UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the fiscal year ended December 31, 20132016 |
OR
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the transition period from to |
Commission file number 1-1070
OLIN CORPORATION
(Exact name of registrant as specified in its charter)
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| Virginia | 13-1872319 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
190 Carondelet Plaza, Suite 1530, Clayton, MO (Address of principal executive offices) | 63105-344363105
(Zip code) |
Registrant’s telephone number, including area code: (314) 480-1400
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Name of each exchange on which registered |
Common Stock, par value $1 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer x Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller Reporting Company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
As of June 28, 2013,30, 2016, the aggregate market value of registrant’s common stock, par value $1 per share, held by non-affiliates of registrant was approximately $1,893,752,739$4,062,589,377 based on the closing sale price as reported on the New York Stock Exchange.
As of January 31, 2014, 79,486,1682017, 165,430,330 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in this Form 10-K
as indicated herein:
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| Document | Part of 10-K into which incorporated |
Proxy Statement relating to Olin’s Annual Meeting of Shareholders to be held in 20142017 | Part III |
PART I
Item 1. BUSINESS
GENERAL
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 Chemical Distributionand Vinyls, Epoxy and Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium hydroxide, which represent 54% of 20132016 sales. Chemical Distribution manufactures bleachThe 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 distributes caustic soda, bleach products, potassium hydroxide and hydrochloric acid,additives, which represent 16%33% of 20132016 sales. The Winchester products, which represent 30% of 2013 sales, includesegment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.cartridges, which represent 13% of 2016 sales. See our discussion of our segment disclosures contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
On August 22, 2012,October 5, 2015 (the Closing Date), we acquired 100% of privately-held K. A. Steel Chemicals Inc. (KA Steel), whosefrom The Dow Chemical Company (TDCC) its U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses (collectively, the Acquired Business) using a Reverse Morris Trust Structure (collectively, the Acquisition). The Acquired Business’s operating results are included in the accompanying financial statements since the dateClosing Date of the acquisition.Acquisition. For segment reporting purposes, KA Steel comprises the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and U.S. Chlor Alkali and Vinyl and Global Chlorinated Organics (Acquired Chlor Alkali Business) operating results combined with our former Chlor Alkali Products and Chemical Distribution segment. KA Steel is one ofsegments to comprise the largest distributors of caustic soda in North America and manufactures and sells bleach in the Midwest.
On February 28, 2011, we acquired PolyOne Corporation’s (PolyOne) 50% interest in the SunBelt Chlor Alkali Partnership, which we refer to as SunBelt. The SunBelt chlor alkali plant, which is located within our McIntosh, AL facility, has approximately 350,000 tons of membrane technology capacity. Previously, we had a 50% ownership interest in SunBelt, which was accounted for using the equity method of accounting. Accordingly, prior to the acquisition, we included only our share of SunBelt results in earnings of non-consolidated affiliates. Since the date of acquisition, SunBelt’s results are no longer included in earnings of non-consolidated affiliates but are consolidated in our accompanying financial statements.Products and Vinyls segment.
GOVERNANCE
We maintain an Internet website at www.olin.com. Our reports on Form 10-K, Form 10-Q and Form 8-K, as well as amendments to those reports, are available free of charge on our website, as soon as reasonably practicable after we file the reports with the Securities and Exchange Commission (SEC). Additionally, a copy of our SEC filings can be accessed from the SEC at their Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling that office of the SEC at 1-800-SEC-0330. Also, a copy of our electronically filed materials can be obtained at www.sec.gov. Our Principles of Corporate Governance, Committee Charters and Code of Conduct are available on our website at www.olin.com in the Governance Section under Governance Documents and Committees.
In May 2013,2016, our Chief Executive Officer executed the annual Section 303A.12(a) CEO Certification required by the New York Stock Exchange (NYSE), certifying that he was not aware of any violation of the NYSE’s corporate governance listing standards by us. Additionally, our Chief Executive Officer and Chief Financial Officer executed the required Sarbanes-Oxley Act of 2002 (SOX) Sections 302 and 906 certifications relating to this Annual Report on Form 10-K, which are filed with the SEC as exhibits to this Annual Report on Form 10-K.
PRODUCTS, SERVICES AND STRATEGIES
Chlor Alkali Products and Vinyls
Products and Services
We have been involved in the U.S. chlor alkali industry for more than 100120 years and are a major participant in the North Americanglobal chlor alkali market.industry. Chlorine, caustic soda and hydrogen are co-produced commercially by the electrolysis of salt. These co-productsco-produced products are produced simultaneously, and in a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic soda and 0.03 tons of hydrogen. The industry refers to this as an Electrochemical Unit or ECU. With a demonstrated capacity of 5.8 million ECUs as of the end of 2013 of 2.0 million ECUs per year,2016, we arehave the fourth largest global chlor alkali producer, measured by production capacity, of chlorine and caustic soda, in North America, according to data from IHS, Inc. (IHS). IHS is a global information consulting company established in 1959 that provides information to a variety of industries. Approximately 55% of our caustic soda production is high purity membrane grade, which, according to IHS data, normally commands a premium selling price in the market. According to data from CEH Marketing Research (a division of IHS), we are the largest North American producer of industrial bleach, which is manufactured using both chlorine and caustic soda.
Our manufacturing facilities in Augusta, GA; McIntosh, AL; Charleston, TN; St. Gabriel, LA; Henderson, NV; Becancour, Quebec; Santa Fe Springs, CA; Tacoma, WA; Tracy, CA; and a portion of our facility in Niagara Falls, NY are ISO 9001 certified. In addition, Augusta, GA; McIntosh, AL; Charleston, TN; St. Gabriel, LA; Henderson, NV; Santa Fe Springs, CA; Tacoma, WA; Tracy, CA and Niagara Falls, NY are ISO 14001 certified. ISO 9000 (which includes ISO 9001 and ISO 9002) and ISO 14000 (which includes ISO 14001) are sets of related international standards on quality assurance and environmental management developed by the International Organization for Standardization to help companies effectively document the quality and environmental management system elements to be implemented to maintain effective quality and environmental management systems. Our facilities in Augusta, GA; McIntosh, AL; Charleston, TN; Niagara Falls, NY; and St. Gabriel, LA have also achieved Star status in the Voluntary Protection Program (VPP) of the Occupational Safety and Health Administration (OSHA). OSHA’s VPP is a program in which companies voluntarily participate that recognizes facilities for their exemplary safety and health programs. Our Augusta, GA; McIntosh, AL; Charleston, TN; St. Gabriel, LA; Henderson, NV; Santa Fe Springs, CA; Tacoma, WA; Tracy, CA and Niagara Falls, NY manufacturing sites and the division headquarters are accredited under the RC 14001 Responsible Care® (RC 14001) standard. Supported by the chemical industry and recognized by government and regulatory agencies, RC 14001 establishes requirements for the management of safety, health, environmental, security, transportation, product stewardship, and stakeholder engagement activities for the business.
Chlorine is used as a raw material in the production of thousands of products, for end-uses including vinyls, chlorinated intermediates, isocyanatesurethanes, epoxy, water treatment chemicals and water treatment.a variety of other organic and inorganic chemicals. A significant portion of U.S. chlorine production is consumed in the manufacture of ethylene dichloride or(EDC) and vinyl chloride monomer (VCM), both of which Chlor Alkali Products and Vinyls produces. A large portion of our EDC a precursorproduction is utilized in the production of VCM, but we are also one of the largest global participants in merchant EDC sales. EDC and VCM are precursors for polyvinyl chloride, or PVC. PVC is a plastic used in applications such as vinyl siding, plumbingpipe, pipe fittings and automotive parts. We estimate that approximately 24% of our chlorine produced
Our Chlor Alkali Products and Vinyls segment is consumed in the manufacture of EDC. While muchone of the chlorinelargest global marketers of caustic soda, including caustic soda produced by TDCC in Brazil. The off-take arrangement with TDCC in Brazil entitles the U.S. is consumed byChlor Alkali Products and Vinyls segment the producing companyright to make downstream products, wemarket and sell mostthe caustic soda produced at TDCC’s Aratu, Brazil site. The diversity of the chlorine we producecaustic sourcing allows us to third parties in the merchant market.
cost effectively supply customers worldwide. Caustic soda has a wide variety of end-use applications, the largest of which in North America is in theinclude water treatment, alumina, pulp and paper, industry. Caustic soda is used in the delignification and bleaching portions of the pulping process. Caustic soda is also used in the production ofurethanes, detergents and soaps alumina and a variety of other inorganicorganic and organicinorganic chemicals.
Our Chlor Alkali Products and Vinyls segment also includes the acquired chlorinated organics business which is the largest global producer of chlorinated organic products that include chloromethanes (methyl chloride, methylene chloride, chloroform and carbon tetrachloride) and chloroethenes (perchloroethylene, trichloroethylene, and vinylidene chloride). Chlorinated organics participates in both the solvent segment, as well as the intermediate segment of the global chlorocarbon industry with a focus on sustainable applications and in applications where we can benefit from our cost advantages. Intermediate products are used as feedstocks in the production of fluoropolymers, fluorocarbon refrigerants and blowing agents, silicones, cellulosics and agricultural chemicals. Solvent products are sold into end uses such as surface preparation, dry cleaning, pharmaceuticals and regeneration of refining catalysts. This business’s unique technology allows us to utilize both hydrochloric acid and chlorinated hydrocarbon byproducts (RCl), produced by our other production processes, as raw materials in an integrated system. These manufacturing facilities also consume chlorine, which generates caustic soda production and sales.
We also manufacture and sell other chlor alkali-related products, including hydrochloric acid, sodium hypochlorite (bleach) and potassium hyrdroxide, which we refer to as co-products. The chlor alkali industry is cyclical, bothproduction of co-products, chlorinated organics and epoxy generally consume chlorine as a resultraw material creating downstream applications that upgrade the value of changeschlorine and enable caustic soda production. As industry leaders in chlorinated organics and epoxy resins, the addition of the Acquired Business creates integrated outlets for our captive chlorine. With the addition of the Acquired Business, we have increased the diversification of our high value outlets for chlorine from three to nineteen.
The Chlor Alkali Products and Vinyls segment’s products are delivered by pipeline, marine vessel, deep-water and coastal barge, railcar and truck. Our chemical distribution infrastructure provides us with geographically advantaged storage capacity and provides us with a private fleet of trucks, tankers and trailers that expands our geographic coverage and enhance our service capabilities. At our largest integrated product sites, our deep-water access enables us to reach global markets.
Our Chlor Alkali Products and Vinyls segment maintains strong relationships with TDCC as both a customer and supplier. These relationships are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials and predictable and consistent demand for each ofour end use products. Key products sold to TDCC include chlorine, cell effluent, chlorinated organics and VCM. Key raw materials received from TDCC include ethylene and electricity. Ethylene is supplied for the co-produced products and asvinyl business under a result of the large increments in which new capacity is added and removed. Because chlorine and caustic soda are produced in a fixed ratio, thelong-term supply of one product can be constrained both by the physical capacity of the production facilities and/or by the ability to sell the co-produced product. Prices for both products respond rapidly to changes in supply and demand. Our ECU netbacks (defined as gross selling price less freight and discounts), which include SunBelt ECU netbacks subsequent to February 28, 2011, averaged approximately $560, $575 and $570 per ECU in 2013, 2012 and 2011, respectively. See our discussion of chlor alkali product pricing contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”arrangement with TDCC whereby we receive ethylene at integrated producer economics.
Electricity, salt and saltethylene are the major purchased raw materials for our Chlor Alkali Products and Vinyls segment. Raw materials represent approximately 49% of the total cost of producing an ECU. Electricity is the single largest raw material component in the production of chlor alkali vinyl products. We are supplied by utilities that primarily utilize coal, hydroelectric,Approximately 76% of our electricity is generated from natural gas and nuclear power.or hydroelectric sources. Approximately 85% of our salt requirements are met by internal supply. The commodityhigh volume nature of this industry places an emphasis on cost management and we believe that we have managed our manufacturing costs in a manner that makesscale, integration and raw material positions make us one of the low cost producers in the industry.
We also manufacture and sell other chlor alkali-related products. These products include chemically processed salt, hydrochloric acid, sodium hypochlorite (bleach), hydrogen and potassium hydroxide. We refer to these other chlor alkali-related products as co-products. Sales of co-products represented approximately 32% of Chlor Alkali Products’ sales in 2013. We have recently invested in capacity and product upgrades in bleach and hydrochloric acid. In 2013, we completed a capital project to expand hydrochloric acid production at our Henderson, NV site. Hydrochloric acid is a key value-added co-product, and we continue to evaluate hydrochloric acid expansion opportunities at our chlor alkali manufacturing sites. In 2010, we initiated a capital project to construct a low salt, high strength bleach facility located at our McIntosh, AL chlor alkali site and in 2011 we initiated two additional low salt, high strength bleach facilities at our Niagara Falls, NY and Henderson, NV sites. We completed low salt, high strength bleach facilities at McIntosh, AL and Niagara Falls, NY in the first and third quarters of 2012, respectively, and completed the remaining low salt, high strength bleach facility at Henderson, NV during the first quarter of 2013. These three new facilities increased total bleach manufacturing capacity by approximately 50% over the 2011 capacity. These low salt, high strength bleach facilities nearly double the concentration of the bleach we manufacture, which significantly reduces transportation costs.
The following table lists products and services of our Chlor Alkali Products business,and Vinyls segment, with principal products on the basis of annual sales highlighted in bold face.
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| Products & Services | | Major End Uses | | Plants & Facilities | | Major Raw Materials & Components for Products/Services |
| Chlorine/caustic soda | | Pulp & paper processing, chemical manufacturing, water purification, manufacture of vinyl chloride, bleach, swimming pool chemicals &and urethane chemicals | | Becancour, QuebecCanada Charleston, TN Henderson, NVFreeport, TX
McIntosh, AL Niagara Falls, NY Plaquemine, LA St. Gabriel, LA | | salt, electricity |
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Ethylene dichloride/vinyl chloride monomer | | Precursor to polyvinyl chloride used in vinyl siding, plumbing and automotive parts
| | Freeport, TX Plaquemine, LA
| | chlorine, ethylene
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Chlorinated organics intermediates
| | Used as feedstocks in the production of fluoropolymers, fluorocarbon refrigerants and blowing agents, silicones, cellulosics and agricultural chemicals | | Freeport, TX Plaquemine, LA Stade, Germany
| | chlorine, ethylene dichloride, hydrochloric acid, methanol, RCls |
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Chlorinated organics solvents
| | Surface preparation, dry cleaning, pharmaceuticals and regeneration of refining catalysts
| | Freeport, TX Plaquemine, LA Stade, Germany
| | chlorine, ethylene dichloride, hydrochloric acid, RCls |
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Sodium hypochlorite (bleach) | | Household cleaners, laundry bleaching, swimming pool sanitizers, semiconductors, water treatment, textiles, pulp & paper and food processing | | Augusta, GA Becancour, QuebecCanada Charleston, TN Henderson, NV*NV Lemont, IL McIntosh, AL* Niagara Falls, NY* Santa Fe Springs, CA Tacoma, WA
Tracy, CA | | chlorine, caustic soda, chlorine |
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| Hydrochloric acid | | Steel, oil & gas, plastics, organic chemical synthesis, water and& wastewater treatment, brine treatment, artificial sweeteners, pharmaceuticals, food processing and ore and& mineral processing | | Becancour, QuebecCanada Charleston, TN Henderson, NV
McIntosh, AL Niagara Falls, NY | | chlorine, hydrogen |
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| Potassium hydroxide | | Fertilizer manufacturing, soaps, detergents and& cleaners, battery manufacturing, food processing chemicals and deicers | | Charleston, TN | | electricity, potassium chloride electricity |
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| Hydrogen | | Fuel source, hydrogen peroxide and hydrochloric acid | | Becancour, QuebecCanada Charleston, TN Henderson, NVFreeport, TX
McIntosh, AL Niagara Falls, NY Plaquemine, LA St. Gabriel, LA | | electricity, salt electricity |
| * Includes low salt, high strength bleach manufacturing. |
Strategies
ContinuedStrengthen Our Role as a Preferred Supplier in North America. Take maximum advantage of our world-scale integrated facilities on the U.S. Gulf Coast, our geographically-advantaged plants across North America and our extensive distribution network to Merchant Market Customers. Based onprovide a reliable and preferred supply position to our market research, we believe our Chlor Alkali Products business is viewed as a preferred supplier by our merchant market customers. We will continue to focus on providing quality customer service support and developing relationships with our valuedNorth American customers.
4Capitalize on Our Low Cost Position. Our advantaged cost position is derived from shale gas, scale, integration, and deep-water ports. We expect to maximize our low cost position to export caustic soda, chlorinated organics and EDC to customers worldwide.
Optimize the Breadth of Products and Pursue Incremental Expansion OpportunitiesOpportunities. . We have invested in capacityFully utilize the portfolio of co-products and product upgrades in our chemically processed salt, hydrochloric acid, bleach, potassium hydroxide and hydrogen businesses. These expansions increase our captive use of chlorine while increasing the sales of these co-products. These businesses provide opportunitiesintegrated derivatives to continually upgrade chlorine and caustic soda to higher value-added applications. We also have the opportunity, when business conditions permit, to pursue incremental cost effective chlorinehighest value applications and caustic soda expansions at our McIntosh, AL and St. Gabriel, LA facilities.provide expansion opportunities.
Chemical DistributionEpoxy
Products and Services
WeWith the addition of the Acquired Business, we acquired KA Steel,TDCC’s Global Epoxy business. The Epoxy business was one of the first major manufacturers of epoxy products, and has continued to build on a privately-held distributorhalf a century of caustic sodahistory through product innovation and bleach, on August 22, 2012. KA Steel was founded in 1957 and had been managed bytechnical excellence. According to data from IHS, the two shareholders, Robert and Kenneth Steel, since 1980. ForEpoxy segment reporting purposes, KA Steel comprises the Chemical Distribution segment. KA Steel is one of the largest distributorsfully integrated global producers of epoxy resins, curing agents and intermediates. The Epoxy segment has a favorable manufacturing cost position which is driven by a combination of scale and integration into low cost feedstocks (including chlorine, caustic soda, allylics and aromatics). The Epoxy segment produces and sells a full range of epoxy materials, including upstream products such as allyl chloride (Allyl) and epichlorohydrin (EPI), midstream products such as liquid epoxy resins (LER), and downstream products such as converted epoxy resins (CER) and additives.
The Epoxy segment serves a diverse array of applications, including wind energy, electrical laminates, marine coatings, consumer goods and composites, as well as numerous applications in civil engineering and protective coating. The Epoxy segment has important relationships with established customers, some of which span decades. Geographically, the Epoxy segment’s primary markets are North America and manufacturesWestern Europe. The segment’s product is delivered primarily by marine vessel, deep-water and sells bleachcoastal barge, railcar and truck.
Allyl has use, not only as a feedstock in the Midwest. production of EPI, but also as a chemical intermediate in multiple industries and applications, including water purification chemicals. EPI is primarily produced as a feedstock for use in the business’s epoxy resins, and also sold to epoxy producers globally who produce their own resins for end use segments such as coatings and adhesives. LER is manufactured in liquid form and cures with the addition of a hardener into a thermoset solid material offering a distinct combination of strength, adhesion and chemical resistance that is well-suited to coatings and composites applications. While LER is sold externally, a portion of LER production is further converted into CER where value-added modifications produce higher margin customer-specific resins.
Our Epoxy segment maintains strong relationships with TDCC as both a customer and supplier. These relationships are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key products sold to TDCC include aromatics and key raw materials received from TDCC include propylene and benzene.
The Chemical DistributionEpoxy segment’s production economics benefit from its integration into chlor alkali and aromatics which are key inputs in epoxy production. This fully integrated structure provides both access to low cost materials and significant operational flexibility. The Epoxy segment gives usoperates an integrated aromatics production chain producing cumene, phenol, acetone and bisphenol (BisA) for internal consumption and sale. The Epoxy segment’s consumption of chlorine allows the expanded capabilityChlor Alkali Products and Vinyls segment to market and sellgenerate caustic soda bleach, potassium hydroxideproduction and hydrochloric acid, as well as, gives ussales. Chlorine used in our Epoxy segment is transferred at cost from the geographic diversification the KA Steel locations provide us,Chlor Alkali Products and strengthens our position in the industrial bleachVinyls segment.
KA Steel is a chemical distributor uniquely focused in caustic soda and bleach. The addition of KA Steel increased our bleach capacity by approximately 20%. KA Steel’s geographic profile expanded our reach and provides a strong platform to increase our caustic soda, bleach, potassium hydroxide and hydrochloric acid sales. Currently, Chemical Distribution sells small quantities of potassium hydroxide and has historically been, and maintains some infrastructure to be, a distributor of hydrochloric acid.
Chemical Distribution sources its chemicals from both international and domestic suppliers, including several of the major chemical producers in the U.S. Chemical Distribution typically has written distributorship agreements or supply contracts with our suppliers that are periodically renewed. The Chemical Distribution supply agreements with producers generally do not provide for specific product pricing, but do include volume-based financial incentives through supplier rebates that we can earn by meeting or exceeding target purchase volumes.
The prices at which Chemical Distribution resells the products that it distributes fluctuate in accordance with the prices that they pay for these products, which in turn are driven by the underlying commodity prices, such as caustic soda, in accordance with supply and demand economics. As a result, movements in the product prices tend to result in largely corresponding changes to sales and cost of goods sold.
Transportation of products to and from customers and suppliers is a fundamental component of the Chemical Distribution business. The distribution business relies on their private fleet of trucks, tankers and trailers to ship approximately 50% of their annual volume and on common carriers and direct supply sales for the remainder. Direct supply sales occur by shipping products directly from a supplier to a customer when direct shipment is optimal for our route management. Although the products move directly from supplier to customer, Chemical Distribution remains the only point of contact for both customers and suppliers, and we take ownership of the products during the direct supply process.
The Chemical Distribution facilities are strategically placed to optimize route density in an effort to balance high quality customer service with execution costs. The following table lists eachproducts and services of our Epoxy segment, with principal products on the distribution facilities, if the facility is owned or leased, and the products currently shipped from the location. The table does not include supplier controlled direct-ship facilities.
basis of annual sales highlighted in bold face.
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| Products & Services | | Major End Uses | | Plants & Facilities | | Owned/LeasedMajor Raw Materials & Components for Products/Services |
Caustic, Bleach, Potassium Hydroxide, Hydrochloric AcidAllylics (allyl chloride & epichlorohydrin) | | Lemont, ILManufacturers of polymers, resins and other plastic materials, water purification, and pesticides | | Own |
Caustic, BleachFreeport, TX Stade, Germany Terneuzen, Netherlands | | Muscatine, IAchlor alkali, propylene |
| | Own |
Bleach | | Romulus, MI | | Own |
CausticLiquid epoxy resin | | Baltimore, MDAdhesives, paint and coatings, composites and flooring | | Lease |
CausticFreeport, TX Guaruja, Brazil Stade, Germany | | Bayonne, NJacetone, benzene, bisphenol, chlor alkali, cumene, phenol |
| | Lease |
Bleach | | Camanche, IA | | Lease |
CausticConverted epoxy resins | | Charleston, SCElectrical laminates, paint and coatings, wind blades, electronics and construction | | Lease |
CausticBaltringen, Germany Freeport, TX Guaruja, Brazil Gumi, South Korea Pisticci, Italy Rheinmunster, Germany Roberta, GA Stade, Germany Zhangjigang, China | | Cincinnati, OH | | Lease |
Caustic | | Cozad, NE | | Lease |
Caustic, Bleach | | Dallas, TX | | Lease |
Caustic | | E Sauget, IL | | Lease |
Bleach | | Fairborn, OH | | Lease |
Caustic | | Houston, TX | | Lease |
Caustic | | Kansas City, KS | | Lease |
Caustic | | Lubbock, TX | | Lease |
Caustic | | Manly, IA | | Lease |
Caustic | | McKees Rocks, PA | | Lease |
Caustic | | Pt. Allen, LA | | Lease |
Caustic | | Savannah, GA | | Lease |
Caustic | | Searsport, ME | | Lease |
Caustic | | Sioux City, IA | | Lease |
Caustic | | Spokane, WA | | Lease |
Caustic | | St. Louis, MO | | Lease |
Caustic | | St. Paul, MN | | Lease |
Caustic | | Vancouver, WA | | Lease |
Caustic | | Warren, MI | | Leaseacetone, benzene, bisphenol, chlor alkali, cumene, phenol |
Strategies
Pursue Incremental Expansion Options.Optimize Existing Cost Position. The acquisition of KA Steel enhanced our commodity chemicalEpoxy segment continues to drive productivity cost improvements through the entire supply chain, enhancing reliability and delivering yield improvements. With its advantaged cost position, the business by increasing the amountwill continue its focus to sell products through improved margin discipline and optimization of our core chlor alkali capacity that can be sold as value-added products.integrated aromatics capabilities.
Continued Focus on Product Innovation. With a long history of leading technology and quality, the Epoxy segment is a leading global innovator. Innovation capture in resins and systems improvements, combined with process, geographic and asset mix, provide the road map to improving the profitability of the Epoxy portfolio.
Take Maximum Advantage of Our Geographical Presence. Operating ten strategically-located sites on four continents with reliable production and delivery of product enables the business to increase market share in strategic international markets and expand into attractive new emerging markets.
Winchester
Products and Services
In 2013,2017, Winchester wasis in its 147151thst year of operation and its 8387rdth year as part of Olin. Winchester is a premier developer and manufacturer of small caliber ammunition for sale to domestic and international retailers (commercial customers), law enforcement agencies and domestic and international militaries. We believe we are a leading U.S. producer of ammunition for recreational shooters, hunters, law enforcement agencies and the U.S. Armed Forces. Winchester also manufacturers industrial products that have various applications in the construction industry.
In March 2013,January 2017, SIG Sauer, Inc. was awarded a $580 million, ten-year contract for the modular handgun system pistol contract by the U.S. Army. Winchester will supply the pistol ammunition as a subcontractor to SIG Sauer, Inc.
In February 2016, Winchester was awarded a three-yearfive-year contract for .38 caliber, .45 caliber and 9mm ammunition to be used by the U.S. Army for .38 caliber and .45 caliber centerfire cartridges.Army. The contract has the potential to generate $7approximately $75 million of sales over the life of thefive-year contract.
In September 2012,January 2016, Winchester along with another ammunition manufacturer, was awarded a five-year contract fromfor 5.56mm, 7.62mm and .50 caliber ammunition to be used by the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI).U.S. Army. The contract is to provide .40 caliber duty and training ammunition for one year with four option years; the contract has the potential to generate $75approximately $300 million of sales over the life of thefive-year contract.
During 2011,In March 2015, Winchester was awarded a five-year contract for 5.56mm frangible ammunition to be used for training by the U.S. Army’s follow-on “Second Source” ammunitionNavy and U.S. Marine Corp. The contract which has the potential to generate $250approximately $45 million of sales over five years.the five-year contract.
In September 2014, Winchester was awarded a five-year contract to produce training ammunition for the U.S. Department of Homeland Security. The contract provides for the production of .50 caliber, 5.56 millimeter and 7.62 millimeter ammunition. In 2011, the U.S. Army also awarded Winchester a new five-year contract for 9mm NATO ammunition, which has the potential to generate $80$50 million of sales over the next five years.five-year contract.
Our legendary Winchester® product line includes all major gauges and calibers of shotgun shells, rimfire and centerfire ammunition for pistols and rifles, reloading components and industrial cartridges. We believe we are a leading U.S. supplier of small caliber commercial ammunition.
In 2015, Winchester was recognized with the Strategic Partnership award by Cabela’s Incorporated (Cabela’s), one of the country’s largest retailers of hunting, fishing and outdoor gear. The Strategic Partnership award is given to partners who demonstrate superior performance metrics and overall contribution to the company. In April 2014, Winchester was recognized with the exclusive Overall Vendor of the Year award by Cabela’s. The Overall Vendor of the Year is Cabela’s highest merchandising vendor award across all categories and departments. Winchester was chosen from more than 3,500 merchandise suppliers for superior performance, partnership and overall contribution to the retailer.
In October 2013,2014, Winchester was recognized by the National Association of Sporting Goods Wholesalers (NASGW) with the group’s Excellence in Ammunition Manufacturing award. The NASGW presents the award to manufacturers who best demonstrate outstanding value and service to NASGW distributor members.
In May 2012, the National Defense Industrial Association (NDIA) presented Winchester with the prestigious Ambrose Award for exemplary commitment and contribution to the U.S. Armed Forces. The NDIA presents the award periodically when a manufacturer delivers superior materials that meet required operational capabilities and support a high level of force readiness in conduct of warfighting activities and homeland defense.
Our legendary Winchester® product line includes all major gauges and calibers of shotgun shells, rimfire and centerfire ammunition for pistols and rifles, reloading components and industrial cartridges. We believe we are the leading U.S. supplier of small caliber commercial ammunition. In support of our continuous improvement initiatives, our manufacturing facilities in East Alton, IL achieved ISO recertification to the ISO 9001:2008 standard in November 2012. Additionally, our facilities in Oxford, MS and Australia achieved ISO 9001:2008 recertification in 2011.
Winchester has strong relationships throughout the sales and distribution chain and strong ties to traditional dealers and distributors. Winchester has also built its business with key high volumehigh-volume mass merchants and specialty sporting goods retailers. Winchester has consistently developed industry-leading ammunition. In 2013, 2012ammunition, which is recognized in the industry for manufacturing excellence, design innovation and 2011, Winchesterconsumer value. Winchester’s new ammunition products received numerouscontinue to receive awards from major industry recognitions,publications, with recent awards including: Winchester’s new AA® TrAAckerTMAmerican Hunter load was honored bymagazine’s Golden Bullseye Award as “Ammunition Product of the Year” in 2016; Predator Xtreme magazine’s “2015 Readers’ Choice Gold” award; American Rifleman magazine’s Golden Bullseye Award as “Ammunition Product of the Year” in 2015 and 2014; one of Outdoor Life magazine’s “Best New Hunting Loads” in 2015; Field & Streammagazine with a 2013 magazine’s “Best of the Best” award Winchesterin 2015 and 2014; ®Petersen's Hunting Blind Sidemagazine’s 2014 “Editor’s Choice” award; ®Guns & Ammo waterfowl loads were selected bymagazine’s “2014 Ammunition of the National Rifle Association’sYear” award; and American RiflemanShooting Illustrated magazine to receive a Golden Bullseye Award as “2012 Ammunitionmagazine’s “Ammunition Product of the Year,” Winchester® Blind Side® waterfowl loads also received the 2011 “Best of the Best” award from Field & Stream magazine, were selected as “Top Choice” for duck huntingYear” in Field & Stream’s “Ultimate Shotshell Guide,” were named “Editor’s Choice” as the top overall ammo in Outdoor Life’s 2011 “Ammo of the Year” awards, and were recommended to ammunition retailers as “a best bet to make the register ring” by the editors of SHOT Business. In addition, the Winchester® .17HMR Varmint Lead-Free round was awarded Top Rimfire Ammo in Outdoor Life’s 2011 “Ammo of the Year” awards, and Field & Stream’s 2011 “Ultimate Shotshell Guide” named Winchester® AA® Heavy Target Loads the “Top Choice” for upland bird hunting.2014.
Winchester purchases raw materials such as copper-based strip and ammunition cartridge case cups and lead from vendors based on a conversion charge or premium. These conversion charges or premiums are in addition to the market prices for metal as posted on exchanges such as the Commodity Exchange, or COMEX, and London Metals Exchange, or LME. Winchester’s other main raw material is propellant, which is purchased predominantly from one of the United States’U.S.’s largest propellant suppliers.
The following table lists products and services of our Winchester business,segment, with principal products on the basis of annual sales highlighted in bold face.
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| | | | | | |
| Products & Services | | Major End Uses | | Plants & Facilities | | Major Raw Materials & Components for Products/Services |
Winchester® sporting ammunition (shot-shells,(shotshells, small caliber centerfire & rimfire ammunition) | | Hunters & recreational shooters, law enforcement agencies | | East Alton, IL Geelong, Australia Oxford, MS Geelong, Australia
| | brass, lead, steel, plastic, propellant, explosives |
| | | | | | | |
| Small caliber military ammunition | | Infantry and mounted weapons | | East Alton, IL Oxford, MS | | brass, lead, propellant, explosives |
| | | | | | | |
| Industrial products (8 gauge loads & powder-actuated tool loads) | | Maintenance applications in power & concrete industries, powder-actuated tools in construction industry | | East Alton, IL Geelong, Australia Oxford, MS Geelong, Australia
| | brass, lead, plastic, propellant, explosives |
On November 3, 2010, we announced that we had made the decision to relocate the Winchester centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford, MS. In October 2011, we opened the new centerfire pistol and rifle production facility in Oxford, MS. DuringMS and, during 2013, we completed the relocation of the centerfire pistol manufacturing equipment was completed and the relocation ofequipment. During 2014, the centerfire rifle manufacturing equipment was initiated. During 2013, approximately 92%in the process of Winchester’s pistolbeing relocated, and by December 1, 2014, all commercial centerfire rifle ammunition was manufactured in Oxford, MS. ThisDuring 2015 and 2016, all of Winchester’s commercial centerfire pistol and rifle ammunition were manufactured in Oxford, MS. During 2016, the final rifle ammunition production equipment relocation whenwas completed is forecast to reduce Winchester’sand the annual operating costs bycost savings for the project reached approximately $35 million to $40 million. We currentlyIn 2017, we expect the cost savings from the completed project to complete this relocation byreach approximately $45 million. With the endcompletion of 2016. Once completed,the facility, we believe Winchester expects to havehas the most modern centerfire ammunition production facility in North America.
Strategies
LeverageMaximize Existing Strengths.Winchester plans to seek new opportunities to leveragefully utilize the legendary Winchester brand name and will continue to offer a full line of ammunition products to the markets we serve, with specific focus on investments that make Winchester ammunition the retail brand of choice.
Focus on Product Line Growth. With a long record of pioneering new product offerings, Winchester has built a strong reputation as an industry innovator. This includes the introduction of reduced-lead and non-lead products, which are growing in popularity for use in indoor shooting ranges and for outdoor hunting.
Cost Reduction Strategy. Winchester plans to continue to focus on strategies that will lower our costs, includingcosts. During 2016, we completed the ongoing relocation of our centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford, MS. Our focus will continue to optimize the Oxford facility and maximize production output.
INTERNATIONAL OPERATIONS
Our subsidiary, Olin Canada ULC, formerly PCI Chemicals Canada Company/Société PCI Chimie Canada, operates one chlor alkali facility in Becancour, Quebec, which sells chlor alkali-related products within CanadaWith the addition of the Acquired Business, our international presence increased, including the geographic regions of Europe, Asia Pacific and toLatin America. Approximately 40% of Olin’s 2016 sales were generated outside of the United StatesU.S., including 28% of our Chlor Alkali Products and also sellsVinyls 2016 segment sales, 71% of our Epoxy 2016 segment sales and distributes ammunition within Canada. Our subsidiary,9% of our Winchester Australia Limited, loads and packs sporting and industrial ammunition in Australia.2016 segment sales. See the Note “Segment Information” of the notes to consolidated financial statements contained in Item 8, for geographic segment data. We are incorporating our segment information from that Note into this section of our Form 10-K.
CUSTOMERS AND DISTRIBUTION
During 2013, no single customer accounted for more than 9% of sales. Sales to all U.S. government agencies and sales under U.S. government contracting activities in total accounted for approximately 4% of sales in 2013. Products we sell to industrial or commercial users or distributors for use in the production of other products constitute a major part of our total sales. We sell some of our products, such as epoxy resins, caustic soda and sporting ammunition, to a large number of users or distributors, while we sell others, such as chlorine and chlorinated organics in substantial quantities to a relatively small number of industrial users. With the addition of the Acquired Business, we entered into or have significant relationships with a few customers including TDCC, who was our largest customer by revenue in 2016. We expect these relationships to continue to be significant to Olin and to represent more than 10% of our annual sales in the future. During 2016, sales to TDCC represented approximately 15% of our total sales. No other single customer accounted for more than 4% of sales. We discuss the customers for each of our three businessesbusiness segments in more detail above under “Products and Services.”
We market most of our products and services primarily through our sales force and sell directly to various industrial customers, mass merchants, retailers, wholesalers, other distributors and the U.S. Government and its prime contractors.
Sales to all U.S. Government agencies and sales under U.S. Government contracting activities in total accounted for approximately 2% of sales in 2016. Because we engage in some government contracting activities and make sales to the U.S. Government, we are subject to extensive and complex U.S. Government procurement laws and regulations. These laws and regulations provide for ongoing government audits and reviews of contract procurement, performance and administration.
Failure to comply, even inadvertently, with these laws and regulations and with laws governing the export of munitions and other controlled products and commodities could subject us or one or more of our businesses to civil and criminal penalties, and under certain circumstances, suspension and debarment from future government contracts and the exporting of products for a specified period of time.
BACKLOG
The total amount of contracted backlog was approximately $532.4$316.7 million and $440.8$312.5 million as of January 31, 20142017 and 2013,2016, respectively. The backlog orders are in our Winchester business. Beginning around the time of the November 2012 presidential election, consumer purchases of ammunition surged significantly above historical demand levels. The surgeBacklogs in demand has been across all of Winchester’s commercial product offerings. The increase in commercial demand can be illustrated by the increase in Winchester’s commercial backlog, which was $423.0 and $310.9 million at January 31, 2014 and 2013, respectively, compared to $138.3 million at December 31, 2012 and $37.6 million at January 31, 2012. The orders included in the commercial backlog may be canceled by the customer.our other businesses are not significant. Backlog is comprised of all open customer orders not yet shipped. Approximately 98%75% of contracted backlog as of January 31, 20142017 is expected to be filled during 2014.2017.
COMPETITION
We are in active competition with businesses producing or distributing the same or similar products, as well as, in some instances, with businesses producing or distributing different products designed for the same uses.
Chlor alkali manufacturers in North America, with approximately 1617 million tons of chlorine and 1718 million tons of caustic soda capacity, account for approximately 17% of worldwide chlor alkali production capacity. According to IHS, we have the Dow Chemical Company (Dow), the Occidental Petroleum Corporation (Oxy), and Axiall Corporation (Axiall) are the three largest chlor alkali producers in North America. Approximately 75% of the total North American capacity is located in the U.S. Gulf Coast region.
Many of our competitors are integrated producers of chlorine, using some, or all, of their chlorine production in the manufacture of other downstream products. In contrast, we are primarily a merchant producer of chlorine and sell the majority of our chlorine to merchant customers. As a result, we supply a greater share of the merchant chlorine market than our share of overall industry capacity. We do utilize chlorine to manufacture industrial bleach and hydrochloric acid. There is a worldwide market for caustic soda, which attracts imports and allows exports depending on market conditions. All of our competitors and the integrated producers of chlorine sell caustic soda into the North American merchant market.
The chlor alkali industry in North America is highly competitive, and many of our competitors, including Dow and Oxy, are substantially larger and have greater financial resources than we do.globally. While the technologies to manufacture and transport chlorine and caustic soda are widely available, the production facilities require large capital investments, and are subject to significant regulatory and permitting requirements.
We became one Approximately 76% of the largest distributors oftotal North American chlor alkali capacity is located in the U.S. Gulf Coast region. There is a worldwide market for caustic soda, in North America with the acquisition of KA Steel. We operate in a competitive industrywhich attracts imports and compete with manyallows exports depending on market conditions. Other large chlor alkali producers distributors and sales agents offering chemicals equivalent to the products we handle. The primary competitive factors affecting the distribution business is the availability of product, the price, customer service and delivery capabilities. Our principal distribution competitors in North America include Univar Inc., Brenntag AGThe Occidental Petroleum Corporation (Oxy) and numerous smaller regional distributors.Westlake Chemical Corporation (Westlake).
9We are also a leading integrated global producer of chlorinated organic products with a strong cost position due to our scale and access to chlor alkali feedstocks. This industry includes large diversified producers such as Oxy, Westlake and Solvay S.A., as well as multiple producers located in China.
We are a major global fully integrated epoxy producer, with access to key low cost feedstocks and a cost advantaged infrastructure. The markets in which our Epoxy segment operates are highly competitive and are dependent on significant capital investment, the development of proprietary technology and maintenance of product research and development. Among our competitors are Huntsman Corporation, Trinseo S.A. and Hexion, Inc.
We are among the largest manufacturers in the United StatesU.S. of commercial small caliber ammunition based on independent market research sponsored by the National Shooting Sports Foundation (NSSF). Formed in 1961, NSSF has a membership of more than 8,000 manufacturers, distributors, firearms retailers, shooting ranges, sportsman’s organizations and publishers. According to NSSF, our Winchester business, Alliant TechsystemsVista Outdoor Inc. (ATK)(Vista), and Remington ArmsOutdoor Company, Inc. owned by the Freedom Group (Remington) are the three largest commercial ammunition manufacturers in the United States.U.S. The ammunition industry is highly competitive with us, ATK,Vista, Remington, numerous smaller domestic manufacturers and foreign producers competing for sales to the commercial ammunition customers. Many factors influence our ability to compete successfully, including price, delivery, service, performance, product innovation and product recognition and quality, depending on the product involved.
EMPLOYEES
As of December 31, 2013,2016, we had approximately 4,1006,400 employees, with 3,9005,300 working in the United StatesU.S. and 2001,100 working in foreign countries, primarily Canada.countries. Various labor unions represent a majoritysignificant number of our hourly-paid employees for collective bargaining purposes.
The following labor contracts are scheduled to expire in 2014:early 2018:
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| | | | |
| Location | | Number of Employees | | Expiration Date |
TacomaLemont (Chlor Alkali)Alkali Products and Vinyls) | | 920 | | December 2014March 2018 |
| Becancour (Chlor Alkali Products and Vinyls) | | 97 | | April 2018 |
While we believe our relations with our employees and their various representatives are generally satisfactory, we cannot assure that we can conclude these labor contracts or any other labor agreements without work stoppages and cannot assure that any work stoppages will not have a material adverse effect on our business, financial condition or results of operations.
RESEARCH ACTIVITIES; PATENTS
Our research activities are conducted on a product-group basis at a number of facilities. Company-sponsored research expenditures were $2.5$10.9 million in 2013, $2.62016, $4.9 million in 20122015 and $2.7$4.1 million in 2011.2014.
We own or license a number of patents, patent applications and trade secrets covering our products and processes. We believe that, in the aggregate, the rights under our patents and licenses are important to our operations, but we do not consider any individual patent, or license or group of patents and licenses related to a specific process or product to be of material importance to our total business.
SEASONALITY
Our sales are affected by the cyclicality of the economy and the seasonality of several industries we serve, including building and construction, coatings, infrastructure, electronics, automotive, bleach, refrigerants and ammunition. The seasonality of the ammunition business is typically driven by the U.S. fall hunting season. Our chlor alkali businesses generally experience their highest level of activity during the spring and summer months, particularly when construction, refrigerants, coatings and infrastructure activity is higher. The chlor alkali industry is cyclical, both as a result of changes in demand for each of the co-produced products and as a result of the large increments in which new capacity is added and removed. Because chlorine and caustic soda are produced in a fixed ratio, the supply of one product can be constrained both by the physical capacity of the production facilities and/or by the ability to sell the co-produced product. Prices for both products respond rapidly to changes in supply and demand. The cyclicality of the chlor alkali industry has further impacts on downstream products. With the addition of the Acquired Business, we have significantly increased the diversification of our chlorine outlets allowing us to better manage the cyclical nature of the industry.
RAW MATERIALS AND ENERGY
Basic raw materials are processed through an integrated manufacturing process to produce a number of products that are sold at various points throughout the process. We purchase the majora portion of our raw material requirements. requirements and also utilize internal resources, co-products and finished goods as raw materials for downstream products. We believe we have reliable sources of supply for our raw materials under normal market conditions. However, we cannot predict the likelihood or impact of any future raw material shortages.
The principal basic raw materials for our production of chlor alkaliChlor Alkali Products and Vinyls’ products are electricity, salt, electricity,ethylene, potassium chloride, sulfur dioxidemethanol and hydrogen. A portion of our purchases of our raw materials, including ethylene and electricity, are made under long-term supply agreements, while approximately 85% of the salt used in our Chlor Alkali Products and Vinyls segment is produced from internal resources.
The Epoxy segment’s principal raw materials are chlorine, benzene, propylene and aromatics which consist of cumene, phenol, acetone and BisA. A portion of our purchases of our raw materials, including benzene, propylene and a portion of our aromatics requirements, are made under long-term supply agreements, while a portion of our aromatics requirements are produced from our integrated production chain. Chlorine is predominately sourced from our Chlor Alkali Products and Vinyls segment.
Lead, brass and propellant are the principal raw materials used in the Winchester business. We typically purchase our electricity, salt, potassium chloride, sulfur dioxide, ammunition cartridge case cups and copper-based strip, and propellants pursuant to multi-year contracts.
Electricity is the predominant energy source for our manufacturing facilities. Approximately 76% of our electricity is generated from natural gas or hydroelectric sources. In conjunction with the Acquisition, we entered into long-term power supply contracts with TDCC in addition to acquiring power assets which allow for cost differentiation at specific U.S. manufacturing sites. During 2016, Olin entered into additional arrangements to increase our supply of low cost electricity.
We provide additional information with respect to specific raw materials in the tables set forth under “Products and Services.”
Electricity is the predominant energy source for our manufacturing facilities. Most of our facilities are served by utilities which generate electricity principally from coal, hydroelectric and nuclear power except at St. Gabriel, LA and Henderson, NV which predominantly use natural gas.
ENVIRONMENTAL AND TOXIC SUBSTANCES CONTROLS
InAs is common in our industry, we are subject to environmental laws and regulations related to the United States,use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business.
The establishment and implementation of federal,national, state or provincial and local standards to regulate air, water and land quality affect substantially all of our manufacturing locations. Federal legislationlocations around the world. Laws providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites hashave imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws such as the Resource Conservation and Recovery Act and the Clean Air Act, has required and will continue to require new capital expenditures and will increase operating costs. Our Canadian facility is governed by federal environmental laws administered by Environment Canada and by provincial environmental laws enforced by administrative agencies. Many of these laws are comparable to the U.S. laws described above.
We employ waste minimization and pollution prevention programs at our manufacturing sites and we are a party to various governmental and private environmental actions associated with former waste disposal sites and past manufacturing facilities. Charges or credits to income for investigatory and remedial efforts were material to operating results in$9.2 million, $15.7 million and $9.6 million for the past three years ended December 31, 2016, 2015 and 2014, respectively. These charges may be material to operating results in future years.
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.
See our discussion of our environmental matters contained in Item 3—“Legal Proceedings” below, the Note “Environmental” of the notes to consolidated financial statements contained in Item 8 and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 1A. RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating Olin and our business. All of our forward-looking statements should be considered in light of these factors. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect us.
Sensitivity to Global Economic Conditions and Cyclicality—Cyclicality—Our operating results could be negatively affected during economic downturns.
The business of most of our customers, particularly our vinyl, urethanes and pulp and paper customers are, to varying degrees, cyclical and have historically experienced periodic downturns. These economic and industry downturns have been characterized by diminished product demand, excess manufacturing capacity and, in some cases, lower average selling prices. Therefore, any significant downturn in our customers’ businesses or in global economic conditions could result in a reduction in demand for our products and could adversely affect our results of operations or financial condition.
Although we dohistorically have not generally sellsold a large percentage of our products directly to customers abroad, a large part of our financial performance is dependent upon a healthy economy beyond North America. OurAmerica because our customers sell their products abroad. Additionally, the percentage of our sales to customers abroad has increased significantly since the Acquired Business derives a larger portion of its sales from customers outside the U.S. As a result, our business is and will continue to be affected by general economic conditions and other factors in Western Europe, South America and most of East Asia Pacific, particularly China and Japan, and Latin America, including fluctuations in interest rates, customer demand, labor and energy costs, currency changes and other factors beyond our control. The demand for our customers’ products, and therefore, our products, is directly affected by such fluctuations. In addition, our customers could decide to move some or all of their production to lower cost, offshore locations, and this could reduce demand in North America for our products. We cannot assure you that events having an adverse effect on the industries in which we operate will not occur or continue, such as a downturn in the Western European, SouthAsia Pacific, particularly China and Japan, Latin American, Asian or world economies, increases in interest rates or unfavorable currency fluctuations. Economic conditions in other regions of the world, predominantly Asia and Europe, can increase the amount of caustic soda produced and available for export to North America. The increased caustic soda supply can put downward pressure on our caustic soda prices, negatively impacting our profitability.
Cyclical Pricing Pressure—Pressure—Our profitability could be reduced by declines in average selling prices of our products, particularly declines in the ECU netbacks for chlorine and caustic soda.
Our historical operating results reflect the cyclical and sometimes volatile nature of the chemical and ammunition industries. We experience cycles of fluctuating supply and demand in each of our business segments, particularly in our Chlor Alkali Products and Vinyls segment, which result in changes in selling prices. Periods of high demand, tight supply and increasing operating margins tend to result in increases in capacity and production until supply exceeds demand, generally followed by periods of oversupply and declining prices. Another factor influencing demand and pricing for chlorine and caustic soda is the price of natural gas. Higher natural gas prices increase our customers’ and competitors’ manufacturing costs, and depending on the ratio of crude oil to natural gas prices, could make them less competitive in world markets. Continued expansion offshore, particularly in Asia, will continue to have an impact on the ECU values as imported caustic soda replaces some capacity in North America.
Price inIn the chlor alkali industry, price is the major supplier selection criterion. We have little or no ability to influence prices in thisthese large commodity market.markets. Decreases in the average selling prices of our products could have a material adverse effect on our profitability. For example, in the Chlor Alkali Products segment, assuming all other costs remain constant and internal consumption remains approximately the same, a $10 per ECU selling price change equates to an approximate $15 million annual change in our revenues and pretax profit when we are operating at full capacity. While we strive to maintain or increase our profitability by reducing costs through improving production efficiency, emphasizing higher margin products and by controlling transportation, selling and administration expense, we cannot assure you that these efforts will be sufficient to offset fully the effect of possible decreases in pricing on operating results.
Because of the cyclical nature of our businesses, we cannot assure you that pricing or profitability in the future will be comparable to any particular historical period, including the most recent period shown in our operating results. We cannot assure you that the chlor alkali industry will not experience adverse trends in the future, or that our operatingbusiness, financial condition and results and/or financial conditionof operations will not be adversely affected by them.
Our Chemical Distribution segment is also subject to changes in operating results as a result of cyclical pricing pressures. The prices at which we resell the products that we distribute often fluctuate in accordance with the prices that we pay for these products, which in turn are driven by the underlying commodity prices, such as caustic soda, in accordance with supply and demand economics. We attempt to pass commodity pricing changes to our customers, but we may be unable to or be delayed in doing so. The inability to pass through price increases or any limitation or delays in passing through price increases in our Chemical Distribution segment could adversely affect our profitability.
Our Winchester segment isand Epoxy segments are also subject to changes in operating results as a result of cyclical pricing pressures, but to a lesser extent than theour Chlor Alkali Products and Vinyls segment. Selling prices of ammunition and epoxy materials are affected by changes in raw material costs and availability and customer demand, and declines in average selling prices of products of our Winchester segmentand Epoxy segments could adversely affect our profitability.
Imbalance in Demand
Raw Materials—Availability of purchased feedstocks and energy, and the volatility of these costs, impact our operating costs and add variability to earnings.
Purchased feedstock and energy costs account for Our Chlor Alkali Products—A loss of a substantial customer forportion of our chlorinetotal production costs and operating expenses. We purchase certain raw materials as feedstocks.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact our business, financial condition and results of operations.
If the availability of any of our principal feedstocks is limited or caustic soda could cause an imbalancewe are unable to obtain natural gas or energy from any of our energy sources, we may be unable to produce some of our products in demand for these products,the quantities demanded by our customers, which could have ana material adverse effect on plant utilization and our sales of products requiring such raw materials. In connection with the Acquisition, we entered into long-term supply agreements with TDCC for certain raw materials, including ethylene, propylene and benzene. The initial term of the majority of these supply agreements is either five or ten years (a small number of agreements have shorter or longer initial terms) beginning on the Closing Date. As these contracts with TDCC and other third-party contracts expire, we may be unable to renew these contracts or obtain new long-term supply agreements on terms comparable or as favorable to us, depending on market conditions, which may have a material adverse effect on our business, financial condition and results of operations.
Chlorine and caustic soda In addition, many of our long-term contracts contain provisions that allow their suppliers to limit the amount of raw materials shipped to us below the contracted amount in force majeure circumstances. If we are produced simultaneously and inrequired to obtain alternate sources for raw materials because TDCC or any other supplier is unwilling or unable to perform under raw material supply agreements or if a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic soda. The loss of a substantial chlorine or caustic soda customer could cause an imbalance in demand for our chlorine and caustic soda products. An imbalance in demand may requiresupplier terminates its agreements with us, to reduce production of both chlorine and caustic soda or take other steps to correct the imbalance. Since we cannot store large quantities of chlorine, we may not be able to respondobtain these raw materials from alternative suppliers or obtain new long-term supply agreements on terms comparable or favorable to an imbalance in demandus.
Indebtedness—Our indebtedness could adversely affect our financial condition.
As of December 31, 2016, we had $3,617.6 million of indebtedness outstanding. Outstanding indebtedness does not include amounts that could be borrowed under our $500.0 million senior revolving credit facility, under which $483.4 million was available for these productsborrowing as quickly or efficiently as someof December 31, 2016 because we had issued $16.6 million of letters of credit. As of December 31, 2016, our indebtedness represented 61.4% of our competitors.total capitalization. At December 31, 2016, $80.5 million of our indebtedness was due within one year. Despite our level of indebtedness, we expect to continue to have the ability to borrow additional debt.
Our indebtedness could have important consequences, including but not limited to:
limiting our ability to fund working capital, capital expenditures, and other general corporate purposes;
limiting our ability to accommodate growth by reducing funds otherwise available for other corporate purposes and to compete, which in turn could prevent us from fulfilling our obligations under our indebtedness;
limiting our operational flexibility due to the covenants contained in our debt agreements;
to the extent that our debt is subject to floating interest rates, increasing our vulnerability to fluctuations in market interest rates;
limiting our ability to pay cash dividends;
limiting our flexibility for, or reacting to, changes in our business or industry or economic conditions, thereby limiting our ability to compete with companies that are not as highly leveraged; and
increasing our vulnerability to economic downturns.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control. There can be no assurance that our business will generate sufficient cash flow from operations to make these payments. If we are unable to meet our expenses and debt obligations, we may need to refinance all or a substantial imbalance occurred,portion of our indebtedness before maturity, sell assets or issue additional equity. We may not be able to refinance any of our indebtedness, sell assets or issue additional equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our
inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our debt obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations, as well as on our ability to satisfy our debt obligations.
Credit Facilities—Weak industry conditions could affect our ability to comply with the financial maintenance covenants in our senior credit facilities.
Our senior credit facilities include certain financial maintenance covenants requiring us to not exceed a maximum leverage ratio and to maintain a minimum coverage ratio.
Depending on the magnitude and duration of chlor alkali cyclical downturns, including deterioration in prices and volumes, there can be no assurance that we will continue to be in compliance with these ratios. If we failed to comply with either of these covenants in a future period and were not able to obtain waivers from the lenders, we would need to reduce prices or take other actionsrefinance our current senior credit facilities. However, there can be no assurance that could have a negative impactsuch refinancing would be available to us on our results of operations and financial condition.
Security and Chemicals Transportation—New regulations on the transportation of hazardous chemicals and/or the security of chemical manufacturing facilities and public policy changes related to transportation safety could result in significantly higher operating costs.
The chemical industry, including the chlor alkali industry, has proactively responded to the issues related to national security and environmental concerns by starting new initiatives relating to the security of chemicals industry facilities and the transportation of hazardous chemicals in the United States. Government at the local, state and federal levels could implement new regulationsterms that would impact the securitybe acceptable to us or at all.
Suppliers—We rely on a limited number of chemical plant locationsoutside suppliers for specified feedstocks and the transportation of hazardous chemicals. Our Chlor Alkali Products business could be adversely impacted by the cost of complying with any new regulations. Our business also could be adversely affected if an incident were to occur at oneservices.
We obtain a significant portion of our facilitiesraw materials from a few key suppliers. If any of these suppliers are unable to meet their obligations under present or while transporting product. The extentany future supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials. Any interruption of the impact would depend on the requirementssupply or any price increase of future regulations and the nature of an incident, which are unknown at this time.
Effects of Regulation—Changes in legislation or government regulations or policies, including tax policies,raw materials could have a material adverse effect on our business, financial position orcondition and results of operations.
Legislation that In connection with the Acquisition, we entered into agreements with TDCC to provide specified feedstocks and services for the facilities operated by the Acquired Business. These facilities will be dependent upon TDCC’s infrastructure for services such as wastewater and ground water treatment. Any failure of TDCC to perform its obligations under those agreements could adversely affect the operation of the affected facilities and our business, financial condition and results of operations. Many of the agreements relating to these feedstocks and services have initial terms ranging from several years to 20 years. Most of these agreements are automatically renewable, but may be passedterminated by Congressus or TDCC after specified notice periods. If we are required to obtain an alternate source for these feedstocks or services, we may not be able to obtain pricing on as favorable terms. Additionally, we may be forced to pay additional transportation costs or to invest in capital projects for pipelines or alternate facilities to accommodate railcar or other legislative bodiesdelivery methods or new regulations thatto replace other services.
A vendor may be issued by federal and other administrative agencies could significantly affect the sales, costs and profitability of our business. The chemical and ammunition industries arechoose, subject to legislativeexisting contracts, to modify its relationship due to general economic concerns or concerns relating to the vendor or us, at any time. Any significant change in the terms that we have with our key suppliers could materially adversely affect our business, financial condition and regulatory actions, which could have a material adverse effect on our financial position or results of operations.operation, as could significant additional requirements from its suppliers that we provide them additional security in the form of prepayments or posting letters of credit.
Cost Control—Control—Our profitability could be reduced if we experience increasing raw material, utility, transportation or logistics costs, or if we fail to achieve our targeted cost reductions.
Our operating results and profitability are dependent upon our continued ability to control, and in some cases further reduce, our costs. In addition, our expected benefits from the Acquisition are dependent upon our ability to reduce our costs following the Closing Date. If we are unable to do so, or if costs outside of our control, particularly our costs of raw materials, utilities, transportation and similar costs, increase beyond anticipated levels, our profitability will decline.
decline and we will not realize the level of cost reductions anticipated following the Closing Date.
For example, our Chlor Alkalichlor alkali product transportation costs, particularly railroad shipment costs, are a significant portion of our cost of goods sold, and have been increasing over the past several years. Part of the anticipated cost reductions from the Acquisition are due to transportation cost efficiencies from the increased number of manufacturing locations and the Acquired Business’s utilization of diverse modes of delivery for products, which we currently deliver by rail. If the cost increasestransportation costs continue to increase, and we are unable to control those costs or pass the increased costs on to customers, our profitability in our Chlor Alkali businessProducts and Vinyls and Epoxy segments would be negatively affected. Similarly, costs of commodity metals and other materials used in our Winchester business, such as copper and lead, can vary. If we experience significant increases in these costs and are unable to raise our prices to offset the higher costs, the profitability in our Winchester business would be negatively affected.
Environmental Costs—We have ongoing environmental costs, which could have a material adverse effect on our financial position or results of operations.
The nature of our operations and products, including the raw materials we handle, exposes us to the risk of liabilities or claims with respect to environmental matters. In addition, we are party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. We have incurred, and expect to incur, significant costs and capital expenditures in complying with environmental laws and regulations.
The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal. We could incur significant costs, including cleanup costs, natural resource damages, civil or criminal fines and sanctions and third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or liabilities under, environmental or other laws.
In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require us to make additional expenditures, modify or curtail our operations and/or install pollution control equipment.
Accordingly, it is possible that some of the matters in which we are involved or may become involved may be resolved unfavorably to us, which could materially adversely affect our financial position, cash flows or results of operations. See “Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Litigation and Claims—We are subject to litigation and other claims, which could cause us to incur significant expenses.
We are a defendant in a number of pending legal proceedings relating to our present and former operations. These include product liability claims relating to ammunition and firearms and proceedings alleging injurious exposure of plaintiffs to various chemicals and other substances (including proceedings based on alleged exposures to asbestos). Frequently, the proceedings alleging injurious exposure involve claims made by numerous plaintiffs against many defendants. However, because of the inherent uncertainties of litigation, we are unable to predict the outcome of these proceedings and therefore cannot determine whether the financial impact, if any, will be material to our financial position, cash flows or results of operations.
Information Security—A failure of our information technology systems, or an interruption in their operation, could have a material adverse effect on our business, financial condition or results of operations.
Our operations are dependent on our ability to protect our information systems, computer equipment and information databases from systems failures. We rely on our information technology systems generally to manage the day-to-day operation of our business, operate elements of our chlor alkali and ammunition manufacturing facilities, manage relationships with our customers, fulfill customer orders and maintain our financial and accounting records. Failures of our information technology systems could be caused by internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure of our information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased
costs or loss of important information, any of which could have a material adverse effect on our business, financial condition or results of operations. We have technology and information security processes and disaster recovery plans in place to mitigate our risk to these vulnerabilities. However, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur.
Production Hazards—Hazards—Our facilities are subject to operating hazards, which may disrupt our business.
We are dependent upon the continued safe operation of our production facilities. Our production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products and ammunition, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unexpected utility disruptions or outages, unscheduled downtime, transportation interruptions, transportation accidents involving our chemical products, chemical spills and other discharges or releases of toxic or hazardous substances or gases and environmental hazards. From time to time in the past, we have had incidents that have temporarily shut down or otherwise disrupted our manufacturing, causing production delays and resulting in liability for workplace injuries and fatalities. Some of our products involve the manufacture and/or handling of a variety of explosive and flammable materials. Use of these products by our customers could also result in liability if an explosion, fire, spill or other accident were to occur. We cannot assure you that we will not experience these types of incidents in the future or that these incidents will not result in production delays or otherwise have a material adverse effect on our business, results of operations or financial condition. In the past, major hurricanes have caused significant disruption in the Acquired Business’s operations on the U.S. Gulf Coast, logistics across the region and the supply of certain raw materials, which had an adverse impact on volume and cost for some of the Acquired Business’s products. Due to the substantial presence we have on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect our results of operations.
Third Party Transportation—We rely heavily on third party transportation, which subjects us to risks and costs that we cannot control, and which risks and costs may have a material adverse effect on our financial position or results of operations.
We rely heavily on railroad, truck, marine vessel, barge and other shipping companies to transport finished products to customers and to transport raw materials to the manufacturing facilities used by each of our businesses. These transport operations are subject to various hazards and risks, including extreme weather conditions, work stoppages and operating hazards, as well as interstate transportation regulations. In addition, the methods of transportation we utilize, including shipping chlorine and other chemicals by railroad and by barge, may be subject to additional, more stringent and more costly regulations in the future. If we are delayed or unable to ship finished products or unable to obtain raw materials as a result of any such new regulations or public policy changes related to transportation safety, or these transportation companies’ failure to operate properly, or if there were significant changes in the cost of these services due to new additional regulations, or otherwise, we may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship goods, which could result in a material adverse effect on our business, financial position or results of operations. If any third-party railroad which we utilize to transport chlorine and other chemicals ceases to transport toxic-by-inhalation hazardous (“TIH”) materials, or if there are significant changes in the cost of shipping TIH materials by rail or otherwise, we may not be able to arrange efficient alternatives and timely means to deliver our products or at all, which could result in a material adverse effect on our business, financial position or results of operations.
Security and Chemicals Transportation—New regulations on the transportation of hazardous chemicals and/or the security of chemical manufacturing facilities and public policy changes related to transportation safety could result in significantly higher operating costs.
The transportation of our products and feedstocks, including transportation by pipeline, and the security of our chemical manufacturing facilities are subject to extensive regulation. Government authorities at the local, state and federal levels could implement new or stricter regulations that would impact the security of chemical plant locations and the transportation of hazardous chemicals. Our Chlor Alkali Products and Vinyls segment could be adversely impacted by the cost of complying with any new regulations. Our business also could be adversely affected if an incident were to occur at one of our facilities or while transporting product. The extent of the impact would depend on the requirements of future regulations and the nature of an incident, which are unknown at this time.
Effects of Regulation—Changes in legislation or government regulations or policies could have a material adverse effect on our financial position or results of operations.
Legislation that may be passed by Congress or other legislative bodies or new regulations that may be issued by federal and other administrative agencies, including import and export duties and quotas, anti-dumping regulations and related tariffs, could significantly affect the sales, costs and profitability of our business. The chemical and ammunition industries are subject to legislative and regulatory actions, which could have a material adverse effect on our business, financial position or results of operations. Existing and future government regulations and laws may reduce the demand for our products, including certain chlorinated organic products, such as dry cleaning solvents. Any decrease in the demand for chlorinated organic products could result in lower unit sales and lower selling prices for such chlorinated organic products, which would have a material adverse effect on our business, financial condition and results of operations.
Imbalance in Demand for Our Chlor Alkali Products—A loss of a substantial customer for our chlorine or caustic soda could cause an imbalance in customer demand for these products, which could have an adverse effect on our results of operations.
Chlorine and caustic soda are produced simultaneously and in a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic soda. The loss of a substantial chlorine or caustic soda customer could cause an imbalance in customer demand for our chlorine and caustic soda products. An imbalance in customer demand may require Olin to reduce production of both chlorine and caustic soda or take other steps to correct the imbalance. Since Olin cannot store large quantities of chlorine, we may not be able to respond to an imbalance in customer demand for these products as quickly or efficiently as some of our competitors. If a substantial imbalance occurred, we would need to reduce prices or take other actions that could have a material adverse impact on our business, results of operations and financial condition.
Integration of Information Technology Systems—Operation on multiple Enterprise Resource Planning (“ERP”) information systems, and the conversion from multiple systems to a single system, may negatively impact our operations.
We are highly dependent on our information systems infrastructure in order to process orders, track inventory, ship products in a timely manner, prepare invoices to our customers, maintain regulatory compliance and otherwise carry on our business in the ordinary course. We currently operate on an ERP information system and the Acquired Business operates on a separate ERP system. Since we are required to process and reconcile our information from multiple systems, the chance of errors has increased, and we may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to our ability to maintain our books and records and comply with regulatory requirements. We expect that we will transition all or a portion of the operations of the Acquired Business from one ERP system to another. The transition to a different ERP system involves numerous risks, including:
diversion of management’s attention away from normal daily business operations;
loss of, or delays in accessing, data;
increased demand on our operations support personnel;
increased costs;
initial dependence on unfamiliar systems while training personnel to use new systems; and
increased operating expenses resulting from training, conversion and transition support activities.
Any of the foregoing could result in a material increase in information technology compliance or other related costs, and could materially and negatively impact our business, results of operations or financial condition.
Information Security—A failure of our information technology systems, or an interruption in their operation due to internal or external factors including cyber-attacks, could have a material adverse effect on our business, financial condition or results of operations.
Our operations are dependent on our ability to protect our information systems, computer equipment and information databases from systems failures. We rely on our information technology systems generally to manage the day-to-day operation of our business, operate elements of our manufacturing facilities, manage relationships with our customers, fulfill customer orders and maintain our financial and accounting records. Failure of our information technology systems could be caused by internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure of our information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased costs or loss of important information, any of which could have a material adverse effect on our business, financial condition or results of operations. We have technology and information security processes and disaster recovery plans in place to mitigate our risk to these vulnerabilities. However, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur.
Credit Facilities—Weak industry conditions
Litigation and Claims—We are subject to litigation and other claims, which could cause us to incur significant expenses.
We are a defendant in a number of pending legal proceedings relating to our present and former operations. These include product liability claims relating to ammunition and firearms and proceedings alleging injurious exposure of plaintiffs to various chemicals and other substances (including proceedings based on alleged exposures to asbestos). Frequently, the proceedings alleging injurious exposure involve claims made by numerous plaintiffs against many defendants. Because of the inherent uncertainties of litigation, we are unable to predict the outcome of these proceedings and therefore cannot determine whether the financial impact, if any, will be material to our financial position, cash flows or results of operations.
Environmental Costs—We have ongoing environmental costs, which could have a material adverse effect on our financial position or results of operations.
Our operations and assets are subject to extensive environmental, health and safety regulations, including laws and regulations related to air emissions, water discharges, waste disposal and remediation of contaminated sites. The nature of our operations and products, including the raw materials we handle, exposes us to the risk of liabilities, obligations or claims under these laws and regulations due to the production, storage, use, transportation and sale of materials that can cause contamination or personal injury, including, in the case of chemicals, potential releases into the environment. Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished products, as well as the costs of the storage and disposal of wastes. In addition, we are party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. We have incurred, and expect to incur, significant costs and capital expenditures in complying with environmental laws and regulations.
The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal. We could incur significant costs, including clean-up costs, natural resource damages, civil or criminal fines and sanctions and third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or liabilities under, environmental or other laws.
In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require us to make additional expenditures, modify or curtail our operations and/or install pollution control equipment. It is possible that regulatory agencies may enact new or more stringent clean-up standards for chemicals of concern, including chlorinated organic products that we manufacture. This could lead to expenditures for environmental remediation in the future that are additional to existing estimates.
Accordingly, it is possible that some of the matters in which we are involved or may become involved may be resolved unfavorably to us, which could materially adversely affect our business, financial position, cash flows or results of operations. See “Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Integration—Our integration of the Acquired Business may not be successful in realizing the anticipated benefits from the Acquisition.
As a result of the addition of the Acquired Business, we have significantly more sales, assets and employees than we did prior to the Closing Date. The integration process requires us to expend capital and significantly expand the scope of our operations and financial systems.
It may not be possible to realize the benefits of the increased sales volume and other benefits, including the expected synergies that are expected to result from the addition of the Acquired Business, or realize these benefits within the time frame that is expected. The costs to realize the anticipated synergies, including integration fees and capital spending, may be greater than anticipated. For example, the elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from the Acquisition may be offset by costs incurred or delays in integrating the companies. In addition, the quantification of synergies expected to result from the Acquisition is based on significant estimates and assumptions that are subjective in nature and inherently uncertain. The amount of synergies actually realized, if any, and the time periods in which any such synergies are realized, could differ materially from the expected synergies discussed in this document, regardless of whether we are able to combine the two business operations successfully.
If we are unable to successfully realize the anticipated synergies and other benefits of the Acquisition, there could be a material adverse effect on our business, financial condition and results of operations.
Pension Plans—The impact of declines in global equity and fixed income markets on asset values and any declines in interest rates and/or improvements in mortality assumptions used to value the liabilities in our pension plans may result in higher pension costs and the need to fund the pension plans in future years in material amounts.
Under Accounting Standards Codification (ASC) 715 “Compensation-Retirement Benefits” (ASC 715), we recorded an after-tax charge of $37.5 million ($61.0 million pretax) to shareholders’ equity as of December 31, 2016 for our pension and other postretirement plans. This charge primarily reflected a 30-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2016. In 2015, we recorded an after-tax charge of $78.8 million ($125.3 million pretax) to shareholders’ equity as of December 31, 2015 for our pension and other postretirement plans. This charge reflected unfavorable performance on plan assets during 2015, partially offset by a 50-basis point increase in the domestic pension plans’ discount rate. In 2014, we recorded an after-tax charge of $86.6 million ($142.0 million pretax) to shareholders’ equity as of December 31, 2014 for our pension and other postretirement plans. This charge reflected a 60-basis point decrease in the plans’ discount rate and the negative impact of updated mortality tables, partially offset by favorable performance on plan assets during 2014. These non-cash charges to shareholders’ equity do not affect our ability to comply withborrow under our senior credit facility.
The determinations of pension expense and pension funding are based on a variety of rules and regulations. Changes in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets. They may also result in higher pension costs, additional financial maintenance covenantsstatement disclosure, and the need to fund the pension plan. Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans and on December 31, 2015 changed this approach for our other postretirement benefits. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date for our defined benefit pension plans and beginning in 2016 for our other postretirement benefits, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
During the fourth quarter of 2014, the Society of Actuaries (SOA) issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the U.S. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) became law. The law changed the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation and potentially reducing or eliminating the minimum annual funding requirement. The law also increased premiums paid to the Pension Benefit Guaranty Corporation (PBGC). During the third quarter of 2014, the “Highway and Transportation Funding Act” (HATFA 2014) became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief.
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2017.
We have several international qualified defined benefit pension plans to which we made cash contributions of $1.3 million in 2016, $0.9 million in 2015 and $0.8 million in 2014, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2017.
At December 31, 2016, the projected benefit obligation of $2,711.7 million exceeded the market value of assets in our senior revolving credit facilityqualified defined benefit pension plans by $633.2 million, as calculated under ASC 715.
In addition, the impact of declines in global equity and certain tax-exempt bonds.fixed income markets on asset values may result in higher pension costs and may increase and accelerate the need to fund the pension plans in future years. For example, holding all other assumptions constant, a 100-basis point decrease or increase in the assumed long-term rate of return on plan assets for our domestic qualified defined benefit pension plan would have decreased or increased, respectively, the 2016 defined benefit pension plan income by approximately $19.8 million.
Our senior revolving credit facility and
Holding all other assumptions constant for our Gulf Opportunity Zone Act of 2005 (Go Zone) and American Recovery and Reinvestment Act of 2009 (Recovery Zone) tax-exempt bonds include certain financial maintenance covenants requiring usdomestic qualified defined benefit pension plan, a 50-basis point decrease in the discount rate used to not exceed a maximum leverage ratio and to maintain a minimum coverage ratio.
Depending on the magnitude and duration of chlor alkali cyclical downturns, including deterioration in prices and volumes, there can be no assurance that we will continue to be in compliance with these ratios. If we failed to comply with either of these covenants in a future period and were not able to obtain waivers from the lenders thereunder, we would need to refinance our current senior revolving credit facilitycalculate pension income for 2016 and the Go Zoneprojected benefit obligation as of December 31, 2016 would have decreased pension income by $0.7 million and Recovery Zone bonds.increased the projected benefit obligation by $147.0 million. A 50-basis point increase in the discount rate used to calculate pension income for 2016 and the projected benefit obligation as of December 31, 2016 for our domestic qualified defined benefit pension plan would have increased pension income by $0.8 million and decreased the projected benefit obligation by $133.0 million.
Foreign Exchange Rates—Fluctuations in foreign currency exchange could affect our consolidated financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar (USD). Because our consolidated financial statements are presented in USD, we must translate revenues and expenses into USD at the average exchange rate during each reporting period, as well as assets and liabilities into USD at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the USD against other major currencies will affect our net revenues, operating income and the value of balance sheet items denominated in foreign currencies. Because of the geographic diversity of our operations, weaknesses in various currencies might occur in one or many of such currencies over time. From time to time, we may use derivative financial instruments to further reduce our net exposure to currency exchange rate fluctuations. However, there can be no assurancewe cannot assure you that such refinancingfluctuations in foreign currency exchange rates, particularly the strengthening of the USD against major currencies, would be available to us on terms that would be acceptable to us or at all.not materially adversely affect our financial results.
Credit and Capital Market Conditions—Conditions—Adverse conditions in the credit and capital markets may limit or prevent our ability to borrow or raise capital.
While we believe we have facilities in place that should allow us to borrow funds as needed to meet our ordinary course business activities, adverse conditions in the credit and financial markets could prevent us from obtaining financing, if the need arises. Our ability to invest in our businesses and refinance or repay maturing debt obligations could require access to the credit and capital markets and sufficient bank credit lines to support cash requirements. If we are unable to access the credit and capital markets on commercially reasonable terms, we could experience a material adverse effect on our business, financial position or results of operations.
Indebtedness—Our indebtedness could adversely affect our financial condition and limit our ability to grow and compete, which could prevent us from fulfilling our obligations under our indebtedness.
As of December 31, 2013, we had $691.0 million of indebtedness outstanding, including $7.3 million representing the unrecognized gain related to $173.7 million of interest rate swaps at December 31, 2013. This outstanding indebtedness does not include our $265.0 million senior revolving credit facility of which we had $233.4 million available as of December 31, 2013 because we had issued $31.6 million of letters of credit. As of December 31, 2013, our indebtedness represented 38.6% of our total capitalization. At December 31, 2013, $12.6 million of our indebtedness was due within one year.
Our indebtedness could adversely affect our financial condition and limit our ability to fund working capital, capital expenditures and other general corporate purposes, to accommodate growth by reducing funds otherwise available for other corporate purposes, and to compete, which in turn could prevent us from fulfilling our obligations under our indebtedness. In addition, our indebtedness could make us more vulnerable to any continuing downturn in general economic conditions and reduce our ability to respond to changing business and economic conditions. Despite our level of indebtedness, the terms of our senior revolving credit facility and our existing indentures permit us to borrow additional money. If we borrow more money, the risks related to our indebtedness could increase.
Pension Plans—The impact of declines in global equity and fixed income markets on asset values and any declines in interest rates used to value the liabilities in our pension plans may result in higher pension costs and the need to fund the pension plans in future years in material amounts.
Under Accounting Standard Codification (ASC) 715 “Compensation–Retirement Benefits” (ASC 715), we recorded an after-tax charge of $7.7 million ($12.5 million pretax) to shareholders’ equity as of December 31, 2013 for our pension and other postretirement plans. This charge reflected unfavorable performance on plan assets during 2013, partially offset by a 60-basis point increase in the plans’ discount rate. In 2012, we recorded an after-tax charge of $101.9 million ($166.8 million pretax) to shareholders’ equity as of December 31, 2012 for our pension and other postretirement plans. This charge reflected a 100-basis point decrease in the plans’ discount rate, partially offset by the favorable performance on plan assets during 2012. In 2011, we recorded an after-tax charge of $29.0 million ($46.8 million pretax) to shareholders’ equity as of December 31, 2011 for our pension and other postretirement plans. This charge reflected a 40-basis point decrease in the plans’ discount rate and an unfavorable actuarial assumption change related to mortality tables, partially offset by the favorable performance on plan assets during 2011. The non-cash charges to shareholders’ equity do not affect our ability to borrow under our senior revolving credit facility.
The determinations of pension expense and pension funding are based on a variety of rules and regulations. Changes in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets. They may also result in higher pension costs, additional financial statement disclosure, and accelerate the need to fully fund the pension plan. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” became law. The new law changes the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation and potentially reducing or eliminating the minimum annual funding requirement. The new law also increased premiums paid to the Pension Benefit Guaranty Corporation (PBGC). Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2014 and under the new law may not be required to make any additional contributions for at least the next five years. We do have a small Canadian qualified defined benefit pension plan to which we made cash contributions of $1.0 million in 2013 and $0.9 million in both 2012 and 2011, and we anticipate approximately $1 million of cash contributions in 2014. At December 31, 2013, the projected benefit obligation of $1,916.6 million exceeded the market value of assets in our qualified defined benefit pension plans by $55.9 million, as calculated under ASC 715.
In addition, the impact of declines in global equity and fixed income markets on asset values may result in higher pension costs and may increase and accelerate the need to fund the pension plans in future years. For example, holding all other assumptions constant, a 100-basis point decrease or increase in the assumed long-term rate of return on plan assets would have decreased or increased, respectively, the 2013 defined benefit pension plans income by approximately $17.1 million.
Holding all other assumptions constant, a 50-basis point decrease in the discount rate used to calculate pension income for 2013 and the projected benefit obligation as of December 31, 2013 would have decreased pension income by $0.4 million and increased the projected benefit obligation by $102.0 million. A 50-basis point increase in the discount rate used to calculate pension income for 2013 and the projected benefit obligation as of December 31, 2013 would have increased pension income by $0.6 million and decreased the projected benefit obligation by $95.0 million.
Labor Matters—We cannot assure you that we can conclude future labor contracts or any other labor agreements without work stoppages.
Various labor unions represent a majoritysignificant number of our hourly-paidhourly paid employees for collective bargaining purposes. The following labor contracts are scheduled to expire in 2014:early 2018:
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| | | | |
| Location | | Number of Employees | | Expiration Date |
TacomaLemont (Chlor Alkali)Alkali Products and Vinyls) | | 920 | | December 2014March 2018 |
| Becancour (Chlor Alkali Products and Vinyls) | | 97 | | April 2018 |
While we believe our relations with our employees and their various representatives are generally satisfactory, we cannot assure that we can conclude these labor contracts or any other labor agreements without work stoppages and cannot assure that any work stoppages will not have a material adverse effect on our business, financial condition or results of operations.
Debt Service—Ability to Attract and Retain Qualified Employees—We must attract, retain and motivate key employees, and the failure to do so may adversely affect our business, financial condition or results of operations.
We feel our success depends on hiring, retaining and motivating key employees, including executive officers. We may have difficulty locating and hiring qualified personnel. In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against us. The loss of key personnel or our failure to attract and retain other qualified and experienced personnel could disrupt or materially adversely affect our business, financial condition or results of operations. In addition, our operating results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover, which may result in the loss of significant customer business or increased costs.
If our goodwill, other intangible assets or property plant and equipment become impaired in the future, we may be required to record non-cash charges to earnings, which could be significant.
The process of impairment testing for our goodwill involves a number of judgments and estimates made by management including future cash flows, discount rates, profitability assumptions and terminal growth rates with regards to our reporting units. Our internally generated long-range plan includes cyclical assumptions regarding pricing and operating forecasts for the chlor alkali industry. If the judgments and estimates used in our analysis are not realized or are affected by external factors, then actual results may not be able to generate sufficient cash to service our debt, which may require us to refinance our indebtedness or default on our scheduled debt payments.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt depends on a range of economic, competitiveconsistent with these judgments and business factors, many of which are outside our control. We cannot assure you that our business will generate sufficient cash flow from operations. If we are unable to meet our expensesestimates, and debt obligations, we may needbe required to refinance all orrecord a portion of our indebtedness on or before maturity, sell assets or raise equity. We cannot assure you that we would be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all,goodwill impairment charge in the future, which could cause us to default on our obligationsbe significant and impair our liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial conditionposition and results of operations,operations.
We review long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, an impairment is recognized for the difference. Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant underperformance relative to historical or projected future operating results, extended period of idleness or a likely sale or disposal of the asset before the end of its estimated useful life. If our property, plant and equipment and identifiable amortizing intangible assets are determined to be impaired in the future, we may be required to record non-cash charges to earnings during the period in which the impairment is determined, which could be significant and have an adverse effect on our financial position and results of operations.
We may be affected by significant restrictions following the Closing Date in order to avoid significant tax-related liabilities.
In connection with the Acquisition, we entered into a Tax Matters Agreement (the Tax Matters Agreement) with TDCC. The Tax Matters Agreement generally prohibits us and our affiliates from taking certain actions that could cause certain related transactions consummated on the Closing Date, to fail to qualify as tax-free transactions. In particular, unless an exception applies, for a two-year period following the Closing Date, we may not:
enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50 percent or more of the vote or value of Blue Cube Spinco Inc. (Spinco) (taking into account the stock of Spinco acquired pursuant to the Agreement and Plan of Merger (Merger Agreement) and Separation Agreement dated March 26, 2015);
redeem or repurchase any stock or stock rights;
amend our certificate of incorporation or take any other action affecting the relative voting rights of our capital stock;
merge or consolidate with any other person (other than pursuant to the Merger Agreement and Separation Agreement dated March 26, 2015);
take any other action that would, when combined with any other direct or indirect changes in ownership of Spinco capital stock (including pursuant to the Merger Agreement and Separation Agreement dated March 26, 2015), have the effect of causing one or more persons to acquire stock comprising 50 percent or more of the vote or value of Spinco, or would reasonably be expected to adversely affect the tax-free status of the related transactions consummated on the Closing Date;
discontinue the active conduct of the Acquired Business; or
sell, transfer or otherwise dispose of assets (including stock of subsidiaries) that constitute more than 35 percent of the consolidated gross assets of Spinco and/or its subsidiaries (subject to exceptions for, among other things, ordinary course dispositions and repayments or prepayments of Spinco debt).
If we decide to take any such restricted action, we will be required to cooperate with TDCC in obtaining a supplemental Internal Revenue Service (IRS) ruling or an unqualified tax opinion acceptable to TDCC to the effect that such action will not affect the status of certain related transactions consummated on the Closing Date as tax-free transactions. However, if we take any of the above actions and such action results in tax-related losses to TDCC, then we generally will be required to indemnify TDCC for such losses, without regard to whether TDCC has given us prior consent.
Due to these restrictions and indemnification obligations under the Tax Matters Agreement, we may be limited in our ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in our best interests. Also, our potential indemnity obligation to TDCC might discourage, delay or prevent a change of control during this two-year period that our shareholders may consider favorable to our ability to pursue strategic transactions, equity or convertible debt financings, or other transactions that may otherwise be in our best interests.
The historical financial information of the Acquired Business may not be representative of its results or financial condition if it had been operated independently of TDCC and, as a result, may not be a reliable indicator of its future results.
The financial information of the Acquired Business prior to the Closing Date and included within the unaudited pro forma financial information within this document has been derived from the consolidated financial statements and accounting records of TDCC and reflects all direct costs as well as on our ability to satisfy our debt obligations. See “Liquidityassumptions and Other Financing Arrangements” contained in Item 7—“Management’s Discussionallocations made by TDCC management. The financial position, results of operations and Analysiscash flows of Financial Condition and Resultsthe Acquired Business presented may be different from those that would have resulted had the Acquired Business been operated independently of Operations” and Item 7A—“Quantitative and Qualitative Disclosures about Market Risk.”TDCC during the applicable periods or at the applicable dates.
The unaudited pro forma financial information of Olin and the Acquired Business is not intended to reflect what actual results of operations and financial condition would have been had Olin and the Acquired Business been a combined company for the periods presented, and therefore these results may not be indicative of Olin’s future operating performance.
The unaudited pro forma financial information presented in this document is for illustrative purposes only and is not intended to, and does not purport to, represent what our actual results or financial condition would have been if the Acquisition had occurred on the relevant date. The unaudited pro forma financial information has been prepared using the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values with any excess purchase price allocated to goodwill.
The unaudited pro forma financial information does not reflect the costs of any integration activities or transaction-related costs or incremental capital spending that Olin management believes are necessary to realize the anticipated synergies from the Acquisition. Accordingly, the unaudited pro forma financial information included in this document does not reflect what our results of operations or operating condition would have been had Olin and the Acquired Business been a consolidated entity during all periods presented, or what our results of operations and financial condition will be in the future.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
We have manufacturing sites at 14 separate locations in ten states, Canada and Australia. Most manufacturing sites are owned although a number of small sites are leased. We also own 3 terminals in 3 states and lease 38 terminal facilities in 22 states and Canada. We listed theInformation concerning our principal locations at or from which our products and services are manufactured, distributed or marketed are included in the tables set forth under the caption “Products and Services” contained in Item 1—“Business.”
We Generally, these facilities are well maintained, in good operating condition, and suitable and adequate for their use. Our two largest facilities are co-located with TDCC. The land in which these facilities are located is leased with a 99 year term, commencing on the Closing Date. Additionally, we lease warehouses, terminals and distribution offices and space for executive and branch sales offices and service departments. We believe our current facilities are adequate to meet the requirements of our present operations.
Item 3. LEGAL PROCEEDINGS
Saltville
We have completed all work in connection with remediation of mercury contamination at the site of our former mercury cell chlor alkali plant in Saltville, VA required to date. In mid-2003, the Trustees for natural resources in the North Fork Holston River, the Main Stem Holston River and associated floodplains, located in Smyth and Washington Counties in Virginia and in Sullivan and Hawkins Counties in Tennessee notified us of, and invited our participation in, an assessment of alleged damages to natural resources resulting from the release of mercury. The Trustees also notified us that they have made a preliminary determination that we are potentially liable for natural resource damages in said rivers and floodplains. We agreed to participate in the assessment. We and the Trustees have entered into discussions concerning a resolution of this matter. In light of the ongoing discussions and inherent uncertainties of the assessment, we cannot at this time determine whether the financial impact, if any, of this matter will be material to our financial position or results of operations. See “Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Other
As part of the continuing environmental investigation by federal, state and local governments of waste disposal sites, we have entered into a number of settlement agreements requiring us to participate in the investigation and cleanup of a number of sites. Under the terms of such settlements and related agreements, we may be required to manage or perform one or more elements of a site cleanup, or to manage the entire remediation activity for a number of parties, and subsequently seek recovery of some or all of such costs from other Potentially Responsible Parties (PRPs). In many cases, we do not know the ultimate costs of our settlement obligations at the time of entering into particular settlement agreements, and our liability accruals for our obligations under those agreements are often subject to significant management judgment on an ongoing basis. Those cost accruals are provided for in accordance with generally accepted accounting principles and our accounting policies set forth in “Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We, and our subsidiaries, are defendants in various other legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. At December 31, 20132016 and 2012,2015, our consolidated balance sheets included liabilities for these legal actions of $19.3$13.6 million and $15.2$21.2 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 relating to the Acquired Business for litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Executive Officers of the Registrant as of February 24, 2014
|
| | | | |
Name and Age | | Office | | Served as an Olin Officer Since |
Joseph D. Rupp (63) | | Chairman, President and Chief Executive Officer | | 1996 |
Frank W. Chirumbole (55) | | Vice President and President, Chlor Alkali Products | | 2011 |
Stephen C. Curley (62) | | Vice President and Treasurer | | 2005 |
Dolores J. Ennico (61) | | Vice President, Human Resources | | 2009 |
John E. Fischer (58) | | Senior Vice President and Chief Financial Officer | | 2004 |
G. Bruce Greer, Jr. (53) | | Vice President, Strategic Planning and Information Technology | | 2005 |
John L. McIntosh (59) | | Senior Vice President, Operations | | 1999 |
Thomas J. O’Keefe (55) | | Vice President and President, Winchester | | 2011 |
George H. Pain (63) | | Senior Vice President, General Counsel and Secretary | | 2002 |
Todd A. Slater (50) | | Vice President, Finance and Controller | | 2005 |
Kenneth A. Steel, Jr. (56) | | Vice President and Executive Vice President, KA Steel | | 2012 |
Robert F. Steel (58) | | Vice President and President, KA Steel | | 2012 |
No family relationship exists between any of the above named executive officers, except Messrs. K. Steel and R. Steel who are brothers. No other family relationship exists between any of the above named executive officers and any of our directors. Such officers were elected to serve, subject to the By-laws, until their respective successors are chosen.
All executive officers, except Messrs. Chirumbole, O’Keefe, K. Steel and R. Steel, have served as executive officers for more than five years.
Frank W. Chirumbole was appointed Vice President and President, Chlor Alkali Products effective April 26, 2012, and assumed his current duties on April 28, 2011. From October 2010 until April 2012, he served as President, Chlor Alkali Products; from 2009 until September 2010, he served as Vice President, General Manager – Bleach; from 2007 to 2009 he served as Vice President, Supply Chain Management; and from 2001 to 2007 he served as Vice President, Manufacturing and Engineering, all in the Chlor Alkali Products Division.
Thomas J. O’Keefe was appointed Vice President and President, Winchester effective April 26, 2012, and assumed his current duties on April 28, 2011. From 2010 to 2011, he served as President, Winchester; from 2008 to 2010, he served as Vice President, Operations and Planning and from 2006 to 2008 he was Vice President, Manufacturing Operations, in each case, in the Winchester Division. From 2001 to 2006, he was Vice President, Manufacturing and Engineering for Olin’s former Brass Division.
Kenneth A. Steel, Jr. was appointed Vice President and Executive Vice President, KA Steel effective August 22, 2012. Prior to that time and since 1980, he served as Executive Vice President of KA Steel.
Robert F. Steel was appointed Vice President and President, KA Steel effective August 22, 2012. Prior to that time and since 1980, he served as Chairman and Chief Executive Officer of KA Steel.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of January 31, 2014,2017, we had 3,8314,220 record holders of our common stock.
Our common stock is traded on the New York Stock Exchange.
The high and low sales prices of our common stock during each quarterly period in 20132016 and 20122015 are listed below. A dividend of $0.20 per common share was paid during each of the four quarters in 20132016 and 2012.2015.
| | | 2013 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| 2016 | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| Market price of common stock per New York Stock Exchange composite transactions | | | | | | | | | | | | | | | | |
| High | | $ | 25.42 |
| | $ | 26.05 |
| | $ | 25.17 |
| | $ | 29.52 |
| | $ | 17.75 |
| | $ | 24.99 |
| | $ | 26.46 |
| | $ | 26.93 |
|
| Low | | 21.29 |
| | 22.74 |
| | 22.50 |
| | 21.79 |
| | 12.29 |
| | 16.55 |
| | 18.24 |
| | 19.62 |
|
| | | 2012 | | | | | | | | | |
| 2015 | | | | | | | | | |
| Market price of common stock per New York Stock Exchange composite transactions | | | | | | | | | | | | | | | | |
| High | | $ | 23.46 |
| | $ | 22.24 |
| | $ | 23.48 |
| | $ | 22.32 |
| | $ | 34.34 |
| | $ | 32.56 |
| | $ | 27.18 |
| | $ | 22.13 |
|
| Low | | 19.75 |
| | 18.40 |
| | 19.34 |
| | 19.50 |
| | 22.00 |
| | 26.77 |
| | 15.73 |
| | 16.60 |
|
Issuer Purchases of Equity Securities
|
| | | | | | | | |
| Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
| October 1-31, 2013 | | — | | N/A | | — | | |
| November 1-30, 2013 | | 223,616 | | $22.65 | | 223,616 | | |
| December 1-31, 2013 | | 96,385 | | 24.93 | | 96,385 | | |
| Total | | | | | | | | 3,081,054 (1) |
|
| | | | | | | | | | |
| Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
| October 1-31, 2016 | | — |
| | — | | — |
| | |
| November 1-30, 2016 | | — |
| | — | | — |
| | |
| December 1-31, 2016 | | — |
| | — | | — |
| | |
| Total | | | | | | | | 6,062,657 (1) |
| |
| (1) | On July 21, 2011,April 24, 2014, we announced a share repurchase program approved by the board of directors for the purchase of up to 58 million shares of common stock that will terminate on July 21, 2014.April 24, 2017. Through December 31, 2013, 1,918,9462016, 1,937,343 shares had been repurchased, and 3,081,0546,062,657 shares remained available for purchase under thatthis program. Under the Merger Agreement relating to the Acquisition, we were restricted from repurchasing shares of our common stock prior to the consummation of the merger. For a period of two years subsequent to the Closing Date, we will continue to be subject to certain restrictions on our ability to conduct share repurchases. |
Performance Graph
This graph compares the total shareholder return on our common stock with the cumulative total return of the Standard & Poor’s 1000 Index (the “SS&P 1000”)1000), our current peer group (the 2016 Peer Group) and our prior peer group (the 2015 Peer Group). The 2015 Peer Group consists of a customized peer group of sixfour companies comprised of: Orbital ATK, Axiall, Dow,Inc., TDCC, Oxy, PPG Industries, Inc. and Westlake Chemical Corporation.Westlake. The 2016 Peer Group consists of a customized peer group of five companies comprised of: TDCC, Huntsman Corporation, Trinseo S.A., Oxy and Westlake.
Data is for the five-year period from December 31, 20082011 through December 31, 2013.2016. The cumulative return includes reinvestment of dividends. The Peer Group isGroups are weighted in accordance with market capitalization (closing stock price multiplied by the number of shares outstanding) as of the beginning of each of the five years covered by the performance graph. We calculated the weighted return for each year by multiplying (a) the percentage that each corporation’s market capitalization represented of the total market capitalization for all corporations in the Peer GroupGroups for such year by (b) the total shareholder return for that corporation for such year.
Item 6. SELECTED FINANCIAL DATA
TEN-YEARFIVE-YEAR SUMMARY
| | | | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Operations | | | | ($ and shares in millions, except per share data) | | ($ and shares in millions, except per share data) |
| Sales | | $ | 2,515 |
| | $ | 2,185 |
| | $ | 1,961 |
| | $ | 1,586 |
| | $ | 1,532 |
| | $ | 1,765 |
| | $ | 1,277 |
| | $ | 1,040 |
| | $ | 955 |
| | $ | 766 |
| | $ | 5,551 |
| | $ | 2,854 |
| | $ | 2,241 |
| | $ | 2,515 |
| | $ | 2,185 |
|
| Cost of goods sold | | 2,034 |
| | 1,748 |
| | 1,574 |
| | 1,350 |
| | 1,223 |
| | 1,377 |
| | 1,035 |
| | 792 |
| | 682 |
| | 639 |
| | 4,924 |
| | 2,487 |
| | 1,853 |
| | 2,034 |
| | 1,748 |
|
| Selling and administration | | 190 |
| | 177 |
| | 161 |
| | 134 |
| | 135 |
| | 137 |
| | 129 |
| | 129 |
| | 128 |
| | 90 |
| | 323 |
| | 186 |
| | 166 |
| | 190 |
| | 169 |
|
| Loss on restructuring of businesses | | (6 | ) | | (9 | ) | | (11 | ) | | (34 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (10 | ) | |
| Restructuring charges | | | 113 |
| | 3 |
| | 16 |
| | 6 |
| | 9 |
|
| Acquisition-related costs | | | 49 |
| | 123 |
| | 4 |
| | — |
| | 8 |
|
| Other operating income | | 1 |
| | 8 |
| | 9 |
| | 2 |
| | 9 |
| | 1 |
| | 2 |
| | 7 |
| | 9 |
| | 6 |
| | 11 |
| | 46 |
| | 2 |
| | 1 |
| | 8 |
|
| Earnings of non-consolidated affiliates | | 3 |
| | 3 |
| | 10 |
| | 30 |
| | 38 |
| | 39 |
| | 46 |
| | 45 |
| | 37 |
| | 9 |
| | 2 |
| | 2 |
| | 2 |
| | 3 |
| | 3 |
|
| Interest expense | | 39 |
| | 26 |
| | 30 |
| | 25 |
| | 12 |
| | 13 |
| | 22 |
| | 20 |
| | 20 |
| | 20 |
| | 192 |
| | 97 |
| | 44 |
| | 39 |
| | 26 |
|
| Interest and other (expense) income | | — |
| | (10 | ) | | 176 |
| | 2 |
| | 1 |
| | (20 | ) | | 12 |
| | 12 |
| | 20 |
| | 5 |
| |
| Income before taxes from continuing operations | | 250 |
| | 226 |
| | 380 |
| | 77 |
| | 210 |
| | 258 |
| | 151 |
| | 163 |
| | 191 |
| | 27 |
| |
| Income tax provision | | 71 |
| | 76 |
| | 138 |
| | 12 |
| | 74 |
| | 100 |
| | 50 |
| | 39 |
| | 74 |
| | 8 |
| |
| Income from continuing operations | | 179 |
| | 150 |
| | 242 |
| | 65 |
| | 136 |
| | 158 |
| | 101 |
| | 124 |
| | 117 |
| | 19 |
| |
| Interest income and other income (expense) | | | 3 |
| | 1 |
| | 1 |
| | — |
| | (10 | ) |
| Income (loss) before taxes from continuing operations | | | (34 | ) | | 7 |
| | 163 |
| | 250 |
|
| 226 |
|
| Income tax (benefit) provision | | | (30 | ) | | 8 |
| | 58 |
| | 71 |
| | 76 |
|
| Income (loss) from continuing operations | | | (4 | ) | | (1 | ) | | 105 |
| | 179 |
| | 150 |
|
| Discontinued operations, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (110 | ) | | 26 |
| | 21 |
| | 36 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
| Cumulative effect of accounting changes, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| |
| Net income (loss) | | $ | 179 |
| | $ | 150 |
| | $ | 242 |
| | $ | 65 |
| | $ | 136 |
| | $ | 158 |
| | $ | (9 | ) | | $ | 150 |
| | $ | 133 |
| | $ | 55 |
| |
| Net (loss) income | | | $ | (4 | ) | | $ | (1 | ) | | $ | 106 |
| | $ | 179 |
| | $ | 150 |
|
| Financial position | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents, short-term investments and restricted cash | | $ | 312 |
| | $ | 177 |
| | $ | 357 |
| | $ | 561 |
| | $ | 459 |
| | $ | 247 |
| | $ | 333 |
| | $ | 276 |
| | $ | 304 |
| | $ | 147 |
| |
| Working capital, excluding cash and cash equivalents and short-term investments | | 125 |
| | 150 |
| | 76 |
| | 33 |
| | 91 |
| | 24 |
| | (14 | ) | | 223 |
| | 191 |
| | 232 |
| |
| Cash and cash equivalents and restricted cash | | | $ | 185 |
| | $ | 392 |
| | $ | 257 |
| | $ | 312 |
| | $ | 177 |
|
| Working capital, excluding cash and cash equivalents | | | 439 |
| | 395 |
| | 182 |
| | 125 |
| | 150 |
|
| Property, plant and equipment, net | | 988 |
| | 1,034 |
| | 885 |
| | 675 |
| | 695 |
| | 630 |
| | 504 |
| | 251 |
| | 227 |
| | 205 |
| | 3,705 |
| | 3,953 |
| | 931 |
| | 988 |
| | 1,034 |
|
| Total assets | | 2,803 |
| | 2,778 |
| | 2,450 |
| | 2,049 |
| | 1,932 |
| | 1,720 |
| | 1,731 |
| | 1,642 |
| | 1,802 |
| | 1,621 |
| | 8,763 |
| | 9,289 |
| | 2,689 |
| | 2,790 |
| | 2,762 |
|
| Capitalization: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term debt | | 13 |
| | 24 |
| | 12 |
| | 78 |
| | — |
| | — |
| | 10 |
| | 2 |
| | 1 |
| | 52 |
| | 81 |
| | 205 |
| | 16 |
| | 13 |
| | 24 |
|
| Long-term debt | | 678 |
| | 690 |
| | 524 |
| | 418 |
| | 398 |
| | 252 |
| | 249 |
| | 252 |
| | 257 |
| | 261 |
| | 3,537 |
| | 3,644 |
| | 650 |
| | 665 |
| | 674 |
|
| Shareholders’ equity | | 1,101 |
| | 998 |
| | 986 |
| | 830 |
| | 822 |
| | 705 |
| | 664 |
| | 543 |
| | 427 |
| | 356 |
| | 2,273 |
| | 2,419 |
| | 1,013 |
| | 1,101 |
| | 998 |
|
| Total capitalization | | $ | 1,792 |
| | $ | 1,712 |
| | $ | 1,522 |
| | $ | 1,326 |
| | $ | 1,220 |
| | $ | 957 |
| | $ | 923 |
| | $ | 797 |
| | $ | 685 |
| | $ | 669 |
| | $ | 5,891 |
| | $ | 6,268 |
| | $ | 1,679 |
| | $ | 1,779 |
| | $ | 1,696 |
|
| Per share data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 2.24 |
| | $ | 1.87 |
| | $ | 3.02 |
| | $ | 0.82 |
| | $ | 1.74 |
| | $ | 2.08 |
| | $ | 1.36 |
| | $ | 1.70 |
| | $ | 1.65 |
| | $ | 0.27 |
| | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
| | $ | 2.24 |
| | $ | 1.87 |
|
| Discontinued operations, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1.48 | ) | | 0.36 |
| | 0.30 |
| | 0.53 |
| | — |
| | — |
| | 0.01 |
| | — |
| | — |
|
| Accounting changes, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.08 | ) | | — |
| |
| Net income (loss) | | $ | 2.24 |
| | $ | 1.87 |
| | $ | 3.02 |
| | $ | 0.82 |
| | $ | 1.74 |
| | $ | 2.08 |
| | $ | (0.12 | ) | | $ | 2.06 |
| | $ | 1.87 |
| | $ | 0.80 |
| |
| Net (loss) income | | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.34 |
| | $ | 2.24 |
| | $ | 1.87 |
|
| Diluted: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 2.21 |
| | $ | 1.85 |
| | $ | 2.99 |
| | $ | 0.81 |
| | $ | 1.73 |
| | $ | 2.07 |
| | $ | 1.36 |
| | $ | 1.70 |
| | $ | 1.65 |
| | $ | 0.27 |
| | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.32 |
| | $ | 2.21 |
| | $ | 1.85 |
|
| Discontinued operations, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1.48 | ) | | 0.36 |
| | 0.29 |
| | 0.53 |
| | — |
| | — |
| | 0.01 |
| | — |
| | — |
|
| Accounting changes, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.08 | ) | | — |
| |
| Net income (loss) | | $ | 2.21 |
| | $ | 1.85 |
| | $ | 2.99 |
| | $ | 0.81 |
| | $ | 1.73 |
| | $ | 2.07 |
| | $ | (0.12 | ) | | $ | 2.06 |
| | $ | 1.86 |
| | $ | 0.80 |
| |
| Net (loss) income | | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
| | $ | 2.21 |
| | $ | 1.85 |
|
| Common Cash Dividends | | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
| | 0.80 |
|
| Market price of common stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | 29.52 |
| | 23.48 |
| | 27.16 |
| | 22.39 |
| | 19.79 |
| | 30.39 |
| | 24.53 |
| | 22.65 |
| | 25.35 |
| | 22.99 |
| | 26.93 |
| | 34.34 |
| | 29.28 |
| | 29.52 |
| | 23.48 |
|
| Low | | 21.29 |
| | 18.40 |
| | 16.11 |
| | 14.35 |
| | 8.97 |
| | 12.52 |
| | 15.97 |
| | 14.22 |
| | 16.65 |
| | 15.20 |
| | 12.29 |
| | 15.73 |
| | 20.43 |
| | 21.29 |
| | 18.40 |
|
| Year end | | 28.85 |
| | 21.59 |
| | 19.65 |
| | 20.52 |
| | 17.52 |
| | 18.08 |
| | 19.33 |
| | 16.52 |
| | 19.68 |
| | 22.02 |
| | 25.61 |
| | 17.26 |
| | 22.77 |
| | 28.85 |
| | 21.59 |
|
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 91 |
| | $ | 256 |
| | $ | 201 |
| | $ | 85 |
| | $ | 138 |
| | $ | 180 |
| | $ | 76 |
| | $ | 62 |
| | $ | 63 |
| | $ | 38 |
| | $ | 278 |
| | $ | 131 |
| | $ | 72 |
| | $ | 91 |
| | $ | 256 |
|
| Depreciation | | 121 |
| | 104 |
| | 97 |
| | 85 |
| | 70 |
| | 68 |
| | 47 |
| | 38 |
| | 36 |
| | 33 |
| |
| Depreciation and amortization | | | 534 |
| | 229 |
| | 139 |
| | 135 |
| | 111 |
|
| Common dividends paid | | 64 |
| | 64 |
| | 64 |
| | 63 |
| | 63 |
| | 61 |
| | 59 |
| | 58 |
| | 57 |
| | 56 |
| | 132 |
| | 80 |
| | 63 |
| | 64 |
| | 64 |
|
| Purchases of common stock | | 36 |
| | 3 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Repurchases of common stock | | | — |
| | — |
| | 65 |
| | 36 |
| | 3 |
|
| Current ratio | | 2.1 |
| | 1.7 |
| | 2.0 |
| | 2.3 |
| | 2.8 |
| | 1.7 |
| | 1.8 |
| | 2.2 |
| | 2.3 |
| | 2.1 |
| | 1.7 |
| | 1.7 |
| | 2.2 |
| | 2.1 |
| | 1.7 |
|
| Total debt to total capitalization | | 38.6 | % | | 41.7 | % | | 35.2 | % | | 37.4 | % | | 32.6 | % | | 26.4 | % | | 28.1 | % | | 31.8 | % | | 37.7 | % | | 46.8 | % | | 61.4 | % | | 61.4 | % | | 39.7 | % | | 38.1 | % | | 41.1 | % |
| Effective tax rate | | 28.6 | % | | 33.6 | % | | 36.3 | % | | 15.7 | % | | 35.4 | % | | 38.8 | % | | 33.1 | % | | 24.2 | % | | 38.4 | % | | 29.6 | % | | 88.6 | % | | 120.9 | % | | 35.5 | % | | 28.6 | % | | 33.6 | % |
| Average common shares outstanding - diluted | | 80.9 |
| | 81.0 |
| | 80.8 |
| | 79.9 |
| | 78.3 |
| | 76.1 |
| | 74.3 |
| | 72.8 |
| | 71.6 |
| | 68.4 |
| | 165.2 |
| | 103.4 |
| | 79.7 |
| | 80.9 |
| | 81.0 |
|
| Shareholders | | 3,900 |
| | 4,100 |
| | 4,400 |
| | 4,600 |
| | 4,900 |
| | 5,100 |
| | 5,300 |
| | 5,700 |
| | 6,100 |
| | 6,400 |
| | 4,200 |
| | 4,500 |
| | 3,600 |
| | 3,900 |
| | 4,100 |
|
Employees(1) | | 4,100 |
| | 4,100 |
| | 3,800 |
| | 3,700 |
| | 3,700 |
| | 3,600 |
| | 3,600 |
| | 3,100 |
| | 2,900 |
| | 2,800 |
| |
| Employees | | | 6,400 |
| | 6,200 |
| | 3,900 |
| | 4,100 |
| | 4,100 |
|
Our Selected Financial Data reflects the following businesses as discontinued operations: Metals business in 2007 and Olin Aegis in 2004. Since August 31, 2007, our Selected Financial Data reflects the Pioneer acquisition. Since February 28, 2011, our Selected Financial Data reflects the acquisition of the remaining 50% of SunBelt. Since August 22, 2012, our Selected Financial Data reflects the acquisition of KA Steel.K.A. Steel Chemicals Inc. (KA Steel). Since October 5, 2015, our Selected Financial Data reflects the operating results of the Acquired Business. Our Selected Financial Data also reflects the adoption of Accounting Standard Update (ASU) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” which required retrospective application. See the Note “Recent Accounting Pronouncements” of the notes to consolidated financial statements contained in Item 8.
| |
(1) | Employee data exclude employees who worked at government-owned/contractor-operated facilities. |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS BACKGROUND
We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. Our operations are concentrated in three business segments: Chlor Alkali Products Chemical Distributionand Vinyls, Epoxy and Winchester. Chlor Alkali Products and WinchesterAll of our business segments are both capital intensive manufacturing businesses. Chlor Alkali Products and Vinyls operating rates are closely tied to the general economy. Each segment has a commodity element to it, and therefore, our ability to influence pricing is quite limited on the portion of the segment’s business that is strictly commodity.
Our Chlor Alkali Products and Chemical Distribution businesses areVinyls segment is a commodity businessesbusiness where all supplier products are similar and price is the major supplier selection criterion. We have little or no ability to influence prices in thisthe large, global commodity market.markets. Our Chlor Alkali Products and Vinyls segment produces some of the most widely used chemicals in the world that can be upgraded into a wide variety of downstream chemical products used in many end-markets. Cyclical price swings, driven by changes in supply/demand, can be abrupt and significant and, given capacity in our Chlor Alkali Products business,and Vinyls segment, can lead to very significant changes in our overall profitability.
The Epoxy segment consumes products manufactured by the Chlor Alkali Products and Vinyls segment. While competitive differentiation exists through downstream customization and product development opportunities, pricing is extremely competitive with a broad range of competitors across the globe.
Winchester also has a commodity element to its business, but a majority of Winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance. While competitive pricing versus other branded ammunition products is important, it is not the only factor in product selection.
RECENT DEVELOPMENTS AND HIGHLIGHTS
2013 Year2016 Overview
In 2013,2016, Chlor Alkali Products’Products and Vinyls generated segment income was $203.8of $224.9 million compared to $263.2$115.5 million for 2015. The improvement in 2012.the Chlor Alkali Products’Products and Vinyls segment income wasreflects the inclusion of a full year of the Acquired Chlor Alkali Business and lower thanfreight costs, primarily driven by the prior year as a resultrealization of synergies, partially offset by lower product prices. The lower product prices were primarily due to caustic soda, hydrochloric acid and chlorine, and increased operating costs associated with planned maintenance outages, higher electricity costs primarily due to increased natural gas prices and higher depreciation expense. These decreases were partially offset by an $11.0 million favorable contract settlement. Operating rates in Chlor Alkali Products were 84% in 2013, which reflected the capacity reductions that occurred in fourth quarter of 2012, and 80% in 2012.
Our 2013 ECU netbacks of approximately $560 were 3% lower than the 2012 netbacks of approximately $575 due to lower chlorinepotassium hydroxide prices, partially offset by higherincreased chlorine prices. The Chlor Alkali Products and Vinyls segment income in 2015 was also impacted by the recognition of $6.7 million of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory and insurance recoveries of $11.4 million. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $418.1 million and $186.1 million in 2016 and 2015, respectively.
During the second half of 2016, Chlor Alkali Products and Vinyls segment results began to reflect improvements in caustic soda prices. InFor the first quarterfinal nine months of 2013, a2016, caustic soda price increase of $50 per ton was announced and a chlorineindices have increased resulting in positive product price increase of $60 per ton was announced. The 2013 chlorine price increase was not successful. In the second quarter of 2013, we announced an additional $40 per ton caustic soda price increase. In the third quarter of 2013, an additional caustic soda price increase was announced for $30 per ton. None of these caustic soda price increases were successful. Finally inmomentum into 2017. During the fourth quarter of 2013, an additional2016, a caustic soda price increase was announced for $40 per ton. During the fourth quarter of 2013, weakness in chlorineton and, during February 2016, an additional caustic soda demand resulted in chlorine and caustic soda prices that declined from the third quarter 2013 level. As a result, ECU netbacks declined from approximately $570 in the third quarter of 2013 to approximately $525 in the fourth quarter of 2013. In January 2014, a chlorine price increase of $50$60 per ton was announced. While the success of the first quarter 2014 chlorine price increase and the fourth quarter 2013these caustic soda price increase isincreases are not yet known, the majority of the benefit, if realized, would impact second quarter 20142017 results. ECU netbacks in the first quarter
In 2016, Epoxy generated segment income of 2014 are forecast$15.4 million compared to be lower than thea segment loss of $7.5 million for 2015. The fourth quarter of 2013 as a result2015 was impacted by the recognition of lower caustic soda prices partially offset by higher chlorine prices.
Chemical Distribution$17.3 million of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory. Additionally, Epoxy segment income was $9.7 million in 2013 compared to $4.5 million in 2012. Chemical Distribution segment income wasresults were higher than the prior year as a resultdue to the ownership of the additional period of our ownership. DepreciationAcquired Business for the full year. Epoxy segment results included depreciation and amortization expense included in segment income for the years ended December 31, 2013 and 2012 of $15.4$90.0 million and $5.5$20.9 million respectively, were primarily associated with the acquisition fair valuing of KA Steel. As a result of acquiring KA Steel in August of 2012, we anticipate realizing approximately $35 million of annual synergies at the end of three years. These synergies include opportunities to sell additional volumes of products we produce such as caustic soda, bleach, hydrochloric acid2016 and potassium hydroxide through KA Steel and to optimize freight cost and logistics assets between our Chlor Alkali Products segment and KA Steel.2015, respectively.
Winchester segment income was $143.2 million in 2013, which represented the highest level of segment income in at least the last two decades, improved 159% compared to 2012reported segment income of $55.2 million.$120.9 million for 2016 compared to $115.6 million for 2015. The increase in segment income in 2016 compared to last year2015 reflects the impact oflower commodity and other material costs and increased volumes due to the continuation of the stronger than historical demand that began in the fourth quarter of 2012, improved selling prices and decreased costs, including the impact of decreased costs associated with our new centerfire operation in Oxford, MS.
Other (expense) income in 2013 included a gain of $6.5 million on the sale of our equity interest in a limited liability company that owns a bleach related chemical manufacturing facility (bleach joint venture).
Income tax expense for 2013 included $11.4 million of favorable adjustments associated with the expiration of the statutes of limitations in federal and state jurisdictions, $8.3 million of benefit associated with reductions in valuation allowances on our capital loss carryforwards and $1.9 million of benefit associated with the Research Credit under Section 41 of the U.S. Internal Revenue Code (Research Credit), whichvolumes. These increases were partially offset by $1.8lower product prices and higher operating costs. Winchester’s segment income included depreciation and amortization expense of $18.5 million of expense associated with changesand $17.4 million in tax contingencies2016 and $1.32015, respectively.
Other operating income for 2016 included an $11.0 million of expense associated with increases in valuation allowances on certain state tax credits carryforwards.insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident.
During 2013,2016, Olin entered into arrangements to increase our supply of low cost electricity. These arrangements improve manufacturing flexibility at our Freeport, TX and Plaquemine, LA facilities, reduce our overall electricity cost and accelerate the realization of cost synergies available from the Acquired Business. In conjunction with these arrangements, Olin made payments of $175.7 million during 2016.
In 2016, we entered into sale/leaseback agreementstransactions for chlorine, caustic soda and bleach railcars and bleach trailers.that we acquired in connection with the Acquisition. We received proceeds from the sales of $35.8 million.
In December 2013, we repaid $12.2 million due under the annual requirements of the SunBelt Notes. In January 2013, we also repaid the $11.4 million 6.5% Senior Notes (2013 Notes), which became due. These were redeemed using cash.
During 2013, we purchased and retired 1.5 million shares with a total value of $36.2 million under the share repurchase plan approved by our board of directors on July 21, 2011.
Restructurings
On December 9, 2010, our board of directors approved a plan to eliminate our use of mercury in the manufacture of chlor alkali products. Under the plan, the 260,000 tons of mercury cell capacity at our Charleston, TN facility was converted to 200,000 tons of membrane capacity capable of producing both potassium hydroxide and caustic soda. The board of directors also approved plans to reconfigure our Augusta, GA facility to manufacture bleach and distribute caustic soda, while discontinuing chlor alkali manufacturing at this site. We based our decision to convert and reconfigure on several factors. First, during 2009 and 2010 we had experienced a steady increase in the number of customers unwilling to accept our products manufactured using mercury cell technology. Second, there was federal legislation passed in 2008 governing the treatment of mercury that significantly limited our recycling options after December 31, 2012. We concluded that exiting mercury cell technology production after 2012 represented an unacceptable future cost risk. Further, the conversion of the Charleston, TN plant to membrane technology reduced the electricity usage per ECU produced by approximately 25%. The decision to reconfigure the Augusta, GA facility to manufacture bleach and distribute caustic soda removed the highest cost production capacity from our system. Mercury cell chlor alkali production at the Augusta, GA facility was discontinued at the end of September 2012 and the conversion at Charleston, TN was completed in the second half of 2012 with the successful start-up of two new membrane cell lines. These actions reduced Chlor Alkali capacity by 160,000 tons. The completion of these projects eliminated our chlor alkali production using mercury cell technology.
On November 3, 2010, we announced that we had made the decision to relocate the Winchester centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford, MS. This relocation, when completed, is forecast to reduce Winchester’s annual operating costs by approximately $35 million to $40 million. We expect the centerfire relocation project to generate Winchester operating cost savings of $24 million to $26 million in 2014. Consistent with this relocation decision in 2010, we initiated an estimated $110 million five-year project, which includes 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. The full amount of these grants were received in 2011. In October 2011, we opened the new centerfire pistol and rifle production facility in Oxford, MS. During 2013, the relocation of the centerfire pistol manufacturing equipment was completed and the relocation of the centerfire rifle manufacturing equipment was initiated. During 2013, approximately 92% of Winchester’s pistol ammunition was manufactured in Oxford, MS. We currently expect to complete this relocation by the end of 2016. Once completed, Winchester expects to have the most modern centerfire ammunition production facility in North America.
In the fourth quarter of 2010, we recorded restructuring charges related to these actions of $34.2 million. For the years ended December 31, 2013, 2012 and 2011 we recorded additional restructuring charges related to these actions of $5.5 million, $8.5 million and $10.7 million, respectively. The restructuring charges included write-off of equipment and facility costs, acceleration of asset retirement obligations, employee severance and related benefit costs, non-cash pension and other postretirement benefits curtailment charges, lease and other contract termination costs, employee relocation costs and facility exit costs. We expect to incur approximately $7 million of additional restructuring charges associated with these actions through the end of 2016.
2012 Year
KA Steel Acquisition
On August 22, 2012, we acquired 100% of privately-held KA Steel, on a debt free basis, for $336.6 million in cash, after receiving the final working capital adjustment of $1.9 million. As of the date of acquisition, KA Steel had cash and cash equivalents of $26.2 million. KA Steel is one of the largest distributors of caustic soda in North America and manufactures and sells bleach in the Midwest. As part of the acquisition, we expensed $8.3 million of acquisition costs during 2012.
For segment reporting purposes, KA Steel comprises the Chemical Distribution segment. Our results for the year ended December 31, 2012 included KA Steel sales of $156.3 million and $4.5 million of segment income, which included depreciation and amortization expense of $5.5 million, primarily associated with the acquisition fair valuing of KA Steel.
As a result of acquiring KA Steel, we anticipate realizing approximately $35 million of annual synergies at the end of three years. These synergies include opportunities to sell additional volumes of products we produce such as caustic soda, bleach, hydrochloric acid and potassium hydroxide through KA Steel and to optimize freight cost and logistics assets between our Chlor Alkali Products segment and KA Steel. Also, under the terms of the acquisition, both parties agreed to make an election under Section 338(h)(10) of the U.S. Internal Revenue Code (U.S. IRC) that is expected to result in cash tax benefits to us that have a net present value of approximately $60$40.4 million.
Financing
In August 2012,During 2016, we sold $200.0repaid $125.0 million of 5.5%6.75% senior notes (2022due 2016 (2016 Notes) with a maturity, which became due, $67.5 million under the required quarterly installments of August 15, 2022. The 2022 Notes were issued at par value. Interest is paid semi-annually on February 15the $1,350.0 million senior term loan facility and August 15. The acquisition of KA Steel was partially financed with proceeds of $196.0 million, after expenses of $4.0 million, from the 2022 Notes.
In June 2012, we redeemed $7.7 million of industrial development and environmental improvement tax-exempt bonds (industrial revenue bonds) due in 2017. We paid a premium of $0.2 million to the bond holders, which was included in interest expense. We also recognized a $0.2 million deferred gain in interest expense related to the interest rate swaps, which were terminated in March 2012, on these industrial revenue bonds. In December 2012, we repaid $12.2 million due under the annual requirements of the SunBelt Notes.
On April 27, 2012,December 20, 2016, we entered into a new $265three year, $250.0 million five-year senior revolving credit facility, which replacedReceivables Financing Agreement. As of December 31, 2016, $210.0 million was drawn under this program and the $240 million senior revolving credit facility andproceeds were used to repay a $25 million letterportion of credit facility. The new credit facility will expire in April 2017. Borrowing options and restrictive covenants are similar to those of our previous $240 million senior revolving credit facility. The $265 million senior revolving credit facility includes a $110 million letter of credit subfacility and a $50 million Canadian subfacility.the Sumitomo Credit Facility.
Other HighlightsRestructuring
In 2012, Chlor Alkali Products’ segment income was $263.2 million, an increaseOn March 21, 2016, we announced that we had made the decision to close a combined total of 7% compared433,000 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 2011. Segment income in 2012 was higher than 2011 as a result of higher product pricesmanufacture bleach and the ownership of SunBelt for the full period. These increases were partially offset by decreased chlorine anddistribute caustic soda volumes. Operating rates in Chlor Alkali Products for 2012 and 2011 were 80%.
Our 2012 ECU netbacks of approximately $575 were 1% higher thanhydrochloric acid. Also, the 2011 netbacks of approximately $570 due to higher caustic soda prices partially offset by lower chlorine prices. In the first quarter of 2012, a caustic soda price increase was announced of $45 per ton and a chlorine price increase was announced of $40 per ton. The 2012 chlorine price increase was not successful. In the second quarter of 2012, we announced an additional $60 per ton caustic soda price increase. In the third quarter of 2012, an additional caustic soda price increase was announced of $70 per ton. Finally, in the fourth quarter of 2012, an additional caustic soda price increase was announced for $50 per ton. During 2012, caustic soda prices increased, but were more than offset by lower chlorine prices.
Winchester segment income was $55.2 million in 2012 compared to $37.9 million in 2011. The increase in segment income compared to 2011 reflects the impact of higher selling prices and increased volumes, partially offset by higher operating costs and incremental costs associated with the ongoing relocationcapacity of our centerfire ammunition manufacturing operations to Oxford, MS.
Other operating income in 2012 included $4.9 million of insurance recoveries for business interruption related to an outage of one of our Chlor Alkali customers in the first half of 2012.
Income before taxes for 2012 and 2011 included $0.1 million and $11.4 million, respectively, of recoveries from third parties for environmental costs incurred and expensed in prior periods.
Income tax expense for 2012 included a $6.6 million benefit associated with the Agricultural Chemicals Security Tax Credit under Section 45O of the U.S. IRC (Section 45O), which were partially offset by $3.6 million of tax expense associated with remeasurement of deferred taxes, changes in tax contingencies and tax expense associated with previously undistributed earnings from our Winchester Australia Limited subsidiary.
Capital spending of $255.7 million for 2012 included $108.1 million for the conversion of our Charleston, TN facility from mercury cell technology to membrane technology, $58.6 million for the construction of low salt, high strength bleach facilities at our McIntosh, AL; Henderson, NV; and Niagara Falls, NY chlor alkali sitesplant has been reduced from 300,000 tons to 240,000 tons and $16.1 million for the ongoing relocation ofchlor alkali capacity at our Winchester centerfire ammunition manufacturing operations. The conversion of our Charleston, TNFreeport, TX facility was completed inreduced by 220,000 tons. This 220,000 ton reduction was entirely from diaphragm cell capacity. For the second halfyear ended December 31, 2016, we recorded pretax restructuring charges of 2012 with the successful start-up$111.3 million, of two new membrane cell lineswhich $76.6 million of these charges were non-cash asset impairment charges for equipment and we also completed low salt, high strength bleach facilities at McIntosh, AL and Niagara Falls, NY in the first and third quartersfacilities. We expect to incur additional restructuring charges through 2020 of 2012, respectively.approximately $33 million related to these capacity reductions.
2011 Year
SunBelt Acquisition
On February 28, 2011,the Closing Date, we acquired PolyOne’s 50% interestfrom TDCC the Acquired Business, whose operating results are included in SunBeltthe accompanying financial statements since the date of the Acquisition. For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and the Acquired Chlor Alkali Business operating results combined with our former Chlor Alkali Products and Chemical Distribution segments comprise the Chlor Alkali Products and Vinyls segment.
Under the Merger Agreement dated March 26, 2015, the aggregate purchase price for $132.3the Acquired Business was $5,136.7 million, inafter the final post closing adjustments. The $5,136.7 million consisted of $2,095.0 million of cash and debt transferred to TDCC and approximately 87.5 million shares of Olin common stock valued at $1,527.4 million, plus the assumption of a PolyOne guaranteepension liabilities of $442.3 million and long-term debt of $569.0 million. During 2016, payments of $69.5 million were made related to certain acquisition related liabilities including the SunBelt Notes. With this acquisition, Olin now owns 100%final working capital adjustment. The value of SunBelt. The SunBelt chlor alkali plant, which is located within our McIntosh, AL facility, has approximately 350,000 tons of membrane technology capacity. We also agreed to a three-year earn out, which has no guaranteed minimum or maximum,the common stock was based on the performanceclosing stock price on the last trading day prior to the Closing Date of SunBelt.$17.46.
Certain additional agreements were entered into, including, among others, an Employee Matters Agreement, a Tax Matters Agreement, site, transitional and other service agreements, supply and purchase agreements, real estate agreements, technology licenses and intellectual property agreements. In conjunctionaddition, Olin and TDCC agreed in connection with the acquisition, we consolidated the SunBelt Notes with a fair value of $87.3 millionAcquisition to enter into arrangements for the remaining principal balancelong-term supply of $85.3 million as of February 28, 2011.
During 2011, our consolidated results included $170.5 million of SunBelt sales and $27.2 million of additional SunBelt pretax income ($38.7 million included in Chlor Alkali Products segment income; less $0.8 million of acquisition costs, $4.0 million of interest expense and $6.7 million of expense for our earn out liability)ethylene by TDCC to Olin, pursuant to which, among other things, Olin made upfront payments on the 50% interestClosing Date of $433.5 million 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 obtain 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 acquired. Finally,exercised the 2011 results included a one-time pretax, non-cash gain of $181.4 million associatedremaining option to obtain additional future ethylene supply and in connection with the remeasurement of our previously held 50% equity interest in SunBelt. In conjunction with this remeasurement, a discrete deferred tax expense of $76.0 million was recorded.
Other Highlights
In 2011, Chlor Alkali Products’ segment income was $245.0 million, which more than doubled compared with 2010. Chlor Alkali Products’ segment income included $38.7 million of additional income from the acquisition of the remaining 50% interest in SunBelt. Chlor Alkali Products also realized improved product prices for 2011 compared to 2010. Operating rates in Chlor Alkali Products for 2011 and 2010 were 80% and 82%, respectively. The combination of planned multi-month outages by two chlorine customers and a weakening of chlorine demand negatively impacted shipment volumes in 2011.
Our 2011 ECU netbacks of approximately $570 were 20% higher than the 2010 netbacks of approximately $475. In the first quarter of 2011, three caustic soda price increases were announced totaling $150 per ton. In March 2011,exercise we also announcedsecured a $60 per ton chlorine price increase. In the third quarterlong-term customer arrangement. Consequently, additional payments will be made to TDCC of 2011, an additional caustic soda price increase was announced for $65 per ton, which replaced a late second quarter announced caustic soda price increase of $25 per ton. Finally, inbetween $425 million and $465 million on or about the fourth quarter of 2011, an additional caustic soda price increase was announced for $80 per ton. These price increases, which reflected caustic soda demand in excess of chlorine demand, caused the 2011 ECU netbacks to improve.2020.
Winchester
In connection with the Acquisition, TDCC retained liabilities relating to the Acquired Business for litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
In connection with the Acquisition, we filed a Certificate of Amendment to our Articles of Incorporation to increase the number of authorized shares of Olin common stock from 120.0 million shares to 240.0 million shares. Olin issued approximately 87.5 million shares of Olin common stock on the Closing Date that represented approximately 53% of the outstanding shares of Olin common stock. Olin’s pre-merger shareholders continued to hold the remaining approximately 47% of the outstanding shares of Olin common stock.
We financed the cash and debt portion of the Acquisition with new long-term debt which consisted of $720.0 million aggregate principal amount of 9.75% senior notes due October 15, 2023, $500.0 million aggregate principal amount of 10.00% senior notes due October 15, 2025 and a $1,350.0 million five-year senior term loan facility, a portion of which was used to refinance the remaining $146.3 million outstanding on an existing term loan facility. Also in connection with the Acquisition, we obtained a three-year senior term loan facility in an aggregate principal amount of $800.0 million, which was primarily used to refinance existing indebtedness of the Acquired Business that was assumed by Olin.
The Acquired Business’s results of operations have been included in our consolidated results for the period subsequent to the Closing Date. Our results for the years ended December 31, 2016 and 2015 includes Epoxy sales of $1,822.0 million and $429.6 million, respectively, and segment income was $37.9(loss) of $15.4 million in 2011 compared to $63.0and $(7.5) million, in 2010. The Winchesterrespectively. For the years ended December 31, 2016 and 2015, Chlor Alkali Products and Vinyls include sales of the Acquired Chlor Alkali Business of $1,715.7 million and $373.0 million, respectively, and segment income declined fromof $164.5 million and $37.2 million, respectively.
For the surge levels of 2010years ended December 31, 2016, 2015 and 2009. The decrease2014, we incurred acquisition-related costs in 2011 compared to 2010 reflected the impact of higher commodity metals and other material costs, higher manufacturing costs and incremental costs associatedconnection with the ongoing relocation of our centerfire ammunition manufacturing operations to Oxford, MS, partially offset by higher selling prices.
Other operating income for 2011 included a gain of $3.7Acquisition and related transactions, including $48.8 million, on the sale of a former manufacturing site and $1.9 million of insurance recoveries related to our Oxford, MS and St. Gabriel, LA facilities.
Income before taxes for 2011 and 2010 included $11.4$76.3 million and $7.2$4.2 million, respectively, of recoveries from third parties for environmental costs incurredadvisory, legal, accounting, integration and expensed in prior periods.
Income tax expense for 2011 included $7.3 million of adjustments associated with a remeasurement of deferred taxes due to an increase in state tax effective rates,other professional fees. For the expiration of statutes of limitation in federal and state jurisdictions, and the finalization of our 2010 domestic and Canadian income tax returns. Income tax expense for 2011 also included a discrete deferred tax expense of $76.0 million related to the tax effect of the gain recorded on the remeasurement of our previously held 50% equity interest in SunBelt.
In December 2011, we repaid the $75.0 million 9.125% Senior Notes (2011 Notes) issued in 2001, and $12.2 million due under the annual requirements of the SunBelt Notes. These were redeemed using cash. Also during December 2011, we drew the remaining $36.0 million of variable rate Go Zone bonds that were issued in 2010. The associated cash was classified as a restricted long-term asset. Onyear ended December 31, 2011, there was a $51.72015, we also incurred acquisition-related costs of $47.1 million restricted cash balance that is required to be used to fund capital projects in Alabama, Mississippi, and Tennessee.
Capital spending of $200.9 million for 2011 included $51.0 million for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations and $60.0 million for the conversion of our Charleston, TN facility from mercury cell technology to membrane technology. The capital spending for the ongoing Winchester relocation of $51.0 million was partially financed by $31.0 million of grants received by the State of Mississippi and local governments. The full amounts of these grants were received in 2011. The 2011 capital spending also included $20.4 million for the construction of low salt, high strength bleach facilities at our McIntosh, AL; Henderson, NV; and Niagara Falls, NY chlor alkali sites.
CHLOR ALKALI PRODUCTS PRICING
In accordance with industry practice, we calculate Chlor Alkali Products’ prices on an ECU netbacks basis, reporting and analyzing prices net of the cost of transporting the products to customers to allow for a comparable means of price comparisons between periods and with respect to our competitors. For purposes of determining our ECU netbacks, we use prices that we realize as a result of salesthe change in control, which created a mandatory acceleration of chlorine and caustic soda to our customers, and we do not include the value of chlorine and caustic soda that is incorporated in other products that we manufacture and sell.
Quarterly and annual average ECU netbacks for 2013, 2012 and 2011 were as follows, which include SunBelt ECU netbacks subsequent to February 28, 2011:
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| First quarter | $ | 565 |
| | $ | 585 |
| | $ | 525 |
|
| Second quarter | 575 |
| | 575 |
| | 560 |
|
| Third quarter | 570 |
| | 560 |
| | 595 |
|
| Fourth quarter | 525 |
| | 580 |
| | 590 |
|
| Annual average | 560 |
| | 575 |
| | 570 |
|
Our 2011 ECU netbacks of approximately $570 were 20% higher than the 2010 netbacks of approximately $475. In the first quarter of 2011, three caustic soda price increases were announced totaling $150 per ton. In March 2011, we also announced a $60 per ton chlorine price increase. In the third quarter of 2011, an additional caustic soda price increase was announced for $65 per ton, which replaced a late second quarter announced caustic soda price increase of $25 per ton. Finally, in the fourth quarter of 2011, an additional caustic soda price increase was announced for $80 per ton. These price increases, which reflected caustic soda demand in excess of chlorine demand, caused the 2011 ECU netbacks to improve.
Our 2012 ECU netbacks of approximately $575 were 1% higher than the 2011 netbacks of approximately $570 due to higher caustic soda prices partially offset by lower chlorine prices. In the first quarter of 2012, a caustic soda price increase was announced of $45 per ton and a chlorine price increase was announced totaling $40 per ton. The 2012 chlorine price increase was not successful. In the second quarter of 2012, we announced an additional $60 per ton caustic soda price increase. In the third quarter of 2012, an additional caustic soda price increase was announced of $70 per ton. Finally, in the fourth quarter of 2012, an additional caustic soda price increase was announced for $50 per ton. During 2012, caustic soda prices increased, but were more than offset by lower chlorine prices.
Our 2013 ECU netbacks of approximately $560 were 3% lower than the 2012 netbacks of approximately $575 due to lower chlorine prices partially offset by higher caustic soda prices. In the first quarter of 2013, a caustic soda price increase of $50 per ton was announced and a chlorine price increase of $60 per ton was announced. The 2013 chlorine price increase was not successful. In the second quarter of 2013, we announced an additional $40 per ton caustic soda price increase. In the third quarter of 2013, an additional caustic soda price increase was announced for $30 per ton. None of these caustic soda price increases were successful. Finally in the fourth quarter of 2013, an additional caustic soda price increase was announced for $40 per ton. During the fourth quarter of 2013, weakness in chlorine and caustic soda demand resulted in chlorine and caustic soda prices that declined from the third quarter 2013 level. As a result, ECU netbacks declined from approximately $570 in the third quarter of 2013 to approximately $525 in the fourth quarter of 2013. In January 2014, a chlorine price increase of $50 per ton was announced. While the success of the first quarter 2014 chlorine price increase and the fourth quarter 2013 caustic soda price increase is not yet known, the majority of the benefit, if realized, would impact second quarter 2014 results. ECU netbacks in the first quarter of 2014 are forecast to be lower than the fourth quarter of 2013expenses under deferred compensation plans as a result of lower caustic soda prices partially offsetthe transactions and $30.5 million of financing-related fees.
As a result of the Acquisition, we believe we can generate at least $250 million in annual cost synergies by higher chlorine prices.2019, or if we are able to increase sales to new third-party customers and access new product markets as a result of the Acquisition, the potential for additional annual synergies of up to $100 million. Synergies realized in 2016 were approximately $75 million primarily related to cost savings. During the first three years we expect to incur $100 million to $150 million in transition-related costs and $255 million in incremental capital spending and payments under electricity supply contracts which we believe are necessary to realize the anticipated synergies.
PENSION AND POSTRETIREMENT BENEFITS
Under ASC 715, we recorded an after-tax charge of $7.7$37.5 million ($12.561.0 million pretax) to shareholders’ equity as of December 31, 20132016 for our pension and other postretirement plans. This charge primarily reflected a 30-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2016. In 2015, we recorded an after-tax charge of $78.8 million ($125.3 million pretax) to shareholders’ equity as of December 31, 2015 for our pension and other postretirement plans. This charge reflected unfavorable performance on plan assets during 2013,2015, partially offset by a 60-basis50-basis point increase in the domestic pension plans’ discount rate. In 2012,2014, we recorded an after-tax charge of $101.9$86.6 million ($166.8142.0 million pretax) to shareholders’ equity as of December 31, 20122014 for our pension and other postretirement plans. This charge reflected a 100-basis point decrease in the plans’ discount rate, partially offset by the favorable performance on plan assets during 2012. In 2011, we recorded an after-tax charge of $29.0 million ($46.8 million pretax) to shareholders’ equity as of December 31, 2011 for our pension and other postretirement plans. This charge reflected a 40-basis60-basis point decrease in the plans’ discount rate and an unfavorable actuarial change related tothe negative impact of updated mortality tables, partially offset by the favorable performance on plan assets during 2011.2014. Our benefit obligation as of December 31, 2014 increased approximately $90 million pretax as a result of updated mortality tables. The non-cash charges to shareholders’ equity do not affect our ability to borrow under our senior revolving credit facility.
Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans and on December 31, 2015 changed this approach for our other postretirement benefits. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date for our defined benefit pension plans and beginning in 2016 for our other postretirement benefits, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
During the fourth quarter of 2014, the SOA issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the U.S. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act”MAP-21 became law. The new law changeschanged the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation, and potentially reducing or eliminating the minimum annual funding requirement. The new law also increased premiums paid to the PBGC. During the third quarter of 2014, HATFA 2014 became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief.
As of the Closing Date and as part of the Acquisition, our U.S. qualified defined benefit pension plan assumed certain U.S. qualified defined benefit pension obligations and assets related to active employees and certain terminated, vested retirees of the Acquired Business with a net liability of $281.7 million. In connection therewith, pension assets were transferred from TDCC’s U.S. qualified defined benefit pension plans to our U.S. qualified defined benefit pension plan during 2016. Immediately prior to the Acquisition, the Acquired Business’s participant accounts assumed in the Acquisition were closed to new participants and were no longer accruing additional benefits.
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 20142017.
As of the Closing Date, we assumed certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany, Switzerland and underother international locations who transferred to Olin in connection with the new law may not be required to make any additional contributions for at leastAcquisition. The net liability assumed as of the next five years.Closing Date was $160.6 million. We doalso have a small Canadian defined benefit pension liability. In connection with international qualified defined benefit pension plan to whichplans, we made cash contributions of $1.0$1.3 million, $0.9 million and $0.8 million in 20132016, 2015, and $0.9 million in both 2012 and 2011,2014, respectively, and we anticipate approximately $1less than $5 million of cash contributions to international qualified defined benefit pension plans in 2014. 2017.
At December 31, 2013,2016, the projected benefit obligation of $1,916.6$2,711.7 million exceeded the market value of assets in our qualified defined benefit pension plans by $55.9$633.2 million, as calculated under ASC 715.
As part of the acquisition of KA Steel, as of December 31, 2013, we have recorded a contingent liability of $10.0 million for the withdrawal from a multi-employer defined benefit pension plan.
As of December 31, 2013, we have a $0.9 million liability associated with an agreement to withdraw our Henderson, NV chlor alkali hourly workforce from a multi-employer defined benefit pension plan.
Components of net periodic benefit (income) costs were:
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | ($ in millions) |
| Pension benefits | $ | (20.5 | ) | | $ | (21.1 | ) | | $ | (22.5 | ) |
| Other postretirement benefits | 7.5 |
| | 7.4 |
| | 7.8 |
|
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | ($ in millions) |
| Pension (benefits) costs | $ | (37.1 | ) | | $ | 18.7 |
| | $ | (25.0 | ) |
| Other postretirement benefit costs | 2.5 |
| | 6.7 |
| | 6.6 |
|
In June 2011,For the year ended December 31, 2015, pension costs included $47.1 million of costs incurred as a result of the change in control, which created a mandatory acceleration of expenses under our domestic non-qualified pension plan as a result of the Acquisition. These charges were included in acquisition-related costs.
For both the years ended December 31, 2015 and 2014, we recorded a curtailment charge of $1.1$0.2 million related toassociated with permanently closing a portion of the ratification of a new five and one half year Winchester, East Alton, IL union labor agreement. This curtailment charge wasBecancour, Canada chlor alkali facility that has been shut down since late June 2014. These charges were included in restructuring charges.
The service cost and the amortization of prior service cost components of pension expense related to employees of the operating segments are allocated to the operating segments based on their respective estimated census data.
CONSOLIDATED RESULTS OF OPERATIONS
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | ($ in millions, except per share data) | ($ in millions, except per share data) |
| Sales | $ | 2,515.0 |
| | $ | 2,184.7 |
| | $ | 1,961.1 |
| $ | 5,550.6 |
| | $ | 2,854.4 |
| | $ | 2,241.2 |
|
| Cost of goods sold | 2,033.7 |
| | 1,748.0 |
| | 1,573.9 |
| 4,923.7 |
| | 2,486.8 |
| | 1,853.2 |
|
| Gross margin | 481.3 |
| | 436.7 |
| | 387.2 |
| 626.9 |
| | 367.6 |
| | 388.0 |
|
| Selling and administration | 190.0 |
| | 168.6 |
| | 160.6 |
| 323.2 |
| | 186.3 |
| | 166.1 |
|
| Restructuring charges | 5.5 |
| | 8.5 |
| | 10.7 |
| 112.9 |
| | 2.7 |
| | 15.7 |
|
| Acquisition costs | — |
| | 8.3 |
| | 0.8 |
| |
| Acquisition-related costs | | 48.8 |
| | 123.4 |
| | 4.2 |
|
| Other operating income | 0.7 |
| | 7.6 |
| | 8.8 |
| 10.6 |
| | 45.7 |
| | 1.5 |
|
| Operating income | 286.5 |
| | 258.9 |
| | 223.9 |
| 152.6 |
| | 100.9 |
| | 203.5 |
|
| Earnings of non-consolidated affiliates | 2.8 |
| | 3.0 |
| | 9.6 |
| 1.7 |
| | 1.7 |
| | 1.7 |
|
| Interest expense | 38.6 |
| | 26.4 |
| | 30.4 |
| 191.9 |
| | 97.0 |
| | 43.8 |
|
| Interest income | 0.6 |
| | 1.0 |
| | 1.2 |
| 3.4 |
| | 1.1 |
| | 1.3 |
|
| Other (expense) income | (1.3 | ) | | (11.3 | ) | | 175.1 |
| |
| Income before taxes | 250.0 |
| | 225.2 |
| | 379.4 |
| |
| Income tax provision | 71.4 |
| | 75.6 |
| | 137.7 |
| |
| Net income | $ | 178.6 |
| | $ | 149.6 |
| | $ | 241.7 |
| |
| Net income per common share: | | | | | | |
| Basic | $ | 2.24 |
| | $ | 1.87 |
| | $ | 3.02 |
| |
| Diluted | $ | 2.21 |
| | $ | 1.85 |
| | $ | 2.99 |
| |
| Income (loss) from continuing operations before taxes | | (34.2 | ) | | 6.7 |
| | 162.7 |
|
| Income tax (benefit) provision | | (30.3 | ) | | 8.1 |
| | 57.7 |
|
| Income (loss) from continuing operations | | (3.9 | ) | | (1.4 | ) | | 105.0 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.7 |
|
| Net (loss) income | | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.7 |
|
| Net (loss) income per common share: | | | | | | |
| Basic (loss) income per common share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.34 |
|
| Diluted (loss) income per common share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.32 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
20132016 Compared 2012to 2015
Sales for 20132016 were $2,515.0$5,550.6 million compared to $2,184.7$2,854.4 million last year, an increase of $330.3$2,696.2 million, or 15%94%. Chemical Distribution segmentThe sales increased by $250.1increase was primarily due to the inclusion of a full year of the Acquired Business of $2,735.1 million. Chlor Alkali Products and Vinyls sales generated from legacy businesses decreased $56.8 million due to the additional period of our ownership.lower product prices and volumes. The lower volumes were primarily due to hydrochloric acid and potassium hydroxide volumes, partially offset by increased chlorine and caustic soda volumes. The lower product prices were primarily due to caustic soda, hydrochloric acid and potassium hydroxide prices, partially offset by increased chlorine prices. Winchester sales increased by $160.0$17.9 million or 26%, from 2012 primarilythe prior year due to increased shipments to domestic commercial customers and law enforcement customers and higher selling prices,agencies, partially offset by lowerdecreased shipments to industrial and military and international customers. These increases were partially offset by an increase in
Gross margin increased $259.3 million, or 71%, from 2015 primarily due to the eliminationinclusion of intersegment sales betweena full year of the Acquired Business of $264.2 million which includes the fourth quarter of 2015 impact of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory of $24.0 million. Chlor Alkali Products segment and the Chemical Distribution segment ($63.2 million) and a decrease in Chlor Alkali Products’ sales of $16.6Vinyls gross margin generated from legacy businesses decreased $16.1 million or 1%, primarily due to lower product prices primarily hydrochloric acid and chlorine. Our 2013 ECU netbacks decreased 3% compared to 2012.
Gross margin increased $44.6 million, or 10%, from 2012, primarily as a result of increased Winchester gross margin ($91.6 million), primarily due to increased shipments to domestic commercial customers and improved selling prices, and additional gross margin contributed by the Chemical Distribution segment ($12.2 million) due to the additional period of our ownership. These increases wereinsurance recoveries recognized in 2015, partially offset by lower Chlor Alkalifreight costs, primarily driven by the realization of synergies. The insurance recoveries represented reimbursement of costs incurred and expensed in prior periods, primarily related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. Winchester gross margin ($61.3 million),increased $7.6 million primarily due to lower commodity and other material costs and increased volumes, partially offset by lower product prices primarily hydrochloric acid and chlorine, and higher operating costs. Gross margin was also impacted by lower environmental costs associated with planned maintenance outages, higher electricity costs primarily due to increased natural gas prices and higher depreciation expense. These decreases were partially offset by a favorable contract settlement.of $6.5 million. Gross margin as a percentage of sales was 19%decreased to 11% in 2013 and 20%2016 from 13% in 2012.2015.
Selling and administration expenses in 20132016 increased $21.4$136.9 million, or 13%73%, from 2012,2015, primarily due to the inclusion of a full year of the Acquired Business’s selling and administration costs of $100.6 million, increased consulting fees of $11.6 million, increased legal and legal-related settlement expenses of $11.4$7.3 million, primarily associated with cost recovery actions, increased management incentivestock-based compensation expense of $11.1$6.8 million, which includes mark-to-market adjustments, on stock-based compensation of $5.4 million, increased selling and administration expenses of the acquired KA Steel operations of $7.0 million and increased salary and benefit costsnon-income tax expense of $4.1 million. These increases were partially offset by the recovery of legacy legal costs of $13.9$4.0 million. Selling and administration expenses as a percentage of sales were 8%6% in 20132016 and 2012.7% in 2015.
Restructuring charges in 20132016 of $112.9 million were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations, of which $76.6 million were non-cash asset impairment charges. Restructuring charges for 2016 and 20122015 were also associated with permanently closing a portion of $5.5the Becancour, Canada chlor alkali facility and the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed during 2016.
Acquisition-related costs for the years ended December 31, 2016 and 2015 were associated with the Acquisition and consisted of advisory, legal, accounting, integration and other professional fees. For the year ended December 31, 2015, acquisition-related costs also included $47.1 million of costs incurred as a result of the change in control, which created a mandatory acceleration of expenses under deferred compensation plans.
Other operating income in 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident. Other operating income in 2015 included insurance recoveries for property damage and business interruption of $42.3 million related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and $3.7 million related to the McIntosh, AL chlor alkali facility.
Interest expense increased by $94.9 million in 2016 due to a higher level of debt outstanding due to the financing of the Acquisition and higher interest rates. These increases were partially offset by acquisition financing expenses incurred in 2015 of $30.5 million primarily for the Bridge Financing associated with the Acquisition.
The effective tax rate from continuing operations for 2016 included a benefit of $4.8 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The return to provision adjustment for 2016 included $14.9 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 from continuing operations for 2016 also included an expense of $4.1 million related to changes in uncertain tax positions for prior tax years and a benefit of $3.2 million related to the remeasurement of deferred taxes due to a decrease in our state effective tax rates. After giving consideration to these items, the effective tax rate from continuing operations for 2016 of 77.2% was higher than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss. The effective tax rate from continuing operations for 2015 included $8.9 million of expense associated with certain transaction costs related to the Acquisition that are not deductible for U.S. tax purposes partially offset by $2.6 million of benefit associated with salt depletion deductions. After giving consideration to these items, the effective tax rate from continuing operations for 2015 of 26.9% was lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the Contributing Employee Ownership Plan (CEOP).
2015 Compared to 2014
Sales for 2015 were $2,854.4 million compared to $2,241.2 million in 2014, an increase of $613.2 million, or 27%. Sales of the Acquired Business were $802.6 million. Chlor Alkali Products and Vinyls sales generated from legacy businesses decreased by $162.4 million primarily due to lower chlorine, caustic soda, potassium hydroxide and hydrochloric acid volumes and lower product prices, predominantly caustic soda and bleach partially offset by higher chlorine prices. Winchester sales decreased by $27.0 million primarily due to lower shipments to commercial customers, partially offset by increased shipments to military customers.
Gross margin decreased $20.4 million, or 5%, from 2014. Gross margin of the Acquired Business was $52.8 million, which included additional costs of goods sold of $24.0 million related to the fair value adjustment related to the purchase accounting for inventory. Chlor Alkali Products and Vinyls gross margin from legacy businesses declined $55.4 million, primarily due to decreased chlorine, caustic soda, potassium hydroxide and hydrochloric acid volumes and lower product prices, partially offset by lower operating costs and property damage and business interruption insurance recoveries. The lower product prices were predominantly due to caustic soda and bleach, partially offset by higher chlorine prices. Winchester gross margin was lower by $12.1 million primarily due to lower volumes and a less favorable product mix for pistol and shotshell ammunition, partially offset by decreased commodity and other material costs. Gross margin was also negatively impacted by higher environmental costs of $7.5 million. Gross margin as a percentage of sales was 13% in 2015 and 17% in 2014.
Selling and administration expenses in 2015 increased $20.2 million, or 12%, from 2014, primarily due to selling and administration costs of the Acquired Business of $25.4 million and $8.5an increase in stock-based compensation expense of $3.2 million, which includes mark-to-market adjustments, partially offset by decreased consulting fees of $4.8 million and lower legal and legal-related settlement expenses of $4.3 million. Selling and administration expenses as a percentage of sales were 7% for both 2015 and 2014.
Restructuring charges in 2015 and 2014 of $2.7 million and $15.7 million, respectively, were associated with permanently closing a portion of the Becancour, Canada chlor alkali facility and the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed during 2016. Restructuring charges in 2014 were also associated with exiting the use of mercury cell technology in the chlor alkali manufacturing process and the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.process.
AcquisitionAcquisition-related costs for the years ended December 31, 2015 and 2014 were associated with the Acquisition. For the years ended December 31, 2015 and 2014 acquisition-related costs included $76.3 million and $4.2 million, respectively, for advisory, legal, accounting, integration and other professional fees. For the year ended December 31, 2015 acquisition-related costs also included $47.1 million of costs incurred as a result of the change in 2012 were related to the acquisitioncontrol, which created a mandatory acceleration of KA Steel.expenses under deferred compensation plans.
Other operating income in 2013 decreased by $6.92015 included insurance recoveries for property damage and business interruption of $42.3 million from 2012.related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and $3.7 million related to the McIntosh, AL chlor alkali facility. Other operating income in 20132014 included a gain of $1.5$1.0 million onfor the saleresolution of two former manufacturing sites. Other operating income in 2012 included $4.9 million of insurance recoveries for business interruption related to an outage of one of our Chlor Alkali customers in the first half of 2012.a contract matter.
Interest expense increased by $12.2$53.2 million in 2013,2015 due to acquisition financing expenses of $30.5 million primarily due tofor the Bridge Financing associated with the Acquisition, a higher level of debt outstanding and a decrease in capitalized interest of $6.3 million, primarily due to the completionfinancing of the Charleston, TN conversion project inAcquisition and higher interest rates. This increase was partially offset by $9.5 million related to the second halfcall premium and the write-off of 2012.
Other (expense) income in 2013 and 2012 included $7.9 million and $11.5 million, respectively, of expense for our earn out liability fromunamortized deferred debt issuance costs associated with the SunBelt acquisition. Other (expense) income in 2013 also included a gain of $6.5 million on the saleredemption of our equity interest$150.0 million 8.875% senior notes (2019 Notes) that occurred in a bleach joint venture.August 2014.
The effective tax rate from continuing operations for 2015 included $8.9 million of expense associated with certain transaction costs related to the Acquisition that are not deductible for U.S. tax purposes partially offset by $2.6 million of benefit associated with salt depletion deductions. After giving consideration to these items, the effective tax rate from continuing operations for 2015 of 26.9% was lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP. The effective tax rate from continuing operations for 2014 included $1.2 million of benefit associated with the return to provision adjustment for the finalization of our 2013 included $11.4U.S. federal and state income tax returns and $0.7 million of benefit associated with the expiration of the statutes of limitations in federal and state jurisdictions, $8.3 million of benefit associated with reductions in valuation allowances on our capital loss carryforwards and $1.9 million of benefit associated with the Research Credit, whichjurisdictions. These items were partially offset by $1.8 million of expense associated with changes in tax contingencies and $1.3$0.8 million of expense associated with increases in valuation allowances on certain state tax credit carryforwards.balances primarily associated with a change in state tax law and $0.6 million of expense related to the remeasurement of deferred taxes due to an increase in state effective tax rates. After giving consideration to these fivefour items of $18.5$0.5 million, the effective tax rate from continuing operations for 20132014 of 36.0%35.8% was slightly higher than the 35% U.S. federal statutory rate, primarily due to state income taxes net of utilization of certain state tax credits, partially offset by favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the Contributing Employee Ownership Plan (CEOP). The effective tax rate for 2012 included a $6.6 million benefit associated with the Section 45O credits, partially offset by a $1.6 million expense associated with the remeasurement of deferred taxes, a $1.3 million expense associated with changes in tax contingencies and a $0.7 million expense associated with previously undistributed earnings from our Winchester Australia Limited subsidiary. After giving consideration to these four items of $3.0 million, the effective tax rate for 2012 of 34.9% was slightly lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deductions, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP, which were partially offset by state income taxes net of utilization of certain state tax credits.
2012 Compared 2011CEOP.
Sales for 2012 were $2,184.7 million compared to $1,961.1 million in 2011, an increase of $223.6 million, or 11%. Sales of the newly acquired Chemical Distribution segment were $156.3 million. Chlor Alkali Products’ sales increased $39.8 million, or 3%, primarily due to the ownership of SunBelt for the full period, higher product prices and a higher level of bleach shipments of 11% compared to 2011, partially offset by decreased volumes of chlorine and caustic soda. Our ECU netbacks, which include SunBelt subsequent to February 28, 2011, increased 1% compared to 2011. Winchester sales increased by $45.6 million, or 8%, from 2011, primarily due to higher selling prices and increased shipments to domestic commercial customers, partially offset by lower shipments to law enforcement agencies. These increases were partially offset by the elimination of intersegment sales between the Chlor Alkali Products segment and the Chemical Distribution segment ($18.1 million).
Gross margin increased $49.5 million, or 13%, from 2011, primarily as a result of increased Winchester gross margin ($21.2 million), higher Chlor Alkali gross margin ($24.3 million), primarily due to higher product prices and the ownership of SunBelt for the full period, and additional gross margin contributed by the newly acquired Chemical Distribution segment ($8.0 million), partially offset by the impact of decreased recoveries of $11.3 million from third parties for environmental costs incurred and expensed in prior periods. Gross margin as a percentage of sales was 20% in 2012 and 2011.
Selling and administration expenses in 2012 increased $8.0 million, or 5%, from 2011, primarily due to increased salary and benefit costs of $5.4 million, increased management incentive compensation expense of $4.1 million, which includes mark-to-market adjustments on stock-based compensation, selling and administration expenses of the acquired KA Steel operations of $3.5 million and the inclusion of a full period of SunBelt’s selling and administration expenses of $1.5 million. These increases were partially offset by reduced recruiting and relocation costs of $4.1 million and a lower level of legal and legal-related settlement expenses of $3.6 million. Selling and administration expenses as a percentage of sales were 8% in 2012 and 2011.
Restructuring charges in 2012 and 2011 of $8.5 million and $10.7 million, respectively, were primarily associated with exiting the use of mercury cell technology in the chlor alkali manufacturing process and the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.
Acquisition costs in 2012 were related to the acquisition of KA Steel. Acquisition costs in 2011 were related to the acquisition of the remaining 50% of SunBelt.
Other operating income in 2012 decreased by $1.2 million from 2011. Other operating income in 2012 included $4.9 million of insurance recoveries for business interruption related to an outage of one of our Chlor Alkali customers in the first half of 2012. Other operating income in 2011 included a gain of $3.7 million on the sale of a former manufacturing site and $1.9 million of insurance recoveries related to our Oxford, MS and St. Gabriel, LA facilities.
The earnings of non-consolidated affiliates were $3.0 million for 2012, a decrease of $6.6 million from 2011. On February 28, 2011, we acquired the remaining 50% interest in SunBelt. Since the date of acquisition, SunBelt’s results are no longer included in earnings of non-consolidated affiliates but are consolidated in our financial statements.
Interest expense decreased by $4.0 million in 2012, primarily due to an increase in capitalized interest of $6.2 million, primarily associated with the conversion of our Charleston, TN facility from mercury cell technology to membrane technology, partially offset by a higher level of debt outstanding.
Other (expense) income in 2012 and 2011 included $11.5 million and $6.7 million, respectively, of expense for our earn out liability from the SunBelt acquisition. Other (expense) income in 2011 also included a gain of $181.4 million as a result of remeasuring our previously held 50% equity interest in SunBelt.
The effective tax rate for 2012 included a $6.6 million benefit associated with the Section 45O credits, partially offset by a $1.6 million expense associated with the remeasurement of deferred taxes, a $1.3 million expense associated with changes in tax contingencies and a $0.7 million expense associated with previously undistributed earnings from our Winchester Australia Limited subsidiary. After giving consideration to these four items of $3.0 million, the effective tax rate for 2012 of 34.9% was slightly lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deductions, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP, which were partially offset by state income taxes net of utilization of certain state tax credits. The effective tax rate for 2011 included a benefit of $4.9 million related to remeasurement of deferred taxes due to an increase in state tax effective rates, a $4.2 million benefit related to the expiration of statutes of limitations in federal and state jurisdictions, a $1.8 million expense associated with the finalization of our 2010 domestic and Canadian income tax returns and a deferred tax expense of $76.0 million related to the tax effect of the gain recorded on the remeasurement of our previously held 50% equity interest in SunBelt. After giving consideration to these four items of $68.7 million and the SunBelt pretax gain of $181.4 million, the effective tax rate of 34.8% for 2011 was lower than the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP, which were partially offset by state income taxes net of utilization of certain state tax credits.
SEGMENT RESULTS
We define segment results as income (loss) from continuing operations before interest expense, interest income, other operating income, other income (expense) income and income taxes, and include the 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. Intersegment salesBeginning in the fourth quarter of $81.3 million and $18.1 million for2015, we modified our reportable segments due to changes in our organization resulting from the years ended December 31, 2013 and 2012, respectively,Acquisition. We have been eliminated. These represent the sale of caustic soda, bleach, potassium hydroxide and hydrochloric acid between Chemical Distribution andthree operating segments: Chlor Alkali Products at prices that approximate market. Consistentand Vinyls, Epoxy and Winchester. For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and the Acquired Chlor Alkali Business operating results combined with management’s monitoring ofour former Chlor Alkali Products and Chemical Distribution segments comprise the Chlor Alkali Products and Vinyls segment. This reporting structure has been retrospectively applied to financial results for all periods presented. The three operating segments synergies realizedreflect the organization used by our management for purposes of $11.8 million for the year ended December 31, 2013 have beenallocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment to the Chemical Distribution segment, representing incremental earnings on volumes sold offor all caustic soda bleach, potassium hydroxidegenerated and hydrochloric acid.sold by Olin.
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Sales: | ($ in millions) | ($ in millions) |
| Chlor Alkali Products | $ | 1,412.3 |
| | $ | 1,428.9 |
| | $ | 1,389.1 |
| |
| Chemical Distribution | 406.4 |
| | 156.3 |
| | — |
| |
| Chlor Alkali Products and Vinyls | | $ | 2,999.3 |
| | $ | 1,713.4 |
| | $ | 1,502.8 |
|
| Epoxy | | 1,822.0 |
| | 429.6 |
| | — |
|
| Winchester | 777.6 |
| | 617.6 |
| | 572.0 |
| 729.3 |
| | 711.4 |
| | 738.4 |
|
| Intersegment sales elimination | (81.3 | ) | | (18.1 | ) | | — |
| |
| Total sales | $ | 2,515.0 |
| | $ | 2,184.7 |
| | $ | 1,961.1 |
| $ | 5,550.6 |
| | $ | 2,854.4 |
| | $ | 2,241.2 |
|
| Income before taxes: | | | | | | |
Chlor Alkali Products(1) | $ | 203.8 |
| | $ | 263.2 |
| | $ | 245.0 |
| |
| Chemical Distribution | 9.7 |
| | 4.5 |
| | — |
| |
| Income (loss) from continuing operations before taxes: | | | | | | |
Chlor Alkali Products and Vinyls(1) | | $ | 224.9 |
| | $ | 115.5 |
| | $ | 130.1 |
|
| Epoxy | | 15.4 |
| | (7.5 | ) | | — |
|
| Winchester | 143.2 |
| | 55.2 |
| | 37.9 |
| 120.9 |
| | 115.6 |
| | 127.3 |
|
| Corporate/Other: | | | | | | | | | | |
Pension income(2) | 26.6 |
| | 27.2 |
| | 27.8 |
| 53.6 |
| | 35.2 |
| | 32.4 |
|
Environmental expense(3) | (10.2 | ) | | (8.3 | ) | | (7.9 | ) | (9.2 | ) | | (15.7 | ) | | (8.2 | ) |
| Other corporate and unallocated costs | (79.0 | ) | | (70.7 | ) | | (66.6 | ) | (100.2 | ) | | (60.1 | ) | | (58.0 | ) |
Restructuring charges(4) | (5.5 | ) | | (8.5 | ) | | (10.7 | ) | (112.9 | ) | | (2.7 | ) | | (15.7 | ) |
Acquisition costs(5) | — |
| | (8.3 | ) | | (0.8 | ) | |
Acquisition-related costs(5) | | (48.8 | ) | | (123.4 | ) | | (4.2 | ) |
Other operating income(6) | 0.7 |
| | 7.6 |
| | 8.8 |
| 10.6 |
| | 45.7 |
| | 1.5 |
|
Interest expense(7) | (38.6 | ) | | (26.4 | ) | | (30.4 | ) | (191.9 | ) | | (97.0 | ) | | (43.8 | ) |
| Interest income | 0.6 |
| | 1.0 |
| | 1.2 |
| 3.4 |
| | 1.1 |
| | 1.3 |
|
Other (expense) income(8) | (1.3 | ) | | (11.3 | ) | | 175.1 |
| |
| Income before taxes | $ | 250.0 |
| | $ | 225.2 |
| | $ | 379.4 |
| |
| Income (loss) from continuing operations before taxes | | $ | (34.2 | ) | | $ | 6.7 |
| | $ | 162.7 |
|
| |
| (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 segment. The earnings from non-consolidated affiliates were $2.8$1.7 million $3.0 million and $9.6 million for each of the years ended 2013, 2012December 31, 2016, 2015 and 2011, respectively. During October 2013, we sold our equity interest in a bleach joint venture. On February 28, 2011, we acquired the remaining 50% interest in SunBelt. Since the date of acquisition, SunBelt’s results are no longer included in earnings of non-consolidated affiliates but are consolidated in our consolidated financial statements.2014. |
| |
| (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) | Environmental expense for the yearsyear ended 2013, 2012 and 2011December 31, 2014 included $1.3$1.4 million $0.1 million and $11.4 million, respectively, of recoveries from third parties for costs incurred and expensed in prior periods. Environmental expense is included in cost of goods sold in the consolidated statements of operations. |
| |
| (4) | Restructuring charges for the yearsyear ended 2013, 2012 and 2011December 31, 2016 were primarily associated with exiting the useclosure of mercury cell technology in the433,000 tons of chlor alkali manufacturing process and the ongoing relocationcapacity across three separate locations, of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.which $76.6 million of these charges were non-cash asset impairment |
charges for equipment and facilities, permanently closing a portion of the Becancour, Canada chlor alkali facility and the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed during 2016. Restructuring charges for the year ended December 31, 2015 were associated with permanently closing a portion of the Becancour, Canada chlor alkali facility and the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS. Restructuring charges for the year ended December 31, 2014 were associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS and exiting the use of mercury cell technology in the chlor alkali manufacturing process.
| |
| (5) | AcquisitionAcquisition-related costs in 2012for the years ended December 31, 2016, 2015 and 2014 were related to the acquisitionAcquisition and consisted of KA Steel. Acquisitionadvisory, legal, accounting, integration and other professional fees. For the year ended December 31, 2015 acquisition-related costs in 2011 were related to the acquisitionalso included $47.1 million of costs incurred as a result of the remaining 50%change in control, which created a mandatory acceleration of SunBelt.expenses under deferred compensation plans. |
| |
| (6) | Other operating income for the year ended 2013December 31, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a gain of $1.5 million on the sale of two former manufacturing sites.2008 chlor alkali facility incident. Other operating income for the year ended 2012December 31, 2015 included $4.9 million of insurance recoveries for property damage and business interruption of $42.3 million related to an outage at onethe portion of our Chlor Alkali customers in the first half of 2012.Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and $3.7 million related to the McIntosh, AL chlor alkali facility. Other operating income for the year ended 2011December 31, 2014 included a gain of $3.7$1.0 million onfor the saleresolution of a former manufacturing site and $1.9 million of insurance recoveries related to our Oxford, MS and St. Gabriel, LA facilities.contract matter. |
| |
| (7) | Interest expense for the year ended December 31, 2015 included acquisition financing expenses of $30.5 million primarily for the Bridge Financing associated with the Acquisition. Interest expense for the year ended December 31, 2014 included $9.5 million for the call premium and the write-off of unamortized deferred debt issuance costs and unamortized discount associated with the redemption of our 2019 Notes, which would have matured on August 15, 2019. Interest expense was reduced by capitalized interest of $1.9 million, $1.1 million $7.4 million and $1.2$0.2 million for the years ended 2013, 2012 and 2011, respectively. |
| |
(8) | Other (expense) income for the years ended 2013, 2012 and 2011 included $7.9 million, $11.5 million and $6.7 million, respectively, of expense for our earn out liability from the SunBelt acquisition. Other (expense) income for the year ended December 31, 2013 also included a gain of $6.5 million on the sale of our equity interest in a bleach joint venture. Other (expense) income for the year ended 2011 also included a pretax gain of $181.4 million as a result of remeasuring our previously held 50% equity interest in SunBelt. The income tax provision for the year ended 2011 included a $76.0 million discrete deferred tax expense as a result of the remeasurement of the SunBelt investment.2016, 2015 and 2014, respectively. |
Chlor Alkali Products and Vinyls
20132016 Compared to 20122015
Chlor Alkali Products’Products and Vinyls sales for 20132016 were $1,412.3$2,999.3 million compared to $1,428.9$1,713.4 million for 2012,2015, an increase of $1,285.9 million, or 75%. Sales of the Acquired Chlor Alkali Business were $1,715.7 million compared to $373.0 million for 2015, an increase of $1,342.7 million, which was primarily due to the inclusion of a full year of the Acquired Chlor Alkali Business. Chlor Alkali Products and Vinyls sales generated from legacy businesses decreased $56.8 million from 2015. The decrease was primarily due to lower product prices ($35.3 million) and lower volumes ($21.5 million). The lower product prices were primarily due to caustic soda, hydrochloric acid and potassium hydroxide prices, partially offset by increased chlorine prices. The lower volumes were primarily due to hydrochloric acid and potassium hydroxide volumes, partially offset by increased chlorine and caustic soda volumes.
Chlor Alkali Products and Vinyls generated segment income of $224.9 million for 2016 compared to $115.5 million for 2015, an increase of $109.4 million, or 95%. Chlor Alkali Products and Vinyls segment income was higher primarily due to the inclusion of a full year of the Acquired Chlor Alkali Business ($127.2 million) which included the fourth quarter of 2015 impact of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory ($6.7 million). Chlor Alkali Products and Vinyls segment income generated from legacy businesses decreased $17.8 million primarily due to lower product prices ($35.3 million), insurance recoveries recognized in 2015 ($11.4 million), and lower volumes ($0.3 million). The lower product prices were primarily due to caustic soda, hydrochloric acid and potassium hydroxide prices, partially offset by increased chlorine prices. The insurance recoveries represented reimbursement of costs incurred and expensed in prior periods, primarily related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. These decreases were partially offset by lower freight costs, primarily driven by the realization of synergies ($24.2 million) and lower operating and material costs ($5.0 million). Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $418.1 million and $186.1 million in 2016 and 2015, respectively.
2015 Compared to 2014
Chlor Alkali Products and Vinyls sales for 2015 were $1,713.4 million compared to $1,502.8 million for 2014, an increase of $210.6 million, or 14%. The sales increase was primarily due to the inclusion of the Acquired Chlor Alkali Business ($373.0 million), partially offset by lower product prices ($39.3 million) and lower volumes of chlorine and caustic soda ($96.9 million), potassium hydroxide ($17.3 million) and hydrochloric acid ($9.4 million). The lower product prices were predominantly due to caustic soda and bleach prices, partially offset by increased chlorine prices.
Chlor Alkali Products and Vinyls generated segment income of $115.5 million for 2015 compared to $130.1 million for 2014, a decrease of $16.6$14.6 million, or 1%11%. Chlor Alkali Products and Vinyls segment income was lower primarily due to decreased volumes ($56.9 million) and lower product prices ($39.3 million). These decreases were partially offset by the contributions of the Acquired Chlor Alkali Business ($37.2 million), lower operating costs ($22.1 million), primarily due to lower energy costs, insurance recoveries ($11.4 million) and reduced costs associated with material purchased from other parties ($10.9 million). Segment income also included $6.7 million of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory. The decreased volumes were primarily due to chlorine and caustic soda, potassium hydroxide and hydrochloric acid. The lower product prices were predominantly due to lower caustic soda and bleach prices, partially offset by increased chlorine prices. The insurance recoveries represent reimbursement of costs incurred and expensed in prior periods primarily related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $186.1 million and $119.4 million in 2015 and 2014, respectively.
Epoxy
2016 Compared to 2015
Epoxy sales were $1,822.0 million for 2016 compared to $429.6 million for 2015, an increase of $1,392.4 million, or 324%. Epoxy sales were higher than the prior year primarily due to the inclusion of a full year of the Acquired Business.
Epoxy reported segment income of $15.4 million for 2016 compared to a segment loss of $7.5 million for 2015, an increase of $22.9 million. The fourth quarter of 2015 was impacted by the recognition of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory ($17.3 million). Additionally, Epoxy segment income was higher than the prior year due to the inclusion of a full year of the Acquired Business. Epoxy segment results included depreciation and amortization expense of $90.0 million and $20.9 million in 2016 and 2015, respectively.
Winchester
2016 Compared to 2015
Winchester sales were $729.3 million for 2016 compared to $711.4 million for 2015, an increase of $17.9 million, or 3%. The sales increase was primarily due to increased shipments of ammunition to commercial customers ($19.7 million) and law enforcement agencies ($1.3 million). These increases were partially offset by decreased shipments to military ($2.6 million) and industrial customers ($0.5 million).
Winchester reported segment income of $120.9 million for 2016 compared to $115.6 million for 2015, an increase of $5.3 million, or 5%. The increase in segment income in 2016 compared to 2015 reflected the impact of lower commodity and other material costs ($15.8 million) and increased volumes ($13.4 million). These increases were partially offset by the impact of lower selling prices ($13.8 million) and higher operating costs ($10.1 million). Winchester segment income included depreciation and amortization expense of $18.5 million and $17.4 million in 2016 and 2015, respectively.
2015 Compared to 2014
Winchester sales were $711.4 million for 2015 compared to $738.4 million for 2014, a decrease of $27.0 million, or 4%. The sales decrease was primarily due to lower product pricesshipments of ammunition to domestic and international commercial customers ($37.426.2 million), primarily hydrochloric acid and chlorine, lower shipments of chlorine and caustic sodalaw enforcement agencies ($5.912.7 million) and decreased shipments of hydrochloric acidindustrial customers ($4.81.2 million). These decreases were partially offset by increased shipments of potassium hydroxide which increased sales by $16.6 million and increased shipments of bleach of 8% which increased sales by $12.7 million. Our ECU netbacks were approximately $560 for 2013 compared to approximately $575 for 2012. Freight costs included in the ECU netbacks increased 2% for 2013 compared to 2012, primarily due to higher railroad freight rates. Our operating rates were 84% in 2013, which reflected the capacity reductions that occurred in the fourth quarter of 2012, and 80% in 2012. We discuss product prices in more detail above under “Chlor Alkali Products Pricing.”
Chlor Alkali Products generated segment income of $203.8 million for 2013 compared to $263.2 million for 2012, a decrease of $59.4 million. Chlor Alkali Products’ segment income was lower primarily due to lower product prices ($37.4 million), primarily hydrochloric acid and chlorine, and increased operating costs ($25.0 million) associated with planned maintenance outages, higher electricity costs primarily due to increased natural gas prices and higher depreciation expense. These decreases were partially offset by a favorable contract settlement ($11.0 million) and increased volumes ($3.8 million). Chlor Alkali Products’ segment income was also impacted by the transfer of synergies realized of $11.8 million to the Chemical Distribution segment.
2012 Compared to 2011
Chlor Alkali Products’ sales for 2012 were $1,428.9 million compared to $1,389.1 million for 2011, an increase of $39.8 million, or 3%. The significant factors impacting the sales increase were higher product prices ($21.0 million) and increased SunBelt sales of $33.1 million for the additional two months of our ownership. Bleach volumes increased 11% for 2012 compared to 2011, which increased sales by $13.5 million. These increases were partially offset by decreased volumes of chlorine and caustic soda of 1%, which decreased sales by $19.1 million. Our ECU netbacks, which include SunBelt subsequent to February 28, 2011, were approximately $575 for 2012 compared to approximately $570 for 2011. Freight costs included in the ECU netbacks increased 4% for 2012, compared to 2011, primarily due to higher railroad freight rates. Our operating rates for 2012 and 2011 was 80%. We discuss product prices in more detail above under “Chlor Alkali Products Pricing.”
Chlor Alkali Products generated segment income of $263.2 million for 2012 compared to $245.0 million for 2011, an increase of $18.2 million. Chlor Alkali Products’ segment income was higher primarily due to higher product prices ($21.0 million) and higher SunBelt earnings for the additional two months of our ownership ($8.3 million), primarily related to higher ECU netbacks and $7.5 million of additional income on the remaining 50% interest we acquired. These increases were partially offset by decreased volumes ($11.1 million).
Chemical Distribution
Chemical Distribution segment income was $9.7 million and $4.5 million for the years ended December 31, 2013 and 2012, respectively. Chemical Distribution segment income was higher than the prior year as a result of the additional period of our ownership. Depreciation and amortization expense included in segment income for the years ended December 31, 2013 and 2012 of $15.4 million and $5.5 million, respectively, were primarily associated with the acquisition fair valuing of KA Steel.
Winchester
2013 Compared to 2012
Winchester sales were $777.6 million for 2013 compared to $617.6 million for 2012, an increase of $160.0 million, or 26%. Sales of ammunition to domestic commercial customers were higher by $172.5 million and shipments to law enforcement agencies increased by $12.1 million. These increases were partially offset by a reduction in shipments to military customers of $21.6 million and reduced shipments to international customers of $3.7 million.($13.1 million).
Winchester reported segment income of $143.2$115.6 million for 20132015 compared to $55.2$127.3 million for 2012, an increase2014, a decrease of $88.0$11.7 million, or 159%9%. The increasedecrease in segment income in 20132015 compared to 20122014 reflected the impact of increaseddecreased volumes and a less favorable product mix for pistol and shotshell ammunition ($53.816.3 million), higherlower selling prices ($29.57.7 million), lower and higher operating costs ($3.31.0 million), which include the impact of decreased costs associated with the ongoing relocation of our new centerfire ammunition manufacturing operations tooperation
in Oxford, MS ($16.710.9 million), and. These decreases were partially offset by lower commodity and other material costs ($1.413.3 million).
2012 Compared to 2011
Winchester sales were $617.6 million for 2012 compared to $572.0 million for 2011, an increase of $45.6 million, or 8%. Sales of ammunition to domestic commercial customers were higher by $49.8 million. This increase was partially offset by a reduction in shipments to law enforcement agencies of $5.0 million. Shipments to military and international customers were comparable to 2011.
Winchester reported segment income included depreciation and amortization expense of $55.2$17.4 million for 2012 compared to $37.9and $16.3 million for 2011, an increase of $17.3 million, or 46%. The increase in segment income in 2012 compared to 2011 reflected the impact of higher selling prices ($20.1 million)2015 and increased volumes ($8.2 million). These increases were partially offset by higher operating costs ($9.2 million), including incremental costs associated with the ongoing relocation of our centerfire ammunition manufacturing operations to Oxford, MS, and the impact of higher commodity and other material costs ($1.8 million). The incremental costs associated with the ongoing relocation of our centerfire ammunition manufacturing operations to Oxford, MS increased in 2012 compared to 2011 by $1.4 million.2014, respectively.
Corporate/Other
20132016 Compared to 20122015
For 2013,2016, pension income included in corporate/other, was $26.6$53.6 million compared to $27.2$35.2 million for 2012.2015, which excludes the impact of the change in control, which created a mandatory acceleration of expenses under deferred compensation plans associated with the Acquisition. On a total company basis, defined benefit pension income for 2013 was $20.5$37.1 million compared to $21.1an expense of $18.7 million for 2012.2015, which includes the impact of the change in control which created a mandatory acceleration of expenses under deferred compensation plans of $47.1 million associated with the Acquisition, and was included in acquisition-related costs. On a total company basis, defined benefit pension income without this charge, was $28.4 million for 2015. The increase in pension income from 2015 was primarily due to the change in approach used to measure service and interest costs for our defined benefit pension plans.
Charges to income for environmental investigatory and remedial activities were $10.2$9.2 million for 20132016 compared to $8.3$15.7 million for 2012,2015. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For 2016, other corporate and unallocated costs were $100.2 million compared to $60.1 million for 2015, an increase of $40.1 million, or 67%. The increase was primarily due to increased corporate infrastructure costs of $21.4 million, such as personnel, consulting and professional fees, that are necessary to support the Acquired Business, higher stock-based compensation expense of $6.9 million, which includes mark-to-market adjustments, increased legal and legal-related settlement expenses of $7.0 million and increased non-income tax expense of $4.3 million.
2015 Compared to 2014
For 2015, pension income included in corporate/other, excluding the impact of the change in control which created a mandatory acceleration of expenses under deferred compensation plans associated with the Acquisition, was $35.2 million compared to $32.4 million for 2014. On a total company basis, defined benefit pension expense was $18.7 million which includes the impact of the change in control which created a mandatory acceleration of expenses under deferred compensation plans of $47.1 million associated with the Acquisition, and was included in acquisition-related costs. On a total company basis, defined benefit pension income without this charge, was $28.4 million for 2015 compared to $25.0 million for 2014. For the years ended December 31, 2015 and 2014, pension income included a curtailment charge of $0.1 million and $0.2 million, respectively, associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. These charges were included in restructuring charges.
Charges to income for environmental investigatory and remedial activities were $15.7 million for 2015 compared to $8.2 million for 2014 which included $1.3$1.4 million and $0.1 million, respectively, of recoveries from third parties for costs incurred and expensed in prior periods. Without these recoveries, charges to income for environmental investigatory and remedial activities would have been $11.5$9.6 million for 2013 compared to $8.4 million for 2012. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For 2013, other corporate and unallocated costs were $79.0 million compared to $70.7 million for 2012, an increase of $8.3 million, or 12%. The increase was primarily due to increased legal and legal-related settlement expenses of $11.4 million, primarily associated with cost recovery actions, increased stock-based compensation of $9.1 million, which include mark-to-market adjustments of $5.4 million, higher consulting fees of $2.1 million and increased salary and benefit costs of $1.5 million. These increases were partially offset by the recovery of legacy legal costs of $13.9 million and lower asset retirement obligation and legacy site charges of $4.0 million.
2012 Compared to 2011
For 2012, pension income included in corporate/other was $27.2 million compared to $27.8 million for 2011. On a total company basis, defined benefit pension income for 2012 was $21.1 million compared to $22.5 million for 2011. Pension income on a total company basis for 2011 included a curtailment charge of $1.1 million associated with the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS, which was included in restructuring charges for 2011.
Charges to income for environmental investigatory and remedial activities were $8.3 million for 2012 compared to $7.9 million for 2011, which included $0.1 million and $11.4 million, respectively, of recoveries from third parties for costs incurred and expensed in prior periods. Without these recoveries, charges to income for environmental investigatory and remedial activities would have been $8.4 million for 2012 compared to $19.3 million for 2011.2014. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For 2012,2015, other corporate and unallocated costs were $70.7$60.1 million compared to $66.6$58.0 million for 2011,2014, an increase of $4.1$2.1 million, or 6%4%. The increase was primarily due to increased asset retirement obligation and legacy site charges of $2.4 million, the elimination of intersegment profits in inventory on sales from the Chlor Alkali Products segment to the Chemical Distribution segment of $1.1 million, higher stock-based compensation expense of $1.0$3.2 million, primarily resulting fromwhich includes mark-to-market adjustments, higher non-income tax expense of $2.2 million and higher salary and benefit costsincreased audit fees of $0.9$2.2 million. These increases were partially offset by a lower level ofdecreased legal and legal-related settlement expenseexpenses of $1.4$5.8 million.
Restructurings
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 year ended December 31, 2016, we recorded pretax restructuring charges of $111.3 million 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 $33 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. In the fourth quarter of 2014, we recorded pretax restructuring charges of $10.0 million for the write-off of equipment and facility costs, employee severance and related benefit costs and lease and other contract termination costs related to these actions. For the years ended December 31, 2016 and 2015, we recorded pretax restructuring charges of $0.8 million and $2.0 million, respectively, for the write-off of equipment and facility costs, lease and other contract termination costs and facility exit costs. We expect to incur additional restructuring charges through 2018 of approximately $7 million related to the shut down of this portion of the facility.
20142017 OUTLOOK
Net income in the first quarter of 20142017 is projected to be in the $0.30$0.70 to $0.35$1.15 per diluted share range, compared to $0.50which includes pretax restructuring charges and pretax acquisition-related integration costs totaling approximately $50 million. Net loss in 2016 was $0.02 per diluted share, inwhich included pretax acquisition-related costs of $48.8 million and pretax restructuring charges of $112.9 million.
We currently expect the first quarter 2017 to have the lowest earnings per diluted share amount during 2017 due to the timing of 2013.planned maintenance turnaround expenses.
In Chlor Alkali Products the first quarter of 2014and Vinyls 2017 segment earnings are expected to decline compared with the first quarter of 2013 earnings of $58.5 million. The expected decrease in segment earnings anticipates lower ECU pricing partially offset by improved chlorine and caustic soda volumes. The Chlor Alkali Products operating rate in the first quarter of 2014income is expected to be similarhigher compared to the fourth quarter2016 segment income of 2013 operating rate of 81%. The forecasted first quarter 2014 Chlor Alkali operating rate reflects the negative impact of the severe winter weather conditions. Some of our Chlor Alkali facilities have experienced unplanned power curtailments, which have reduced operating rates, in addition to logistics issues$224.9 million reflecting higher caustic soda and shipment delays. The weather has also negatively impacted the Chemical Distribution business’s supply chainEDC prices and delivery capabilities. These issues have caused higher costs and reduced shipments for Chemical Distribution in the first quarter of 2014.
Our 2013 ECU netbacks of approximately $560 were 3% lower than the 2012 netbacks of approximately $575expected benefits due to lower chlorine pricespurchased ethylene prices.
Epoxy 2017 segment income is expected to be higher than 2016 segment income of $15.4 million as improved volumes and lower operating costs are partially offset by higher caustic soda prices. In the fourth quarter of 2013, a caustic soda price increase was announced for $40 per ton. In January 2014, a chlorine price increase of $50 per ton was announced. While the success of the first quarter 2014 chlorine price increase and the fourth quarter 2013 caustic soda price increaseraw material costs.
Winchester 2017 segment income is not yet known, the majority of the benefit, if realized, would impact second quarter 2014 results. ECU netbacks in the first quarter of 2014 are forecastexpected to be lower than the fourth$120.9 million of segment income achieved during 2016 primarily driven by lower ammunition demand, driven by customer efforts to reduce inventory, and higher commodity and material costs. The Oxford, MS relocation project was completed during the second quarter of 2013 ECU netbacks of2016. This relocation reduced Winchester's annual operating costs by approximately $525 as a result of lower caustic soda prices partially offset by higher chlorine prices.$40 million in 2016 and, in 2017, we expect the cost savings from the completed project to reach approximately $45 million.
Winchester first quarter 2014 segment earningsOther Corporate and Unallocated costs in 2017 are expected to be higher than the $31.3 million in segment earnings achieved during the first quarter of 2013 due to higher selling prices and lower operating costs. The elevated level of commercial demand that the Winchester business began to experience in early November 2012 continued through the fourth quarter of 2013. This surge in demand has been across all of Winchester's commercial product offerings. The Winchester commercial backlog on January 31, 2014 was $423.0 million compared to $496.9 million at December 31, 2013, $310.9 million at January 31, 2013 and $138.3 million at December 31, 2012. Based on the elevated level of fourth quarter 2013 commercial demand, the level of the commercial backlog and the absence of any significant inventory throughout the supply
chain, Winchester anticipates that higher than historical levels of demand from its commercial customers will continue through the second quarter of 2014.
In October 2011, Winchester opened the new centerfire production facility in Oxford, MS. During 2013, the relocation of the centerfire pistol manufacturing equipment was completed and the relocation of the centerfire rifle manufacturing equipment was initiated. This relocation, which is projected to be completed in 2016 is forecast to reduce Winchester's annual operating costs by approximately $35 million to $40 million. We expect the centerfire relocation project to generate operating costs savings of approximately $24 million to $26 million in 2014 compared to $16.7 million realized in 2013.
We anticipate that full year 2014 Other Corporate and Unallocated costs will decline compared with the full year 2013 Other Corporate and Unallocated costs of $79.0 million.
We anticipate that$100.2 million driven by stock-based compensation, timing of legal and litigation costs and the full year 2014 charges foreffect of the increased corporate infrastructure costs to support the Acquisition.
During 2017, we are anticipating environmental investigatory and remedial activities will beexpenses in the $15 million to $20 million range.range compared to $9.2 million in 2016. We do not believe that there will be recoveries of environmental costs incurred and expensed in prior periods in 2014.2017. 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 20142017 to be similarlower than the 2016 level by approximately $10 million. During 2016, we made a discretionary cash contribution to the 2013 level.our domestic qualified defined benefit pension plan of $6.0 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 2014 and under the pension funding relief law passed in 2012, we may not be required to make any additional contributions for at least five years.2017. We do have a small Canadianseveral international qualified defined benefit pension planplans to which we anticipate cash contributions of approximately $1less than $5 million in 2014.2017.
During 2014,We have approximately 60% variable rate debt in our debt profile. As a result, we are anticipating pretax restructuring charges in the $4estimating our 2017 interest rate will be approximately 5%. During 2017, a total of approximately $80 million of debt will mature that is expected to $5 million range, primarily associated with the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS and exiting the use of mercury cell technology in the chlor alkali manufacturing process. We expect to incur additional restructuring charges through 2016 totaling approximately $3 million related to the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.be repaid using available cash.
In 2014,2017, we currently expect our capital spending to be in the $95$300 million to $105$350 million range, which includes spending forapproximately $30 million of synergy-related capital, which we believe is necessary to realize the ongoing relocationanticipated synergies. In 2017, we also expect to make payments of our Winchester centerfire ammunition manufacturing operations.$209.4 million associated with long-term supply contracts. We expect 20142017 depreciation and amortization expense to be in the $135 million$530 range to $140$540 million range.
We currently believe the 20142017 effective tax rate will be in the 35%25% to 37%30% range.
ENVIRONMENTAL MATTERS
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Cash outlays (receipts): | ($ in millions) | ($ in millions) |
| Remedial and investigatory spending (charged to reserve) | $ | 12.4 |
| | $ | 25.5 |
| | $ | 23.3 |
| $ | 10.3 |
| | $ | 14.1 |
| | $ | 14.9 |
|
| Recoveries from third parties | (1.3 | ) | | (0.1 | ) | | (11.4 | ) | — |
| | — |
| | (1.4 | ) |
| Capital spending | 0.9 |
| | 1.5 |
| | 2.5 |
| 3.5 |
| | 2.0 |
| | 2.7 |
|
| Plant operations (charged to cost of goods sold) | 25.4 |
| | 25.1 |
| | 26.1 |
| 192.6 |
| | 71.9 |
| | 24.2 |
|
| Total cash outlays | $ | 37.4 |
| | $ | 52.0 |
| | $ | 40.5 |
| $ | 206.4 |
| | $ | 88.0 |
| | $ | 40.4 |
|
Cash outlays for remedial and investigatory activities associated with former waste sites and past operations were not charged to income but instead were charged to reserves established for such costs identified and expensed to income in prior years. Cash outlays for normal plant operations for the disposal of waste and the operation and maintenance of pollution control equipment and facilities to ensure compliance with mandated and voluntarily imposed environmental quality standards were charged to income.
Total environmental-related cash outlays in 2013 decreased compared2016 were higher than 2015 primarily due to 2012, primarily driven byenvironmental spending for plant operations related to the completionAcquired Business. In connection with the Acquisition, TDCC retained liabilities relating to releases of a remedial action plan at a former waste disposal site in 2012. Total environmental-related cash outlays in 2012 increased comparedhazardous materials and violations of environmental law to 2011, primarily driven by decreased recoveries from third parties of costs incurred and expensed inthe extent arising prior periods.to the Closing Date. Total environmental-related cash outlays for 20142017 are estimated to be approximately $50$210 million, of which approximately $20$17 million is expected to be spent on investigatory and remedial efforts, approximately $3 million on capital projects and approximately $27$190 million on normal plant operations. Remedial and investigatory spending is anticipated to be higher in 20142017 than 20132016 due to the timing of continuing remedial action plans and investigations. Historically, we have funded our environmental capital expenditures through cash flow from operations and expect to do so in the future.
Annual environmental-related cash outlays for site investigation and remediation, capital projects and normal plant operations are expected to range between $45$190 million to $65$210 million over the next several years, $15 million to $35$25 million of which is for investigatory and remedial efforts, which are expected to be charged against reserves recorded on our consolidated balance sheet. While we do not anticipate a material increase in the projected annual level of our environmental-related cash outlays for site investigation and remediation, there is always the possibility that such an increase may occur in the future in view of the uncertainties associated with environmental exposures.
Our liabilities for future environmental expenditures were as follows:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | ($ in millions) | ($ in millions) |
| Beginning balance | $ | 146.5 |
| | $ | 163.3 |
| | $ | 167.6 |
| $ | 138.1 |
| | $ | 138.3 |
| | $ | 144.6 |
|
| Charges to income | 11.5 |
| | 8.4 |
| | 19.3 |
| 9.2 |
| | 15.7 |
| | 9.6 |
|
| Remedial and investigatory spending | (12.4 | ) | | (25.5 | ) | | (23.3 | ) | (10.3 | ) | | (14.1 | ) | | (14.9 | ) |
| Currency translation adjustments | (1.0 | ) | | 0.3 |
| | (0.3 | ) | 0.3 |
| | (1.8 | ) | | (1.0 | ) |
| Ending balance | $ | 144.6 |
| | $ | 146.5 |
| | $ | 163.3 |
| $ | 137.3 |
| | $ | 138.1 |
| | $ | 138.3 |
|
InAs is common in our industry, we are subject to environmental laws and regulations related to the United States,use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business.
The establishment and implementation of federal,national, state or provincial and local standards to regulate air, water and land quality affect substantially all of our manufacturing locations. Federal legislationlocations around the world. Laws providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites, hashave imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws such as the Resource Conservation and Recovery Act and the Clean Air Act, has required and will continue to require new capital expenditures and will increase plant operating costs. Our Canadian facility is governed by federal environmental laws administered by Environment Canada and by provincial environmental laws enforced by administrative agencies. Many of these laws are comparable to the U.S. laws described above. We employ waste minimization and pollution prevention programs at our manufacturing sites.
We are party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. 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 mayexpect to incur to protect our interests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $2.5$2.0 million at December 31, 2013.2016. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we mayexpect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M. Charges or credits to income for investigatory and remedial efforts were material to operating results in 2013, 2012 and 2011 and may be material to operating results in future years.
Environmental provisions charged (credited) to income, which are included in cost of goods sold, were as follows:
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | ($ in millions) | ($ in millions) |
| Charges to income | $ | 11.5 |
| | $ | 8.4 |
| | $ | 19.3 |
| $ | 9.2 |
| | $ | 15.7 |
| | $ | 9.6 |
|
| Recoveries from third parties of costs incurred and expensed in prior periods | (1.3 | ) | | (0.1 | ) | | (11.4 | ) | — |
| | — |
| | (1.4 | ) |
| Total environmental expense | $ | 10.2 |
| | $ | 8.3 |
| | $ | 7.9 |
| $ | 9.2 |
| | $ | 15.7 |
| | $ | 8.2 |
|
These charges relate primarily to remedial and investigatory activities associated with past manufacturing operations and former waste disposal sites.sites and may be material to operating results in future years.
Our total estimated environmental liability at the end of 20132016 was attributable to 7164 sites, 1716 of which were USEPA National Priority List (NPL) sites. TenNine sites accounted for 78%79% of our environmental liability and, of the remaining 6155 sites, no one site accounted for more than 3% of our environmental liability. At sevenfour of the tennine sites, part of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At twoone of the nine sites, a remedial action plan is being developed for part of the site and at another part a remedial design is being developed. At one of the nine sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At one of these tennine sites, a remedial investigation is being performed. The onetwo remaining site issites are in long-term OM&M. All tennine sites are either associated with past manufacturing operations or former waste disposal sites. None of the tennine largest sites represents more than 21%23% of the liabilities reserved on our consolidated balance sheet at December 31, 20132016 for future environmental expenditures.
Our consolidated balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to $144.6$137.3 million at December 31, 2013,2016, and $146.5$138.1 million at December 31, 2012,2015, of which $126.6$120.3 million and $125.5$119.1 million, respectively, were classified as other noncurrent liabilities. Our environmental liability 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. Of the $144.6$137.3 million included on our consolidated balance sheet at December 31, 20132016 for future environmental expenditures, we currently expect to utilize $86.9$77.8 million of the reserve for future environmental expenditures over the next 5 years, $17.1$16.1 million for expenditures 6 to 10 years in the future, and $40.6$43.4 million for expenditures beyond 10 years in the future. These estimates are subject to a number of risks and uncertainties, as described in “Environmental Costs” contained in Item 1A—“Risk Factors.”
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. At December 31, 2013,2016, we estimate it is reasonably possible that we may have additional contingent environmental liabilities of $40$60 million in addition to the amounts for which we have already recorded as a reserve.
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. We describe some of these matters in Item 3—“Legal Proceedings.” At December 31, 20132016 and 2012,2015, our consolidated balance sheets included liabilities for these legal actions of $19.3$13.6 million and $15.2$21.2 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 cleanupclean-up 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 year ended December 31, 2013,2016, we recognized an insurance recovery of $11.0 million as a reduction of cost of goods soldin other operating income for property damage and business interruption related to a Chlor Alkali Products favorable contract settlement. Also for2008 chlor alkali facility incident.
For the year ended December 31, 2013,2015, we recognized $13.9insurance recoveries of $57.4 million as a reductionfor property damage and business interruption related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and the McIntosh, AL chlor alkali facility. Cost of goods sold was reduced by $10.5 million and selling and administration expense related towas reduced by $0.9 million for the recoveryreimbursement of legacy legal costs.costs incurred and expensed in prior periods and other operating income included a gain of $46.0 million.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
Cash Flow Data
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Provided by (used for) | ($ in millions) | ($ in millions) |
| Gain on remeasurement of investment in SunBelt | $ | — |
| | $ | — |
| | $ | (181.4 | ) | |
| Net operating activities | 317.0 |
| | 279.2 |
| | 215.9 |
| $ | 603.2 |
| | $ | 217.1 |
| | $ | 159.2 |
|
| Capital expenditures | (90.8 | ) | | (255.7 | ) | | (200.9 | ) | (278.0 | ) | | (130.9 | ) | | (71.8 | ) |
| Business acquired in purchase transaction, net of cash acquired | — |
| | (310.4 | ) | | (123.4 | ) | |
| Business acquired and related transactions, net of cash acquired | | (69.5 | ) | | (408.1 | ) | | — |
|
| Payments under long-term supply contract | | (175.7 | ) | | — |
| | — |
|
| Proceeds from sale/leaseback of equipment | 35.8 |
| | 4.4 |
| | 3.2 |
| 40.4 |
| | — |
| | — |
|
| Restricted cash activity, net | 7.7 |
| | 39.8 |
| | 50.3 |
| |
| Proceeds from disposition of property, plant and equipment | | 0.5 |
| | 26.2 |
| | 5.6 |
|
| Net investing activities | (43.8 | ) | | (512.4 | ) | | (259.6 | ) | (473.5 | ) | | (504.0 | ) | | (61.7 | ) |
| Long-term debt (repayments) borrowings, net | (23.7 | ) | | 180.1 |
| | (51.2 | ) | (205.3 | ) | | 544.3 |
| | (12.4 | ) |
| Earn out payment - SunBelt | (17.1 | ) | | (15.3 | ) | | — |
| — |
| | — |
| | (14.8 | ) |
| Common stock repurchased and retired | (36.2 | ) | | (3.1 | ) | | (4.2 | ) | — |
| | — |
| | (64.8 | ) |
| Dividends paid | | (132.1 | ) | | (79.5 | ) | | (63.0 | ) |
| Debt and equity issuance costs | | (1.0 | ) | | (45.2 | ) | | (1.2 | ) |
| Net financing activities | (130.6 | ) | | 93.6 |
| | (110.1 | ) | (337.5 | ) | | 422.2 |
| | (148.5 | ) |
Operating Activities
For 2013,2016, cash provided by operating activities increased by $37.8$386.1 million from 2012,2015, primarily due to higher earningsan increase in our operating results. Our net loss for 2016 included $76.6 million of non-cash impairment charges for equipment and facilities and a larger decrease$304.6 million increase in working capital in 2013.depreciation and amortization as compared to the prior year. For 2013,2016, working capital decreased $29.6$80.9 million compared to a decrease of $18.4$25.1 million in 2012.2015. Receivables decreased from December 31, 2015 by $38.5 million primarily as a result of receivables sold under the new accounts receivable factoring arrangements, which was partially offset by higher sales in the fourth quarter of 2016 compared with fourth quarter of 2015.
For 2015, cash provided by operating activities increased by $57.9 million from 2014, primarily due to a decrease in working capital in 2015. For 2015, working capital decreased $25.1 million compared to an increase of $62.4 million in 2014. The decrease in 2013 was2015 primarily duereflects a change in accounts receivable and accounts payable for the Acquired Business principally representing converting transactions with TDCC to decreased receivables of $18.9 million, primarily at Chemical Distribution, and decreased inventory of $8.6 million, primarily at Chemical Distribution and Winchester.third party transactions after the Closing Date. The 20132015 cash from operations was also impacted by a $32.9 million increase in cash tax payments.
For 2012, cash provided by operating activities increased by $63.3 million from 2011, primarily due to higher earnings and a decrease in working capital in 2012. For 2012, working capital decreased $18.4 million compared to an increase of $22.0 million in 2011. The decrease in 2012 was primarily due to decreased inventories of $17.9 million, primarily at Winchester. The 2012 cash from operations was also impacted by a $13.1$43.7 million decrease in cash tax payments.
Capital Expenditures
Capital spending was $90.8$278.0 million, $255.7$130.9 million and $200.9$71.8 million in 2013, 20122016, 2015 and 2011,2014, respectively. The decreasedincreased capital spending in 20132016 and 2015 was primarily due to the completioncapital spending of the Charleston, TN conversion project in the second halfAcquired Business of 2012$187.8 million and the completion of the low salt, high strength bleach facilities at our McIntosh, AL and Niagara Falls, NY chlor alkali sites in the first and third quarters of 2012,$26.6 million, respectively. Capital spending for 2013in 2016 included $15.1approximately $35 million of synergy-related capital we believe is necessary to completerealize the low salt, high strength bleach facility and the hydrochloric acid expansion project at our Henderson, NV chlor alkali site and $4.6 million for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations.anticipated synergies. Capital spending was 75%64%, 245%66% and 206%58% of depreciation in 2013, 20122016, 2015 and 2011,2014, respectively.
We completed low salt, high strength bleach facilities at McIntosh, AL and Niagara Falls, NY in the first and third quarters of 2012, respectively, and completed the remaining low salt, high strength facility at Henderson, NV during the first quarter of 2013. These three new facilities increased total bleach manufacturing capacity by approximately 50% over 2011 capacity. These low salt, high strength bleach facilities manufacture bleach with approximately twice the concentration, which should significantly reduce transportation costs.
In 2014,2017, we expect our capital spending to be in the $95$300 million to $105$350 million range, which includes spending forapproximately $30 million of synergy-related capital which we believe is necessary to realize the ongoing relocationanticipated synergies. In 2017, we also expect to make payments of our Winchester centerfire ammunition manufacturing operations.$209.4 million associated with long-term supply contracts.
Investing Activities
On August 22, 2012, we acquired KA Steel and paid cashIn 2016, payments of $310.4$69.5 million after receivingwere made related to the Acquisition for certain acquisition-related liabilities including the final working capital adjustmentadjustment. In 2015, as part of $1.9the Acquisition, we paid cash of $408.1 million, net of $26.2$25.4 million of cash acquired.
On February 28, 2011, we acquiredIn 2016, payments of $175.7 million were made related to arrangements for the remaining 50% interest in SunBelt and paid cashlong-term supply of $123.4 million, net of $8.9 million of cash acquired.low cost electricity.
During 2013, 2012 and 2011,
In 2016, we entered into sale/leaseback agreementstransactions for caustic soda barges, chlorine, caustic soda and bleach railcars and bleach trailers. In 2013, 2012 and 2011,that we acquired in connection with the Acquisition. We received proceeds from the sales of $35.8 million, $4.4 million and $3.2 million, respectively.$40.4 million.
In 2010, we completed financings2015, proceeds from disposition of Go Zoneproperty, plant and Recovery Zone bonds totaling $153.0 million due 2024, 2033 and 2035. In 2011, we drew the final $36.0 million on these bonds. The proceeds of these bonds are required to be used to fund capital projects in Alabama, Mississippi and Tennessee. As of December 31, 2013, $4.2equipment included $25.8 million of insurance recoveries for property damage related to the proceeds have not been used and are classified as a noncurrent asset on our consolidated balance sheet as restricted cash. In 2013, 2012 and 2011, we utilized $7.7 million, $39.8 million and $86.3 million, respectively,portion of the Go ZoneBecancour, Canada chlor alkali facility that has been shut down since late June 2014 and Recovery Zone proceeds to fund qualifying capital spending.our McIntosh, AL chlor alkali facility.
In both 2016 and 2015, we received $8.8 million from the October 2013 sale of a bleach joint venture.
Financing Activities
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 are continued to be serviced by us. As of December 31, 2016, $282.3 million of our trade receivables have been pledged as collateral. During 2016 we drew $230.0 million under the agreement and subsequently repaid $20.0 million. As of December 31, 2016, $210.0 million was drawn under the Receivables Financing Agreement. The net $210.0 million proceeds were used to repay a portion of the Sumitomo Credit Facility.
On the Closing Date, Spinco 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) to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and is paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Acquisition, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a new five-year delayed-draw term loan facility of up to $1,050.0 million. As of the Closing Date, Spinco drew $875.0 million to finance the cash portion of the distributions of cash and debt instruments of Spinco with an aggregate value of $2,095.0 million (Cash and Debt Distribution). Also on June 23, 2015, Olin and Spinco entered into a new five-year $1,850.0 million senior credit facility consisting of a $500.0 million senior revolving credit facility, which replaced Olin’s $265.0 million senior revolving credit facility on the Closing Date, and a $1,350.0 million delayed-draw term loan facility. As of the Closing Date, we drew an additional $475.0 million under this term loan facility which was used to pay fees and expenses of the Acquisition, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019 of $146.3 million. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single $1,850.0 million senior credit facility. This new senior credit facility will expire in 2020. During 2016, we repaid $67.5 million under the required quarterly installments of this new senior credit facility.
On August 25, 2015, Olin entered into a Credit Agreement (the Credit Agreement) with a syndicate of lenders and Sumitomo Mitsui Banking Corporation, as administrative agent, in connection with the Acquisition. The Credit Agreement provides for a term credit facility (the Sumitomo Credit Facility) under which Olin obtained term loans in an aggregate amount of $600.0 million. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by $200.0 million. On the Closing Date, $600.0 million of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015, $200.0 million of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility will mature on October 5, 2018 and have no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date of $569.0 million, to pay fees and expenses in connection with the Acquisition and for general corporate purposes. During 2016, $210.0 million was repaid under the Sumitomo Credit Facility using proceeds from the Receivables Financing Agreement.
In December 2013, 20122016, 2015 and 2011,2014, we repaid $12.2 million due under the annual requirements of the SunBelt Notes. In January 2013,June 2016, we also repaid $11.4$125.0 million of 20132016 Notes, which became due.
In August 2012,2014, we sold $200.0redeemed our $150.0 million 2019 Notes, which would have matured on August 15, 2019. We recognized interest expense of $9.5 million for the call premium ($6.7 million), the write-off of unamortized deferred debt issuance costs ($2.1 million) and unamortized discount ($0.7 million) related to this action during 2014. On June 24, 2014, we entered into a five-year $415.0 million senior credit facility consisting of a $265.0 million senior revolving credit facility,
which replaced our previous $265.0 million senior revolving credit facility, and a $150.0 million delayed-draw term loan facility. In August 2014, we drew the entire $150.0 million of 2022 Notes with a maturity datethe term loan and used the proceeds to redeem our 2019 Notes. In 2015 and 2014, we repaid $2.8 million and $0.9 million, respectively, under the required quarterly installments of August 15, 2022. The 2022 Notes were issued at par value. Interest is paid semi-annuallythe $150.0 million term loan facility and, on February 15 and August 15. The acquisitionthe Closing Date of KA Steelthe Acquisition, the remaining $146.3 term loan facility was partially financed withrefinanced using the proceeds of $196.0the new senior credit facility. We recognized interest expense of $0.5 million after expensesfor the write-off of $4.0 million, fromunamortized deferred debt issuance costs related to this action in conjunction with the 2022 Notes.Acquisition.
In June 2012, we redeemed industrial revenue bonds totaling $7.7 million with a maturity date of 2017. We paid a premium of $0.2 million to the bond holders, which was included in interest expense. We also recognized a $0.2 million deferred gain in interest expense related to the interest rate swap, which was terminated in March 2012, on these industrial revenue bonds.
In December 2011, we repaid the $75.0 million 2011 Notes, which became due.
In October 2010, we completed a financing of Go Zone and Recovery Zone bonds totaling $70.0 million due 2024. We drew $36.0 million of these bonds in 2011 and $34.0 million in 2010. As of December 31, 2013, all proceeds have been utilized for capital project spending at our McIntosh, AL facility.
During 2013 and 2012,2014, we paid $23.2$26.7 million and $18.5 million, respectively, for the earn out related to the 2012 and 20112013 SunBelt Chlor Alkali Partnership (SunBelt) performance. The earn out paymentspayment for the yearsyear ended December 31, 2013 and 20122014 included $17.1$14.8 million and $15.3 million, respectively, that werewas recognized as part of the original purchase price. The $17.1$14.8 million and $15.3 million areis included as a financing activity in the statement of cash flows.
We purchasedrepurchased and retired 1.5 million, 0.2 million and 0.22.5 million shares in 2013, 2012 and 2011, respectively,2014 with a total value of $36.2 million, $3.1 million and $4.2 million, respectively, under the share repurchase program approved by our board of directors on July 21, 2011.$64.8 million.
In 2013, 20122016, 2015 and 2011,2014, we issued 0.50.3 million, 0.1 million and 0.5 million shares, respectively, with a total value of $9.7$4.1 million, $1.4$3.1 million and $9.3$12.1 million, respectively, representing stock options exercised.
In 2016, we paid debt issuance costs of $1.0 million for the registration of the Notes. In 2015, we paid debt issuance costs of $13.3 million relating to the Notes, the Sumitomo Credit Facility and the $1,850.0 million senior credit facility and we paid $1.9 million of equity issuance costs for the issuance of approximately 87.5 million shares. In 2014, we paid debt issuance costs of $1.2 million related to the five-year $415.0 million senior credit facility.
On March 26, 2015, we and certain financial institutions executed commitment letters pursuant to which the financial institutions agreed to provide $3,354.5 million of financing to Spinco to finance the amount of the Cash and Debt Distribution and to provide financing, if needed, to Olin to refinance certain of our existing debt (the Bridge Financing), in each case on the terms and conditions set forth in the commitment letters. The Bridge Financing was not drawn on to facilitate the Acquisition, and the commitments for the Bridge Financing were terminated as of the Closing Date. For the year ended December 31, 2015, we paid debt issuance costs of $30.0 million associated with the Bridge Financing, which are included in interest expense.
The percent of total debt to total capitalization decreased to 38.6%of 61.4% was consistent at December 31, 2013, from 41.7% at year-end 2012. The percent2016 and 2015 as a result of total debt to total capitalization was 35.2% at year-end 2011. The 2013 decrease from 2012 was due to a lower level of long-term debt at December 31, 20132016 resulting from the repayments of maturing debt, and higheroffset by lower shareholders’ equity primarily resulting fromdue to the net income for the year endedpayment of dividends. The percent of total debt to total capitalization increased to 61.4% as of December 31, 2013.2015 from 39.7% at year-end 2014. The 20122015 increase from 20112014 was primarily due toa result of a higher level of long-term debt at December 31, 2012 resulting fromwhich was issued to finance the issuance of the 2022 Notes. Acquisition.
Dividends per common share were $0.80 in 2013, 20122016, 2015 and 2011.2014. Total dividends paid on common stock amounted to $64.0$132.1 million, $64.1$79.5 million and $64.0$63.0 million in 2013, 20122016, 2015 and 2011,2014, respectively. On January 24, 2014,26, 2017, our board of directors declared a dividend of $0.20 per share on our common stock, payable on March 10, 20142017 to shareholders of record on February 10, 2014.2017.
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, restricted cash, cash flow from operations and short-term borrowings under our senior revolving credit facility. Additionally, we believe that we have access to the debt and equity markets.
The aggregate purchase price of the Acquired Business was $5,136.7 million, after the final post-closing adjustments. The $5,136.7 million consisted of $2,095.0 million of cash and debt transferred to TDCC and approximately 87.5 million shares of Olin common stock valued at $1,527.4 million, plus the assumption of pension liabilities of $442.3 million and long-term debt of $569.0 million. During 2016, payments of $69.5 million were made related to certain acquisition related liabilities including the final working capital adjustment. The value of the common stock was based on the closing stock price on the last trading day prior to the Closing Date of $17.46.
Certain additional agreements were entered into, including, among others, an Employee Matters Agreement, a Tax Matters Agreement, site, transitional and other service agreements, supply and purchase agreements, real estate agreements,
technology licenses and intellectual property agreements. In addition, Olin and TDCC have agreed in connection with the Acquisition to enter 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 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 obtain 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 obtain 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.
Debt that was issued in the fourth quarter of 2015 relating to the Acquisition totaled $3,370.0 million, consisting of $1,350.0 million of term loans under senior credit facilities, an $800.0 million term loan under the Sumitomo Credit Facility and $1,220.0 million under the Notes. The new debt was used for the cash and debt transferred to TDCC, refinancing existing Spinco indebtedness at the Closing Date of the Acquisition, refinancing our existing senior term loan facility due in 2019, paying fees and expenses in connection with the Acquisition and for general corporate purposes.
During 2016, Olin entered into arrangements to increase our supply of low cost electricity. These arrangements improve manufacturing flexibility at our Freeport, TX and Plaquemine, LA facilities, reduce our overall electricity cost and accelerate the realization of cost synergies available from the Acquired Business. In conjunction with these arrangements, Olin made payments of $175.7 million during 2016.
The overall cash decrease of $207.5 million in 2016 primarily reflects capital spending, which includes capital spending of the Acquired Business, repayment of long-term debt, payments made under arrangements to increase our supply of low cost electricity and payments to TDCC related to certain acquisition related liabilities, including the final working capital adjustment. These decreases were partially offset by our operating results, proceeds under sale/leaseback transactions, proceeds of the Receivables Financing Agreement and receivables sold under the new accounts receivable factoring arrangements. 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 senior credit facilities, fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements.
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 are continued to be serviced by us. As of December 31, 2016, $282.3 million of our trade receivables have been pledged as collateral. During 2016 we drew $230.0 million under the agreement and subsequently repaid $20.0 million. As of December 31, 2016, $210.0 million was drawn under the Receivables Financing Agreement. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving credit facility. The net $210.0 million proceeds were used to repay a portion 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 (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 $242.0 million. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” (ASC 860) and, accordingly, the proceeds are included in net cash provided by operating activities in the consolidated statements of cash flows. The gross amount of receivables sold for the year ended December 31, 2016 totaled $533.6 million. The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2016. As of December 31, 2016, $126.1 million of receivables qualifying for sale treatment were outstanding and will continue to be serviced by us.
On the Closing Date, Spinco issued $720.0 million aggregate principal amount of the 2023 Notes and $500.0 million aggregate principal amount of the 2025 Notes to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and are paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Acquisition, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a new five-year delayed-draw term loan facility of up to $1,050.0 million. As of the Closing Date, Spinco drew $875.0 million to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year $1,850.0 million senior credit facility consisting of a $500.0 million senior revolving credit facility, which replaced Olin’s $265.0 million senior revolving credit facility at the Closing Date, and a $1,350.0 million delayed-draw term loan facility. As of the Closing Date, an additional $475.0 million was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Acquisition, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. As of the Closing Date, total borrowings under the term loan facilities were $1,350.0 million. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single $1,850.0 million senior credit facility. This new senior credit facility will expire in 2020. The $500.0 million senior revolving credit facility includes a $100.0 million letter of credit subfacility. At December 31, 2016, we had $483.4 million available under our $500.0 million senior revolving credit facility because we had issued $16.6 million of letters of credit under the $100.0 million 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. During 2016, we repaid $67.5 million under the required quarterly installments of this new senior credit facility.
Under the new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the 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 December 31, 2016 and 2015, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. As of December 31, 2016, there were no covenants or restrictions that limited our ability to borrow. 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.
On August 25, 2015, Olin entered into a Credit Agreement with a syndicate of lenders and Sumitomo Mitsui Banking Corporation, as administrative agent, in connection with the Acquisition. Olin obtained term loans in an aggregate amount of $600.0 million under the Sumitomo Credit Facility. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by $200.0 million. On the Closing Date, $600.0 million of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015, $200.0 million of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility will mature on October 5, 2018 and will have no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date, to pay fees and expenses in connection with the Acquisition and for general corporate purposes. The Credit Agreement contains customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the new $1,850.0 million senior credit facility. During 2016, $210.0 million was repaid under the Sumitomo Credit Facility using proceeds from the Receivables Financing Agreement.
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 seasonality of the ammunition business,Acquired Business has significantly diversified our product and geographic base, which is typically driven by the fall hunting season, and the seasonality of the vinyls and bleach businesses, which are stronger in periods of warmer weather, typically cause working capitalshould enable us to fluctuate between $50 million to $100 million over the course of the year.be less cyclical. Cash flow from operations is affected by changes in ECUchlorine, caustic soda and EDC selling prices caused by the changes in the supply/demand balance of chlorine and caustic soda,these products, resulting in the chlor alkali businessChlor Alkali Products and Vinyls segment having significant leverage on our earnings and cash flow. For example, assuming all other costs remain constant, and internal consumption remains approximately the same and we are operating at full capacity, a $10 per ECU selling price change per ton of chlorine equates to an approximate $15$10 million annual change in our revenues and pretax profit, when 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, and a $0.01 selling price change per pound of EDC equates to an approximate $20 million annual change in our revenues and pretax profit.
For 2013,2016, cash provided by operating activities increased by $37.8$386.1 million from 2012,2015, primarily due to higher earningsan increase in our operating results. Our net loss for 2016 included $76.6 million of non-cash impairment charges for equipment and facilities and a larger decrease$304.6 million increase in working capital in 2013.depreciation and amortization as compared to the prior year. For 2013,2016, working capital decreased $29.6$80.9 million compared to a decrease of $18.4$25.1 million in 2012. The decrease in 2013 was primarily due to2015. Receivables decreased receivables of $18.9from December 31, 2015 by $38.5 million primarily at Chemical Distribution, and decreased inventoryas a result of $8.6 million, primarily at Chemical Distribution and Winchester. The 2013 cash from operationsreceivables sold under the new AR Facilities, which was also impactedpartially offset by a $32.9 million increasehigher sales in cash tax payments.the fourth quarter of 2016 compared with fourth quarter of 2015.
Capital spending was $90.8$278.0 million, $255.7$130.9 million and $200.9$71.8 million in 2013, 20122016, 2015 and 2011,2014, respectively. The decreasedincreased capital spending in 20132016 and 2015 was primarily due to the completioncapital spending of the Charleston, TN conversion project in the second halfAcquired Business of 2012$187.8 million and the completion of the low salt, high strength bleach facilities at our McIntosh, AL and Niagara Falls, NY chlor alkali sites in the first and third quarters of 2012,$26.6 million, respectively. Capital spending for 2013in 2016 included $15.1approximately $35 million of synergy-related capital we believe is necessary to completerealize the low salt, high strength bleach facility and the hydrochloric acid expansion project at our Henderson, NV chlor alkali site and $4.6 million for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations.anticipated synergies. Capital spending was 75%64%, 245%66% and 206%58% of depreciation in 2013, 20122016, 2015 and 2011,2014, respectively.
We completed low salt, high strength bleach facilities at McIntosh, AL and Niagara Falls, NY in the first and third quarters of 2012, respectively, and completed the remaining low salt, high strength facility at Henderson, NV during the first quarter of 2013. These three new facilities increased total bleach manufacturing capacity by approximately 50% over 2011 capacity. These low salt, high strength bleach facilities manufacture bleach with approximately twice the concentration, which should significantly reduce transportation costs.
In 2014,2017, we expect our capital spending to be in the $95$300 million to $105$350 million range, which includes spending for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations.
The overall cash increase of $142.6 million in 2013 primarily reflects our operating results and proceeds from sale/leaseback of equipment partially offset by common stock repurchased and retired and repayments of maturing debt. Based on our December 31, 2013 unrestricted cash balance of $307.8 million, the restricted cash balance of $4.2 million, and the availability of $233.4approximately $30 million of liquidity from our senior revolving credit facility,synergy-related capital which we believe is necessary to realize the anticipated synergies. In 2017, we have sufficient liquidityalso expect to meet our short-term andmake payments of $209.4 million associated with long-term needs. Additionally, we believe that we have access to the debt and equity markets.supply contracts.
On July 21, 2011,April 24, 2014, our board of directors authorized a new share repurchase program for up to 58 million shares of common stock that will terminate in three yearson April 24, 2017 for any remaining shares not yet repurchased. WeNo shares were purchased and retired 1.5in 2016 or 2015. We repurchased and retired 2.5 million shares in 2013 and 0.2 million shares in both 2012 and 2011 under this program,2014 at a cost of $36.2 million, $3.1 million and $4.2 million, respectively.$64.8 million. As of December 31, 2013,2016, we had purchasedrepurchased a total of 1.9 million shares under thisthe April 2014 program, and 3.16.1 million shares remained authorized to be purchased. The repurchases will be effected from time to time on the open market, or in privately negotiated transactions. Under the Merger Agreement relating to the Acquisition, we were restricted from repurchasing shares of our common stock prior to the consummation of the Acquisition. For a period of two years subsequent to the Closing Date, we will continue to be subject to certain restrictions on our ability to conduct share repurchases.
In January 2013,August 2014, we redeemed our $150.0 million 2019 Notes, which would have matured on August 15, 2019. We recognized interest expense of $9.5 million for the call premium ($6.7 million), the write-off of unamortized deferred debt issuance costs ($2.1 million) and unamortized discount ($0.7 million) related to this action during 2014. On June 24, 2014, we entered into a five-year $415.0 million senior credit facility consisting of a $265.0 million senior revolving credit facility, which replaced our previous $265.0 million senior revolving credit facility, and a $150.0 million delayed-draw term loan facility. In August 2014, we drew the entire $150.0 million of the term loan and used the proceeds to redeem our 2019 Notes. In 2015 and 2014, we repaid $11.4$2.8 million and $0.9 million, respectively, under the required quarterly installments of 2013 Notes, which became due.the $150.0 million term loan facility and, on the Closing Date of the Acquisition, the remaining $146.3 million was refinanced using the proceeds of the new senior credit facility. We recognized interest expense of $0.5 million for the write-off of unamortized deferred debt issuance costs related to this action in conjunction with the Acquisition.
Pursuant to a note purchase agreement dated December 22, 1997, SunBelt sold $97.5 million of Guaranteed Senior Secured Notes due 2017, Series O, and $97.5 million of Guaranteed Senior Secured Notes due 2017, Series G. We refer to these notes as the SunBelt Notes. The SunBelt Notes bear interest at a rate of 7.23% per annum, payable semi-annually in arrears on each June 22 and December 22. Beginning on December 22, 2002 and each year through 2017, SunBelt is required to repay $12.2 million of the SunBelt Notes, of which $6.1 million is attributable to the Series O Notes and of which $6.1 million is attributable to the Series G Notes. In conjunction with the SunBelt acquisition, we consolidated the SunBelt Notes with a fair value of $87.3 million for the remaining principal balance of $85.3 million as of February 28, 2011. In December 2013, 20122016, 2015 and 2011,2014, $12.2 million was repaid on these SunBelt Notes.
In August 2012, we sold $200.0 millionWe have guaranteed the Series O Notes, and PolyOne Corporation (PolyOne), our former SunBelt partner, has guaranteed the Series G Notes, in both cases pursuant to customary guaranty agreements. We have agreed to indemnify PolyOne for any payments or other costs under the guarantee in favor of 2022the purchasers of the Series G Notes, withto the extent any payments or other costs arise from a maturity datedefault or other breach under the SunBelt Notes. If SunBelt does not make timely payments on the SunBelt Notes, whether as a result of August 15, 2022. The 2022a failure to pay on a guarantee or otherwise, the holders of the SunBelt Notes were issued at par value. Interest is paid semi-annually on February 15 and August 15. The acquisitionmay proceed against the assets of KA Steel was partially financed with proceeds of $196.0 million, after expenses of $4.0 million, from these 2022 Notes.SunBelt for repayment.
In June 2012, we redeemed industrial revenue bonds totaling $7.7 million with a maturity date of 2017. We paid a premium of $0.2 million to the bond holders, which was included in interest expense. We also recognized a $0.2 million deferred gain in interest expense related to the interest rate swap, which was terminated in March 2012, on these industrial revenue bonds.
In December 2011,2016, we repaid the $75.0$125.0 million 2011of 2016 Notes, which became due.
In December 2010, we completed a financing of Recovery Zone tax-exempt bonds totaling $42.0 million due 2033. The bonds were issued by the Mississippi Business Finance Corporation (MS Finance) pursuant to a trust indenture between MS Finance and U.S. Bank National Association, as trustee. The bonds were sold to PNC Bank as administrative agent for itself and a syndicate of participating banks, in a private placement under a Credit and Funding Agreement dated December 1, 2010, between us and PNC Bank. Proceeds of the bonds were loaned by MS Finance to us under a loan agreement, whereby we are obligated to make loan payments to MS Finance sufficient to pay all debt service and expenses related to the bonds. Our
obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR. The financial covenants in the credit agreement mirror those in our senior revolving credit facility. The bonds may be tendered to us (without premium) periodically beginning November 1, 2015. During December 2010, we drew $42.0 million of the bonds. The proceeds from the bonds are required to be used to fund capital project spending for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS. As of December 31, 2013, $4.2 million of the proceeds remain with the trustee and are classified as a noncurrent asset on our consolidated balance sheet as restricted cash, until such time as we request reimbursement of qualifying amounts used for the Oxford, MS Winchester relocation.
In October 2010, we completed a financing of tax-exempt bonds totaling $70.0 million due 2024. The bonds include $50.0 million of Go Zone and $20.0 million of Recovery Zone. The bonds were issued by the Industrial Development Authority of Washington County, AL (AL Authority) pursuant to a trust indenture between the AL Authority and U.S. Bank National Association, as trustee. The bonds were sold to PNC Bank as administrative agent for itself and a syndicate of participating banks, in a private placement under a Credit and Funding Agreement dated October 14, 2010, between us and PNC Bank. Proceeds of the bonds were loaned by the AL Authority to us under a loan agreement, whereby we are obligated to make loan payments to the AL Authority sufficient to pay all debt service and expenses related to the bonds. Our obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR. The financial covenants in the credit agreement mirror those in our senior revolving credit facility. The bonds may be tendered to us (without premium) periodically beginning November 1, 2015. We had the option to borrow up to the entire $70.0 million in a series of draw downs through December 31, 2011. We drew $36.0 million of the bonds in 2011 and $34.0 million in 2010. The proceeds from the bonds are required to be used to fund capital project spending at our McIntosh, AL facility and were fully utilized as of December 31, 2013.
At December 31, 2013, we had $233.4 million available under our $265 million senior revolving credit facility because we had issued $31.6 million of letters of credit under a $110 million subfacility. The senior revolving credit facility also has a $50 million Canadian subfacility. The senior revolving credit facility will expire in April 2017. Under the senior revolving credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior revolving credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the facility at the end of 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 for the last four quarters. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2013 and 2012, 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 December 31, 2013, there were no covenants or other restrictions that limited our ability to borrow.
At December 31, 2013,2016, we had total letters of credit of $36.8$73.3 million outstanding, of which $31.6$16.6 million were issued under our $265$500.0 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 international pension funding requirements.
Our current debt structure is used to fund our business operations. As of December 31, 2013,2016, we had long-term borrowings, including the current installment and capital lease obligations, of $691.0$3,617.6 million, of which $155.9$2,238.4 million was at variable rates. Annual maturities of long-term debt, including capital lease obligations, are $12.6 million in 2014, $12.6 million in 2015, $143.7 million in 2016, $14.6$80.3 million in 2017, $0.5$691.9 million in 2018, $345.7 million in 2019, $980.3 million in 2020, $0.2 million in 2021 and a total of $507.0$1,576.1 million thereafter. Commitments from banks under our senior revolving credit facility are an additional source of liquidity. Included within the $3,617.6 million of long-term borrowings on the consolidated balance sheet as of December 31, 2016 were deferred debt issuance costs, deferred gains and losses on fair value interest rate swaps and unamortized fair value premium of $56.9 million.
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 Bank, N.A. (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 consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. 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 $28.5 million and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended December 31, 2016, $2.6 million of income has been recorded to interest expense on the accompanying consolidated 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$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$2.2 million which will be recognized through 2017. As of December 31, 2013, $1.22016, $0.1 million of this gain was included in current installments of long-term debt.
In March 2012, Citibank terminated $7.7 million of interest rate swaps on our industrial development and environmental improvement tax-exempt bonds due in 2017. The result was a gain of $0.2 million, which would have been recognized through 2017. In June 2012, the industrial revenue bonds were redeemed by us, and as a result, the remaining $0.2 million deferred gain was recognized in interest expense during 2012.
In March 2010, we entered into interest rate swaps on $125 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates. The counterparty to these agreements is Citibank, a major financial institution. In October 2011, we entered into $125 million of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 6.75% senior notes due 2016 (2016 Notes). We have agreed to pay a fixed rate to a counterparty who, in turn, pays us variable rates. The counterparty to this agreement is also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which will be recognized through 2016. As of December 31, 2013, $6.1 million of this gain was included in long-term debt. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps do not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps are recorded currently in earnings.
In 2001 and 2002, we entered into interest rate swaps on $75 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In January 2009, we entered into a $75 million fixed interest rate swap with equal and opposite terms as the $75 million variable interest rate swaps on the 2011 Notes. We agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to this agreement was Bank of America, N.A. (Bank of America), a major financial institution. The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which was recognized through 2011. In January 2009, we de-designated our $75 million interest rate swaps that had previously been designated as fair value hedges. The $75 million variable interest rate swaps and the $75 million fixed interest rate swap did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
OFF-BALANCE SHEET ARRANGEMENTS
Our operating lease commitments are primarily for railroad cars but also include distribution, warehousing and office space and data processing and office equipment. Virtually none of our lease agreements contain escalation clauses or step rent provisions.
In conjunction with the St. Gabriel, LA conversion and expansion project, which was completed in the fourth quarter of 2009, we entered into a twenty-year brine and pipeline supply agreement with PetroLogistics Olefins, LLC (PetroLogistics). PetroLogistics installed, owns and operates, at its own expense, a pipeline supplying brine to the St. Gabriel, LA facility. Beginning November 2009, we are obligated to make a fixed annual payment over the life of the contract of $2.0 million for use of the pipeline, regardless of the amount of brine purchased. We also have a minimum usage requirement for brine of $8.4 million over the first five-year period of the contract. We have met or exceeded the minimum brine usage requirements since the inception of the contract. After the first five-year period, the contract contains a buy out provision exercisable by us for $12.0 million.
Our long-term contractual commitments, including the on and off-balance sheet arrangements, consisted of the following:
| | | | Payments Due by Period | Payments Due by Period |
| Contractual Obligations | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
| | ($ in millions) | ($ in millions) |
Debt obligations, including capital lease obligations | $ | 691.0 |
| | $ | 12.6 |
| | $ | 156.3 |
| | $ | 15.1 |
| | $ | 507.0 |
| $ | 3,674.5 |
| | $ | 80.3 |
| | $ | 1,037.6 |
| | $ | 980.5 |
| | $ | 1,576.1 |
|
Interest payments under debt obligations and interest rate swap agreements(a)(b) | 228.1 |
| | 36.0 |
| | 66.1 |
| | 53.9 |
| | 72.1 |
| 1,139.5 |
| | 186.1 |
| | 332.3 |
| | 287.6 |
| | 333.5 |
|
| Contingent tax liability | 36.1 |
| | 3.8 |
| | 7.0 |
| | 2.5 |
| | 22.8 |
| 41.3 |
| | 12.3 |
| | 6.1 |
| | 4.0 |
| | 18.9 |
|
Qualified pension plan contributions(b)(c) | 1.0 |
| | 1.0 |
| | — |
| | — |
| | — |
| 5.0 |
| | 5.0 |
| | — |
| | — |
| | — |
|
| Non-qualified pension plan payments | 62.1 |
| | 14.4 |
| | 15.4 |
| | 7.8 |
| | 24.5 |
| 5.5 |
| | 0.6 |
| | 1.1 |
| | 0.9 |
| | 2.9 |
|
| Postretirement benefit payments | 67.6 |
| | 5.8 |
| | 11.2 |
| | 10.2 |
| | 40.4 |
| 52.2 |
| | 5.2 |
| | 9.1 |
| | 7.2 |
| | 30.7 |
|
| Off-Balance Sheet Commitments: | | | | | | | | | | | | | | | | | | |
| Noncancelable operating leases | 237.0 |
| | 52.8 |
| | 83.7 |
| | 56.1 |
| | 44.4 |
| |
| Non-cancelable operating leases | | 339.6 |
| | 78.8 |
| | 117.8 |
| | 65.4 |
| | 77.6 |
|
| Long-term supply contracts | | 674.4 |
| | 209.4 |
| | — |
| | 465.0 |
| | — |
|
| Purchasing commitments: | | | | | | | | | | | | | | | | | | |
| Raw materials | 100.1 |
| | 77.2 |
| | 22.9 |
| | — |
| | — |
| 5,588.2 |
| | 596.9 |
| | 1,011.4 |
| | 987.7 |
| | 2,992.2 |
|
| Capital expenditures | 2.2 |
| | 1.6 |
| | 0.6 |
| | — |
| | — |
| 5.7 |
| | 5.7 |
| | — |
| | — |
| | — |
|
| Utilities | 1.0 |
| | 0.7 |
| | 0.3 |
| | — |
| | — |
| 1.9 |
| | 0.5 |
| | 0.9 |
| | 0.5 |
| | — |
|
| Total | $ | 1,426.2 |
| | $ | 205.9 |
| | $ | 363.5 |
| | $ | 145.6 |
| | $ | 711.2 |
| $ | 11,527.8 |
| | $ | 1,180.8 |
| | $ | 2,516.3 |
| | $ | 2,798.8 |
| | $ | 5,031.9 |
|
| |
| (a) | Excludes debt issuance costs, deferred gains and losses on fair value interest rate swaps and unamortized fair value premium of $56.9 million. |
| |
| (b) | For the purposes of this table, we have assumed for all periods presented that there are no changes in the principal amount of any variable rate debt from the amounts outstanding on December 31, 2013 and that there are no changes in the rates from those in effect at December 31, 20132016 which ranged from 0.22%0.25% to 8.875%10.00%. |
| |
(b)(c) | These amounts are only estimated payments assuming for our domestic qualified pension plan an annual expected rate of return on pension plan assets of 7.75%, and a discount rate on pension plan obligations of 4.5%4.1% and for our foreign qualified pension plans a weighted average annual expected rate of return on pension plan assets of 6.0%, and a discount rate on pension plan obligations of 2.3%. These estimated payments are subject to significant variation and the actual payments may be more than the amounts estimated. Given the inherent uncertainty as to actual minimum funding requirements for qualified defined benefit pension plans, no amounts are included in this table for any period beyond one year. During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0 million. Based on the current funding requirements, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2014. We do have a small Canadian2017. In connection with international qualified defined benefit pension plan to whichplans we made cash contributions of $1.0$1.3 million and $0.9 million in 20132016 and 2012,2015, respectively, and we anticipate approximately $1less than $5 million of cash contributions to international qualified defined benefit pension plans in 2014.2017. See discussion on “Moving Ahead for Progress in the 21st Century Act”MAP-21 and HATFA 2014 in “Pension Plans” in the notes to consolidated financial statements contained in Item 8. |
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. For losses that we believe are probable and which are estimable, we have accrued for such amounts in our consolidated balance sheets. In addition to the table above, we have various commitments and contingencies including: defined benefit and postretirement healthcare plans (as described below), environmental matters (see discussion above under “Environmental Matters”) and litigation claims (see Item 3—“Legal Proceedings”).
We have several defined benefit and defined contribution pension plans, as described in the “Pension Plans” note in the notes to consolidated financial statements contained in Item 8. We fund the defined benefit pension plans based on the minimum amounts required by law plus such amounts we deem appropriate. We have postretirement healthcare plans that
provide health and life insurance benefits to certain retired employees and their beneficiaries, as described in the “Postretirement Benefits” note in the notes to consolidated financial statements contained in Item 8. These other postretirement plans are not pre-funded and expenses are paid by us as incurred.
We also have standby letters of credit of $36.8$73.3 million of which $31.6$16.6 million have been issued through our senior revolving credit facility. At December 31, 2013,2016, we had $233.4$483.4 million available under our senior revolving credit facility.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Significant estimates in our consolidated financial statements include goodwill recoverability, environmental, restructuring and other unusual items, litigation, income tax reserves including deferred tax asset valuation allowances, pension, postretirement and other benefits and allowance for doubtful accounts. We base our estimates on prior experience, current facts and circumstances and other assumptions. Actual results may differ from these estimates.
We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.
Goodwill
Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. On January 1, 2012, we adopted Accounting Standards Update (ASU) 2011-08 “Testing ASC 350 “Intangibles—Goodwill for Impairment” (ASU 2011-08), whichand Other” permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. Circumstances that are considered as part of the qualitative assessment and could trigger the two-step impairment test include, but are not limited to: a significant adverse change in the business climate; a significant adverse legal judgment; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a reporting unit. We define reporting units at the business segment level or one level below the business segment which for our Chlor Alkali Products segment are the U.S. operations and Canadian operations.level. For purposes of testing goodwill for impairment, goodwill has been allocated to theseour reporting units to the extent it relates to each reporting unit. Based upon
It is our qualitative assessment, it is more likely than not thatpractice, at a minimum, to perform a quantitative goodwill impairment test in the fair valuefourth quarter every three years. In the fourth quarter of 2016, we performed a quantitative goodwill impairment test for our reporting units are greater than their carrying amounts as of December 31, 2013. No impairment charges were recorded for 2013, 2012 or 2011.
In 2011, prior to the adoption of ASU 2011-08, we usedunits. We use a discounted cash flow approach to develop the estimated fair value of a reporting unit.unit when a quantitative review is performed. Management judgment wasis required in developing the assumptions for the discounted cash flow model. We also corroboratedcorroborate our discounted cash flow analysis by evaluating a market-based approach that considers earnings before interest, taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies incompanies. As a further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the chemical industry.aggregate fair value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying amount of a reporting unit exceeded the estimated fair value. Based on the aforementioned analysis, the estimated fair value of our reporting units substantially exceeded the carrying value of the reporting units. No impairment charges were recorded for 2016, 2015 or 2014.
The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of ourthe chlor alkali businessindustry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of each reporting unit. The discount rate reflectedreflects a weighted-average cost of capital, which wasis calculated based on observable market data. Some of thesethis data (such as the risk free or treasury rate and the pretax cost of debt) wereare based on the market data at a point in time. Other data (such as the equity risk premium) wereare based upon market data over time for a peer group of companies in the chemical manufacturing industryor distribution industries with a market capitalization premium added, as applicable.
The discounted cash flow analysis requiredrequires estimates, assumptions and judgments about future events. Our analysis useduses our internally generated long-range plan. Our discounted cash flow analysis useduses the assumptions in our long-range plan about terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the implied fair value of each reporting unit. The long-range plan reflects management judgment, supplemented by independent chemical industry analyses which provide multi-year chlor alkali industry operating and pricing forecasts.
We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. In order to evaluate the sensitivity of the fair value calculation on the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit. We also applied a hypothetical decrease of 100-basis points in our terminal growth rate or an increase of 100-basis points in our weighted-average cost of capital to test the fair value calculation. In all cases, the estimated fair value of our reporting units derived in these sensitivity calculations exceeded the carrying value in excess of 10%. If our assumptions regarding future performance are not achieved, we may be required to record goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Environmental
Accruals (charges to income) for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessments and remediation efforts progress or additional technical or legal information becomes available. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations. Environmental costs and recoveries are included in costs of goods sold.
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 and 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, cash flows or results of operations.
Pension and Postretirement Plans
We account for our defined benefit pension plans and non-pension postretirement benefit plans using actuarial models required by ASC 715. These models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as actuarial gains or losses. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern. Substantially all domestic defined benefit pension plan participants are no longer accruing benefits; therefore, actuarial gains and losses are amortized based upon the remaining life expectancy of the inactive plan participants. For both the years ended December 31, 20132016 and 2012,2015, the average remaining life expectancy of the inactive participants in the domestic defined benefit pension plan was 1819 years.
One of the key assumptions for the net periodic pension calculation is the expected long-term rate of return on plan assets, used to determine the “market-related value of assets.” (TheThe “market-related value of assets” recognizes differences between the plan’s actual return and expected return over a five year period).period. The required use of an expected long-term rate of return on the market-related value of plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and, therefore, result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. As differences between actual and expected returns are recognized over five years, they subsequently generate gains and losses that are subject to amortization over the average remaining life expectancy of the inactive plan participants, as described in the preceding paragraph.
We use long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns and inflation by reference to external sources to develop the expected long-term rate of return on plan assets as of December 31.
The discount rate assumptions used for pension and non-pension postretirement benefit plan accounting reflect the rates available on high-quality fixed-income debt instruments on December 31 of each year. The rate of compensation increase is
based upon our long-term plans for such increases. For retiree medical plan accounting, we review external data and our own historical trends for healthcare costs to determine the healthcare cost trend rates.
45Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans and on December 31, 2015 changed this approach for our other postretirement benefits. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date for our defined benefit pension plans and beginning in 2016 for our other postretirement benefits, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
Changes in pension costs may occur in the future due to changes in these assumptions resulting from economic events. For example, holding all other assumptions constant, a 100-basis point decrease or increase in the assumed long-term rate of return on plan assets for our domestic qualified defined benefit pension plan would have decreased or increased, respectively, the 20132016 defined benefit pension plan income by approximately $17.1$19.8 million. Holding all other assumptions constant for our domestic qualified defined benefit pension plan, a 50-basis point decrease in the discount rate used to calculate pension income for 20132016 and the projected benefit obligation as of December 31, 20132016 would have decreased pension income by $0.4$0.7 million and increased the projected benefit obligation by $102.0$147.0 million. A 50-basis point increase in the discount rate used to calculate pension income for 20132016 and the projected benefit obligation as of December 31, 20132016 for our domestic qualified defined benefit pension plan would have increased pension income by $0.6$0.8 million and decreased the projected benefit obligation by $95.0$133.0 million. For additional information on long-term rates of return, discount rates and projected healthcare costs projections, see “Pension Plans” and “Postretirement Benefits” in the notes to the consolidated financial statements contained in Item 8.
NEW ACCOUNTING PRONOUNCEMENTS
In February 2013,January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2013-04 “Obligations Resulting from Joint and Several Liability Arrangements2017-04, “Simplifying the Test for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (ASU 2013-04),Goodwill Impairment” which amends ASC 405 “Liabilities” (ASC 405).350 “Intangibles—Goodwill and Other.” This update clarifieswill 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 entities measure obligations resulting from jointcash receipts and severalcash 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 will adopt this update in the first quarter of 2017.
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 arrangements.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, 2013.2018 and interim periods within those fiscal years, with earlier application permitted. This update will not havebe applied using a materialmodified 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 February 2013,November 2015, the FASB issued ASU 2013-02 “Reporting2015-17 “Balance Sheet Classification of Amounts Reclassified Out of Accumulated Other Comprehensive Income”Deferred Taxes” (ASU 2013-02)2015-17), which amends ASC 220 “Comprehensive Income”740 “Income Taxes” (ASC 220)740). This update adds new disclosure requirements about reclassifications out of accumulated other comprehensiverequires deferred income includingtax liabilities and assets, and any related valuation allowance, to be classified as noncurrent on the effects of these reclassifications onbalance sheet. This update simplifies the current guidance requiring the deferred taxes for each jurisdiction to be presented as a net income.current asset or liability and net noncurrent asset or liability. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be applied either prospectively or retrospectively, with earlier application permitted. We adopted the provisions of ASU 2013-022015-17 on December 31, 2015, which was applied prospectively, and, therefore, all prior periods have not been retrospectively adjusted.
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement—Period Adjustments” (ASU 2015-16), which amends ASC 805 “Business Combinations.” This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. We adopted ASU 2015-16 on January 1, 2013.2016. This update is applied prospectively to adjustments of provisional amounts that occur after the effective date with earlier application permitted. This update did not have a material effect on our consolidated financial statements.
In July 2012,2015, the FASB issued ASU 2012-02 “Testing Indefinite-Lived Intangible Assets for Impairment” (ASU 2012-02)2015-11 “Simplifying the Measurement of Inventory,” which amends ASC 350 “Intangibles – Goodwill and Other” (ASC 350).330 “Inventory.” This update permitsrequires entities to make a qualitative assessmentmeasure inventory at the lower of whether it is more likely than not that an indefinite-lived intangible asset’s faircost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less than its carrying amount before performing a quantitative impairment test. Ifreasonable predictable costs of completion, disposal and transportation. This update simplifies the current guidance under which an entity concludes that it is not more likely than not thatmust measure inventory at the fair valuelower of the indefinite-lived intangible asset is less than its carrying amount, it would not be required to perform the quantitative test for that asset. We adopted the provisions of ASU 2012-02 during 2012.cost or market. This update diddoes not have a material effect on our consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, which amends ASC 350.impact inventory measured using LIFO. This update permits entities to make a qualitative assessmentis effective for fiscal years beginning after December 15, 2016. We are currently evaluating the effect of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. We adopted the provisions of ASU 2011-08 on January 1, 2012. Thisthis update did not have a material effect on our consolidated financial statements.
During 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income” (ASU 2011-05) and ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05” (ASU 2011-12). These updates require entities to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements of net income and other comprehensive income. We retrospectively adopted the provisions of ASU 2011-05 and ASU 2011-12 on January 1, 2012. These updates required modification of our consolidated financial statements presentation. These updates did not have a material effect on our consolidated financial statements.
In May 2011,2015, the FASB issued ASU 2011-04 “Amendments to Achieve Common Fair2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,per Share (or Its Equivalent)” (ASU 2011-04),2015-07) which amends ASC 820 “Fair Value Measurements and Disclosures” (ASC 820).Measurement.” This update clarifiesremoves the existing guidance and amendsrequirement to categorize within the wording used to describe many of the requirements in U.S. GAAP for measuring fair value andhierarchy all investments for disclosing information aboutwhich fair value measurements.is measured using the net asset value per share practical expedient. The amendments removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This update becameis effective for usfiscal years beginning after December 15, 2015 and interim periods within those fiscal years and impacts the disclosure requirements surrounding certain assets held by our pension plans. The new guidance will be applied on a retrospective basis. We adopted ASU 2015-07 on January 1, 2012. This2016 which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and, in August 2015, the FASB issued ASU 2015-15 “Interest—Imputation of Interest,” which both amend ASC 835-30 “Interest—Imputation of Interest.” These updates require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability while debt issuance costs related to line-of-credit arrangements will continue to be presented as an asset. We adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016 which required retrospective application. As of December 31, 2015, debt issuance costs of $31.4 million were reclassified within our consolidated balance sheet from other assets to long-term debt and $1.5 million were reclassified within our consolidated balance sheet from other assets to current installments of long-term debt.
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 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 did notrecognized 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 a material effect on our consolidated financial statements.
In December 2010, Based on the FASB issued ASU 2010-29 “Disclosure of Supplementary Pro Forma Information for Business Combinations” (ASU 2010-29), which amends ASC 805 “Business Combinations” (ASC 805). This update clarifiedanalysis 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 an entity is required to disclose pro forma revenue and earnings as though the business combination that occurred during the current period had occurred as of the beginning of the comparable prior annual reporting period only. In addition, this standard expands the supplemental pro forma disclosures to include a description of the nature and amount of material nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We adopted the provisions of ASU 2010-29 on January 1, 2011. The adoption of this update required additional disclosures for our acquisitions of KA Steel and the remaining 50% equity interest in SunBelt. This update did not have a material effect onthese updates will materially impact our consolidated financial statements.statements and we have not yet determined the method of application we will use.
DERIVATIVE FINANCIAL INSTRUMENTS
ASC 815 “Derivatives and Hedging” (ASC 815) required an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We use hedge accounting treatment for substantially all of our business transactions whose risks are covered using derivative instruments. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and, if so, the type of hedge. For derivatives designated as a fair value hedge, the changes in the fair value of both the derivative and the hedged item are recognized in earnings. For derivatives designated as a cash flow hedge, the change in fair value of the derivative is recognized in other comprehensive (loss) income (loss) until the hedged item is recognized in earnings. Ineffective portions are recognized currently in earnings. Unrealized gains and losses on derivatives not qualifying for hedge accounting are recognized currently in earnings. All derivatives recognized in earnings impact the expense line item on our consolidated statement of operations that is consistent with the nature of the underlying hedged item.
The company 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 resulting from purchaseto offset our net exposures, by currency, related to the foreign currency denominated monetary assets and sale commitments denominated inliabilities of our operations. At December 31, 2016 we had outstanding forward contracts to buy foreign currencies (principally Canadian dollarcurrency with a notional value of $73.2 million and Australian dollar).to sell foreign currency with a notional value of $100.8 million. All of the currency derivatives expire within one year and are for United States dollarUSD equivalents. The counterparties to the forward contracts were 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, 2013 and 2012,2015, we had nooutstanding forward contracts to buy orforeign currency with a notional value of $21.7 million and to sell foreign currencies.currency with a notional value of $10.1 million.
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 costs used in our manufacturing process. For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive (loss) income (loss) until the hedged item is recognized into earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings. Losses on settled futuresderivative contracts were $1.4$5.8 million ($0.93.6 million, net of taxes), $9.7 million ($5.9 million, net of taxes) and $6.5$1.8 million ($4.01.1 million, net of taxes) in 20132016, 2015 and 2012,2014, respectively, which were included in cost of goods sold. Gains on settled futures contracts were $10.3 million ($6.3 million, net of taxes) in 2011, which were included in cost of goods sold. At December 31, 2013,2016, we had open positions in futures contracts through 20182021 totaling $78.1$101.6 million (2012—(2015—$114.263.6 million). If all open futures contracts had been settled on December 31, 2013,2016, we would have recognized a pretax gain of $1.2$11.1 million.
At December 31, 2013,2016, accumulated other comprehensive loss included a gain, net of taxes, in fair value on commodity forwardderivative contracts of $0.9$6.8 million. If commodity prices were to remain at the levels they were at December 31, 2013,2016, approximately $0.7$6.2 million of deferred gains, net of tax, would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on commodity prices when the forecasted transactions occur. At December 31, 2012,2015, accumulated other comprehensive loss included a gain,loss, net of taxes, in fair value on commodity forward contracts of $4.7$6.9 million.
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. The accounting for gains and losses associated with changes in fair value of the derivative and the effect on the consolidated 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. 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. We had noAs of December 31, 2016 and 2015, the total notional amounts of our interest rate swaps designated as fair value hedges as of December 31, 2013were $500.0 million and 2012.zero, respectively.
In March 2010, we entered intoWe also use interest rate swaps on $125 millionas a means of minimizing significant unanticipated earnings fluctuations that may arise from volatility in interest rates of our underlying fixed-rate debt obligations, wherebyvariable-rate borrowings. For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive (loss) income until the hedged item is recognized into earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings. At December 31, 2016, we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates. The counterparty to these agreements is Citibank. In October 2011, we entered into $125 million ofhad open interest rate swaps designated as cash flow hedges with equal and oppositemaximum terms as the $125 million variable interest rate swapsthrough 2019. If all open futures contracts had been settled on theDecember 31, 2016, Notes. Wewe would have agreed to payrecognized a fixed rate to a counterparty who, in turn, pays us variable rates. The counterparty to this agreement is also Citibank. The result was apretax gain of $11.0$9.6 million. If interest rates were to remain at December 31, 2016 levels, $1.1 million of deferred gains
would be reclassified into earnings during the next twelve months. The actual effect on the $125 million variable interest rate swaps, whichearnings will be recognized through 2016. As of December 31, 2013, $6.1 million of this gain was included in long-term debt. In October 2011, we de-designated our $125 milliondependent on actual interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps andrates when the $125 million fixed interest rate swaps do not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps are recorded currently in earnings.
In 2001 and 2002, we entered into interest rate swaps on $75 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In January 2009, we entered into a $75 million fixed interest rate swap with equal and opposite terms as the $75 million variable interest rate swaps on the 2011 Notes. We agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to this agreement was Bank of America. The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which was recognized through 2011. In January 2009, we de-designated our $75 million interest rate swaps that had previously been designated as fair value hedges. The $75 million variable interest rate swaps and the $75 million fixed interest rate swap did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.forecasted transactions occur.
The fair value of our derivative asset and liability balances were:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Other current assets | $ | 1.3 |
| | $ | 7.6 |
| $ | 13.5 |
| | $ | 1.2 |
|
| Other assets | 5.9 |
| | 8.3 |
| 7.7 |
| | — |
|
| Total derivative asset | $ | 7.2 |
| | $ | 15.9 |
| $ | 21.2 |
| | $ | 1.2 |
|
| Current installments of long-term debt | | $ | 0.1 |
| | $ | 1.2 |
|
| Accrued liabilities | | 1.2 |
| | 11.6 |
|
| Long-term debt | $ | 7.3 |
| | $ | 10.2 |
| — |
| | 0.4 |
|
| Other liabilities | | 28.5 |
| | — |
|
| Total derivative liability | $ | 7.3 |
| | $ | 10.2 |
| $ | 29.8 |
| | $ | 13.2 |
|
The ineffective portion of changes in fair value resulted in zero charged or credited to earnings for the years ended December 31, 2013, 20122016, 2015 and 2011.2014.
Our foreign currency forward contracts and certain commodity derivatives and our $125 million fixed and variable interest rate swaps did not meet the criteria to qualify for hedge accounting. The effect on operating results of items not qualifying for hedge accounting was a (benefit) charge of ($0.4 million), $2.0$11.5 million, $2.1 million and $1.7$1.4 million in 2013, 20122016, 2015 and 2011,2014, respectively.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Energy costs, including electricity used in our Chlor Alkali Products segment,and natural gas, and certain raw materials and energy costs, namely copper, lead, zinc, electricity and natural gas used primarily in our Winchester and Chemical Distribution segmentsproduction 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. As of December 31, 2013,2016, we maintained open positions on futurescommodity contracts with a notional value totaling $78.1$101.6 million ($114.263.6 million at December 31, 2012)2015). Assuming a hypothetical 10% increase in commodity prices, which are currently hedged, as of December 31, 2013,2016, we would experience a $7.8$10.2 million ($11.46.4 million at December 31, 2012)2015) increase in our cost of inventory purchased, which would be substantially offset by a corresponding increase in the value of related hedging instruments.
48We transact business in various foreign currencies other than the USD which exposes us to movements in exchange rates which may impact revenue and expenses, assets and liabilities and cash flows. Our significant foreign currency exposure is denominated with European currencies, primarily the Euro, although exposures also exist in other currencies of Asia Pacific, Latin America, Middle East and Africa. For all derivative positions, we evaluated the effects of a 10% shift in exchange rates between those currencies and the USD, holding all other assumptions constant. Unfavorable currency movements of 10% would negatively affect the fair values of the derivatives held to hedge currency exposures by $16.1 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.
We are exposed to changes in interest rates primarily as a result of our investing and financing activities. The effect of interest rates on investing activity is not material to our consolidated financial position, results of operations or cash flows. Our current debt structure is used to fund business operations, and commitments from banks under our senior revolving credit facility are a source of liquidity. As of December 31, 2013,2016, we had long-term borrowings, including current installments and capital lease obligations, of $691.0$3,617.6 million ($713.73,848.8 million at December 31, 2012)2015) of which $155.9$2,238.4 million ($155.92,305.9 million at December 31, 2012)2015) was issued at variable rates.
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.
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 also 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.
In June 2012, we terminated $73.1$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$2.2 million which will be recognized through 2017. As of December 31, 2013, $1.22016, $0.1 million of this gain was included in current installments of long-term debt.
In March 2012, Citibank terminated $7.7 million of interest rate swaps on our industrial revenue bonds due in 2017. The result was a gain of $0.2 million, which would have been recognized through 2017. In June 2012, the industrial revenue bonds were redeemed by us, and as a result, the remaining $0.2 million deferred gain was recognized in interest expense during 2012.
In March 2010, we entered into interest rate swaps on $125 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates. The counterparty to these agreements is Citibank. In October 2011, we entered into $125 million of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 2016 Notes. We have agreed to pay a fixed rate to a counterparty who, in turn, pays us variable rates. The counterparty to this agreement is also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which will be recognized through 2016. As of December 31, 2013, $6.1 million of this gain was included in long-term debt. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps do not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps are recorded currently in earnings.
In 2001 and 2002, we entered into interest rate swaps on $75 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In January 2009, we entered into a $75 million fixed interest rate swap with equal and opposite terms as the $75 million variable interest rate swaps on the 2011 Notes. We agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to this agreement was Bank of America. The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which was recognized through 2011. In January 2009, we de-designated our $75 million interest rate swaps that had previously been designated as fair value hedges. The $75 million variable interest rate swaps and the $75 million fixed interest rate swap did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.
Assuming no changes in the $155.9$2,238.4 million of variable-rate debt levels from December 31, 2013,2016, we estimate that a hypothetical change of 100-basis points in the LIBOR interest rates from 20132016 would impact annual interest expense by $1.6$22.4 million. A portion of this hypothetical change would be offset by our interest rate swaps.
The following table reflects the swap activity related to certain debt obligations:
|
| | | | | | | | | |
| Underlying Debt Instrument | | Swap Amount | | Date of Swap | | December 31, 2013 |
| | | ($ in millions) | | | | Olin Pays Floating Rate: |
| 6.75%, due 2016 | | $ | 65.0 |
| | March 2010 | | 3.5-4.5% | (a) |
| 6.75%, due 2016 | | $ | 60.0 |
| | March 2010 | | 3.5-4.5% | (a) |
| | | | | | | Olin Receives Floating Rate: |
| 6.75%, due 2016 | | $ | 65.0 |
| | October 2011 | | 3.5-4.5% | (a) |
| 6.75%, due 2016 | | $ | 60.0 |
| | October 2011 | | 3.5-4.5% | (a) |
| |
(a) | Actual rate is set in arrears. We project the rate will fall within the range shown. |
TheseOur interest rate swaps reduced interest expense by $3.7 million, $2.8 million and $2.9 million $3.4 millionin 2016, 2015 and $7.2 million in 2013, 2012 and 2011,2014, respectively.
If the actual changechanges in interestcommodities, foreign currency, or commoditiesinterest pricing is substantially different than expected, the net impact of interest ratecommodity risk, foreign currency risk, or commodityinterest rate risk on our cash flow may be materially different than that disclosed above.
We do not enter into any derivative financial instruments for speculative purposes.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS:
This report includes forward-looking statements. These statements relate to analyses and other information that are based on management’s beliefs, certain assumptions made by management, forecasts of future results and current expectations, estimates and projections about the markets and economy in which we and our various segments operate. The statements contained in this report that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.
We have used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “estimate,” “project,” “forecast,” “optimistic” and variations of such words and similar expressions in this report to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.
The risks, uncertainties, and assumptions involved in our forward-looking statements include those discussed under Item 1A—“Risk Factors.” You should consider all of our forward-looking statements in light of these factors. In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Olin Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Olin’s internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect all misstatements.
The management of Olin Corporation has assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2013.2016. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (1992)(2013) to guide our analysis and assessment. Based on our assessment as of December 31, 2013,2016, the company’s internal control over financial reporting was effective based on those criteria.
Our independent registered public accountants, KPMG LLP, have audited and issued a report on our internal control over financial reporting, which appears in this Form 10-K.
/s/ Joseph D. RuppJohn E. Fischer
Chairman, President and Chief Executive Officer
/s/ John E. FischerTodd A. Slater
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Olin Corporation:
We have audited the accompanying consolidated balance sheets of Olin Corporation and subsidiaries as of December 31, 20132016 and 2012,2015, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013.2016. We also have audited Olin Corporation’s internal control over financial reporting as of December 31, 2013,2016, based oncriteria established in Internal Control - Integrated Framework (1992),(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Olin Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control overOver Financial ReportingReporting. . Our responsibility is to express an opinion on these consolidated financial statements and an opinion on Olin Corporation’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Olin Corporation and subsidiaries as of December 31, 20132016 and 2012,2015, and the results of itstheir operations and itstheir cash flows for each of the years in the three-year period ended December 31, 2013,2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Olin Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013,2016, based on criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the COSO.Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
St. Louis, Missouri
February 24, 201427, 2017
CONSOLIDATED BALANCE SHEETS
December 31
(In millions, except per share data)
| | | Assets | 2013 | | 2012 | 2016 | | 2015 |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 307.8 |
| | $ | 165.2 |
| $ | 184.5 |
| | $ | 392.0 |
|
| Receivables, net: | | | | |
| Trade | 266.5 |
| | 279.2 |
| |
| Other | 13.6 |
| | 19.8 |
| |
| Receivables, net | | 675.0 |
| | 783.4 |
|
| Income taxes receivable | 1.9 |
| | 8.2 |
| 25.5 |
| | 32.9 |
|
| Inventories | 186.5 |
| | 195.1 |
| 630.4 |
| | 685.2 |
|
| Current deferred income taxes | 50.4 |
| | 61.3 |
| |
| Other current assets | 13.2 |
| | 20.3 |
| 30.8 |
| | 39.9 |
|
| Total current assets | 839.9 |
| | 749.1 |
| 1,546.2 |
| | 1,933.4 |
|
| Property, plant and equipment, net | 987.8 |
| | 1,034.3 |
| 3,704.9 |
| | 3,953.4 |
|
| Prepaid pension costs | 1.7 |
| | 2.1 |
| |
| Restricted cash | 4.2 |
| | 11.9 |
| |
| Deferred income taxes | 9.0 |
| | 9.1 |
| 119.5 |
| | 95.9 |
|
| Other assets | 213.1 |
| | 224.1 |
| 644.4 |
| | 454.6 |
|
| Intangible assets, net | | 629.6 |
| | 677.5 |
|
| Goodwill | 747.1 |
| | 747.1 |
| 2,118.0 |
| | 2,174.1 |
|
| Total assets | $ | 2,802.8 |
| | $ | 2,777.7 |
| $ | 8,762.6 |
| | $ | 9,288.9 |
|
| Liabilities and Shareholders’ Equity | | | | | | |
| Current liabilities: | | | | | | |
| Current installments of long-term debt | $ | 12.6 |
| | $ | 23.6 |
| $ | 80.5 |
| | $ | 205.0 |
|
| Accounts payable | 148.7 |
| | 174.3 |
| 570.8 |
| | 608.2 |
|
| Income taxes payable | 1.7 |
| | 7.6 |
| 7.5 |
| | 4.9 |
|
| Accrued liabilities | 244.5 |
| | 228.5 |
| 263.8 |
| | 328.1 |
|
| Total current liabilities | 407.5 |
| | 434.0 |
| 922.6 |
| | 1,146.2 |
|
| Long-term debt | 678.4 |
| | 690.1 |
| 3,537.1 |
| | 3,643.8 |
|
| Accrued pension liability | 115.4 |
| | 164.3 |
| 638.1 |
| | 648.9 |
|
| Deferred income taxes | 117.6 |
| | 110.4 |
| 1,032.5 |
| | 1,095.2 |
|
| Other liabilities | 382.8 |
| | 380.5 |
| 359.3 |
| | 336.0 |
|
| Total liabilities | 1,701.7 |
| | 1,779.3 |
| 6,489.6 |
| | 6,870.1 |
|
| Commitments and contingencies |
| |
| | | |
| Shareholders’ equity: | | | | | | |
| Common stock, par value $1 per share: | | | | | | |
| Authorized, 120.0 shares; | | | | |
| Issued and outstanding, 79.4 shares (80.2 in 2012) | 79.4 |
| | 80.2 |
| |
| Authorized, 240.0 shares; | | | | |
| Issued and outstanding, 165.4 shares (165.1 in 2015) | | 165.4 |
| | 165.1 |
|
| Additional paid-in capital | 838.8 |
| | 856.1 |
| 2,243.8 |
| | 2,236.4 |
|
| Accumulated other comprehensive loss | (365.1 | ) | | (371.3 | ) | (510.0 | ) | | (492.5 | ) |
| Retained earnings | 548.0 |
| | 433.4 |
| 373.8 |
| | 509.8 |
|
| Total shareholders’ equity | 1,101.1 |
| | 998.4 |
| 2,273.0 |
| | 2,418.8 |
|
| Total liabilities and shareholders’ equity | $ | 2,802.8 |
| | $ | 2,777.7 |
| $ | 8,762.6 |
| | $ | 9,288.9 |
|
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(In millions, except per share data)
| | | | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Sales | $ | 2,515.0 |
| | $ | 2,184.7 |
| | $ | 1,961.1 |
| $ | 5,550.6 |
| | $ | 2,854.4 |
| | $ | 2,241.2 |
|
| Operating expenses: | | | | | | | | | | |
| Cost of goods sold | 2,033.7 |
| | 1,748.0 |
| | 1,573.9 |
| 4,923.7 |
| | 2,486.8 |
| | 1,853.2 |
|
| Selling and administration | 190.0 |
| | 168.6 |
| | 160.6 |
| 323.2 |
| | 186.3 |
| | 166.1 |
|
| Restructuring charges | 5.5 |
| | 8.5 |
| | 10.7 |
| 112.9 |
| | 2.7 |
| | 15.7 |
|
| Acquisition costs | — |
| | 8.3 |
| | 0.8 |
| |
| Acquisition-related costs | | 48.8 |
| | 123.4 |
| | 4.2 |
|
| Other operating income | 0.7 |
| | 7.6 |
| | 8.8 |
| 10.6 |
| | 45.7 |
| | 1.5 |
|
| Operating income | 286.5 |
| | 258.9 |
| | 223.9 |
| 152.6 |
| | 100.9 |
| | 203.5 |
|
| Earnings of non-consolidated affiliates | 2.8 |
| | 3.0 |
| | 9.6 |
| 1.7 |
| | 1.7 |
| | 1.7 |
|
| Interest expense | 38.6 |
| | 26.4 |
| | 30.4 |
| 191.9 |
| | 97.0 |
| | 43.8 |
|
| Interest income | 0.6 |
| | 1.0 |
| | 1.2 |
| 3.4 |
| | 1.1 |
| | 1.3 |
|
| Other (expense) income | (1.3 | ) | | (11.3 | ) | | 175.1 |
| |
| Income before taxes | 250.0 |
| | 225.2 |
| | 379.4 |
| |
| Income tax provision | 71.4 |
| | 75.6 |
| | 137.7 |
| |
| Net income | $ | 178.6 |
| | $ | 149.6 |
| | $ | 241.7 |
| |
| Net income per common share: | | | | | | |
| Basic | $ | 2.24 |
| | $ | 1.87 |
| | $ | 3.02 |
| |
| Diluted | $ | 2.21 |
| | $ | 1.85 |
| | $ | 2.99 |
| |
| Income (loss) from continuing operations before taxes | | (34.2 | ) | | 6.7 |
| | 162.7 |
|
| Income tax (benefit) provision | | (30.3 | ) | | 8.1 |
| | 57.7 |
|
| Income (loss) from continuing operations | | (3.9 | ) | | (1.4 | ) | | 105.0 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.7 |
|
| Net (loss) income | | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.7 |
|
| Net (loss) income per common share: | | | | | | |
| Basic (loss) income per common share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.34 |
|
| Diluted (loss) income per common share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.32 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
| Average common shares outstanding: | | | | | | | | | | |
| Basic | 79.9 |
| | 80.1 |
| | 80.0 |
| 165.2 |
| | 103.4 |
| | 78.6 |
|
| Diluted | 80.9 |
| | 81.0 |
| | 80.8 |
| 165.2 |
| | 103.4 |
| | 79.7 |
|
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31
(In millions)
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Net income | $ | 178.6 |
| | $ | 149.6 |
| | $ | 241.7 |
|
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustments | (2.6 | ) | | 0.3 |
| | 1.4 |
|
| Unrealized (losses) gains on derivative contracts | (3.8 | ) | | 10.0 |
| | (16.9 | ) |
| Pension and postretirement liability adjustments, net | (7.7 | ) | | (101.9 | ) | | (29.0 | ) |
| Amortization of prior service costs and actuarial losses | 20.3 |
| | 14.5 |
| | 12.1 |
|
| Total other comprehensive income (loss), net of tax | 6.2 |
| | (77.1 | ) | | (32.4 | ) |
| Comprehensive income | $ | 184.8 |
| | $ | 72.5 |
| | $ | 209.3 |
|
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net (loss) income | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.7 |
|
| Other comprehensive loss, net of tax: | | | | | |
| Foreign currency translation adjustments, net | (12.0 | ) | | (9.8 | ) | | (1.8 | ) |
| Unrealized gains (losses) on derivative contracts, net | 19.7 |
| | (2.7 | ) | | (5.1 | ) |
| Pension and postretirement liability adjustments, net | (37.5 | ) | | (78.8 | ) | | (86.6 | ) |
| Amortization of prior service costs and actuarial losses, net | 12.3 |
| | 41.9 |
| | 15.5 |
|
| Total other comprehensive loss, net of tax | (17.5 | ) | | (49.4 | ) | | (78.0 | ) |
| Comprehensive (loss) income | $ | (21.4 | ) | | $ | (50.8 | ) | | $ | 27.7 |
|
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions, except per share data) | CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions, except per share data) | CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions, except per share data) |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Shareholders’ Equity | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Shareholders’ Equity |
Shares Issued | | Par Value | | Shares Issued | | Par Value | |
| Balance at January 1, 2011 | 79.6 |
| | $ | 79.6 |
| | $ | 842.3 |
| | $ | (261.8 | ) | | $ | 170.2 |
| | $ | 830.3 |
| |
| Balance at January 1, 2014 | | 79.4 |
| | $ | 79.4 |
| | $ | 838.8 |
| | $ | (365.1 | ) | | $ | 548.0 |
| | $ | 1,101.1 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 241.7 |
| | 241.7 |
| — |
| | — |
| | — |
| | — |
| | 105.7 |
| | 105.7 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | (32.4 | ) | | — |
| | (32.4 | ) | — |
| | — |
| | — |
| | (78.0 | ) | | — |
| | (78.0 | ) |
| Dividends paid: | | | | | | | | | | | | | | | | | | | | | | |
| Common stock ($0.80 per share) | — |
| | — |
| | — |
| | — |
| | (64.0 | ) | | (64.0 | ) | — |
| | — |
| | — |
| | — |
| | (63.0 | ) | | (63.0 | ) |
| Common stock repurchased and retired | (0.2 | ) | | (0.2 | ) | | (4.0 | ) | | — |
| | — |
| | (4.2 | ) | (2.5 | ) | | (2.5 | ) | | (62.3 | ) | | — |
| | — |
| | (64.8 | ) |
| Common stock issued for: | | | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | 0.5 |
| | 0.5 |
| | 8.8 |
| | — |
| | — |
| | 9.3 |
| 0.5 |
| | 0.5 |
| | 11.6 |
| | — |
| | — |
| | 12.1 |
|
| Other transactions | 0.2 |
| | 0.2 |
| | 3.6 |
| | — |
| | — |
| | 3.8 |
| — |
| | — |
| | (1.4 | ) | | — |
| | — |
| | (1.4 | ) |
| Stock-based compensation | — |
| | — |
| | 1.3 |
| | — |
| | — |
| | 1.3 |
| — |
| | — |
| | 1.6 |
| | — |
| | — |
| | 1.6 |
|
| Balance at December 31, 2011 | 80.1 |
| | 80.1 |
| | 852.0 |
| | (294.2 | ) | | 347.9 |
| | 985.8 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | 149.6 |
| | 149.6 |
| |
| Balance at December 31, 2014 | | 77.4 |
| | 77.4 |
| | 788.3 |
| | (443.1 | ) | | 590.7 |
| | 1,013.3 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | (1.4 | ) | | (1.4 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | (77.1 | ) | | — |
| | (77.1 | ) | — |
| | — |
| | — |
| | (49.4 | ) | | — |
| | (49.4 | ) |
| Dividends paid: | | | | | | | | | | | | | | | | | | | | | | |
| Common stock ($0.80 per share) | — |
| | — |
| | — |
| | — |
| | (64.1 | ) | | (64.1 | ) | — |
| | — |
| | — |
| | — |
| | (79.5 | ) | | (79.5 | ) |
| Common stock repurchased and retired | (0.2 | ) | | (0.2 | ) | | (2.9 | ) | | — |
| | — |
| | (3.1 | ) | |
| Common stock issued for: | | | | | | | | | | | | |
| Stock options exercised | | 0.1 |
| | 0.1 |
| | 3.0 |
| | — |
| | — |
| | 3.1 |
|
| Other transactions | | 0.1 |
| | 0.1 |
| | 2.2 |
| | — |
| | — |
| | 2.3 |
|
| Business acquired in purchase transaction, net of issuance costs | | 87.5 |
| | 87.5 |
| | 1,438.0 |
| | — |
| | — |
| | 1,525.5 |
|
| Stock-based compensation | | — |
| | — |
| | 4.9 |
| | — |
| | — |
| | 4.9 |
|
| Balance at December 31, 2015 | | 165.1 |
| | 165.1 |
| | 2,236.4 |
| | (492.5 | ) | | 509.8 |
| | 2,418.8 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | (3.9 | ) | | (3.9 | ) |
| Other comprehensive loss | | — |
| | — |
| | — |
| | (17.5 | ) | | — |
| | (17.5 | ) |
| Dividends paid: | | | | | | | | | | | | |
| Common stock ($0.80 per share) | | — |
| | — |
| | — |
| | — |
| | (132.1 | ) | | (132.1 | ) |
| Common stock issued for: | | | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | 0.1 |
| | 0.1 |
| | 1.3 |
| | — |
| | — |
| | 1.4 |
| 0.3 |
| | 0.3 |
| | 3.8 |
| | — |
| | — |
| | 4.1 |
|
| Other transactions | 0.2 |
| | 0.2 |
| | 2.4 |
| | — |
| | — |
| | 2.6 |
| — |
| | — |
| | (0.8 | ) | | — |
| | — |
| | (0.8 | ) |
| Stock-based compensation | — |
| | — |
| | 3.3 |
| | — |
| | — |
| | 3.3 |
| — |
| | — |
| | 4.4 |
| | — |
| | — |
| | 4.4 |
|
| Balance at December 31, 2012 | 80.2 |
| | 80.2 |
| | 856.1 |
| | (371.3 | ) | | 433.4 |
| | 998.4 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | 178.6 |
| | 178.6 |
| |
| Other comprehensive income | — |
| | — |
| | — |
| | 6.2 |
| | — |
| | 6.2 |
| |
| Dividends paid: | | | | | | | | | | | | |
| Common stock ($0.80 per share) | — |
| | — |
| | — |
| | — |
| | (64.0 | ) | | (64.0 | ) | |
| Common stock repurchased and retired | (1.5 | ) | | (1.5 | ) | | (34.7 | ) | | — |
| | — |
| | (36.2 | ) | |
| Common stock issued for: | | | | | | | | | | | | |
| Stock options exercised | 0.5 |
| | 0.5 |
| | 9.2 |
| | — |
| | — |
| | 9.7 |
| |
| Other transactions | 0.2 |
| | 0.2 |
| | 3.0 |
| | — |
| | — |
| | 3.2 |
| |
| Stock-based compensation | — |
| | — |
| | 5.2 |
| | — |
| | — |
| | 5.2 |
| |
| Balance at December 31, 2013 | 79.4 |
| | $ | 79.4 |
| | $ | 838.8 |
| | $ | (365.1 | ) | | $ | 548.0 |
| | $ | 1,101.1 |
| |
| Balance at December 31, 2016 | | 165.4 |
| | $ | 165.4 |
| | $ | 2,243.8 |
| | $ | (510.0 | ) | | $ | 373.8 |
| | $ | 2,273.0 |
|
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (In millions) | CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (In millions) | CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (In millions) |
| | | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Operating Activities | | | | | | | | | | |
| Net income | $ | 178.6 |
| | $ | 149.6 |
| | $ | 241.7 |
| |
| Adjustments to reconcile net income to net cash and cash equivalents provided by (used for) operating activities: | | | | | | |
| Gain on remeasurement of investment in SunBelt | — |
| | — |
| | (181.4 | ) | |
| Net (loss) income | | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.7 |
|
| Adjustments to reconcile net (loss) income to net cash and cash equivalents provided by (used for) operating activities: | | | | | | |
| Earnings of non-consolidated affiliates | (2.8 | ) | | (3.0 | ) | | (9.6 | ) | (1.7 | ) | | (1.7 | ) | | (1.7 | ) |
| Gain on disposition of non-consolidated affiliate | (6.5 | ) | | — |
| | — |
| |
| Gains on disposition of property, plant and equipment | (0.4 | ) | | (2.1 | ) | | (6.2 | ) | |
| Losses (gains) on disposition of property, plant and equipment | | 0.7 |
| | (25.2 | ) | | (1.1 | ) |
| Stock-based compensation | 8.8 |
| | 6.2 |
| | 5.8 |
| 7.5 |
| | 7.6 |
| | 5.1 |
|
| Depreciation and amortization | 135.3 |
| | 110.9 |
| | 99.3 |
| 533.5 |
| | 228.9 |
| | 139.1 |
|
| Deferred taxes | 12.4 |
| | 42.5 |
| | 92.6 |
| |
| Deferred income taxes | | (32.7 | ) | | 5.6 |
| | 31.0 |
|
| Write-off of equipment and facility included in restructuring charges | | 76.6 |
| | 0.5 |
| | 3.3 |
|
| Qualified pension plan contributions | (1.0 | ) | | (0.9 | ) | | (0.9 | ) | (7.3 | ) | | (0.9 | ) | | (0.8 | ) |
| Qualified pension plan income | (24.1 | ) | | (24.8 | ) | | (26.4 | ) | (37.5 | ) | | (32.0 | ) | | (28.5 | ) |
| Change in assets and liabilities: | | | | | | | | | | |
| Receivables | 18.9 |
| | 1.2 |
| | (26.2 | ) | 38.5 |
| | (115.1 | ) | | 25.8 |
|
| Income taxes receivable/payable | 0.4 |
| | 0.1 |
| | 5.0 |
| 10.7 |
| | (12.6 | ) | | (27.8 | ) |
| Inventories | 8.6 |
| | 17.9 |
| | (17.0 | ) | 23.9 |
| | (1.7 | ) | | (23.6 | ) |
| Other current assets | 0.7 |
| | (0.1 | ) | | 0.6 |
| 20.9 |
| | (30.6 | ) | | 1.7 |
|
| Accounts payable and accrued liabilities | 1.0 |
| | (0.7 | ) | | 15.6 |
| (13.1 | ) | | 185.1 |
| | (38.5 | ) |
| Other assets | 1.3 |
| | 0.3 |
| | (0.2 | ) | (4.3 | ) | | 37.6 |
| | 5.2 |
|
| Other noncurrent liabilities | (14.5 | ) | | (17.9 | ) | | 25.6 |
| (12.1 | ) | | (32.5 | ) | | (33.2 | ) |
| Other operating activities | 0.3 |
| | — |
| | (2.4 | ) | 3.5 |
| | 5.5 |
| | (2.5 | ) |
| Net operating activities | 317.0 |
| | 279.2 |
| | 215.9 |
| 603.2 |
| | 217.1 |
| | 159.2 |
|
| Investing Activities | | | | | | | | | | |
| Capital expenditures | (90.8 | ) | | (255.7 | ) | | (200.9 | ) | (278.0 | ) | | (130.9 | ) | | (71.8 | ) |
| Business acquired in purchase transaction, net of cash acquired | — |
| | (310.4 | ) | | (123.4 | ) | |
| Business acquired and related transactions, net of cash acquired | | (69.5 | ) | | (408.1 | ) | | — |
|
| Payments under long-term supply contract | | (175.7 | ) | | — |
| | — |
|
| Proceeds from sale/leaseback of equipment | 35.8 |
| | 4.4 |
| | 3.2 |
| 40.4 |
| | — |
| | — |
|
| Proceeds from disposition of property, plant and equipment | 4.6 |
| | 8.6 |
| | 7.9 |
| 0.5 |
| | 26.2 |
| | 5.6 |
|
| Distributions from affiliated companies, net | 1.5 |
| | 1.3 |
| | 1.9 |
| |
| Proceeds from disposition of investments in non-consolidated equity affiliate | | 8.8 |
| | 8.8 |
| | — |
|
| Restricted cash activity, net | 7.7 |
| | 39.8 |
| | 50.3 |
| — |
| | — |
| | 4.2 |
|
| Other investing activities | (2.6 | ) | | (0.4 | ) | | 1.4 |
| — |
| | — |
| | 0.3 |
|
| Net investing activities | (43.8 | ) | | (512.4 | ) | | (259.6 | ) | (473.5 | ) | | (504.0 | ) | | (61.7 | ) |
| Financing Activities | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | |
| Borrowings | — |
| | 200.0 |
| | 36.0 |
| 230.0 |
| | 1,275.0 |
| | 150.0 |
|
| Repayments | (23.7 | ) | | (19.9 | ) | | (87.2 | ) | (435.3 | ) | | (730.7 | ) | | (162.4 | ) |
| Earn out payment - SunBelt | (17.1 | ) | | (15.3 | ) | | — |
| — |
| | — |
| | (14.8 | ) |
| Common stock repurchased and retired | (36.2 | ) | | (3.1 | ) | | (4.2 | ) | — |
| | — |
| | (64.8 | ) |
| Stock options exercised | 8.8 |
| | 1.3 |
| | 8.3 |
| 0.5 |
| | 2.2 |
| | 6.6 |
|
| Excess tax benefits from stock-based compensation | 1.6 |
| | 0.7 |
| | 1.0 |
| 0.4 |
| | 0.4 |
| | 1.1 |
|
| Dividends paid | (64.0 | ) | | (64.1 | ) | | (64.0 | ) | (132.1 | ) | | (79.5 | ) | | (63.0 | ) |
| Deferred debt issuance costs | — |
| | (6.0 | ) | | — |
| |
| Debt and equity issuance costs | | (1.0 | ) | | (45.2 | ) | | (1.2 | ) |
| Net financing activities | (130.6 | ) | | 93.6 |
| | (110.1 | ) | (337.5 | ) | | 422.2 |
| | (148.5 | ) |
| Net increase (decrease) in cash and cash equivalents | 142.6 |
| | (139.6 | ) | | (153.8 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | | 0.3 |
| | (0.1 | ) | | — |
|
| Net (decrease) increase in cash and cash equivalents | | (207.5 | ) | | 135.2 |
| | (51.0 | ) |
| Cash and cash equivalents, beginning of year | 165.2 |
| | 304.8 |
| | 458.6 |
| 392.0 |
| | 256.8 |
| | 307.8 |
|
| Cash and cash equivalents, end of year | $ | 307.8 |
| | $ | 165.2 |
| | $ | 304.8 |
| $ | 184.5 |
| | $ | 392.0 |
| | $ | 256.8 |
|
| Cash paid for interest and income taxes: | | | | | | | | | | |
| Interest | $ | 37.2 |
| | $ | 27.5 |
| | $ | 28.4 |
| $ | 200.8 |
| | $ | 32.3 |
| | $ | 36.8 |
|
| Income taxes, net of refunds | $ | 61.3 |
| | $ | 28.4 |
| | $ | 41.5 |
| $ | (2.6 | ) | | $ | 5.3 |
| | $ | 49.0 |
|
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892.1892, having its principal executive offices in Clayton, MO. We are a manufacturer concentrated in three business segments: Chlor Alkali Products Chemical Distributionand Vinyls, Epoxy and Winchester. The Chlor Alkali Products with nine U.S. manufacturing facilities and one Canadian manufacturing facility, producesVinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. Chemical Distribution, with twenty-six owned and leased terminal facilities, manufactures bleach products and distributes caustic soda, bleach products, potassium hydroxide and hydrochloric acid. Winchester, with its principal manufacturing facilities in East Alton, IL and Oxford, MS,The Epoxy segment produces and distributessells 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, law enforcement ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
On August 22, 2012,October 5, 2015 (the Closing Date), we acquired 100% of privately-held KA Steel,from The Dow Chemical Company (TDCC) 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 date of the acquisition.Closing Date. For segment reporting purposes, KA Steel comprisesa portion of the Acquired Business’s operating results comprise the Epoxy segment with the remaining operating results combined with Olin’s Chlor Alkali Products and Chemical Distribution segment. KA Steel is one ofsegments to comprise the largest distributors of caustic soda in North AmericaChlor Alkali Products and manufactures and sells bleach in the Midwest.Vinyls segment.
On February 28, 2011, we acquired PolyOne’s 50% interest in the SunBelt Chlor Alkali Partnership, which we refer to as SunBelt. The SunBelt chlor alkali plant, which is located within our McIntosh, AL facility, has approximately 350,000 tons of membrane technology capacity. Previously, we had a 50% ownership interest in SunBelt, which was accounted for using the equity method of accounting. Accordingly, prior to the acquisition, we included only our share of SunBelt results in earnings of non-consolidated affiliates. Since the date of acquisition, SunBelt’s results are no longer included in earnings of non-consolidated affiliates but are consolidated in our accompanying financial statements.
ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Olin Corporation and all majority-owned subsidiaries. Investment in our affiliates are accounted for on the equity method. Accordingly, we include only our share of earnings or losses of these affiliates in consolidated net (loss) income. Certain reclassifications were made to prior year amounts to conform to the 20132016 presentation.
Revenue Recognition
Revenues are recognized on sales of product at the time the goods are shipped and the risks of ownership have passed to the customer. Shipping and handling fees billed to customers are included in sales. Allowances for estimated returns, discounts and rebates are recognized when sales are recorded and are based on various market data, historical trends and information from customers. Actual returns, discounts and rebates have not been materially different from estimates.
Cost of Goods Sold and Selling and Administration Expenses
Cost of goods sold includes the costs of inventory sold, related purchasing, distribution and warehousing costs, costs incurred for shipping and handling, depreciation and amortization expense related to these activities and environmental remediation costs and recoveries. Selling and administration expenses include personnel costs associated with sales, marketing and administration, research and development, legal and legal-related costs, consulting and professional services fees, advertising expenses, depreciation expense related to these activities, foreign currency translation and other similar costs.
Acquisition-related Costs
Acquisition-related costs include advisory, legal, accounting and other professional fees incurred in connection with the purchase and integration of our acquisitions. Acquisition-related costs also may include costs which arise as a result of acquisitions, including contractual change in control provisions, contract termination costs, compensation payments related to the acquisition or pension and other postretirement benefit plan settlements. Acquisition-related costs for the years ended December 31, 2016, 2015 and 2014 of $48.8 million, $123.4 million and $4.2 million, respectively, were associated with the Acquisition.
Other Operating Income
Other operating income consists of miscellaneous operating income items, which are related to our business activities, and gains (losses) on disposition of property, plant and equipment.
Included in other operating income were the following:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | ($ in millions) |
| (Losses) gains on disposition of property, plant and equipment, net | $ | (1.1 | ) | | $ | 2.1 |
| | $ | 1.4 |
|
| Amortization of 2007 gain on intangible asset sale (recognized through 2012) | — |
| | 0.3 |
| | 1.2 |
|
| Gains on sale of land | — |
| | — |
| | 0.3 |
|
| Gains on dispositions of former manufacturing facilities | 1.5 |
| | — |
| | 3.7 |
|
| Gains on insurance recoveries | — |
| | 4.9 |
| | 1.9 |
|
| Other | 0.3 |
| | 0.3 |
| | 0.3 |
|
| Other operating income | $ | 0.7 |
| | $ | 7.6 |
| | $ | 8.8 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | ($ in millions) |
| Gains (losses) on disposition of property, plant and equipment, net | $ | (0.7 | ) | | $ | (0.6 | ) | | $ | 0.2 |
|
| Gains on insurance recoveries | 11.0 |
| | 46.0 |
| | — |
|
| Gain on resolution of a contract matter | — |
| | — |
| | 1.0 |
|
| Other | 0.3 |
| | 0.3 |
| | 0.3 |
|
| Other operating income | $ | 10.6 |
| | $ | 45.7 |
| | $ | 1.5 |
|
The gains on disposition of property, plant and equipment in 2012 and 2011 were primarily associated with the Charleston, TN conversion project, which was completed in the second half of 2012. The gain on insurance recoveries in 2012 was associated with business interruption related to an outage of one of our Chlor Alkali customers in the first half of 2012. The gains on insurance recoveries in 20112016 included insurance recoveries for property damage and business interruption related to our Oxford, MSa 2008 Henderson, NV chlor alkali facility incident. The gains on insurance recoveries in 2015 included insurance recoveries for property damage and St. Gabriel, LA facilities.business interruption of $42.3 million related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and $3.7 million related to the McIntosh, AL chlor alkali facility.
Other Income (Expense) Income
Other (expense) income consists of non-operating income items which are not related to our primary business activities. Other (expense) income in 2013, 2012 and 2011 included $7.9 million, $11.5 million and $6.7 million, respectively, of expense for our earn out liability from the SunBelt acquisition. Other (expense) income in 2013 also included a gain of $6.5 million on the sale of our equity interest in a bleach joint venture. Other (expense) income in 2011 also included a pretax gain of $181.4 million as a result of remeasuring our previously held 50% equity interest in SunBelt.
Foreign Currency Translation
TheOur worldwide operations utilize the U.S. dollar (USD) or local currency as the functional currency, for our Canadian subsidiarieswhere applicable. For foreign entities where the USD is the U.S. dollar; accordingly,functional currency, gains and losses resulting from balance sheet translations are included in selling and administration. OtherFor foreign affiliates’ balance sheet amountsentities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at theend-of-period exchange rates in effect at year-end, and operations statement amounts are translated at the average rates of exchange prevailing during the year. Translationresultant translation adjustments are included in accumulated other comprehensive loss. Assets and liabilities denominated in other than the local currency are remeasured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD using an approximation of the average rate prevailing during the period. We change the functional currency of our separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Cash and Cash Equivalents
All highly liquid investments, with a maturity of three months or less at the date of purchase, are considered to be cash equivalents.
Short-Term Investments
We classify our marketable securities as available-for-sale, which are reported at fair market value with unrealized gains and losses included in accumulated other comprehensive loss, net of applicable taxes. The fair value of marketable securities is determined by quoted market prices. Realized gains and losses on sales of investments, as determined on the specific identification method, and declines in value of securities judged to be other-than-temporary are included in other income (expense) income in the consolidated statements of operations. Interest and dividends on all securities are included in interest income and other (expense) income (expense), respectively. As of December 31, 2016 and 2015, we had no short-term investments recorded on our consolidated balance sheets.
Allowance for Doubtful Accounts Receivable
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.
Inventories
Inventories are valued at the lower of cost or market. The Chlor Alkali Products and Winchester segmentsFor U.S. inventories, inventory costs are determined principally by the dollar value last-in, first-out (LIFO) method of inventory accounting. The Chemical Distribution segmentaccounting 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 include raw materials, direct labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are capitalized as part of the historical cost and included in property, plant and equipment and are depreciated over the useful lives of the related assets. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Start-up costs are expensed as incurred. Expenditures for maintenance and repairs are charged to expense when incurred while the costs of significant improvements, which extend the useful life of the underlying asset, are capitalized.
Property, plant and equipment are reviewed for impairment when conditions indicate that the carrying values of the assets may not be recoverable. Such impairment conditions include an extended period of idleness or a plan of disposal. If such impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. For our Chlor Alkali Products and Vinyls, Epoxy and Winchester segments, the lowest level for which identifiable cash flows exist is the operating facility level or an appropriate grouping of operating facilities level. The amount of impairment loss, if any, is measured by the difference between the net book value of the assets and the estimated fair value of the related assets.
Restricted Cash
Restricted cash, which is restricted as to withdrawal or usage, is classified separately from cash and cash equivalents on our consolidated balance sheet. A portion of the proceeds of the bonds issued by Alabama, Mississippi and Tennessee, along with their accrued interest income, were required to remain with a trustee and were classified on our consolidated balance sheet as a noncurrent asset until such time as we request reimbursement of qualifying amounts used to fund capital projects in Alabama, Mississippiseparately from cash and Tennessee. As of December 31, 2013, there remained a $4.2 million restricted cash balance that is required to be used to fund capital projects in Mississippi.equivalents.
Asset Retirement Obligations
We record the fair value of an asset retirement obligation associated with the retirement of a tangible long-lived asset as a liability in the period incurred. The liability is measured at discounted fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s useful life. Asset retirement obligations are reviewed annually in the fourth quarter and/or when circumstances or other events indicate that changes underlying retirement assumptions may have occurred.
The activity of our asset retirement obligation was as follows:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Beginning balance | $ | 67.8 |
| | $ | 67.9 |
| $ | 53.5 |
| | $ | 54.4 |
|
| Accretion | 3.3 |
| | 4.8 |
| 3.1 |
| | 3.6 |
|
| Spending | (11.3 | ) | | (8.0 | ) | (8.8 | ) | | (8.2 | ) |
| Currency translation adjustments | (0.6 | ) | | 0.2 |
| 0.2 |
| | (1.1 | ) |
| KA Steel acquisition | — |
| | 0.4 |
| |
| Acquisition activity | | — |
| | 1.7 |
|
| Adjustments | 1.6 |
| | 2.5 |
| 7.4 |
| | 3.1 |
|
| Ending balance | $ | 60.8 |
| | $ | 67.8 |
| $ | 55.4 |
| | $ | 53.5 |
|
At December 31, 20132016 and 2012,2015, our consolidated balance sheets included an asset retirement obligation of $47.3$42.8 million and $46.5$46.2 million,, respectively, which were classified as other noncurrent liabilities.
In 2013,2016, we had net adjustments that increased the asset retirement obligation by $1.6$7.4 million, which were primarily comprised of increases in estimated costs for certain assets. In 2015, we had net adjustments that increased the asset retirement obligation by $3.1 million, which were primarily due to changes in the estimated timing of payments for certain assets. In 2012, we had net adjustments that increased the asset retirement obligation by $2.5 million, which were primarily comprised of increases in estimated costs for certain assets.
Comprehensive Income (Loss)
Accumulated other comprehensive loss consists of foreign currency translation adjustments, pension and postretirement liability adjustments, pension and postretirement amortization of prior service costs and actuarial losses and net unrealized (losses) gains on derivative contracts. We do not provide for U.S. income taxes on foreign currency translation adjustments since we do not provide for such taxes on undistributed earnings for foreign subsidiaries that have been permanently reinvested.
Goodwill
Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. On January 1, 2012, we adopted ASU 2011-08 whichAccounting Standards Codification (ASC) 350 “Intangibles—Goodwill and Other” permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. Circumstances that are considered as part of the qualitative assessment and could trigger the two-step impairment test include, but are not limited to: a significant adverse change in the business climate; a significant adverse legal judgment; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a reporting unit. We define reporting units at the business segment level or one level below the business segment which for our Chlor Alkali Products segment are the U.S. operations and Canadian operations.level. For purposes of testing goodwill for impairment, goodwill has been allocated to theseour reporting units to the extent it relates to each reporting unit. Based upon
It is our qualitative assessment, it is more likely than not thatpractice, at a minimum, to perform a quantitative goodwill impairment test in the fair valuefourth quarter every three years. In the fourth quarter of 2016, we performed a quantitative goodwill impairment test for our reporting units are greater than their carrying amounts as of December 31, 2013. No impairment charges were recorded for 2013, 2012 or 2011.
In 2011, prior to the adoption of ASU 2011-08, we usedunits. We use a discounted cash flow approach to develop the estimated fair value of a reporting unit.unit when a quantitative test is performed. Management judgment wasis required in developing the assumptions for the discounted cash flow model. We also corroboratedcorroborate our discounted cash flow analysis by evaluating a market-based approach that considers EBITDA earnings before interest, taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies incompanies. As a further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the chemical industry.aggregate fair value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying amount exceeded the estimated fair value. Based on the aforementioned analysis, the estimated fair value of our reporting units substantially exceeded the carrying value of the reporting units. No impairment charges were recorded for 2016, 2015 or 2014.
The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of ourthe chlor alkali businessindustry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of each reporting unit. The discount rate reflectedreflects a weighted-average cost of capital, which wasis calculated based on observable market data. Some of thesethis data (such as the risk free or treasury rate and the pretax cost of debt) wereare based on the market data at a point in time. Other data (such as the equity risk premium) wereare based upon market data over time for a peer group of companies in the chemical manufacturing industryor distribution industries with a market capitalization premium added, as applicable.
The discounted cash flow analysis requiredrequires estimates, assumptions and judgments about future events. Our analysis useduses our internally generated long-range plan. Our discounted cash flow analysis useduses the assumptions in our long-range plan about terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the implied fair value of each reporting unit. The long-range plan reflects management judgment, supplemented by independent chemical industry analyses which provide multi-year chlor alkali industry operating and pricing forecasts.
GivenWe believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing will prove to be an accurate prediction of the future. In order to evaluate the sensitivity of the fair value calculation on the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit. We also applied a hypothetical decrease of 100-basis points in our terminal growth rate or an increase of 100-basis points in our weighted-average cost of capital to test the fair value calculation. In all cases, the estimated fair value of our reporting units derived in these sensitivity calculations exceeded the carrying value in excess of 10%. If our assumptions regarding future performance are not achieved, we may be required to record goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Changes in the carrying value of goodwill were as follows:
|
| | | | | | | | | | | | |
| | | Chlor Alkali Products | | Chemical Distribution | | Total |
| | | ($ in millions) |
| Balance at January 1, 2012 | | $ | 627.4 |
| | $ | — |
| | $ | 627.4 |
|
| Acquisition activity | | — |
| | 119.7 |
| | 119.7 |
|
| Balance at December 31, 2012 | | 627.4 |
| | 119.7 |
| | 747.1 |
|
| Acquisition activity | | — |
| | — |
| | — |
|
| Balance at December 31, 2013 | | $ | 627.4 |
| | $ | 119.7 |
| | $ | 747.1 |
|
OtherIntangible Assets
Included inIn conjunction with our acquisitions, we have obtained access to the customer contracts and relationships, trade names, acquired technology and other intellectual property of the acquired companies. These relationships are expected to provide economic benefit for future periods. Amortization expense is recognized on a straight-line basis over the estimated lives of the related assets. The amortization period of customer contracts and relationships, trade names, acquired technology and other intellectual property represents our best estimate of the expected usage or consumption of the economic benefits of the acquired assets, werewhich is based on the following:
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | ($ in millions) |
| Investments in non-consolidated affiliates | $ | 21.6 |
| | $ | 29.3 |
|
| Intangible assets (less accumulated amortization of $28.0 million and $13.4 million, respectively) | 138.1 |
| | 152.7 |
|
| Deferred debt issuance costs | 14.4 |
| | 17.5 |
|
| Interest rate swaps | 5.9 |
| | 8.3 |
|
| Other | 33.1 |
| | 16.3 |
|
| Other assets | $ | 213.1 |
| | $ | 224.1 |
|
Intangible assets consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | | | 2013 | | 2012 |
| | Useful Lives | | Gross Amount | | Accumulated Amortization | | Net | | Gross Amount | | Accumulated Amortization | | Net |
| | | | ($ in millions) |
| Customers, customer contracts and relationships | (10-15 years) | | $ | 152.9 |
| | $ | (26.6 | ) | | $ | 126.3 |
| | $ | 152.9 |
| | $ | (12.2 | ) | | $ | 140.7 |
|
| KA Steel trade name | (indefinite) | | 10.9 |
| | — |
| | 10.9 |
| | 10.9 |
| | — |
| | 10.9 |
|
| Other | (4-10 years) | | 2.3 |
| | (1.4 | ) | | 0.9 |
| | 2.3 |
| | (1.2 | ) | | 1.1 |
|
| Total intangible assets | | | $ | 166.1 |
| | $ | (28.0 | ) | | $ | 138.1 |
| | $ | 166.1 |
| | $ | (13.4 | ) | | $ | 152.7 |
|
The August 22, 2012 valuation of identifiable intangible assets that were obtained from the KA Steel acquisition included $128.0 million associated with customers, customer contracts and relationships and are being amortized over ten years on a straight-line basis, $10.9 million associated with the KA Steel trade name, which management estimates to have an indefinite useful life, and $0.4 million associated with a favorable lease agreement that will be amortized over the remaining lease term (approximately four years) on a straight line basis. The February 28, 2011 valuation of identifiable intangible assets that were obtained from the SunBelt acquisition included $5.8 million associated with customers, customer contracts and relationships and are being amortized over fifteen years on a straight-line basis. The identifiable intangible assets obtained from the Pioneer acquisition included $19.0 million associated with customers, customer contracts and relationships and are being amortized over fifteen years on a straight-line basis and $1.2 million associated with internally developed and purchased software and was amortized over five years on a straight-line basis. Amortization expense was $14.6 million in 2013, $6.5 million in 2012 and $1.9 million in 2011. We estimate that amortization expense will be approximately $14.6 million in each of the next three years and approximately $14.5 million in both 2017 and 2018. Intangible assetsfinite lives are reviewed for impairment annually in the fourth quarter and/or when circumstances or other eventsconditions indicate that impairmentthe carrying values of the assets may have occurred.
During 2012, we adopted ASU 2012-02 which permits entities to make a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount before performing a quantitative impairment test.be recoverable. Circumstances that are considered as part of the qualitative assessment and could trigger a quantitative impairment test include, but are not limited to: a significant adverse change in the business climate; a significant adverse legal judgment including asset specific factors; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair value of our indefinite-lived intangible asset isassets are greater than itsthe carrying amount as of December 31, 2013.2016. No impairment of our intangible assets were recorded in 2013, 20122016, 2015 or 2011.2014.
Environmental Liabilities and Expenditures
Accruals (charges to income) for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessment and remediation efforts progress or additional technical or legal information becomes available. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations.
Discontinued Operations
We present the results of operations, financial position and cash flows that have either been sold or that meet the criteria for “held for sale” accounting as discontinued operations. At the time an operation qualifies for held for sale accounting, the operation is evaluated to determine whether or not the carrying value exceeds its fair value less cost to sell. Any loss as a result of carrying value in excess of fair value less cost to sell is recorded in the period the operation meets held for sale accounting. Management judgment is required to assess the criteria required to meet held for sale accounting, and estimate fair value. Changes to the operation could cause it to no longer qualify for held for sale accounting and changes to fair value or adjustments to amounts previously reported as discontinued operations could result in an increase or decrease to previously recognized losses.
Income Taxes
Deferred taxes are provided for differences between the financial statement and tax basesbasis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to
offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the value of the deferred tax assets will not be realized.
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. We use hedge accounting treatment for substantially all of our business transactions whose risks are covered using derivative instruments. The hedge accounting treatment provides for the deferral of gains or losses on derivative instruments until such time as the related transactions occur.
Concentration of Credit Risk
Accounts receivable is the principal financial instrument which subjects us to a concentration of credit risk. Credit is extended based upon the evaluation of a customer’s financial condition and, generally, collateral is not required. Concentrations of credit risk with respect to receivables are somewhat limited due to our large number of customers, the diversity of these customers’ businesses and the geographic dispersion of such customers. The majority of ourOur accounts receivable are predominantly derived from sales denominated in U.S. dollars.USD or the Euro. We maintain an allowance for doubtful accounts based upon the expected collectibility of all trade receivables.
Fair Value
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 consolidated 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 Measurement” (ASC 820), and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, 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 instrument’s 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.
Retirement-Related Benefits
We account for our defined benefit pension plans and non-pension postretirement benefit plans using actuarial models required by ASC 715.715 “Compensation-Retirement Benefits” (ASC 715). These models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as actuarial gains or losses. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern. Substantially all domestic defined benefit pension plan participants are no longer accruing benefits; therefore, actuarial gains and losses are amortized based upon the remaining life expectancy of the inactive plan participants. For both the years
ended December 31, 20132016 and 2012,2015, the average remaining life expectancy of the inactive participants in the domestic defined benefit pension plan was 1819 years.
One of the key assumptions for the net periodic pension calculation is the expected long-term rate of return on plan assets, used to determine the “market-related value of assets.” The “market-related value of assets” recognizes differences between the plan’s actual return and expected return over a five year period. The required use of an expected long-term rate of return on the market-related value of plan assets may result in a recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and, therefore, result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. As differences between actual and expected returns are recognized over five years, they subsequently generate gains and losses that are subject to amortization over the average remaining life expectancy of the inactive plan participants, as described in the preceding paragraph.
We use long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns and inflation by reference to external sources to develop the expected long-term rate of return on plan assets as of December 31.
The discount rate assumptions used for pension and non-pension postretirement benefit plan accounting reflect the rates available on high-quality fixed-income debt instruments on December 31 of each year. The rate of compensation increase is based upon our long-term plans for such increases. For retiree medical plan accounting, we review external data and our own historical trends for healthcare costs to determine the healthcare cost trend rates.
Stock-Based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments, such as stock options, performance shares and restricted stock, based on the grant-date fair value of the award. This cost is recognized over the period during which an employee is required to provide service in exchange for the award, the requisite service period (usually the vesting period). An initial measurement is made of the cost of employee services received in exchange for an award of liability instruments based on its current fair value and the value of that award is subsequently remeasured at each reporting date through the settlement date. Changes in fair value of liability awards during the requisite service period are recognized as compensation cost over that period.
The fair value of each 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:
| | | | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Dividend yield | 3.44 | % | | 3.65 | % | | 4.32 | % | 6.09 | % | | 2.92 | % | | 3.13 | % |
| Risk-free interest rate | 1.35 | % | | 1.36 | % | | 3.05 | % | 1.35 | % | | 1.69 | % | | 2.13 | % |
| Expected volatility | 43 | % | | 43 | % | | 42 | % | 32 | % | | 34 | % | | 42 | % |
| Expected life (years) | 7.0 |
| | 7.0 |
| | 7.0 |
| 6.0 |
| | 6.0 |
| | 7.0 |
|
| Grant fair value (per option) | $ | 7.05 |
| | $ | 6.55 |
| | $ | 5.48 |
| |
| Exercise price | $ | 23.28 |
| | $ | 21.92 |
| | $ | 18.78 |
| |
| Weighted-average grant fair value (per option) | | $ | 1.90 |
| | $ | 6.80 |
| | $ | 8.34 |
|
| Weighted-average exercise price | | $ | 13.14 |
| | $ | 27.40 |
| | $ | 25.69 |
|
| Shares granted | 621,000 |
| | 480,250 |
| | 575,000 |
| 1,670,400 |
| | 776,750 |
| | 624,200 |
|
Dividend yield 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 for future exercise patterns.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013,January 2017, the Financial Accounting Standards Board (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 2013-04,2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 405.230 “Statement of Cash Flows.” This update clarifieswill make eight targeted changes to how entities measure obligations resulting from jointcash receipts and severalcash 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 will adopt this update in the first quarter of 2017.
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 arrangements.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, 2013.2018 and interim periods within those fiscal years, with earlier application permitted. This update will not havebe applied using a materialmodified 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 February 2013,November 2015, the FASB issued ASU 2013-02,2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which amends ASC 220.740 “Income Taxes” (ASC 740). This update adds new disclosure requirements about reclassifications out of accumulated other comprehensiverequires deferred income includingtax liabilities and assets, and any related valuation allowance, to be classified as noncurrent on the effects of these reclassifications onbalance sheet. This update simplifies the current guidance requiring the deferred taxes for each jurisdiction to be presented as a net income.current asset or liability and net noncurrent asset or liability. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be applied either prospectively or retrospectively, with earlier application permitted. We adopted the provisions of ASU 2013-022015-17 on December 31, 2015, which was applied prospectively, and, therefore, all prior periods have not been retrospectively adjusted.
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement—Period Adjustments” (ASU 2015-16), which amends ASC 805 “Business Combinations.” This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. We adopted ASU 2015-16 on January 1, 2013.2016. This update is applied prospectively to adjustments of provisional amounts that occur after the effective date with earlier application permitted. This update did not have a material effect on our consolidated financial statements.
In July 2012,2015, the FASB issued ASU 2012-022015-11 “Simplifying the Measurement of Inventory,” which amends ASC 350.330 “Inventory.” This update permitsrequires entities to make a qualitative assessmentmeasure inventory at the lower of whether it is more likely than not that an indefinite-lived intangible asset’s faircost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less than its carrying amount before performing a quantitative impairment test. Ifreasonable predictable costs of completion, disposal and transportation. This update simplifies the current guidance under which an entity concludes that it is not more likely than not thatmust measure inventory at the fair valuelower of the indefinite-lived intangible asset is less than its carrying amount, it would not be required to perform the quantitative test for that asset. We adopted the provisions of ASU 2012-02 during 2012.cost or market. This update diddoes not have a materialimpact inventory measured using LIFO. This update is effective for fiscal years beginning after December 15, 2016. We are currently evaluating the effect of this update on our consolidated financial statements.
In September 2011,May 2015, the FASB issued ASU 2011-08,2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (ASU 2015-07) which amends ASC 350.820 “Fair Value Measurement.” This update permits entitiesremoves the requirement to make a qualitative assessment of whether it is more likely than not that a reporting unit’scategorize within the fair value hierarchy all investments for which fair value is less than itsmeasured using the net asset value per share practical expedient. The amendments removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This update is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years and impacts the disclosure requirements surrounding certain assets held by our pension plans. The new guidance will be applied on a retrospective basis. We adopted ASU 2015-07 on January 1, 2016 which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and, in August 2015, the FASB issued ASU 2015-15 “Interest—Imputation of Interest,” which both amend ASC 835-30 “Interest—Imputation of Interest.” These updates require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount before applyingof that debt liability while debt issuance costs related to line-of-credit arrangements will continue to be presented as an asset. We adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016 which required retrospective application. As of December 31, 2015, debt issuance costs of $31.4 million were reclassified within our consolidated balance sheet from other assets to long-term debt and $1.5 million were reclassified within our consolidated balance sheet from other assets to current installments of long-term debt.
In May 2014, the two-step goodwill impairment test. IfFASB 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 concludesshould recognize revenue to depict the transfer of promised goods or services to customers in an amount that it is not more likely than not thatreflects the fair value of a reporting unit is less than its carrying amount, it would notconsideration to which the entity expects to be required to perform the two-step impairment testentitled in exchange for that reporting unit. We adoptedthose goods or services. Upon initial application, the provisions of ASU 2011-08 on January 1, 2012. Thisthese updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update did notrecognized 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 a material effect on our consolidated financial statements.
During 2011, Based on the FASB issued ASU 2011-05analysis conducted to date, we believe the most significant impact the updates will have will be on our accounting policies and ASU 2011-12. Thesedisclosures on revenue recognition. Preliminarily, we do not expect that these updates require entities to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements of net income and other comprehensive income. We retrospectively adopted the provisions of ASU 2011-05 and ASU 2011-12 on January 1, 2012. These updates required modification ofwill materially impact our consolidated financial statements presentation. These update didand we have not have a material effect on our consolidated financial statements.yet determined the method of application we will use.
ACQUISITION
On the FASB issued ASU 2011-04, which amends ASC 820. This update clarifiesClosing Date, Olin consummated the existing guidancepreviously announced merger (the Merger), using a Reverse Morris Trust structure, of our wholly owned subsidiary, Blue Cube Acquisition Corp. (Merger Sub), with and amendsinto Blue Cube Spinco Inc. (Spinco), with Spinco as the wording usedsurviving corporation and a wholly owned subsidiary of Olin, as contemplated by the Agreement and Plan of Merger (the Merger Agreement) dated March 26, 2015, among Olin, TDCC, Merger Sub and Spinco (collectively, the Acquisition). Pursuant to describe manythe Merger Agreement and a Separation Agreement dated March 26, 2015 between TDCC and Spinco (the Separation Agreement), prior to the Merger, (1) TDCC transferred the Acquired Business to Spinco and (2) TDCC distributed Spinco’s stock to TDCC’s shareholders by way of a split-off (the Distribution). Upon consummation of the requirementstransactions contemplated by the Merger Agreement and the Separation Agreement (the Transactions), the shares of Spinco common stock then outstanding were automatically converted into the right to receive approximately 87.5 million shares of Olin common stock, which were issued by Olin on the Closing Date, and represented approximately 53% of the then outstanding shares of Olin common stock, together with cash in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This updatelieu of fractional shares. Olin’s pre-Merger shareholders continued to hold the remaining approximately 47% of the then outstanding shares of Olin common stock. On the Closing Date, Spinco became effective for us on January 1, 2012. This update did not have a material effect on our consolidated financial statements.wholly owned subsidiary of Olin.
In December 2010,
The following table summarizes the FASB issued ASU 2010-29, which amends ASC 805. This update clarified that an entity is required to disclose pro forma revenueaggregate purchase price for the Acquired Business and earnings as thoughrelated transactions, after the business combination that occurred during the current period had occurred asfinal post-closing adjustments:
|
| | | |
| | October 5, 2015 |
| | (In millions, except per share data) |
| Shares | 87.5 |
|
| Value of common stock on October 2, 2015 | 17.46 |
|
| Equity consideration by exchange of shares | $ | 1,527.4 |
|
| Cash and debt instruments received by TDCC | 2,095.0 |
|
| Payment for certain liabilities including the final working capital adjustment | 69.5 |
|
| Up-front payments under the ethylene agreements | 433.5 |
|
| Total cash, debt and equity consideration | $ | 4,125.4 |
|
| Long-term debt assumed | 569.0 |
|
| Pension liabilities assumed | 442.3 |
|
| Aggregate purchase price | $ | 5,136.7 |
|
The value of the beginning ofcommon stock was based on the comparableclosing stock price on the last trading day prior annual reporting period only. In addition, this standard expands the supplemental pro forma disclosures to include a description of the nature and amount of material nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We adopted the provisions of ASU 2010-29 on January 1, 2011.Closing Date. The adoption of this update required additional disclosuresaggregate purchase price was adjusted for our acquisitions of KA Steel and the remaining 50% equity interest in SunBelt. This update did not have a material effect on our consolidated financial statements.
ACQUISITIONS
KA Steel Acquisition
On August 22, 2012, we acquired 100% of privately-held KA Steel, on a debt free basis, for $336.6 million in cash, after receiving the final working capital adjustment and the final valuation for the pension liabilities assumed from TDCC which resulted in a payment of $1.9$69.5 million. As for the year ended December 31, 2016.
In connection with the Acquisition, TDCC retained liabilities relating to the Acquired Business for litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
For the years ended December 31, 2016, 2015 and 2014, we incurred costs in connection with the Merger and related transactions, including $48.8 million, $76.3 million and $4.2 million, respectively, of advisory, legal, accounting, integration and other professional fees. For the year ended December 31, 2015, we also incurred $30.5 million of financing-related fees and $47.1 million as a result of the datechange in control which created a mandatory acceleration of acquisition, KA Steel had cash and cash equivalents of $26.2 million. KA Steel is oneexpenses under deferred compensation plans as a result of the largest distributors of caustic soda in North America and manufactures and sells bleach in the Midwest.
The acquisition was partially financed with proceeds from the $200.0 million of 2022 Notes sold on August 22, 2012 with a maturity date of August 15, 2022. Proceeds from the 2022 Notes were $196.0 million, after expenses of $4.0 million.Transactions.
For segment reporting purposes, KA Steel comprises the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and U.S. Chlor Alkali and Vinyl and Global Chlorinated Organics (Acquired Chlor Alkali Business) operating results combined with our former Chlor Alkali Products and Chemical Distribution segments to comprise the Chlor Alkali Products and Vinyls segment. The KA SteelAcquired Business’s results of operations have been included in our consolidated results for the period subsequent to the effective date of the acquisition.Closing Date. Our results for the yearyears ended December 31, 20122016 and 2015 include KA SteelEpoxy sales of $156.3$1,822.0 million and $4.5$429.6 million, ofrespectively, and segment income which includes depreciation(loss) of $15.4 million and amortization expense$(7.5) million, respectively. For the years ended December 31, 2016 and 2015, Chlor Alkali Products and Vinyls include sales of $5.5the Acquired Chlor Alkali Business of $1,715.7 million primarily associated with the acquisition fair valuingand $373.0 million, respectively, and segment income of KA Steel.$164.5 million and $37.2 million, respectively.
The transaction hasTransactions have been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We finalized our purchase price allocation during the fourththird quarter of 2012.2016. The following table summarizes the final allocation of the purchase price to KA Steel’sthe Acquired Business’s assets and liabilities:liabilities on the Closing Date:
| | | | August 22, 2012 | Initial Valuation | | Measurement Period Adjustments | | Final Valuation |
| | ($ in millions) | ($ in millions) |
| Total current assets | $ | 128.1 |
| $ | 921.7 |
| | $ | (38.0 | ) | | $ | 883.7 |
|
| Property, plant and equipment | 25.1 |
| 3,090.8 |
| | (11.7 | ) | | 3,079.1 |
|
| Deferred taxes | 1.6 |
| |
| Deferred tax assets | | 76.8 |
| | 8.2 |
| | 85.0 |
|
| Intangible assets | 139.3 |
| 582.3 |
| | 30.3 |
| | 612.6 |
|
| Other assets | | 426.5 |
| | 12.4 |
| | 438.9 |
|
| Total assets acquired | 294.1 |
| 5,098.1 |
| | 1.2 |
| | 5,099.3 |
|
| Total current liabilities | 64.2 |
| 357.6 |
| | 2.3 |
| | 359.9 |
|
| Long-term debt | | 517.9 |
| | — |
| | 517.9 |
|
| Accrued pension liability | | 447.1 |
| | (4.8 | ) | | 442.3 |
|
| Deferred tax liabilities | | 1,054.9 |
| | (37.2 | ) | | 1,017.7 |
|
| Other liabilities | 10.4 |
| 2.0 |
| | 6.6 |
| | 8.6 |
|
| Total liabilities assumed | 74.6 |
| 2,379.5 |
| | (33.1 | ) | | 2,346.4 |
|
| Net identifiable assets acquired | 219.5 |
| 2,718.6 |
| | 34.3 |
| | 2,752.9 |
|
| Goodwill | 119.7 |
| 1,427.5 |
| | (55.0 | ) | | 1,372.5 |
|
| Fair value of net assets acquired | $ | 339.2 |
| $ | 4,146.1 |
| | $ | (20.7 | ) | | $ | 4,125.4 |
|
| Supplemental Data | | |
| Cash paid | $ | 336.6 |
| |
| Olin trade accounts receivable from KA Steel | 2.6 |
| |
| Total fair value of consideration | $ | 339.2 |
| |
Measurement period adjustments to the initial valuation primarily consisted of the final working capital adjustment, the final valuation for the pension liabilities assumed from TDCC, changes in the estimated fair value of acquired intangible assets and property, plant and equipment, and the finalization of deferred tax assets and liabilities. Included in total current assets are cash and cash equivalents of $26.2$25.4 million, inventories of $456.4 million and receivables of $63.1$401.6 million with a contracted value of $63.5 million.$403.8 million. Included in othertotal current liabilities is an accrued contingent liabilityare current installments of $10.0 million for the withdrawal from a multi-employer defined benefit pension plan.long-term debt of $51.1 million.
Based on final valuations, we allocated $128.0 million of the purchase price was allocated to intangible assets relating to customers, customer contracts and relationships, which management estimates to have a useful life of ten years, $10.9 million to intangible assets associated with the KA Steel trade name, which management estimates to have an indefinite useful life, and $0.4 million associated with a favorable lease agreement that will be amortized over the remaining life of the lease term (approximately four years) on a straight line basis. These identifiable intangible assets were included in other assets. as follows:
|
| | | | | |
| | October 5, 2015 |
| | Weighted-Average Amortization Period (Years) | | Gross Amount |
| | | | ($ in millions) |
| Customers, customer contracts and relationships | 15 Years | | $ | 520.5 |
|
| Acquired technology | 7 Years | | 85.1 |
|
| Trade name | 5 Years | | 7.0 |
|
| Total acquired intangible assets | | | $ | 612.6 |
|
Based on final valuations, $119.7$1,372.5 million was assigned to goodwill, allnone of which is deductible for tax purposes. The primary reasons for the acquisitionAcquisition and the principal factors that contributed to a KA Steelthe Acquired Business purchase price that resulted in the recognition of goodwill are due to the expanded capability to marketproviding of increased production capacity and sell caustic soda, bleach, potassium hydroxidediversification of Olin’s product portfolio, cost-saving opportunities and hydrochloric acid, as well as theenhanced size and geographic diversification the KA Steel locations provide us,presence. The cost-saving opportunities include improved operating efficiencies and the strengthened position in the industrial bleach segment.asset optimization.
Goodwill and the indefinite-lived trade name intangible asset recorded in the acquisition areAcquisition is not amortized but will be reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
Transaction financing
Prior to the Distribution, TDCC received from Spinco distributions of cash and debt instruments of Spinco with an aggregate value of $2,095.0 million (collectively, the Cash and Debt Distribution). On the Closing Date, Spinco 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 10.0% senior notes due October 15, 2025 (2025 Notes and, together with the 2023 Notes, the Notes) to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and are paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Transactions, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a new five-year delayed-draw term loan facility of up to $1,050.0 million. As of the Closing Date, Spinco drew $875.0 million to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year $1,850.0 million senior credit facility consisting of a $500.0 million senior revolving credit facility, which replaced Olin’s $265.0 million senior revolving credit facility at the closing of the Merger, and a $1,350.0 million (subject to reduction by the aggregate amount of the term loans funded to Spinco under the Spinco term loan facility) delayed-draw term loan facility. As of the Closing Date, an additional $475.0 million was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Transactions, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single $1,850.0 million senior credit facility, which includes a $1,350.0 million term loan facility. This new senior credit facility will expire in 2020. The $500.0 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 new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the 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.
On August 25, 2015, Olin entered into a Credit Agreement (the Credit Agreement) with a syndicate of lenders and Sumitomo Mitsui Banking Corporation (Sumitomo), as administrative agent, in connection with the Transactions. The Credit Agreement provides for a term credit facility (the Sumitomo Credit Facility) under which Olin obtained term loans in an aggregate amount of $600.0 million. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by $200.0 million. On the Closing Date, $600.0 million of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015, $200.0 million of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility will mature on October 5, 2018 and will have no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date, to pay fees and expenses in connection with the Transactions and for general corporate purposes. The Credit Agreement contains customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the new $1,850.0 million senior credit facility.
On March 26, 2015, we and certain financial institutions executed commitment letters pursuant to which the financial institutions agreed to provide $3,354.5 million of financing to Spinco to finance the amount of the Cash and Debt Distribution and to provide financing, if needed, to Olin to refinance certain of our existing debt (the Bridge Financing), in each case on the terms and conditions set forth in the commitment letters. The Bridge Financing was not drawn on to facilitate the Transactions, and the commitments for the Bridge Financing were terminated as of the Closing Date. For the year ended December 31, 2015, we paid debt issuance costs of $30.0 million associated with the Bridge Financing, which were included in interest expense.
Other acquisition-related transactions
In connection with the Transactions, certain additional agreements have been entered into, including, among others, an Employee Matters Agreement, a Tax Matters Agreement, site, transitional and other services agreements, supply and purchase agreements, real estate agreements, technology licenses and intellectual property agreements.
In addition, Olin and TDCC have agreed to enter into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin has made upfront payments of $433.5 million upon the closing of the Merger 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 obtain 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, which will increase the carrying value of the long-term asset. On February 27, 2017, we exercised the remaining option to obtain 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 $425.0 million and $465.0 million on or about the fourth quarter of 2020, which will increase the value of the long-term asset.
In connection with the Transactions and effective October 1, 2015, we filed a Certificate of Amendment to our Articles of Incorporation to increase the number of authorized shares of Olin common stock from 120.0 million shares to 240.0 million shares.
Pro forma financial information
The following pro forma summary presents the condensed statementreflects consolidated results of incomeoperation as if the acquisition of KA SteelAcquisition had occurred on January 1, 20112014 (unaudited).
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2012 | | 2011 | 2015 | | 2014 |
| | ($ in millions, except per share data) | ($ in millions, except per share data) |
| Sales | $ | 2,462.6 |
| | $ | 2,351.5 |
| $ | 5,681.8 |
| | $ | 6,948.2 |
|
| Net income | 160.1 |
| | 240.0 |
| |
| Net income per common share: | | | | |
| Net (loss) income | | (36.6 | ) | | 0.8 |
|
| Net (loss) income per common share: | | | | |
| Basic | $ | 2.00 |
| | $ | 3.00 |
| $ | (0.22 | ) | | $ | — |
|
| Diluted | $ | 1.98 |
| | $ | 2.97 |
| $ | (0.22 | ) | | $ | — |
|
The pro forma statements of income werefinancial information was prepared based on historical financial information and have been adjusted to give effect to pro forma adjustments that are (i) directly attributable to the transaction,Transactions, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The pro forma statements of income use estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may differ significantly from this pro forma financial information. The pro forma results presented do not include any anticipated synergies or other expected benefits that may be realized from the Transactions. The pro forma information is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented.
The pro forma data reflectresults for the applicationyears ended December 31, 2015 and 2014 primarily include recurring adjustments for re-pricing of sales, raw materials and services to/from TDCC relating to arrangements for long-term supply agreements for the following adjustments:
Additionalsale of raw materials, including ethylene and benzene, and services pursuant to the Separation Agreement, adjustments to eliminate historical sales between the Acquired Business and Olin, additional amortization expense related to the fair value of acquired identifiable intangible assets, ($8.0 million and $12.4 million for the years ended December 31, 2012 and 2011, respectively).
Additionaladditional depreciation expense related to the fair value adjustment to property, plant and equipment, interest expense related to the incremental debt issued in conjunction with the Acquisition and conforming KA Steel’s useful livesan adjustment to ours ($0.2 million and $0.3 milliontax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments relate.
In addition to the above recurring adjustments, the pro forma results for the years ended December 31, 20122015 and 2011, respectively).
Increase in interest expense related2014 included non-recurring adjustments of $47.0 million and $4.2 million, respectively, relating to the 2022 Notes issued in conjunction with this acquisition ($7.1 million and $11.0 million for the years ended December 31, 2012 and 2011, respectively).
Elimination of intersegment sales of caustic soda and bleach between KA Steel and Chlor Alkali Products at prices that approximate market ($23.2 million and $45.2 million for the years ended December 31, 2012 and 2011, respectively).
Eliminationelimination of transaction costs incurred in 2012 that are directly related to the transaction,Transactions, and do not have a continuing impact on our combined operating results ($8.3 million for the year ended December 31, 2012).
In addition, the pro forma data reflect the tax effect of all of the above adjustments.results. The pro forma tax provision reflects an increase (decrease) of $1.1 million and $(6.0) million for the years ended December 31, 2012 and 2011, respectively, associated with the incremental pretax income, the fair value adjustments for acquired intangible assets and property, plant and equipment, and the interest expense of the 2022 Notes issued in conjunction with this acquisition, which reflects the marginal tax of the adjustments in the various jurisdictions where such adjustments occurred.
SunBelt Acquisition
On February 28, 2011, we acquired PolyOne’s 50% interest in SunBelt for $132.3 million in cash plus the assumption of a PolyOne guarantee related to the SunBelt Notes. With this acquisition, Olin owns 100% of SunBelt. The SunBelt chlor alkali plant, which is located within our McIntosh, AL facility, has approximately 350,000 tons of membrane technology capacity. We also agreed to a three year earn out, which has no guaranteed minimum or maximum, based on the performance of SunBelt. In addition, during the second quarter of 2011, we remitted to PolyOne $6.0 million, which represented 50% of distributable cash generated by SunBelt from January 1, 2011 through February 28, 2011.
Pursuant to a note purchase agreement dated December 22, 1997, SunBelt sold $97.5 million of Guaranteed Senior Secured Notes due 2017, Series O, and $97.5 million of Guaranteed Senior Secured Notes due 2017, Series G. The SunBelt Notes bear interest at a rate of 7.23% per annum, payable semi-annually in arrears on each June 22 and December 22. Beginning on December 22, 2002 and each year through 2017, SunBelt is required to repay $12.2 million of the SunBelt Notes, of which $6.1 million is attributable to the Series O Notes and of which $6.1 million is attributable to the Series G Notes. In conjunction with the acquisition, we consolidated the SunBelt Notes with a fair value of $87.3 million for the remaining principal balance of $85.3 million as of February 28, 2011.
We have guaranteed the Series O Notes, and PolyOne, our former SunBelt partner, has guaranteed the Series G Notes, in both cases pursuant to customary guaranty agreements. We have agreed to indemnify PolyOne for any payments or other costs under the guarantee in favor of the purchasers of the Series G Notes, to the extent any payments or other costs arise from a default or other breach under the SunBelt Notes. If SunBelt does not make timely payments on the SunBelt Notes, whether as a result of a failure to pay on a guarantee or otherwise, the holders of the SunBelt Notes may proceed against the assets of SunBelt for repayment.
From January 1, 2011 to February 28, 2011, we recorded $6.3 million of equity earnings of non-consolidated affiliates for our 50% ownership in SunBelt. The value of our investment in SunBelt was $(0.8) million. We remeasured our equity interest in SunBelt to fair value upon the close of the transaction. As a result, we recognized a pretax gain of $181.4 million, which was classified in other (expense) income in our consolidated statement of operations. In conjunction with this remeasurement, a discrete deferred tax expense of $76.0 million was recorded.
The transaction has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We finalized our purchase price allocation during the second quarter of 2011. The following table summarizes the final allocation of the purchase price to SunBelt’s assets and liabilities:
|
| | | |
| | February 28, 2011 |
| | ($ in millions) |
| Total current assets | $ | 37.6 |
|
| Property, plant and equipment | 87.4 |
|
| Deferred income taxes | 0.4 |
|
| Other assets | 5.8 |
|
| Total assets acquired | 131.2 |
|
| Total current liabilities | 42.7 |
|
| Long-term debt | 75.1 |
|
| Other liabilities | 27.6 |
|
| Total liabilities assumed | 145.4 |
|
| Less: Investment in SunBelt | (0.8 | ) |
| Net liabilities assumed | (13.4 | ) |
| Liabilities for uncertainties | 48.3 |
|
| Gain on remeasurement of investment in SunBelt | (181.4 | ) |
| Goodwill | 327.1 |
|
| Fair value of total consideration | $ | 180.6 |
|
Included in total current assets are cash and cash equivalents of $8.9 million. Included in total current liabilities is $12.2 million of current installments of long-term debt.
Based on final valuations, we allocated $5.8 million of the purchase price to intangible assets relating to customers, customer contracts and relationships, which management estimates to have a useful life of fifteen years. These identifiable intangible assets were included in other assets. Based on final valuations, $327.1 million was assigned to goodwill. For tax purposes, $163.7 million of the goodwill is deductible. The goodwill represents the fair value of SunBelt that is in addition to the fair values of the other net assets acquired. The primary reason for the acquisition and the principal factors that contributed to a SunBelt purchase price that resulted in the recognition of goodwill is the strategic fit with our Chlor Alkali operations and SunBelt’s low cost membrane capacity.
For segment reporting purposes, SunBelt has been included in Chlor Alkali Products. The SunBelt results of operations have been included in our consolidated results for the period subsequent to the effective date of the acquisition. Our consolidated results for the year ended December 31, 20112015 also included $170.5non-recurring adjustments of $47.1 million of SunBelt sales and $27.2 million of additional SunBelt pretax income ($38.7 million included in Chlor Alkali Products segment income; less $0.8 million of acquisition costs, $4.0 million of interest expense and $6.7 million of expense for our earn out liability) on the 50% interest we acquired. The following pro forma summary presents the condensed statements of income as if the acquisition of SunBelt had occurred on January 1, 2011 (unaudited).
|
| | | |
| | Year Ended December 31, |
| | 2011 |
| | ($ in millions, except per share data) |
| Sales | $ | 1,987.4 |
|
| Net income | 140.6 |
|
| Net income per common share: | |
| Basic | $ | 1.76 |
|
| Diluted | $ | 1.74 |
|
The pro forma statements of income were prepared based on historical financial information and have been adjusted to give effect to pro forma adjustments that are (i) directly attributable relating to the transaction, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The pro forma statements of income use estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may differ significantly from this pro forma financial information. The pro forma information does not reflect any cost savings that might be achieved from operating the business under a single owner and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented. The pro forma data reflect the application of the following adjustments:
Elimination of the pretax gain resulting from the remeasurement of our previously held 50% equity interest in SunBelt, which is considered non-recurring ($181.4 million for the year ended December 31, 2011).
Additional amortization expense related to the fair value of acquired identifiable intangible assets ($0.1 million for the year ended December 31, 2011).
Reduction of depreciation expense related to the fair value adjustment to property, plant and equipment ($1.0 million for the year ended December 31, 2011).
Reduction in interest expense as a result of increasing the carrying value of acquired debt obligations to its estimated fair value ($0.1 million for the year ended December 31, 2011).
Additional accretion expense for the earn out liability that was recordedcosts incurred as a result of the acquisition ($0.4change in control which created a mandatory acceleration of expenses under deferred compensation plans and $24.0 million for the year ended December 31, 2011).
Elimination related to additional costs of transaction costs incurred in 2011 that are directlygoods sold related to the transaction, and do not have a continuing impact on our combined operating results ($0.8 million forincrease of inventory to fair value at the year ended December 31, 2011).
In addition, the pro forma data reflect the tax effect of all of the above adjustments. The pro forma tax provision for the year ended December 31, 2011 reflects a reduction of $76.0 millionacquisition date related to the elimination of the gain resulting from the remeasurement of our previously held 50% equity interest in SunBelt. The pro forma tax provision reflects an increase of $2.3 millionpurchase accounting for the year ended December 31, 2011 associated with the incremental pretax income and the fair value adjustments for acquired intangible assets, property, plant and equipment and the SunBelt Notes, which reflects the marginal tax of the adjustments in the various jurisdictions where such adjustments occurred.inventory.
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 year ended December 31, 2016, we recorded pretax restructuring charges of $111.3 million 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 $33 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. In the fourth quarter of 2014, we recorded pretax restructuring charges of $10.0 million for the write-off of equipment and facility costs, employee severance and related benefit costs and lease and other contract termination costs related to these actions. For the years ended December 31, 2016 and 2015, we recorded pretax restructuring charges of $0.8 million and $2.0 million, respectively, for the write-off of equipment and facility costs, lease and other contract termination costs and facility exit costs. We expect to incur additional restructuring charges through 2018 of approximately $7 million related to the shut down of this portion of the facility.
On December 9, 2010,, our board of directors approved a plan to eliminate our use of mercury in the manufacture of chlor alkali products. Under the plan, the 260,000 tons of mercury cell capacity at our Charleston, TN facility was converted to 200,000 tons of membrane capacity capable of producing both potassium hydroxide and caustic soda. The board of directors also approved plans to reconfigure our Augusta, GA facility to manufacture bleach and distribute caustic soda, while discontinuing chlor alkali manufacturing at this site. We based our decision to convert and reconfigure on several factors. First, during 2009 and 2010 we had experienced a steady increase in the number of customers unwilling to accept our products manufactured using mercury cell technology. Second, there was federal legislation passed in 2008 governing the treatment of mercury that significantly limited our recycling options after December 31, 2012. We concluded that exiting mercury cell technology production after 2012 represented an unacceptable future cost risk. Further, the conversion of the Charleston, TN plant to membrane technology reduced the electricity usage per ECU produced by approximately 25%. The decision to reconfigure the Augusta, GA facility to manufacture bleach and distribute caustic soda removed the highest cost production capacity from our system. Mercury cell chlor alkali production at the Augusta, GA facility was discontinued at the end of September 2012 and the conversion at Charleston, TN was completed in the second half of 2012 with the successful start-up of two new membrane cell lines. These actions reduced our Chlor Alkali capacity by 160,000 tons. The completion of these projects eliminated our chlor alkali production using mercury cell technology. We recorded a pretax restructuring charge of $28.0 million associated with these actions in the fourth quarter of 2010. The restructuring charge included write-off of equipment and facility costs, acceleration of asset retirement obligations, employee severance and related benefit costs and lease and other contract termination costs. For the yearsyear ended December 31, 2013, 2012 and 2011,2014, we recorded additional pretax restructuring charges of $3.7$3.8 million$2.3 million and $2.8 million, respectively, for employee severance and related benefit costs, employee relocation costs, facility exit costs, write-off of equipment and facility costs and lease and other contract termination costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2014 of approximately $2 million related to exiting the use of mercury cell technology in the chlor alkali manufacturing process.
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. This relocation, when completed, is forecast to reduce Winchester’s annual operating costs by approximately $35 million to $40 million. Consistent with this decision in 2010, we initiated an estimated $110$110 million five-year project, which includes approximately $80$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. The full amount of these grants were received in 2011. We currently expect to complete thisDuring 2016, the final rifle ammunition production equipment relocation by the end of 2016. We recorded a pretax restructuring charge of $6.2 million associated with these actions in the fourth quarter of 2010. The restructuring charge included employee severance and related benefit costs and a non-cash pension and other postretirement benefits curtailment charge.was completed. For the years ended December 31, 2013, 20122016, 2015 and 2011,2014, we recorded additional pretax restructuring charges of $1.8$0.8 million, $6.2$0.7 million and $7.0$1.9 million, respectively, for employee severance and related benefitsbenefit costs, a non-cash pension curtailment charge, employee relocation costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2016 of approximately $5 million related to the transfer of these operations.
The following table summarizes the 2013, 20122016, 2015 and 2011 activity2014 activities by major component of these 2010 restructuring actions and the remaining balances of accrued restructuring costs as of December 31, 2013:2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Employee severance and job related benefits | | Pension and other postretirement benefits curtailment | | Lease and other contract termination costs | | Employee relocation costs | | Facility exit costs | | Total |
| | | | ($ in millions) |
| Balance January 1, 2011 | $ | 6.0 |
| | $ | — |
| | $ | 1.0 |
| | $ | — |
| | $ | — |
| | $ | 7.0 |
|
| 2011 restructuring charges | 6.4 |
| | 1.1 |
| | — |
| | 2.2 |
| | 1.0 |
| | 10.7 |
|
| Amounts utilized | (1.1 | ) | | (1.1 | ) | | (0.2 | ) | | (2.2 | ) | | (1.0 | ) | | (5.6 | ) |
| Balance at December 31, 2011 | 11.3 |
| | — |
| | 0.8 |
| | — |
| | — |
| | 12.1 |
|
| 2012 restructuring charges | 4.1 |
| | — |
| | 0.1 |
| | 2.2 |
| | 2.1 |
| | 8.5 |
|
| Amounts utilized | (1.9 | ) | | — |
| | (0.5 | ) | | (2.2 | ) | | (2.1 | ) | | (6.7 | ) |
| Balance at December 31, 2012 | 13.5 |
| | — |
| | 0.4 |
| | — |
| | — |
| | 13.9 |
|
| 2013 restructuring charges (credits) | 0.4 |
| | — |
| | (0.4 | ) | | 0.6 |
| | 4.9 |
| | 5.5 |
|
| Amounts utilized | (3.7 | ) | | — |
| | — |
| | (0.6 | ) | | (4.9 | ) | | (9.2 | ) |
| Balance at December 31, 2013 | $ | 10.2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 January 1, 2014 | $ | 10.2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10.2 |
|
| 2014 restructuring charges | 4.5 |
| | 4.5 |
| | 0.5 |
| | 2.9 |
| | 3.3 |
| | 15.7 |
|
| Amounts utilized | (3.5 | ) | | — |
| | (0.5 | ) | | (2.9 | ) | | (3.3 | ) | | (10.2 | ) |
| Balance at December 31, 2014 | 11.2 |
| | 4.5 |
| | — |
| | — |
| | — |
| | 15.7 |
|
| 2015 restructuring charges | — |
| | 0.7 |
| | 0.6 |
| | 0.9 |
| | 0.5 |
| | 2.7 |
|
| Amounts utilized | (6.0 | ) | | (2.9 | ) | | (0.6 | ) | | (0.9 | ) | | (0.5 | ) | | (10.9 | ) |
| Currency translation adjustments | (0.6 | ) | | (0.2 | ) | | — |
| | — |
| | — |
| | (0.8 | ) |
| Balance at December 31, 2015 | 4.6 |
| | 2.1 |
| | — |
| | — |
| | — |
| | 6.7 |
|
| 2016 restructuring charges | 5.1 |
| | 13.6 |
| | 2.1 |
| | 15.5 |
| | 76.6 |
| | 112.9 |
|
| Amounts utilized | (6.3 | ) | | (8.2 | ) | | (2.1 | ) | | (13.7 | ) | | (76.6 | ) | | (106.9 | ) |
| Balance at December 31, 2016 | $ | 3.4 |
| | $ | 7.5 |
| | $ | — |
| | $ | 1.8 |
| | $ | — |
| | $ | 12.7 |
|
The following table summarizes the cumulative restructuring charges of these 2016, 2014 and 2010 restructuring actions by major component through December 31, 2013:2016:
| | | | | | | | | | | Chlor Alkali Products and Vinyls | | Winchester | | Total |
| | | Chlor Alkali Products | | Winchester | | Total | | Becancour | | Capacity Reductions | | Mercury | |
| | | ($ in millions) | | ($ in millions) |
| Write-off of equipment and facility | | $ | 17.5 |
| | $ | — |
| | $ | 17.5 |
| | $ | 3.5 |
| | $ | 76.6 |
| | $ | 17.8 |
| | $ | — |
| | $ | 97.9 |
|
| Employee severance and job related benefits | | 4.7 |
| | 12.2 |
| | 16.9 |
| | 2.7 |
| | 5.1 |
| | 5.6 |
| | 13.1 |
| | 26.5 |
|
| Facility exit costs | | 13.2 |
| | 1.4 |
| | 14.6 |
| | 1.3 |
| | 14.7 |
| | 15.6 |
| | 2.3 |
| | 33.9 |
|
| Pension and other postretirement benefits curtailment | | — |
| | 4.1 |
| | 4.1 |
| | — |
| | — |
| | — |
| | 4.1 |
| | 4.1 |
|
| Employee relocation costs | | 0.7 |
| | 4.4 |
| | 5.1 |
| | — |
| | 1.4 |
| | 0.9 |
| | 6.0 |
| | 8.3 |
|
| Lease and other contract termination costs | | 0.7 |
| | — |
| | 0.7 |
| | 5.3 |
| | 13.5 |
| | 0.7 |
| | — |
| | 19.5 |
|
| Total cumulative restructuring charges | | $ | 36.8 |
| | $ | 22.1 |
| | $ | 58.9 |
| | $ | 12.8 |
| | $ | 111.3 |
| | $ | 40.6 |
| | $ | 25.5 |
| | $ | 190.2 |
|
As of December 31, 2013,2016, we have incurred cash expenditures of $20.4$67.6 million and non-cash charges of $28.3$109.1 million related to these restructuring actions. The remaining balance of $10.2$12.7 million is expected to be paid out in 2014 through 2016.2020.
DISCONTINUED OPERATIONS
In 2007 we sold our Metals business, which was a reportable segment, and accordingly it was reported as a discontinued operation. Metals produced and distributed copper and copper alloy sheet, strip, foil, rod, welded tube, fabricated parts, and stainless steel and aluminum strip. In conjunction with the sale of the Metals business, we retained certain assets and liabilities.
During 2014, we made a payment of $5.5 million to resolve certain indemnity obligations related to the sale. As a result of the favorable resolution, we recognized a pretax gain of $4.6 million included in income from discontinued operations. The tax provision from discontinued operations included expense of $2.2 million for changes in tax contingencies related to the Metals sale. Income from discontinued operations, net consisted of the following:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | ($ in millions) |
| Income from discontinued operations | $ | — |
| | $ | — |
| | $ | 4.6 |
|
| Tax provision | — |
| | — |
| | 3.9 |
|
| Income from discontinued operations, net | $ | — |
| | $ | — |
| | $ | 0.7 |
|
EARNINGS PER SHARE
Basic and diluted (loss) income per share are computed by dividing net (loss) income by the weighted averageweighted-average number of common shares outstanding. Diluted net income per share reflects the dilutive effect of stock-based compensation.
| | | | Years ended December 31, | Years ended December 31, |
| Computation of Income per Share | 2013 | | 2012 | | 2011 | |
| | (In millions, except per share data) | 2016 | | 2015 | | 2014 |
| Net income | $ | 178.6 |
| | $ | 149.6 |
| | $ | 241.7 |
| |
| Computation of Income (loss) per Share | | (In millions, except per share data) |
| Income (loss) from continuing operations, net | | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.0 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.7 |
|
| Net (loss) income | | $ | (3.9 | ) | | $ | (1.4 | ) | | $ | 105.7 |
|
| Basic shares | 79.9 |
| | 80.1 |
| | 80.0 |
| 165.2 |
| | 103.4 |
| | 78.6 |
|
| Basic net income per share | $ | 2.24 |
| | $ | 1.87 |
| | $ | 3.02 |
| |
| Basic (loss) income per share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.34 |
|
| Diluted shares: | | | | | | | | | | |
| Basic shares | 79.9 |
| | 80.1 |
| | 80.0 |
| 165.2 |
| | 103.4 |
| | 78.6 |
|
| Stock-based compensation | 1.0 |
| | 0.9 |
| | 0.8 |
| — |
| | — |
| | 1.1 |
|
| Diluted shares | 80.9 |
| | 81.0 |
| | 80.8 |
| 165.2 |
| | 103.4 |
| | 79.7 |
|
| Diluted net income per share | $ | 2.21 |
| | $ | 1.85 |
| | $ | 2.99 |
| |
| Diluted (loss) income per share: | | | | | | |
| Income (loss) from continuing operations | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.32 |
|
| Income from discontinued operations, net | | — |
| | — |
| | 0.01 |
|
| Net (loss) income | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | 1.33 |
|
The computation of dilutive shares from stock-based compensation does not include 6.5 million, 5.2 million and 0.6 million 1.0 million and 0.9 millionshares in 2013, 20122016, 2015 and 2011,2014, respectively, as their effect would have been anti-dilutive.
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 are continued to be serviced by us. As of December 31, 2016, $282.3 million of our trade receivables have been pledged as collateral and we had $210.0 million drawn
under the agreement. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving 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 (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 $242.0 million. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” (ASC 860) and, accordingly, the proceeds are included in net cash provided by operating activities in the consolidated statements of cash flows. The gross amount of receivables sold for the year ended December 31, 2016 totaled $533.6 million. The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2016. As of December 31, 2016, $126.1 million of receivables qualifying for sale treatment were outstanding and will continue to be serviced by us.
In conjunction with the Acquisition, we obtained receivables with a fair value of $401.6 million as of October 5, 2015. At December 31, 2016 and 2015, our consolidated balance sheets included other receivables of $95.6 million and $94.8 million, respectively, which were classified as receivables, net.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES
Allowance for doubtful accounts receivable consisted of the following:
| | | | December 31, | | December 31, |
| | 2013 | | 2012 | | 2016 | | 2015 |
| | ($ in millions) | | ($ in millions) |
| Beginning balance | $ | 3.6 |
| | $ | 3.2 |
| | $ | 6.4 |
| | $ | 3.0 |
|
| Provisions charged | — |
| | 0.7 |
| | 4.5 |
| | 5.2 |
|
| Write-offs, net of recoveries | (0.2 | ) | | (0.3 | ) | | (0.8 | ) | | (1.8 | ) |
| Ending balance | $ | 3.4 |
| | $ | 3.6 |
| | $ | 10.1 |
| | $ | 6.4 |
|
INVENTORIES
| | | | December 31, | | December 31, |
| | 2013 | | 2012 | | 2016 | | 2015 |
| | ($ in millions) | | ($ in millions) |
| Supplies | $ | 40.5 |
| | $ | 36.4 |
| | $ | 58.1 |
| | $ | 86.5 |
|
| Raw materials | 76.5 |
| | 70.5 |
| | 72.6 |
| | 91.5 |
|
| Work in process | 26.4 |
| | 25.2 |
| | 110.7 |
| | 105.8 |
|
| Finished goods | 115.9 |
| | 141.0 |
| | 435.1 |
| | 445.3 |
|
| | 259.3 |
| | 273.1 |
| | 676.5 |
| | 729.1 |
|
| LIFO reserves | (72.8 | ) | | (78.0 | ) | | (46.1 | ) | | (43.9 | ) |
| Inventories, net | $ | 186.5 |
| | $ | 195.1 |
| | $ | 630.4 |
| | $ | 685.2 |
|
In conjunction with the acquisition of KA Steel,Acquisition, we obtained inventories with a fair value of $36.4$456.4 million, as of August 22, 2012.October 5, 2015. Inventories valued using the LIFO method comprised 56%54% and 54%49% of the total inventories at December 31, 20132016 and 2012,2015, respectively. The replacement cost of our inventories would have been approximately $72.8$46.1 million and $78.0$43.9 million higher than that reported at December 31, 20132016 and 2012,2015, respectively. During 2014 the reduction in LIFO inventory quantities resulted in LIFO inventory liquidation losses of $1.5 million.
OTHER ASSETS
Included in other assets were the following:
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | ($ in millions) |
| Investments in non-consolidated affiliates | $ | 26.7 |
| | $ | 25.0 |
|
| Deferred debt issuance costs | 2.6 |
| | 3.3 |
|
| Tax-related receivables | 17.5 |
| | 1.5 |
|
| Interest rate swaps | 7.7 |
| | — |
|
| Supply contracts | 566.7 |
| | 406.5 |
|
| Other | 23.2 |
| | 18.3 |
|
| Other assets | $ | 644.4 |
| | $ | 454.6 |
|
In connection with the Acquisition, Olin and TDCC have agreed to enter into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin has made upfront payments of $433.5 million upon 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 obtain 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, which will increase the value of the long-term asset. On February 27, 2017, we exercised the remaining option to obtain 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 $425.0 million and $465.0 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. The payments made under these arrangements will be amortized over the life of the contracts as electrical power is received.
The weighted-average useful life of long-term supply contracts at December 31, 2016 was 21 years. For the years ended December 31, 2016 and 2015, amortization expense of $21.5 million and $4.3 million, respectively, was recognized within cost of goods sold related to these supply contracts and is reflected in depreciation and amortization on the consolidated statements of cash flows. We estimate that amortization expense will be approximately $25.0 million in 2017, 2018, 2019, 2020 and 2021 related to these long-term supply contracts. The long-term supply contracts are monitored for impairment each reporting period.
PROPERTY, PLANT AND EQUIPMENT
| | | | | December 31, | | December 31, |
| | Useful Lives | | 2013 | | 2012 | Useful Lives | | 2016 | | 2015 |
| | | ($ in millions) | | ($ in millions) |
| Land and improvements to land | 10-20 Years | | $ | 156.2 |
| | $ | 155.9 |
| 10-20 Years | | $ | 281.2 |
| | $ | 280.4 |
|
| Buildings and building equipment | 10-30 Years | | 205.0 |
| | 204.3 |
| 10-30 Years | | 375.0 |
| | 380.4 |
|
| Machinery and equipment | 3-15 Years | | 1,835.4 |
| | 1,739.5 |
| 3-15 Years | | 4,765.9 |
| | 4,665.8 |
|
| Leasehold improvements | | 2.5 |
| | 2.5 |
| | 3.4 |
| | 2.7 |
|
| Construction in progress | | 47.8 |
| | 96.1 |
| | 171.0 |
| | 123.5 |
|
| Property, plant and equipment | | 2,246.9 |
| | 2,198.3 |
| | 5,596.5 |
| | 5,452.8 |
|
| Accumulated depreciation | | (1,259.1 | ) | | (1,164.0 | ) | | (1,891.6 | ) | | (1,499.4 | ) |
| Property, plant and equipment, net | | $ | 987.8 |
| | $ | 1,034.3 |
| | $ | 3,704.9 |
| | $ | 3,953.4 |
|
In conjunction with the Acquisition, we obtained property, plant and equipment with a fair value of $3,079.1 million as of October 5, 2015.
The weighted averageweighted-average useful life of machinery and equipment at December 31, 20132016 was 1012 years. Depreciation expense was $120.7$435.7 million, $104.4$198.1 million and $97.4$124.5 million for 2013, 20122016, 2015 and 2011,2014, respectively. Interest capitalized was $1.9 million, $1.1 million $7.4and $0.2 million for 2016, 2015 and $1.2 million for 2013, 2012 and 2011,2014, respectively. Maintenance and repairs charged to operations amounted to $134.7$236.4 million, $124.4$158.5 million and $135.7$125.0 million in 2013, 20122016, 2015 and 2011,2014, respectively.
The consolidated statements of cash flows for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, included a $7.9decreases of $29.9 million, $17.4$7.4 million and $(23.7)$0.5 million,, respectively, increase (decrease)to capital expenditures, with the corresponding change to accounts payable and accrued liabilities, related to purchases of property, plant and equipment included in accounts payable at December 31, 2013, 20122016, 2015 and 2011.2014.
During 2013, 2012 and 20112016, we entered into sale/leaseback transactions for caustic soda barges and chlorine, caustic soda and bleach railcars and bleach trailers. In 2013, 2012 and 2011that we acquired in connection with the Acquisition. We received proceeds from the sales of $35.8$40.4 million$4.4 million and $3.2 million, respectively, for the yearsyear ended December 31, 2013, 2012 and 2011.2016.
During 2013,2015, assets of $4.2$1.4 million were acquired under capital leases and are included in machinery and equipment as of December 31, 2013. As of December 31, 2012, leased assets capitalized and included above are not significant.2015.
INVESTMENTS—AFFILIATED COMPANIES
Prior to the acquisition of SunBelt, we held a 50% ownership interest, which was accounted for using the equity method of accounting.
On November 16, 2007, we purchased for cash an $11.6 million equity interest in a bleach joint venture. As part of the investment we also entered into several commercial agreements, including agreements by which we would supply raw materials and services, and we would have marketing responsibility for bleach and caustic soda. During 2013, we sold our equity interest in thea bleach joint venture which resulted in a gain of $6.5 million. As$6.5 million. During both 2016 and 2015, we received $8.8 million as a result of the sale, assale. As of December 31, 2013, we2016, all amounts have recorded a long-term receivable of $15.6 million which is included within other assets on our consolidated balance sheet.been collected under the sale arrangement.
On February 11, 2011, we acquired PolyOne’s 50% interest in SunBelt. With this acquisition, we agreed to a three-year earn out, which had no guaranteed minimum or maximum, based on the performance of SunBelt Chlor Alkali Partnership (SunBelt). For the year ended December 31, 2014, we paid the final payment of $26.7 million for the earn out related to the 2013 SunBelt performance. The earn out payment for 2014 included $14.8 million that was recognized as part of the original purchase price. The $14.8 million is included as a financing activity in the statement of cash flows.
We hold a 9.1% limited partnership interest in Bay Gas Storage Company, Ltd. (Bay Gas), an Alabama limited partnership, in which EnergySouth, Inc. (EnergySouth), which was acquired in 2008 by Sempra Energy, is the general partner with interest of 90.9%. Bay Gas owns, leases and operates underground gas storage and related pipeline facilities, which are used to provide storage in the McIntosh, AL area and delivery of natural gas to EnergySouth customers.
The following table summarizes our investmentsinvestment in our non-consolidated equity affiliates:affiliate:
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | ($ in millions) |
| Bay Gas | $ | 21.6 |
| | $ | 19.5 |
|
| Bleach joint venture | — |
| | 9.8 |
|
| Investments in equity affiliates | $ | 21.6 |
| | $ | 29.3 |
|
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | ($ in millions) |
| Bay Gas | $ | 26.7 |
| | $ | 25.0 |
|
The following table summarizes our equity earnings of our non-consolidated affiliates:affiliate:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | ($ in millions) |
| SunBelt | $ | — |
| | $ | — |
| | $ | 6.3 |
|
| Bay Gas | 2.1 |
| | 2.4 |
| | 2.4 |
|
| Bleach joint venture | 0.7 |
| | 0.6 |
| | 0.9 |
|
| Equity earnings of non-consolidated affiliates | $ | 2.8 |
| | $ | 3.0 |
| | $ | 9.6 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | ($ in millions) |
| Bay Gas | $ | 1.7 |
| | $ | 1.7 |
| | $ | 1.7 |
|
We received netdid not receive any distributions from our non-consolidated affiliates of $1.5 million, $1.3 millionin 2016, 2015 and $1.9 million for 2013, 2012 and 2011, respectively.2014.
GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill were as follows:
|
| | | | | | | | | | | |
| | Chlor Alkali Products and Vinyls | | Epoxy | | Total |
| | ($ in millions) |
| Balance at January 1, 2015 | $ | 747.1 |
| | $ | — |
| | $ | 747.1 |
|
| Acquisition activity | 1,130.8 |
| | 296.7 |
| | 1,427.5 |
|
| Foreign currency translation adjustment | (0.4 | ) | | (0.1 | ) | | (0.5 | ) |
| Balance at December 31, 2015 | 1,877.5 |
| | 296.6 |
| | 2,174.1 |
|
| Acquisition activity | (45.3 | ) | | (9.7 | ) | | (55.0 | ) |
| Foreign currency translation adjustment | (0.9 | ) | | (0.2 | ) | | (1.1 | ) |
| Balance at December 31, 2016 | $ | 1,831.3 |
| | $ | 286.7 |
| | $ | 2,118.0 |
|
The decrease in goodwill during 2016 was a result of measurement period adjustments from the preliminary valuation of the Acquisition and the effects of foreign currency translation adjustments. We finalized our purchase price allocation of the Acquisition during the third quarter of 2016. The increase in goodwill during 2015 was a result of the Acquisition and was based upon the preliminary valuation partially offset by the effects of foreign currency translation adjustments.
Intangible assets consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | | | 2016 | | 2015 |
| | Useful Lives | | Gross Amount | | Accumulated Amortization | | Net | | Gross Amount | | Accumulated Amortization | | Net |
| | | | ($ in millions) |
| Customers, customer contracts and relationships | (10-15 years) | | $ | 667.8 |
| | $ | (112.9 | ) | | $ | 554.9 |
| | $ | 641.0 |
| | $ | (64.0 | ) | | $ | 577.0 |
|
| Trade name | (5 years) | | 17.8 |
| | (12.7 | ) | | 5.1 |
| | 17.9 |
| | — |
| | 17.9 |
|
| Acquired technology | (7 years) | | 84.2 |
| | (15.0 | ) | | 69.2 |
| | 84.7 |
| | (2.7 | ) | | 82.0 |
|
| Other | (4-10 years) | | 2.3 |
| | (1.9 | ) | | 0.4 |
| | 2.3 |
| | (1.7 | ) | | 0.6 |
|
| Total intangible assets | | | $ | 772.1 |
| | $ | (142.5 | ) | | $ | 629.6 |
| | $ | 745.9 |
| | $ | (68.4 | ) | | $ | 677.5 |
|
In conjunction with the Acquisition, we obtained intangible assets with a fair value of $612.6 million as of October 5, 2015. In connection with the integration of the Acquired Business, in the first quarter of 2016, the K.A. Steel Chemicals Inc. (KA Steel) 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 $10.9 million was recognized within cost of goods sold for the year ended December 31, 2016 related to the change in useful life.
Amortization expense relating to intangible assets was $73.8 million, $25.8 million and $14.6 million in 2016, 2015 and 2014, respectively. We estimate that amortization expense will be approximately $62.8 million in 2017, 2018 and 2019, approximately $62.3 million in 2020 and approximately $61.4 million in 2021. Intangible assets with finite lives are reviewed for impairment when circumstances or other events indicate that impairment may have occurred.
DEBT
Credit Facility
At December 31, 2013, we had $233.4 million available under our $265 million senior revolving credit facility because we had issued $31.6 million of letters of credit under a $110 million subfacility. The senior revolving credit facility also has a $50 million Canadian subfacility. The senior revolving credit facility will expire in April 2017. Under the senior revolving credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior revolving credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the facility at the end of 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 for the last four quarters. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2013 and 2012, 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 December 31, 2013, there were no covenants or other restrictions that limited our ability to borrow.
At December 31, 2013, we had total letters of credit of $36.8 million outstanding, of which $31.6 million were issued under our $265 million senior revolving credit facility. The letters of credit are used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain international pension funding requirements.
Long-Term Debt
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| Notes payable: | ($ in millions) |
| Variable-rate Go Zone bonds, due 2024 (1.42% and 1.72% at December 31, 2013 and 2012, respectively) | $ | 50.0 |
| | $ | 50.0 |
|
| Variable-rate Recovery Zone bonds, due 2024-2035 (1.42% and 1.72% at December 31, 2013 and 2012, respectively) | 103.0 |
| | 103.0 |
|
| Variable-rate Industrial development and environmental improvement obligations due 2025 (0.22% and 0.26% at December 31, 2013 and 2012, respectively) | 2.9 |
| | 2.9 |
|
| 5.5%, due 2022 | 200.0 |
| | 200.0 |
|
| 6.5%, due 2013 | — |
| | 11.4 |
|
| 6.75%, due 2016 (includes interest rate swaps of $6.1 million and $8.4 million in 2013 and 2012, respectively) | 131.1 |
| | 133.4 |
|
| 7.23%, SunBelt Notes due 2013-2017 (includes unamortized fair value premium of $0.8 million and $1.1 million and interest rate swaps of $1.2 million and $1.8 million in 2013 and 2012, respectively) | 50.7 |
| | 63.9 |
|
| 8.875%, due 2019 (includes unamortized discount of $0.8 million in 2013 and $0.9 million in 2012) | 149.2 |
| | 149.1 |
|
| Capital lease obligations | 4.1 |
| | — |
|
| Total debt | 691.0 |
| | 713.7 |
|
| Amounts due within one year | 12.6 |
| | 23.6 |
|
| Total long-term debt | $ | 678.4 |
| | $ | 690.1 |
|
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| Notes payable: | ($ in millions) |
| Variable-rate Senior Term Loan facility, due 2020 (2.77% and 2.17% at December 31, 2016 and 2015, respectively) | $ | 1,282.5 |
| | $ | 1,350.0 |
|
| Variable-rate Sumitomo credit facility, due 2018 (2.27% and 1.77% at December 31, 2016 and 2015, respectively) | 590.0 |
| | 800.0 |
|
| Variable-rate Recovery Zone bonds, due 2024-2035 (2.47% and 1.40% at December 31, 2016 and 2015, respectively) | 103.0 |
| | 103.0 |
|
| Variable-rate Go Zone bonds, due 2024 (2.47% and 1.40% at December 31, 2016 and 2015, respectively) | 50.0 |
| | 50.0 |
|
| Variable-rate Industrial development and environmental improvement obligations, due 2025 (0.25% and 0.27% at December 31, 2016 and 2015, respectively) | 2.9 |
| | 2.9 |
|
| 9.75%, due 2023 | 720.0 |
| | 720.0 |
|
| 10.00%, due 2025 | 500.0 |
| | 500.0 |
|
| 5.50%, due 2022 | 200.0 |
| | 200.0 |
|
| 6.75%, due 2016 | — |
| | 125.0 |
|
| 7.23%, SunBelt Notes due 2013-2017 | 12.2 |
| | 24.4 |
|
| Receivables financing agreement | 210.0 |
| | — |
|
| Capital lease obligations | 3.9 |
| | 4.6 |
|
| Total notes payable | 3,674.5 |
| | 3,879.9 |
|
| Deferred debt issuance costs and unamortized fair value premium | (28.5 | ) | | (32.7 | ) |
| Interest rate swaps | (28.4 | ) | | 1.6 |
|
| Total debt | 3,617.6 |
| | 3,848.8 |
|
| Amounts due within one year | 80.5 |
| | 205.0 |
|
| Total long-term debt | $ | 3,537.1 |
| | $ | 3,643.8 |
|
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 are continued to be serviced by us. As of December 31, 2016, $282.3 million of our trade receivables have been pledged as collateral. During 2016 we drew $230.0 million under the agreement and subsequently repaid $20.0 million. As of December 31, 2016, $210.0 million was drawn under the Receivables Financing Agreement. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving credit facility. The net $210.0 million proceeds were used to repay a portion of the Sumitomo Credit Facility.
On the Closing Date, Spinco issued $720.0 million aggregate principal 2023 Notes and $500.0 million aggregate principal 2025 Notes to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and are paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Transactions, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a new five-year delayed-draw term loan facility of up to $1,050.0 million. As of the Closing Date, Spinco drew $875.0 million to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year $1,850.0 million senior credit facility consisting of a $500.0 million senior revolving credit facility, which replaced Olin’s $265.0 million senior revolving credit facility at the closing of the Merger, and a $1,350.0 million delayed-draw term loan facility. As of the Closing Date, an additional $475.0 million was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Transactions, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. Subsequent to the Closing Date, these
senior credit facilities were consolidated into a single senior credit facility. This new senior credit facility will expire in 2020. The $500.0 million senior revolving credit facility includes a $100.0 million letter of credit subfacility. At December 31, 2016, we had $483.4 million available under our $500.0 million senior revolving credit facility because we had issued $16.6 million of letters of credit under the $100.0 million 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. During 2016, we repaid $67.5 million under the required quarterly installments of this new senior credit facility.
Under the new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the 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 December 31, 2016 and 2015, 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 December 31, 2016, there were no covenants or other restrictions that limited our ability to borrow.
On August 25, 2015, Olin entered into a Credit Agreement with a syndicate of lenders and Sumitomo Mitsui Banking Corporation, as administrative agent, in connection with the Transactions. Olin obtained term loans in an aggregate amount of $600.0 million under the Sumitomo Credit Facility. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by $200.0 million. On the Closing Date, $600.0 million of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015, $200.0 million of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility will mature on October 5, 2018 and will have no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date of $569.0 million, to pay fees and expenses in connection with the Transactions and for general corporate purposes. The Credit Agreement contains customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the new $1,850.0 million senior credit facility. During 2016, $210.0 million was repaid under the Sumitomo Credit Facility using proceeds from the Receivables Financing Agreement.
In January 2013,June 2016, we repaid the $11.4$125.0 million 2013 Notes,of 6.75% senior notes due 2016 (2016 Notes), which became due.
During 2013, assetsIn 2016, we paid debt issuance costs of $4.2$1.0 million were acquired under capital leases with termsfor the registration of 7 years.the Notes. In 2015, we paid debt issuance costs of $13.3 million relating to the Notes, the Sumitomo Credit Facility and the new $1,850.0 million senior credit facility.
76On March 26, 2015, we and certain financial institutions executed commitment letters pursuant to which the financial institutions agreed to provide $3,354.5 million of Bridge Financing, in each case on the terms and conditions set forth in the commitment letters. The Bridge Financing was not drawn on to facilitate the Acquisition and the commitments for the Bridge Financing have been terminated as of the Closing Date. For the year ended December 31, 2015, we paid debt issuance costs of $30.0 million associated with the Bridge Financing, which are included in interest expense.
In August 2014, we redeemed our $150.0 million 2019 Notes, which would have matured on August 15, 2019. We recognized interest expense of $9.5 million for the call premium ($6.7 million), the write-off of unamortized deferred debt issuance costs ($2.1 million) and unamortized discount ($0.7 million) related to this action during 2014. On June 24, 2014, we entered into a five-year $415.0 million senior credit facility consisting of a $265.0 million senior revolving credit facility, which replaced our previous $265.0 million senior revolving credit facility, and a $150.0 million delayed-draw term loan facility. In August 2014, we drew the entire $150.0 million of the term loan and used the proceeds to redeem our 2019 Notes. In 2015 and 2014, we repaid $2.8 million and $0.9 million, respectively, under the required quarterly installments of the $150.0 million term loan facility and, on the Closing Date of the Acquisition, the remaining $146.3 million was refinanced using the proceeds of the new senior credit facility. We recognized interest expense of $0.5 million for the write-off of unamortized deferred debt issuance costs related to this action.
Pursuant to a note purchase agreement dated December 22, 1997, SunBelt sold $97.5$97.5 million of Guaranteed Senior Secured Notes due 2017, Series O, and $97.5$97.5 million of Guaranteed Senior Secured Notes due 2017, Series G. We refer to these notes as the SunBelt Notes. The SunBelt Notes bear interest at a rate of 7.23% per annum, payable semi-annually in arrears on each June 22 and December 22. Beginning on December 22, 2002 and each year through 2017, SunBelt is required to repay $12.2$12.2 million of the SunBelt Notes, of which $6.1$6.1 million is attributable to the Series O Notes and of which $6.1$6.1 million is attributable to the Series G Notes. In conjunction with the SunBelt acquisition, we consolidated the SunBelt Notes with a fair value of $87.3December 2016, 2015 and 2014, $12.2 million for the remaining principal balance of $85.3 million as of February 28, 2011. In December 2013, 2012 and 2011, $12.2 million was repaid on these SunBelt Notes.
In August 2012,We have guaranteed the Series O Notes, and PolyOne, our former SunBelt partner, has guaranteed the Series G Notes, in both cases pursuant to customary guaranty agreements. We have agreed to indemnify PolyOne for any payments or other costs under the guarantee in favor of the purchasers of the Series G Notes, to the extent any payments or other costs arise from a default or other breach under the SunBelt Notes. If SunBelt does not make timely payments on the SunBelt Notes, whether as a result of a failure to pay on a guarantee or otherwise, the holders of the SunBelt Notes may proceed against the assets of SunBelt for repayment.
During 2015, assets of $1.4 million were acquired under capital leases with terms between 6 years and 7 years.
At December 31, 2016, we sold $200.0had total letters of credit of $73.3 million outstanding, of 2022 Notes with a maturity date of August 15, 2022. The 2022 Noteswhich $16.6 million were issued at par value. Interest is paid semi-annually on February 15 and August 15. The acquisition of KA Steel was partially financed with proceeds of $196.0under our $500.0 million, after expense of $4.0 million, from the 2022 Notes.
In June 2012, we redeemed $7.7 million of industrial revenue bonds due in 2017. We paid a premium of $0.2 million to the bond holders, which was included in interest expense. We also recognized a $0.2 million deferred gain in interest expense related to the interest rate swaps, which were terminated in March 2012, on these industrial revenue bonds.
In December 2011, we repaid the $75.0 million 2011 Notes, which became due.
In December 2010, we completed a financing of Recovery Zone tax-exempt bonds totaling $42.0 million due 2033. The bonds were issued by MS Finance pursuant to a trust indenture between MS Finance and U.S. Bank National Association, as trustee. The bonds were sold to PNC Bank, as administrative agent for itself and a syndicate of participating banks, in a private placement under a Credit and Funding Agreement dated December 1, 2010, between us and PNC Bank. Proceeds of the bonds were loaned by MS Finance to us under a loan agreement, whereby we are obligated to make loan payments to MS Finance sufficient to pay all debt service and expenses related to the bonds. Our obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR. The financial covenants in the credit agreement mirror those in our senior revolving credit facility. The bonds may be tendered to us (without premium) periodically beginning November 1, 2015. During December 2010, we drew $42.0 millionletters of the bonds. The proceeds from the bondscredit are required to be used to fund capital project spending for the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS. As of December 31, 2013, $4.2 million of the proceeds remain with the trusteesupport certain long-term debt, certain workers compensation insurance policies, certain plant closure and are classified as a noncurrent asset on our consolidated balance sheet as restricted cash, until such time as we request reimbursement of qualifying amounts used for the Oxford, MS Winchester relocation.post-closure obligations and certain international pension funding requirements.
In October 2010, we completed a financing of tax-exempt bonds totaling $70.0 million due 2024. The bonds include $50.0 million of Go Zone and $20.0 million of Recovery Zone. The bonds were issued by the AL Authority pursuant to a trust indenture between the AL Authority and U.S. Bank National Association, as trustee. The bonds were sold to PNC Bank, as administrative agent for itself and a syndicate of participating banks, in a private placement under a Credit and Funding Agreement dated October 14, 2010, between us and PNC Bank. Proceeds of the bonds were loaned by the AL Authority to us under a loan agreement, whereby we are obligated to make loan payments to the AL Authority sufficient to pay all debt service and expenses related to the bonds. Our obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR. The financial covenants in the credit agreement mirror those in our senior revolving credit facility. The bonds may be tendered to us (without premium) periodically beginning November 1, 2015. We had the option to borrow up to the entire $70.0 million in a series of draw downs through December 31, 2011. We drew $36.0 million of the bonds in 2011 and $34.0 million in 2010. The proceeds from the bonds are required to be used to fund capital project spending at our McIntosh, AL facility and were fully utilized as of December 31, 2012.
Annual maturities of long-term debt, including capital lease obligations, are $12.6$80.3 million in 2014, $12.62017, $691.9 million in 2015, $143.72018, $345.7 million in 2016, $14.62019, $980.3 million in 2017, $0.52020, $0.2 million in 20182021 and a total of $507.0$1,576.1 million thereafter.
We haveIn April 2016, we entered into three tranches of forward starting interest rate swaps as disclosed below, whereby we agreeagreed to pay variable and fixed rates to a counterpartythe counterparties who, in turn, payspay us fixedfloating rates on $1,100.0 million, $900.0 million, and variable rates. In all cases$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 underlying index for variable rates isagreements are SMBC Capital Markets, Inc., Wells Fargo Bank, N.A. (Wells Fargo), PNC Bank, National Association, and Toronto-Dominion Bank. These counterparties are large financial institutions. We have designated the six-month LIBOR. Accordingly, payments are settled every six months and the termsswaps as cash flow hedges of the swaps are the same as the underlying debt instruments.
The following table reflectsrisk of changes in interest payments associated with our variable rate borrowings. Accordingly, the swap activity related to certain debt obligations:agreements have been recorded at their fair market value of $9.6 million and are included in other current assets and other assets on the accompanying consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. No gain or loss has been recorded in earnings as a result of ineffectiveness.
|
| | | | | | | | | |
| Underlying Debt Instrument | | Swap Amount | | Date of Swap | | December 31, 2013 |
| | | ($ in millions) | | | | Olin Pays Floating Rate: |
| 6.75%, due 2016 | | $ | 65.0 |
| | March 2010 | | 3.5 - 4.5% | (a) |
| 6.75%, due 2016 | | $ | 60.0 |
| | March 2010 | | 3.5 - 4.5% | (a) |
| | | | | | | Olin Receives Floating Rate: |
| 6.75%, due 2016 | | $ | 65.0 |
| | October 2011 | | 3.5 - 4.5% | (a) |
| 6.75%, due 2016 | | $ | 60.0 |
| | October 2011 | | 3.5 - 4.5% | (a) |
| |
(a) | Actual rate is set in arrears. We project the rate will fall within the range shown. |
In March 2010,April 2016, we entered into interest rate swaps on $125$250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterpartythe counterparties who, in turn, payspay us fixed rates. The counterpartycounterparties to these agreements is Citibank. In October 2011, we entered into $125 millionare Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 2016 Notes. We have agreed to pay a fixed rate to a counterparty who, in turn, pays us variable rates. The counterparty to this agreement is also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which will be recognized through 2016. As of December 31, 2013, $6.1 million of this gain was included in long-term debt. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps do not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps are recorded currently in earnings.major financial institutions.
In 2001 and 2002,October 2016, we entered into interest rate swaps on $75an additional $250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterpartythe counterparties who, in turn, paidpay us fixed rates. The counterpartycounterparties to these agreements was Citibank. In January 2009, we entered into a $75 million fixedare 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 with equal and opposite terms as the $75 million variable interest rate swaps on the 2011 Notes. We agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to this agreement was Bank of America. The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which was recognized through 2011. In January 2009, we de-designated our $75 million interest rate swaps that had previously been designatedagreements as fair value hedges. The $75 million variable interest rate swaps andhedges of the $75 million fixed interest rate swap did not meet the criteria for hedge accounting. Allrisk of changes in the fair 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 $28.5 million and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended December 31, 2016, $2.6 million of income has been recorded to interest expense on the accompanying consolidated statement of operations related to these interest rate swaps wereswap agreements. No gain or loss has been recorded currently in earnings.earnings as a result of ineffectiveness.
In June 2012, we terminated $73.1$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$2.2 million which will be recognized through 2017. As of December 31, 2013, $1.22016, $0.1 million of this gain was included in current installments of long-term debt.
Our loss in the event of nonperformance by these counterparties could be significant to our financial position and results of operations. These interest rate swaps reduced interest expense by $2.9$3.7 million, $3.4$2.8 million and $7.22.9 million for 2013, 2012 in 2016, 2015
and 2011,2014, respectively. The difference between interest paid and interest received is included as an adjustment to interest expense.
PENSION PLANS
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic employees participate in defined contribution pension plans. We provideHowever, a contribution to an individual retirement contribution account maintained with the CEOP primarily equal to 5% of the employee’s eligible compensation if such employee is less than age 45, and 7.5% of the employee’s eligible compensation if such employee is age 45 or older. The defined contribution pension plans expense was $15.4 million, $15.1 million and $14.6 million for 2013, 2012 and 2011, respectively.
A portion of our bargaining hourly employees continue to participate in our domestic defined benefit pension plans under a flat-benefit formula. Our funding policy for the defined benefit pension plans is consistent with the requirements of federal laws and regulations. Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with statutory practices.
Our domestic 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).
Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
During the fourth quarter of 2014, the Society of Actuaries (SOA) issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the U.S. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) became law. The new law changeschanged the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation, and potentially reducing or eliminating the minimum annual funding requirement. The new law also increased premiums paid to the PBGC. During the third quarter of 2014, the “Highway and Transportation Funding Act” (HATFA 2014) became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief.
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2014 and under the new law may not be required to make any additional contributions for at least the next five years.2017.
As part of the acquisition of KA Steel, as of December 31, 2013, weWe have recorded a contingent liability of $10.0 million for the withdrawal from a multi-employerinternational qualified defined benefit pension plan.plans to which we made cash contributions of $1.3 million and $0.9 million in 2016 and 2015, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2017.
As of December 31, 2013, we have a $0.9 million liability associated with an agreement to withdrawthe Closing Date and as part of the Acquisition, our Henderson, NV chlor alkali hourly workforce from a multi-employerdomestic qualified defined benefit pension plan assumed certain domestic qualified defined benefit pension obligations and assets related to active employees and certain terminated, vested retirees of the Acquired Business with a net liability of $281.7 million. In connection therewith, pension assets were transferred from TDCC’s domestic qualified defined benefit pension plans to our domestic qualified defined benefit pension plan. Immediately prior to the Acquisition, the Acquired Business’s participant accounts assumed in the Acquisition were closed to new participants and were no longer accruing additional benefits.
Also as of the Closing Date, we assumed certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany, Switzerland and other international locations who transferred to Olin in connection with the Acquisition. The net liability assumed as of the Closing Date was $160.6 million.
Pension Obligations and Funded Status
Changes in the benefit obligation and plan assets were as follows:
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| Change in Benefit Obligation | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Benefit obligation at beginning of year | $ | 2,070.8 |
| | $ | 68.4 |
| | $ | 2,139.2 |
| | $ | 1,884.9 |
| | $ | 64.5 |
| | $ | 1,949.4 |
| $ | 2,458.5 |
| | $ | 227.4 |
| | $ | 2,685.9 |
| | $ | 2,116.5 |
| | $ | 66.3 |
| | $ | 2,182.8 |
|
| Service cost | 2.8 |
| | 0.6 |
| | 3.4 |
| | 2.8 |
| | 0.7 |
| | 3.5 |
| 1.3 |
| | 7.6 |
| | 8.9 |
| | 2.1 |
| | 2.2 |
| | 4.3 |
|
| Interest cost | 78.4 |
| | 2.7 |
| | 81.1 |
| | 89.2 |
| | 2.8 |
| | 92.0 |
| 82.4 |
| | 5.3 |
| | 87.7 |
| | 80.2 |
| | 3.1 |
| | 83.3 |
|
| Actuarial (gain) loss | (107.7 | ) | | (1.7 | ) | | (109.4 | ) | | 220.8 |
| | 2.3 |
| | 223.1 |
| 88.7 |
| | 20.4 |
| | 109.1 |
| | (45.8 | ) | | 1.8 |
| | (44.0 | ) |
| Benefits paid | (127.8 | ) | | (3.5 | ) | | (131.3 | ) | | (126.9 | ) | | (3.3 | ) | | (130.2 | ) | (132.2 | ) | | (3.4 | ) | | (135.6 | ) | | (205.6 | ) | | (2.8 | ) | | (208.4 | ) |
| Curtailments/settlements | | — |
| | — |
| | — |
| | 12.6 |
| | 0.1 |
| | 12.7 |
|
| Plan participant’s contributions | | — |
| | 0.9 |
| | 0.9 |
| | — |
| | — |
| | — |
|
| Plan amendments | | — |
| | (1.2 | ) | | (1.2 | ) | | — |
| | — |
| | — |
|
| Business combination | | (32.5 | ) | | — |
| | (32.5 | ) | | 498.5 |
| | 171.4 |
| | 669.9 |
|
| Currency translation adjustments | — |
| | (4.3 | ) | | (4.3 | ) | | — |
| | 1.4 |
| | 1.4 |
| — |
| | (6.0 | ) | | (6.0 | ) | | — |
| | (14.7 | ) | | (14.7 | ) |
| Benefit obligation at end of year | $ | 1,916.5 |
| | $ | 62.2 |
| | $ | 1,978.7 |
| | $ | 2,070.8 |
| | $ | 68.4 |
| | $ | 2,139.2 |
| $ | 2,466.2 |
| | $ | 251.0 |
| | $ | 2,717.2 |
| | $ | 2,458.5 |
| | $ | 227.4 |
| | $ | 2,685.9 |
|
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| Change in Plan Assets | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Fair value of plans’ assets at beginning of year | $ | 1,912.5 |
| | $ | 68.5 |
| | $ | 1,981.0 |
| | $ | 1,842.6 |
| | $ | 64.3 |
| | $ | 1,906.9 |
| $ | 1,974.0 |
| | $ | 62.5 |
| | $ | 2,036.5 |
| | $ | 1,915.4 |
| | $ | 63.3 |
| | $ | 1,978.7 |
|
| Actual return on plans’ assets | 10.7 |
| | 0.3 |
| | 11.0 |
| | 193.0 |
| | 5.1 |
| | 198.1 |
| 191.5 |
| | 3.5 |
| | 195.0 |
| | (25.4 | ) | | 0.4 |
| | (25.0 | ) |
| Employer contributions | 3.2 |
| | 1.2 |
| | 4.4 |
| | 3.8 |
| | 1.0 |
| | 4.8 |
| 6.4 |
| | 2.0 |
| | 8.4 |
| | 77.6 |
| | 1.0 |
| | 78.6 |
|
| Benefits paid | (127.8 | ) | | (3.5 | ) | | (131.3 | ) | | (126.9 | ) | | (3.3 | ) | | (130.2 | ) | (132.2 | ) | | (3.4 | ) | | (135.6 | ) | | (205.6 | ) | | (2.8 | ) | | (208.4 | ) |
| Business combination | | (27.7 | ) | | — |
| | (27.7 | ) | | 212.0 |
| | 10.8 |
| | 222.8 |
|
| Currency translation adjustments | — |
| | (4.4 | ) | | (4.4 | ) | | — |
| | 1.4 |
| | 1.4 |
| — |
| | 1.9 |
| | 1.9 |
| | — |
| | (10.2 | ) | | (10.2 | ) |
| Fair value of plans’ assets at end of year | $ | 1,798.6 |
| | $ | 62.1 |
| | $ | 1,860.7 |
| | $ | 1,912.5 |
| | $ | 68.5 |
| | $ | 1,981.0 |
| $ | 2,012.0 |
| | $ | 66.5 |
| | $ | 2,078.5 |
| | $ | 1,974.0 |
| | $ | 62.5 |
| | $ | 2,036.5 |
|
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| Funded Status | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Qualified plans | $ | (57.6 | ) | | $ | 1.7 |
| | $ | (55.9 | ) | | $ | (93.5 | ) | | $ | 2.1 |
| | $ | (91.4 | ) | $ | (450.6 | ) | | $ | (182.6 | ) | | $ | (633.2 | ) | | $ | (480.8 | ) | | $ | (163.5 | ) | | $ | (644.3 | ) |
| Non-qualified plans | (60.3 | ) | | (1.8 | ) | | (62.1 | ) | | (64.8 | ) | | (2.0 | ) | | (66.8 | ) | (3.6 | ) | | (1.9 | ) | | (5.5 | ) | | (3.7 | ) | | (1.4 | ) | | (5.1 | ) |
| Total funded status | $ | (117.9 | ) | | $ | (0.1 | ) | | $ | (118.0 | ) | | $ | (158.3 | ) | | $ | 0.1 |
| | $ | (158.2 | ) | $ | (454.2 | ) | | $ | (184.5 | ) | | $ | (638.7 | ) | | $ | (484.5 | ) | | $ | (164.9 | ) | | $ | (649.4 | ) |
Under ASC 715 we recorded an $8.9a $40.7 million after-tax charge ($14.466.1 million pretax) to shareholders’ equity as of December 31, 20132016 for our pension plans. This charge reflected a 30-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2016. In 2015, we recorded a $78.8 million after-tax charge ($125.4 million pretax) to shareholders’ equity as of December 31, 2015 for our pension plans. This charge reflected unfavorable performance on plan assets during 2013,2015 partially offset by a 60-basis50-basis point decrease in the domestic pension plans’ discount rate.
The $109.1 million actuarial loss for 2016 was primarily due to a 30-basis point decrease in the domestic pension plans’ discount rate. The $44.0 million actuarial gain for 2015 was primarily due to a 50-basis point increase in the plans’ discount rate. In 2012, we recorded a $99.0 million after-tax charge ($162.0 million pretax) to shareholders’ equity as of December 31, 2012 for our pension plans. This charge reflected a 100-basis point decrease in the plans’ discount rate and an unfavorable actuarial assumption change related to mortality tables, partially offset by the favorable performance on plan assets during 2012.
rate. The $109.4$12.7 million actuarial gaincurtailments/settlements for 20132015 was primarily due to the change in control which created a 60-basis point increase inmandatory acceleration of payments under the plans’ discount rate. The $223.1 million actuarial loss for 2012 was primarily due todomestic non-qualified pension plan as a 100-basis point decrease inresult of the plans’ discount rate and an unfavorable actuarial assumption charge related to mortality tables.Acquisition.
Amounts recognized in the consolidated balance sheets consisted of:
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Prepaid benefit cost | $ | — |
| | $ | 1.7 |
| | $ | 1.7 |
| | $ | — |
| | $ | 2.1 |
| | $ | 2.1 |
| |
| Accrued benefit in current liabilities | (14.2 | ) | | (0.1 | ) | | (14.3 | ) | | (6.0 | ) | | (0.1 | ) | | (6.1 | ) | $ | (0.4 | ) | | $ | (0.2 | ) | | $ | (0.6 | ) | | $ | (0.4 | ) | | $ | (0.1 | ) | | $ | (0.5 | ) |
| Accrued benefit in noncurrent liabilities | (103.7 | ) | | (1.7 | ) | | (105.4 | ) | | (152.3 | ) | | (1.9 | ) | | (154.2 | ) | (453.8 | ) | | (184.3 | ) | | (638.1 | ) | | (484.1 | ) | | (164.8 | ) | | (648.9 | ) |
| Accumulated other comprehensive loss | 540.9 |
| | 20.7 |
| | 561.6 |
| | 557.0 |
| | 19.9 |
| | 576.9 |
| 743.1 |
| | 43.5 |
| | 786.6 |
| | 714.2 |
| | 26.6 |
| | 740.8 |
|
| Net balance sheet impact | $ | 423.0 |
| | $ | 20.6 |
| | $ | 443.6 |
| | $ | 398.7 |
| | $ | 20.0 |
| | $ | 418.7 |
| $ | 288.9 |
| | $ | (141.0 | ) | | $ | 147.9 |
| | $ | 229.7 |
| | $ | (138.3 | ) | | $ | 91.4 |
|
At December 31, 20132016 and 2012,2015, the benefit obligation of non-qualified pension plans was $62.1$5.5 million and $66.8$5.1 million,, respectively, and was included in the above pension benefit obligation. There were no plan assets for these non-qualified pension plans. Benefit payments for the non-qualified pension plans are expected to be as follows: 2014—2017—$14.4 million; 2015—0.6 million; 2018—$9.9 million; 2016—0.5 million; 2019—$5.5 million; 2017—0.6 million; 2020—$4.8 million;0.6 million; and 2018—2021—$3.00.3 million. Benefit payments for the qualified plans are projected to be as follows: 2014—2017—$123.3 million; 2015—135.5 million; 2018—$118.2 million; 2016—136.8 million; 2019—$113.8 million; 2017—136.9 million; 2020—$109.8 million;137.7 million; and 2018—2021—$106.2136.5 million.
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Projected benefit obligation | $ | 1,978.7 |
| | $ | 2,139.2 |
| $ | 2,717.2 |
| | $ | 2,685.9 |
|
| Accumulated benefit obligation | 1,968.9 |
| | 2,125.8 |
| 2,685.7 |
| | 2,655.0 |
|
| Fair value of plan assets | 1,860.7 |
| | 1,981.0 |
| 2,078.5 |
| | 2,036.5 |
|
| | | | Years Ended December 31, | Years Ended December 31, |
| Components of Net Periodic Benefit Income | 2013 | | 2012 | | 2011 | |
| | ($ in millions) | 2016 | | 2015 | | 2014 |
| Components of Net Periodic Benefit Costs (Income) | | ($ in millions) |
| Service cost | $ | 6.2 |
| | $ | 6.1 |
| | $ | 6.1 |
| $ | 12.3 |
| | $ | 7.8 |
| | $ | 5.3 |
|
| Interest cost | 81.1 |
| | 92.0 |
| | 94.2 |
| 87.7 |
| | 83.3 |
| | 86.5 |
|
| Expected return on plans’ assets | (137.5 | ) | | (139.5 | ) | | (139.5 | ) | (157.8 | ) | | (147.4 | ) | | (139.5 | ) |
| Amortization of prior service cost | 1.9 |
| | 2.2 |
| | 0.8 |
| — |
| | 1.6 |
| | 2.2 |
|
| Recognized actuarial loss | 27.8 |
| | 18.1 |
| | 14.8 |
| 20.7 |
| | 26.2 |
| | 20.3 |
|
| Curtailments | — |
| | — |
| | 1.1 |
| |
| Net periodic benefit income | $ | (20.5 | ) | | $ | (21.1 | ) | | $ | (22.5 | ) | |
| Curtailments/settlements | | — |
| | 47.2 |
| | 0.2 |
|
| Net periodic benefit costs (income) | | $ | (37.1 | ) | | $ | 18.7 |
| | $ | (25.0 | ) |
| | | | | | | | | | | |
| Included in Other Comprehensive Loss (Pretax) | | | | | | | | | | |
| Liability adjustment | $ | 14.4 |
| | $ | 162.0 |
| | $ | 41.8 |
| $ | 66.1 |
| | $ | 125.4 |
| | $ | 138.9 |
|
| Amortization of prior service costs and actuarial losses | (29.7 | ) | | (20.3 | ) | | (16.7 | ) | (20.7 | ) | | (62.4 | ) | | (22.7 | ) |
The $47.2 million curtailments/settlements for 2015 were due to a settlement of $47.1 million of costs incurred as a result of the change in control which created a mandatory acceleration of payments under the domestic non-qualified pension plan as a result of the Acquisition. These charges were included in acquisition-related costs. Also, for the years ended December 31, 2015 and 2014, we recorded a curtailment charge of $0.1 million and $0.2 million, respectively, associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. These charges were included in restructuring charges.
The defined benefit pension plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit income in 20142017 will be approximately $22 million.
In June 2011, we recorded a curtailment charge of $1.1 million related to the ratification of a new five and one half year Winchester, East Alton, IL union labor agreement. This curtailment charge was included in restructuring charges.$27 million.
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.
Pension Plan Assumptions
Certain actuarial assumptions, such as discount rate and long-term rate of return on plan assets, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts. We use a measurement date of December 31 for our pension plans.
| | | | U.S. Pension Benefits | | Foreign Pension Benefits | U.S. Pension Benefits | | Foreign Pension Benefits |
Weighted Average Assumptions: | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | |
| Weighted-Average Assumptions | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Discount rate—periodic benefit cost | 3.9 | % | | 4.9 | % | | 5.3 | % | | 4.2 | % | | 4.4 | % | | 5.5 | % | 4.4%(1) |
| | 3.9 | % | | 4.5 | % | | 2.7 | % | | 2.8 | % | | 4.8 | % |
| Expected return on assets | 7.75 | % | | 8.0 | % | | 8.25 | % | | 7.75 | % | | 8.0 | % | | 8.0 | % | 7.75 | % | | 7.75 | % | | 7.75 | % | | 6.0 | % | | 6.0 | % | | 7.50 | % |
| Rate of compensation increase | 3.0 | % | | 3.0 | % | | 3.0 | % | | 3.5 | % | | 3.5 | % | | 3.5 | % | 3.0 | % | | 3.0 | % | | 3.0 | % | | 3.0 | % | | 3.0 | % | | 3.5 | % |
| Discount rate—benefit obligation | 4.5 | % | | 3.9 | % | | 4.9 | % | | 4.8 | % | | 4.2 | % | | 4.4 | % | 4.1 | % | | 4.4 | % | | 3.9 | % | | 2.3 | % | | 2.7 | % | | 3.9 | % |
(1) The discount rate—periodic benefit cost for our domestic qualified pension plan is comprised of the discount rate used to determine interest costs of 3.5% and the discount rate used to determine service costs of 4.6%.
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least $250$250 million par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio rounded to the nearest quarter point, is used as the discount rate.
The long-term expected rate of return on plan assets represents an estimate of the long-term rate of returns on the investment portfolio consisting of equities, fixed income and alternative investments. We use long-term historical actual return information, the allocation mix of investments that comprise plan assets, and forecast estimates of long-term investment returns, including inflation rates, by reference to external sources. The historic raterates of return on plan assets hashave been 9.9%7.0% for the last 5 years, 10.1%9.1% for the last 10 years and 8.6%9.0% for the last 15 years. The following rates of return by asset class were considered in setting the long-term rate of return assumption:
|
| | | | | |
| U.S. equities | 9% | | to | | 13% |
| Non-U.S. equities | 10% | | to | | 14% |
| Fixed income/cash | 5% | | to | | 9% |
| Alternative investments | 5% | | to | | 15% |
| Absolute return strategies | 8% | | to | | 12% |
Plan Assets
Our pension plan asset allocation at December 31, 20132016 and 2012,2015 by asset class was as follows:
| | | | Percentage of Plan Assets | Percentage of Plan Assets |
| Asset Class | 2013 | | 2012 | 2016 | | 2015 |
| U.S. equities | 5 | % | | 6 | % | 19 | % | | 4 | % |
| Non-U.S. equities | 8 | % | | 7 | % | 15 | % | | 6 | % |
| Fixed income/cash | 51 | % | | 53 | % | 35 | % | | 47 | % |
| Acquisition plan receivable | | — | % | | 10 | % |
| Alternative investments | 20 | % | | 18 | % | 20 | % | | 19 | % |
| Absolute return strategies | 16 | % | | 16 | % | 11 | % | | 14 | % |
| Total | 100 | % | | 100 | % | 100 | % | | 100 | % |
The Alternative Investments asset class includes hedge funds, real estate and private equity investments. The Alternative InvestmentInvestments class is intended to help diversify risk and increase returns by utilizing a broader group of assets.
Absolute Return Strategies further diversify the plan’s assets through the use of asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.
A master trust was established by our pension plan to accumulate funds required to meet benefit payments of our plan and is administered solely in the interest of our plan’s participants and their beneficiaries. The master trust’s investment horizon is long term. Its assets are managed by professional investment managers or invested in professionally managed investment vehicles.
Our pension plan maintains a portfolio of assets designed to achieve an appropriate risk adjusted return. The portfolio of assets is also structured to protect the funding level from the negative impacts of interest rate changes on the asset and liability values. This is accomplished by investing in a portfolio of assets with a maturity duration that approximately matches the duration of the plan liabilities. Risk is managedmanage risk by diversifying assets across asset classes whose return patterns are not highly correlated, investing in passively and actively managed strategies and in value and growth styles, and by periodic rebalancing of asset classes, strategies and investment styles to objectively set targets.
As of December 31, 2013,2016, the following target allocation and ranges have been set for each asset class:
|
| | | | |
| Asset Class | Target Allocation | | Target Range |
| U.S. equities | 627 | % | | 0-1419-35 |
| Non-U.S. equities | 18 | % | | 4-35 |
| Fixed income/cash | 29 | % | | 20-80 |
| Alternative investments | 6 | % | | 0-14 |
Fixed income/cash | 61 | % | | 48-80 |
Alternative investments | 7 | % | | 0-280-32 |
| Absolute return strategies | 20 | % | | 10-30 |
We do have a small Canadian qualified defined benefit pension plan to which we made cash contributions of $1.0 million and $0.9 million in 2013 and 2012, respectively, and we anticipate approximately $1 million of cash contributions in 2014.
Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2013:2016:
| | | Asset Class | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Investments Measured at NAV(1) | | Quoted Prices
In Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total |
| | ($ in millions) | | | ($ in millions) |
| Equity securities | | | | | | | | | | | | | | | | |
| U.S. equities | $ | 83.2 |
| | $ | 14.8 |
| | $ | — |
| | $ | 98.0 |
| $ | 241.4 |
| | $ | 143.2 |
| | $ | — |
| | $ | — |
| | $ | 384.6 |
|
| Non-U.S. equities | 41.1 |
| | 112.1 |
| | — |
| | 153.2 |
| 248.6 |
| | 38.6 |
| | 29.9 |
| | — |
| | 317.1 |
|
| Fixed income / cash | | | | | | | | |
| Fixed income/cash | |
|
| | | | | | | | |
| Cash | 53.9 |
| | — |
| | — |
| | 53.9 |
| — |
| | 259.6 |
| | — |
| | — |
| | 259.6 |
|
| Government treasuries | — |
| | 398.8 |
| | 4.5 |
| | 403.3 |
| 18.2 |
| | — |
| | 169.4 |
| | — |
| | 187.6 |
|
| Corporate debt instruments | 0.4 |
| | 314.4 |
| | 21.5 |
| | 336.3 |
| 51.8 |
| | 0.2 |
| | 129.6 |
| | — |
| | 181.6 |
|
| Asset-backed securities | — |
| | 152.3 |
| | — |
| | 152.3 |
| 61.4 |
| | — |
| | 36.4 |
| | — |
| | 97.8 |
|
| Alternative investments | | | | | | | |
|
| | | | | | | | |
| Hedge fund of funds | — |
| | — |
| | 315.9 |
| | 315.9 |
| 380.6 |
| | — |
| | — |
| | — |
| | 380.6 |
|
| Real estate funds | — |
| | — |
| | 35.7 |
| | 35.7 |
| 22.5 |
| | — |
| | — |
| | — |
| | 22.5 |
|
| Private equity funds | — |
| | — |
| | 17.9 |
| | 17.9 |
| 16.4 |
| | — |
| | — |
| | — |
| | 16.4 |
|
| Absolute return strategies | — |
| | 275.5 |
| | 18.7 |
| | 294.2 |
| 230.7 |
| | — |
| | — |
| | — |
| | 230.7 |
|
| Total assets | $ | 178.6 |
| | $ | 1,267.9 |
| | $ | 414.2 |
| | $ | 1,860.7 |
| $ | 1,271.6 |
| | $ | 441.6 |
| | $ | 365.3 |
| | $ | — |
| | $ | 2,078.5 |
|
The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2012:2015:
| | | Asset Class | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Investments Measured at NAV(1) | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| | ($ in millions) | | | ($ in millions) |
| Equity securities | | | | | | | | | | | | | | | | |
| U.S. equities | $ | 94.8 |
| | $ | 16.9 |
| | $ | — |
| | $ | 111.7 |
| $ | 43.2 |
| | $ | 36.4 |
| | $ | — |
| | $ | — |
| | $ | 79.6 |
|
| Non-U.S. equities | 42.9 |
| | 105.6 |
| | — |
| | 148.5 |
| 118.2 |
| | 0.8 |
| | 3.7 |
| | — |
| | 122.7 |
|
| Fixed income / cash | | | | | | | | |
| Acquisition plan receivable | | — |
| | — |
| | — |
| | 212.0 |
| | 212.0 |
|
| Fixed income/cash | |
|
| | | | | | | | |
| Cash | 38.2 |
| | — |
| | — |
| | 38.2 |
| — |
| | 60.1 |
| | — |
| | — |
| | 60.1 |
|
| Government treasuries | — |
| | 501.7 |
| | 5.6 |
| | 507.3 |
| 41.7 |
| | — |
| | 385.9 |
| | — |
| | 427.6 |
|
| Corporate debt instruments | 1.8 |
| | 358.0 |
| | 12.2 |
| | 372.0 |
| 52.8 |
| | 0.3 |
| | 261.1 |
| | — |
| | 314.2 |
|
| Asset-backed securities | — |
| | 141.9 |
| | — |
| | 141.9 |
| 118.6 |
| | — |
| | 37.0 |
| | — |
| | 155.6 |
|
| Alternative investments | | | | | | | |
|
| | | | | | | | |
| Hedge fund of funds | — |
| | — |
| | 286.9 |
| | 286.9 |
| 335.6 |
| | — |
| | — |
| | — |
| | 335.6 |
|
| Real estate funds | — |
| | — |
| | 38.2 |
| | 38.2 |
| 27.4 |
| | — |
| | — |
| | — |
| | 27.4 |
|
| Private equity funds | — |
| | — |
| | 18.5 |
| | 18.5 |
| 18.4 |
| | — |
| | — |
| | — |
| | 18.4 |
|
| Absolute return strategies | — |
| | 277.0 |
| | 40.8 |
| | 317.8 |
| 283.3 |
| | — |
| | — |
| | — |
| | 283.3 |
|
| Total assets | $ | 177.7 |
| | $ | 1,401.1 |
| | $ | 402.2 |
| | $ | 1,981.0 |
| $ | 1,039.2 |
| | $ | 97.6 |
| | $ | 687.7 |
| | $ | 212.0 |
| | $ | 2,036.5 |
|
| |
| (1) | Investments measured at net asset value (NAV) as a practical expedient reflect the adoption of ASU 2015-07, which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted. |
U.S. equities—This class included actively and passively managed equity investments in common stock and commingled funds comprised primarily of large-capitalization stocks with value, core and growth strategies.
Non-U.S. equities—This class included actively managed equity investments in commingled funds comprised primarily of international large-capitalization stocks from both developed and emerging markets.
Acquisition plan receivable—This class included pension assets which will be transferred from TDCC’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee in the form of cash related to the Acquisition. As of December 31, 2015, this amount was subject to certain post-closing adjustments. During 2016, assets of $184.3 million were transferred from TDCC’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee, resulting in the settlement of the acquisition plan receivable.
Fixed income and cash—This class included commingled funds comprised of debt instruments issued by the U.S. and Canadian Treasuries, U.S. Agencies, corporate debt instruments, asset- and mortgage-backed securities and cash.
Hedge fund of funds—This class included a hedge fund which invests in the following types of hedge funds:
Event driven hedge funds—This class included hedge funds that invest in securities to capture excess returns that are driven by market or specific company events including activist investment philosophies and the arbitrage of equity and private and public debt securities.
Market neutral hedge funds—This class included investments in U.S. and international equities and fixed income securities while maintaining a market neutral position in those markets.
Other hedge funds—This class primarily included long-short equity strategies and a global macro fund which invested in fixed income, equity, currency, commodity and related derivative markets.
At December 31, 2013 and 2012, the asset allocation included investment in approximately 20% event driven hedge funds, 35% market neutral hedge funds and 45% other hedge funds.
Real estate funds—This class included several funds that invest primarily in U.S. commercial real estate.
Private equity funds—This class included several private equity funds that invest primarily in infrastructure and U.S. power generation and transmission assets.
Absolute return strategies—This class included multiple strategies which use asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes. At December 31, 2013, the asset allocation included investment in approximately 20% equities, 60% cash and fixed income and 20% alternative investments. At December 31, 2012, the asset allocation included investments in approximately 25% equities, 65% cash and fixed income and 10% alternative investments.
U.S. equities and non-U.S. equities are primarily valued at the net asset value provided by the independent administrator or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on an active market. U.S. equities are also valued at the closing price reported in an active market on which the individual securities are traded. FixedA portion of our fixed income investments are primarily valued at the net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for risks that may not be observable such as certain credit and liquidity risks. Alternative investments are primarily valued at the net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments, discounted future cash flows, independent appraisals and market-based comparable data. Absolute return strategies are commingled funds which reflect the fair value of our ownership interest in these funds. The investments in these commingled funds include some or all of the above asset classes and are primarily valued at net asset values based on the underlying investments, which are valued consistent with the methodologies described above for each asset class.
The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2013:2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31,
2012 | | Realized Gain/(Loss) | | Unrealized Gain/(Loss) Relating to Assets Held at Period End | | Purchases, Sales, and Settlements | | Transfers In/(Out) | | December 31, 2013 |
| | ($ in millions) |
| Fixed income / cash | | | | | | | | | | | |
| Government treasuries | $ | 5.6 |
| | $ | 0.1 |
| | $ | (1.1 | ) | | $ | (0.1 | ) | | $ | — |
| | $ | 4.5 |
|
| Corporate debt instruments | 12.2 |
| | — |
| | 1.3 |
| | 8.0 |
| | — |
| | 21.5 |
|
| Alternative investments | | | | | | | | | | | |
| Hedge fund of funds | 286.9 |
| | — |
| | 29.0 |
| | — |
| | — |
| | 315.9 |
|
| Real estate funds | 38.2 |
| | 1.0 |
| | 1.9 |
| | (5.4 | ) | | — |
| | 35.7 |
|
| Private equity funds | 18.5 |
| | 0.8 |
| | (0.5 | ) | | (0.9 | ) | | — |
| | 17.9 |
|
| Absolute return strategies | 40.8 |
| | 9.4 |
| | (7.0 | ) | | (24.5 | ) | | — |
| | 18.7 |
|
| Total level 3 assets | $ | 402.2 |
| | $ | 11.3 |
| | $ | 23.6 |
| | $ | (22.9 | ) | | $ | — |
| | $ | 414.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | Realized
Gain/(Loss) | | Unrealized Gain/(Loss) Relating to Assets Held at Period End | | Purchases, Sales, Settlements, and Other | | Transfers
In/(Out) | | December 31, 2016 |
| | ($ in millions) |
| Acquisition plan receivable | $ | 212.0 |
| | $ | — |
| | $ | — |
| | $ | (212.0 | ) | | $ | — |
| | $ | — |
|
The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2012:2015:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2011 | | Realized Gain/(Loss) | | Unrealized Gain/(Loss) Relating to Assets Held at Period End | | Purchases, Sales, and Settlements | | Transfers In/(Out) | | December 31, 2012 |
| | ($ in millions) |
| Fixed income / cash | | | | | | | | | | | |
| Government treasuries | $ | 5.5 |
| | $ | — |
| | $ | 0.5 |
| | $ | (0.4 | ) | | $ | — |
| | $ | 5.6 |
|
| Corporate debt instruments | 2.9 |
| | 0.3 |
| | 0.1 |
| | 8.9 |
| | — |
| | 12.2 |
|
| Alternative investments | | | | | | | | | | | |
| Hedge fund of funds | 258.3 |
| | — |
| | 25.6 |
| | 3.0 |
| | — |
| | 286.9 |
|
| Real estate funds | 33.9 |
| | 0.8 |
| | 2.4 |
| | 1.1 |
| | — |
| | 38.2 |
|
| Private equity funds | 16.8 |
| | — |
| | 1.3 |
| | 0.4 |
| | — |
| | 18.5 |
|
| Absolute return strategies | 35.2 |
| | — |
| | 3.0 |
| | 2.6 |
| | — |
| | 40.8 |
|
| Total level 3 assets | $ | 352.6 |
| | $ | 1.1 |
| | $ | 32.9 |
| | $ | 15.6 |
| | $ | — |
| | $ | 402.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 | | Realized Gain/(Loss) | | Unrealized Gain/(Loss) Relating to Assets Held at Period End | | Purchases, Sales, Settlements, and Other | | Transfers In/(Out) | | December 31, 2015 |
| | ($ in millions) |
| Acquisition plan receivable | $ | — |
| | $ | — |
| | $ | — |
| | $ | 212.0 |
| | $ | — |
| | $ | 212.0 |
|
POSTRETIREMENT BENEFITS
We provide certain postretirement health carehealthcare (medical) and life insurance benefits for eligible active and retired domestic employees. The health carehealthcare plans are contributory with participants’ contributions adjusted annually based on medical rates of inflation and plan experience. We use a measurement date of December 31 for our postretirement plans.
Effective as of December 31, 2015, we changed the approach used to measure service and interest costs for our other postretirement benefits. For the year ended December 31, 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Beginning in 2016 for our other postretirement benefits, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
Other Postretirement Benefits Obligations and Funded Status
Changes in the benefit obligation were as follows:
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| Change in Benefit Obligation | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Benefit obligation at beginning of year | $ | 65.5 |
| | $ | 9.5 |
| | $ | 75.0 |
| | $ | 63.3 |
| | $ | 11.6 |
| | $ | 74.9 |
| $ | 53.9 |
| | $ | 8.1 |
| | $ | 62.0 |
| | $ | 58.5 |
| | $ | 8.7 |
| | $ | 67.2 |
|
| Service cost | 1.2 |
| | 0.1 |
| | 1.3 |
| | 1.1 |
| | 0.1 |
| | 1.2 |
| 0.8 |
| | 0.4 |
| | 1.2 |
| | 1.1 |
| | 0.1 |
| | 1.2 |
|
| Interest cost | 2.2 |
| | 0.4 |
| | 2.6 |
| | 2.7 |
| | 0.4 |
| | 3.1 |
| 1.2 |
| | 0.4 |
| | 1.6 |
| | 2.0 |
| | 0.3 |
| | 2.3 |
|
| Actuarial (gain) loss | (1.5 | ) | | (0.4 | ) | | (1.9 | ) | | 7.4 |
| | (2.5 | ) | | 4.9 |
| |
| Actuarial loss (gain) | | (5.1 | ) | | — |
| | (5.1 | ) | | (0.7 | ) | | 0.7 |
| | — |
|
| Benefits paid | (8.4 | ) | | (0.4 | ) | | (8.8 | ) | | (9.0 | ) | | (0.4 | ) | | (9.4 | ) | (7.2 | ) | | (0.4 | ) | | (7.6 | ) | | (7.0 | ) | | (0.3 | ) | | (7.3 | ) |
| Currency translation adjustments | — |
| | (0.6 | ) | | (0.6 | ) | | — |
| | 0.3 |
| | 0.3 |
| — |
| | 0.1 |
| | 0.1 |
| | — |
| | (1.5 | ) | | (1.5 | ) |
| Curtailment | | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | 0.1 |
|
| Benefit obligation at end of year | $ | 59.0 |
| | $ | 8.6 |
| | $ | 67.6 |
| | $ | 65.5 |
| | $ | 9.5 |
| | $ | 75.0 |
| $ | 43.6 |
| | $ | 8.6 |
| | $ | 52.2 |
| | $ | 53.9 |
| | $ | 8.1 |
| | $ | 62.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | December 31, 2012 |
| | ($ in millions) | | ($ in millions) |
| | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Funded status | $ | (59.0 | ) | | $ | (8.6 | ) | | $ | (67.6 | ) | | $ | (65.5 | ) | | $ | (9.5 | ) | | $ | (75.0 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) |
| | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Funded status | $ | (43.6 | ) | | $ | (8.6 | ) | | $ | (52.2 | ) | | $ | (53.9 | ) | | $ | (8.1 | ) | | $ | (62.0 | ) |
Under ASC 715 we recorded a $1.2$3.2 million after-tax benefit ($1.95.1 million pretax) to shareholders’ equity as of December 31, 20132016 for our other postretirement plans. In 2012,2015, we recorded a $2.9an after-tax benefit of less than $0.1 million after-tax charge ($4.8 ($0.1 million pretax) to shareholders’ equity as of December 31, 20122015 for our other postretirement plans.
Amounts recognized in the consolidated balance sheets consisted of:
| | | | December 31, 2013 | | December 31, 2012 | December 31, 2016 | | December 31, 2015 |
| | ($ in millions) | | ($ in millions) | ($ in millions) | | ($ in millions) |
| | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
| Accrued benefit in current liabilities | $ | (5.4 | ) | | $ | (0.3 | ) | | $ | (5.7 | ) | | $ | (5.8 | ) | | $ | (0.3 | ) | | $ | (6.1 | ) | $ | (4.8 | ) | | $ | (0.3 | ) | | $ | (5.1 | ) | | $ | (5.3 | ) | | $ | (0.3 | ) | | $ | (5.6 | ) |
| Accrued benefit in noncurrent liabilities | (53.6 | ) | | (8.3 | ) | | (61.9 | ) | | (59.7 | ) | | (9.2 | ) | | (68.9 | ) | (38.8 | ) | | (8.3 | ) | | (47.1 | ) | | (48.6 | ) | | (7.8 | ) | | (56.4 | ) |
| Accumulated other comprehensive loss | 34.1 |
| | (1.2 | ) | | 32.9 |
| | 39.2 |
| | (0.8 | ) | | 38.4 |
| 24.8 |
| | 0.3 |
| | 25.1 |
| | 29.7 |
| | 0.2 |
| | 29.9 |
|
| Net balance sheet impact | $ | (24.9 | ) | | $ | (9.8 | ) | | $ | (34.7 | ) | | $ | (26.3 | ) | | $ | (10.3 | ) | | $ | (36.6 | ) | $ | (18.8 | ) | | $ | (8.3 | ) | | $ | (27.1 | ) | | $ | (24.2 | ) | | $ | (7.9 | ) | | $ | (32.1 | ) |
| | | | | | | | | Years Ended December 31, |
| | Years Ended December 31, | 2016 | | 2015 | | 2014 |
| Components of Net Periodic Benefit Cost | 2013 | | 2012 | | 2011 | ($ in millions) |
| | ($ in millions) | |
| Service cost | $ | 1.3 |
| | $ | 1.2 |
| | $ | 1.3 |
| $ | 1.2 |
| | $ | 1.2 |
| | $ | 1.1 |
|
| Interest cost | 2.6 |
| | 3.1 |
| | 3.5 |
| 1.6 |
| | 2.3 |
| | 2.7 |
|
| Amortization of prior service cost | (0.1 | ) | | (0.1 | ) | | (0.2 | ) | (2.6 | ) | | — |
| | (0.1 | ) |
| Recognized actuarial loss | 3.7 |
| | 3.2 |
| | 3.2 |
| 2.3 |
| | 3.1 |
| | 2.9 |
|
| Curtailment | | — |
| | 0.1 |
| | — |
|
| Net periodic benefit cost | $ | 7.5 |
| | $ | 7.4 |
| | $ | 7.8 |
| $ | 2.5 |
| | $ | 6.7 |
| | $ | 6.6 |
|
| | | | | | | | | | | |
| Included in Other Comprehensive Loss (Pretax) | | | | | | | | | | |
| Liability adjustment | $ | (1.9 | ) | | $ | 4.8 |
| | $ | 5.0 |
| $ | (5.1 | ) | | $ | (0.1 | ) | | $ | 3.1 |
|
| Amortization of prior service costs and actuarial losses | (3.6 | ) | | (3.1 | ) | | (3.0 | ) | 0.3 |
| | (3.2 | ) | | (2.8 | ) |
For the year ended December 31, 2015, we recorded a curtailment charge of $0.1 million associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. This charge was included in restructuring charges.
The other postretirement plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit cost in 20142017 will be approximately $4$3 million.
The service cost and amortization of prior service cost components of postretirement benefit expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data.
Other Postretirement Benefits Plan Assumptions
Certain actuarial assumptions, such as discount rate, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts.
| | | | December 31, | December 31, |
Weighted Average Assumptions: | 2013 | | 2012 | | 2011 | |
| Weighted-Average Assumptions | | 2016 | | 2015 | | 2014 |
| Discount rate—periodic benefit cost | 3.6 | % | | 4.6 | % | | 4.9 | % | 4.1 | % | | 3.7 | % | | 4.3 | % |
| Discount rate—benefit obligation | 4.3 | % | | 3.6 | % | | 4.6 | % | 3.8 | % | | 4.1 | % | | 3.7 | % |
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least $250$250 million par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio rounded to the nearest quarter point, is used as the discount rate.
We review external data and our own internal trends for healthcare costs to determine the healthcare cost for the post retirement benefit obligation. The assumed healthcare cost trend rates for pre-65 retirees were as follows:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Healthcare cost trend rate assumed for next year | 9.0 | % | | 9.0 | % | 8.0 | % | | 8.5 | % |
| Rate that the cost trend rate gradually declines to | 5.0 | % | | 5.0 | % | 5.0 | % | | 5.0 | % |
| Year that the rate reaches the ultimate rate | 2021 |
| | 2020 |
| 2022 |
| | 2022 |
|
For post-65 retirees, we provide a fixed dollar benefit, which is not subject to escalation.
Assumed healthcare cost trend rates have an effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
| | | | One-Percentage Point Increase | | One-Percentage Point Decrease | One-Percentage
Point Increase | | One-Percentage
Point Decrease |
| | ($ in millions) | ($ in millions) |
| Effect on total of service and interest costs | $ | 0.2 |
| | $ | (0.2 | ) | $ | 0.6 |
| | $ | (0.4 | ) |
| Effect on postretirement benefit obligation | 3.4 |
| | (2.9 | ) | 2.1 |
| | (1.8 | ) |
We expect to make payments of approximately $6$5 million for each of the next five years under the provisions of our other postretirement benefit plans.
INCOME TAXES
|
| | | | | | | | | | | |
| | Years ended December 31, |
| Components of Income Before Taxes | 2013 | | 2012 | | 2011 |
| | ($ in millions) |
| Domestic | $ | 222.2 |
| | $ | 189.9 |
| | $ | 360.3 |
|
| Foreign | 27.8 |
| | 35.3 |
| | 19.1 |
|
| Income before taxes | $ | 250.0 |
| | $ | 225.2 |
| | $ | 379.4 |
|
| Components of Income Tax Provision | | | | | |
| Current expense: | | | | | |
| Federal | $ | 42.1 |
| | $ | 16.9 |
| | $ | 36.4 |
|
| State | 9.4 |
| | 4.3 |
| | 5.7 |
|
| Foreign | 8.5 |
| | 10.4 |
| | 5.5 |
|
| | 60.0 |
| | 31.6 |
| | 47.6 |
|
| Deferred | 11.4 |
| | 44.0 |
| | 90.1 |
|
| Income tax provision | $ | 71.4 |
| | $ | 75.6 |
| | $ | 137.7 |
|
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Components of Income (Loss) from Continuing Operations Before Taxes | ($ in millions) |
| Domestic | $ | (23.3 | ) | | $ | (66.9 | ) | | $ | 164.4 |
|
| Foreign | (10.9 | ) | | 73.6 |
| | (1.7 | ) |
| Income (loss) from continuing operations before taxes | $ | (34.2 | ) | | $ | 6.7 |
| | $ | 162.7 |
|
| Components of Income Tax (Benefit) Provision | | | | | |
| Current expense (benefit): | | | | | |
| Federal | $ | (11.6 | ) | | $ | (16.6 | ) | | $ | 25.9 |
|
| State | 0.9 |
| | 1.2 |
| | 1.3 |
|
| Foreign | 15.7 |
| | 14.4 |
| | 5.3 |
|
| | 5.0 |
| | (1.0 | ) | | 32.5 |
|
| Deferred (benefit) expense: | | | | | |
| Federal | $ | (10.1 | ) | | $ | 8.9 |
| | $ | 26.9 |
|
| State | (5.1 | ) | | (2.4 | ) | | 3.0 |
|
| Foreign | (20.1 | ) | | 2.6 |
| | (4.7 | ) |
| (35.3 | ) | | 9.1 |
| | 25.2 |
|
| Income tax (benefit) provision | $ | (30.3 | ) | | $ | 8.1 |
| | $ | 57.7 |
|
The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of 35% to the income (loss) from continuing operations before taxes.
| | | | Years ended December 31, | Years ended December 31, |
| Effective Tax Rate Reconciliation (Percent) | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Statutory federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net | | 8.0 |
| | (38.2 | ) | | 2.4 |
|
| Foreign rate differential | (0.1 | ) | | (0.1 | ) | | (0.1 | ) | (25.1 | ) | | (129.8 | ) | | 0.4 |
|
| U.S. tax on foreign earnings | | 24.4 |
| | 128.6 |
| | (0.6 | ) |
| Domestic manufacturing/export tax incentive | (1.6 | ) | | (1.0 | ) | | (1.0 | ) | — |
| | — |
| | (1.8 | ) |
| Salt depletion | | 45.4 |
| | (38.8 | ) | | (0.5 | ) |
| Non-deductible transaction costs | | — |
| | 133.1 |
| | — |
|
| Change in valuation allowance | | (0.7 | ) | | 27.9 |
| | 1.1 |
|
| Remeasurement of deferred taxes | | 9.4 |
| | 7.6 |
| | 0.4 |
|
| Change in tax contingencies | | (9.7 | ) | | 5.0 |
| | (0.3 | ) |
| Dividends paid to CEOP | (0.3 | ) | | (0.4 | ) | | (0.3 | ) | 2.8 |
| | (11.1 | ) | | (0.5 | ) |
| State income taxes, net | 2.3 |
| | 1.3 |
| | 1.1 |
| |
| Change in tax contingencies | (3.8 | ) | | 0.5 |
| | (1.1 | ) | |
| Change in valuation allowance | (2.1 | ) | | 0.1 |
| | 0.1 |
| |
| Return to provision | (0.1 | ) | | — |
| | 0.5 |
| 5.3 |
| | (4.2 | ) | | (0.7 | ) |
| Remeasurement of deferred taxes | 0.1 |
| | 0.7 |
| | (1.3 | ) | |
| Research tax credit | (0.8 | ) | | — |
| | — |
| 0.6 |
| | (3.1 | ) | | — |
|
| Section 45O tax credit | — |
| | (3.0 | ) | | — |
| |
| Australia dividend residual tax expense | — |
| | 0.3 |
| | — |
| |
| Incremental tax effect of SunBelt remeasurement | — |
| | — |
| | 3.3 |
| |
| Other, net | — |
| | 0.2 |
| | 0.1 |
| (6.8 | ) | | 8.9 |
| | 0.6 |
|
| Effective tax rate | 28.6 | % | | 33.6 | % | | 36.3 | % | 88.6 | % | | 120.9 | % | | 35.5 | % |
The effective tax rate from continuing operations for 2016 included a benefit of $4.8 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The return to provision adjustment for 2016 included $14.9 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 from continuing operations for 2016 also included an expense of $4.1 million related to changes in uncertain tax positions for prior tax years and a benefit of $3.2 million related to the remeasurement of deferred taxes due to a decrease in our state effective tax rates. The effective tax rate from continuing operations for 2015 included $8.9 million of expense associated with certain transaction costs related to the Acquisition that are not deductible for U.S. tax purposes partially offset by $2.6 million of benefit associated with salt depletion deductions. The effective tax rate from continuing operations for 2014 included $1.2 million of benefit associated with return to provision adjustments for the
finalization of our 2013 included $11.4U.S. federal and state income tax returns and $0.7 million of benefit associated with the expiration of the statutes of limitations in federal and state jurisdictions, $8.3 million of benefit associated with reductions in valuation allowances on our capital loss carryforwards and $1.9 million of benefit associated with the Research Credit, whichjurisdictions. These items were partially offset by $1.8 million of expense associated with changes in tax contingencies and $1.3$0.8 million of expense associated with increases in valuation allowances on certain state tax credits carryforwards. Thecredit balances, primarily due to a change in state tax law, and $0.6 million of expense related to the remeasurement of deferred taxes due to an increase in state effective tax rate for 2012 included a benefit of $6.6 million associated with Section 45O that was claimed on our 2008 to 2012 U.S. federal income tax returns.rates.
| | | | December 31, | December 31, |
| Components of Deferred Tax Assets and Liabilities | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Deferred tax assets: | | |
| Pension and postretirement benefits | $ | 74.6 |
| | $ | 93.3 |
| $ | 226.1 |
| | $ | 235.2 |
|
| Environmental reserves | 60.2 |
| | 60.5 |
| 54.5 |
| | 55.3 |
|
| Asset retirement obligations | 25.7 |
| | 28.6 |
| 22.0 |
| | 21.0 |
|
| Accrued liabilities | 48.2 |
| | 43.1 |
| 53.0 |
| | 53.7 |
|
| Tax credits | 13.3 |
| | 10.8 |
| 13.2 |
| | 23.3 |
|
| Federal and state net operating losses | 7.2 |
| | 6.7 |
| |
| Net operating losses | | 105.3 |
| | 40.1 |
|
| Capital loss carryforward | 3.0 |
| | 15.5 |
| 2.8 |
| | 4.7 |
|
| Other miscellaneous items | 10.7 |
| | 5.3 |
| — |
| | 18.5 |
|
| Total deferred tax assets | 242.9 |
| | 263.8 |
| 476.9 |
| | 451.8 |
|
| Valuation allowance | (13.4 | ) | | (21.1 | ) | (29.0 | ) | | (29.3 | ) |
| Net deferred tax assets | 229.5 |
| | 242.7 |
| 447.9 |
| | 422.5 |
|
| Deferred tax liabilities: | | | | | | |
| Property, plant and equipment | 182.5 |
| | 178.9 |
| 875.5 |
| | 875.6 |
|
| Intangible amortization | 8.4 |
| | 8.8 |
| 137.3 |
| | 138.4 |
|
| Inventory and prepaids | 3.1 |
| | — |
| 13.6 |
| | 11.6 |
|
| Partnerships | 93.7 |
| | 95.0 |
| 106.3 |
| | 101.4 |
|
| Taxes on unremitted earnings | | 223.6 |
| | 294.8 |
|
| Other miscellaneous items | | 4.6 |
| | — |
|
| Total deferred tax liabilities | 287.7 |
| | 282.7 |
| 1,360.9 |
| | 1,421.8 |
|
| Net deferred tax liability | $ | (58.2 | ) | | $ | (40.0 | ) | $ | (913.0 | ) | | $ | (999.3 | ) |
Realization of the net deferred tax assets, irrespective of indefinite-lived deferred tax liabilities, is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, we believe that it is more likely than not that the net deferred tax assets will be realized.
We completed the acquisition of KA Steel on August 22, 2012, with both parties agreeing to an election under Section 338(h)(10) of the U.S. IRC, which allows us to treat the transaction as an asset acquisition for U.S. federal income tax purposes. KA Steel did not carry forward any significant tax attributes.
At December 31, 2013, we had federal tax benefits of $0.7 million recorded associated with the expected future foreign tax credits generated by the deferred tax liabilities of our Canadian subsidiary. Realization of the tax benefits associated with such foreign tax credits is dependent upon reversal of Canadian temporary differences, future U.S. taxable income and future foreign source taxable income. We believe that it is more likely than not that the deferred tax benefits will be realized and no valuation allowance is necessary.
At December 31, 2013,2016, we had a U.S. net operating loss carryforward (NOL) of approximately $3.0$198.0 million (representing $1.1$69.3 million of deferred tax assets), that will expire in years 2017 through 2020,2036, if not utilized. The utilization of this NOL is$2.5 million of the deferred tax assets are limited under Section 382 of the U.S. IRCInternal Revenue Code to $0.5$1.0 million in each year2017 and $0.5 million in 2018 through 2020. We believe that it is more likely than not that the NOL will be realized and no valuation allowance is necessary.
At December 31, 2013,2016, we had deferred state tax benefits of $1.7$13.2 million relating to state NOLs, which are available to offset future state taxable income through 2032. Due to uncertainties regarding realization of the tax benefits, a valuation allowance of $0.7 million has been applied against the deferred state tax benefits at December 31, 2013.2036.
At December 31, 2013,2016, we had deferred state tax benefits of $12.7$12.9 million relating to state tax credits, which are available to offset future state tax liabilities through 2027. Due to uncertainties regarding the realization of these state tax credits, a valuation allowance of $9.7 million has been applied against the deferred state tax credits at December 31, 2013.2031.
At December 31, 2013,2016, we had a capital loss carryforward of $7.6$7.3 million (representing $3.0$2.8 million of deferred tax assets) that iswhich are available to offset future consolidated capital gains that will expire in years 20142018 through 20182021, if not utilized. Due
At December 31, 2016, we had a NOL of approximately $89.0 million (representing $22.8 million of deferred tax assets) in various foreign jurisdictions. Of these, $21.6 million (representing $5.4 million of deferred tax assets) expire in various years from 2020 to uncertainties regarding the realization2026. The remaining $67.4 million (representing $17.4 million of the capital loss carryforward, adeferred tax assets) do not expire.
The activity of our deferred income tax valuation allowance of $3.0 million has been applied against the deferred tax benefit at December 31, 2013.was as follows:
The total amount of undistributed earnings of foreign subsidiaries was approximately $9.1 million at December 31, 2013. Deferred taxes are provided for earnings of non-U.S. affiliates when we plan to remit those earnings. A portion of the undistributed earnings have been permanently reinvested and for those earnings no deferred taxes have been provided. Deferred taxes have not been provided on the excess book basis in the shares of certain foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future. The undistributed earnings and excess book basis differences could reverse through a sale, receipt of dividends from the subsidiaries, as well as various other events. It is not practical to calculate the residual income tax that would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations. |
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | ($ in millions) |
| Beginning balance | $ | 29.3 |
| | $ | 16.6 |
|
| Charged to income tax provision | 8.4 |
| | 1.8 |
|
| Acquisition activity | (4.3 | ) | | 12.3 |
|
| Deductions from reserves - credited to income tax provision | (4.4 | ) | | (1.4 | ) |
| Ending balance | $ | 29.0 |
| | $ | 29.3 |
|
As of December 31, 2013,2016, we had $34.5$38.4 million of gross unrecognized tax benefits, which would have a net $31.1$36.7 million impact on the effective tax rate from continuing operations, if recognized. As of December 31, 2012,2015, we had $40.1$35.1 million of gross unrecognized tax benefits, which would have a net $38.4$33.5 million impact on the effective tax rate from continuing operations, if recognized. The change for 2013 primarily relates to the expiration of statue of limitations in domestic jurisdictions and settlement of ongoing audits, as well as additional gross unrecognized benefits for prior year tax positions. The change for 20122016 primarily relates to additional gross unrecognized benefits for prior year and current year tax position,positions, as well as the expirationsettlement of ongoing audits. The change for 2015 primarily relates to additional gross unrecognized benefits for prior year tax positions, as well as the statute of limitations in domestic jurisdictions and settlement of ongoing audits. The amounts of unrecognized tax benefits were as follows:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Beginning balance | $ | 40.1 |
| | $ | 37.9 |
| $ | 35.1 |
| | $ | 36.1 |
|
| Increase for current year tax positions | | 1.7 |
| | — |
|
| Increase for prior year tax positions | 4.5 |
| | 3.1 |
| 5.8 |
| | 0.2 |
|
| Reductions due to statute of limitations | (10.0 | ) | | (0.3 | ) | (0.3 | ) | | — |
|
| Decrease for prior year tax positions | (0.1 | ) | | (0.4 | ) | (1.8 | ) | | — |
|
| Increase for current year tax positions | — |
| | 0.1 |
| |
| Decrease due to tax settlements | — |
| | (0.3 | ) | (2.1 | ) | | (1.2 | ) |
| Ending balance | $ | 34.5 |
| | $ | 40.1 |
| $ | 38.4 |
| | $ | 35.1 |
|
Income from discontinued operations, net for the year ended December 31, 2014 included $2.2 million of tax expense related to changes in tax contingencies.
We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision. As of December 31, 20132016 and 2012,2015, interest and penalties accrued were $2.8$3.0 million and $3.3$3.4 million,, respectively. For 2013, 20122016, 2015 and 2011,2014, we recorded (benefit) expense related to interest and penalties of $(0.5)$(0.4) million, $0.5$0.2 million and $0.7$0.4 million,, respectively.
As of December 31, 2013,2016, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $3.8$12.3 million over the next twelve months. The anticipated reduction primarily relates to settlements with tax authorities and the expiration of federal, state and foreign statutes of limitation.
We operate primarily in North Americaglobally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. Our U.S. federal income tax returns are under examination by the Internal Revenue Service (IRS) for tax years 2008 and 2010 and 2011. Our Canadian federal income tax returns are under examination by Canada Revenue Authority (CRA) for tax years 2010 and 2011. Our Canadian provincial income tax returns are under examination by Quebec Revenue Authority for tax years 2008 to 2011.2012. In connection with the Acquisition, TDCC retained liabilities relating to taxes to the extent arising prior to the Closing Date. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:
|
| |
| | Tax Years |
| U.S. federal income tax | 2008; 2010 - 20122015 |
| U.S. state income tax | 2006 - 20122015 |
| Canadian federal income tax | 20092012 - 20122015 |
Canadian provincial income taxBrazil | 20082014 - 20122015 |
| Germany | 2015 |
| China | 2014 - 2015 |
| The Netherlands | 2014 - 2015 |
| South Korea | 2014 - 2015 |
ACCRUED LIABILITIES
Included in accrued liabilities were the following:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | ($ in millions) | ($ in millions) |
| Acquisition-related accruals | | $ | — |
| | $ | 90.2 |
|
| Accrued compensation and payroll taxes | $ | 51.1 |
| | $ | 49.6 |
| 77.8 |
| | 53.4 |
|
| Tax-related accruals | | 40.9 |
| | 29.5 |
|
| Accrued interest | | 30.7 |
| | 35.0 |
|
| Legal and professional costs | | 21.2 |
| | 32.0 |
|
| Accrued employee benefits | 35.3 |
| | 28.3 |
| 21.2 |
| | 24.4 |
|
| Environmental (current portion only) | 18.0 |
| | 21.0 |
| 17.0 |
| | 19.0 |
|
| Legal and professional costs | 23.4 |
| | 21.8 |
| |
| Asset retirement obligation (current portion only) | 13.5 |
| | 21.3 |
| 12.6 |
| | 7.3 |
|
| Earn out | 26.7 |
| | 23.2 |
| |
| Other | 76.5 |
| | 63.3 |
| 42.4 |
| | 37.3 |
|
| Accrued liabilities | $ | 244.5 |
| | $ | 228.5 |
| $ | 263.8 |
| | $ | 328.1 |
|
CONTRIBUTING EMPLOYEE OWNERSHIP PLAN
The CEOPContributing 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 was $28.2 million, $18.1 million and $16.1 million for 2016, 2015 and 2014, respectively. The increase in defined contribution plan expense was due to the additional employees added in conjunction with the Acquired Business.
Company matching contributions are invested in the same investment allocation as the employee’s contribution. In 2013, 2012 and 2011 ourOur matching contributions for eligible employees amounted to $5.2$11.2 million, $6.9 million and $5.7 million in each year. Effective February 1, 2011, we reinstated the match on all salaried2016, 2015 and certain non-bargained hourly employees’ contributions, which had previously been suspended effective January 1, 2010.2014, respectively.
Employees generally become vested in the value of the contributions we make to the CEOP according to a schedule based on service. After two years of service, participants are 25% vested. They vest in increments of 25% for each additional year and after five years of service, they are 100% vested in the value of the contributions that we have made to their accounts.
Employees may transfer any or all of the value of the investments, including Olin common stock, to any one or combination of investments available in the CEOP. Employees may transfer balances daily and may elect to transfer any percentage of the balance in the fund from which the transfer is made. However, when transferring out of a fund, employees are prohibited from trading out of the fund to which the transfer was made for seven calendar days. This limitation does not apply to trades into the money market fund or the Olin Common Stock Fund.
STOCK-BASED COMPENSATION
Stock-based compensation expense was allocated to the operating segments for the portion related to employees whose compensation would be included in cost of goods sold with the remainder recognized in corporate/other. There were no significant capitalized stock-based compensation costs. Stock-based compensation granted includes stock options, performance stock awards, restricted stock awards and deferred directors’ compensation. Stock-based compensation expense was as follows:
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | ($ in millions) | ($ in millions) |
| Stock-based compensation | $ | 13.3 |
| | $ | 8.4 |
| | $ | 8.8 |
| $ | 11.2 |
| | $ | 11.5 |
| | $ | 9.2 |
|
| Mark-to-market adjustments | 4.2 |
| | 0.9 |
| | (0.5 | ) | 3.0 |
| | (3.0 | ) | | (3.6 | ) |
| Total expense | $ | 17.5 |
| | $ | 9.3 |
| | $ | 8.3 |
| $ | 14.2 |
| | $ | 8.5 |
| | $ | 5.6 |
|
Stock Plans
Under the stock option and long-term incentive plans, options may be granted to purchase shares of our common stock at an exercise price not less than fair market value at the date of grant, and are exercisable for a period not exceeding ten years from that date. Stock options, restricted stock and performance shares typically vest over three years. We issue shares to settle stock options, restricted stock and share-based performance awards. In 2013, 20122016, 2015 and 20112014 long-term incentive awards included stock options, performance share awards and restricted stock. The stock option exercise price was set at the fair market value of common stock on the date of the grant, and the options have a ten-yearten-year term.
Stock option transactions were as follows:
| | | | | | | | | | Exercisable | | | | | | | Exercisable |
| | Shares | | Option Price | | Weighted Average Option Price | | Options | | Weighted Average Exercise Price | Shares | | Option Price | | Weighted-Average
Option Price | | Options | | Weighted-Average
Exercise Price |
| Outstanding at January 1, 2013 | 4,060,790 |
| | $14.28-23.78 |
| | $ | 18.39 |
| | 2,961,434 |
| | $ | 18.00 |
| |
| Outstanding at January 1, 2016 | | 4,720,105 |
| | $14.28-27.65 |
| | $ | 21.29 |
| | 3,371,449 |
| | $ | 19.28 |
|
| Granted | 621,000 |
| | 23.28 |
| | 23.28 |
| | | | | 1,670,400 |
| | 13.14 |
| | 13.14 |
| | | | |
| Exercised | (534,905 | ) | | 14.28-23.78 |
| | 16.72 |
| | | | | (267,082 | ) | | 14.28-23.28 |
| | 16.48 |
| | | | |
| Canceled | (32,063 | ) | | 15.35-23.28 |
| | 20.57 |
| | | | | (388,683 | ) | | 13.14-25.57 |
| | 19.77 |
| | | | |
| Outstanding at December 31, 2013 | 4,114,822 |
| | $14.28-23.78 |
| | $ | 19.33 |
| | 3,011,702 |
| | $ | 18.29 |
| |
| Outstanding at December 31, 2016 | | 5,734,740 |
| | $13.14-27.65 |
| | $ | 19.25 |
| | 3,407,300 |
| | $ | 20.56 |
|
At December 31, 2013,2016, the average exercise period for all outstanding and exercisable options was 6675 months and 5354 months, respectively. At December 31, 2013,2016, the aggregate intrinsic value (the difference between the exercise price and market value) for outstanding options was $39.4$39.1 million and exercisable options was $31.9$18.4 million. The total intrinsic value of options exercised during the years ended December 31, 2013, 20122016, 2015 and 20112014 was $4.2$2.1 million, $0.5$1.3 million and $4.2$3.9 million,, respectively.
The total unrecognized compensation cost related to unvested stock options at December 31, 20132016 was $4.1 million and was expected to be recognized over a weighted averageweighted-average period of 1.21.3 years.
The following table provides certain information with respect to stock options exercisable at December 31, 2013:2016:
| | Range of Exercise Prices | | Options Exercisable | | Weighted Average Exercise Price | | Options Outstanding | | Weighted Average Exercise Price | | Options
Exercisable | | Weighted-Average
Exercise Price | | Options
Outstanding | | Weighted-Average
Exercise Price |
| Under $16.00 | | 1,039,677 |
| | $ | 15.04 |
| | 1,039,677 |
| | $ | 15.04 |
| | 897,129 |
| | $ | 15.06 |
| | 2,518,379 |
| | $ | 13.82 |
|
| $16.00 – $20.00 | | 751,391 |
| | $ | 17.85 |
| | 932,041 |
| | $ | 18.03 |
| |
| Over $20.00 | | 1,220,634 |
| | $ | 21.34 |
| | 2,143,104 |
| | $ | 21.98 |
| |
| $16.00 – $22.00 | | | 1,286,916 |
| | 20.25 |
| | 1,286,916 |
| | 20.25 |
|
| Over $22.00 | | | 1,223,255 |
| | 24.92 |
| | 1,929,445 |
| | 25.66 |
|
| | | 3,011,702 |
| | | | 4,114,822 |
| | | | 3,407,300 |
| | | | 5,734,740 |
| | |
At December 31, 2013,2016, common shares reserved for issuance and available for grant or purchase under the following plans consisted of:
| | | | Number of Shares | Number of Shares |
| Stock Option Plans | Reserved for Issuance | | Available for Grant or Purchase(1) | Reserved for Issuance | | Available for
Grant or Purchase(1) |
| 2000 long term incentive plan | 420,406 |
| | 11,413 |
| 245,486 |
| | 97,444 |
|
| 2003 long term incentive plan | 794,607 |
| | 28,673 |
| 365,005 |
| | 235,305 |
|
| 2006 long term incentive plan | 1,814,133 |
| | 217,733 |
| 1,360,312 |
| | 87,116 |
|
| 2009 long term incentive plan | 2,971,473 |
| | 950,480 |
| 2,660,662 |
| | 122,710 |
|
| | 6,000,619 |
| | 1,208,299 |
| |
| 1996 stock option plan (plan expired) | 34,602 |
| | — |
| |
| 2014 long term incentive plan | | 3,000,000 |
| | 244,975 |
|
| 2016 long term incentive plan | | 6,000,000 |
| | 6,000,000 |
|
| Total under stock option plans | 6,035,221 |
| | 1,208,299 |
| 13,631,465 |
| | 6,787,550 |
|
| | | | Number of Shares | Number of Shares |
| Stock Purchase Plans | Reserved for Issuance | | Available for Grant or Purchase | Reserved for Issuance | | Available for
Grant or Purchase |
| 1997 stock plan for non-employee directors | 590,043 |
| | 173,766 |
| 553,402 |
| | 460,663 |
|
| Employee deferral plan | 46,110 |
| | 45,629 |
| 45,627 |
| | 45,623 |
|
| Total under stock purchase plans | 636,153 |
| | 219,395 |
| 599,029 |
| | 506,286 |
|
| |
| (1) | All available to be issued as stock options, but includes a sub-limit for all types of stock awards of 1,208,2993,287,550 shares. |
Under the stock purchase plans, our non-employee directors may defer certain elements of their compensation into shares of our common stock based on fair market value of the shares at the time of deferral. Non-employee directors annually receive stock grants as a portion of their director compensation. Of the shares reserved under the stock purchase plans at December 31, 2013, 416,7582016, 92,739 shares were committed.
Performance share awards are denominated in shares of our stock and are paid half in cash and half in stock. Payouts are based on Olin’s average annual return on capital over a three-yearthree-year performance cycle in relation to the average annual return on capital over the same period among a portfolio of public companies which are selected in concert with outside compensation consultants. The expense associated with performance shares is recorded based on our estimate of our performance relative to the respective target. If an employee leaves the company before the end of the performance cycle, the performance shares may be prorated based on the number of months of the performance cycle worked and are settled in cash instead of half in cash and half in stock when the three-year performance cycle is completed. Performance share transactions were as follows:
| | | | To Settle in Cash | | To Settle in Shares | To Settle in Cash | | To Settle in Shares |
| | Shares | | Weighted Average Fair Value per Share | | Shares | | Weighted Average Fair Value per Share | Shares | | Weighted-Average
Fair Value per Share | | Shares | | Weighted-Average
Fair Value per Share |
| Outstanding at January 1, 2013 | 245,167 |
| | $ | 21.45 |
| | 242,250 |
| | $ | 19.22 |
| |
| Outstanding at January 1, 2016 | | 311,528 |
| | $ | 17.48 |
| | 302,000 |
| | $ | 25.59 |
|
| Granted | 150,222 |
| | 22.71 |
| | 149,250 |
| | 21.40 |
| 339,619 |
| | 15.28 |
| | 340,925 |
| | 15.39 |
|
| Paid/Issued | (99,889 | ) | | 21.45 |
| | (96,000 | ) | | 15.68 |
| (103,417 | ) | | 17.48 |
| | (96,500 | ) | | 23.28 |
|
| Converted from shares to cash | 3,611 |
| | 20.26 |
| | (3,611 | ) | | 20.26 |
| 2,474 |
| | 13.14 |
| | (2,474 | ) | | 13.14 |
|
| Canceled | (2,889 | ) | | 22.19 |
| | (2,889 | ) | | 21.99 |
| (7,376 | ) | | 13.14 |
| | (7,376 | ) | | 13.14 |
|
| Outstanding at December 31, 2013 | 296,222 |
| | $ | 28.90 |
| | 289,000 |
| | $ | 21.48 |
| |
| Total vested at December 31, 2013 | 194,056 |
| | $ | 28.90 |
| | 186,833 |
| | $ | 20.75 |
| |
| Outstanding at December 31, 2016 | | 542,828 |
| | $ | 25.84 |
| | 536,575 |
| | $ | 16.18 |
|
| Total vested at December 31, 2016 | | 241,299 |
| | $ | 25.84 |
| | 235,046 |
| | $ | 18.62 |
|
The summary of the status of our unvested performance shares to be settled in cash were as follows:
| | | | Shares | | Weighted Average Fair Value per Share | Shares | | Weighted-Average
Fair Value per Share |
| Unvested at January 1, 2013 | 91,750 |
| | $ | 21.45 |
| |
| Unvested at January 1, 2016 | | 110,000 |
| | $ | 17.48 |
|
| Granted | 150,222 |
| | 22.96 |
| 408,431 |
| | 13.63 |
|
| Vested | (136,917 | ) | | 28.90 |
| (209,526 | ) | | 25.84 |
|
| Canceled | (2,889 | ) | | 22.19 |
| (7,376 | ) | | 13.14 |
|
| Unvested at December 31, 2013 | 102,166 |
| | $ | 28.90 |
| |
| Unvested at December 31, 2016 | | 301,529 |
| | $ | 25.84 |
|
At December 31, 2013,2016, the liability recorded for performance shares to be settled in cash totaled $5.6$6.2 million. The total unrecognized compensation cost related to unvested performance shares at December 31, 20132016 was $5.3$12.1 million and was expected to be recognized over a weighted averageweighted-average period of 1.21.1 years.
SHAREHOLDERS’ EQUITY
During 2013, 2012 and 2011, we issued 0.5 million, 0.1 million, and 0.5 million shares, respectively, with a total value of $9.7 million, $1.4 million and $9.3 million, respectively, representing stock options exercised.
On July 21, 2011,April 24, 2014, our board of directors authorized a new share repurchase program offor up to 58 million shares of common stock that will terminate in three yearson April 24, 2017 for any of the remaining shares not yet repurchased. WeFor the years ended December 31, 2016 and 2015, no shares were purchased and retired. We repurchased and retired 1.5 million, 0.2 million and 0.22.5 million shares in 2013, 2012 and 2011, respectively, under this program,2014 at a cost of $36.2 million, $3.1 million and $4.2 million, respectively.$64.8 million. As of December 31, 2013,2016, we had purchasedrepurchased a total of 1.9 million shares under thisthe April 2014 program, and 3.16.1 million shares remained authorized to be purchased. Under the Merger Agreement relating to the Acquisition, we were restricted from repurchasing shares of our common stock prior to the consummation of the Merger. For a period of two years subsequent to the Closing Date of the Merger, we will continue to be subject to certain restrictions on our ability to conduct share repurchases.
During 2016, 2015 and 2014, we issued 0.3 million, 0.1 million and 0.5 million shares, respectively, with a total value of $4.1 million, $3.1 million and $12.1 million, respectively, representing stock options exercised.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
The following table represents the activity included in accumulated other comprehensive loss:
|
| | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Derivative Contracts (net of taxes) | | Pension and Postretirement Benefits (net of taxes) | | Accumulated Other Comprehensive Loss |
| | ($ in millions) |
| Balance at January 1, 2011 | $ | 0.4 |
| | $ | 11.6 |
| | $ | (273.8 | ) | | $ | (261.8 | ) |
| Unrealized gains (losses) | 1.4 |
| | (10.6 | ) | | (29.0 | ) | | (38.2 | ) |
| Reclassification adjustments into income | — |
| | (6.3 | ) | | 12.1 |
| | 5.8 |
|
| Balance at December 31, 2011 | 1.8 |
| | (5.3 | ) | | (290.7 | ) | | (294.2 | ) |
| Unrealized gains (losses) | 0.3 |
| | 6.0 |
| | (101.9 | ) | | (95.6 | ) |
| Reclassification adjustments into income | — |
| | 4.0 |
| | 14.5 |
| | 18.5 |
|
| Balance at December 31, 2012 | 2.1 |
| | 4.7 |
| | (378.1 | ) | | (371.3 | ) |
| Unrealized losses | (2.6 | ) | | (4.7 | ) | | (7.7 | ) | | (15.0 | ) |
| Reclassification adjustments into income | — |
| | 0.9 |
| | 20.3 |
| | 21.2 |
|
| Balance at December 31, 2013 | $ | (0.5 | ) | | $ | 0.9 |
| | $ | (365.5 | ) | | $ | (365.1 | ) |
|
| | | | | | | | | | | | | | | |
| | 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, 2014 | $ | (0.5 | ) | | $ | 0.9 |
| | $ | (365.5 | ) | | $ | (365.1 | ) |
| Unrealized losses | (1.8 | ) | | (10.2 | ) | | (142.0 | ) | | (154.0 | ) |
| Reclassification adjustments into income | — |
| | 1.8 |
| | 25.5 |
| | 27.3 |
|
| Tax benefit | — |
| | 3.3 |
| | 45.4 |
| | 48.7 |
|
| Net change | (1.8 | ) | | (5.1 | ) | | (71.1 | ) | | (78.0 | ) |
| Balance at December 31, 2014 | (2.3 | ) | | (4.2 | ) | | (436.6 | ) | | (443.1 | ) |
| Unrealized losses | (15.7 | ) | | (13.9 | ) | | (125.3 | ) | | (154.9 | ) |
| Reclassification adjustments into income | — |
| | 9.7 |
| | 65.6 |
| | 75.3 |
|
| Tax benefit | 5.9 |
| | 1.5 |
| | 22.8 |
| | 30.2 |
|
| Net change | (9.8 | ) | | (2.7 | ) | | (36.9 | ) | | (49.4 | ) |
| Balance at December 31, 2015 | (12.1 | ) | | (6.9 | ) | | (473.5 | ) | | (492.5 | ) |
| Unrealized (losses) gains | (22.4 | ) | | 26.3 |
| | (61.0 | ) | | (57.1 | ) |
| Reclassification adjustments into income | — |
| | 5.8 |
| | 20.4 |
| | 26.2 |
|
| Tax benefit (provision) | 10.4 |
| | (12.4 | ) | | 15.4 |
| | 13.4 |
|
| Net change | (12.0 | ) | | 19.7 |
| | (25.2 | ) | | (17.5 | ) |
| Balance at December 31, 2016 | $ | (24.1 | ) | | $ | 12.8 |
| | $ | (498.7 | ) | | $ | (510.0 | ) |
UnrealizedNet (loss) income and cost of goods sold included reclassification adjustments for realized gains and losses on derivative contract (net of taxes) activity incontracts from accumulated other comprehensive incomeloss.
Net (loss) included reclassification adjustments into net income, of gains and losses on commodity forward contract and are recognized into cost of goods sold. Unrealized gainssold and losses on derivative contract (net of taxes) activity in other comprehensive income (loss) included a deferred tax (benefit) provision for 2013, 2012selling and 2011 of $(2.5) million, $6.4 million and $(10.7) million, respectively.
Pension and postretirement benefits (net of taxes) activity in other comprehensive income (loss)administration expenses included the amortization of prior service costs and actuarial losses into net income and arefrom accumulated other comprehensive loss. This amortization is recognized equally intoin cost of goods sold and selling and administrative expenses and pension and postretirement liability adjustments. Pension and postretirement benefits (net of taxes) activity in other comprehensive income (loss) included a deferred tax provision (benefit) for 2013, 2012 and 2011 of $8.2 million, $(56.0) million and $(10.2) million, respectively.administration expenses.
SEGMENT INFORMATION
We define segment results as income (loss) from continuing operations before interest expense, interest income, other operating income, other income (expense) income and income taxes, and include the 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. Intersegment salesBeginning in the fourth quarter of $81.3 million and $18.1 million for2015, we modified our reportable segments due to changes in our organization resulting from the years ended December 31, 2013 and 2012, respectively,Acquisition. We have been eliminated. These represent the sale of caustic soda, bleach, potassium hydroxide and hydrochloric acid between Chemical Distribution andthree operating segments: Chlor Alkali Products at prices that approximate market. Consistentand Vinyls, Epoxy and Winchester. For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and the Acquired Chlor Alkali Business operating results combined with management’s monitoring ofour former Chlor Alkali Products and Chemical Distribution segments comprise the Chlor Alkali Products and Vinyls segment. This reporting structure has been retrospectively applied to financial results for all periods presented. The three operating segments synergies realizedreflect the organization used by our management for purposes of $11.8 million for the year ended December 31, 2013 have beenallocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment to the Chemical Distribution segment, representing incremental earnings on volumes sold offor all caustic soda bleach, potassium hydroxidegenerated and hydrochloric acid.sold by Olin.
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Sales: | ($ in millions) |
| Chlor Alkali Products | $ | 1,412.3 |
| | $ | 1,428.9 |
| | $ | 1,389.1 |
|
| Chemical Distribution | 406.4 |
| | 156.3 |
| | — |
|
| Winchester | 777.6 |
| | 617.6 |
| | 572.0 |
|
| Intersegment sales elimination | (81.3 | ) | | (18.1 | ) | | — |
|
| Total sales | $ | 2,515.0 |
| | $ | 2,184.7 |
| | $ | 1,961.1 |
|
| Income before taxes: | | | | | |
| Chlor Alkali Products | $ | 203.8 |
| | $ | 263.2 |
| | $ | 245.0 |
|
| Chemical Distribution | 9.7 |
| | 4.5 |
| | — |
|
| Winchester | 143.2 |
| | 55.2 |
| | 37.9 |
|
| Corporate/Other | (62.6 | ) | | (51.8 | ) | | (46.7 | ) |
| Restructuring charges | (5.5 | ) | | (8.5 | ) | | (10.7 | ) |
| Acquisition costs | — |
| | (8.3 | ) | | (0.8 | ) |
| Other operating income | 0.7 |
| | 7.6 |
| | 8.8 |
|
| Interest expense | (38.6 | ) | | (26.4 | ) | | (30.4 | ) |
| Interest income | 0.6 |
| | 1.0 |
| | 1.2 |
|
| Other (expense) income | (1.3 | ) | | (11.3 | ) | | 175.1 |
|
| Income before taxes | $ | 250.0 |
| | $ | 225.2 |
| | $ | 379.4 |
|
| Earnings of non-consolidated affiliates: | | | | | |
| Chlor Alkali Products | $ | 2.8 |
| | $ | 3.0 |
| | $ | 9.6 |
|
| Depreciation and amortization expense: | | | | | |
| Chlor Alkali Products | $ | 102.1 |
| | $ | 88.9 |
| | $ | 85.6 |
|
| Chemical Distribution | 15.4 |
| | 5.5 |
| | — |
|
| Winchester | 14.9 |
| | 13.6 |
| | 10.9 |
|
| Corporate/Other | 2.9 |
| | 2.9 |
| | 2.8 |
|
| Total depreciation and amortization expense | $ | 135.3 |
| | $ | 110.9 |
| | $ | 99.3 |
|
| Capital spending: | | | | | |
| Chlor Alkali Products | $ | 65.5 |
| | $ | 221.3 |
| | $ | 134.2 |
|
| Chemical Distribution | 2.5 |
| | 0.8 |
| | — |
|
| Winchester | 21.2 |
| | 32.1 |
| | 63.9 |
|
| Corporate/Other | 1.6 |
| | 1.5 |
| | 2.8 |
|
| Total capital spending | $ | 90.8 |
| | $ | 255.7 |
| | $ | 200.9 |
|
|
| | | | | | | | | |
| | December 31, | | |
| | 2013 | | 2012 | | |
| Assets: | ($ in millions) | | |
| Chlor Alkali Products | $ | 1,695.8 |
| | $ | 1,781.8 |
| | |
| Chemical Distribution | 335.3 |
| | 379.7 |
| | |
| Winchester | 339.2 |
| | 340.7 |
| | |
| Corporate/Other | 432.5 |
| | 275.5 |
| | |
| Total assets | $ | 2,802.8 |
| | $ | 2,777.7 |
| | |
| | | | | | |
| Investments—affiliated companies (at equity): | | | | | |
| Chlor Alkali Products | $ | 21.6 |
| | $ | 29.3 |
| | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Sales: | ($ in millions) |
| Chlor Alkali Products and Vinyls | $ | 2,999.3 |
| | $ | 1,713.4 |
| | $ | 1,502.8 |
|
| Epoxy | 1,822.0 |
| | 429.6 |
| | — |
|
| Winchester | 729.3 |
| | 711.4 |
| | 738.4 |
|
| Total sales | $ | 5,550.6 |
| | $ | 2,854.4 |
| | $ | 2,241.2 |
|
| Income (loss) from continuing operations before taxes: | | | | | |
| Chlor Alkali Products and Vinyls | $ | 224.9 |
| | $ | 115.5 |
| | $ | 130.1 |
|
| Epoxy | 15.4 |
| | (7.5 | ) | | — |
|
| Winchester | 120.9 |
| | 115.6 |
| | 127.3 |
|
| Corporate/Other | (55.8 | ) | | (40.6 | ) | | (33.8 | ) |
| Restructuring charges | (112.9 | ) | | (2.7 | ) | | (15.7 | ) |
| Acquisition-related costs | (48.8 | ) | | (123.4 | ) | | (4.2 | ) |
| Other operating income | 10.6 |
| | 45.7 |
| | 1.5 |
|
| Interest expense | (191.9 | ) | | (97.0 | ) | | (43.8 | ) |
| Interest income | 3.4 |
| | 1.1 |
| | 1.3 |
|
| Income (loss) from continuing operations before taxes | $ | (34.2 | ) | | $ | 6.7 |
| | $ | 162.7 |
|
| Earnings of non-consolidated affiliates: | | | | | |
| Chlor Alkali Products and Vinyls | $ | 1.7 |
| | $ | 1.7 |
| | $ | 1.7 |
|
| Depreciation and amortization expense: | | | | | |
| Chlor Alkali Products and Vinyls | $ | 418.1 |
| | $ | 186.1 |
| | $ | 119.4 |
|
| Epoxy | 90.0 |
| | 20.9 |
| | — |
|
| Winchester | 18.5 |
| | 17.4 |
| | 16.3 |
|
| Corporate/Other | 6.9 |
| | 4.5 |
| | 3.4 |
|
| Total depreciation and amortization expense | $ | 533.5 |
| | $ | 228.9 |
| | $ | 139.1 |
|
| Capital spending: | | | | | |
| Chlor Alkali Products and Vinyls | $ | 195.1 |
| | $ | 94.5 |
| | $ | 49.6 |
|
| Epoxy | 45.4 |
| | 7.7 |
| | — |
|
| Winchester | 19.5 |
| | 25.6 |
| | 21.4 |
|
| Corporate/Other | 18.0 |
| | 3.1 |
| | 0.8 |
|
| Total capital spending | $ | 278.0 |
| | $ | 130.9 |
| | $ | 71.8 |
|
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| Assets: | ($ in millions) |
| Chlor Alkali Products and Vinyls | $ | 6,521.4 |
| | $ | 6,690.7 |
|
| Epoxy | 1,514.3 |
| | 1,591.2 |
|
| Winchester | 424.0 |
| | 411.9 |
|
| Corporate/Other | 302.9 |
| | 595.1 |
|
| Total assets | $ | 8,762.6 |
| | $ | 9,288.9 |
|
| | | | |
| Investments—affiliated companies (at equity): | | | |
| Chlor Alkali Products and Vinyls | $ | 26.7 |
| | $ | 25.0 |
|
Segment assets include only those assets which are directly identifiable to an operating segment. Assets of the corporate/other segment include primarily such items as cash and cash equivalents, deferred taxes, restricted cash and other assets.
| | | | Years ended December 31, | Years ended December 31, |
Geographic Data: | 2013 | | 2012 | | 2011 | |
| Geographic Data | | 2016 | | 2015 | | 2014 |
| Sales: | ($ in millions) | ($ in millions) |
| United States | $ | 2,316.2 |
| | $ | 1,970.5 |
| | $ | 1,774.0 |
| $ | 3,356.8 |
| | $ | 2,208.5 |
| | $ | 2,051.4 |
|
| Foreign | 198.8 |
| | 214.2 |
| | 187.1 |
| 2,193.8 |
| | 645.9 |
| | 189.8 |
|
| Transfers between areas: | | | | | | |
| United States | 53.4 |
| | 53.5 |
| | 50.0 |
| |
| Foreign | 109.0 |
| | 85.5 |
| | 95.3 |
| |
| Eliminations | (162.4 | ) | | (139.0 | ) | | (145.3 | ) | |
| Total sales | $ | 2,515.0 |
| | $ | 2,184.7 |
| | $ | 1,961.1 |
| $ | 5,550.6 |
| | $ | 2,854.4 |
| | $ | 2,241.2 |
|
| | | | December 31, | | December 31, |
| | 2013 | | 2012 | | 2016 | | 2015 |
| Assets: | ($ in millions) | | |
| Long-lived assets: | | ($ in millions) |
| United States | $ | 2,574.9 |
| | $ | 2,520.8 |
| | $ | 3,352.2 |
| | $ | 3,561.7 |
|
| Foreign | 227.9 |
| | 256.9 |
| | 352.7 |
| | 391.7 |
|
| Total assets | $ | 2,802.8 |
| | $ | 2,777.7 |
| | |
| Total long-lived assets | | $ | 3,704.9 |
| | $ | 3,953.4 |
|
Transfers betweenSales are attributed to geographic areas based on customer location and long-lived assets are priced generally at prevailing market prices. Export sales from the United Statesattributed to unaffiliated customers were $25.2 million, $25.1 million and $22.0 million in 2013, 2012 and 2011, respectively.geographic areas based on asset location.
ENVIRONMENTAL
InAs is common in our industry, we are subject to environmental laws and regulations related to the United States,use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business.
The establishment and implementation of federal,national, state or provincial and local standards to regulate air, water and land quality affect substantially all of our manufacturing locations. Federal legislationlocations around the world. Laws providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites, hashave imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws such as the Resource Conservation and Recovery Act and the Clean Air Act, has required and will continue to require new capital expenditures and will increase plant operating costs. Our Canadian facility is governed by federal environmental laws administered by Environment Canada and by provincial environmental laws enforced by administrative agencies. Many of these laws are comparable to the U.S. laws described above. We employ waste minimization and pollution prevention programs at our manufacturing sites.
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.
We are party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. 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 mayexpect to incur to protect our interests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $2.5$2.0 million at December 31, 2013.2016. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and OM&Moperation, maintenance and monitoring (OM&M) expenses that, in our experience, we mayexpect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M.
Our liabilities for future environmental expenditures were as follows:
| | | | December 31, | | December 31, |
| | 2013 | | 2012 | | 2016 | | 2015 |
| | ($ in millions) | | ($ in millions) |
| Beginning balance | $ | 146.5 |
| | $ | 163.3 |
| | $ | 138.1 |
| | $ | 138.3 |
|
| Charges to income | 11.5 |
| | 8.4 |
| | 9.2 |
| | 15.7 |
|
| Remedial and investigatory spending | (12.4 | ) | | (25.5 | ) | | (10.3 | ) | | (14.1 | ) |
| Currency translation adjustments | (1.0 | ) | | 0.3 |
| | 0.3 |
| | (1.8 | ) |
| Ending balance | $ | 144.6 |
| | $ | 146.5 |
| | $ | 137.3 |
| | $ | 138.1 |
|
At December 31, 20132016 and 2012,2015, our consolidated balance sheets included environmental liabilities of $126.6$120.3 million and $125.5$119.1 million,, respectively, which were classified as other noncurrent liabilities. Our environmental liability 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. Of the $144.6$137.3 million included on our consolidated balance sheet at December 31, 20132016 for future environmental expenditures, we currently expect to utilize $86.9$77.8 million of the reserve for future environmental expenditures over the next 5 years, $17.1$16.1 million for expenditures 6 to 10 years in the future, and $40.6$43.4 million for expenditures beyond 10 years in the future.
Our total estimated environmental liability at December 31, 20132016 was attributable to 7164 sites, 1716 of which were USEPA NPL sites. TenNine sites accounted for 78%79% of our environmental liability and, of the remaining 6155 sites, no one site accounted for more than 3% of our environmental liability. At sevenfour of the tennine sites, part of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At twoone of the nine sites, a remedial action plan is being developed for part of the site and another part a remedial design is being developed. At one of the nine sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At one of these tennine sites, a remedial investigation is being performed. The onetwo remaining site issites are in long-term OM&M. All tennine sites are either associated with past manufacturing operations or former waste disposal sites. None of the tennine largest sites represents more than 21%23% of the liabilities reserved on our consolidated balance sheet at December 31, 20132016 for future environmental expenditures.
Charges or credits to income for investigatory and remedial efforts were material to operating results in 2013, 2012 and 2011 and may be material to operating results in future years.
Environmental provisions charged (credited) to income, which are included in cost of goods sold, were as follows:
| | | | Years ended December 31, | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | ($ in millions) | ($ in millions) |
| Charges to income | $ | 11.5 |
| | $ | 8.4 |
| | $ | 19.3 |
| $ | 9.2 |
| | $ | 15.7 |
| | $ | 9.6 |
|
| Recoveries from third parties of costs incurred and expensed in prior periods | (1.3 | ) | | (0.1 | ) | | (11.4 | ) | — |
| | — |
| | (1.4 | ) |
| Total environmental expense | $ | 10.2 |
| | $ | 8.3 |
| | $ | 7.9 |
| $ | 9.2 |
| | $ | 15.7 |
| | $ | 8.2 |
|
These charges relate primarily to remedial and investigatory activities associated with past manufacturing operations and former waste disposal sites.sites and may be material to operating results in future years.
Annual environmental-related cash outlays for site investigation and remediation are expected to range between approximately $15 million to $35$25 million over the next several years, which are expected to be charged against reserves recorded on our consolidated balance sheet. While we do not anticipate a material increase in the projected annual level of our environmental-related cash outlays for site investigation and remediation, there is always the possibility that such an increase may occur in the future in view of the uncertainties associated with environmental exposures. 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. At December 31, 2013,2016, we estimate that it is reasonably possible that we may have additional contingent environmental liabilities of $40$60 million in addition to the amounts for which we have already recorded as a reserve.
COMMITMENTS AND CONTINGENCIES
The following table summarizes our contractual commitments under non-cancelable operating leases and purchase contracts as of December 31, 2013:2016:
| | | | Operating Leases | | Purchase Commitments | Operating Leases | | Purchase Commitments |
| | ($ in millions) | ($ in millions) |
| 2014 | $ | 52.8 |
| | $ | 79.5 |
| |
| 2015 | 44.7 |
| | 20.9 |
| |
| 2016 | 39.0 |
| | 2.9 |
| |
| 2017 | 31.1 |
| | — |
| $ | 78.8 |
| | $ | 603.1 |
|
| 2018 | 25.0 |
| | — |
| 65.9 |
| | 514.8 |
|
| 2019 | | 51.9 |
| | 497.5 |
|
| 2020 | | 38.5 |
| | 494.4 |
|
| 2021 | | 26.9 |
| | 493.8 |
|
| Thereafter | 44.4 |
| | — |
| 77.6 |
| | 2,992.2 |
|
| Total commitments | $ | 237.0 |
| | $ | 103.3 |
| $ | 339.6 |
| | $ | 5,595.8 |
|
Our operating lease commitments are primarily for railroad cars but also include distribution, warehousing and office space and data processing and office equipment. Virtually none of our lease agreements contain escalation clauses or step rent provisions. Total rent expense charged to operations amounted to $64.2$95.5 million, $60.5$75.1 million and $53.8$66.8 million in 2013, 20122016, 2015 and 2011,2014, respectively (sublease income is not significant). The above purchase commitments include raw material, capital expenditure and utility purchasing commitments utilized in our normal course of business for our projected needs.
In conjunctionconnection with the St. Gabriel, LA conversionAcquisition, 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 expansion project, whichbenzene. Additionally, during 2016, one of the options to obtain additional future ethylene supply at producer economics was completedexercised 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 obtain 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 $425.0 million and $465.0 million on or about the fourth quarter of 2009, we entered into a twenty-year brine and pipeline supply agreement with PetroLogistics. PetroLogistics installed, owns and operates, at its own expense, a pipeline supplying brine to the St. Gabriel, LA facility. Beginning November 2009, we are obligated to make a fixed annual payment over the life of the contract of $2.0 million for use of the pipeline, regardless of the amount of brine purchased. We also have a minimum usage requirement for brine of $8.4 million over the first five-year period of the contract. We have met or exceeded the minimum brine usage requirements since the inception of the contract. After the first five-year period, the contract contains a buy out provision exercisable by us for $12.0 million.2020.
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. At December 31, 20132016 and 2012,2015, our consolidated balance sheets included liabilities for these legal actions of $19.3$13.6 million and $15.2$21.2 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 year ended December 31, 2013,2016, we recognized an insurance recovery of $11.0 million asin other operating income for property damage and business interruption related to a reduction2008 chlor alkali facility incident.
For the year ended December 31, 2015 we recognized insurance recoveries of cost$57.4 million for property damage and business interruption related to the Becancour, Canada and McIntosh, AL chlor alkali facilities. Cost of goods sold related towas reduced by $10.5 million and selling and administration was reduced by $0.9 million for the reimbursement of costs incurred and expensed in prior periods and other operating income included a Chlor Alkali Products favorable contract settlement. Alsogain of $46.0 million. The consolidated statement of cash flows for the year ended December 31, 2013, we recognized $13.92015 included $25.8 million as a reductionfor the property damage portion of sellingthe insurance recoveries within proceeds from disposition of property, plant and administration expense related to the recoveryequipment and gains on disposition of legacy legal costs.property, plant and equipment.
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) required an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We use hedge accounting treatment for substantially all of our business transactions whose risks are covered using derivative instruments. In accordance with ASC 815, we designate commodity forwardderivative 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 used in our Chlor Alkali Products segment,and natural gas, and certain raw materials and energy costs, namely copper, lead, zinc, electricity and natural gas used primarily in our Winchester and Chemical Distribution segments,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.
The company 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 resulting from purchaseto offset our net exposures, by currency, related to the foreign currency denominated monetary assets and sale commitments denominated inliabilities of our operations. At December 31, 2016, we had outstanding forward contracts to buy foreign currencies (principally Canadian dollarcurrency with a notional value of $73.2 million and Australian dollar).to sell foreign currency with a notional value of $100.8 million. All of the currency derivatives expire within one year and are for United States dollarUSD equivalents. Our foreign currencyThe counterparties to the forward contracts do not meetwere large financial institutions; however, the criteriarisk of loss to qualify for hedge accounting.us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. At December 31, 2013 and 2012,2015, we had nooutstanding forward contracts to buy orforeign currency with a notional value of $21.7 million and to sell foreign currencies.currency with a notional value of $10.1 million.
In March 2010, we entered into interest rate swaps on $125 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, pays us fixed rates. The counterparty to these agreements is Citibank. In October 2011, we entered into $125 million of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 2016 Notes. We have agreed to pay a fixed rate to a counterparty who, in turn, pays us variable rates. The counterparty to this agreement is also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which will be recognized through 2016. As of December 31, 2013, $6.1 million of this gain was included in long-term debt. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps do not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps are recorded currently in earnings.
In 2001 and 2002, we entered into interest rate swaps on $75 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In January 2009, we entered into a $75 million fixed interest rate swap with equal and opposite terms as the $75 million variable interest rate swaps on the 2011 Notes. We agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to this agreement was Bank of America. The result was a gain of $7.9 million on the $75 million variable interest rate swaps, which was recognized through 2011. In January 2009, we de-designated our $75 million interest rate swaps that had previously been designated as fair value hedges. The $75 million variable interest rate swaps and the $75 million fixed interest rate swap did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.
Cash Flow Hedges
ASC 815 requires that all derivative instruments be recorded on the balance sheet at their fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive income (loss) until the hedged item is recognized into earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We had the following notional amount of outstanding commodity forward contracts that were entered into to hedge forecasted purchases:
| | | | December 31, | December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| ($ in millions) | ($ in millions) |
| Copper | $ | 45.3 |
| | $ | 53.6 |
| $ | 35.8 |
| | $ | 43.6 |
|
| Zinc | 4.5 |
| | 6.3 |
| 8.0 |
| | 8.7 |
|
| Lead | 22.8 |
| | 48.3 |
| 3.4 |
| | 9.3 |
|
| Natural gas | 5.5 |
| | 6.0 |
| 54.4 |
| | 2.0 |
|
As of December 31, 2013,2016, the counterpartycounterparties to $54.0 million of these commodity forward contracts waswere Wells Fargo a($41.7 million), Citibank ($22.0 million), Merrill Lynch Commodities, Inc. ($19.8 million) and JPMorgan Chase Bank, National Association ($18.1 million), all of which are major financial institution, and the counterparty to $24.0 million of these commodity forward contracts is Citibank, a major financial institution.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 our manufacturing process. At December 31, 2013,2016, we had open positions in futures contracts through 2018.2021. If all open futures contracts had been settled on December 31, 2013,2016, we would have recognized a pretax gain of $1.2$11.1 million.
If commodity prices were to remain at December 31, 20132016 levels, approximately $0.7$6.2 million of deferred gains would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur.
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 consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. No gain or loss has been recorded in earnings as a result of ineffectiveness.
We use interest rate swaps as a means of minimizing significant unanticipated earnings 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 December 31, 2016, we had open interest rate swaps designated as cash flow hedges with maximum terms through 2019. If all open futures contracts had been settled on December 31, 2016, we would have recognized a pretax gain of $9.6 million.
If interest rates were to remain at December 31, 2016 levels, $1.1 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. We had noAs of December 31, 2016 and 2015, the total notional amounts of our interest rate swaps designated as fair value hedges were $500.0 million and zero, 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 $28.5 million and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended December 31, 2013 and 2012.2016, $2.6 million of income has been recorded to interest expense on the accompanying consolidated 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$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$2.2 million which will be recognized through 2017. As of December 31, 2013, $1.22016, $0.1 million of this gain was included in current installments of long-term debt.
In March 2012, Citibank terminated $7.7 million of interest rate swaps on our industrial revenue bonds due in 2017. The result was a gain of $0.2 million, which would have been recognized through 2017. In June 2012, the industrial revenue bonds were redeemed by us, and as a result, the remaining $0.2 million deferred gain was recognized in interest expense during 2012.
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. These interest rate swaps are treated as fair value hedges. The accounting for gains and losses associated with changes in fair value of the derivative and the effect on the consolidated financial statements will depend on the hedge designation and whether the hedge is effective in offsetting changes in fair value of cash flows of the asset or liability being hedged.
Financial Statement Impacts
We present our derivative assets and liabilities in our consolidated balance sheets on a net basis. We net derivative assets and liabilitiesbasis whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to manage and substantially reduce our potential counterparty credit risk.
The following table summarizes the location and fair value of the derivative instruments on our consolidated balance sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:
| | | | | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
| | | Fair Value | | Fair Value | | Fair Value | | Fair Value |
| | | December 31, | | December 31, | | December 31, | | December 31, |
Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | 2013 | | 2012 | | Balance Sheet Location | | 2013 | | 2012 | | Balance Sheet Location | | 2016 | | 2015 | | Balance Sheet Location | | 2016 | | 2015 |
| | | ($ in millions) | | ($ in millions) | | ($ in millions) | | ($ in millions) |
| Interest rate contracts | | Other assets | | $ | — |
| | $ | — |
| | Long-term debt | | $ | 7.3 |
| | $ | 10.2 |
| | Other current assets | | $ | 1.9 |
| | $ | — |
| | Current installments of long-term debt | | $ | 0.1 |
| | $ | 1.2 |
|
| Interest rate contracts | | | Other assets | | 7.7 |
| | — |
| | Long-term debt | | — |
| | 0.4 |
|
| Interest rate contracts | | | Other assets | | — |
| | — |
| | Other liabilities | | 28.5 |
| | — |
|
| Commodity contracts – gains | | Other current assets | | 3.6 |
| | 9.6 |
| | Accrued liabilities | | — |
| | — |
| | Other current assets | | 13.2 |
| | — |
| | Accrued liabilities | | — |
| | (0.1 | ) |
| Commodity contracts – losses | | Other current assets | | (2.4 | ) | | (2.1 | ) | | Accrued liabilities | | — |
| | — |
| | Other current assets | | (1.7 | ) | | — |
| | Accrued liabilities | | — |
| | 11.5 |
|
| | | $ | 1.2 |
| | $ | 7.5 |
| | $ | 7.3 |
| | $ | 10.2 |
| | $ | 21.1 |
| | $ | — |
| | $ | 28.6 |
| | $ | 13.0 |
|
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Interest rate contracts – gains | | Other assets | | $ | 7.6 |
| | $ | 11.9 |
| | Other liabilities | | $ | — |
| | $ | — |
| | Other current assets | | $ | — |
| | $ | 1.2 |
| | Accrued liabilities | | $ | — |
| | $ | — |
|
| Interest rate contracts – losses | | Other assets | | (1.7 | ) | | (3.6 | ) | | Other liabilities | | — |
| | — |
| | Other current assets | | — |
| | (0.1 | ) | | Accrued liabilities | | — |
| | — |
|
| Commodity contracts – gains | | Other current assets | | 0.2 |
| | 0.1 |
| | Accrued liabilities | | — |
| | — |
| |
| Commodity contracts – losses | | Other current assets | | (0.1 | ) | | — |
| | Accrued liabilities | | — |
| | — |
| | Other current assets | | — |
| | — |
| | Accrued liabilities | | — |
| | 0.2 |
|
| Foreign exchange contracts – losses | | | Other current assets | | (0.5 | ) | | — |
| | Accrued liabilities | | 1.7 |
| | — |
|
| Foreign exchange contracts – gains | | | Other current assets | | 0.6 |
| | 0.1 |
| | Accrued liabilities | | (0.5 | ) | | — |
|
| | | $ | 6.0 |
| | $ | 8.4 |
| | $ | — |
| | $ | — |
| | $ | 0.1 |
| | $ | 1.2 |
| | $ | 1.2 |
| | $ | 0.2 |
|
Total derivatives(1) | | $ | 7.2 |
| | $ | 15.9 |
| | $ | 7.3 |
| | $ | 10.2 |
| | $ | 21.2 |
| | $ | 1.2 |
| | $ | 29.8 |
| | $ | 13.2 |
|
| |
| (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 consolidated statements of operations:
| | | | | Amount of Gain (Loss) | | Amount of Gain (Loss) |
| | | Years Ended December 31, | | Years Ended December 31, |
| | Location of Gain (Loss) | | 2013 | | 2012 | | 2011 | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Derivatives – Cash Flow Hedges | | ($ in millions) | | ($ in millions) |
| Recognized in other comprehensive loss (effective portion) | ——— | | $ | (7.7 | ) | | $ | 9.9 |
| | $ | (17.3 | ) | |
| Reclassified from accumulated other comprehensive loss into income (effective portion) | Cost of goods sold | | $ | (1.4 | ) | | $ | (6.5 | ) | | $ | 10.3 |
| |
| Recognized in other comprehensive loss (effective portion): | | | | | | | |
| Commodity contracts | | ——— | | $ | 16.7 |
| | $ | (13.9 | ) | | $ | (10.2 | ) |
| Interest rate contracts | | ——— | | 9.6 |
| | — |
| | — |
|
| | | | $ | 26.3 |
| | $ | (13.9 | ) | | $ | (10.2 | ) |
| Reclassified from accumulated other comprehensive loss into income (effective portion): | | | | | | | |
| Commodity contracts | | Cost of goods sold | | $ | (5.8 | ) | | $ | (9.7 | ) | | $ | (1.8 | ) |
| Derivatives – Fair Value Hedges | | | | | | | | | | | | |
| Interest rate contracts | Interest expense | | $ | 2.9 |
| | $ | 3.3 |
| | $ | 6.7 |
| Interest expense | | $ | 3.7 |
| | $ | 2.8 |
| | $ | 2.9 |
|
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | |
| Interest rate contracts | Interest expense | | $ | — |
| | $ | 0.1 |
| | $ | 0.5 |
| |
| Commodity contracts | Cost of goods sold | | 0.4 |
| | (2.1 | ) | | (2.2 | ) | Cost of goods sold | | $ | (0.4 | ) | | $ | (2.2 | ) | | $ | 1.4 |
|
| Foreign exchange contracts | | Selling and administration | | (11.1 | ) | | 0.1 |
| | — |
|
| | | $ | 0.4 |
| | $ | (2.0 | ) | | $ | (1.7 | ) | | $ | (11.5 | ) | | $ | (2.1 | ) | | $ | 1.4 |
|
The ineffective portion of changes in fair value resulted in zero charged or credited to earnings for the years ended December 31, 2016, 2015 and 2014.
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 non-performance 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, exceedexceeds 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 December 31, 2013 and 2012,2016, this threshold was not exceeded. As of December 31, 2015, the amount recognized in other current assetsaccrued liabilities for cash collateral provided by us to counterparties to us were zero and $0.1 million, respectively.was $5.6 million. In all instances where we are party to a master netting agreement, we offset the receivable or payable recognized upon payment of cash collateral against the fair value amounts recognized for derivative instruments that have also been offset under such master netting agreements.
FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes the assets and liabilities measured at fair value in the consolidated balance sheets:
| |
Balance at December 31, 2013 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | |
Balance at December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| Assets | ($ in millions) | ($ in millions) |
| Interest rate swaps | $ | — |
| | $ | 5.9 |
| | $ | — |
| | $ | 5.9 |
| $ | — |
| | $ | 9.6 |
| | $ | — |
| | $ | 9.6 |
|
| Commodity forward contracts | — |
| | 1.3 |
| | — |
| | 1.3 |
| |
| Commodity contracts | | — |
| | 11.5 |
| | — |
| | 11.5 |
|
| Foreign exchange contracts | | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Liabilities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Interest rate swaps | — |
| | 7.3 |
| | — |
| | 7.3 |
| — |
| | 28.6 |
| | — |
| | 28.6 |
|
| Earn out | — |
| | — |
| | 26.7 |
| | 26.7 |
| |
| Balance at December 31, 2012 | | |
| Foreign exchange contracts | | — |
| | 1.2 |
| | — |
| | 1.2 |
|
| Balance at December 31, 2015 | | |
| Assets | | | | | | | | | | | | | | |
| Interest rate swaps | $ | — |
| | $ | 8.3 |
| | $ | — |
| | $ | 8.3 |
| $ | — |
| | $ | 1.1 |
| | $ | — |
| | $ | 1.1 |
|
| Commodity forward contracts | 0.1 |
| | 7.5 |
| | — |
| | 7.6 |
| |
| Foreign exchange contracts | | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Liabilities | | | | | | | | | | | | | | |
| Interest rate swaps | — |
| | 10.2 |
| | — |
| | 10.2 |
| — |
| | 1.6 |
| | — |
| | 1.6 |
|
| Earn out | — |
| | — |
| | 42.0 |
| | 42.0 |
| |
| Commodity contracts | | — |
| | 11.6 |
| | — |
| | 11.6 |
|
For the yearyears ended December 31, 2013,2016 and 2015, there were no transfers into or out of Level 1, Level 2 and Level 2.
The following table summarizes the activity for our earn out liability measured at fair value using Level 3 inputs:
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | ($ in millions) |
| Beginning balance | $ | 42.0 |
| | $ | 49.0 |
|
| Settlements | (23.2 | ) | | (18.5 | ) |
| Unrealized losses included in other (expense) income | 7.9 |
| | 11.5 |
|
| Ending balance | $ | 26.7 |
| | $ | 42.0 |
|
Interest Rate Swaps
The fair value of the interestInterest rate swaps was included in other assets and long-term debt as of December 31, 2013 and 2012. Theseswap 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
The fair value of the commodity forward contracts was classified in other current assets as of December 31, 2013 and 2012, with unrealized gains and losses included in accumulated other comprehensive loss, net of applicable taxes. TheseCommodity 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 forwardderivative 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
We had no fair value of foreignForeign currency contracts as of December 31, 2013 and 2012. The gains and losses of foreign currency contracts were included in selling and administration expense as these financial instruments do not meet the criteria to qualify for hedge accounting. Thesecontract 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 foreign currencies. We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies (principally Canadian dollar and Australian dollar).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 balance sheets:
|
| | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Amount recorded
on balance sheets |
| | ($ in millions) |
| Balance at December 31, 2013 | $ | — |
| | $ | 561.4 |
| | $ | 153.0 |
| | $ | 714.4 |
| | $ | 691.0 |
|
| Balance at December 31, 2012 | — |
| | 605.1 |
| | 153.0 |
| | 758.1 |
| | 713.7 |
|
Earn Out
The fair value of the earn out associated with the SunBelt acquisition was estimated using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observed in the market. Key assumptions in determining the fair value of the earn out include the discount rate and cash flow projections. As of December 31, 2013, our consolidated balance sheet included $26.7 million recorded for the 2013 earn out liability, which is classified in accrued liabilities, and includes $14.8 million that was recognized as part of the original purchase price.
For the years ended December 31, 2013 and 2012, we paid $23.2 million and $18.5 million, respectively, for the earn out related to the 2012 and 2011 SunBelt performance. The earn out payments for 2013 and 2012 included $17.1 million and $15.3 million, respectively, that were recognized as part of the original purchase price. The $17.1 million and $15.3 million are included as a financing activity in the statement of cash flows. |
| | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Amount recorded
on balance sheets |
| | ($ in millions) |
| Balance at December 31, 2016 | $ | — |
| | $ | 3,703.7 |
| | $ | 153.0 |
| | $ | 3,856.7 |
| | $ | 3,617.6 |
|
| Balance at December 31, 2015 | — |
| | 3,826.9 |
| | 153.0 |
| | 3,979.9 |
| | 3,848.8 |
|
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 December 31, 20132016 and 20122015.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In October 2015, Spinco (the Issuer) issued $720.0 million aggregate principal amount of the 2023 Notes and $500.0 million aggregate principal amount of the 2025 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). At February 28, 2011, $180.6 millionThe 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 assets were measured at fair value on a nonrecurring basis. We recognized a gainDecember 31, 2016 and 2015, and the related condensed consolidating statements of $181.4 millionoperations, comprehensive income (loss) and cash flows for each of the yearyears in the three-year period ended December 31, 20112016 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 our previously held investmenta consolidated basis. Investments in SunBelt, which had been accounted forconsolidated subsidiaries are presented under the equity method of accounting prior to the acquisition. We remeasured our equity interest in SunBelt of $(0.8) million based on our purchase of PolyOne’s 50% interest in SunBelt. We used Level 1 inputs for the cash payments and Level 3 inputs for the estimated earn out.accounting.
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING BALANCE SHEETS |
| December 31, 2016 |
| (In millions) |
|
| |
| |
| |
| |
|
| 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 |
| December 31, 2015 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Assets |
| |
| |
| |
| |
|
| Current assets: |
| |
| |
| |
| |
|
| Cash and cash equivalents | $ | 119.4 |
| | — |
| | $ | 272.6 |
| | — |
| | $ | 392.0 |
|
| Receivables, net | 107.7 |
| | — |
| | 679.4 |
| | (3.7 | ) | | 783.4 |
|
| Intercompany receivables | — |
| | 76.1 |
| | 1,093.1 |
| | (1,169.2 | ) | | — |
|
| Income taxes receivable | 27.3 |
| | — |
| | 5.7 |
| | (0.1 | ) | | 32.9 |
|
| Inventories | 166.0 |
| | — |
| | 519.2 |
| | — |
| | 685.2 |
|
| Current deferred income taxes | — |
| | — |
| | 2.7 |
| | (2.7 | ) | | — |
|
| Other current assets | 152.1 |
| | 5.0 |
| | 4.6 |
| | (121.8 | ) | | 39.9 |
|
| Total current assets | 572.5 |
| | 81.1 |
| | 2,577.3 |
| | (1,297.5 | ) | | 1,933.4 |
|
| Property, plant and equipment, net | 508.7 |
| | — |
| | 3,444.7 |
| | — |
| | 3,953.4 |
|
| Investment in subsidiaries | 5,905.0 |
| | 3,636.3 |
| | — |
| | (9,541.3 | ) | | — |
|
| Deferred income taxes | 155.6 |
| | — |
| | 84.9 |
| | (144.6 | ) | | 95.9 |
|
| Other assets | 43.5 |
| | — |
| | 411.1 |
| | — |
| | 454.6 |
|
| Long-term receivables—affiliates | — |
| | 2,562.6 |
| | — |
| | (2,562.6 | ) | | — |
|
| Intangible assets, net | 0.5 |
| | — |
| | 677.0 |
| | — |
| | 677.5 |
|
| Goodwill | — |
| | 990.2 |
| | 1,183.9 |
| | — |
| | 2,174.1 |
|
| Total assets | $ | 7,185.8 |
| | $ | 7,270.2 |
| | $ | 8,378.9 |
| | $ | (13,546.0 | ) | | $ | 9,288.9 |
|
| Liabilities and Shareholders' Equity |
| |
| |
| |
| |
|
| Current liabilities: |
| |
| |
| |
| |
|
| Current installments of long-term debt | $ | 192.8 |
| | — |
| | $ | 12.2 |
| | — |
| | $ | 205.0 |
|
| Accounts payable | 37.3 |
| | — |
| | 576.6 |
| | (5.7 | ) | | 608.2 |
|
| Intercompany payables | 1,169.2 |
| | — |
| | — |
| | (1,169.2 | ) | | — |
|
| Income taxes payable | 1.5 |
| | — |
| | 6.1 |
| | (2.7 | ) | | 4.9 |
|
| Accrued liabilities | 227.8 |
| | — |
| | 221.3 |
| | (121.0 | ) | | 328.1 |
|
| Total current liabilities | 1,628.6 |
| | — |
| | 816.2 |
| | (1,298.6 | ) | | 1,146.2 |
|
| Long-term debt | 1,084.0 |
| | 2,547.4 |
| | 12.4 |
| | — |
| | 3,643.8 |
|
| Accrued pension liability | 484.3 |
| | — |
| | 164.6 |
| | — |
| | 648.9 |
|
| Deferred income taxes | — |
| | 294.8 |
| | 945.1 |
| | (144.7 | ) | | 1,095.2 |
|
| Long-term payables—affiliates | 1,296.4 |
| | 286.5 |
| | 979.7 |
| | (2,562.6 | ) | | — |
|
| Other liabilities | 273.7 |
| | — |
| | 61.1 |
| | 1.2 |
| | 336.0 |
|
| Total liabilities | 4,767.0 |
| | 3,128.7 |
| | 2,979.1 |
| | (4,004.7 | ) | | 6,870.1 |
|
| Commitments and contingencies |
| |
| |
| |
| |
|
| Shareholders' equity: |
| |
| |
| |
| |
|
| Common stock | 165.1 |
| | — |
| | 14.6 |
| | (14.6 | ) | | 165.1 |
|
| Additional paid-in capital | 2,236.4 |
| | 4,146.1 |
| | 4,789.6 |
| | (8,935.7 | ) | | 2,236.4 |
|
| Accumulated other comprehensive loss | (492.5 | ) | | — |
| | (31.7 | ) | | 31.7 |
| | (492.5 | ) |
| Retained earnings | 509.8 |
| | (4.6 | ) | | 627.3 |
| | (622.7 | ) | | 509.8 |
|
| Total shareholders' equity | 2,418.8 |
| | 4,141.5 |
| | 5,399.8 |
| | (9,541.3 | ) | | 2,418.8 |
|
| Total liabilities and shareholders' equity | $ | 7,185.8 |
| | $ | 7,270.2 |
| | $ | 8,378.9 |
| | $ | (13,546.0 | ) | | $ | 9,288.9 |
|
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS |
| Year Ended December 31, 2016 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Sales | $ | 1,321.3 |
| | — |
| | $ | 4,720.2 |
| | $ | (490.9 | ) | | $ | 5,550.6 |
|
| Operating expenses: |
| |
| |
| |
| |
|
| Cost of goods sold | 1,128.7 |
| | — |
| | 4,285.9 |
| | (490.9 | ) | | 4,923.7 |
|
| Selling and administration | 138.1 |
| | — |
| | 185.1 |
| | — |
| | 323.2 |
|
| Restructuring charges | 0.8 |
| | — |
| | 112.1 |
| | — |
| | 112.9 |
|
| Acquisition-related costs | 47.4 |
| | — |
| | 1.4 |
| | — |
| | 48.8 |
|
| Other operating (loss) income | (2.2 | ) | | — |
| | 12.8 |
| | — |
| | 10.6 |
|
| Operating income | 4.1 |
| | — |
| | 148.5 |
| | — |
| | 152.6 |
|
| Earnings of non-consolidated affiliates | 1.7 |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Equity income (loss) in subsidiaries | 16.2 |
| | 139.0 |
| | — |
| | (155.2 | ) | | — |
|
| Interest expense | 38.8 |
| | 153.9 |
| | 4.7 |
| | (5.5 | ) | | 191.9 |
|
| Interest income | 4.7 |
| | — |
| | 4.2 |
| | (5.5 | ) | | 3.4 |
|
| Income (loss) before taxes | (12.1 | ) | | (14.9 | ) | | 148.0 |
| | (155.2 | ) | | (34.2 | ) |
| Income tax (benefit) provision | (8.2 | ) | | (57.6 | ) | | 35.5 |
| | — |
| | (30.3 | ) |
| Net (loss) income | $ | (3.9 | ) | | $ | 42.7 |
| | $ | 112.5 |
| | $ | (155.2 | ) | | $ | (3.9 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS |
| Year Ended December 31, 2015 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Sales | $ | 1,215.4 |
| | — |
| | $ | 2,002.5 |
| | $ | (363.5 | ) | | $ | 2,854.4 |
|
| Operating expenses: |
| |
| |
| |
| |
|
| Cost of goods sold | 1,057.8 |
| | — |
| | 1,792.5 |
| | (363.5 | ) | | 2,486.8 |
|
| Selling and administration | 110.0 |
| | — |
| | 76.3 |
| | — |
| | 186.3 |
|
| Restructuring charges | 0.7 |
| | — |
| | 2.0 |
| | — |
| | 2.7 |
|
| Acquisition-related costs | 117.9 |
| | — |
| | 5.5 |
| | — |
| | 123.4 |
|
| Other operating (loss) income | (4.0 | ) | | — |
| | 49.7 |
| | — |
| | 45.7 |
|
| Operating (loss) income | (75.0 | ) | | — |
| | 175.9 |
| | — |
| | 100.9 |
|
| Earnings of non-consolidated affiliates | 1.7 |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Equity income (loss) in subsidiaries | 90.2 |
| | 19.7 |
| | — |
| | (109.9 | ) | | — |
|
| Interest expense | 60.9 |
| | 37.0 |
| | 4.5 |
| | (5.4 | ) | | 97.0 |
|
| Interest income | 3.1 |
| | — |
| | 3.4 |
| | (5.4 | ) | | 1.1 |
|
| Income (loss) before taxes | (40.9 | ) | | (17.3 | ) | | 174.8 |
| | (109.9 | ) | | 6.7 |
|
| Income tax (benefit) provision | (39.5 | ) | | (12.7 | ) | | 60.3 |
| | — |
| | 8.1 |
|
| Net (loss) income | $ | (1.4 | ) | | $ | (4.6 | ) | | $ | 114.5 |
| | $ | (109.9 | ) | | $ | (1.4 | ) |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS |
| Year Ended December 31, 2014 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Sales | $ | 1,373.2 |
| | — |
| | 1,285.5 |
| | $ | (417.5 | ) | | $ | 2,241.2 |
|
| Operating expenses: |
| |
| | — |
| |
| |
|
| Cost of goods sold | 1,148.1 |
| | — |
| | 1,122.6 |
| | (417.5 | ) | | 1,853.2 |
|
| Selling and administration | 90.7 |
| | — |
| | 75.4 |
| | — |
| | 166.1 |
|
| Restructuring charges | 4.8 |
| | — |
| | 10.9 |
| | — |
| | 15.7 |
|
| Acquisition-related costs | 4.2 |
| | — |
| | — |
| | — |
| | 4.2 |
|
| Other operating income | 0.9 |
| | — |
| | 0.6 |
| | — |
| | 1.5 |
|
| Operating income | 126.3 |
| | — |
| | 77.2 |
| | — |
| | 203.5 |
|
| Earnings of non-consolidated affiliates | 1.7 |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Equity income (loss) in subsidiaries | 48.8 |
| | — |
| | — |
| | (48.8 | ) | | — |
|
| Interest expense | 47.0 |
| | — |
| | 1.3 |
| | (4.5 | ) | | 43.8 |
|
| Interest income | 2.5 |
| | — |
| | 3.3 |
| | (4.5 | ) | | 1.3 |
|
| Income (loss) from continuing operations before taxes | 132.3 |
| | — |
| | 79.2 |
| | (48.8 | ) | | 162.7 |
|
| Income tax provision | 27.3 |
| | — |
| | 30.4 |
| | — |
| | 57.7 |
|
| Income (loss) from continuing operations | 105.0 |
| | — |
| | 48.8 |
| | (48.8 | ) | | 105.0 |
|
| Income from discontinued operations, net | $ | 0.7 |
| | — |
| | $ | — |
| | $ | — |
| | $ | 0.7 |
|
| Net income (loss) | $ | 105.7 |
| | — |
| | $ | 48.8 |
| | $ | (48.8 | ) | | $ | 105.7 |
|
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| Year Ended December 31, 2016 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net (loss) income | $ | (3.9 | ) | | $ | 42.7 |
| | $ | 112.5 |
| | $ | (155.2 | ) | | $ | (3.9 | ) |
| Other comprehensive income (loss), net of tax: |
| |
| |
| |
| |
|
| Foreign currency translation adjustments, net | — |
| | — |
| | (12.0 | ) | | — |
| | (12.0 | ) |
| Unrealized gains on derivative contracts, net | 19.7 |
| | — |
| | — |
| | — |
| | 19.7 |
|
| Pension and postretirement liability adjustments, net | (25.3 | ) | | — |
| | (12.2 | ) | | — |
| | (37.5 | ) |
| Amortization of prior service costs and actuarial losses, net | 10.9 |
| | — |
| | 1.4 |
| | — |
| | 12.3 |
|
| Total other comprehensive income (loss), net of tax | 5.3 |
| | — |
| | (22.8 | ) | | — |
| | (17.5 | ) |
| Comprehensive income (loss) | $ | 1.4 |
| | $ | 42.7 |
| | $ | 89.7 |
| | $ | (155.2 | ) | | $ | (21.4 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| Year Ended December 31, 2015 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net (loss) income | $ | (1.4 | ) | | (4.6 | ) | | $ | 114.5 |
| | $ | (109.9 | ) | | $ | (1.4 | ) |
| Other comprehensive (loss) income, net of tax: |
| |
| |
| |
| |
|
| Foreign currency translation adjustments, net | — |
| | — |
| | (9.8 | ) | | — |
| | (9.8 | ) |
| Unrealized losses on derivative contracts, net | (2.7 | ) | | — |
| | — |
| | — |
| | (2.7 | ) |
| Pension and postretirement liability adjustments, net | (73.7 | ) | | — |
| | (5.1 | ) | | — |
| | (78.8 | ) |
| Amortization of prior service costs and actuarial losses, net | 39.6 |
| | — |
| | 2.3 |
| | — |
| | 41.9 |
|
| Total other comprehensive (loss) income, net of tax | (36.8 | ) | | — |
| | (12.6 | ) | | — |
| | (49.4 | ) |
| Comprehensive (loss) income | $ | (38.2 | ) | | $ | (4.6 | ) | | $ | 101.9 |
| | $ | (109.9 | ) | | $ | (50.8 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| Year Ended December 31, 2014 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net income (loss) | 105.7 |
| | — |
| | 48.8 |
| | (48.8 | ) | | 105.7 |
|
| Other comprehensive (loss) income, net of tax: |
| |
| |
| |
| |
|
| Foreign currency translation adjustments, net | — |
| | — |
| | (1.8 | ) | | — |
| | (1.8 | ) |
| Unrealized losses on derivative contracts, net | (5.1 | ) | | — |
| | — |
| | — |
| | (5.1 | ) |
| Pension and postretirement liability adjustments, net | (83.4 | ) | | — |
| | (3.2 | ) | | — |
| | (86.6 | ) |
| Amortization of prior service costs and actuarial losses, net | 14.1 |
| | — |
| | 1.4 |
| | — |
| | 15.5 |
|
| Total other comprehensive (loss) income, net of tax | (74.4 | ) | | — |
| | (3.6 | ) | | — |
| | (78.0 | ) |
| Comprehensive income (loss) | $ | 31.3 |
| | $ | — |
| | $ | 45.2 |
| | $ | (48.8 | ) | | $ | 27.7 |
|
|
| | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
| Year Ended December 31, 2016 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net operating activities | $ | 702.6 |
| | — |
| | $ | (99.4 | ) | | — |
| | $ | 603.2 |
|
| Investing Activities |
| |
| |
| |
| |
|
| Capital expenditures | (65.7 | ) | | — |
| | (212.3 | ) | | — |
| | (278.0 | ) |
| Business acquired and related transactions, net of cash acquired | (69.5 | ) | | — |
| | — |
| | — |
| | (69.5 | ) |
| Payments under long-term supply contract | — |
| | — |
| | (175.7 | ) | | — |
| | (175.7 | ) |
| Proceeds from sale/leaseback of equipment | — |
| | — |
| | 40.4 |
| | — |
| | 40.4 |
|
| Proceeds from disposition of property, plant and equipment | 0.2 |
| | — |
| | 0.3 |
| | — |
| | 0.5 |
|
| Proceeds from disposition of investments in non-consolidated equity affiliate | 8.8 |
| | — |
| | — |
| | — |
| | 8.8 |
|
| Net investing activities | (126.2 | ) | | — |
| | (347.3 | ) | | — |
| | (473.5 | ) |
| Financing Activities |
| |
| |
| |
| |
|
| Long-term debt: | | | | | | | | | |
| Borrowings | — |
| | — |
| | 230.0 |
| | — |
| | 230.0 |
|
| Repayments | (335.6 | ) | | (67.5 | ) | | (32.2 | ) | | — |
| | (435.3 | ) |
| Stock options exercised | 0.5 |
| | — |
| | — |
| | — |
| | 0.5 |
|
| Excess tax benefits from stock-based compensation | 0.4 |
| | — |
| | — |
| | — |
| | 0.4 |
|
| Dividends paid | (132.1 | ) | | — |
| | — |
| | — |
| | (132.1 | ) |
| Debt and equity issuance costs | — |
| | (1.0 | ) | | — |
| | — |
| | (1.0 | ) |
| Intercompany financing activities | (203.8 | ) | | 68.5 |
| | 135.3 |
| | — |
| | — |
|
| Net financing activities | (670.6 | ) | | — |
| | 333.1 |
| | — |
| | (337.5 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
|
| Net decrease in cash and cash equivalents | (94.2 | ) | | — |
| | (113.3 | ) | | — |
| | (207.5 | ) |
| Cash and cash equivalents, beginning of year | 119.4 |
| | — |
| | 272.6 |
| | — |
| | 392.0 |
|
| Cash and cash equivalents, end of year | $ | 25.2 |
| | — |
| | $ | 159.3 |
| | — |
| | $ | 184.5 |
|
|
| | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
| Year Ended December 31, 2015 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net operating activities | $ | (70.6 | ) | | — |
| | $ | 287.7 |
| | — |
| | $ | 217.1 |
|
| Investing Activities |
| |
| |
| |
| |
|
| Capital expenditures | (74.0 | ) | | — |
| | (56.9 | ) | | — |
| | (130.9 | ) |
| Business acquired and related transactions, net of cash acquired | (408.1 | ) | | — |
| | — |
| | — |
| | (408.1 | ) |
| Proceeds from disposition of property, plant and equipment | 1.7 |
| | — |
| | 24.5 |
| | — |
| | 26.2 |
|
| Proceeds from disposition of investments in non-consolidated equity affiliate | 8.8 |
| | — |
| | — |
| | — |
| | 8.8 |
|
| Net investing activities | (471.6 | ) | | — |
| | (32.4 | ) | | — |
| | (504.0 | ) |
| Financing Activities |
| |
| |
| |
| |
|
| Long-term debt: |
| |
| |
| |
| |
|
| Borrowings | 1,275.0 |
| | — |
| | — |
| | — |
| | 1,275.0 |
|
| Repayments | (149.5 | ) | | — |
| | (581.2 | ) | | — |
| | (730.7 | ) |
| Stock options exercised | 2.2 |
| | — |
| | — |
| | — |
| | 2.2 |
|
| Excess tax benefits from stock-based compensation | 0.4 |
| | — |
| | — |
| | — |
| | 0.4 |
|
| Dividends paid | (79.5 | ) | | — |
| | — |
| | — |
| | (79.5 | ) |
| Debt and equity issuance costs | (35.2 | ) | | (10.0 | ) | | — |
| | — |
| | (45.2 | ) |
| Intercompany financing activities | (591.2 | ) | | 10.0 |
| | 581.2 |
| |
| | — |
|
| Net financing activities | 422.2 |
| | — |
| | — |
| | — |
| | 422.2 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (0.1 | ) | | — |
| | (0.1 | ) |
| Net (decrease) increase in cash and cash equivalents | (120.0 | ) | | — |
| | 255.2 |
| | — |
| | 135.2 |
|
| Cash and cash equivalents, beginning of year | 239.4 |
| | — |
| | 17.4 |
| | — |
| | 256.8 |
|
| Cash and cash equivalents, end of year | $ | 119.4 |
| | — |
| | $ | 272.6 |
| | — |
| | $ | 392.0 |
|
|
| | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
| Year Ended December 31, 2014 |
| (In millions) |
|
| |
| |
| |
| |
|
| Parent Guarantor | | Issuer | | Subsidiary
Non-Guarantor | | Eliminations | | Total |
| Net operating activities | $ | 134.7 |
| | — |
| | $ | 24.5 |
| | — |
| | $ | 159.2 |
|
| Investing Activities |
| |
| |
| |
| |
|
| Capital expenditures | (51.3 | ) | | — |
| | (20.5 | ) | | — |
| | (71.8 | ) |
| Proceeds from disposition of property, plant and equipment | 3.5 |
| | — |
| | 2.1 |
| | — |
| | 5.6 |
|
| Restricted cash activity, net | 4.2 |
| | — |
| | — |
| | — |
| | 4.2 |
|
| Other investing activities | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
|
| Net investing activities | (43.6 | ) | | — |
| | (18.1 | ) | | — |
| | (61.7 | ) |
| Financing Activities |
| |
| |
| |
| |
|
| Long-term debt: |
| |
| |
| |
| |
|
| Borrowings | 150.0 |
| | — |
| | — |
| | — |
| | 150.0 |
|
| Repayments | (150.2 | ) | | — |
| | (12.2 | ) | | — |
| | (162.4 | ) |
| Earn out payment - SunBelt | — |
| | — |
| | (14.8 | ) | | — |
| | (14.8 | ) |
| Common stock repurchased and retired | (64.8 | ) | | — |
| | — |
| | — |
| | (64.8 | ) |
| Stock options exercised | 6.6 |
| | — |
| | — |
| | — |
| | 6.6 |
|
| Excess tax benefits from stock-based compensation | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
| Dividends paid | (63.0 | ) | | — |
| | — |
| | — |
| | (63.0 | ) |
| Debt and equity issuance costs | (1.2 | ) | | — |
| | — |
| | — |
| | (1.2 | ) |
| Intercompany financing activities | (27.0 | ) | |
| | 27.0 |
| |
| | — |
|
| Net financing activities | (148.5 | ) | | — |
| | — |
| | — |
| | (148.5 | ) |
| Net (decrease) increase in cash and cash equivalents | (57.4 | ) | | — |
| | 6.4 |
| | — |
| | (51.0 | ) |
| Cash and cash equivalents, beginning of year | 296.8 |
| | — |
| | 11.0 |
| | — |
| | 307.8 |
|
| Cash and cash equivalents, end of year | $ | 239.4 |
| | — |
| | $ | 17.4 |
| | — |
| | $ | 256.8 |
|
OTHER FINANCIAL DATA
Quarterly Data (Unaudited)
($ in millions, except per share data)
| | | 2013 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Year | |
| 2016 | | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Year |
| Sales | | $ | 630.0 |
| | $ | 652.2 |
| | $ | 670.7 |
| | $ | 562.1 |
| | $ | 2,515.0 |
| | $ | 1,348.2 |
| | $ | 1,364.0 |
| | $ | 1,452.7 |
| | $ | 1,385.7 |
| | $ | 5,550.6 |
|
| Cost of goods sold | | 504.4 |
| | 531.1 |
| | 528.5 |
| | 469.7 |
| | 2,033.7 |
| | 1,175.4 |
| | 1,236.9 |
| | 1,284.4 |
| | 1,227.0 |
| | 4,923.7 |
|
| Net income | | 40.5 |
| | 43.7 |
| | 69.7 |
| | 24.7 |
| | 178.6 |
| |
| Net income per common share: | | | | | | | | | | | |
| Net (loss) income | | | (37.9 | ) | | (1.0 | ) | | 17.5 |
| | 17.5 |
| | (3.9 | ) |
| Net (loss) income per common share: | | | | | | | | | | | |
| Basic | | 0.50 |
| | 0.54 |
| | 0.87 |
| | 0.31 |
| | 2.24 |
| | (0.23 | ) | | (0.01 | ) | | 0.11 |
| | 0.11 |
| | (0.02 | ) |
| Diluted | | 0.50 |
| | 0.54 |
| | 0.86 |
| | 0.31 |
| | 2.21 |
| | (0.23 | ) | | (0.01 | ) | | 0.11 |
| | 0.10 |
| | (0.02 | ) |
| Common dividends per share | | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.80 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.80 |
|
Market price of common stock(1) | | | | | | | | | | | | | | | | | | | | |
| High | | 25.42 |
| | 26.05 |
| | 25.17 |
| | 29.52 |
| | 29.52 |
| | 17.75 |
| | 24.99 |
| | 26.46 |
| | 26.93 |
| | 26.93 |
|
| Low | | 21.29 |
| | 22.74 |
| | 22.50 |
| | 21.79 |
| | 21.29 |
| | 12.29 |
| | 16.55 |
| | 18.24 |
| | 19.62 |
| | 12.29 |
|
| | | 2012 | | First
Quarter | | Second Quarter | | Third
Quarter | | Fourth
Quarter | | Year | |
| 2015 | | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Year |
| Sales | | $ | 507.2 |
| | $ | 508.7 |
| | $ | 581.2 |
| | $ | 587.6 |
| | $ | 2,184.7 |
| | $ | 518.0 |
| | $ | 535.4 |
| | $ | 533.6 |
| | $ | 1,267.4 |
| | $ | 2,854.4 |
|
| Cost of goods sold | | 392.9 |
| | 391.4 |
| | 475.8 |
| | 487.9 |
| | 1,748.0 |
| | 433.2 |
| | 445.5 |
| | 460.0 |
| | 1,148.1 |
| | 2,486.8 |
|
| Net income | | 38.7 |
| | 47.6 |
| | 28.7 |
| | 34.6 |
| | 149.6 |
| |
| Net income per common share: | | | | | | | | | | | |
| Net income (loss) | | | 13.1 |
| | 42.3 |
| | 5.9 |
| | (62.7 | ) | | (1.4 | ) |
| Net income (loss) per common share: | | | | | | | | | | | |
| Basic | | 0.48 |
| | 0.59 |
| | 0.36 |
| | 0.43 |
| | 1.87 |
| | 0.17 |
| | 0.55 |
| | 0.08 |
| | (0.39 | ) | | (0.01 | ) |
| Diluted | | 0.48 |
| | 0.59 |
| | 0.35 |
| | 0.43 |
| | 1.85 |
| | 0.17 |
| | 0.54 |
| | 0.08 |
| | (0.39 | ) | | (0.01 | ) |
| Common dividends per share | | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.80 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.80 |
|
Market price of common stock(1) | | | | | | | | | | | | | | | | | | | | |
| High | | 23.46 |
| | 22.24 |
| | 23.48 |
| | 22.32 |
| | 23.48 |
| | 34.34 |
| | 32.56 |
| | 27.18 |
| | 22.13 |
| | 34.34 |
|
| Low | | 19.75 |
| | 18.40 |
| | 19.34 |
| | 19.50 |
| | 18.40 |
| | 22.00 |
| | 26.77 |
| | 15.73 |
| | 16.60 |
| | 15.73 |
|
| |
| (1) | NYSE composite transactions. |
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2013.2016. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information Olin is required to disclose in the reports that it files or submits with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed in such reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 20132016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting and the related report of Olin’s independent registered public accounting firm, KPMG LLP, are included in Item 8—“Consolidated Financial Statements and Supplementary Data.”
Item 9B. OTHER INFORMATION
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
We incorporate the biographical information relating to our Directors under the heading ItemITEM 1—“Proposal for the Election of Directors”PROPOSAL FOR THE ELECTION OF DIRECTORS” in our Proxy Statement relating to our 20142017 Annual Meeting of Shareholders (the “Proxy Statement”) by reference in this Report. See alsoWe incorporate the list ofbiographical information regarding executive officers following Item 4under the heading “EXECUTIVE OFFICERS” in Part I ofour Proxy Statement by reference in this Report.report. We incorporate the information regarding compliance with Section 16 of the Securities Exchange Act of 1934, as amended, under the heading entitled “Section“SECTION 16(a) Beneficial Ownership Reporting Compliance” under the heading “Security Ownership of Directors and Officers”BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in our Proxy Statement by reference in this Report.
The information with respect to our audit committee, including the audit committee financial expert, is incorporated by reference in this Report to the information contained in the paragraph entitled “What are the committees of the board?“CORPORATE GOVERNANCE MATTERS—What Are The Committees Of The Board?” under the heading “Corporate Governance Matters” in our Proxy Statement. We incorporate by reference in this Report information regarding procedures for shareholders to nominate a director for election, in the Proxy Statement under the headings “Miscellaneous—“MISCELLANEOUS—How can I directly nominate a director for election to the board at the 20152018 annual meeting?” and “Corporate Governance Matters—“CORPORATE GOVERNANCE MATTERS—What isIs Olin’s director nomination process?Director Nomination Process?”.
We have adopted a code of business conduct and ethics for directors, officers and employees, known as the Code of Conduct. The Code of Conduct is available in the About Olin, Ethics section of our website at www.olin.com.www.olin.com. Olin intends to satisfy disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision of the Code of Conduct with respect to its executive officers or directors by posting such amendment or waiver on its website.
Item 11. EXECUTIVE COMPENSATION
The information in the Proxy Statement under the heading “Compensation“CORPORATE GOVERNANCE MATTERS—Compensation Committee Interlocks and Insider Participation,” on page 17 and the information on pages 24 through 55, (beginning with the information under the heading “Compensation Discussion and Analysis”“COMPENSATION DISCUSSION AND ANALYISIS” through the information under the heading “Compensation Committee Report,“COMPENSATION COMMITTEE REPORT,”) are incorporated by reference in this Report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
We incorporate the information concerning holdings of our common stock by certain beneficial owners contained under the heading “Certain Beneficial Owners”“CERTAIN BENEFICIAL OWNERS” in our Proxy Statement, and the information concerning beneficial ownership of our common stock by our directors and officers under the heading “Security Ownership of Directors and Officers”“SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS” in our Proxy Statement by reference in this Report. We also incorporate the table entitled “Equity
Equity Compensation Plan Information” includedInformation
|
| | | | | | | | | | | | |
| | | (a) | | | (b) | | | (c) |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)(1) |
Equity compensation plans approved by security holders(2) | | 6,936,654 |
| (3) | | $ | 19.25 |
| (3) | | 7,248,213 |
|
| Equity compensation plans not approved by security holders | | N/A |
| | | N/A |
| | | N/A |
|
| Total | | 6,936,654 |
| | | $ | 19.25 |
| (3) | | 7,248,213 |
|
| |
| (1) | Number of shares is subject to adjustment for changes in capitalization for stock splits and stock dividends and similar events. |
| |
| (2) | Consists of the 2000 Long Term Incentive Plan, the 2003 Long Term Incentive Plan, the 2006 Long Term Incentive Plan, the 2009 Long Term Incentive Plan, the 2014 Long Term Incentive Plan, the 2016 Long Term Incentive Plan and the 1997 Stock Plan for Non-employee Directors. |
5,734,740 shares issuable upon exercise of options with a weighted average exercise price of $19.25, and a weighted average remaining term of 6.2 years,
177,000 shares issuable under restricted stock unit grants, with a weighted average remaining term of 1.7 years,
932,175 shares issuable in connection with outstanding performance share awards, with a weighted average term of 2.3 years remaining in the performance measurement period, and
92,739 shares under the heading “Item 2—Proposal to Approve 2014 Long Term Incentive1997 Stock Plan for Non-employee Directors which represent stock grants for retainers, other board and Approvecommittee fees, and dividends on deferred stock under the Performance Measures Pursuant to Section 162(m) of the Internal Revenue Code” in our Proxy Statement by reference in this report.plan.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
We incorporate the information under the headings “Review, Approval or Ratification of Transactions with Related Persons,” “Related Person Transactions Since the Beginning of 2013”“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” and “Which board members are independent?“CORPORATE GOVERNANCE MATTERS—Which Board Members Are Independent?” in our Proxy Statement by reference in this Report.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
We incorporate the information concerning the accounting fees and services of our independent registered public accounting firm, KPMG LLP, under the heading ItemITEM 4—“Proposal to Ratify Appointment of Independent Registered Public Accounting Firm”PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” in our Proxy Statement by reference in this Report.
PART IV
Item 15. EXHIBITS; CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements
Consolidated financial statements of the registrant are included in Item 8 above.
2. Financial Statement Schedules
Schedules not included herein are omitted because they are inapplicable or not required or because the required information is given in the consolidated financial statements and notes thereto.
Separate consolidated financial statements of our 50% or less owned subsidiaries accounted for by the equity method are not summarized herein and have been omitted because, in the aggregate, they would not constitute a significant subsidiary.
3. Exhibits
See the Exhibit Index immediately prior to the exhibits which is hereby incorporated by reference. The following exhibits, listed on the Exhibit Index, are filed with this Annual Report on Form 10-K:
|
| |
| Exhibit No. | Description |
| | |
10(l)4(x) | Form of executive change in control agreement betweenReceivables Financing Arrangement dated December 20, 2016 by and among Olin and Ms. Ennico and Messrs. Chirumbole, Greer, O’Keefe and Slater dated January 29, 2014 |
| |
10(m) | Amended and Restated 1997 Stock Plan for Non-employee Directors as amended and restated effective December 12, 2013 |
| |
10(r) | Finance Company, LLC, PNC Bank, National Association, Olin Corporation, 2000 Long Term Incentive Plan as amendedPNC Capital Markets LLC and restated effective January 24, 2014 |
| |
10(s) | Olin Corporation 2003 Long Term Incentive Plan as amended and restated effective January 24, 2014
|
| |
10(t) | Olin Corporation 2006 Long Term Incentive Plan as amended and restated effective January 24, 2014 |
| |
10(u) | Olin Corporation 2009 Long Term Incentive Plan as amended and restated effective January 24, 2014the Lender parties thereto. |
| | |
| 11 | Computation of Per Share Earnings (included in the Note–Note—“Earnings Per Share” to Notes to Consolidated Financial Statements in Item 8) |
| | |
| 12 | Computation of Ratio of Earnings to Fixed Charges (Unaudited) |
| | |
| 21 | List of Subsidiaries |
| | |
| 23 | Consent of KPMG LLP |
| | |
| 31.1 | Section 302 Certification Statement of Chief Executive Officer |
| | |
| 31.2 | Section 302 Certification Statement of Chief Financial Officer |
| | |
| 32 | Section 906 Certification Statement of Chief Executive Officer and Chief Financial Officer |
| | |
| 101.INS | XBRL Instance Document |
| | |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Any exhibit is available from the CompanyOlin by writing to: Mr. George H. Pain, Senior Vice President, General Counsel andto the Secretary, Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105-3443.63105 USA.
Shareholders may obtain information from Wells Fargo Shareowner Services, our registrar and transfer agent, who also manages our Dividend Reinvestment Plan by writing to: Wells Fargo Shareowner Services, PO Box 64874, St. Paul,1110 Centre Pointe Curve, Suite 101, MAC N9173-010, Mendota Heights, MN 55164-0854,55120 USA, by telephone from the United States at (800) 468-9716 or outside the United States at (651) 450-4064 or via the Internet at www.shareowneronline.com, click on “contact us”.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 24, 201427, 2017
|
| | | |
| | OLIN CORPORATION |
| | By: | /s/ Joseph D. RuppJohn E. Fischer |
| | | Joseph D. RuppJohn E. Fischer | |
| | | Chairman, President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
/s/ JOSEPH D. RUPPJOHN E. FISCHER Joseph D. RuppJohn E. Fischer
| | Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) | | February 24, 201427, 2017 |
| | | | |
/s/ JOSEPH D. RUPP Joseph D. Rupp | | Chairman and Director | | February 27, 2017 |
| | | | | |
/s/ GRAY G. BENOIST Gray G. Benoist | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ DONALD W. BOGUS Donald W. Bogus | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ C. ROBERT BUNCH C. Robert Bunch | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ RANDALL W. LARRIMORE Randall W. Larrimore | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ JOHN M. B. O’CONNOR John M. B. O’Connor | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ RICHARD M. ROMPALA Richard M. Rompala | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ PHILIP J. SCHULZ Philip J. Schulz | | Director | | February 24, 201427, 2017 |
| | | | | |
/s/ VINCENT J. SMITH Vincent J. Smith | | Director | | February 24, 201427, 2017 |
|
| | | | |
| | | | | |
/s/ JOHN E. FISCHER John E. Fischer
WILLIAM H. WEIDEMAN
William H. Weideman | | Senior Vice President and Chief Financial Officer (Principal Financial Officer)Director | | February 24, 201427, 2017 |
| | | | |
/s/ CAROL A. WILLIAMS
Carol A. Williams | | Director | | February 27, 2017 |
| | | | | |
/s/ TODD A. SLATER Todd A. Slater | | Vice President Financeand Chief Financial Officer (Principal Financial Officer) | | February 27, 2017 |
| | | | |
/s/ RANDEE N. SUMNER Randee N. Sumner | | Vice President and Controller (Principal Accounting Officer) | | February 24, 201427, 2017 |
EXHIBIT INDEX
Management contracts and compensatory plans and arrangements are listed as Exhibits 10(a) through 10(aa)10(ee) below.
|
| | | |
| 2 |
| (a) | Merger Agreement dated as of March 26, 2015, among The Dow Chemical Company, Blue Cube Spinco Inc., Olin Corporation and Blue Cube Acquisition Corp.—Exhibit 2.1 to Olin’s Form 8-K dated March 27, 2015.* |
| 3 |
| (a) | Olin’s Amended and Restated Articles of Incorporation of Olin Corporation as amended effective May 2, 2011—October 1, 2015—Exhibit 3.1 to Olin’s Form 8-K dated May 3, 2011.10-Q for the quarter ended September 30, 2015.* |
| | (b) | Bylaws of Olin Corporation as amended effective December 9, 2010—February 26, 2016—Exhibit 3.1 to Olin’s Form 8-K dated December 10, 2010.February 29, 2016.* |
| (c) | Articles of Amendment of the Amended and Restated Articles of Incorporation of Olin Corporation, effective on October 1, 2015—Exhibit 3.1 to Olin’s Form 8-K dated October 5, 2015.* |
| 4 |
| (a) | Indenture between Olin and JPMorgan Chase Bank, N.A. dated as of June 26, 2006—Exhibit 4.1 to Olin’s Form 8-K dated June 26, 2006.* |
| (b) | 6.75% Senior Note Due 2016—Exhibit 4.1 to Olin’s Form 8-K dated July 28, 2006.* |
| (c) | First Supplemental Indenture between Olin and JPMorgan Chase Bank, N.A. dated July 28, 2006—Exhibit 4.2 to Olin’s Form 8-K dated July 28, 2006.* |
| (d) | Registration Rights Agreement among Olin, Banc of America Securities LLC, Citigroup Global Markets Inc. and Wachovia Capital Markets, LLC dated July 28, 2006—Exhibit 4.3 to Olin’s Form 8-K dated July 28, 2006.* |
| (e) | Indenture dated as of August 19, 2009, between Olin Corporation and The Bank of New York Mellon Trust Company—Exhibit 4.1 to Olin’s Form 8-K dated August 19, 2009.* |
| (f) | First Supplemental Indenture dated as of August 19, 2009, between Olin Corporation and The Bank of New York Mellon Trust Company—Exhibit 4.2 to Olin’s Form 8-K dated August 19, 2009.* |
| (g) | Form of 8.875% Senior Note due 2019—Exhibit 4.3 to Olin’s Form 8-K dated August 19, 2009.* |
| (h) | Trust Indenture effective October 1, 2010 between The Industrial Development Authority of Washington County and U. S. Bank National Association, as trustee—Exhibit 4.1 to Olin’s Form 8-K dated October 20, 2010.* |
| | (i)(b) | Loan Agreement effective October 1, 2010 between The Industrial Development Authority of Washington County and Olin Corporation—Exhibit 4.2 to Olin’s Form 8-K dated October 20, 2010.* |
| | (j)(c) | Bond Purchase Agreement dated October 14, 2010 between The Industrial Development Authority of Washington County, Olin Corporation and PNC Bank National Association, as administrative agent—Exhibit 4.3 to Olin’s Form 8-K dated October 20, 2010.* |
| | (k)(d) | Trust Indenture effective December 1, 2010 between the Mississippi Business Finance Corporation and U. S. Bank National Association, as trustee—Association—Exhibit 4.1 to Olin’s Form 8-K dated December 10, 2010.* |
| | (l)(e) | Loan Agreement effective December 1, 2010 between the Mississippi Business Finance Corporation and Olin Corporation—Exhibit 4.2 to Olin’s Form 8-K dated December 10, 2010.* |
| | (m)(f) | Bond Purchase Agreement dated December 9, 2010 between the Mississippi Business Finance Corporation, Olin Corporation and PNC Bank, National Association, as administrative agent—Exhibit 4.3 to Olin’s Form 8-K dated December 10, 2010.* |
| | (n)(g) | Amended and Restated Credit and Funding Agreement dated December 9, 2010 between Olin Corporation, as borrower; PNC Bank, National Association, as administrative agent; PNC Capital Markets LLC, as lead arranger; and the Lenders party thereto—Exhibit 4.4 to Olin’s Form 8-K dated December 10, 2010.* |
| | (o)(h) | First Amendment dated December 27, 2010 to the Amended and Restated Credit and Funding Agreement dated December 9, 2010 between Olin Corporation, as borrower; PNC Bank, National Association, as administrative agent; PNC Capital Markets LLC, as lead arranger; and the Lenders party thereto—Exhibit 4.4 to Olin’s Form 8-K dated December 29,30, 2010.* |
| | (p) | Trust Indenture effective December 27, 2010 between the Industrial Development Board of the County of Bradley and the City of Cleveland, TN and U. S. Bank, National Association, as trustee—Exhibit 4.1 to Olin’s Form 8-K dated December 29, 2010.* |
| (q) | Loan Agreement effective December 27, 2010 between the Industrial Development Board of the County of Bradley and the City of Cleveland, Tennessee and Olin Corporation—Exhibit 4.2 to Olin’s Form 8-K dated December 29, 2010.* |
| (r) | Bond Purchase Agreement dated December 27, 2010 between the Industrial Development Board of the County of Bradley and the City of Cleveland, Tennessee, Olin Corporation and PNC Bank National Association, as administrative agent—Exhibit 4.3 to Olin’s Form 8-K dated December 29, 2010.* |
| (s)(i) | Forward Purchase Agreement dated April 27, 2012 by and among Olin Corporation, the Lenders (as defined therein), and PNC Bank, National Association, as administrative agent for the Lenders under the Funding Agreement—Exhibit 4.1 to Olin’s Form 8-K dated May 3, 2012.* |
|
| | | |
| | (t)(j) | Second Amendment to Amended and Restated FundingCredit and CreditFunding Agreement dated April 27, 2012 among Olin Corporation, the Lenders, and PNC Bank, National Association, as administrative agent for the Lenders—Exhibit 4.2 to Olin’s Form 8-K dated May 3, 2012.* |
| | (u)(k) | Second Supplemental Indenture dated as of August 9, 2012 between Olin Corporation, The Bank of New York Mellon Trust Company, N.A. and U. S. Bank National Association—Exhibit 4.1 to Olin’s Form 8-K dated August 9, 2012.* |
| | (v)(l) | Third Supplemental Indenture dated as of August 22, 2012 between Olin Corporation and U. S. Bank National Association—Exhibit 4.1 to Olin’s Form 8-K dated August 22, 2012.* |
| | (w)(m) | Form of 5.50% Senior Notes due 2022—Exhibit 4.2 to Olin’s Form 8-K dated August 22, 2012.* |
| (n) | Amended and Restated Forward Purchase Agreement dated June 23, 2014 by and among Olin Corporation, the Lenders (as defined therein), and PNC Bank, National Association, as administrative agent for the Lenders under the Funding Agreement—Exhibit 4.1 to Olin’s Form 8-K dated June 25, 2014.* |
| (o) | Third Amendment to Amended and Restated Credit and Funding Agreement dated June 23, 2014 among Olin Corporation, the Lenders, and PNC Bank, National Association, as administrative agent for the Lenders—Exhibit 4.2 to Olin’s Form 8-K dated June 25, 2014.* |
| (p) | Amendment No. 4 dated as of June 23, 2015 to the Amended and Restated Credit and Funding Agreement dated December 9, 2010 among Olin Corporation, the Lenders, and PNC Bank, National Association, as administrative agent—Exhibit 10.3 to Olin’s Form 8-K dated June 29, 2015.* |
|
| | | |
| (q) | Senior Notes Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and U. S. Bank National Association, as trustee, governing the 9.75% Senior Notes due 2023—Exhibit 4.1 to Olin’s Form 8-K dated October 5, 2015.* |
| (r) | Senior Notes Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and U. S. Bank National Association, as trustee, governing the 10.00% Senior Notes due 2025—Exhibit 4.2 to Olin’s Form 8-K dated October 5, 2015.* |
| (s) | First Supplemental Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and Olin Corporation, as guarantor, and U. S. Bank National Association, as trustee, governing the 9.75% Senior Notes due 2023—Exhibit 4.3 to Olin’s Form 8-K dated October 5, 2015.* |
| (t) | First Supplemental Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and Olin Corporation, as guarantor, and U. S. Bank National Association, as trustee, governing the 10.00% Senior Notes due 2025—Exhibit 4.4 to Olin’s Form 8-K dated October 5, 2015.* |
| (u) | Form of 9.75% Senior Notes due 2023—Exhibit 4.5 (included in Exhibit 4.1) to Olin’s Form 8-K dated October 5, 2015.* |
| (v) | Form of 10.00% Senior Notes due 2025—Exhibit 4.6 (included in Exhibit 4.2) to Olin’s Form 8-K dated October 5, 2015.* |
| (w) | Registration Rights Agreement dated October 5, 2015 relating to the 9.75% Senior Notes due 2023 and 10.00% Senior Notes due 2025 by and among Blue Cube Spinco Inc., Olin Corporation, J.P. Morgan Securities LLC and Wells Fargo Securities LLC for themselves and as representatives of other initial purchasers—Exhibit 4.7 to Olin’s Form 8-K dated October 5, 2015.* |
| (x) | Receivables Financing Arrangement dated December 20, 2016 by and among Olin Finance Company, LLC, PNC Bank, National Association, Olin Corporation, PNC Capital Markets LLC and the Lender parties thereto.
|
| | | |
| | | We are party to a number of other instruments defining the rights of holders of long-term debt. No such instrument authorizes an amount of securities in excess of 10% of the total assets of Olin and its subsidiaries on a consolidated basis. Olin agrees to furnish a copy of each instrument to the Commission upon request. |
| | | |
| 10 |
| (a) | Employee Deferral Plan as amended and restated effective as of January 30, 2003 and as amended effective January 1, 2005—Exhibit 10(b) to Olin’s Form 10-K for 2002 and Exhibit 10(b)(1) to Olin’s Form 10-K for 2005, respectively.* |
| | (b) | Olin Senior Executive Pension Plan amended and restated effective October 24, 2008—Exhibit 10.1 to Olin’s Form 10-Q for the quarter ended September 30, 2008.* |
| | (c) | Olin Supplemental Contributing Employee Ownership Plan as amended and restated effective October 24, 2008 and as amended effective February 19, 2009—September 29, 2015—Exhibit 10.399.1 to Olin’s Form 10-Q for the quarter ended September 30, 2008 and Exhibit 10.1 to Olin’s Form 10-Q for the quarter ended March 31, 2009, respectively.8-K dated October 2, 2015.* |
| | (d) | Olin Corporation Key Executive Life Insurance Program—Exhibit 10(e) to Olin’s Form 10-K for 2002.* |
| | (e) | Form of executive agreement between Olin and certain executive officers—Exhibit 99.1 to Olin’s Form 8-K dated January 26, 2005.* |
| (f) | Form of amendment to executive agreement between Olin Corporation and Messrs. Curley and Fischer dated November 9, 2007—Exhibit 10(g) to Olin’s Form 10-K for 2007.* |
| | (g) | Form of amendment to executive agreement between Olin and G. Bruce Greer, Jr. dated November 9, 2007—Exhibit 10(i) to Olin’s Form 10-K for 2007.* |
| (h)(f) | Form of executive agreement between Olin Corporation and Messrs. Rupp, McIntosh and Pain dated November 1, 2007—Exhibit 10.1 to Olin’s Form 10-Q for the quarter ended September 30, 2007.* |
| | (i)(g) | Form of amendment to executive agreement between Olin Corporation and Messrs. Curley, Fischer, McIntosh, Pain and Rupp dated October 25, 2010 to executive agreements with Messrs. Curley, Fischer, Greer, McIntosh, Pain and Rupp—2010—Exhibit 10.1 to Olin’s Form 10-K for 2010.* |
| | (j)(h) | Form of amendment to executive agreement between Olin Corporation and each of Kenneth A. Steel, Jr.Messrs. Curley, Fischer, McIntosh, Pain and Robert A. SteelRupp dated July 17, 2012—October 19, 2015—Exhibit 10.110(i) to Olin’s Form 10-Q10-K for the quarter ended September 30, 2012.2015.* |
| (i) | Form of executive retention agreement between Olin Corporation and Messrs. Dawson, Sampson and Varilek dated July 1, 2015—Exhibit 10(j) to Olin’s Form 10-K for 2015.* |
| (j) | Form of executive change in control agreement between Olin Corporation and Ms. Ennico and Messrs. O’Keefe and Slater dated January 29, 2014—Exhibit 10(l) to Olin’s Form 10-K for 2013.* |
| | (k) | Form of executive change in control agreement between Olin Corporation and Messrs. Rupp, Curley, Fischer, McIntosh, Pain and PainRupp dated January 29, 2014—Exhibit 10.1 to Olin’s Form 8-K dated January 30, 2014.* |
| | (l) | Form of amendment to executive change in control agreement between Olin Corporation and Ms. Ennico and Messrs. Curley, Fischer, McIntosh, O’Keefe, Pain, Rupp and Slater dated October 19, 2015—Exhibit 10(m) to Olin’s Form 10-K for 2015.* |
| (m) | Form of executive change in control agreement between Olin and Ms. EnnicoCorporation and Messrs. Chirumbole, Greer, O’KeefeDawson, Sampson and SlaterVarilek dated January 29, 2014.February 15, 2016—Exhibit 10(n) to Olin’s Form 10-K for 2015.* |
| | (m)(n) | Form of executive change in control agreement between Olin Corporation and Ms. Sumner dated February 15, 2016—Exhibit 10(o) to Olin’s Form 10-K for 2015.* |
|
| | | |
| (o) | Amended and Restated 1997 Stock Plan for Non-employee Directors as amended and restated effective December 12, 2013.codified to reflect amendments adopted through February 26, 2016—Exhibit 10(p) to Olin’s Form 10-K for 2015.* |
| | (n)(p) | Amended and Restated Olin Senior Management Incentive Compensation Plan, as amended and restated effective April 22, 2010—23, 2015—Appendix BA to Olin’s Proxy Statement dated March 10, 2010.11, 2015.* |
| | (o)(q) | Description of Restricted Stock Unit Awards granted under the 2000, 2003, 2006, 2009, 2014 or 20092016 Long Term Incentive Plans—Exhibit 10(p) to Olin’s Form 10-K for 2008.* |
| | (p)(r) | 1996 Stock Option Plan for Key Employees of Olin Corporation and Subsidiaries as amended as of January 30, 2003—Exhibit 10(l) to Olin’s Form 10-K for 2002.* |
| (q) | Olin Supplementary and Deferral Benefit Pension Plan as amended and restated effective October 24, 2008—Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended September 30, 2008.* |
| | (r)(s) | Amended and Restated Olin Corporation 2000 Long Term Incentive Plan codified as amended and restated effectiveof January 24, 2014.2014—Exhibit 10(r) to Olin’s Form 10-K for 2013.* |
| | (s)(t) | Amended and Restated Olin Corporation 2003 Long Term Incentive Plan codified as amended and restated effectiveof January 24, 2014.2014—Exhibit 10(s) to Olin’s Form 10-K for 2013.* |
| | (t)(u) | Amended and Restated Olin Corporation 2006 Long Term Incentive Plan codified as amended and restated effectiveof January 24, 2014.2014—Exhibit 10(t) to Olin’s Form 10-K for 2013.* |
| | (u)(v) | Amended and Restated Olin Corporation 2009 Long Term Incentive Plan codified as amended and restatedof January 24, 2014—Exhibit 10(u) to Olin’s Form 10-K for 2013.* |
| (w) | Olin Corporation 2014 Long Term Incentive Plan effective January 24, 2014—Exhibit 10.1 to Olin’s Form 8-K filed April 25, 2014.* |
| | (v)(x) | Olin Corporation 2016 Long Term Incentive Plan effective April 28, 2016—Appendix A to Olin’s Proxy Statement dated March 11, 2016.* |
| (y) | Performance Share Program codified to reflect amendments through December 31, 2010—January 26, 2017—Exhibit 10.299.1 to Olin’s Form 10-K for 2010.8-K dated January 31, 2017.* |
|
| | | |
| | (w)(z) | Form of Non-Qualified Stock Option Award Certificate—Exhibit 10(bb) to Olin’s Form 10-K for 2007.* |
| | (x)(aa) | Form of Restricted Stock Unit Award Certificate—Exhibit 10(cc) to Form 10-K for 2007.* |
| | (y)(bb) | Form of Restricted Stock Unit Award Certificate—Exhibit 10.7 to Olin’s Form 10-Q for the quarter ended September 30, 2015.* |
| (cc) | Form of Performance Award and Senior Performance Award Certificates—Exhibit 10(dd) to Olin’s Form 10-K for 2007.* |
| | (z)(dd) | Summary of Stock Option Continuation Policy—Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended March 31, 2009.* |
| | (aa)(ee) | Olin Corporation Contributing Employee Ownership Plan Amended and Restated effective as of December 31, 2009—October 24, 2008, and as amended effective September 29, 2015—Exhibit 10(dd)99.1 to Olin’s Form 10-K for 2009.S-8 filed February 16, 2016.* |
| | (bb)(ff) | Distribution Agreement between Olin Corporation and Arch Chemicals, Inc., dated as of February 1, 1999—Exhibit 2.1 to Olin’s Form 8-K filed February 23, 1999.* |
| | (cc)(gg) | Purchase Agreement dated as of February 28, 2011, by and among PolyOne Corporation, 1997 Chloralkali Venture, LLC, Olin Corporation and Olin SunBelt II, Inc.—Exhibit 2.1 to Olin’s Form 8-K dated March 3, 2011.* |
| | (dd)(hh) | Note Purchase Agreement dated December 22, 1997 between the SunBelt Chlor Alkali Partnership and the Purchasers named therein—Exhibit 99.5 to Olin’s Form 8-K dated December 3, 2001.* |
| | (ee)(ii) | Guarantee Agreement dated December 22, 1997 between Olin Corporation and the Purchasers named therein—Exhibit 99.6 to Olin’s Form 8-K dated December 3, 2001.* |
| | (ff)(jj) | Subordination Agreement dated December 22, 1997 between Olin Corporation and the Subordinated Parties named therein—Exhibit 99.7 to Olin’s Form 8-K dated December 3, 2001.* |
| | (gg) | Agreement and Plan of Merger dated as of May 20, 2007, among Olin Corporation, Princeton Merger Corp., and Pioneer Companies, Inc.—Exhibit 2.1 to Olin’s Form 8-K dated May 21, 2007.* |
| (hh) | Purchase Agreement dated as of October 15, 2007, among Global Brass and Copper Acquisition Co. and Olin Corporation—Exhibit 2.1 to Olin’s Form 8-K dated October 15, 2007.* |
| (ii)(kk) | Credit Agreement dated as of April 27, 2012 among Olin Corporation, Olin Canada ULC and the banks named therein—Exhibit 10.1 to Olin’s Form 8-K dated May 3, 2012.* |
| | (jj)(ll) | Stock Purchase Agreement dated as of July 17, 2012, by and among K. A. Steel Chemicals Inc., the stockholders of K. A. Steel Chemicals Inc. and Robert F. Steel, as the sellers’ representative—Exhibit 2.1 to Olin’s Form 8-K dated July 18, 2012.* |
| (mm) | Credit Agreement dated June 23, 2015 among Olin Corporation, Olin Canada ULC, the Lenders named therein and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.1 to Olin’s Form 8-K dated June 29, 2015.* |
| (nn) | Credit Agreement dated June 23, 2015 among Blue Cube Spinco Inc., the Lenders named therein and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.2 to Olin’s Form 8-K dated June 29, 2015.* |
|
| | | |
| (oo) | Amendment Agreement dated June 23, 2015 among Olin, Olin Canada ULC, Blue Cube Spinco Inc., the Lenders named therein and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.5 to Olin’s Form 8-K dated October 5, 2015.* |
| (pp) | Separation Agreement dated March 26, 2015 between The Dow Chemical Company and Blue Cube Spinco Inc.—Exhibit 10.1 to Olin’s Form 8-K dated March 27, 2015.* |
| (qq) | Credit Agreement dated August 25, 2015 among Olin Corporation, Olin subsidiaries, the Lenders (as defined therein) and Sumitomo Mitsui Banking Corporation, as administrative agent—Exhibit 10.1 to Olin’s Form 8-K dated August 26, 2015.* |
| (rr) | Guaranty Agreement dated October 5, 2015 among Blue Cube Spinco Inc., Olin Corporation and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.2 to Olin’s Form 8-K dated October 5, 2015.* |
| (ss) | Borrowing Subsidiary Agreement dated October 5, 2015 among Olin Corporation, Blue Cube Spinco Inc. and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.3 to Olin’s Form 8-K dated October 5, 2015.* |
| (tt) | Guaranty Joinder dated October 5, 2015 among Olin subsidiaries, Blue Cube Spinco Inc. and Sumitomo Mitsui Banking Corporation, as administrative agent—Exhibit 10.4 to Olin’s Form 8-K dated October 5, 2015.* |
| (uu) | Incremental Term Loan Agreement dated November 3, 2015 among Olin Corporation, Blue Cube Spinco Inc., the Lenders (as defined therein) and Sumitomo Mitsui Banking Corporation, as administrative agent—Exhibit 10.1 to Olin’s Form 8-K dated November 9, 2015.* |
| 11 |
| | Computation of Per Share Earnings (included in the Note—“Earnings Per Share” to Notes to Consolidated Financial Statements in Item 8). |
| 12 |
| | Computation of Ratio of Earnings to Fixed Charges (unaudited). |
14 |
| | Code of Conduct—Exhibit 14.1 to Olin’s Form 8-K dated December 19, 2012.* |
| 21 |
| | List of Subsidiaries. |
| 23 |
| | Consent of KPMG LLP. |
| 31.1 |
| | Section 302 Certification Statement of Chief Executive Officer. |
| 31.2 |
| | Section 302 Certification Statement of Chief Financial Officer. |
| 32 |
| | Section 906 Certification Statement of Chief Executive Officer and Chief Financial Officer. |
| 101.INS |
| | XBRL Instance Document |
| 101.SCH |
| | XBRL Taxonomy Extension Schema Document |
| 101.CAL |
| | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
| | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase Document |
*Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC file No. 1-1070 unless otherwise indicated.
