propylene. These decreases were partially offset by higher product prices ($42.0 million) and lower operating costs ($6.5 million). Epoxy segment income included depreciation and amortization expense of
$22.8 million
and
$23.0 million
for the
three
months ended
June 30, 2017
and
2016
, respectively.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
Epoxy sales for the
six
months ended
June 30, 2017
were
$1,059.6 million
compared to
$910.2 million
for the same period in
2016
, an increase of
$149.4 million
, or
16%
. The sales increase was primarily due to higher product prices ($82.1 million) and increased volumes and product mix ($67.3 million).
Epoxy segment loss was
$9.3 million
for the
six
months ended
June 30, 2017
compared to segment income of
$8.2 million
for the same period in
2016
, a decrease in segment results of
$17.5 million
. Epoxy segment results were lower primarily due to increased raw material costs ($134.2 million), primarily associated with benzene and propylene. These decreases were partially offset by higher product prices ($82.1 million), increased volumes and product mix ($30.9 million) and lower operating costs ($3.7 million). Epoxy segment income included depreciation and amortization expense of
$45.2 million
and
$44.7 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
Winchester
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
Winchester sales were
$169.4 million
for the
three
months ended
June 30, 2017
compared to
$181.0 million
for the same period in
2016
, a decrease of
$11.6 million
, or
6%
. The sales decrease was primarily due to lower ammunition sales to commercial customers ($20.9 million), partially offset by increased shipments to military customers ($10.6 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.
Winchester reported segment income of
$19.0 million
for the
three
months ended
June 30, 2017
compared to
$31.2 million
for the same period in
2016
, a decrease of
$12.2 million
, or
39%
. The decrease was due to lower volumes and a less favorable product mix ($4.9 million), increased operating costs ($3.4 million), increased commodity and other material costs ($2.1 million) and lower product prices ($1.8 million). Winchester segment income included depreciation and amortization expense of
$4.5 million
for both the
three
months ended
June 30, 2017
and
2016
.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
Winchester sales were
$332.0 million
for the
six
months ended
June 30, 2017
compared to
$364.7 million
for the same period in
2016
, a decrease of
$32.7 million
, or
9%
. The sales decrease was primarily due to lower ammunition sales to commercial customers ($49.7 million), partially offset by increased shipments to military customers ($17.0 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.
Winchester reported segment income of
$44.1 million
for the
six
months ended
June 30, 2017
compared to
$59.9 million
for the same period in
2016
, a decrease of
$15.8 million
, or
26%
. The decrease was due to lower volumes and a less favorable product mix ($12.5 million), increased commodity and other material costs ($2.0 million) and lower product prices ($2.5 million). These decreases were partially offset by lower operating costs ($1.2 million). Winchester segment income included depreciation and amortization expense of
$9.4 million
and
$9.1 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
Corporate/Other
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
For the
three
months ended
June 30, 2017
, pension income included in corporate/other was
$10.7 million
compared to
$12.6 million
for the
three
months ended
June 30, 2016
. On a total company basis, defined benefit pension income for the
three
months ended
June 30, 2017
, was
$6.9 million
compared to
$9.5 million
for the
three
months ended
June 30, 2016
.
For the
three
months ended
June 30, 2017
, charges to income for environmental investigatory and remedial activities were
$1.8 million
compared to
$2.4 million
for the
three
months ended
June 30, 2016
. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the
three
months ended
June 30, 2017
, other corporate and unallocated costs were
$29.7 million
compared to
$23.9 million
for the
three
months ended
June 30, 2016
, an increase of
$5.8 million
. The increase was primarily due to an unfavorable foreign currency impact of $2.4 million, increased consulting charges of $1.6 million and increased legal and legal-related settlement expenses of $1.4 million.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
For the
six
months ended
June 30, 2017
, pension income included in corporate/other was
$21.0 million
compared to
$24.8 million
for the
six
months ended
June 30, 2016
. On a total company basis, defined benefit pension income for the
six
months ended
June 30, 2017
, was
$13.4 million
compared to
$18.4 million
for the
six
months ended
June 30, 2016
.
For the
six
months ended
June 30, 2017
, charges to income for environmental investigatory and remedial activities were
$4.4 million
compared to
$5.1 million
for the
six
months ended
June 30, 2016
. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the
six
months ended
June 30, 2017
, other corporate and unallocated costs were
$63.1 million
compared to
$53.5 million
for the
six
months ended
June 30, 2016
, an increase of
$9.6 million
. The increase was primarily due to an unfavorable foreign currency impact of $4.0 million, higher stock-based compensation expense of $4.5 million, which includes mark-to-market adjustments, and increased consulting charges of $3.3 million. Partially offsetting these increases were decreased legal and legal-related settlement expenses of $2.5 million.
Outlook
Net income in 2017 is projected to be in the $0.70 to $1.15 per diluted share range, which includes pretax restructuring charges and pretax acquisition-related integration costs totaling approximately $50 million. Net loss in 2016 was $0.02 per diluted share, which included pretax acquisition-related integration costs of $48.8 million and pretax restructuring charges of $112.9 million.
The second half 2017 earnings are forecast to improve compared to first half 2017 levels. The second half 2017 earnings are expected to benefit from reduced maintenance turnaround activity compared to first half 2017 levels. The Chlor Alkali Products and Vinyls segment is forecast to benefit in the second half 2017 from stronger demand across all products, improved caustic soda and chlorine pricing and lower ethylene costs. The second half 2017 Epoxy segment income is expected to benefit from higher product prices and lower raw material costs associated with benzene and propylene than experienced in the first half 2017. In second half 2017, we expect Winchester will benefit from the seasonally strong third quarter commercial ammunition demand and an expected improvement in military sales.
Chlor Alkali Products and Vinyls 2017 segment income is expected to be higher compared to 2016 segment income of $224.9 million reflecting higher chlorine, caustic soda and EDC prices and additional cost synergy realization, partially offset by the impact of higher maintenance turnaround costs and higher electricity costs, driven by increased natural gas costs. We also expect the benefits of lower purchased ethylene prices beginning in the third quarter.
Epoxy 2017 segment income is expected to be equal to or slightly lower than 2016 segment income of $15.4 million as improved volumes and pricing year over year are expected to be more than offset by the higher raw material costs, associated with benzene and propylene, and increased turnaround and outage costs.
Winchester 2017 segment income is expected to be in the $95 million to $105 million range, compared to $120.9 million of segment income achieved during 2016. The forecast for Winchester is primarily driven by lower ammunition demand, due primarily to an overall reduction in both purchases and inventory reductions by our customers and higher commodity and material costs. We expect the decrease in commercial sales to be partially offset by an increase year over year in military sales. The Oxford, MS relocation project was completed during 2016. This relocation reduced Winchester's annual operating costs by approximately $40 million in 2016 and, in 2017, we expect the cost savings from the completed project to reach approximately $45 million.
Other Corporate and Unallocated costs in 2017 are expected to be higher than 2016 Other Corporate and Unallocated costs of $100.2 million driven by stock-based compensation, legal and litigation costs and the full year effect of the increased corporate infrastructure costs to support the integration of the Acquired Business.
During 2017, we are anticipating environmental expenses in the $15 million to $20 million range compared to $9.2 million in 2016. We do not expect to recover any environmental costs incurred and expensed in prior periods in 2017. In connection with the Acquisition, TDCC has retained liabilities relating to litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
We expect qualified defined benefit pension plan income in 2017 to be lower than the 2016 level by approximately $10 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2017. We do have several international qualified defined benefit pension plans to which we anticipate cash contributions of less than $5 million in 2017.
Approximately 30% of our debt is at variable rates, including the impact of our interest rate swaps. We are estimating our 2017 average interest rate on outstanding debt will be approximately 5%. During 2017, a total of approximately $65 million of debt will mature that is expected to be repaid using available cash.
In 2017, we currently expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of synergy-related capital, which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of $209.4 million associated with long-term supply contracts. We expect 2017 depreciation and amortization expense to be in the $530 million to $540 million range.
The effective tax rate for 2017 includes a benefit of $9.5 million related to an agreement reached with the IRS regarding tax examination years 2008, and 2010 to 2012. After giving consideration to this item, we currently believe the 2017 effective tax rate will be in the 25% to 30% range.
Environmental Matters
Environmental provisions charged to income, which are included in costs of goods sold, were
$1.8 million
and
$2.4 million
for the
three
months ended
June 30, 2017
and
2016
, respectively, and
$4.4 million
and
$5.1 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
Our liabilities for future environmental expenditures were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Balance at beginning of year
|
$
|
137.3
|
|
|
$
|
138.1
|
|
Charges to income
|
4.4
|
|
|
5.1
|
|
Remedial and investigatory spending
|
(6.1
|
)
|
|
(4.9
|
)
|
Currency translation adjustments
|
0.1
|
|
|
0.6
|
|
Balance at end of period
|
$
|
135.7
|
|
|
$
|
138.9
|
|
Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in
2017
for investigatory and remedial efforts, the timing of which is subject to regulatory approvals and other uncertainties, is estimated to be approximately $17 million. Cash outlays for remedial and investigatory activities associated with former waste disposal sites and past manufacturing operations were not charged to income, but instead, were charged to reserves established for such costs identified and expensed to income in prior periods. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we may incur to protect our interest against those unasserted claims. Our accrued liabilities for unasserted claims amounted to
$0.8 million
at
June 30, 2017
. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and Operation, Maintenance and Monitoring (OM&M) expenses that, in our experience, we may incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M. Charges to income for investigatory and remedial efforts could be material to operating results in 2017.
In connection with the Acquisition, TDCC retained liabilities relating to releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
Our condensed balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to
$135.7 million
at
June 30, 2017
,
$137.3 million
at
December 31, 2016
and
$138.9 million
at
June 30, 2016
, of which
$118.7 million
,
$120.3 million
and
$119.9 million
, respectively, were classified as other noncurrent liabilities. These amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to income may be made for additional liabilities.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other PRPs, 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.
Legal Matters and Contingencies
We, and our subsidiaries, are defendants in various legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. As of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
, our condensed balance sheets included liabilities for these legal actions of
$15.9 million
,
$13.6 million
and
$22.1 million
, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, TDCC retained liabilities related to litigation to the extent arising prior to the Closing Date. In addition to the aforementioned legal actions, we are party to a dispute relating to a contract termination. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450, and, therefore, do not record gain contingencies and recognize income until it is earned and realizable.
For the
six
months ended
June 30, 2016
, we recognized an insurance recovery of
$11.0 million
in other operating income (expense) for property damage and business interruption related to a 2008 chlor alkali facility incident.
Liquidity, Investment Activity and Other Financial Data
Cash Flow Data
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
Provided By (Used For)
|
($ in millions)
|
Net operating activities
|
$
|
227.4
|
|
|
$
|
186.2
|
|
Capital expenditures
|
(150.9
|
)
|
|
(137.4
|
)
|
Business acquired in purchase transaction, net of cash acquired
|
—
|
|
|
(69.5
|
)
|
Payments under long-term supply contract
|
—
|
|
|
(85.0
|
)
|
Net investing activities
|
(150.8
|
)
|
|
(287.1
|
)
|
Long-term debt (repayments) borrowings, net
|
(15.1
|
)
|
|
(159.0
|
)
|
Stock options exercised
|
15.8
|
|
|
0.2
|
|
Debt issuance costs
|
(11.2
|
)
|
|
—
|
|
Net financing activities
|
(76.8
|
)
|
|
(224.9
|
)
|
Operating Activities
For the
six
months ended
June 30, 2017
, cash provided by operating activities increased by
$41.2 million
from the
six
months ended
June 30, 2016
, primarily due to a smaller increase in working capital. For the
six
months ended
June 30, 2017
, working capital increased
$31.6 million
compared to an increase of
$63.2 million
for the
six
months ended
June 30, 2016
. Receivables increased from
December 31, 2016
by
$97.9 million
primarily as a result of higher sales in the second quarter of 2017 compared to the fourth quarter of 2016. Inventories increased from
December 31, 2016
by
$26.3 million
and accounts payable and accrued liabilities increased from December 31, 2016 by
$99.6 million
. The increase in inventories and accounts payable and accrued liabilities was primarily due to an increase in raw material costs, primarily associated with benzene and propylene.
Investing Activities
Capital spending of
$150.9 million
for the
six
months ended
June 30, 2017
was
$13.5 million
higher than the corresponding period in
2016
. Capital spending for the
six
months ended
June 30, 2017
included approximately $20 million of synergy-related capital. For the total year 2017, we expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of capital which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of
$209.4 million
associated with long-term supply contracts. Depreciation and amortization expense is forecast to be in the $530 million to $540 million range.
During the six months ended
June 30, 2016
, payments of
$69.5 million
were made related to the Acquisition for certain acquisition-related liabilities including the final working capital adjustment.
During the six months ended
June 30, 2016
, payments of
$85.0 million
were made related to arrangements for the long-term supply of low cost electricity.
During the six months ended
June 30, 2016
, we received $4.4 million from the October 2013 sale of a bleach joint venture.
Financing Activities
On March 9, 2017, we entered into the Amended Senior Credit Facility. Pursuant to the agreement, the aggregate principal amount under the Term Loan Facility was increased to
$1,375.0 million
, and the aggregate commitments under the Senior Revolving Credit Facility were increased to
$600.0 million
, from
$500.0 million
. In March 2017, we drew the entire
$1,375.0 million
term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from
October 5, 2020 to March 9, 2022.
On March 9, 2017, Olin issued
$500.0 million
aggregate principal amount of
5.125%
senior notes due September 15, 2027, which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.
For the
six
months ended
June 30, 2017
, we made long-term debt repayments of
$1,890.1 million
including $1,282.5 million related to the existing term loan facility, $590.0 million related to the Sumitomo Credit Facility and $17.2 million under the required quarterly installments of the
$1,375.0 million
term loan facility.
In March 2017, we paid debt issuance costs of
$11.2 million
relating to the Amended Senior Credit Facility and the 2027 Notes.
In June 2016, $125.0 million under the 2016 Notes became due and was repaid. For the
six
months ended
June 30, 2016
, we repaid $33.8 million under the required quarterly installments of the $1,350.0 million term loan facility.
We issued
0.9 million
and less than 0.1 million shares representing stock options exercised for the
six
months ended
June 30, 2017
and
2016
, respectively, with a total value of
$15.8 million
and
$0.2 million
, respectively.
The percent of total debt to total capitalization was
61.5%
and
61.4%
as of
June 30, 2017
and
December 31, 2016
, respectively.
In the first two quarters of
2017
and
2016
, we paid a quarterly dividend of $0.20 per share. Dividends paid for the
six
months ended
June 30, 2017
and
2016
, were
$66.3 million
and
$66.1 million
, respectively. On July 27, 2017, our board of directors declared a dividend of $0.20 per share on our common stock, payable on September 11, 2017 to shareholders of record on August 10, 2017.
The payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial condition, our capital requirements and other factors deemed relevant by our board of directors. In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
Liquidity and Other Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and short-term borrowings under our senior revolving credit facility, AR Facilities and Receivables Financing Agreement. Additionally, we believe that we have access to the debt and equity markets.
In connection with the Acquisition, Olin and TDCC entered into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin made upfront payments of
$433.5 million
on the Closing Date in order to receive ethylene at producer economics and for certain reservation fees for the option to obtain additional future ethylene supply at producer economics. During 2016, one of the options to reserve additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of
$209.4 million
in 2017. On February 27, 2017, we exercised the remaining option to reserve additional future ethylene supply and in connection with the exercise we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between
$425 million
and
$465 million
on or about the fourth quarter of 2020.
The overall change in cash for the
six
months ended
June 30, 2017
primarily reflects capital spending and increased working capital partially offset by our operating results. We believe, based on current and projected levels of cash flow from our operations, together with our cash and cash equivalents on hand and the availability to borrow under our Senior Revolving Credit Facility, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, make amortization payments under the Term Loan Facility, make required payments under long-term supply agreements, fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements.
On March 9, 2017, we entered into the Amended Senior Credit Facility. Pursuant to the agreement, the aggregate principal amount under the Term Loan Facility was increased to
$1,375.0 million
, and the aggregate commitments under the Senior Revolving Credit Facility were increased to
$600.0 million
, from
$500.0 million
. In March 2017, we drew the entire
$1,375.0 million
term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from October
5, 2020 to March 9, 2022. The
$600.0 million
Senior Revolving Credit Facility includes a
$100.0 million
letter of credit subfacility. The Term Loan Facility includes amortization payable in equal quarterly installments at a rate of
5.0%
per annum for the first two years, increasing to
7.5%
per annum for the following year and to
10.0%
per annum for the last two years.
Under the Amended Senior Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Amended Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of
June 30, 2017
, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As of
June 30, 2017
, as a result of our restrictive covenant related to the leverage ratio, the maximum additional borrowings available to us were
$547.1 million
. This limitation would restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of
June 30, 2017
, there were no other covenants or other restrictions that would have limited our ability to borrow.
On March 9, 2017, Olin issued
$500.0 million
aggregate principal amount of
5.125%
senior notes due September 15, 2027, which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.
On June 29, 2016, we entered into a trade accounts receivable factoring arrangement which was amended on September 1, 2016 and, on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement which was amended on March 24, 2017. Pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of
$256.5 million
. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows. The gross amount of receivables sold for the
three
months ended
June 30, 2017
and
2016
totaled
$388.0 million
and
$26.8 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
totaled
$777.6 million
and
$26.8 million
, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of
June 30, 2017
. As of
June 30, 2017
,
December 31, 2016
and
June 30, 2016
,
$148.4 million
,
$126.1 million
and
$26.8 million
, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.
On December 20, 2016, we entered into a three year,
$250.0 million
Receivables Financing Agreement. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. As of
June 30, 2017
,
$326.1 million
of our trade receivables were pledged as collateral and we had
$210.0 million
drawn under the agreement. As of
June 30, 2017
, we had additional borrowing capacity of
$32.3 million
under the Receivables Financing Agreement. As of
December 31, 2016
,
$282.3 million
of our trade receivables were pledged as collateral. For the year ended
December 31, 2016
, the proceeds of the Receivables Financing Agreement were used to repay
$210.0 million
of the Sumitomo Credit Facility. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the Amended Senior Credit Facility.
Cash flow from operations is variable as a result of both the seasonal and the cyclical nature of our operating results, which have been affected by seasonal and economic cycles in many of the industries we serve, such as the vinyls, urethanes, bleach, ammunition and pulp and paper. The Acquired Business has significantly diversified our product and geographic base. Cash flow from operations is affected by changes in caustic soda, EDC and chlorine selling prices caused by the changes in the supply/demand balance of these products, resulting in the Chlor Alkali Products and Vinyls segment having significant leverage on our earnings and cash flow. For example, assuming all other costs remain constant, internal consumption remains approximately the same and we are operating at full capacity, a $10 selling price change per ton of caustic soda equates to an approximate $30 million annual change in our revenues and pretax profit, a $0.01 selling price change per pound of EDC equates to an approximate $20 million annual change in our revenues and pretax profit, and a $10 selling price change per ton of chlorine equates to an approximate $10 million annual change in our revenues and pretax profit.
For the
six
months ended
June 30, 2017
, cash provided by operating activities increased by
$41.2 million
from the
six
months ended
June 30, 2016
, primarily due to a smaller increase in working capital. For the
six
months ended
June 30, 2017
, working capital increased
$31.6 million
compared to an increase of
$63.2 million
for the
six
months ended
June 30, 2016
. Receivables increased from
December 31, 2016
by
$97.9 million
primarily as a result of higher sales in the second quarter of 2017 compared to the fourth quarter of 2016. Inventories increased from
December 31, 2016
by
$26.3 million
and accounts payable and accrued liabilities increased from December 31, 2016 by
$99.6 million
. The increase in inventories and accounts payable and accrued liabilities was primarily due to an increase in raw material costs, primarily associated with benzene and propylene.
Capital spending of
$150.9 million
for the
six
months ended
June 30, 2017
was
$13.5 million
higher than the corresponding period in
2016
. Capital spending for the
six
months ended
June 30, 2017
included approximately $20 million of synergy-related capital. For the total year 2017, we expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of capital which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of
$209.4 million
associated with long-term supply contracts. Depreciation and amortization expense is forecast to be in the $530 million to $540 million range.
On April 24, 2014, our board of directors authorized a share repurchase program for up to 8 million shares of common stock that terminated on April 24, 2017. For the
six
months ended
June 30, 2017
, no shares were purchased and retired. We purchased a total of
1.9 million
shares under the April 2014 program, and the
6.1 million
shares that remained authorized to be purchased have expired. Related to the Acquisition, for a period of two years subsequent to the Closing Date, we are subject to certain restrictions on our ability to conduct share repurchases.
At
June 30, 2017
, we had total letters of credit of $69.8 million outstanding, of which
$16.6 million
were issued under our $600.0 million Senior Revolving Credit Facility. The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain Canadian pension funding requirements.
As of
June 30, 2017
, we had long-term borrowings, including current installments and capital lease obligations, of
$3,600.6 million
, of which $1,723.7 million was issued at variable rates. Commitments from banks under our Senior Revolving Credit Facility, AR Facilities and Receivables Financing Agreement are an additional source of liquidity.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
, and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017, and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association and Toronto-Dominion Bank. These counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$9.6 million
and are included in other current assets and other assets on the accompanying condensed balance sheet as of
June 30, 2017
, with the corresponding gain deferred as a component of other comprehensive loss. For both the
three and six
months ended
June 30, 2017
,
$0.5 million
of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In April 2016, we entered into interest rate swaps on
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed-rate debt due to changes in interest rates for a portion of our fixed-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$24.9 million
and are included in other long-term liabilities on the accompanying condensed balance sheet as of
June 30, 2017
, with a corresponding decrease in the carrying amount of the related debt. For the
three
months ended
June 30, 2017
and
2016
,
$0.7 million
and
$0.5 million
, respectively, and for the
six
months ended
June 30, 2017
and
2016
,
$1.9 million
and
$0.5 million
, respectively, of income was recorded to
interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In June 2012, we terminated $73.1 million of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of $2.2 million, which will be recognized through 2017. As of
June 30, 2017
,
$0.1 million
of this gain was included in current installments of long-term debt.
Off-Balance Sheet Arrangements
Non-cancelable operating leases and purchasing commitments are utilized in our normal course of business for our projected needs. In connection with the Acquisition, certain additional agreements have been entered into with TDCC, including long-term purchase agreements for raw materials. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key raw materials received from TDCC include ethylene, electricity, propylene and benzene.
New Accounting Standards
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which amends ASC 715 “Compensation—Retirement Benefits.” This update requires the presentation of the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The update requires the presentation of the other components of the net period benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating income. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC 350 “Intangibles—Goodwill and Other.” This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carry amount exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the effect of this update on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” which amends ASC 718 “Compensation—Stock Compensation.” This update will simplify the income tax consequences, accounting for forfeitures and classification on the statements of cash flows of share-based payment arrangements. This standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We adopted ASU 2016-09 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory,” which amends ASC 330 “Inventory.” This update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. This update simplifies the current guidance under which an entity must measure inventory at the lower of cost or market. This update does not impact inventory measured using LIFO. This update is effective for fiscal years beginning after December 15, 2016. We adopted ASU 2015-11 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and implementation of the aforementioned standard. These updates provide guidance on how an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. These updates also expand the disclosure requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based on the analysis conducted to date, we believe the most significant impact the updates will have will be on our accounting policies and disclosures on revenue recognition. Preliminarily, we do not expect that these updates will materially impact our consolidated financial statements and we have not yet determined the method of application we will use.