The effective tax rate for the ninesix months ended SeptemberJune 30, 20172021 included a benefit of $9.5 millionfrom a net decrease in the valuation allowance related to an agreement reached with the Internal Revenue Service (IRS) for the years 2008 and 2010 to 2012deferred tax examinations,assets in foreign jurisdictions, a benefit of $4.3 million related to theassociated with prior year tax positions, a benefit associated with stock-based compensation, an expense from remeasurement of deferred taxes due to a decreasean increase in our state effective tax rates and an expense from a benefit of $2.9change in tax contingencies. These factors resulted in a net $95.2 million associated with stock-based compensation and a benefit of $1.0 million associated with prior year tax positions.benefit. After giving consideration to these items, the effective tax rate for the ninesix months ended SeptemberJune 30, 20172021 of 24.8%21.6% was lowerhigher than the 35.0%21% U.S. federal statutory rate primarily due to state taxes, foreign income inclusions and foreign income taxes, partially offset by a net decrease in the valuation allowance related to utilization of losses in foreign jurisdictions and favorable permanent salt depletion deduction.deductions. The effective tax rate for the ninesix months ended SeptemberJune 30, 20162020 included a benefit of $5.2 millionan expense associated with return to provision adjustments for the finalization of ourstock-based compensation, an expense associated with prior years’ U.S. federalyear tax positions and state income tax returns. The return to provision adjustment for the nine months ended September 30, 2016 included $14.9 million of benefit primarily associated withan expense from a change in estimate related to the calculation of salt depletion and $9.7tax contingencies. These factors resulted in a net $1.0 million of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate for the nine months ended September 30, 2016 also included an expense of $4.1 million related to changes in uncertain tax positions for prior tax years.expense. After giving consideration to these items, the effective tax rate for the ninesix months ended SeptemberJune 30, 20162020 of 61.0%25.2% was higher than the 35%21% U.S. federal statutory rate primarily due to state taxes, foreign income taxes and favorable permanent salt depletion deductions, partially offset by foreign income inclusions and a net increase in combination with a pretax loss.the valuation allowance related to losses in foreign jurisdictions.
Segment Results
We define segment results as income (loss) before interest expense, interest income, goodwill impairment charges, other operating income (expense), non-operating pension income, other income and income taxes, and include the operating results of non-consolidated affiliates. Consistent with the guidance in ASC 280, “Segment Reporting” (ASC 280), we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results.taxes. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Sales: | ($ in millions) |
Chlor Alkali Products and Vinyls | $ | 967.3 | | | $ | 651.2 | | | $ | 1,834.3 | | | $ | 1,411.1 | |
Epoxy | 850.0 | | | 397.4 | | | 1,512.6 | | | 874.6 | |
Winchester | 404.0 | | | 192.6 | | | 793.2 | | | 380.6 | |
Total sales | $ | 2,221.3 | | | $ | 1,241.2 | | | $ | 4,140.1 | | | $ | 2,666.3 | |
Income (loss) before taxes: | | | | | | | |
Chlor Alkali Products and Vinyls | $ | 168.9 | | | $ | (57.0) | | | $ | 440.0 | | | $ | (91.3) | |
Epoxy | 165.3 | | | (13.0) | | | 230.5 | | | (1.3) | |
Winchester | 109.9 | | | 16.0 | | | 195.0 | | | 26.5 | |
Corporate/other: | | | | | | | |
Environmental expense(1) | (4.7) | | | (2.8) | | | (5.0) | | | (5.4) | |
Other corporate and unallocated costs(2) | (30.9) | | | (37.4) | | | (63.9) | | | (68.5) | |
Restructuring charges | (14.0) | | | (1.7) | | | (20.9) | | | (3.4) | |
| | | | | | | |
Other operating income | 0.5 | | | 0.1 | | | 0.5 | | | 0.1 | |
Interest expense(3) | (65.9) | | | (69.4) | | | (150.4) | | | (132.5) | |
Interest income | — | | | 0.2 | | | 0.1 | | | 0.3 | |
Non-operating pension income | 8.2 | | | 4.9 | | | 17.5 | | | 9.5 | |
Income (loss) before taxes | $ | 337.3 | | | $ | (160.1) | | | $ | 643.4 | | | $ | (266.0) | |
(1)Environmental expense for the six months ended June 30, 2021 includes $2.2 million of insurance recoveries for environmental costs incurred and expensed in prior periods.
(2)Other corporate and unallocated costs included costs associated with the implementation of the Information Technology Project for the three and six months ended June 30, 2020 of $20.4 million and $35.1 million, respectively.
(3)Interest expense for the three and six months ended June 30, 2021 included a loss on extinguishment of debt of $15.4 million and $38.9 million, respectively, which includes bond redemption premiums, write-off of deferred debt issuance costs and recognition of deferred fair value interest rate swap losses associated with the optional prepayment of existing
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Sales: | ($ in millions) |
Chlor Alkali Products and Vinyls | $ | 881.2 |
| | $ | 779.4 |
| | $ | 2,583.2 |
| | $ | 2,216.7 |
|
Epoxy | 489.9 |
| | 470.1 |
| | 1,549.5 |
| | 1,380.3 |
|
Winchester | 183.8 |
| | 203.2 |
| | 515.8 |
| | 567.9 |
|
Total sales | $ | 1,554.9 |
| | $ | 1,452.7 |
| | $ | 4,648.5 |
| | $ | 4,164.9 |
|
Income (loss) before taxes: | | | | | | | |
Chlor Alkali Products and Vinyls(1) | $ | 129.7 |
| | $ | 53.7 |
| | $ | 270.0 |
| | $ | 152.5 |
|
Epoxy | (1.7 | ) | | 10.3 |
| | (11.0 | ) | | 18.5 |
|
Winchester | 17.2 |
| | 36.0 |
| | 61.3 |
| | 95.9 |
|
Corporate/other: | | | | | | | |
Pension income(2) | 11.1 |
| | 15.4 |
| | 32.1 |
| | 40.2 |
|
Environmental expense | (1.8 | ) | | (0.4 | ) | | (6.2 | ) | | (5.5 | ) |
Other corporate and unallocated costs(3) | (31.1 | ) | | (28.2 | ) | | (94.2 | ) | | (81.7 | ) |
Restructuring charges(4) | (9.2 | ) | | (5.2 | ) | | (25.9 | ) | | (106.2 | ) |
Acquisition-related costs(5) | (1.1 | ) | | (13.1 | ) | | (12.5 | ) | | (39.6 | ) |
Other operating (expense) income(6) | — |
| | (0.2 | ) | | (0.1 | ) | | 10.5 |
|
Interest expense | (53.1 | ) | | (47.5 | ) | | (158.0 | ) | | (143.6 | ) |
Interest income | 0.4 |
| | 0.5 |
| | 1.0 |
| | 1.3 |
|
Income (loss) before taxes | $ | 60.4 |
| | $ | 21.3 |
| | $ | 56.5 |
| | $ | (57.7 | ) |
debt. Interest expense for both the three and six months ended June 30, 2020 included $1.6 million for write-off of deferred debt issuance costs and for the six months ended June 30, 2020 also included $4.0 million related to the 2020 ethylene payment discount.
| |
(1) | Earnings of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results consistent with management’s monitoring of the operating segments. The earnings of non-consolidated affiliates were $0.5 million for both the three months ended September 30, 2017 and 2016, and $1.5 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(2) | The service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data. All other components of pension costs are included in corporate/other and include items such as the expected return on plan assets, interest cost and recognized actuarial gains and losses. |
| |
(3) | Other corporate and unallocated costs for both the three and nine months ended September 30, 2017 included costs associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and related infrastructure costs of $2.9 million. |
| |
(4) | Restructuring charges for the three months ended September 30, 2017 and 2016 of $9.2 million and $5.2 million, respectively, and for the nine months ended September 30, 2017 and 2016 of $25.9 million and $106.2 million, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. For the nine months ended September 30, 2016, $76.6 million of these charges were non-cash asset impairment charges for equipment and facilities. Restructuring charges for the three and nine months ended September 30, 2016 were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed in 2016. |
| |
(5) | Acquisition-related costs for the three and nine months ended September 30, 2017 and 2016 were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees. |
| |
(6) | Other operating (expense) income for the nine months ended September 30, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident. |
Chlor Alkali Products and Vinyls
Three Months Ended SeptemberJune 30, 20172021 Compared to Three Months Ended SeptemberJune 30, 20162020
Chlor Alkali Products and Vinyls sales for the three months ended SeptemberJune 30, 20172021 were $881.2$967.3 million compared to $779.4$651.2 million for the same period in 2016,2020, an increase of $101.8$316.1 million, or 13%49%. The sales increase was primarily due to higher pricing across all products and increased volumes. Chlor Alkali Products and Vinyls sales increase was also due to higher VCM sales as a result of our primary VCM contract transitioning from a toll manufacturing arrangement to a direct customer sale agreement beginning on January 1, 2021.
Chlor Alkali Products and Vinyls segment income was $168.9 million for the three months ended June 30, 2021 compared to segment loss of $57.0 million for the same period in 2020, an increase of $225.9 million. The increase in Chlor Alkali Products and Vinyls segment results was primarily due to higher product prices ($223.9 million) and increased volumes ($38.6 million). These increases were partially offset by higher raw material and operating costs ($36.6 million). Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $114.5 million and $108.5 million for the three months ended June 30, 2021 and 2020, respectively.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Chlor Alkali Products and Vinyls sales for the six months ended June 30, 2021 were $1,834.3 million compared to $1,411.1 million for the same period in 2020, an increase of $423.2 million, or 30%. The sales increase was primarily due to higher pricing across all product lines. Chlor Alkali Products and Vinyls sales increase was also due to higher VCM sales as a result of our primary VCM contract transitioning from a toll manufacturing arrangement to a direct customer sale agreement beginning on January 1, 2021. These increases were partially offset by lower volumes, which were impacted during the first quarter of 2021 by Winter Storm Uri.
Chlor Alkali Products and Vinyls segment income was $440.0 million for the six months ended June 30, 2021 compared to segment loss of $91.3 million for the same period in 2020, an increase of $531.3 million. The increase in Chlor Alkali Products and Vinyls segment results was primarily due to higher product prices ($351.1 million), the favorable impact of Winter Storm Uri ($121.4 million), increased volumes ($48.8 million) and lower raw material and operating costs ($10.0 million). The impact of Winter Storm Uri includes a net one-time benefit associated with Olin’s customary financial hedges and contracts maintained to provide protection from rapid and dramatic changes in energy costs, partially offset by unabsorbed fixed manufacturing costs and storm-related maintenance costs. Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $230.3 million and $227.0 million for the six months ended June 30, 2021 and 2020, respectively.
Epoxy
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Epoxy sales for the three months ended June 30, 2021 were $850.0 million compared to $397.4 million for the same period in 2020, an increase of $452.6 million, or 114%. The sales increase was primarily due to higher product prices ($112.3367.5 million), partially offset by lowerincreased volumes and mix changes ($10.546.1 million) and a favorable effect of foreign currency translation ($39.0 million). The higher product prices were primarily related to caustic soda partially offset by lower EDC product prices. Chlor Alkali Products and Vinyls sales volumes were negatively impacted by Hurricane Harvey.
Chlor Alkali Products and VinylsEpoxy segment income was $129.7$165.3 million for the three months ended SeptemberJune 30, 20172021 compared to $53.7segment loss of $13.0 million for the same period in 2016,2020, an increase of $76.0 million, or 142%. Chlor Alkali Products and Vinyls$178.3 million. The increase in segment incomeresults was higherprimarily due to higher product prices ($112.3367.5 million) and increased volumes and mix changes ($13.3 million), partially offset by higher raw material costs ($180.2 million), primarily related to caustic soda,benzene and a favorable product mixpropylene, and higher operating and maintenance turnaround costs ($11.322.3 million). These increases were partiallyA significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by incremental costs to continue operations, unabsorbed fixedthe impact of foreign currency translation on raw materials and manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey ($24.0 million), higher operating costs ($19.9 million), primarily due to increased planned maintenance turnarounds, and higher electricity costs, primarily driven by natural gas prices ($3.7 million). Chlor Alkali Products and Vinylsalso denominated in Euros. Epoxy segment incomeresults included depreciation and amortization expense of $106.8$20.3 million and $106.3$21.6 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Nine
Six Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Chlor Alkali Products and VinylsEpoxy sales for the ninesix months ended SeptemberJune 30, 20172021 were $2,583.2$1,512.6 million compared to $2,216.7$874.6 million for the same period in 2016,2020, an increase of $366.5$638.0 million, or 17%. The sales increase was primarily due to increased product prices ($296.6 million) and increased volumes ($69.9 million). The higher product prices and increased volumes were primarily related to caustic soda and EDC. Chlor Alkali Products and Vinyls sales volumes were negatively impacted by Hurricane Harvey.
Chlor Alkali Products and Vinyls segment income was $270.0 million for the nine months ended September 30, 2017 compared to $152.5 million for the same period in 2016, an increase of $117.5 million, or 77%. Chlor Alkali Products and Vinyls segment income was higher due to higher product prices ($296.6 million), increased volumes and a favorable product mix ($16.2 million). The higher product prices and increased volumes were primarily related to caustic soda and EDC. These increases were partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with turnarounds and outages ($102.5 million) and incremental costs to continue operations, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey ($24.0 million). Electricity costs, primarily driven by higher natural gas prices, and ethylene costs ($59.8 million) and operating costs ($9.0 million) were also higher compared to the prior year. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $318.0 million and $311.6 million for the nine months ended September 30, 2017 and 2016, respectively.
Epoxy
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Epoxy sales for the three months ended September 30, 2017 were $489.9 million compared to $470.1 million for the same period in 2016, an increase of $19.8 million, or 4%73%. The sales increase was primarily due to higher product prices ($45.7471.1 million), partially offset by lower productincreased volumes and mix changes ($25.9100.8 million) and a favorable effect of foreign currency translation ($66.1 million). Epoxy salesSales volumes in the first quarter 2021 were negatively impacted by Hurricane Harvey.Winter Storm Uri.
Epoxy segment lossincome was $1.7$230.5 million for the threesix months ended SeptemberJune 30, 2017,2021 compared to segment incomeloss of $10.3$1.3 million for the same period in 2016, a decrease2020, an increase of $231.8 million. The increase in segment results of $12.0 million. Epoxy segment results were negatively impactedwas primarily due to higher product prices ($471.1 million) and increased volumes and mix changes ($11.4 million), partially offset by incrementalhigher raw material costs to continue operations, unabsorbed fixed manufacturing costs($208.8 million), primarily benzene and reduced profit from lost sales associated with Hurricane Harvey ($18.7 million).propylene. Epoxy segment results were also impacted by increased raw material coststhe unfavorable impact of Winter Storm Uri ($30.821.5 million), primarily associated with benzene and propylene, and higher operating costs ($8.220.4 million). These decreases were partially compared to the prior year period. The impact of Winter Storm Uri includes unabsorbed fixed manufacturing costs and storm-related maintenance costs. A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by higher product prices ($45.7 million).the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros. Epoxy segment incomeresults included depreciation and amortization expense of $24.4$42.4 million and $22.6$43.1 million for the six months ended June 30, 2021 and 2020, respectively.
Winchester
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Winchester sales were $404.0 million for the three months ended SeptemberJune 30, 2017 and 2016, respectively.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Epoxy sales for the nine months ended September 30, 2017 were $1,549.5 million2021 compared to $1,380.3$192.6 million for the same period in 2016,2020, an increase of $169.2$211.4 million, or 12%110%. The sales increase was primarily due to higher product pricesammunition sales to commercial customers ($127.8145.9 million) and increased volumesmilitary customers ($60.0 million), both of which includes ammunition produced at Lake City, and a favorable product mixlaw enforcement agencies ($41.45.5 million). Epoxy sales volumes were negatively impacted by Hurricane Harvey.
EpoxyWinchester segment lossincome was $11.0$109.9 million for the ninethree months ended SeptemberJune 30, 20172021 compared to segment income of $18.5$16.0 million for the same period in 2016, a decrease2020, an increase of $93.9 million. The increase in segment results of $29.5 million. Epoxy segmentwas due to higher product pricing ($52.6 million) and increased sales volumes ($45.1 million), which includes ammunition produced at Lake City, partially offset by higher commodity and operating costs ($7.6 million). Segment results were negatively impacted by incremental costs to continue operations, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey ($18.7 million). Epoxy segment resultsin 2020 were also impacted by increased raw materialtransition costs ($165.0 million), primarily associated with benzene and propylene, and higher operating costs ($8.8 million). These decreases were partially offset by higher product prices ($127.8 million), increased volumes and a favorable product mix ($35.2 million). Epoxy segment income included depreciation and amortization expense of $69.6 million and $67.3 million forrelating to the nine months ended September 30, 2017 and 2016, respectively.
Winchester
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Winchester sales were $183.8 million for the three months ended September 30, 2017 compared to $203.2 million for the same period in 2016, a decrease of $19.4 million, or 10%. The sales decrease was primarily due to lower ammunition sales to commercial customersLake City contract ($30.2 million), partially offset by increased shipments to military customers and law enforcement agencies ($10.8 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.
Winchester reported segment income was $17.2 million for the three months ended September 30, 2017 compared to $36.0 million for the same period in 2016, a decrease of $18.8 million, or 52%. The decrease was due to lower volumes and a less favorable product mix ($12.7 million), increased commodity and other material costs ($3.6 million) and lower product prices ($2.53.8 million). Winchester segment income included depreciation and amortization expense of $4.8$5.5 million and $4.7 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
NineSix Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Winchester sales were $515.8$793.2 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $567.9$380.6 million for the same period in 2016, a decrease2020, an increase of $52.1$412.6 million, or 9%108%. The sales decreaseincrease was primarily due to lowerhigher ammunition sales to commercial customers ($79.9279.8 million) and military customers ($124.0 million), partially offset by increased shipments to military customersboth of which includes ammunition produced at Lake City, and law enforcement agencies ($27.88.8 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.
Winchester reported segment income was $61.3$195.0 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $95.9$26.5 million for the same period in 2016, a decrease2020, an increase of $34.6 million, or 36%.$168.5 million. The decreaseincrease in segment results was due to lowerincreased sales volumes and a less favorable product mix ($24.091.5 million), increasedwhich includes ammunition produced at Lake City, and higher product pricing ($84.7 million), partially offset by higher commodity and other materialoperating costs ($5.614.3 million) and lower product prices. Segment results in 2020 were also impacted by transition costs relating to the Lake City contract ($5.06.6 million). Winchester segment income included depreciation and amortization expense of $14.2$11.1 million and $13.8$9.7 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Corporate/Other
Three Months Ended SeptemberJune 30, 20172021 Compared to Three Months Ended SeptemberJune 30, 20162020
For the three months ended SeptemberJune 30, 2017, pension income included in corporate/other was $11.1 million compared to $15.4 million for the three months ended September 30, 2016. On a total company basis, defined benefit pension income for the three months ended September 30, 2017, was $6.3 million compared to $9.3 million for the three months ended September 30, 2016.
For the three months ended September 30, 2017,2021, charges to income for environmental investigatory and remedial activities were $1.8$4.7 million compared to $0.4$2.8 million for the three months ended SeptemberJune 30, 2016.2020. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the three months ended SeptemberJune 30, 2017,2021, other corporate and unallocated costs were $31.1$30.9 million compared to $28.2$37.4 million for the three months ended SeptemberJune 30, 2016, an increase2020, a decrease of $2.9$6.5 million. The increasedecrease was primarily due to higher stock-based compensation expensethe absence of $3.6 million, which includes mark-to-market adjustments and costs associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and related infrastructure coststhe Information Technology Project of $2.9$20.4 million, which was completed in late 2020, partially offset by decreased legal and legal-related settlement expenseshigher variable incentive compensation costs of $2.7 million.$14.0 million, which includes mark-to-market adjustments on stock-based compensation expense.
NineSix Months EndedSeptember June 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
For the ninesix months ended SeptemberJune 30, 2017, pension income included in corporate/other was $32.1 million compared to $40.2 million for the nine months ended September 30, 2016. On a total company basis, defined benefit pension income for the nine months ended September 30, 2017, was $19.7 million compared to $27.7 million for the nine months ended September 30, 2016.
For the nine months ended September 30, 2017,2021, charges to income for environmental investigatory and remedial activities were $6.2$5.0 million, which includes $2.2 million of insurance recoveries for environmental costs incurred and expensed in prior periods. Without these recoveries, charges to income for environmental investigatory and remedial activities for the six months ended June 30, 2021 would have been $7.2 million, compared to $5.5$5.4 million for the ninesix months ended SeptemberJune 30, 2016.2020. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the ninesix months ended SeptemberJune 30, 2017,2021, other corporate and unallocated costs were $94.2$63.9 million compared to $81.7$68.5 million for the ninesix months ended SeptemberJune 30, 2016, an increase2020, a decrease of $12.5$4.6 million. The increasedecrease was primarily due to higher stock-based compensation expensethe absence of $7.3 million, which includes mark-to-market adjustments, increased consulting charges of $4.2 million, an unfavorable foreign currency impact of $3.1 million and costs associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and related infrastructure coststhe Information Technology Project of $2.9 million. Partially offsetting these increases were decreased legal and legal-related settlement expenses of $5.2 million.
Outlook
Net income$35.1 million, which was completed in 2017 is projected to be in the $0.65 to $0.80 per diluted share range, which includes pretax restructuring charges and pretax acquisition-related integration costs totaling approximately $50 million. Net loss in 2016 was $0.02 per diluted share, which included pretax acquisition-related integration costs of $48.8 million and pretax restructuring charges of $112.9 million.
Fourth quarter 2017 earnings are expected to improve sequentially from the third quarter of 2017. Fourth quarter earnings are expected to benefit from higher caustic soda pricing and reduced impact from Hurricane Harveylate 2020, partially offset by higher maintenance turnaround activity. Thevariable incentive compensation costs of $31.1 million, which includes mark-to-market adjustments on stock-based compensation expense.
Outlook
In 2021, we expect to continue to implement and benefit from Olin’s new operating model of optimizing value across our chemicals businesses. Olin drove pricing improvement in the first half of 2021 for chlorine and almost all chlorine derivatives, including epoxy resins, and caustic soda. During 2021, we expect to deliver ECU pricing improvement compared to 2020, partially offset by higher raw material costs, primarily benzene and propylene. In 2021, we expect year over year improvement in both Chlor Alkali Products and Vinyls business in fourth quarter 2017 is forecast to benefit from stronger year over year volumes across all products, sequentially improved caustic soda and chlorine prices and lower ethylene costs. EDC pricing is forecast to decline sequentially from the third quarter to the fourth quarter. Epoxy fourth quarter 2017 segment results will reflect a 35-day planned maintenance turnaround at our production facility in Stade, Germany. results.
Winchester fourth quarter 2017 segment earnings are expected to be below fourth quarter 2016 levels due to the continuation of lower commercial ammunition sales combined with higher commodity and other material costs.
Chlor Alkali Products and Vinyls 20172021 segment income is expected to be higher compared to 2016improve from 2020 segment income of $224.9$92.3 million reflectingdue to higher chlorine, caustic sodacommercial product pricing and EDC prices and additional cost synergy realization. These increases are expectedincreased sales volumes, which includes ammunition produced at Lake City. During 2020, Winchester segment results included transition costs related to be partially offset by the impactLake City contract of higher maintenance turnaround costs, higher electricity costs, driven by increased natural gas costs, and incremental costs to continue operations, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey.
Epoxy 2017 segment income is expected to be lower than 2016 segment income of $15.4 million as improved volumes and pricing year over year are expected to be more than offset by the higher raw material costs, associated with benzene and propylene, increased turnaround and outage costs, and incremental costs to continue operations, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey.
Winchester 2017 segment income is expected to be in the $75 million to $80 million range, compared to $120.9 million of segment income achieved during 2016. The forecast for Winchester is primarily driven by lower commercial ammunition demand, due primarily to both an overall reduction in purchases and inventory reductions by our customers and higher commodity and material costs. We expect the decrease in commercial sales to be partially offset by an increase year over year in military sales. The Oxford, MS relocation project was completed during 2016. This relocation reduced Winchester's annual operating costs by approximately $40 million in 2016 and, in 2017, we expect the cost savings from the completed project to reach approximately $45$13.5 million.
Other Corporate and Unallocated costs in 20172021 are expected to be higher than 2016 Other Corporate and Unallocated costs of $100.2 million driven by stock-based compensation, consulting costs, the full year effect of the increased corporate infrastructure costs to support the integration of the Acquired Business and costs associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and related infrastructure costs.
During 2017, we are anticipating environmental expenses in the $8 million to $10 million range compared to $9.2 million in 2016. We do not expect to recover any environmental costs incurred and expensed in prior periods in 2017. In connection with the Acquisition, TDCC has retained liabilities relating to litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
We expect qualified defined benefit pension plan income in 2017 to be lower than the 2016 level by approximately $10 million.$154.3 million in 2020, primarily due to 2020 results including $73.9 million of costs associated with the Information Technology Project. The Information Technology Project was concluded in late 2020. Partially offsetting these lower costs in 2021 will be higher variable incentive costs, including mark-to-market adjustments on stock-based compensation expense.
During 2021, we anticipate environmental expenses in the $20 million to $25 million range compared to $20.9 million in 2020.
We expect non-operating pension income in 2021 to be in the $30 million to $35 million range compared to $18.9 million in 2020. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2017.2021. We do have several international qualified defined benefit pension plans tofor which we anticipate cash contributions of less than $5 million in 2017.2021.
Approximately 30% of our debt is at variable rates, including the impact of our interest rate swaps. We are estimating our 2017 average interest rate on outstanding debt will be approximately 5%.
In 2017,2021, we currently expect our capital spending to be in the $300 million to $325$200 million range, which includeswould be approximately $35$100 million of synergy-related capital, which we believe is necessary to realize the anticipated synergies.lower than 2020 levels. We expect 20172021 depreciation and amortization expense to be in the $545$575 million to $555$600 million range.
The effective tax rate for 2017 includes a benefit of $9.5 million related to an agreement reached with the IRS regarding tax examination years 2008 and 2010 to 2012. After giving consideration to this item, weWe currently believe the 20172021 effective tax rate will be in the 20% to 25% range.range, excluding the impact of the second quarter 2021 release of the valuation allowance related to deferred tax assets of our German operations. We expect cash taxes will be in the 10% to 15% range, which primarily reflects the utilization of tax loss carryforwards.
Environmental Matters
Environmental provisions charged to income, which are included in costs of goods sold, were $1.8 million and $0.4 millionas follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in millions) |
Provisions charged to income | $ | 4.7 | | | $ | 2.8 | | | $ | 7.2 | | | $ | 5.4 | |
Recoveries for costs incurred and expensed | — | | | — | | | (2.2) | | | — | |
Environmental expense | $ | 4.7 | | | $ | 2.8 | | | $ | 5.0 | | | $ | 5.4 | |
Environmental expense for the threesix months ended SeptemberJune 30, 20172021 includes $2.2 million of insurance recoveries for environmental costs incurred and 2016, respectively, and $6.2 million and $5.5 million for the nine months ended September 30, 2017 and 2016, respectively.expensed in prior periods.
Our liabilities for future environmental expenditures were as follows: | | | | | | | | | | | |
| June 30, |
| 2021 | | 2020 |
| ($ in millions) |
Balance at beginning of year | $ | 147.2 | | | $ | 139.0 | |
Charges to income | 7.2 | | | 5.4 | |
Remedial and investigatory spending | (6.2) | | | (5.6) | |
Foreign currency translation adjustments | 0.2 | | | (0.2) | |
Balance at end of period | $ | 148.4 | | | $ | 138.6 | |
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
| ($ in millions) |
Balance at beginning of year | $ | 137.3 |
| | $ | 138.1 |
|
Charges to income | 6.2 |
| | 5.5 |
|
Remedial and investigatory spending | (8.7 | ) | | (6.6 | ) |
Currency translation adjustments | 0.5 |
| | 0.5 |
|
Balance at end of period | $ | 135.3 |
| | $ | 137.5 |
|
Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in 20172021 for investigatory and remedial efforts, the timing of which is subject to regulatory approvals and other uncertainties, is estimated to be approximately $17.0$20 million. Cash outlays for remedial and investigatory activities associated with former waste disposal sites and past manufacturing operations were not charged to income, but instead, were charged to reserves established for such costs identified and expensed to income in prior periods. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we mayexpect to incur to protect our interestinterests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $6.1$9.0 million at SeptemberJune 30, 2017.2021. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and Operation, Maintenanceoperation, maintenance and Monitoringmonitoring (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 to income for investigatory and remedial efforts couldwere material to our operating results in 2020 and may be material to our operating results in 2017.2021.
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.
OurThe condensed balance sheets included liabilitiesreserves for future environmental expenditures to investigate and remediate known sites amounting to $135.3$148.4 million, $147.2 million and $138.6 million at SeptemberJune 30, 2017, $137.3 million at2021, December 31, 20162020 and $137.5 million at SeptemberJune 30, 2016,2020, respectively, of which $118.3$129.4 million, $120.3$128.2 million and $118.5$121.6 million, respectively, were classified as other noncurrent liabilities. These amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to income may be made for additional liabilities.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other PRPs,Potentially Responsible Parties (PRPs), our ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some
of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial position or results of operations.
Legal Matters and Contingencies
We,Discussion of legal matters and our subsidiaries, are defendants in various legal actions (including proceedings based on alleged exposurescontingencies can be referred to asbestos) incidental to our pastunder Item 1, within Note 10, “Commitments and current business activities. As of September 30, 2017, December 31, 2016 and September 30, 2016, our condensed balance sheets included liabilities for these legal actions of $15.9 million, $13.6 million and $22.9 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 an Amended Demand for Arbitration alleging, among other things, that Olin breached the contract and claims damages in excess of the amount Olin believes it is obligated for under the contract. The arbitration hearing is scheduled for the fourth quarter 2017. 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.Contingencies.”
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450, and, therefore, do not record gain contingencies and recognize income until it is earned and realizable.
For the nine months ended September 30, 2016, we recognized an insurance recovery of $11.0 million in other operating (expense) income for property damage and business interruption related to a 2008 chlor alkali facility incident.
Liquidity, Investment Activity and Other Financial Data
Cash Flow Data
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
Provided By (Used For) | ($ in millions) |
Net operating activities | $ | 707.6 | | | $ | 55.4 | |
Capital expenditures | (86.4) | | | (166.5) | |
Payments under long-term supply contracts | — | | | (536.8) | |
Net investing activities | (86.4) | | | (703.3) | |
Long-term debt (repayments) borrowings, net | (490.2) | | | 737.4 | |
Debt early redemption premium | (31.0) | | | — | |
Stock options exercised | 50.2 | | | 0.5 | |
Debt issuance costs | (3.1) | | | (9.6) | |
Net financing activities | (537.8) | | | 665.2 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Provided By (Used For) | ($ in millions) |
Net operating activities | $ | 455.1 |
| | $ | 407.1 |
|
Capital expenditures | (210.0 | ) | | (199.4 | ) |
Business acquired in purchase transaction, net of cash acquired | — |
| | (69.5 | ) |
Payments under long-term supply contracts | (209.4 | ) | | (175.7 | ) |
Proceeds from sale/leaseback of equipment | — |
| | 40.4 |
|
Net investing activities | (419.3 | ) | | (397.2 | ) |
Long-term debt borrowings (repayments), net | 127.6 |
| | (176.1 | ) |
Stock options exercised | 18.5 |
| | 0.4 |
|
Debt issuance costs | (11.2 | ) | | (0.8 | ) |
Net financing activities | 35.3 |
| | (275.6 | ) |
Operating Activities
For the ninesix months ended SeptemberJune 30, 2017,2021, cash provided by operating activities increased by $48.0$652.2 million from the ninesix months ended SeptemberJune 30, 2016,2020, primarily due to an increase in our operating results.results, partially offset by working capital increases to support operations. For the ninesix months ended SeptemberJune 30, 2017,2021, working capital decreased $11.4increased $209.1 million compared to a decrease of $25.1$30.8 million for the ninesix months ended SeptemberJune 30, 2016.2020. The working capital increase reflects normal seasonal working capital growth and a higher sales level. Receivables increased by $274.5 million from December 31, 2016, by $48.5 million2020, primarily as a result of higher sales induring 2021. For the third quarter of 2017 compared to the fourth quarter of 2016, partially offsetsix months ended June 30, 2021, our days sales outstanding (DSO), which was calculated by additional receivables sold under thedividing period end accounts receivable factoring arrangement.by average daily sales for the period, improved from the comparable prior year period. Inventories increased by $67.6 million from December 31, 2016, by $46.7 million2020 and accounts payable and accrued liabilities increased from December 31, 2016, by $92.9 million. The increase in inventories and accounts payable and accrued liabilities was$143.6 million, which were both primarily due to an increase inas a result of increased raw material costs, primarily associated with benzene and propylene.costs.
Investing Activities
Capital spending of $210.0$86.4 million for the ninesix months ended SeptemberJune 30, 20172021 was $10.6$80.1 million higherlower than the corresponding period in 2016. Capital spending for the nine months ended September 30, 2017 included approximately $25 million of synergy-related capital.2020. For the total year 2017,2021, we expect our capital spending to be in the $300 million to $325$200 million range, which includeswould be approximately $35$100 million of capital which we believe is necessary to realize the anticipated synergies.lower than 2020 levels. For the total year 2017,2021, depreciation and amortization expense is forecast to be in the $545$575 million to $555$600 million range.
During 2017, we began a multi-year implementation of new enterprise resource planning, manufacturing, and engineering systems.the Information Technology Project. The project includes the required information technology infrastructure. The project is planned to standardizestandardizes business processes across the chemicalsChemicals businesses with the objective of maximizing cost effectiveness, efficiency and control across our global operations. The project is anticipated to bewas completed duringin late 2020. Total capital spending is forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the total year 2017 are expected to include approximately $40six months ended June 30, 2020 included $32.8 million of capital spending and approximately $7$35.1 million of expenses associated with this project.
For the ninesix months ended SeptemberJune 30, 2017,2020, a payment of $209.4$461.0 million was made associated with long-term supply contracts to reserve additional ethylene at producer economics.
During the nine months ended September 30, 2016, paymentseconomics from The Dow Chemical Company (Dow) and a payment of $69.5$75.8 million werewas made related to the Acquisition for certain acquisition-related liabilities including the final working capital adjustment.
During the nine months ended September 30, 2016, payments of $175.7 million were made related to arrangements for the long-term supply of low cost electricity.
During the three months ended September 30, 2016, we entered into sale/leaseback transactions for railcars that we acquired in connectionassociated with the Acquisition. We received proceeds fromresolution of a dispute over the salesallocation to Olin of $40.4 million.
During the nine months ended September 30, 2016, we received $6.6 million fromcertain capital costs incurred at our Plaquemine, LA site after the October 2013 sale5, 2015 closing date of a bleach joint venture.the Dow acquisition.
Financing Activities
For the six months ended June 30, 2021, we had long-term debt repayments, net of long-term debt borrowings of $490.2 million.
During the six months ended June 30, 2021, we repaid $150.0 million of the Senior Secured Term Loans, of which $10.2 million was a required quarterly installment. These repayments eliminated the required quarterly installments of the Senior Secured Term Loans through December 2023.
During the six months ended June 30, 2021, we repurchased, through open market transactions, a principal amount of $26.5 million of the outstanding aggregate principal amount of 5.625% senior notes due August 1, 2029 (2029 Notes) and $8.0 million of the outstanding aggregate principal amount of 5.00% senior notes due February 1, 2030 (2030 Notes). These actions resulted in a total redemption premium of $3.1 million for both the three and six months ended June 30, 2021.
On March 9, 2017, we entered into31, 2021, Olin redeemed $315.0 million of the Amended Senior Credit Facility. Pursuant tooutstanding 10.00% senior notes due October 15, 2025 (Blue Cube 2025 Notes) and on May 14, 2021, Olin redeemed the agreement,remaining $185.0 million of the aggregateoutstanding Blue Cube 2025 Notes. The Blue Cube 2025 Notes were redeemed at 105.0% of the principal amount underof the Blue Cube 2025 Notes, resulting in a redemption premium of $25.0 million. The Blue Cube 2025 Notes were redeemed by drawing $315.0 million of the Delayed Draw Term Loan Facility was increased to $1,375.0along with utilizing cash on hand.
On January 15, 2021, Olin redeemed the remaining $120.0 million andof the aggregate commitments under9.75% senior notes due 2023 (2023 Notes). The 2023 Notes were redeemed at 102.438% of the Senior Revolving Credit Facilityprincipal amount of the 2023 Notes, resulting in a redemption premium of $2.9 million. The remaining 2023 Notes were increased to $600.0redeemed by utilizing cash on hand.
For the six months ended June 30, 2020, we had long-term debt borrowings, net of long-term debt repayments of $737.4 million, which primarily included $497.5 million from $500.0 million. In March 2017, we drew the entire $1,375.0 million term loan and used the proceeds to redeem the remaining balanceissuance of the existing Senior Credit Facility9.50% senior notes due June 1, 2025 (2025 Notes) and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from
October 5, 2020 to March 9, 2022.
In September 2017, we borrowed $120.0$240.7 million under the Senior Revolving Credit Facility and $40.0 million under theour Receivables Financing Agreement and used the proceeds to fund a portion of the $209.4 million payment to TDCC associated with a long-term ethylene supply contract to reserve additional ethylene at producer economics.Agreement.
On March 9, 2017,May 19, 2020, Olin issued $500.0 million aggregate principal amount of 5.125%9.50% senior notes due September 15, 2027,June 1, 2025. The 2025 Notes were issued at 99.5% of par value, the discount from which were registered underis included within long-term debt in the Securities Act of 1933, as amended.condensed balance sheet. Interest on the 20272025 Notes began accruing from March 9, 2017 and is paidpayable semi-annually beginning on September 15, 2017.December 1, 2020. Proceeds from the 20272025 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.for general corporate purposes.
For the ninesix months ended SeptemberJune 30, 2017, we made long-term debt repayments of $1,907.4 million including $1,282.5 million related to the existing term loan facility, $590.0 million related to the Sumitomo Credit Facility and $34.4 million under the required quarterly installments of the $1,375.0 million term loan facility.
In March 2017,2021, we paid debt issuance costs of $11.2$3.1 million relatingfor the amendments to the Amendedour Senior Secured Credit Facility and the 2027 Notes.Facility. For the ninesix months ended SeptemberJune 30, 2016,2020, we paid deferred debt issuance costs of $0.8$9.6 million for the registrationissuance of the Notes.2025 Notes and amendments to our Senior Secured Credit Facility and Receivables Financing Agreement.
In June 2016, $125.0 million under the 2016 Notes became due and was repaid. For the nine months ended September 30, 2016, we repaid $50.6 million under the required quarterly installments of the $1,350.0 million term loan facility.
We issued 1.02.4 million and less than 0.1 million shares representing stock options exercised for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, with a total value of $18.5$50.2 million and $0.4$0.5 million, respectively.
The percent of total debt to total capitalization increaseddecreased to 62.0% as of SeptemberJune 30, 20172021 from 61.4%72.7% as of December 31, 20162020 as a result of an increaseda lower level of debt outstanding.outstanding and higher shareholders’ equity primarily resulting from our operating results.
In the first threeand second quarters of 20172021 and 2016,2020, we paid a quarterly dividend of $0.20 per share. Dividends paid for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, were $99.6$63.7 million and $99.1$63.1 million, respectively. On October 25, 2017,July 22, 2021, our board of directors declared a dividend of $0.20 per share on our common stock, payable on December 11, 2017September 10, 2021 to shareholders of record on NovemberAugust 10, 2017.2021.
The payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial condition, our capital requirements and other factors deemed relevant by our board of directors. In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
Liquidity and Other Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and short-term borrowings under our Senior Revolving Credit Facility, AR Facilities and Receivables Financing Agreement.Agreement and AR Facilities. Additionally, we believe that we have access to the high-yield debt and equity markets.
In connection2021, we are targeting a reduction in our outstanding debt of approximately $1.0 billion using cash generated from operations. During 2021, activity of our debt outstanding included:
| | | | | | | | | | | | |
| | Long-term Debt Borrowings (Repayments) | | |
| | Six Months Ended June 30, 2021 | | | | |
Debt Instrument | | ($ in millions) |
Borrowings: | | | | | | |
Senior Secured Term Loans | | $ | 315.0 | | | | | |
Receivables Financing Agreement | | 50.0 | | | | | |
Total borrowings | | $ | 365.0 | | | | | |
Repayments: | | | | | | |
10.00% senior notes due 2025 | | $ | (500.0) | | | | | |
9.75% senior notes due 2023 | | (120.0) | | | | | |
5.625% senior notes due 2029 | | (26.5) | | | | | |
5.00% senior notes due 2030 | | (8.0) | | | | | |
Senior Secured Term Loans | | (150.0) | | | | | |
Receivables Financing Agreement | | (50.0) | | | | | |
Finance leases | | (0.7) | | | | | |
Total repayments | | $ | (855.2) | | | | | |
Long-term debt repayments, net | | $ | (490.2) | | | | | |
On February 24, 2021, we entered into a $1,615.0 million senior secured credit facility (Senior Secured Credit Facility) that amended our existing $1,300.0 million senior secured credit facility. The Senior Secured Credit Facility includes a senior delayed-draw term loan facility with aggregate commitments of $315.0 million (Delayed Draw Term Loan), a senior secured term loan facility with aggregate commitments of $500.0 million (2020 Term Loan and together with the Acquisition, OlinDelayed Draw Term Loan, the Senior Secured Term Loans) and TDCC entered into arrangementsa senior secured revolving credit facility with aggregate commitments in an amount equal to $800.0 million (Senior Revolving Credit Facility). The maturity date for the long-term supplySenior Secured Credit Facility is July 16, 2024. The amendment modified the pricing grid for the Senior Secured Credit Facility by reducing applicable interest rates on the borrowings under the facility.
On March 30, 2021, Olin drew the entire $315.0 million of ethylene by TDCCthe Delayed Draw Term Loan and used the proceeds to Olin, pursuantfund the redemption of the Blue Cube 2025 Notes. The Senior Secured Term Loans include principal amortization amounts payable beginning June 30, 2021 at a rate of 1.25% per quarter through the end of 2022, 1.875% per quarter during 2023 and 2.50% per quarter thereafter until maturity. During the six months ended June 30, 2021, we repaid $150.0 million of the Senior Secured Term Loans, of which $10.2 million was a required quarterly installment. These repayments eliminated the required quarterly installments of the Senior Secured Term Loans through December 2023. The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At June 30, 2021, we had $799.6 million available under our $800.0 million Senior Revolving Credit Facility because we had issued $0.4 million of letters of credit.
Under the Senior Secured Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Senior Secured Credit Facility is based on a pricing grid which is dependent upon the net leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The Senior Secured Credit Facility includes various customary restrictive covenants, including restrictions related to which,the ratio of secured debt to earnings before interest expense, taxes, depreciation and amortization (secured leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). The calculation of secured debt in our secured leverage ratio excludes borrowings under the Receivables Financing Agreement, up to a maximum of $250.0 million. As of June 30, 2021, the only secured borrowings included in the secured leverage ratio were $665.0 million for our Senior Secured Term Loans and $153.0 million for our Go Zone and Recovery Zone bonds. Compliance with these covenants is determined quarterly. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of June 30, 2021, 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 things, Olin made upfront payments of $433.5 million onfactors, will determine the Closing Date in orderamounts available to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional future ethylene supply at producer economics. During 2016, we exercised one of the options to reserve additional ethylene at producer economics. In September 2017, TDCC’s new Texas 9 ethylene cracker in Freeport, TX became operational.be borrowed under these facilities. As a result duringof our restrictive covenant related to the three months ended Septembersecured leverage ratio, the maximum additional borrowings available to us could be limited in the future. The limitation, if an amendment or waiver from our lenders is not obtained, could restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of June 30, 2017, a payment of $209.4 million was made in connection with this option. On February 27, 2017, we exercised the remaining option2021, there were no covenants or other restrictions that limited our ability to reserve additional ethylene at producer economics from TDCC. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to TDCC of between $440 million and $465 million on or about the fourth quarter of 2020.borrow.
The overall increase in cash for the ninesix months ended SeptemberJune 30, 20172021 primarily reflects our operating results, and long-term debt borrowings, net, partially offset by debt repayments, capital spending, and payments associated with long-term supply contracts.dividends paid. 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, Receivables Financing Agreement and AR Facilities, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, make amortization payments under the Term Loan Facility, make required payments under long-term supply agreements, fund our operating needs, fund working capital and our capital expenditure requirements and comply with the financial ratios in our debt agreements.requirements.
On March 9, 2017,April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our common stock. There were no shares repurchased for both the six months ended June 30, 2021 and 2020. As of June 30, 2021, we entered intohad repurchased a total of $195.9 million of our common stock, representing 10.1 million shares, and $304.1 million of common stock remained authorized to be repurchased.
We maintain a $250.0 million Receivables Financing Agreement (Receivables Financing Agreement) that is scheduled to mature on July 15, 2022. The Receivables Financing Agreement includes a minimum borrowing requirement of 50% of the Amended Senior Credit Facility. Pursuantfacility limit or available borrowing capacity, whichever is less. The administrative agent for our Receivables Financing Agreement is PNC Bank, National Association. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the agreement,Receivables Financing Agreement incorporates the aggregate principal amountsecured leverage covenant that is contained in the $1,615.0 million senior secured credit facility. As of June 30, 2021, $457.9 million of our trade receivables were pledged as collateral. As of June 30, 2021, we had $125.0 million drawn with $125.0 million of additional borrowing capacity available under the Term Loan Facility was increased to $1,375.0Receivables Financing Agreement. As of December 31, 2020 and June 30, 2020, we had $125.0 million and the aggregate commitments$240.7 million, respectively, drawn under the Senior Revolving Credit Facility were increased to $600.0 million, from $500.0 million. In September 2017, we borrowed $120.0 million under the Senior Revolving Credit Facility and used the proceeds to fund a portion of the payment to TDCC associated with a long-term ethylene supply contract to reserve additional ethylene at producer economics. At September 30, 2017 we had $461.4 million available under our $600.0 million Senior Revolving Credit Facility because we had borrowed $120.0 million and issued $18.6 million of letters of credit. In March 2017, we drew the entire $1,375.0 million term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from October 5, 2020 to March 9, 2022. The $600.0 million Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. The Term Loan Facility includes amortization payable in equal quarterly installments at a rate of 5.0% per annum for the first two years, increasing to 7.5% per annum for the following year and to 10.0% per annum for the last two years.Receivables Financing Agreement.
Under the Amended Senior Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Amended Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of September 30, 2017, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As of September 30, 2017, there were no covenants or other restrictions that would have limited our ability to borrow under these facilities.
On March 9, 2017, Olin issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15, 2027, which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.
On June 29, 2016, we entered into aalso has trade accounts receivable factoring arrangementarrangements (AR Facilities) and on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement, which were both subsequently amended. Pursuantpursuant to the terms of the AR Facilities, certain of our domestic subsidiaries may sell their accounts receivable up to a maximum of $293.0$228.0 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €35.3 million. We will continue to service such accounts.the outstanding accounts sold. These receivables qualify for sales treatment under ASC 860 and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows. The gross amount of receivables sold for the three months ended SeptemberJune 30, 20172021 and 20162020 totaled $446.5$487.3 million and $209.9 million, respectively, and for the nine months ended September 30, 2017 and 2016 totaled $1,224.1 million and $236.7$457.5 million, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The factoring discount was $1.4$0.3 million and $0.5$0.4 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $2.9 million and $0.7 million and $1.0 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. The
agreements are without recourse and therefore no recourse liability has been recorded as of SeptemberJune 30, 2017.2021, December 31, 2020 and June 30, 2020. As of SeptemberJune 30, 2017,2021, December 31, 20162020 and SeptemberJune 30, 2016, $187.32020, $85.7 million, $126.1$48.8 million and $85.0$61.7 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.
On December 20, 2016, we entered into a three year, $250.0 million Receivables Financing Agreement. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. As of September 30, 2017, $363.0 million of our trade receivables were pledged as collateral and we had $250.0 million drawn under the agreement. For the three months ended September 30, 2017, we borrowed $40.0 million under the Receivables Financing Agreement and used the proceeds to fund a portion of the payment to TDCC associated with a
long-term ethylene supply contract to reserve additional ethylene at producer economics. As of September 30, 2017, we had no additional borrowing capacity under the Receivables Financing Agreement. As of December 31, 2016, $282.3 million of our trade receivables were pledged as collateral. For the year ended December 31, 2016, the proceeds of the Receivables Financing Agreement were used to repay $210.0 million of the Sumitomo Credit Facility. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the Amended Senior Credit Facility.
Cash flow from operations is variable as a result of both the seasonal and the cyclical nature of our operating results, which have been affected by seasonal and economic cycles in many of the industries we serve, such as the vinyls, urethanes, bleach, ammunition and pulp and paper. The Acquired Business has significantly diversified our product and geographic base. Cash flow from operations is affected by changes in caustic soda, EDC and chlorine selling prices caused by the changes in the supply/demand balance of these products, resulting in the Chlor Alkali Products and Vinyls segment having significant leverage on our earnings and cash flow. For example, assuming all other costs remain constant, internal consumption remains approximately the same and we are operating at full capacity, a $10 selling price change per ton of caustic soda equates to an approximate $30 million annual change in our revenues and pretax profit, a $0.01 selling price change per pound of EDC equates to an approximate $20 million annual change in our revenues and pretax profit, and a $10 selling price change per ton of chlorine equates to an approximate $10 million annual change in our revenues and pretax profit.
For the nine months ended September 30, 2017, cash provided by operating activities increased by $48.0 million from the nine months ended September 30, 2016, primarily due to an increase in our operating results. For the nine months ended September 30, 2017, working capital decreased $11.4 million compared to a decrease of $25.1 million for the nine months ended September 30, 2016. Receivables increased from December 31, 2016, by $48.5 million primarily as a result of higher sales in the third quarter of 2017 compared to the fourth quarter of 2016, partially offset by additional receivables sold under the accounts receivable factoring arrangement. Inventories increased from December 31, 2016, by $46.7 million and accounts payable and accrued liabilities increased from December 31, 2016, by $92.9 million. The increase in inventories and accounts payable and accrued liabilities was primarily due to an increase in raw material costs, primarily associated with benzene and propylene.
Capital spending of $210.0 million for the nine months ended September 30, 2017 was $10.6 million higher than the corresponding period in 2016. Capital spending for the nine months ended September 30, 2017 included approximately $25 million of synergy-related capital. For the total year 2017, we expect our capital spending to be in the $300 million to $325 million range, which includes approximately $35 million of capital which we believe is necessary to realize the anticipated synergies. For the total year 2017, depreciation and amortization expense is forecast to be in the $545 million to $555 million range.
During 2017, we began a multi-year implementation of new enterprise resource planning, manufacturing, and engineering systems. The project includes the required information technology infrastructure. The project is planned to standardize business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency and control across our global operations. The project is anticipated to be completed during 2020. Total capital spending is forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the total year 2017 are expected to include approximately $40 million of capital spending and approximately $7 million of expenses associated with this project.
On April 24, 2014, our board of directors authorized a share repurchase program for up to 8 million shares of common stock that terminated on April 24, 2017. For the nine months ended September 30, 2017, no shares were purchased and retired. We purchased a total of 1.9 million shares under the April 2014 program, and the 6.1 million shares that remained authorized to be purchased have expired. Related to the Acquisition, for a period of two years subsequent to the Closing Date, we were subject to certain restrictions on our ability to conduct share repurchases.
At SeptemberJune 30, 2017,2021, we had total letters of credit of $71.8$81.3 million outstanding, of which $18.6$0.4 million were issued under our $600.0 million Senior Revolving Credit Facility. The letters of credit were used to support certain long-term debt,
certain workers compensation insurance policies, certain plant closure and post-closure obligations, certain international payment obligations and certain Canadianinternational pension funding requirements.
Our current debt structure is used to fund our business operations. As of SeptemberJune 30, 2017,2021, we had long-term borrowings, including the current installmentsinstallment and capitalfinance lease obligations, of $3,745.2$3,382.9 million, of which $1,878.6$945.9 million was issuedwere at variable rates. Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount. Commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are an additional sourcesources of liquidity.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates toOn May 14, 2021, following 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 hedgesredemption of the riskremaining Blue Cube 2025 Notes, all subsidiary guarantees of changesthe 2025 Notes, 5.125% senior notes due 2027, 2029 Notes and 2030 Notes (collectively, the Senior Notes) were released in interest payments associated with our variable-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of $8.7 million and are included in other current assets and other assets on the accompanying condensed balance sheet as of September 30, 2017,accordance with the corresponding gain deferred as a component of other comprehensive loss. For the three and nine months ended September 30, 2017, $1.2 million and $1.7 million, respectively, of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In 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 hedgesterms of the riskindentures governing the Senior Notes. Our obligations under the Senior Notes are no longer guaranteed by any of changes in the valueOlin’s subsidiaries and there are no outstanding debt securities issued by any of fixed-rate debt due to changes in interest rates for a portionOlin’s subsidiaries that are guaranteed by Olin or any other of our fixed-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of $23.9 million and are included in other long-term liabilities on the accompanying condensed balance sheet as of September 30, 2017, with a corresponding decrease in the carrying amount of the related debt. For the three months ended September 30, 2017 and 2016, $0.5 million and $0.7 million, respectively, and for the nine months ended September 30, 2017 and 2016, $2.4 million and $1.2 million, respectively, of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.Olin’s subsidiaries.
In June 2012, we terminated $73.1 million of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of $2.2 million, which will be recognized through 2017. As of September 30, 2017, less than $0.1 million of this gain was included in current installments of long-term debt.
Off-Balance Sheet Arrangements
Non-cancelable operating leases and purchasingPurchasing commitments are utilized in our normal course of business for our projected needs. In connectionWe have supply contracts with the Acquisition,various third parties for certain additional agreements have been entered into with TDCC,raw materials including long-term purchase agreements for raw materials.ethylene, electricity, propylene and benzene. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key raw materials received from TDCC include ethylene, electricity, propylene and benzene.
New Accounting StandardsPronouncements
In August 2017, the FinancialDiscussion of new accounting pronouncements can be referred to under Item 1, within Note 2, “Recent Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-12, “Targeted Improvements to Accounting for Hedge Activities” which amends ASC 815 “Derivatives and Hedging.Pronouncements.” This update is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting guidance, and increase transparency as to the scope and results of hedge programs. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which amends ASC 715 “Compensation—Retirement Benefits.” This update requires the presentation of the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The update requires the presentation of the other components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating income. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC 350 “Intangibles—Goodwill and Other.” This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying 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 plan to adopt this update on January 1, 2020 and do not expect the update to have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We plan to adopt this update on January 1, 2018 and will require certain reclassifications on our consolidated statements of cash flows.
In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” which amends ASC 718 “Compensation—Stock Compensation.” This update will simplify the income tax consequences, accounting for forfeitures and classification on the statements of cash flows of share-based payment arrangements. This standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We adopted ASU 2016-09 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory,” which amends ASC 330 “Inventory.” This update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. This update simplifies the current guidance under which an entity must measure inventory at the lower of cost or market. This update does not impact inventory measured using LIFO. This update is effective for fiscal years beginning after December 15, 2016. We adopted ASU 2015-11 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and implementation of the aforementioned standard. These updates provide guidance on how an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. These updates also expand the disclosure requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We expect to adopt these updates on January 1, 2018 using the modified retrospective transition method. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based on the analysis conducted to date, we believe the most significant impact the updates will have will be on our accounting policies and disclosures on revenue recognition. Preliminarily, we do not expect that these updates will materially impact our consolidated financial statements.
Item 3. 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 and natural gas, and certain raw materials used in our production processes are subject to price volatility. Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations. As of SeptemberJune 30, 2017,2021, we maintained open positions on commodity contracts with a notional value totaling $88.5$250.8 million ($101.6214.1 million at December 31, 20162020 and $101.3$225.1 million at SeptemberJune 30, 2016)2020). Assuming a hypothetical 10% increase in commodity prices which are currently hedged, as of SeptemberJune 30, 2017,2021, we would experience an $8.9a $25.1 million ($10.221.4 million at December 31, 20162020 and $10.1$22.5 million at SeptemberJune 30, 2016)2020) increase in our cost of inventory purchased, which would be substantially offset by a corresponding increase in the value of related hedging instruments.
We 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 have 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 $15.6$37.0 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. Our current debt structure is used to fund business operations, and commitments from banks under our Senior Revolving Credit Facility, AR Facilities and Receivables Financing Agreement and AR Facilities are a sourceadditional sources of liquidity. As of SeptemberJune 30, 2017,2021, December 31, 20162020 and SeptemberJune 30, 2016,2020, we had long-term borrowings, including current installments and capitalfinance lease obligations, of $3,745.2$3,382.9 million, $3,617.6$3,863.8 million and $3,677.8$4,075.7 million, respectively, of which $1,878.6$945.9 million, $2,238.4$780.9 million and $2,255.3$396.6 million at SeptemberJune 30, 2017,2021, December 31, 20162020 and SeptemberJune 30, 2016,2020, respectively, were 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 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 million of interest rate swaps with Wells Fargo that had been entered into Included within long-term borrowings on the SunBelt Notes in May 2011. The result was a gain of $2.2 million, which will be recognized through 2017. As of September 30, 2017, less than $0.1 million of this gain was included in current installments of long-term debt.condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount.
Assuming no changes in the $1,878.6$945.9 million of variable-rate debt levels from SeptemberJune 30, 2017,2021, we estimate that a hypothetical change of 100-basis points in the LIBOR interest rates would impact annual interest expense by $18.8$9.5 million. A portion
Our interest rate swaps reducedincreased interest expense by $1.7$0.6 million and $0.7$0.1 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and by $4.2$1.8 million and $2.6$0.2 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
If the actual changes in commodities, foreign currency, or interest pricing is substantially different than expected, the net impact of commodity risk, foreign currency risk, or interest 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.
Item 4. Controls and Procedures.
Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2021. 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 we are required to disclose 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 SeptemberJune 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q 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. These statements may include statements regarding the acquisition of the Acquired Business from TDCC, the expected benefits and synergies of the transaction, and future opportunities for the combined company following the transaction. The statements contained in this quarterly report on Form 10-Q 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,” “project,” “estimate,” “forecast,” “optimistic,” and variations of such words and similar expressions in this quarterly 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. Relative to the dividend, theThe 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 conditions, 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.
The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016,2020, include, but are not limited to the following:
Business, Industry and Operational Risks
•sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us, such as ammunition, vinyls, urethanes, and pulp and paper, and the migration by United States customers to low-cost foreign locations;us;
the cyclical nature of our operating results, particularly •declines in average selling prices in the chlor alkali industry and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products;
higher-than-expected raw material and energy, transportation and/or logistics costs;•unsuccessful implementation of our operating model, which prioritizes Electrochemical Unit (ECU) margins over sales volumes;
our substantial amount of indebtedness and significant debt service obligations;
weak industry conditions could affect our ability to comply with the financial maintenance covenants in our senior credit facilities and certain tax-exempt bonds;
•our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
•failure to control costs or to achieve targeted cost reductions;
•higher-than-expected raw material, energy, transportation and/or logistics costs;
•the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
•the failure or an interruption of our information technology systems;
•our substantial amount of indebtedness and significant debt service obligations;
•the negative impact from the COVID-19 pandemic and the global response to the pandemic;
•weak industry conditions affecting our ability to comply with the financial maintenance covenants in our senior secured credit facility;
•the loss of a substantial customer for either chlorine or caustic soda could cause an imbalance in customer demand for these products;
•failure to attract, retain and motivate key employees;
•risks associated with our international sales and operations, including economic, political or regulatory changes;
•the effects of any declines in global equity markets on asset values and any declines in interest rates or other significant assumptions used to value the liabilities in our pension plan;
•adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital;
•our long-range plan assumptions not being realized causing a non-cash impairment charge of long-lived assets;
Legal, Environmental and Regulatory Risks
•new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
•changes in, or failure to comply with, legislation or government regulations or policies;policies, including changes within the international markets in which we operate;
economic and industry downturns that result in diminished product demand and excess manufacturing capacity in any of our segments and that, in many cases, result in lower selling prices and profits;
complications resulting from our multiple enterprise resource planning systems;
the failure or an interruption of our information technology systems;
•unexpected litigation outcomes;
•costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings; and
the integration of the Acquired Business may not be successful in realizing the benefits of the anticipated synergies;•various risks associated with our Lake City U.S. Army Ammunition Plant contract, including performance and compliance with governmental contract provisions.
the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan;
fluctuations in foreign currency exchange rates;
adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital;
failure to attract, retain and motivate key employees;
our assumptions included in long range plans not realized causing a non-cash impairment charge of long-lived assets;
the effects of restrictions imposed on our business following the transaction with TDCC in order to avoid significant tax-related liabilities; and
differences between the historical financial information of Olin and the Acquired Business and our future operating performance.
All of our forward-looking statements should be considered 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.
Part II — Other Information
Item 1. Legal Proceedings.
Not Applicable.
Item 1A. Risk Factors.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not Applicable.
(b) Not Applicable.
(c)
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares (or Units) Purchased(1) | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |
April 1-30, 2021 | | — | | | $— | | — | | | | |
May 1-31, 2021 | | — | | | — | | — | | | | |
June 1-30, 2021 | | — | | | — | | — | | | | |
Total | | | | | | | | 304,075,829 | | (1) |
(1)On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our common stock. Through June 30, 2021, 10,072,741 shares had been repurchased at a total value of $195,924,171 and $304,075,829 of common stock remained available for purchase under the program.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
Pursuant to the requirements 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.