Use these links to rapidly review the document
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | ||
Commission File Number 1-9753 |
AXIALL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 58-1563799 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1000 Abernathy | 30328 | |
(Address of principal executive offices) | (Zip Code) | |
(770) 395-4500 (Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class | Outstanding as of | |
Common Stock, $0.01 par value |
Page 1 of 6453
AXIALL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014MARCH 31, 2015
INDEX
Contents
Page 2 of 6453
PART I. FINANCIAL INFORMATION.
AXIALL CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETSCondensed Consolidated Balance Sheets
(Unaudited)
(In millions, except share data) | September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: | ||||||||||||||
Cash and cash equivalents | $ | 113.7 | $ | 166.5 | $ | 134.7 | $ | 166.8 | ||||||
Receivables, net of allowance for doubtful accounts of$5.4 million at September 30, 2014 and $5.5 million at December 31, 2013. | 591.3 | 548.8 | ||||||||||||
Receivables, net of allowance for doubtful accounts of$6.1 million at March 31, 2015 and $5.6 million at December 31, 2014 | 478.5 | 467.0 | ||||||||||||
Inventories | | 405.8 | | 403.6 | | 419.1 | | 353.7 | ||||||
Prepaid expenses and other | 27.8 | 31.6 | 60.1 | 89.7 | ||||||||||
Deferred income taxes | | 24.2 | | 18.0 | | 32.5 | | 28.0 | ||||||
| | | | | | | | | | | | | ||
Total current assets | 1,162.8 | 1,168.5 | 1,124.9 | 1,105.2 | ||||||||||
Property, plant and equipment, net | | 1,660.7 | | 1,658.7 | | 1,641.7 | | 1,665.7 | ||||||
Goodwill | 1,754.8 | 1,763.2 | 1,731.3 | 1,741.0 | ||||||||||
Customer relationships, net | | 1,049.2 | | 1,101.8 | | 1,006.4 | | 1,024.5 | ||||||
Other intangible assets, net | 69.3 | 72.9 | 67.0 | 68.1 | ||||||||||
Other assets, net | | 104.5 | | 112.1 | | 71.4 | | 69.8 | ||||||
| | | | | | | | | | | | | ||
Total assets | $ | 5,801.3 | $ | 5,877.2 | $ | 5,642.7 | $ | 5,674.3 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | | |||||||
Liabilities and Equity: | | | | | ||||||||||
Current portion of long-term debt | $ | 2.8 | $ | 2.8 | $ | 2.5 | $ | 2.8 | ||||||
Accounts payable | | 372.6 | | 313.7 | | 316.3 | | 295.5 | ||||||
Interest payable | 12.8 | 15.4 | 12.7 | 15.2 | ||||||||||
Income taxes payable | | 10.5 | | 17.1 | | 5.4 | | 3.1 | ||||||
Accrued compensation | 26.8 | 61.5 | 22.4 | 33.6 | ||||||||||
Other accrued current liabilities | | 115.1 | | 132.6 | ||||||||||
Other accrued liabilities | | 116.7 | | 133.9 | ||||||||||
| | | | | | | | | | | | | ||
Total current liabilities | 540.6 | 543.1 | 476.0 | 484.1 | ||||||||||
Long-term debt, excluding the current portion of long-term debt | | 1,328.3 | | 1,330.0 | | 1,382.0 | | 1,327.8 | ||||||
Lease financing obligation | 97.5 | 104.7 | 86.4 | 94.2 | ||||||||||
Deferred income taxes | | 818.9 | | 865.5 | | 757.1 | | 767.5 | ||||||
Pensions and other postretirement benefits | 119.0 | 129.8 | 245.8 | 250.5 | ||||||||||
Other non-current liabilities | | 163.4 | | 175.8 | | 150.0 | | 161.2 | ||||||
| | | | | | | | | | | | | ||
Total liabilities | 3,067.7 | 3,148.9 | 3,097.3 | 3,085.3 | ||||||||||
| | | | | | | | | | | | | ||
| | | | |||||||||||
Commitments and contingencies | ||||||||||||||
| | | | |||||||||||
Equity: | ||||||||||||||
| | |||||||||||||
Preferred stock—$0.01 par value; 75,000,000 shares authorized; no shares issued | - | - | | - | | - | ||||||||
Common stock—$0.01 par value; shares authorized: 200,000,000 at September 30, 2014 and December 31, 2013; issued and outstanding:70,196,116 at September 30, 2014 and 69,890,666 at December 31, 2013. | | 0.7 | | 0.7 | ||||||||||
Common stock—$0.01 par value; shares authorized: 200,000,000 at March 31, 2015 and December 31, 2014; issued and outstanding:70,232,251 at March 31, 2015 and 70,196,116 at December 31, 2014 | 0.7 | 0.7 | ||||||||||||
Additional paid-in capital | 2,279.1 | 2,272.6 | | 2,287.5 | | 2,284.3 | ||||||||
Retained earnings | | 295.1 | | 269.3 | 247.8 | 269.8 | ||||||||
Accumulated other comprehensive income, net of tax | 47.7 | 66.3 | ||||||||||||
Accumulated other comprehensive loss, net of tax | | (101.5 | ) | | (73.7 | ) | ||||||||
| | | | | | | | | | | | | ||
Total Axiall stockholders' equity | | 2,622.6 | | 2,608.9 | 2,434.5 | 2,481.1 | ||||||||
Noncontrolling interest | 111.0 | 119.4 | | 110.9 | | 107.9 | ||||||||
| | | | | | | | | | | | | ||
Total equity | | 2,733.6 | | 2,728.3 | 2,545.4 | 2,589.0 | ||||||||
| | | | | | | | | | | | | ||
Total liabilities and equity | $ | 5,801.3 | $ | 5,877.2 | $ | 5,642.7 | $ | 5,674.3 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
Page 3 of 6453
AXIALL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCondensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions, except per share data) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||
Net sales | $ | 1,269.4 | $ | 1,197.5 | $ | 3,500.0 | $ | 3,531.5 | $ | 947.6 | $ | 993.7 | ||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of sales | | 1,107.3 | | 1,003.9 | | 3,110.6 | | 2,975.7 | | 844.6 | | 913.3 | ||||||||
Selling, general and administrative expenses | 79.8 | 74.9 | 232.4 | 219.8 | 81.3 | 73.6 | ||||||||||||||
Transaction-related costs and other, net | | 7.8 | | 14.8 | | 23.8 | | 33.7 | | 5.8 | | 6.6 | ||||||||
Long-lived asset impairment charges, net | 0.3 | 25.8 | 1.0 | 28.4 | 0.3 | 0.6 | ||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Total operating costs and expenses | | 1,195.2 | | 1,119.4 | | 3,367.8 | | 3,257.6 | | 932.0 | | 994.1 | ||||||||
| | | | | | | | | | | | | | | | | ||||
Operating income | 74.2 | 78.1 | 132.2 | 273.9 | ||||||||||||||||
Operating income (loss) | 15.6 | (0.4 | ) | |||||||||||||||||
Interest expense, net | | (19.5 | ) | | (19.7 | ) | | (56.9 | ) | | (57.4 | ) | | (18.8 | ) | | (18.3 | ) | ||
Loss on redemption and other debt costs | - | - | - | (78.5 | ) | |||||||||||||||
Gain on acquisition of controlling interest | | - | | - | | - | | 23.5 | ||||||||||||
Foreign exchange loss | (0.3 | ) | (0.4 | ) | (0.2 | ) | - | |||||||||||||
Debt refinancing costs | (3.2 | ) | - | |||||||||||||||||
Foreign exchange gain (loss) | | (0.2 | ) | | 0.4 | |||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Income before income taxes | | 54.4 | | 58.0 | | 75.1 | | 161.5 | ||||||||||||
Provision for income taxes | 9.3 | 18.7 | 12.5 | 51.3 | ||||||||||||||||
Consolidated loss before income taxes | (6.6 | ) | (18.3 | ) | ||||||||||||||||
Provision for (benefit from) income taxes | | 2.2 | | (7.7 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Consolidated net income | | 45.1 | | 39.3 | | 62.6 | | 110.2 | ||||||||||||
Consolidated net loss | (8.8 | ) | (10.6 | ) | ||||||||||||||||
Less net income attributable to noncontrolling interest | 0.6 | 0.3 | 2.5 | 1.9 | | 1.8 | | 1.0 | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
Net income attributable to Axiall | $ | 44.5 | $ | 39.0 | $ | 60.1 | $ | 108.3 | ||||||||||||
Net loss attributable to Axiall | $ | (10.6 | ) | $ | (11.6 | ) | ||||||||||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
| | |||||||||||||||||||
Income per share attributable to Axiall: | | | | | ||||||||||||||||
Loss per share attributable to Axiall: | ||||||||||||||||||||
Basic | $ | 0.64 | $ | 0.56 | $ | 0.86 | $ | 1.63 | $ | (0.15 | ) | $ | (0.17 | ) | ||||||
Diluted | $ | 0.63 | $ | 0.55 | $ | 0.85 | $ | 1.62 | $ | (0.15 | ) | $ | (0.17 | ) | ||||||
| | |||||||||||||||||||
Weighted average common shares outstanding: | | | | | ||||||||||||||||
Basic | 70.2 | 69.9 | 70.0 | 66.4 | | 70.2 | | 69.9 | ||||||||||||
Diluted | | 70.6 | | 70.4 | | 70.6 | | 66.8 | 70.2 | 69.9 | ||||||||||
| | |||||||||||||||||||
Dividends per common share | $ | 0.16 | $ | 0.16 | $ | 0.48 | $ | 0.32 | $ | 0.16 | $ | 0.16 |
See accompanying notes to unaudited condensed consolidated financial statements.
Page 4 of 6453
AXIALL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECondensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | |||||||||
Consolidated net income | $ | 45.1 | $ | 39.3 | $ | 62.6 | $ | 110.2 | |||||
Less net income attributable to noncontrolling interest | 0.6 | 0.3 | 2.5 | 1.9 | |||||||||
| | | | | | | | | | | | | |
Net income attributable to Axiall | | 44.5 | | 39.0 | | 60.1 | | 108.3 | |||||
| |||||||||||||
Other comprehensive income (loss): | | | | | |||||||||
Foreign currency translation gain (loss) | (27.4 | ) | 10.2 | (29.3 | ) | (16.4 | ) | ||||||
Pensions and other postretirement benefit liability adjustments | | (2.3 | ) | | 0.5 | | (7.1 | ) | | 1.6 | |||
Unrealized gain (loss) on derivative cash flow hedges | 1.4 | (0.3 | ) | 0.8 | (1.1 | ) | |||||||
| | | | | | | | | | | | | |
Other comprehensive income (loss), before income taxes | | (28.3 | ) | | 10.4 | | (35.6 | ) | | (15.9 | ) | ||
Provision for (benefit from) income taxes related to other comprehensive income (loss) items | (11.2 | ) | 3.0 | (13.8 | ) | (5.6 | ) | ||||||
| | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | (17.1 | ) | | 7.4 | | (21.8 | ) | | (10.3 | ) | ||
Other comprehensive loss, attributable to noncontrolling interest net of tax | (1.9 | ) | - | (3.2 | ) | - | |||||||
| | | | | | | | | | | | | |
Other comprehensive income (loss) attributable to Axiall, net of tax | | (15.2 | ) | | 7.4 | | (18.6 | ) | | (10.3 | ) | ||
| |||||||||||||
Comprehensive income, net of income taxes | | 28.0 | | 46.7 | | 40.8 | | 99.9 | |||||
Less comprehensive income (loss) attributable to noncontrolling interest | (1.3 | ) | 0.3 | (0.7 | ) | 1.9 | |||||||
| | | | | | | | | | | | | |
Comprehensive income attributable to Axiall | $ | 29.3 | $ | 46.4 | $ | 41.5 | $ | 98.0 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
(In millions) | 2015 | 2014 | |||||
Consolidated net loss | $ | (8.8 | ) | $ | (10.6 | ) | |
Less net income attributable to noncontrolling interest | 1.8 | 1.0 | |||||
| | | | | | | |
Net loss attributable to Axiall | | (10.6 | ) | | (11.6 | ) | |
Other comprehensive loss: | | | |||||
Foreign currency translation adjustments | (35.0 | ) | (24.5 | ) | |||
Derivative cash flow hedges | | 9.0 | | (0.3 | ) | ||
Pension and OPEB plan liability adjustments | (1.2 | ) | (2.4 | ) | |||
| | | | | | | |
Other comprehensive loss, before income taxes | | (27.2 | ) | | (27.2 | ) | |
Benefit from income taxes related to other comprehensive loss items | (0.7 | ) | (10.3 | ) | |||
| | | | | | | |
Other comprehensive loss, net of tax | | (26.5 | ) | | (16.9 | ) | |
Other comprehensive income (loss), attributable to noncontrolling interest, net of tax | 1.3 | (3.6 | ) | ||||
| | | | | | | |
Other comprehensive loss attributable to Axiall, net of tax | | (27.8 | ) | | (13.3 | ) | |
Comprehensive loss, net of income taxes | | (35.3 | ) | | (27.5 | ) | |
Less comprehensive income (loss) attributable to noncontrolling interest | 3.1 | (2.6 | ) | ||||
| | | | | | | |
Comprehensive loss attributable to Axiall | $ | (38.4 | ) | $ | (24.9 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
Page 5 of 6453
AXIALL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCondensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2015 | 2014 | ||||||||||
Cash flows from operating activities: | | | | | ||||||||||
Consolidated net income | $ | 62.6 | $ | 110.2 | ||||||||||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | | | ||||||||||||
Consolidated net loss | $ | (8.8 | ) | $ | (10.6 | ) | ||||||||
Adjustments to reconcile consolidated net loss to net cash used in operating activities: | | | ||||||||||||
Depreciation | 128.4 | 108.1 | 45.2 | 42.2 | ||||||||||
Amortization | | 56.1 | | 49.0 | | 18.4 | | 18.5 | ||||||
Loss on redemption and other debt costs | - | 78.5 | ||||||||||||
Gain on acquisition of controlling interest | | - | | (23.5 | ) | |||||||||
Deferred income taxes | (13.5 | ) | (9.4 | ) | ||||||||||
Long-lived asset impairment charges, net | 1.0 | 28.4 | | 0.3 | | 0.6 | ||||||||
Other non-cash items | | (0.6 | ) | | 9.4 | |||||||||
Deferred income taxes | (35.6 | ) | (10.0 | ) | ||||||||||
Change in operating assets and liabilities, and other (excluding effects of acquisition) | | (50.4 | ) | | (194.1 | ) | ||||||||
Other | 6.3 | 3.6 | ||||||||||||
Change in operating assets and liabilities | | (66.7 | ) | | (66.7 | ) | ||||||||
| | | | | | | | | | | | | ||
Net cash provided by operating activities | 161.5 | 156.0 | ||||||||||||
Net cash used in operating activities | (18.8 | ) | (21.8 | ) | ||||||||||
| | | | | | | | | | | | | ||
Cash flows from investing activities: | | | | | ||||||||||
Capital expenditures | (147.4 | ) | (108.5 | ) | (36.8 | ) | (42.9 | ) | ||||||
Acquisitions, net of cash acquired | | (6.1 | ) | | 26.7 | |||||||||
Proceeds from sale of assets and other | 5.3 | 11.1 | ||||||||||||
| | | | | | | | | | | | | ||
Net cash used in investing activities | | (148.2 | ) | | (70.7 | ) | | (36.8 | ) | | (42.9 | ) | ||
| | | | | | | | | | | | | ||
Cash flows from financing activities: | ||||||||||||||
Borrowings on ABL revolver | | 148.9 | | 402.5 | ||||||||||
Repayments on ABL revolver | (148.9 | ) | (402.5 | ) | ||||||||||
Issuance of long-term debt | | - | | 450.0 | | 248.8 | | - | ||||||
Long-term debt payments | (2.6 | ) | (531.1 | ) | (195.2 | ) | (0.7 | ) | ||||||
Fees paid relating to financing activities | | (3.0 | ) | | - | |||||||||
Deferred acquisition payments | | (10.0 | ) | | - | (10.0 | ) | - | ||||||
Lease financing obligation payment | (2.3 | ) | - | |||||||||||
Make-whole and other fees paid related to financing activities | | (0.6 | ) | | (98.0 | ) | ||||||||
Dividends paid | (33.8 | ) | (11.2 | ) | | (11.2 | ) | | (11.2 | ) | ||||
Distribution to noncontrolling interest | | (7.7 | ) | | (13.3 | ) | ||||||||
Excess tax benefits from share-based payment arrangements | 2.3 | 0.8 | ||||||||||||
Stock compensation plan activity | | (7.0 | ) | | (1.5 | ) | (0.4 | ) | - | |||||
| | | | | | | | | | | | | ||
Net cash used in financing activities | (61.7 | ) | (204.3 | ) | ||||||||||
Net cash provided by (used in) financing activities | | 29.0 | | (11.9 | ) | |||||||||
| | | | | | | | | | | | | ||
Effect of exchange rate changes on cash and cash equivalents | | (4.4 | ) | | (1.4 | ) | (5.5 | ) | (3.4 | ) | ||||
| | | | | | | | | | | | | ||
Net change in cash and cash equivalents | (52.8 | ) | (120.4 | ) | | (32.1 | ) | | (80.0 | ) | ||||
Cash and cash equivalents at beginning of period | | 166.5 | | 200.3 | 166.8 | 166.5 | ||||||||
| | | | | | | | | | | | | ||
Cash and cash equivalents at end of period | $ | 113.7 | $ | 79.9 | $ | 134.7 | $ | 86.5 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | |
Significant non-cash transactionsOn January 28, 2013, we acquired substantially all of the assets and liabilities of PPG Industries, Inc.'s ("PPG") business relating to the production of chlorine, caustic soda and related chemicals (the "Merged Business" or the "PPG Chemicals Business"), through a merger between a subsidiary of PPG and a subsidiary of the Company (the "Merger"). The purchase price for these transactions was approximately $2.8 billion and consisted of: (i) the issuance of approximately 35.2 million shares of our common stock valued at approximately $1.8 billion; (ii) the assumption of $967.0 million of debt; and (iii) the assumption of certain other liabilities including pension and other postretirement obligations. See Note 2 to the unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Page 6 of 6453
AXIALL CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all of the adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature.
Our financial condition as of, and our operating results for, the three and nine month periodsperiod ended September 30, 2014March 31, 2015 are not necessarily indicative of the financial condition and results that may be expected for the full year ending December 31, 20142015 or any other interim period. Certain prior period amounts have been reclassified to conform to the current period's presentation. These reclassifications are of a normal recurring nature and did not impact the Company's operating income (loss) or consolidated net income.loss.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20132014 (the "2013"2014 Annual Report"). There has been no material change in the significant accounting policies followed by us during the three and nine month periodsperiod ended September 30, 2014March 31, 2015 from those disclosed in the 20132014 Annual Report. Unless the context otherwise requires, references to "Axiall," the "Company," "we," "our" or "us," means Axiall Corporation and its consolidated subsidiaries.
2. MERGER WITH THE PPG CHEMICALS BUSINESS
On January 28, 2013, we completed our acquisition of substantially all of the assets and liabilities of the Merged Business and completed the related financings (collectively, the "Transactions"). We manage the Merged Business as part of our chlorovinyls business, and have reported the results of operations of the Merged Business as part of our chlorovinyls segment since January 28, 2013.
The purchase price of the Merged Business of approximately $2.8 billion consisted of: (i) the issuance of approximately 35.2 million shares of our common stock valued at approximately $1.8 billion; (ii) assumed debt of approximately $967.0 million; and (iii) the assumption of other liabilities, including pension liabilities and other postretirement obligations.
Summary Pro Forma Information. The following unaudited pro forma financial information reflects our consolidated results of operations as if the Transactions had taken place on January 1, 2012. The pro forma information includes primarily adjustments for depreciation based on the estimated fair value of the property, plant and equipment acquired in the Merger, amortization of acquired intangible assets and interest expense on the debt we incurred to finance the Transactions. The pro forma
Page 7 of 64
information is not necessarily indicative of the results of operations that we would have reported had the Transactions actually closed on January 1, 2012, nor is it necessarily indicative of future results.
| ||||
| ||||
| ||||
| ||||
|
Disclosure of revenues and earnings of the Merged Business since January 28, 2013 on a stand-alone basis is not practicable, as the Merged Business is not being operated as a stand-alone business.
3. 2. NEW ACCOUNTING PRONOUNCEMENTS
In June 2014,April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU" or "Update") 2015-05—Intangibles—Goodwill and Other-Internal-Use Software (Subtopic 350-40). The amendments in this Update provide explicit guidance to companies about fees paid in cloud-based computing arrangements for various hosting services. Previous GAAP guidance did not include such explicit direction. Specifically, the Update stipulates that if a cloud-based computing arrangement includes a software license, the company should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud-based computing arrangement does not include a software license, the company should account for the arrangement as a service contract. The guidance does not change the accounting treatment for service contracts. However, all software licenses within the scope of this Update should be accounted for consistent with other licenses of intangible assets. The amendments in this Update are effective for annual periods, including interim periods, beginning after December 15, 2015, and early adoption is permitted. We are evaluating the amendments in this Update and have not yet determined the impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03—Interest—Imputation of Interest (Subtopic 835-30). The amendments in this Update simplifies the presentation of debt issuance costs by requiring debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, similar to the accounting treatment for debt discounts. Previous GAAP guidance was different from International Financial Reporting Standards
Page 7 of 53
("IFRS"), as issued by the International Accounting Standards Board, which requires transactions to be deducted from the carrying value of the financial liability and not recorded as a separate asset, and conflicted with other FASB standards, specifically FASB Concept Statement 6. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and early adoption is permitted. We are evaluating the amendments in this Update and have not yet determined the impact on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02—Consolidation (Topic 810)—Amendments to the Consolidation Analysis to assist companies in evaluating whether certain legal entities should be consolidated. The ASU stipulates that all legal entities are subject to reevaluation under the revised consolidation model in the guidance. This Update reduces the number of consolidation models, simplifies the FASB Accounting Standards Codification and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity under certain circumstances based solely on its fee arrangement when certain criteria are met. This reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity ("VIE"). The Update changes the consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The amendments in this Update are effective for annual periods, including interim periods, beginning after December 15, 2015. We are evaluating the amendments in this Update and have not yet determined the impact on our consolidated financial statements.
In June 2014, FASB issued ASU 2014-12—Compensation—Stock Compensation (Topic 718). Under this Update:Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force), a performance target that affects vesting, and that could be achieved after the requisite service period, would be treated as a performance condition. GAAP did not address these issues. The Update states that a reporting entity should apply existing guidance in Topic 718 to account for awards with performance conditions that affect the vesting of such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. We are evaluating the amendments in this Update and have not yet determined the impact on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,2014-09—Revenue from Contracts with Customers. The Update outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. The Update provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts with customers to provide goods and services. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including
Page 8 of 53
real estate. The Update is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2016. The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. The modified retrospective approach requires that the new standard be applied
Page 8 of 64
to all new and existing contracts as of the date of adoption, with a cumulative catch-up adjustment recorded to the opening balance of retained earnings at the effective date for existing contracts that still require performance by the entity. Under the modified retrospective approach, amounts reported prior to the date of adoption will be presented under existing guidance. The Update also requires entities to disclose both quantitative and qualitative information to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We have not yet determined the impact of adopting the standard on our condensed consolidated financial statements, nor have we determined whether we will utilize the full retrospective or modified retrospective approach.
In April 2014, the FASB issued ASU 2014-08—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopics 205 (Presentation of Financial Statements) and 360 (Property, Plant, and Equipment). The Update changes the criteria for reporting discontinued operations and enhances the FASB's convergence with International Accounting Standards. The Update improves the definition of discontinued operations by limiting discontinued operations reporting specifically to the disposal of a component or a group of components of an entity that results in a strategic shift that has (or will have) a major effect on an entity's operations and financial results when certain criteria are met. The Update raises the threshold for disposals to qualify as discontinued operations and expands the disclosure requirements for discontinued operations and certain other disposals that do not qualify as discontinued operations. The amendments in this Update are effective for annual periods beginning on or after December 15, 2014, and interim periods within that year. We are evaluating the amendments in this Update and do not expect them to have a material impact on our condensed consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740):Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Prior to this Update, GAAP did not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward existed. The Update provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In that case, the liability associated with the unrecognized tax benefit is presented in the financial statements as a reduction to the related deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The amendments in this Update do not require new recurring disclosures. The Update is effective for fiscal years beginning after December 15, 2013. In accordance with this Update, at September 30, 2014, the Company reclassified liabilities associated with certain unrecognized tax benefits as a reduction to a deferred tax assets for a net operating loss carryforward in the amount of $4.5 million.
Page 9 of 64
4. 3. INVENTORIES
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, the major classes of inventories were as follows:
(In millions) | September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Raw materials | $ | 160.4 | $ | 159.5 | $ | 142.6 | $ | 125.8 | ||||||
Work-in-progress | 7.3 | 5.2 | 5.6 | 4.8 | ||||||||||
Finished goods | | 238.1 | | 238.9 | | 270.9 | | 223.1 | ||||||
| | | | | | | | | | | | | ||
Inventories | $ | 405.8 | $ | 403.6 | $ | 419.1 | $ | 353.7 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | |
5. 4. PROPERTY, PLANT AND EQUIPMENT, NET
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, property, plant and equipment consisted of the following:
(In millions) | September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chemical manufacturing plants | $ | 1,407.5 | $ | 1,361.7 | $ | 1,388.7 | $ | 1,398.5 | ||||||
Machinery and equipment | 1,145.0 | 1,070.4 | 1,220.0 | 1,198.7 | ||||||||||
Buildings | | 205.1 | | 214.4 | | 195.5 | | 202.8 | ||||||
Land and land improvements | 175.7 | 195.3 | 176.9 | 185.7 | ||||||||||
Construction-in-progress | | 109.9 | | 116.9 | | 91.5 | | 84.7 | ||||||
| | | | | | | | | | | | | ||
Property, plant and equipment, at cost | 3,043.2 | 2,958.7 | 3,072.6 | 3,070.4 | ||||||||||
Less: accumulated depreciation | | 1,382.5 | | 1,300.0 | | 1,430.9 | | 1,404.7 | ||||||
| | | | | | | | | | | | | ||
Property, plant and equipment, net | $ | 1,660.7 | $ | 1,658.7 | $ | 1,641.7 | $ | 1,665.7 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | |
6. 5. GOODWILL AND OTHER INTANGIBLE ASSETS AND RESTRUCTURING
Our intangible assets consist of goodwill, customer relationships, supply contracts, technology and trade names, and technology.names. Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including, but not limited to, customer lists, supply contracts, technology and trade names and technology)names) acquired and liabilities assumed under acquisition accounting for business combinations.
WePage 9 of 53
Goodwill. As of March 31, 2015, we have two segments that contain reporting units with goodwill and intangible assets: our chlorovinyls segment includes goodwill in its chlor-alkali and derivatives and compound reporting units and our building products segment includes goodwill primarily in its siding reporting units.
Goodwill. During the nine month period ended September 30, 2014, the Company recorded an immaterial correction of an error related to the overstatement of certain assets and deferred tax liabilities recorded in connection with the acquisition accounting for the Merged Business that were outside of the measurement period. The Company recognized a $0.7 million decrease in the fair value of acquired net assets and a $0.7 million increase to goodwill on the consolidated balance sheet as of September 30, 2014. Management performed an evaluation under Staff Accounting Bulletin No. 108 and concluded the effect of the adjustment is immaterial to the current and prior periods' financial
Page 10 of 64
statements.unit. The following table provides the detail of the changes made to goodwill during the ninethree months ended September 30, 2014.March 31, 2015.
(In millions) | Chlorovinyls | Building Products | Total | Chlorovinyls | Building Products | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross goodwill at December 31, 2013 | $ | 1,808.8 | $ | 160.3 | $ | 1,969.1 | ||||||||||||||
Gross goodwill at December 31, 2014 | $ | 1,790.8 | $ | 160.2 | $ | 1,951.0 | ||||||||||||||
Accumulated impairment losses | (55.5 | ) | (150.4 | ) | (205.9 | ) | (59.6 | ) | (150.4 | ) | (210.0 | ) | ||||||||
| | | | | | | | | | | | | | | | | | |||
Net goodwill at December 31, 2013 | $ | 1,753.3 | $ | 9.9 | $ | 1,763.2 | ||||||||||||||
Net goodwill at December 31, 2014 | $ | 1,731.2 | $ | 9.8 | $ | 1,741.0 | ||||||||||||||
| | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | |||
Gross goodwill at December 31, 2013 | $ | 1,808.8 | $ | 160.3 | $ | 1,969.1 | ||||||||||||||
Adjustments | 0.7 | - | 0.7 | |||||||||||||||||
Gross goodwill at December 31, 2014 | $ | 1,790.8 | $ | 160.2 | $ | 1,951.0 | ||||||||||||||
Foreign currency translation adjustment | | (9.1 | ) | | - | | (9.1 | ) | (9.7 | ) | - | (9.7 | ) | |||||||
| | | | | | | | | | | | | | | | | | |||
Gross goodwill at September 30, 2014 | 1,800.4 | 160.3 | 1,960.7 | |||||||||||||||||
Gross goodwill at March 31, 2015 | | 1,781.1 | | 160.2 | | 1,941.3 | ||||||||||||||
Accumulated impairment losses | | (55.5 | ) | | (150.4 | ) | | (205.9 | ) | (59.6 | ) | (150.4 | ) | (210.0 | ) | |||||
| | | | | | | | | | | | | | | | | | |||
Net goodwill at September 30, 2014 | $ | 1,744.9 | $ | 9.9 | $ | 1,754.8 | ||||||||||||||
Net goodwill at March 31, 2015 | $ | 1,721.5 | $ | 9.8 | $ | 1,731.3 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | |
Indefinite-lived intangible assets. OurAs of March 31, 2015 and December 31, 2014, our indefinite-lived intangible assets consisted of certain trade names with a carrying value of $5.9 million and $6.0 million, at September 30, 2014respectively, net of cumulative translation adjustment.
Definite-lived intangible assets. As of March 31, 2015 and December 31, 20132014, we had definite-lived intangible assets related to: (i) customer relationships, supply contracts, technology and trade names in our chlorovinyls segment; and (ii) customer relationships and technology in our building products segment.
Valuation of Goodwill and Indefinite-Lived Intangible Assets: The carrying values of our goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter, using a measurement date of October 1. In addition, we evaluate the carrying value of these assets for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Such events and indicators may include, without limitation, significant declines in industries in which our products are used, significant changes in the estimated future cash flows of our reporting units, significant changes in capital market conditions and significant changes in our market capitalization. As of September 30, 2014 we do not believe there have been any events or circumstances that would require us to perform an interim impairment test in our reporting units that carry goodwill and indefinite-lived intangible assets. However, certain factors including but not limited to a sustained decline in our market capitalization below its book value or further deterioration in our industry or market conditions could lead us to determine, in a future period, that an impairment test would be required and result in an impairment charge, which could have a negative impact on our result of operations.
Impairment testing for goodwill is a two-step test performed at a reporting unit level. The first step of the impairment analysis involves comparing the fair value of the reporting unit to its book value, including goodwill. If the fair value of the reporting unit exceeds the book value, goodwill is not considered impaired. If the book value exceeds the fair value, the second step of the impairment analysis is performed, in which we measure the amount of impairment. Our goodwill evaluations utilized discounted cash flow analyses and market multiple analyses in estimating fair value. The weighting of the discounted cash flow and market approaches varies by each reporting unit based on factors specific to each reporting unit. Inherent in our fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market conditions, overall economic conditions and our strategic operational plans with regard to our business units. In addition, to the extent significant changes occur in market conditions, overall economic conditions or our strategic operational plan, it is possible that goodwill not currently impaired, may become impaired in the future.
Page 1110 of 6453
Definite-lived intangible assets. At September 30, 2014 and December 31, 2013, we had definite-lived intangible assets in our building products segment that related to customer relationships and technology. In the acquisition of the Merged Business, we acquired definite-lived intangible assets in our chlorovinyls segment. The values of these assets acquired are $1.1 billion for customer relationships, $42.6 million for supply contracts, $14.9 million for technology and $6.0 million for trade names. At September 30, 2014 and December 31, 2013, there were no definite-lived intangible assets in our aromatics segment. The following table provides the definite-lived intangible assets, by reportable segment, as of September 30, 2014March 31, 2015 and December 31, 2013.2014.
| Chlorovinyls | Building Products | Total | Chlorovinyls | Building Products | Total | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | September 30, 2014 | December 31, 2013 | September 30, 2014 | December 31, 2013 | September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | March 31, 2015 | December 31, 2014 | March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
Gross carrying amounts | | | | | | | | | | | | | ||||||||||||||||||||||||||
Customer relationships | $ | 1,142.3 | $ | 1,142.3 | $ | 32.2 | $ | 32.2 | $ | 1,174.5 | $ | 1,174.5 | $ | 1,142.3 | $ | 1,142.3 | $ | 32.2 | $ | 32.2 | $ | 1,174.5 | $ | 1,174.5 | ||||||||||||||
Supply contracts | | 42.6 | | 42.6 | | - | | - | | 42.6 | | 42.6 | | 42.6 | | 42.6 | | - | | - | | 42.6 | | 42.6 | ||||||||||||||
Technology | 14.9 | 14.9 | 17.4 | 17.4 | 32.3 | 32.3 | ||||||||||||||||||||||||||||||||
Trade names | 6.0 | 6.0 | - | - | 6.0 | 6.0 | | 6.0 | | 6.0 | | - | | - | | 6.0 | | 6.0 | ||||||||||||||||||||
Technology | | 14.9 | | 14.9 | | 17.4 | | 17.4 | | 32.3 | | 32.3 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Total | 1,205.8 | 1,205.8 | 49.6 | 49.6 | 1,255.4 | 1,255.4 | ||||||||||||||||||||||||||||||||
Accumulated impairment charges: | | | | | | | ||||||||||||||||||||||||||||||||
Customer relationships | (2.9 | ) | (2.6 | ) | - | - | (2.9 | ) | (2.6 | ) | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Total | 1,205.8 | 1,205.8 | 49.6 | 49.6 | 1,255.4 | 1,255.4 | | (2.9 | ) | | (2.6 | ) | | - | | - | | (2.9 | ) | | (2.6 | ) | ||||||||||||||||
Accumulated amortization: | | | | | | | ||||||||||||||||||||||||||||||||
Customer relationships | (104.8 | ) | (58.2 | ) | (11.7 | ) | (10.5 | ) | (116.5 | ) | (68.7 | ) | | (136.3 | ) | | (121.1 | ) | | (12.5 | ) | | (12.1 | ) | | (148.8 | ) | | (133.2 | ) | ||||||||
Supply contracts | | (3.6 | ) | | (2.0 | ) | | - | | - | | (3.6 | ) | | (2.0 | ) | (4.5 | ) | (4.1 | ) | - | - | (4.5 | ) | (4.1 | ) | ||||||||||||
Technology | | (1.5 | ) | | (1.3 | ) | | (13.0 | ) | | (12.7 | ) | | (14.5 | ) | | (14.0 | ) | ||||||||||||||||||||
Trade names | (0.6 | ) | (0.3 | ) | - | - | (0.6 | ) | (0.3 | ) | (0.8 | ) | (0.7 | ) | - | - | (0.8 | ) | (0.7 | ) | ||||||||||||||||||
Technology | | (1.1 | ) | | (0.6 | ) | | (12.3 | ) | | (11.1 | ) | | (13.4 | ) | | (11.7 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Total | (110.1 | ) | (61.1 | ) | (24.0 | ) | (21.6 | ) | (134.1 | ) | (82.7 | ) | | (143.1 | ) | | (127.2 | ) | | (25.5 | ) | | (24.8 | ) | | (168.6 | ) | | (152.0 | ) | ||||||||
Foreign currency translation adjustment: | | | | | | | ||||||||||||||||||||||||||||||||
Customer relationships | (8.8 | ) | (4.0 | ) | - | - | (8.8 | ) | (4.0 | ) | | (16.4 | ) | | (14.2 | ) | | - | | - | | (16.4 | ) | | (14.2 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Total | | (8.8 | ) | | (4.0 | ) | | - | | - | | (8.8 | ) | | (4.0 | ) | (16.4 | ) | (14.2 | ) | - | - | (16.4 | ) | (14.2 | ) | ||||||||||||
Net carrying amounts | | | | | | | ||||||||||||||||||||||||||||||||
Customer relationships | | 1,028.7 | | 1,080.1 | | 20.5 | | 21.7 | | 1,049.2 | | 1,101.8 | 986.7 | 1,004.4 | 19.7 | 20.1 | 1,006.4 | 1,024.5 | ||||||||||||||||||||
Supply contracts | 39.0 | 40.6 | - | - | 39.0 | 40.6 | | 38.1 | | 38.5 | | - | | - | | 38.1 | | 38.5 | ||||||||||||||||||||
Technology | 13.4 | 13.6 | 4.4 | 4.7 | 17.8 | 18.3 | ||||||||||||||||||||||||||||||||
Trade names | | 5.4 | | 5.7 | | - | | - | | 5.4 | | 5.7 | | 5.2 | | 5.3 | | - | | - | | 5.2 | | 5.3 | ||||||||||||||
Technology | 13.8 | 14.3 | 5.1 | 6.3 | 18.9 | 20.6 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Total | $ | 1,086.9 | $ | 1,140.7 | $ | 25.6 | $ | 28.0 | $ | 1,112.5 | $ | 1,168.7 | $ | 1,043.4 | $ | 1,061.8 | $ | 24.1 | $ | 24.8 | $ | 1,067.5 | $ | 1,086.6 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | |
The weighted average estimated useful life remaining for customer relationships, supply contracts, technology and definite-lived trade names and technology is approximately 16 years, 18 years, 16 years and 15 years, and 16 years, respectively.respectively, as of March 31, 2015. Amortization expense for the definite-lived intangible assets was $16.8$16.6 million and $15.2$16.8 million for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively and $51.4 million and $45.0 million for the nine months ended September 30, 2014 and 2013, respectively. The estimated annual amortization expense for definite-lived intangible assets for the next five fiscal years is approximately $67.1$66.4 million per year.
Restructuring: In September 2013, we initiated a restructuring plan in our building products segment consistingPage 11 of various cost saving initiatives, including the reduction of overhead and plant labor, and the consolidation of various plants, primarily in the window and door profiles reporting unit, to improve utilization and efficiencies. During the three and nine month periods ended September 30, 2014, we recorded $1.0 million and $3.9 million, respectively, in restructuring charges in our building products segment that are included in Transaction-related costs and other, net in the unaudited condensed consolidated statements of operations. We expect to complete these restructuring initiatives in 2015 with additional expected restructuring charges in 2014 and 2015 totaling a combined $2.4 million.
Page 12 of 6453
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, other assets, net of accumulated amortization, consisted of the following:
(In millions) | September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pension assets | $ | 28.8 | $ | 26.9 | ||||||||||
Deferred financing costs, net | 25.9 | 28.8 | $ | 25.2 | $ | 26.2 | ||||||||
Deferred income taxes | | 17.4 | | 21.8 | 21.1 | 21.1 | ||||||||
Advances to and investments in joint ventures, net | 19.4 | 14.2 | | 18.4 | | 14.7 | ||||||||
Advances for long-term purchase contracts, net | | 2.3 | | 9.1 | ||||||||||
Long-term assets held for sale | 4.6 | 3.9 | ||||||||||||
Other | | 6.1 | | 7.4 | 6.7 | 7.8 | ||||||||
| | | | | | | | | | | | | ||
Total other assets, net | $ | 104.5 | $ | 112.1 | $ | 71.4 | $ | 69.8 | ||||||
| | | | | | | | | | | | | | |
| | | | | | | |
8. 7. LONG-TERM DEBT AND LEASE FINANCING OBLIGATION
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, our long-term debt consisted of the following:
(In millions) | Maturity Date | September 30, 2014 | December 31, 2013 | Maturity Date | March 31, 2015 | December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
4.625 Notes | February 15, 2021 | $ | 688.0 | $ | 688.0 | February 15, 2021 | $ | 688.0 | $ | 688.0 | ||||||||
4.875 Notes | May 15, 2023 | 450.0 | 450.0 | May 15, 2023 | 450.0 | 450.0 | ||||||||||||
Term Loan (net of debt issuance costs totaling$2.0 million at September 30, 2014 and $2.4 million at December 31, 2013) | January 28, 2017 | | 193.1 | | 194.8 | |||||||||||||
Term Loan (net of debt issuance costs totaling$1.8 million at December 31, 2014) | January 28, 2017 | | - | | 192.6 | |||||||||||||
Term Loan (net of debt issuance costs and discounts totaling$2.9 million at March 31, 2015) | February 27, 2022 | 246.5 | - | |||||||||||||||
ABL Revolver | January 28, 2018 | - | - | December 17, 2019 | | - | | - | ||||||||||
| | | | | | | | | | | | | ||||||
Total debt | | $ | 1,331.1 | $ | 1,332.8 | 1,384.5 | 1,330.6 | |||||||||||
Less current portion of long-term debt | (2.8 | ) | (2.8 | ) | | | (2.5 | ) | | (2.8 | ) | |||||||
| | | | | | | | | | | | | ||||||
Long-term debt, net | | $ | 1,328.3 | $ | 1,330.0 | $ | 1,382.0 | $ | 1,327.8 | |||||||||
| | | | | | | | | | | | | | |||||
| | | | | | | |
4.625 Notes
Axiall Corporation and certain of its subsidiaries guarantee $688.0 million aggregate principal amount of senior unsecured notes due 2021 bearing interest at a rate of 4.625 percent per annum (the "4.625 Notes") that were issued by Eagle Spinco Inc. ("Spinco"). Interest payments on the 4.625 Notes commenced on August 15, 2013 and interest is payable semi-annually in arrears on February 15 and August 15 of each year. The 4.625 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Axiall Corporation and by its existing and future domestic subsidiaries, other than certain excluded subsidiaries.
4.875 Notes
On February 1, 2013, Axiall Corporation issued $450.0 million in aggregate principal amount of senior unsecured notes due 2023 which bear interest at a rate of 4.875 percent per annum (the "4.875 Notes"). Interest payments on the 4.875 Notes commenced on May 15, 2013 and interest is payable semi-annually in arrears on May 15 and November 15 of each year. The 4.875 Notes are fully and
Page 12 of 53
unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our existing and future domestic subsidiaries, other than certain excluded subsidiaries.
Term Loan and ABL Revolver
On February 27, 2015, Axiall Holdco, Inc., a wholly-owned subsidiary of the Company ("Axiall Holdco"), entered into a credit agreement with a syndicate of financial institutions (the "Term Loan Agreement") for a new $250 million term loan facility (the "New Term Loan Facility") to refinance the principal amount outstanding under the Company's existing term loan facility, to pay related fees and expenses, and for general corporate purposes. Obligations under the New Term Loan Facility are fully and unconditionally guaranteed, on a senior secured basis, by the Company and by each of the Company's existing and future wholly-owned domestic subsidiaries, other than certain excluded subsidiaries. The obligations under the New Term Loan Facility are secured by substantially all of the assets of Axiall Holdco, Axiall Corporation and the subsidiary guarantors.
The New Term Loan Facility contains an accordion feature that permits Axiall Holdco, subject to certain conditions and to obtaining lender commitments, to incur additional term loans under the New Term Loan Facility in an amount up to the greater of: (i) $250 million; and (ii) an amount that would not result in the Company's consolidated secured debt ratio being greater than 2.50 to 1.00.
At the election of Axiall Holdco, the New Term Loan Facility bears interest at a rate equal to: (i) the Base Rate (as defined in the Term Loan Agreement) plus 1.50 percent per annum; or (ii) LIBOR (as defined in the Term Loan Agreement) plus 3.25 percent per annum; provided that at no time will the Base Rate be deemed to be less than 2.00 percent per annum or LIBOR be deemed to be less than 0.75 percent per annum. As of September 30, 2014,March 31, 2015, outstanding borrowings under the Company's term loan facility (the "Term Loan")New Term Loan Facility had a stated interest rate of 3.504.00 percent per annum.
The Term Loan Agreement contains customary covenants (subject to exceptions), including certain restrictions on the Company and its subsidiaries to pay dividends.
ABL Revolver
The Company's second amended and restated asset based revolving credit facility (the "ABL Revolver"), which the Company entered into in December 2014, provides for a maximum of $500.0$600.0 million of revolving credit.credit, subject to applicable borrowing base limitations and certain other conditions. The credit agreement governing the ABL Revolver (the "ABL Credit Agreement") contains customary covenants, (subject to certain exceptions), including certain restrictions on the Company and its subsidiaries to pay dividends. In addition, thedividends and repurchase shares of Company isstock. These covenants are subject to acertain exceptions and qualifications. Under the ABL Revolver, dividend payments and repurchases of our common stock in an aggregate amount not to exceed $150 million in any fiscal year may be made if both borrowing availability under the ABL Revolver would have exceeded $75 million at all times during the thirty days immediately preceding any such restricted payment and our consolidated fixed charge coverage ratio (as defined in the ABL Credit Agreement) ofRevolver) is equal to or exceeds 1.00 to 1.00, each on a pro forma basis after giving effect to any such proposed restricted payment. In addition, under the ABL Revolver, additional cash dividend payments may be made if both borrowing availability under the ABL Revolver then exceeds $100 million and our consolidated fixed charge coverage ratio (as defined in the ABL Revolver) is equal to or exceeds 1.10 to 1.00, if excess availability is less than $62.5 million for three consecutive business days. each on a pro forma basis after giving effect to the proposed cash dividend payment.
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, we had no outstanding balance onunder our ABL Revolver. Our availability under the ABL Revolver at September 30, 2014March 31, 2015 was approximately $414.6$455.5 million, net of outstanding letters of credit totaling $85.4$82.0 million.
Page 13 of 64
As of September 30, 2014,March 31, 2015, we were in compliance with the covenants under theour ABL Credit Agreement, the Term Loan agreement,Agreement and the indentures governing $688.0 million in aggregate principal amountthe 4.625 Notes and the 4.875 Notes.
Page 13 of 4.625 percent senior notes53
Lease Financing Obligation
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, we had a lease financing obligation of $97.5$86.4 million and $104.7$94.2 million, respectively. The change from the December 31, 20132014 balance is due to a one-time $2.3 million payment and the change in the Canadian dollar exchange rate as of September 30, 2014.March 31, 2015. The lease financing obligation is the result of the sale and concurrent leaseback of certain land and buildings in Canada in 2007 for a term of ten years. In connection with this transaction, certain terms and conditions, including the requirement to execute a collateralized letter of credit was issued in favor of the buyer-lessor, resultingresulted in the transaction being recorded as a financing transaction rather than a sale for GAAP purposes. As a result, the land, building and related accounts continue to be recognized in the unaudited condensed consolidated balance sheets. The amount of the collateralized letter of credit was $1.6 millionexpired on February 2, 2015 and $3.8 million as of September 30, 2014 and December 31, 2013, respectively.is no longer required. We are not obligated to repay the lease financing obligation amount of $97.5$86.4 million. Our obligation is for the future minimum lease payments under the terms of the related lease agreements. The future minimum lease payments under the terms of the related lease agreements as of September 30, 2014March 31, 2015 are $1.4 million in 2014, $5.7$3.8 million in 2015, $5.7$5.0 million in 2016, and $1.4$1.3 million in 2017, the final year of the lease agreements. The change in the future minimum lease payments from such amounts disclosed as of December 31, 20132014 is due to a one-time $2.3 million payment, current period lease payments and the change in the Canadian dollar exchange rate as of September 30, 2014.March 31, 2015.
9. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value because of the nature of such instruments. The fair values of our outstanding notes, as shown in the table below, are based on quoted market values. The fair value of our New Term Loan facilityFacility is based on present rates for indebtedness with similar amounts, durations and credit risk. Our commodity purchase contracts are fair valued with Level 2 inputs based on quoted market values for similar but not identical financial instruments. When computed for the purposes of impairment testing, the fair values of our goodwill and other acquired intangible assets are determined using Level 3 inputs. For further details concerning the fair value of goodwill and other intangible assets, see Note 65 to the unaudited condensed consolidated financial statements.
The FASB ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs to valuation techniques used to measure fair value. These levels, in order of highest to lowest priority are described below:
Level 1 — | Quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date. | |
Level 2 — | Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. | |
Level 3 — | Prices that are unobservable for the asset or liability and are developed based on the best information available under the circumstances, which might include the Company's own data. |
Page 14 of 6453
The following is a summary of the carrying amounts and estimated fair values of our long-term debt as of September 30, 2014March 31, 2015 and December 31, 2013:2014:
| September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||
Level 1: | | | | | | | | | ||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||
4.625 Notes | $ | 688.0 | $ | 663.9 | $ | 688.0 | $ | 676.4 | $ | 688.0 | $ | 681.1 | $ | 688.0 | $ | 651.9 | ||||||||||
4.875 Notes | $ | 450.0 | $ | 432.8 | $ | 450.0 | $ | 426.9 | $ | 450.0 | $ | 446.9 | $ | 450.0 | $ | 426.7 | ||||||||||
Level 2: | | | | | | | | | ||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||
Term Loan (net of debt issuance costs totaling$2.0 million at September 30, 2014 and $2.4 million at December 31, 2013) | $ | 193.1 | $ | 194.2 | $ | 194.8 | $ | 199.0 | ||||||||||||||||||
Derivative instrument: | ||||||||||||||||||||||||||
Term Loan (net of debt issuance costs totaling$1.8 million at December 31, 2014) | $ | - | $ | - | $ | 192.6 | $ | 194.4 | ||||||||||||||||||
Term Loan (net of debt issuance costs and discounts totaling$2.9 million at March 31, 2015) | $ | 246.5 | $ | 246.4 | $ | - | $ | - | ||||||||||||||||||
Derivative instruments: | | | | | ||||||||||||||||||||||
Commodity purchase contracts | $ | 1.7 | $ | 1.7 | $ | - | $ | - | $ | (5.4 | ) | $ | (5.4 | ) | $ | (12.9 | ) | $ | (12.9 | ) |
10.Derivative Financial Instruments. The Company is directly and indirectly affected by changes in certain market conditions and market risks. When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks that may be managed by the Company through the use of derivative instruments are foreign currency exchange rate risk, commodity price risk and interest rate risk. As an integral part of our risk management program, we may manage our financial exposures to reduce the potentially adverse effect that the volatility of the commodity markets may have on our operating results. We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes.
All derivative financial instruments are carried at fair value in our consolidated balance sheets. If the derivative financial instrument qualifies for hedge accounting treatment, changes in the fair value are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings.
We also enter into derivative financial instruments that are designed to hedge risks but are not designated as hedging instruments. Changes in the fair value of these non-designated hedging instruments are adjusted to fair value through earnings in our consolidated statements of operations.
We formally document hedging instruments and hedging transactions, as well as our risk management objective and strategy for undertaking hedged transactions. This process includes linking derivative financial instruments that are designated as cash flow hedges to specific assets or liabilities on the consolidated balance sheets or linking derivatives to forecasted transactions. We also formally assess, both at inception and on an ongoing basis, whether the derivative financial instruments used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of hedged transactions. When it is determined that a derivative is not highly effective or the derivative is expired, sold, terminated, exercised, discontinued, or otherwise settled because it is unlikely that a forecasted transaction will occur, we discontinue the use of hedge accounting for that specific hedge derivative financial instrument.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. We are involved in a number of contingencies incidental to the normal conduct of our business including lawsuits, claims and environmental contingencies. The outcome of these contingencies is inherently unpredictable. We believe that, in the aggregate, the outcome of all known
Page 15 of 53
contingencies including lawsuits, claims and environmental contingencies will not have a material adverse effect on our financial statements; however, specific outcomes with respect to such contingencies may be material to the financial statements of any particular period in which costs, if any, are recognized. Our assessment of the potential impact of the environmental contingencies is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental contingencies, and the potential for technological and regulatory developments. In addition, the impact of evolving programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these environmental contingencies. We anticipate that the resolution of many contingencies, and in particular environmental contingencies, will occur over an extended period of time.
On December 20, 2013, a fire occurred at our PHH vinyl chloride monomer ("VCM") manufacturing plant in Lake Charles, Louisiana. As of March 31, 2015, approximately 2,615 individuals had filed lawsuits against the Company alleging personal injury or property damage related to the incident. We do not expect any other individuals to file lawsuits regarding this matter, as the prescribed deadline for doing so has expired. We have not recorded an accrual in connection with any of these lawsuits because, at this time, we are unable to reasonably determine whether any potential loss is probable or reasonably possible. In addition, we currently are unable to provide a reasonable estimate of the potential loss or range of loss, if any, expected to result from this contingency. We are unable to make these determinations due to a number of variables, including without limitation, uncertainties related to: (1) the fact that no written or oral discovery has been conducted by the Company in any of these lawsuits; (2) the procedural status and jurisdictions in which these lawsuits may be adjudicated; (3) the parties' respective litigation strategies; (4) the fact that none of the complaints have alleged specific injuries or a specific amount of damages; (5) any symptoms experienced by any of the plaintiffs, and whether there will be any reliable information, documentation or other discovery related thereto; (6) the pre-and-post fire medical or physical condition of the plaintiffs, and whether there will be any reliable information, documentation or other discovery related thereto; and (7) the location of any plaintiff at the time of the fire, and the duration of any exposure related thereto, and whether there will be any reliable information, documentation or other discovery related thereto.
Environmental Matters.Remediation. It is our policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental liabilities do not include any potential offsets related to claims against third parties.
Our operations and assets are subject to extensive environmental, health and safety regulations, including laws and regulations related to air emissions, water discharges, waste disposal and remediation of contaminated sites, at both the national and local levels in the United States. We are also subject to similar laws and regulations in Canada and other jurisdictions in which we operate. The nature of the chemical and building products industries exposes us to risks of liability under these laws and regulations due to the production, storage, use, transportation and sale of materials that can cause contamination or personal injury, including, in the case of chemicals, potential releases into the environment. Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished products, as well as the costs of the storage and disposal of wastes. We have and will continue to incur substantial operating and capital costs to comply with environmental laws and regulations. In addition, we may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations for violations arising under these laws and regulations.
Page 15 of 64
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, we had reserves for environmental contingencies totaling approximately $61$52 million and $64$54 million, respectively, of which approximately $10 million and $12 million, respectively, were classified as a current liability.liabilities. Our assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
Page 16 of 53
Some of our significant environmental contingencies include the following matters:
Environmental Laws and Regulations
Due to the nature of environmental laws, regulations and liabilities, it is possible that the reviews we conducted in connection with our evaluation of, and determination to enter into, the Transactions, may not have identified all potentially adverse conditions. Such conditions may not currently exist or be detectable through reasonable methods, or may not be able to be adequately valued.estimable. For example, our Natrium West Virginia facilityFacility and Lake Charles South Facility have both been in operation for over 65 years. There may be significant latent liabilities or future claims arising from the operation of facilities of this age, and we may be required to incur material future remediation or other costs in connection with future actions or developments at these or other facilities.
We expect to be continually subjected to increasingly stringent environmental and health and safety laws and regulations, and that continued compliance will require increased capital expenditures and increased operating costs or may impose restrictions on our present or future operations. It is difficult to predict the future interpretation and development of these laws and regulations or their impact on our future earnings and operations. Any increase in these costs, or any material restrictions on our ability to operate or the manner in which we operate, could materially adversely affect our liquidity, financial condition and results of operations. However, estimated costs for future environmental compliance and remediation may be materially lower than actual costs, or we may not be able to quantify potential costs in advance. Actual costs related to any environmental compliance in excess of estimated costs could have a material adverse effect on our financial condition in one or more future periods.
Page 16 of 64
Heightened interest in environmental regulation, such as climate change issues, has the potential to materially impact our costs and present and future operations. We, and other chemicalschemical companies, are currently required to file certain governmental reports relating to greenhouse gas ("GHG") emissions. The U.S. Government has considered, and may in the future implement, restrictions or other controls
Page 17 of 53
on GHG emissions, any of which could require us to incur significant capital expenditures or further restrict our present or future operations.
In addition to GHG regulations, the United States Environmental Protection Agency (the "EPA") has recently taken certain actions to limit or control certain pollutants created by companies such as ours. For example:
The potential impact of these and/or unrelated future, legislative or regulatory actions on our current or future operations cannot be predicted at this time but could be significant. Such impacts could include the potential for significant compliance costs, including capital expenditures, could result in operating restrictions or could require us to incur significant legal or other costs related to compliance or other activities. Any increase in the costs related to these initiatives, or restrictions on our operations, could materially adversely affect our liquidity, financial condition or results of operations.
Environmental Remediation: Reasonably Possible Matters. Our assessment of the potential impact of environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, we may be subject to reasonably possible loss contingencies related to environmental
Page 17 of 64
matters in the range of $60$52 million to $100$89 million. Initial remedial actions are occurring with respect to these matters at two plant sites: the Lake Charles South Facility and the Natrium Facility.
We monitor our estimate for reasonably possible environmental losses on a quarterly basis to determine if any of the reasonably possible loss items have become probable and estimable during the current quarter. It is our policy to accrue expenses for environmental contingencies when management believes the amount of losses are probable and estimable. In addition, when environmental items that were previously reasonably possible become probable and estimable and, therefore, recorded in our condensed consolidated balance sheets and statements of operations, we adjust our environmental reasonably possible exposure range accordingly.
Involuntary ConversionPage 18 of Property, Plant and Equipment.53
On December 20, 2013, a fire occurred in what is commonly known as the Company's PHH vinyl chloride monomer ("VCM") manufacturing plant in Lake Charles, Louisiana. The fire impacted several process components of the PHH VCM manufacturing plant. Operations at the plant returned to full service at the end of June 2014. The Company maintains property and business interruption insurance policies that provided coverage for the losses arising from this incident, less applicable deductibles. We believe we will receive net insurance proceeds greater than the carrying value of the assets that were impacted by the fire, related cleanup and other costs. In the three and nine months ended September 30, 2014, we received and recorded a portion of our insurance claim for the physical property damage to the assets impacted by the fire. We expect to realize and record net gains from these proceeds in future periods.
Defined Benefit Pension and OPEB Welfare Plans
The Company sponsors and/or contributes to pension plans ("Pension Plans") and other postretirement medical and insurance benefit plans ("OPEB") and pension plans covering many of our United States employees, in whole or in part, based on meeting certain eligibility criteria. In addition, the Company and its subsidiaries have various pension plans and other forms of postretirement arrangements outside the United States, namely in Canada and Taiwan. As part of the Merger, we assumed certain liabilities related to pensions ("Assumed Pension Plans") and other postretirement benefit plans ("Assumed Postretirement Plans"). Refer to Note 2 to the unaudited condensed consolidated financial statements for additional information related to the Merger. We had no other OPEB obligations prior to the Merger.
Certain employees in the United States who were hired before January 1, 2009 are covered by a defined benefit pension plan. That plan was frozen to future benefit accruals in 2009.
The Assumed Pension Plans provide benefits to certain employees and retirees of the Merged Business and are closed to new hires. Recently approvedEffective January 31, 2014, amendments to the Assumed Pension Plans for United States salariednon-bargained employees froze all future benefit accruals for non-unionnon-bargained employees effective January 31, 2014.who were not already frozen. The financial impact of these amendments to the Assumed Pension Plans was recognized in the fourth quarter of 2013.
The Assumed Postretirement PlansOPEB plans are unfunded and provide medical and life insurance benefits for certain employees of the Merged Business and their dependents. In connection with the Merger, we also acquired an Employee Group Waiver Plan ("EGWP") for certain Medicare-eligible retirees of the Merged Business and their dependents. The EGWP includes a fully-insured Medicare Part D prescription drug plan, however the EGWP was eliminated effective January 1, 2014, as part of the changes described below. The Assumed Postretirement PlansOPEB plans require retiree contributions based on retiree-selected coverage levels for certain retirees and their dependents and provide for the sharing of future benefit cost increases between the Company and participants.
Page 18 of 64
Recently approved modificationsModifications to the Assumed Postretirement PlansOPEB plans were made with respect to certain participants, to deliver retiree medical benefits through health reimbursement account contributions. For the impacted participants, these retiree medical changes became effective on January 1, 2014 for Medicare eligible retirees and will become effective January 1, 2015 for non-Medicare eligible future retirees. In addition, life insurance benefits for our assumed United States non-bargained future retirees were eliminated effective January 1, 2014. These OPEB benefit changes were approved and communicated to participants in October 2013 and the quantitative financial impact to the Assumed Postretirement PlansOPEB plans for the United States has beenwas reflected beginning in the fourth quarter of 2013.
Components of net periodic benefit income (expense) for the three months ended September 30,March 31, 2015 and 2014 and 2013 includes the following:
| Pensions Three Months Ended September 30, | OPEB Benefits Three Months Ended September 30, | Pensions Three Months Ended March 31, | OPEB Benefits Three Months Ended March 31, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
Components of net periodic benefit income (expense): | ||||||||||||||||||||||||||
Components of net periodic benefit income | | | | | ||||||||||||||||||||||
Interest cost | $ | (7.9 | ) | $ | (7.5 | ) | $ | (1.1 | ) | $ | (2.0 | ) | $ | (7.7 | ) | $ | (7.9 | ) | $ | (1.1 | ) | $ | (1.1 | ) | ||
Service cost | (0.9 | ) | (1.7 | ) | (0.2 | ) | (0.6 | ) | | (1.1 | ) | | (0.9 | ) | | (0.2 | ) | | (0.2 | ) | ||||||
Expected return on assets | | 11.8 | | 9.8 | | - | | - | 11.4 | 11.8 | - | - | ||||||||||||||
Amortization of: | | | | | ||||||||||||||||||||||
Prior service credit | | - | | - | | 2.2 | | - | - | - | 2.3 | 2.3 | ||||||||||||||
Actuarial gain (loss) | 0.1 | (0.5 | ) | - | - | | (0.7 | ) | | 0.1 | | - | | - | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||
Total net periodic benefit income (expense) | $ | 3.1 | $ | 0.1 | $ | 0.9 | $ | (2.6 | ) | |||||||||||||||||
Total net periodic benefit income | $ | 1.9 | $ | 3.1 | $ | 1.0 | $ | 1.0 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | |
Components of net periodic benefit income (expense) for the nine months ended September 30, 2014 and 2013 includes the following:
| Pensions Nine Months Ended September 30, | OPEB Benefits Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | |||||||||
Components of net periodic benefit income (expense): | |||||||||||||
Interest cost | $ | (23.7 | ) | $ | (20.5 | ) | $ | (3.3 | ) | $ | (5.3 | ) | |
Service cost | (2.7 | ) | (4.5 | ) | (0.6 | ) | (1.7 | ) | |||||
Expected return on assets | | 35.4 | | 27.0 | | - | | - | |||||
Amortization of: | |||||||||||||
Prior service credit | | - | | - | | 6.8 | | - | |||||
Actuarial gain (loss) | 0.3 | (1.6 | ) | - | - | ||||||||
| | | | | | | | | | | | | |
Total net periodic benefit income (expense) | $ | 9.3 | $ | 0.4 | $ | 2.9 | $ | (7.0 | ) | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Page 19 of 64
Assumptions
The following weighted average assumptions were used to determine the net periodic benefit income (expense) for the defined benefit pension and other postretirement welfare plans.
| Pensions | OPEB | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | ||||||
Discount rate | 4.83% | 4.09% | | 4.65% | | 4.35% | ||||
Expected return on assets | 7.42% | 6.81% | Not Applicable | Not Applicable | ||||||
Rate of compensation increase | 3.00% | 3.15% | | 3.00% | | 3.11% |
The weighted-average healthcare cost trend rate (inflation) used for 2014 is 7.49 percent declining to 4.50 percent in the year 2024. In selecting the rates for our current and long-term health care cost assumptions, we take into consideration a number of factors including our actual health care cost increases, the design of our benefit programs, the demographics of our active and retiree populations and external expectations of future medical cost inflation rates.
Contributions
There were no significant contributions to the pension plan trusts during the three and nine months ended September 30, 2014March 31, 2015 and 2013.2014. We estimate that we will make payments of approximately $1.9 million for
Page 19 of 53
benefit payments and contributions related to our pension plansPension Plans and $7.8$8.9 million for benefit payments related to OPEB plans for the year ending December 31, 2014.2015.
Defined Contribution Plans
Most of our employees are covered by defined contribution plans under which we make contributions to individual employee accounts. Our expense related to our defined contribution plans was approximately $3.4$3.9 million and $3.5$4.3 million for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively and $10.8 million for both the nine month periods ended September 30, 2014 and 2013.respectively.
12. 11. SHARE-BASED COMPENSATION
Share-based Compensation Expense
We granthave granted various types of share-based payment awards to participants, including restricted stock unit awards and stock option grants. The key terms of our restricted stock unit awards and our stock option grants, including all financial disclosures, are set forth in our 2014 Annual Report for the 2013 Annual Report.year ended December 31, 2014.
Information regarding our share-based compensation expense for the three and nine month periods ended September 30,March 31, 2015 and 2014 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||
Share-based compensation expense | $ | 4.7 | $ | 3.8 | $ | 11.8 | $ | 8.3 | $ | 3.9 | $ | 2.8 | ||||||||
Income tax provision related to share-based compensation expense | (1.6 | ) | (1.3 | ) | (4.1 | ) | (2.8 | ) | (1.3 | ) | (1.0 | ) | ||||||||
| | | | | | | | | | | | | | | | | ||||
After tax share-based compensation expense | $ | 3.1 | $ | 2.5 | $ | 7.7 | $ | 5.5 | $ | 2.6 | $ | 1.8 | ||||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | | | |
Page 20 of 64Diluted Earnings Per Share
In computing diluted earnings per share for both the three and nine months ended September 30, 2014, common stock equivalents of 0.3 million shares were not included due to their anti-dilutive effect. For both the three and nine months ended September 30, 2013, common stock equivalents of 0.5 million shares and 0.3 million shares, respectively, were not included due to their anti-dilutive effect.
Certain of our restricted stock units participate in dividend distributions, however, the distributions for these restricted stock units do not have a material impact on our earnings per share calculation.
13. 12. ACCUMULATED OTHER COMPREHENSIVE INCOMELOSS AND OTHER COMPREHENSIVE INCOME (LOSS)LOSS
Accumulated Other Comprehensive IncomeLoss
Accumulated other comprehensive incomeloss includes: i)(i) adjustments to pension and OPEB plan liabilities; ii)(ii) foreign currency translation of assets and liabilities of foreign subsidiaries and the effects of exchange rate changes on intercompany balances of a long-term nature; iii)(iii) equity investee's other comprehensive income items; and iv)(iv) unrealized gains and losses on derivative financial instruments
Page 20 of 53
designated as cash flow hedges. Amounts recorded in accumulated other comprehensive income,loss, net of tax, as of September 30, 2014March 31, 2015 and December 31, 2013,2014, and changes within the periodthose periods are as follows:
(In millions) | Accrued Pension and OPEB Plan Liabilities | Foreign Currency Items | Derivative Cash Flow Hedges | Accumulated Other Comprehensive Income | Accrued Pension and OPEB Plan Liabilities | Foreign Currency Items | Derivative Cash Flow Hedges | Accumulated Other Comprehensive Loss | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2013 | $ | 60.5 | $ | 6.7 | $ | (0.9 | ) | $ | 66.3 | |||||||||||||||||
Balance at January 1, 2015 | $ | (45.0 | ) | $ | (20.4 | ) | $ | (8.3 | ) | $ | (73.7 | ) | ||||||||||||||
| ||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | | (0.1 | ) | | (14.6 | ) | | 0.5 | | (14.2 | ) | | 0.3 | | (32.7 | ) | | 1.0 | | (31.4 | ) | |||||
Amounts reclassified from accumulated other comprehensive income (loss) | (4.4 | ) | - | - | (4.4 | ) | ||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | (1.0 | ) | - | 4.6 | 3.6 | |||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net current period other comprehensive income (loss) | | (0.7 | ) | | (32.7 | ) | | 5.6 | | (27.8 | ) | |||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||
Other comprehensive income (loss) attributable to Axiall, net of tax | | (4.5 | ) | | (14.6 | ) | | 0.5 | | (18.6 | ) | |||||||||||||||
| ||||||||||||||||||||||||||
| | | | | | | | | ||||||||||||||||||
Balance at September 30, 2014 | $ | 56.0 | $ | (7.9 | ) | $ | (0.4 | ) | $ | 47.7 | ||||||||||||||||
Balance at March 31, 2015 | $ | (45.7 | ) | $ | (53.1 | ) | $ | (2.7 | ) | $ | (101.5 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | |
Page 21 of 64
Other Comprehensive Income (Loss)Loss
Other comprehensive income (loss)loss is derived from adjustments to reflect the unrealized gain (loss) on derivatives, changes in pension and OPEB liabilities adjustment,plan liability adjustments, changes in equity investee's other comprehensive loss and changes in foreign currency translation adjustments. The components of other comprehensive income (loss)loss for the three and nine month periods ended September 30,March 31, 2015 and 2014 and 2013 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||
Change in foreign currency translation adjustment: | | | | | | | ||||||||||||||
Currency translation adjustments | $ | (27.4 | ) | $ | 10.2 | $ | (29.3 | ) | $ | (16.4 | ) | |||||||||
Tax expense (benefit) | | (10.8 | ) | | 3.2 | | (11.4 | ) | | (5.7 | ) | |||||||||
Foreign currency translation adjustments | $ | (35.0 | ) | $ | (24.5 | ) | ||||||||||||||
Tax benefit | | (3.6 | ) | | (9.3 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Foreign currency translation adjustment, net of tax | $ | (16.6 | ) | $ | 7.0 | $ | (17.9 | ) | $ | (10.7 | ) | |||||||||
Foreign currency translation adjustments, net of tax | $ | (31.4 | ) | $ | (15.2 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | ||||||||||||||||
Change in pension and OPEB liability adjustments: | ||||||||||||||||||||
Pension and OPEB liability adjustments | $ | (2.3 | ) | $ | 0.5 | $ | (7.1 | ) | $ | 1.6 | ||||||||||
Tax expense (benefit) | (0.9 | ) | 0.2 | (2.7 | ) | 0.5 | ||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Pension and OPEB liability adjustments, net of tax | $ | (1.4 | ) | $ | 0.3 | $ | (4.4 | ) | $ | 1.1 | ||||||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | ||||||||||||
| | | ||||||||||||||||||
Change in derivative cash flow hedges: | | | | | ||||||||||||||||
Commodity hedge contracts | $ | 1.8 | $ | - | $ | 1.7 | $ | - | $ | 5.1 | $ | - | ||||||||
Equity interest in investee's other comprehensive loss | | (0.4 | ) | | (0.3 | ) | | (0.9 | ) | | (1.1 | ) | 3.9 | (0.3 | ) | |||||
| | | | | | | | | | | | | | | | | ||||
Pre-tax amount | 1.4 | (0.3 | ) | 0.8 | (1.1 | ) | | 9.0 | | (0.3 | ) | |||||||||
Tax expense (benefit) | | 0.5 | | (0.4 | ) | | 0.3 | | (0.4 | ) | 3.4 | (0.1 | ) | |||||||
| | | | | | | | | | | | | | | | | ||||
Unrealized gain (loss) on derivative cash flow hedges, net of tax | $ | 0.9 | $ | 0.1 | $ | 0.5 | $ | (0.7 | ) | |||||||||||
Derivative cash flow hedges, net of tax | $ | 5.6 | $ | (0.2 | ) | |||||||||||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
| | | | | ||||||||||||||||
Other comprehensive income (loss), before income taxes | $ | (28.3 | ) | $ | 10.4 | $ | (35.6 | ) | $ | (15.9 | ) | |||||||||
Total tax expense (benefit) for the period | | (11.2 | ) | | 3.0 | | (13.8 | ) | | (5.6 | ) | |||||||||
Change in pension and OPEB liability adjustments: | | | ||||||||||||||||||
Amortization of actuarial gain (loss) and prior service credit | $ | (1.6 | ) | $ | (2.4 | ) | ||||||||||||||
Other pension and OPEB plan adjustments | | 0.4 | | - | ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Other comprehensive income (loss), net of tax | $ | (17.1 | ) | $ | 7.4 | $ | (21.8 | ) | $ | (10.3 | ) | |||||||||
Pre-tax amount | (1.2 | ) | (2.4 | ) | ||||||||||||||||
Tax benefit | | (0.5 | ) | | (0.9 | ) | ||||||||||||||
| | | | | | | | |||||||||||||
Pension and OPEB liability adjustments, net of tax | $ | (0.7 | ) | $ | (1.5 | ) | ||||||||||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
| | |||||||||||||||||||
Other comprehensive loss, before income taxes | $ | (27.2 | ) | $ | (27.2 | ) | ||||||||||||||
Tax benefit for the period | | (0.7 | ) | | (10.3 | ) | ||||||||||||||
| | | | | | | | |||||||||||||
Other comprehensive loss, net of tax | $ | (26.5 | ) | $ | (16.9 | ) | ||||||||||||||
| | | | | | | | |||||||||||||
| | | | | | |||||||||||||||
| | | | | | | |
Page 2221 of 6453
The components of other comprehensive income (loss)loss that have been reclassified during the three and nine month periods ended September 30,March 31, 2015 and 2014 and 2013 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | Affected Line Items on the Unaudited Condensed Consolidated Statements of Operations | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||
Details about other comprehensive income (loss) components: | | | | |
| |||||||||
Change in pension and OPEB liability adjustments: |
| |||||||||||||
Amortization of actuarial loss (gain) and prior service credit (a) | $ | (2.3 | ) | $ | 0.5 | $ | (7.1 | ) | $ | 1.6 | Cost of sales and selling, general and administrative expenses | |||
Tax expense (benefit) | (0.9 | ) | 0.2 | (2.7 | ) | 0.5 | Provision for income taxes | |||||||
| | | | | | | | | | | | | | |
Reclassifications for the period, net of tax | $ | (1.4 | ) | $ | 0.3 | $ | (4.4 | ) | $ | 1.1 |
| |||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
(a) These other comprehensive income (loss) components are included in the computation of net periodic benefit income (expense).
See Note 11 to the unaudited condensed consolidated financial statements for additional details.
| Three Months Ended March 31, | | ||||||
---|---|---|---|---|---|---|---|---|
| Affected Line Items on the Unaudited Condensed Consolidated Statements of Operations | |||||||
(In millions) | 2015 | 2014 | ||||||
Details about other comprehensive loss components: | | |
| |||||
Change in derivative cash flow hedges: |
| |||||||
Loss on derivative cash flow hedges | $ | 7.4 | $ | - | Cost of sales | |||
Tax expense | 2.8 | - | Provision for (benefit from) income taxes | |||||
| | | | | | | | |
Reclassifications for the period, net of tax | $ | 4.6 | $ | - | | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| ||||||||
Change in pension and OPEB liability adjustments: | | |
| |||||
Amortization of actuarial gain (loss) and prior service credit | $ | (1.6 | ) | $ | (2.4 | ) | Cost of sales and selling, general and administrative expenses | |
Tax benefit | | (0.6 | ) | | (0.9 | ) | Provision for (benefit from) income taxes | |
| | | | | | | | |
Reclassifications for the period, net of tax | $ | (1.0 | ) | $ | (1.5 | ) | ||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Our effective income tax ratesrate for the three and nine month periodsmonths ended September 30, 2014 were provisions of 17.1March 31, 2015 was negative 33.4 percent, and 16.6 percent, respectively, compared to provisionsour effective income tax rate of 32.242.1 percent and 31.8 percent, respectively, for the three and nine month periodsmonths ended September 30, 2013.March 31, 2014. The effective income tax rates were determined using the estimated annual effective tax rate after considering discrete income tax items for each respective period. The negative effective income tax ratesrate for the three and nine month periodsmonths ended September 30,March 31, 2015 was primarily due to losses generated within a tax jurisdiction for which an income tax benefit was not recognized, as well as the tax expense associated with the relative mix of earnings in the various tax jurisdictions in which we operate for the three months ended March 31, 2015. The benefit resulting from the application of the effective income tax rate for the three months ended March 31, 2014 were lowerwas higher than the United States statutory federal income tax rate, primarily due to various permanent differences including deductions for manufacturing as well as the $3.6 million favorable impact of changes in uncertain tax positions of $4.5 million and $8.0 million for the three and nine month periods ended September 30, 2014, respectively, and the favorable impact of the expiration of a statutory time period that would have impacted the tax deductibility of certain accruals of $2.1 million for the three month period ended September 30, 2014. The effective income tax rates for the three and nine month periods ended September 30, 2013 were lower than the United States statutory federal income tax rate primarily due to various permanent differences, including deductions for manufacturing activities and the favorable impact of changes in uncertain tax positions of $2.8 million and $3.7 million for the three and nine months ended September 30, 2013, respectively.positions.
We own a 50 percent interest in several manufacturing joint ventures in both our building products and chlorovinyls segments. In addition, and in connection with the Merger, we acquiredhave a 50 percent ownership interest in RS Cogen, LLC ("RS Cogen"), which produces electricity and steam that are primarily sold to Axiall and its joint venture partner under take-or-pay contracts with terms that extend to 2022 and is reported in our chlorovinyls segment. The joint venture was formed with a wholly-owned subsidiary of Entergy Corporation ("Entergy") in 2000 for the construction and operation of a 425 megawatt combined cycle, natural gas-fired cogeneration facility in Lake Charles, Louisiana, the majority of which was financed by loans having terms that extend to 2022 from a syndicate of banks. Axiall's future commitment to purchase electricity and steam from the joint venture per the take-or-pay contracts approximates $23.5 million per year subject to contractually defined inflation adjustments. As of September 30, 2014,March 31, 2015, our future commitment under the take-or-pay arrangement approximates
Page 23 of 64
$192.8 $180.0 million in the aggregate, with purchases during the three and nine month periodsmonths ended September 30,March 31, 2015 and 2014 totaling $6.3$6.5 million and $18.7 million, respectively compared to purchases of $6.2 million, and $16.6 million during the three and nine month periods ended September 2013, respectively.
RS Cogen is a variable interest entity under GAAP. The daily operations of the cogeneration facility are the activities of RS Cogen that most significantly impact its economic performance. These activities are directed by a management team with oversight by a management committee that has equal
Page 22 of 53
representation from Axiall and Entergy. By the terms of the joint venture agreement, all decisions of the management committee require approval by a majority of its members. Accordingly, the power to direct the activities of RS Cogen is equally shared between RS Cogen's two owners and, thus, Axiall does not consider itself to be the joint venture's primary beneficiary. Accordingly, Axiall accounts for its investment in RS Cogen under the equity method of accounting. We have recorded our investment in RS Cogen in other assets in the accompanying unaudited condensed consolidated balance sheets and our share of investee earnings in cost of goods sold in the unaudited condensed consolidated statements of operations.
The following table summarizes our maximum exposure to loss associated with RS Cogen as of September 30,March 31, 2015 and December 31, 2014.
| ||||
| ||||
| ||||
(In millions) | March 31, 2015 | December 31, 2014 | |||||
---|---|---|---|---|---|---|---|
Investment in and net advances to RS Cogen | $ | 10.1 | $ | 4.6 | |||
Supply contracts | 38.1 | 38.5 | |||||
| | | | | | | |
Maximum exposure to loss | $ | 48.2 | $ | 43.1 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
We produce chlorine, caustic soda, hydrogen, hydrochloric acid ("HCL") and sodium hypochlorite (bleach) at our Kaohsiung, Taiwan facility. The Kaohsiung, Taiwan facility is operated by Taiwan Chlorine Industries, Ltd. ("TCI"), a joint venture in which we own a 60 percent interest and consolidate in our financial statements. A reconciliation of our minority partner's ownership, reported as noncontrolling interest follows:
| ||||
| ||||
| ||||
| ||||
| ||||
(a) Other comprehensive loss attributable to noncontrolling interest primarily relates to change in foreign currency translation adjustment.
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
(In millions) | 2015 | 2014 | |||||
Noncontrolling interest—beginning of period | $ | 107.9 | $ | 119.4 | |||
Net income attributable to noncontrolling interest | 1.8 | 1.0 | |||||
Other comprehensive income (loss) attributable to noncontrolling interest | | 1.3 | | (3.6 | ) | ||
Other | (0.1 | ) | - | ||||
| | | | | | | |
Noncontrolling interest—end of period | $ | 110.9 | $ | 116.8 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Page 24 of 64
16. 15. SEGMENT INFORMATION
We have three reportable segments through which we manage our operating activities: (i) chlorovinyls; (ii) building products; and (iii) aromatics. These three segments reflect the organization used by our management for internal reporting purposes. Our chlorovinyls segment produces a highly integrated chain of products, including chlor-alkali and derivative products (chlorine, caustic soda, VCM, vinyl resins, ethylene dichloride (or 1, 2 dichloroethane) ("EDC"), chlorinated solvents, calcium hypochlorite, HCL and phosgene derivatives) and compound products (vinyl compounds and compound additives and plasticizers)). The financial results of the Merged Business are included with the chlorovinyls segment from January 28, 2013, the closing date of the Merger. Our building products segment consists of two primary product groups: (i) window and door profiles and trim, mouldings and deck products; and (ii) outdoor building products, which includes siding, exterior accessories, pipe and pipe fittings. Our aromatics segment manufactures cumene products and phenol and acetone products (co-products made from cumene).
Page 23 of 53
Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services and provision for (benefit from) income taxes. Transactions between operating segments are valued at market based prices. The revenues generated by these transfers and reconciliations from consolidated operating income (loss) to consolidated incomenet loss before income taxes for the three and nine month periods ended September 30,March 31, 2015 and 2014 and 2013 are provided in the tables below.
(In millions) | Chlorovinyls | Building Products | Aromatics | Eliminations, Unallocated and Other | Total | Chlorovinyls | Building Products | Aromatics | Eliminations, Unallocated and Other | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended September 30, 2014 | | | | | | |||||||||||||||||||||||||||
Three Months Ended March 31, 2015 | | | | | | |||||||||||||||||||||||||||
Net sales | $ | 769.4 | $ | 277.8 | $ | 222.2 | $ | - | $ | 1,269.4 | $ | 648.4 | $ | 166.4 | $ | 132.8 | $ | - | $ | 947.6 | ||||||||||||
Intersegment revenues | | 75.4 | | - | | - | | (75.4 | ) | | - | | 56.1 | | - | | - | | (56.1 | ) | | - | ||||||||||
| | | | | | | | | | | ||||||||||||||||||||||
Total net sales | $ | 844.8 | 277.8 | 222.2 | (75.4 | ) | $ | 1,269.4 | ||||||||||||||||||||||||
| | | | | ||||||||||||||||||||||||||||
Operating income | $ | 69.6 | 24.0 | 2.0 | (21.4 | ) | $ | 74.2 | ||||||||||||||||||||||||
Interest expense, net | | | | | | | | | (19.5 | ) | ||||||||||||||||||||||
Foreign exchange loss | (0.3 | ) | ||||||||||||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||||
Income before income taxes | | | | | | | | $ | 54.4 | |||||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||||
Three Months Ended September 30, 2013 | | | | | | |||||||||||||||||||||||||||
Net sales | $ | 750.0 | $ | 253.4 | $ | 194.1 | $ | - | $ | 1,197.5 | ||||||||||||||||||||||
Intersegment revenues | | 61.8 | | - | | - | | (61.8 | ) | | - | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
Total net sales | $ | 811.8 | 253.4 | 194.1 | (61.8 | ) | $ | 1,197.5 | $ | 704.5 | 166.4 | 132.8 | (56.1 | ) | $ | 947.6 | ||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||
Operating income (loss) | $ | 101.6 | (6.7 | ) | 5.2 | (22.0 | ) | $ | 78.1 | $ | 43.7 | (10.3 | ) | 0.2 | (18.0 | ) | $ | 15.6 | ||||||||||||||
Interest expense, net | | | | | | | | | | (19.7 | ) | | | | | | | | | | (18.8 | ) | ||||||||||
Debt refinancing cost | (3.2 | ) | ||||||||||||||||||||||||||||||
Foreign exchange loss | (0.4 | ) | | | | | | | | | | (0.2 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Income before income taxes | | | | | | | | | $ | 58.0 | ||||||||||||||||||||||
Consolidated loss before income taxes | $ | (6.6 | ) | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | ||||||||||||||||||||||||||||
Three Months Ended March 31, 2014 | ||||||||||||||||||||||||||||||||
Net sales | $ | 682.2 | $ | 154.7 | $ | 156.8 | $ | - | $ | 993.7 | ||||||||||||||||||||||
Intersegment revenues | 51.8 | - | - | (51.8 | ) | - | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total net sales | $ | 734.0 | | 154.7 | | 156.8 | | (51.8 | ) | $ | 993.7 | |||||||||||||||||||||
Operating income (loss) | $ | 23.3 | | (10.8 | ) | | 4.5 | | (17.4 | ) | $ | (0.4 | ) | |||||||||||||||||||
Interest expense, net | (18.3 | ) | ||||||||||||||||||||||||||||||
Foreign exchange gain | | | | | | | | | | 0.4 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||
Consolidated loss before income taxes | $ | (18.3 | ) | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | |
Page 25 of 64
(In millions) | Chlorovinyls | Building Products | Aromatics | Eliminations, Unallocated and Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, 2014 | | | | | | |||||||||||
Net sales | $ | 2,229.5 | $ | 676.3 | $ | 594.2 | $ | - | $ | 3,500.0 | ||||||
Intersegment revenues | | 195.1 | | - | | - | | (195.1 | ) | | - | |||||
| | | | | | | | | | | | | | | | |
Total net sales | $ | 2,424.6 | 676.3 | 594.2 | (195.1 | ) | $ | 3,500.0 | ||||||||
| | | | | ||||||||||||
Operating income (loss) | $ | 159.5 | 27.4 | (0.9 | ) | (53.8 | ) | $ | 132.2 | |||||||
Interest expense, net | | | | | | | | | (56.9 | ) | ||||||
Foreign exchange loss | (0.2 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | |
Income before income taxes | | | | | | | | $ | 75.1 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2013 | | | | | | |||||||||||
Net sales | $ | 2,166.3 | $ | 660.0 | $ | 705.2 | $ | - | $ | 3,531.5 | ||||||
Intersegment revenues | | 184.8 | | - | | - | | (184.8 | ) | | - | |||||
| | | | | | | | | | | | | | | | |
Total net sales | $ | 2,351.1 | $ | 660.0 | $ | 705.2 | $ | (184.8 | ) | $ | 3,531.5 | |||||
| | | | | ||||||||||||
Operating income (loss) | $ | 311.0 | (0.9 | ) | 22.5 | (58.7 | ) | $ | 273.9 | |||||||
Interest expense, net | | | | | | | | | | (57.4 | ) | |||||
Loss on redemption and other debt costs | (78.5 | ) | ||||||||||||||
Gain on acquisition of controlling interest | | | | | | | | | | 23.5 | ||||||
| | | | | | | | | | | | | | | | |
Income before income taxes | $ | 161.5 | ||||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
17. SUPPLEMENTAL 16. GUARANTOR INFORMATION
Axiall Corporation is primarily a holding company for its 100-percent100 percent and majority owned subsidiaries. Payment obligations under the indentures for the 4.875 Notes issued by Axiall Corporation, the 4.625 Notes issued by Spinco and the Term Loan Credit Agreement under which Spinco is the borrower, as described in Note 87 of the notes to the unaudited condensed consolidated financial statements, are guaranteed by each of Axiall Corporation's 100-percent100 percent owned domestic subsidiaries (including Spinco in the case of the 4.875 Notes), other than certain excluded subsidiaries. Axiall Corporation is also a guarantor under Spinco'sthe 4.625 Notes issued by Spinco, and the Term Loan.Loan Credit Agreement.
As of September 30, 2014,March 31, 2015, payment obligations under the indenture for the 4.875 Notes issued by Axiall Corporation are guaranteed by Axiall Noteco, Inc., Axiall Holdco, Inc., Axiall, LLC, Georgia Gulf Lake Charles, LLC, Royal Building Products (USA) Inc., Royal Mouldings Limited, Royal Window and Door Profiles Plant 13 Inc., Royal Window and Door Profiles Plant 14 Inc., Exterior Portfolio, LLC, Plastic Trends, Inc., Royal Group Sales (USA) Limited, Rome Delaware Corporation, Royal Plastics Group (U.S.A.) Limited, PHH Monomers, LLC, Eagle Holdco 3 LLC, Eagle US 2 LLC, Axiall Ohio, Inc., Eagle Natrium LLC, and Eagle Pipeline, Inc. (collectively, the "Guarantor Subsidiaries") and Spinco. As of DecemberMarch 31, 2013,2015, payment obligations under the indenture for the 4.625 percent Notes issued by Spinco are guaranteed by Axiall Corporation and each of the Guarantor Subsidiaries.
Page 24 of 53
Each of Spinco and the Guarantor Subsidiaries is a direct or indirect 100-percent100 percent owned subsidiary of Axiall Corporation. The guarantees made by each of Axiall Corporation, Spinco and the other Guarantor Subsidiaries are full, unconditional and joint and several. Except with respect to certain subordination requirements relating to a non-guarantor subsidiaryas disclosed in Note 7 of the Company loaning fundsNotes to the Company or a Guarantor Subsidiary,unaudited condensed consolidated financial statements, there are no restrictions on the ability of Axiall Corporation, Spinco or any other Guarantor Subsidiary to obtain funds from any of Axiall'sits direct or indirect 100-percent100 percent owned
Page 26 of 64
subsidiaries through dividends, loans or advances as a result of the issuance of the 4.625 Notes or the 4.875 Notes. Separate financial statements and other disclosures with respect to Spinco or the Guarantor Subsidiaries have not been provided as management believes the following information is sufficient. Investments in subsidiaries in the supplemental guarantor financial statements reflect investments in 100-percent100 percent owned entities within Axiall under the equity accounting method. This presentation of Spinco, the Guarantor Subsidiaries and the non-guarantor subsidiaries of Axiall Corporation (the "Non-Guarantor"Non- Guarantor Subsidiaries") is not included to present the Company's financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary issuer and subsidiary guarantor reporting.
The following tables present the (i) guarantor condensed consolidating balance sheets as of September 30, 2014March 31, 2015 and December 31, 2013,2014, (ii) guarantor condensed consolidating statements of operations and comprehensive income (loss) for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, and (iii) guarantor condensed consolidating statements of cash flows for the ninethree months ended September 30,March 31, 2015 and 2014, and 2013, of each of Axiall Corporation (as parent issuer), Spinco (as subsidiary issuer), the Guarantor Subsidiaries (excluding(which excludes Spinco), the Guarantor Subsidiaries, (includingincluding Spinco and which(which also includes entries necessary to eliminate Spinco's investment in such Guarantor Subsidiaries and other intercompany account balances) and the Non-Guarantor Subsidiaries. The Company acquired PHH Monomers, LLC, Eagle Holdco 3 LLC, Eagle US 2 LLC, Axiall Ohio, Inc., Eagle Natrium LLC, and Eagle Pipeline, Inc. (the "Eagle Guarantors") and Spinco in connection with the consummation of the Transactions on January 28, 2013. The Eagle Guarantors are included in the Guarantor Subsidiary column of the following supplemental condensed consolidating balance sheet as of September 30, 2014 and December 31, 2013, the supplemental condensed consolidating statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 and the supplemental condensed consolidating statement of cash flows for the nine months ended September 30, 2014 and 2013.
Page 2725 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Balance SheetSeptember 30, 2014March 31, 2015
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | - | $ | - | $ | 54.3 | $ | 54.3 | $ | 59.4 | $ | - | $ | 113.7 | $ | - | $ | - | $ | 76.3 | $ | 76.3 | $ | 58.4 | $ | - | $ | 134.7 | ||||||||||||||||
Receivables, net of allowance for doubtful accounts | | 151.2 | | - | | 550.6 | | 525.8 | | 120.9 | | (206.6 | ) | | 591.3 | | 367.0 | | - | | 745.6 | | 718.8 | | 77.2 | | (684.5 | ) | | 478.5 | ||||||||||||||
Inventories | - | - | 306.2 | 306.2 | 99.6 | - | 405.8 | - | - | 311.6 | 311.6 | 107.5 | - | 419.1 | ||||||||||||||||||||||||||||||
Prepaid expenses and other | | 2.2 | | - | | 22.6 | | 22.6 | | 5.3 | | (2.3 | ) | | 27.8 | | 0.5 | | - | | 48.4 | | 48.4 | | 11.2 | | - | | 60.1 | |||||||||||||||
Deferred income taxes | - | - | 26.9 | 26.9 | - | (2.7 | ) | 24.2 | 3.1 | - | 29.4 | 29.4 | - | - | 32.5 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total current assets | | 153.4 | | - | | 960.6 | | 935.8 | | 285.2 | | (211.6 | ) | | 1,162.8 | | 370.6 | | - | | 1,211.3 | | 1,184.5 | | 254.3 | | (684.5 | ) | | 1,124.9 | ||||||||||||||
Property, plant and equipment, net | 11.9 | - | 1,351.8 | 1,351.8 | 297.0 | - | 1,660.7 | 11.7 | - | 1,367.2 | 1,367.2 | 262.8 | - | 1,641.7 | ||||||||||||||||||||||||||||||
Long-term receivables—affiliates | | 1,307.5 | | - | | - | | - | | - | | (1,307.5 | ) | | - | | 900.6 | | - | | - | | - | | - | | (900.6 | ) | | - | ||||||||||||||
Goodwill | - | - | 1,497.8 | 1,497.8 | 257.0 | - | 1,754.8 | - | - | 1,493.7 | 1,493.7 | 237.6 | - | 1,731.3 | ||||||||||||||||||||||||||||||
Customer relationships, net | | - | | - | | 894.3 | | 894.3 | | 154.9 | | - | | 1,049.2 | | - | | - | | 864.2 | | 864.2 | | 142.2 | | - | | 1,006.4 | ||||||||||||||||
Other intangibles, net | - | - | 69.0 | 69.0 | 0.3 | - | 69.3 | |||||||||||||||||||||||||||||||||||||
Other intangible assets, net | - | - | 66.7 | 66.7 | 0.3 | - | 67.0 | |||||||||||||||||||||||||||||||||||||
Other assets, net | | 11.0 | | 12.2 | | 71.3 | | 83.5 | | 10.0 | | - | | 104.5 | | 16.7 | | 11.5 | | 39.0 | | 49.8 | | 4.9 | | - | | 71.4 | ||||||||||||||||
Investment in subsidiaries | 1,814.6 | 2,876.4 | 307.6 | 307.6 | - | (2,122.2 | ) | - | 1,974.2 | 2,839.7 | 568.5 | 568.5 | - | (2,542.7 | ) | - | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total assets | $ | 3,298.4 | $ | 2,888.6 | $ | 5,152.4 | $ | 5,139.8 | $ | 1,004.4 | $ | (3,641.3 | ) | $ | 5,801.3 | $ | 3,273.8 | $ | 2,851.2 | $ | 5,610.6 | $ | 5,594.6 | $ | 902.1 | $ | (4,127.8 | ) | $ | 5,642.7 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Liabilities and Equity: | ||||||||||||||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | - | $ | 2.8 | $ | - | $ | 2.8 | $ | - | $ | - | $ | 2.8 | $ | - | $ | - | $ | 2.5 | $ | 2.5 | $ | - | $ | - | $ | 2.5 | ||||||||||||||||
Accounts payable | 64.4 | 175.9 | 314.7 | 465.8 | 49.0 | (206.6 | ) | 372.6 | 317.6 | 393.7 | 268.7 | 635.6 | 47.6 | (684.5 | ) | 316.3 | ||||||||||||||||||||||||||||
Interest payable | | 8.6 | | 4.2 | | - | | 4.2 | | - | | - | | 12.8 | | 8.6 | | 4.2 | | - | | 4.1 | | - | | - | | 12.7 | ||||||||||||||||
Income taxes payable | - | - | 10.1 | 10.1 | 2.7 | (2.3 | ) | 10.5 | - | - | 2.2 | 2.2 | 3.2 | - | 5.4 | |||||||||||||||||||||||||||||
Accrued compensation | | - | | - | | 16.2 | | 16.2 | | 10.6 | | - | | 26.8 | | - | | - | | 15.7 | | 15.7 | | 6.7 | | - | | 22.4 | ||||||||||||||||
Other accrued current liabilities | 16.0 | - | 63.9 | 63.9 | 37.9 | (2.7 | ) | 115.1 | ||||||||||||||||||||||||||||||||||||
Other accrued liabilities | 15.1 | - | 71.3 | 71.3 | 30.3 | - | 116.7 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total current liabilities | | 89.0 | | 182.9 | | 404.9 | | 563.0 | | 100.2 | | (211.6 | ) | | 540.6 | | 341.3 | | 397.9 | | 360.4 | | 731.4 | | 87.8 | | (684.5 | ) | | 476.0 | ||||||||||||||
Long-term debt excluding current portion of long-term debt | 450.0 | 878.3 | - | 878.3 | - | - | 1,328.3 | |||||||||||||||||||||||||||||||||||||
Long-term debt, excluding the current portion | 450.0 | 688.0 | 244.0 | 932.0 | - | - | 1,382.0 | |||||||||||||||||||||||||||||||||||||
Long-term payables—affiliates | | - | | 900.0 | | - | | 900.0 | | 407.5 | | (1,307.5 | ) | | - | | - | | 900.0 | | - | | 900.0 | | 0.6 | | (900.6 | ) | | - | ||||||||||||||
Lease financing obligation | - | - | - | - | 97.5 | - | 97.5 | - | - | - | - | 86.4 | - | 86.4 | ||||||||||||||||||||||||||||||
Deferred income taxes | | 23.4 | | - | | 755.6 | | 755.6 | | 39.9 | | - | | 818.9 | | 16.2 | | - | | 705.2 | | 704.6 | | 36.3 | | - | | 757.1 | ||||||||||||||||
Pension and other post retirement benefits | 3.5 | - | 106.9 | 106.9 | 8.6 | - | 119.0 | 4.1 | - | 231.7 | 231.7 | 10.0 | - | 245.8 | ||||||||||||||||||||||||||||||
Other non-current liabilities | | 109.9 | | - | | 122.1 | | 122.1 | | 8.7 | | (77.3 | ) | | 163.4 | | 27.7 | | - | | 121.5 | | 121.5 | | 9.4 | | (8.6 | ) | | 150.0 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total liabilities | 675.8 | 1,961.2 | 1,389.5 | 3,325.9 | 662.4 | (1,596.4 | ) | 3,067.7 | 839.3 | 1,985.9 | 1,662.8 | 3,621.2 | 230.5 | (1,593.7 | ) | 3,097.3 | ||||||||||||||||||||||||||||
Equity: | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
Total Axiall stockholders' equity | 2,622.6 | 927.4 | 3,762.9 | 1,813.9 | 231.0 | (2,044.9 | ) | 2,622.6 | 2,434.5 | 865.3 | 3,947.8 | 1,973.4 | 560.7 | (2,534.1 | ) | 2,434.5 | ||||||||||||||||||||||||||||
Noncontrolling interest | | - | | - | | - | | - | | 111.0 | | - | | 111.0 | | - | | - | | - | | - | | 110.9 | | - | | 110.9 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total equity | 2,622.6 | 927.4 | 3,762.9 | 1,813.9 | 342.0 | (2,044.9 | ) | 2,733.6 | 2,434.5 | 865.3 | 3,947.8 | 1,973.4 | 671.6 | (2,534.1 | ) | 2,545.4 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total liabilities and equity | $ | 3,298.4 | $ | 2,888.6 | $ | 5,152.4 | $ | 5,139.8 | $ | 1,004.4 | $ | (3,641.3 | ) | $ | 5,801.3 | $ | 3,273.8 | $ | 2,851.2 | $ | 5,610.6 | $ | 5,594.6 | $ | 902.1 | $ | (4,127.8 | ) | $ | 5,642.7 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 2826 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Balance Sheet
December 31, 20132014
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | - | $ | - | $ | 76.9 | $ | 76.9 | $ | 89.6 | $ | - | $ | 166.5 | $ | - | $ | - | $ | 78.2 | $ | 78.2 | $ | 88.6 | $ | - | $ | 166.8 | ||||||||||||||||
Receivables, net of allowance for doubtful accounts | | 162.5 | | - | | 482.2 | | 478.7 | | 73.3 | | (165.7 | ) | | 548.8 | | 162.8 | | - | | 509.7 | | 493.9 | | 71.4 | | (261.1 | ) | | 467.0 | ||||||||||||||
Inventories | - | - | 310.5 | 310.5 | 93.1 | - | 403.6 | - | - | 257.0 | 257.0 | 96.7 | - | 353.7 | ||||||||||||||||||||||||||||||
Prepaid expenses and other | | 1.3 | | - | | 26.1 | | 26.1 | | 4.2 | | - | | 31.6 | | 0.1 | | - | | 83.0 | | 83.0 | | 6.6 | | - | | 89.7 | ||||||||||||||||
Deferred income taxes | - | - | 20.5 | 20.5 | 0.2 | (2.7 | ) | 18.0 | 3.1 | - | 24.9 | 24.9 | - | - | 28.0 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total current assets | | 163.8 | | - | | 916.2 | | 912.7 | | 260.4 | | (168.4 | ) | | 1,168.5 | | 166.0 | | - | | 952.8 | | 937.0 | | 263.3 | | (261.1 | ) | | 1,105.2 | ||||||||||||||
Property, plant and equipment, net | 9.8 | - | 1,325.6 | 1,325.6 | 323.3 | - | 1,658.7 | 12.0 | - | 1,367.7 | 1,367.7 | 286.0 | - | 1,665.7 | ||||||||||||||||||||||||||||||
Long-term receivables—affiliates | | 1,328.6 | | - | | - | | - | | - | | (1,328.6 | ) | | - | | 1,292.9 | | - | | - | | - | | - | | (1,292.9 | ) | | - | ||||||||||||||
Goodwill | - | - | 1,496.6 | 1,496.6 | 266.6 | - | 1,763.2 | - | - | 1,493.7 | 1,493.7 | 247.3 | - | 1,741.0 | ||||||||||||||||||||||||||||||
Customer relationships, net | | - | | - | | 935.2 | | 935.2 | | 166.6 | | - | | 1,101.8 | | - | | - | | 877.9 | | 877.9 | | 146.6 | | - | | 1,024.5 | ||||||||||||||||
Other intangible assets, net | - | - | 72.9 | 72.9 | - | - | 72.9 | - | - | 67.8 | 67.8 | 0.3 | - | 68.1 | ||||||||||||||||||||||||||||||
Other assets, net | | 12.2 | | 13.2 | | 71.7 | | 84.9 | | 15.0 | | - | | 112.1 | | 17.0 | | 12.4 | | 31.7 | | 44.0 | | 9.4 | | (0.6 | ) | | 69.8 | |||||||||||||||
Investment in subsidiaries | 1,747.7 | 2,950.8 | 312.9 | 312.9 | - | (2,060.6 | ) | - | 1,682.7 | 2,831.2 | 290.5 | 290.5 | - | (1,973.2 | ) | - | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total assets | $ | 3,262.1 | $ | 2,964.0 | $ | 5,131.1 | $ | 5,140.8 | $ | 1,031.9 | $ | (3,557.6 | ) | $ | 5,877.2 | $ | 3,170.6 | $ | 2,843.6 | $ | 5,082.1 | $ | 5,078.6 | $ | 952.9 | $ | (3,527.8 | ) | $ | 5,674.3 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Liabilities and Equity: | ||||||||||||||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | - | $ | 2.8 | $ | - | $ | 2.8 | $ | - | $ | - | $ | 2.8 | $ | - | $ | 2.8 | $ | - | $ | 2.8 | $ | - | $ | - | $ | 2.8 | ||||||||||||||||
Accounts payable | 16.8 | 119.6 | 319.6 | 435.7 | 26.9 | (165.7 | ) | 313.7 | 97.2 | 178.6 | 249.8 | 412.5 | 46.9 | (261.1 | ) | 295.5 | ||||||||||||||||||||||||||||
Interest payable | | 3.1 | | 12.3 | | - | | 12.3 | | - | | - | | 15.4 | | 3.0 | | 12.2 | | - | | 12.2 | | - | | - | | 15.2 | ||||||||||||||||
Income taxes payable | - | - | 12.2 | 12.2 | 4.9 | - | 17.1 | - | - | 0.9 | 0.9 | 2.2 | - | 3.1 | ||||||||||||||||||||||||||||||
Accrued compensation | | 0.5 | | - | | 49.6 | | 49.6 | | 11.4 | | - | | 61.5 | | - | | - | | 25.3 | | 25.3 | | 8.3 | | - | | 33.6 | ||||||||||||||||
Other accrued current liabilities | 12.9 | - | 86.5 | 86.5 | 35.9 | (2.7 | ) | 132.6 | ||||||||||||||||||||||||||||||||||||
Other accrued liabilities | 14.3 | - | 90.3 | 90.3 | 29.3 | - | 133.9 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total current liabilities | | 33.3 | | 134.7 | | 467.9 | | 599.1 | | 79.1 | | (168.4 | ) | | 543.1 | | 114.5 | | 193.6 | | 366.3 | | 544.0 | | 86.7 | | (261.1 | ) | | 484.1 | ||||||||||||||
Long-term debt excluding current portion of long-term debt | 450.0 | 880.0 | - | 880.0 | - | - | 1,330.0 | |||||||||||||||||||||||||||||||||||||
Long-term debt, excluding the current portion | 450.0 | 877.8 | - | 877.8 | - | - | 1,327.8 | |||||||||||||||||||||||||||||||||||||
Long-term payables—affiliates | | - | | 900.0 | | - | | 900.0 | | 392.9 | | (1,292.9 | ) | | - | |||||||||||||||||||||||||||||
Lease financing obligation | | - | | - | | - | | - | | 104.7 | | - | | 104.7 | - | - | - | - | 94.2 | - | 94.2 | |||||||||||||||||||||||
Long-term payables—affiliates | - | 900.0 | - | 900.0 | 428.6 | (1,328.6 | ) | - | ||||||||||||||||||||||||||||||||||||
Deferred income taxes | | 31.0 | | - | | 790.9 | | 790.9 | | 43.6 | | - | | 865.5 | | 10.0 | | - | | 720.4 | | 720.4 | | 37.7 | | (0.6 | ) | | 767.5 | |||||||||||||||
Pension and other post retirement benefits | 13.7 | - | 107.0 | 107.0 | 9.1 | - | 129.8 | 4.4 | - | 235.7 | 235.7 | 10.4 | - | 250.5 | ||||||||||||||||||||||||||||||
Other non-current liabilities | | 125.2 | | - | | 116.4 | | 116.4 | | 20.9 | | (86.7 | ) | | 175.8 | | 110.6 | | - | | 118.7 | | 118.7 | | 9.0 | | (77.1 | ) | | 161.2 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total liabilities | 653.2 | 1,914.7 | 1,482.2 | 3,393.4 | 686.0 | (1,583.7 | ) | 3,148.9 | 689.5 | 1,971.4 | 1,441.1 | 3,396.6 | 630.9 | (1,631.7 | ) | 3,085.3 | ||||||||||||||||||||||||||||
Equity: | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
Total Axiall stockholders' equity | 2,608.9 | 1,049.3 | 3,648.9 | 1,747.4 | 226.5 | (1,973.9 | ) | 2,608.9 | 2,481.1 | 872.2 | 3,641.0 | 1,682.0 | 214.1 | (1,896.1 | ) | 2,481.1 | ||||||||||||||||||||||||||||
Noncontrolling interest | | - | | - | | - | | - | | 119.4 | | - | | 119.4 | | - | | - | | - | | - | | 107.9 | | - | | 107.9 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total equity | 2,608.9 | 1,049.3 | 3,648.9 | 1,747.4 | 345.9 | (1,973.9 | ) | 2,728.3 | 2,481.1 | 872.2 | 3,641.0 | 1,682.0 | 322.0 | (1,896.1 | ) | 2,589.0 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total liabilities and equity | $ | 3,262.1 | $ | 2,964.0 | $ | 5,131.1 | $ | 5,140.8 | $ | 1,031.9 | $ | (3,557.6 | ) | $ | 5,877.2 | $ | 3,170.6 | $ | 2,843.6 | $ | 5,082.1 | $ | 5,078.6 | $ | 952.9 | $ | (3,527.8 | ) | $ | 5,674.3 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 2927 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)Loss
Three Months Ended September 30, 2014March 31, 2015
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | - | $ | - | $ | 1,098.8 | $ | 1,098.8 | $ | 236.9 | $ | (66.3 | ) | $ | 1,269.4 | $ | - | $ | - | $ | 856.1 | $ | 856.1 | $ | 139.8 | $ | (48.3 | ) | $ | 947.6 | ||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | | - | | - | | 982.1 | | 982.1 | | 191.5 | | (66.3 | ) | | 1,107.3 | | - | | - | | 769.8 | | 769.8 | | 123.1 | | (48.3 | ) | | 844.6 | ||||||||||||||
Selling, general and administrative expenses | 12.2 | - | 47.9 | 47.9 | 19.7 | - | 79.8 | 12.4 | - | 49.3 | 49.3 | 19.6 | - | 81.3 | ||||||||||||||||||||||||||||||
Transaction-related costs and other, net | | 2.4 | | - | | 2.0 | | 2.0 | | 3.4 | | - | | 7.8 | | 3.9 | | - | | 1.1 | | 1.1 | | 0.8 | | - | | 5.8 | ||||||||||||||||
Long-lived asset impairment charges, net | - | - | 0.3 | 0.3 | - | - | 0.3 | - | - | - | - | 0.3 | - | 0.3 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total operating costs and expenses | | 14.6 | | - | | 1,032.3 | | 1,032.3 | | 214.6 | | (66.3 | ) | | 1,195.2 | | 16.3 | | - | | 820.2 | | 820.2 | | 143.8 | | (48.3 | ) | | 932.0 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Operating income (loss) | (14.6 | ) | - | 66.5 | 66.5 | 22.3 | - | 74.2 | (16.3 | ) | - | 35.9 | 35.9 | (4.0 | ) | - | 15.6 | |||||||||||||||||||||||||||
Other income (expense): | | | | | | | | |||||||||||||||||||||||||||||||||||||
Other income (expense) | | | | | | | | |||||||||||||||||||||||||||||||||||||
Interest income (expense), net | 7.6 | (22.0 | ) | 0.4 | (21.6 | ) | (5.5 | ) | - | (19.5 | ) | 6.0 | (20.8 | ) | (0.5 | ) | (21.4 | ) | (3.4 | ) | - | (18.8 | ) | |||||||||||||||||||||
Foreign exchange loss | | - | | - | | (0.2 | ) | | (0.2 | ) | | (0.1 | ) | | - | | (0.3 | ) | ||||||||||||||||||||||||||
Equity in income of subsidiaries | 49.5 | (5.0 | ) | 6.6 | 6.6 | - | (56.1 | ) | - | |||||||||||||||||||||||||||||||||||
Debt refinancing costs | | - | | (0.1 | ) | | (3.1 | ) | | (3.2 | ) | | - | | - | | (3.2 | ) | ||||||||||||||||||||||||||
Foreign exchange gain (loss) | (0.1 | ) | - | (0.1 | ) | (0.1 | ) | - | - | (0.2 | ) | |||||||||||||||||||||||||||||||||
Equity in income (loss) of subsidiaries | | (3.0 | ) | | (7.0 | ) | | (4.5 | ) | | (4.5 | ) | | - | | 7.5 | | - | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Income (loss) before income taxes | | 42.5 | | (27.0 | ) | | 73.3 | | 51.3 | | 16.7 | | (56.1 | ) | | 54.4 | (13.4 | ) | (27.9 | ) | 27.7 | 6.7 | (7.4 | ) | 7.5 | (6.6 | ) | |||||||||||||||||
Provision for (benefit from) income taxes | (2.0 | ) | (6.3 | ) | 17.5 | 11.2 | 0.1 | - | 9.3 | | (2.8 | ) | | (5.6 | ) | | 9.7 | | 4.1 | | 0.9 | | - | | 2.2 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Consolidated net income (loss) | | 44.5 | | (20.7 | ) | | 55.8 | | 40.1 | | 16.6 | | (56.1 | ) | | 45.1 | (10.6 | ) | (22.3 | ) | 18.0 | 2.6 | (8.3 | ) | 7.5 | (8.8 | ) | |||||||||||||||||
Less net income attributable to noncontrolling interest | - | - | - | - | 0.6 | - | 0.6 | | - | | - | | - | | - | | 1.8 | | - | | 1.8 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net income (loss) attributable to Axiall | $ | 44.5 | $ | (20.7 | ) | $ | 55.8 | $ | 40.1 | $ | 16.0 | $ | (56.1 | ) | $ | 44.5 | $ | (10.6 | ) | $ | (22.3 | ) | $ | 18.0 | $ | 2.6 | $ | (10.1 | ) | $ | 7.5 | $ | (10.6 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Comprehensive income (loss) attributable to Axiall | $ | 29.3 | $ | (28.9 | ) | $ | 49.2 | $ | 33.5 | $ | 10.1 | $ | (43.6 | ) | $ | 29.3 | ||||||||||||||||||||||||||||
Comprehensive loss attributable to Axiall | $ | (38.4 | ) | $ | (6.9 | ) | $ | (12.0 | ) | $ | (27.3 | ) | $ | (56.9 | ) | $ | 84.2 | $ | (38.4 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 3028 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Statement of Operations and Comprehensive IncomeLoss
Three Months Ended September 30, 2013(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | - | $ | - | $ | 1,033.4 | $ | 1,033.4 | $ | 215.9 | $ | (51.8 | ) | $ | 1,197.5 | |||||||
Operating costs and expenses: | ||||||||||||||||||||||
Cost of sales | | - | | - | | 884.6 | | 884.6 | | 171.1 | | (51.8 | ) | | 1,003.9 | |||||||
Selling, general and administrative expenses | 10.0 | - | 45.7 | 45.7 | 19.2 | - | 74.9 | |||||||||||||||
Transaction-related costs and other, net | | 10.4 | | - | | 1.4 | | 1.4 | | 3.0 | | - | | 14.8 | ||||||||
Long-lived asset impairment charges, net | - | - | 22.9 | 22.9 | 2.9 | - | 25.8 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses | | 20.4 | | - | | 954.6 | | 954.6 | | 196.2 | | (51.8 | ) | | 1,119.4 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | (20.4 | ) | - | 78.8 | 78.8 | 19.7 | - | 78.1 | ||||||||||||||
Other income (expense): | | | | | | | | |||||||||||||||
Interest income (expense), net | (14.1 | ) | (11.7 | ) | 11.9 | 0.2 | (5.8 | ) | - | (19.7 | ) | |||||||||||
Foreign exchange loss | | - | | - | | - | | - | | (0.4 | ) | | - | | (0.4 | ) | ||||||
Equity in income of subsidiaries | 56.0 | 46.4 | 4.9 | 4.9 | - | (60.9 | ) | - | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | 21.5 | | 34.7 | | 95.6 | | 83.9 | | 13.5 | | (60.9 | ) | | 58.0 | |||||||
Provision for (benefit from) income taxes | (17.5 | ) | (5.5 | ) | 39.2 | 33.8 | 2.4 | - | 18.7 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Consolidated net income | | 39.0 | | 40.2 | | 56.4 | | 50.1 | | 11.1 | | (60.9 | ) | | 39.3 | |||||||
Less net income attributable to noncontrolling interest | - | - | - | - | 0.3 | - | 0.3 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to Axiall | $ | 39.0 | $ | 40.2 | $ | 56.4 | $ | 50.1 | $ | 10.8 | $ | (60.9 | ) | $ | 39.0 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to Axiall | $ | 46.4 | $ | 43.7 | $ | 60.0 | $ | 53.8 | $ | 12.6 | $ | (66.4 | ) | $ | 46.4 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
PageMarch 31, of 64
AXIALL CORPORATIONSupplemental Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)Nine months Ended September 30, 2014
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | - | $ | - | $ | 3,091.0 | $ | 3,091.0 | $ | 595.5 | $ | (186.5 | ) | $ | 3,500.0 | $ | - | $ | - | $ | 903.7 | $ | 905.6 | $ | 143.4 | $ | (55.3 | ) | $ | 993.7 | ||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | | - | | - | | 2,808.3 | | 2,808.3 | | 488.8 | | (186.5 | ) | | 3,110.6 | | - | | - | | 843.4 | | 845.3 | | 123.3 | | (55.3 | ) | | 913.3 | ||||||||||||||
Selling, general and administrative expenses | 33.4 | - | 138.4 | 138.4 | 60.6 | - | 232.4 | 10.9 | - | 42.8 | 42.8 | 19.9 | - | 73.6 | ||||||||||||||||||||||||||||||
Transaction-related costs and other, net | | 11.4 | | - | | 7.4 | | 7.4 | | 5.0 | | - | | 23.8 | | 4.6 | | - | | 1.4 | | 1.4 | | 0.6 | | - | | 6.6 | ||||||||||||||||
Long-lived asset impairment charges, net | - | - | 0.9 | 0.9 | 0.1 | - | 1.0 | - | - | 0.4 | 0.4 | 0.2 | - | 0.6 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Total operating costs and expenses | | 44.8 | | - | | 2,955.0 | | 2,955.0 | | 554.5 | | (186.5 | ) | | 3,367.8 | | 15.5 | | - | | 888.0 | | 889.9 | | 144.0 | | (55.3 | ) | | 994.1 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Operating income (loss) | (44.8 | ) | - | 136.0 | 136.0 | 41.0 | - | 132.2 | (15.5 | ) | - | 15.7 | 15.7 | (0.6 | ) | - | (0.4 | ) | ||||||||||||||||||||||||||
Other income (expense): | | | | | | | | |||||||||||||||||||||||||||||||||||||
Other income (expense) | | | | | | | | |||||||||||||||||||||||||||||||||||||
Interest income (expense), net | 23.3 | (65.3 | ) | 1.4 | (63.9 | ) | (16.3 | ) | - | (56.9 | ) | 7.8 | (21.4 | ) | 0.6 | (20.9 | ) | (5.2 | ) | - | (18.3 | ) | ||||||||||||||||||||||
Foreign exchange gain (loss) | | - | | - | | (0.4 | ) | | (0.4 | ) | | 0.2 | | - | | (0.2 | ) | | (0.1 | ) | | - | | (0.1 | ) | | - | | 0.5 | | - | | 0.4 | |||||||||||
Equity in income (loss) of subsidiaries | 75.8 | (41.6 | ) | 15.3 | 15.3 | - | (91.1 | ) | - | (6.1 | ) | (28.3 | ) | 3.0 | 3.0 | - | 3.1 | - | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Income (loss) before income taxes | | 54.3 | | (106.9 | ) | | 152.3 | | 87.0 | | 24.9 | | (91.1 | ) | | 75.1 | | (13.9 | ) | | (49.7 | ) | | 19.2 | | (2.2 | ) | | (5.3 | ) | | 3.1 | | (18.3 | ) | |||||||||
Provision for (benefit from) income taxes | (5.8 | ) | (17.8 | ) | 34.1 | 16.3 | 2.0 | - | 12.5 | (2.3 | ) | (6.2 | ) | 2.0 | (4.2 | ) | (1.2 | ) | - | (7.7 | ) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Consolidated net income (loss) | | 60.1 | | (89.1 | ) | | 118.2 | | 70.7 | | 22.9 | | (91.1 | ) | | 62.6 | | (11.6 | ) | | (43.5 | ) | | 17.2 | | 2.0 | | (4.1 | ) | | 3.1 | | (10.6 | ) | ||||||||||
Less net income attributable to noncontrolling interest | - | - | - | - | 2.5 | - | 2.5 | - | - | - | - | 1.0 | - | 1.0 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net income (loss) attributable to Axiall | $ | 60.1 | $ | (89.1 | ) | $ | 118.2 | $ | 70.7 | $ | 20.4 | $ | (91.1 | ) | $ | 60.1 | $ | (11.6 | ) | $ | (43.5 | ) | $ | 17.2 | $ | 2.0 | $ | (5.1 | ) | $ | 3.1 | $ | (11.6 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ��� | | |||||||
Comprehensive income (loss) attributable to Axiall | $ | 41.5 | $ | (137.8 | ) | $ | 71.3 | $ | 23.7 | $ | 15.3 | $ | (39.0 | ) | $ | 41.5 | ||||||||||||||||||||||||||||
Comprehensive loss attributable to Axiall | $ | (24.9 | ) | $ | (88.1 | ) | $ | (26.6 | ) | $ | (41.8 | ) | $ | (9.8 | ) | $ | 51.6 | $ | (24.9 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 3229 of 64
AXIALL CORPORATIONSupplemental Condensed Consolidating Statement of Operations and Comprehensive IncomeNine months Ended September 30, 2013(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | - | $ | - | $ | 3,119.9 | $ | 3,119.9 | $ | 564.9 | $ | (153.3 | ) | $ | 3,531.5 | |||||||
Operating costs and expenses: | ||||||||||||||||||||||
Cost of sales | | - | | - | | 2,669.4 | | 2,669.4 | | 459.6 | | (153.3 | ) | | 2,975.7 | |||||||
Selling, general and administrative expenses | 27.8 | - | 134.2 | 134.2 | 57.8 | - | 219.8 | |||||||||||||||
Transaction-related costs and other, net | | 26.0 | | - | | 4.3 | | 4.3 | | 3.4 | | - | | 33.7 | ||||||||
Long-lived asset impairment charges, net | - | - | 25.5 | 25.5 | 2.9 | - | 28.4 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses | | 53.8 | | - | | 2,833.4 | | 2,833.4 | | 523.7 | | (153.3 | ) | | 3,257.6 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | (53.8 | ) | - | 286.5 | 286.5 | 41.2 | - | 273.9 | ||||||||||||||
Other income (expense): | | | | | | | | |||||||||||||||
Interest income (expense), net | (42.8 | ) | (31.0 | ) | 33.5 | 2.5 | (17.1 | ) | - | (57.4 | ) | |||||||||||
Loss on redemption and other debt costs | | (66.1 | ) | | (12.4 | ) | | - | | (12.4 | ) | | - | | - | | (78.5 | ) | ||||
Gain on acquisition of controlling interest | - | - | 23.5 | 23.5 | - | - | 23.5 | |||||||||||||||
Equity in income of subsidiaries | | 213.5 | | 108.4 | | 13.8 | | 13.8 | | - | | (227.3 | ) | | - | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | 50.8 | 65.0 | 357.3 | 313.9 | 24.1 | (227.3 | ) | 161.5 | ||||||||||||||
Provision for (benefit from) income taxes | | (57.5 | ) | | (15.4 | ) | | 119.2 | | 103.9 | | 4.9 | | - | | 51.3 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Consolidated net income | 108.3 | 80.4 | 238.1 | 210.0 | 19.2 | (227.3 | ) | 110.2 | ||||||||||||||
Less net income attributable to noncontrolling interest | | - | | - | | - | | - | | 1.9 | | - | | 1.9 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to Axiall | $ | 108.3 | $ | 80.4 | $ | 238.1 | $ | 210.0 | $ | 17.3 | $ | (227.3 | ) | $ | 108.3 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to Axiall | $ | 98.0 | $ | 75.0 | $ | 234.1 | $ | 205.9 | $ | 16.3 | $ | (222.2 | ) | $ | 98.0 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Page 33 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Statement of Cash FlowsNine monthsThree Months Ended September 30, 2014March 31, 2015
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by operating activities | $ | 54.9 | $ | 11.7 | $ | 115.5 | $ | 117.9 | $ | 9.5 | $ | (20.8 | ) | $ | 161.5 | |||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 22.1 | $ | - | $ | (19.9 | ) | $ | (19.9 | ) | $ | (21.0 | ) | $ | - | $ | (18.8 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | | (6.2 | ) | | - | | (127.6 | ) | | (127.6 | ) | | (13.6 | ) | | - | | (147.4 | ) | | (0.2 | ) | | - | | (32.9 | ) | | (32.9 | ) | | (3.7 | ) | | - | | (36.8 | ) | ||||||
Acquisitions, net of cash acquired | - | - | (5.8 | ) | (5.8 | ) | (0.3 | ) | - | (6.1 | ) | |||||||||||||||||||||||||||||||||
Proceeds from the sale of assets and other | | - | | - | | 5.1 | | 5.1 | | 0.2 | | - | | 5.3 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net cash used in investing activities | (6.2 | ) | - | (128.3 | ) | (128.3 | ) | (13.7 | ) | - | (148.2 | ) | (0.2 | ) | - | (32.9 | ) | (32.9 | ) | (3.7 | ) | - | (36.8 | ) | ||||||||||||||||||||
Cash flows from financing activities: | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
Borrowings on ABL revolver | 148.9 | - | - | - | - | - | 148.9 | |||||||||||||||||||||||||||||||||||||
Repayments on ABL revolver | | (148.9 | ) | | - | | - | | - | | - | | - | | (148.9 | ) | ||||||||||||||||||||||||||||
Issuance of long-term debt | - | - | 248.8 | 248.8 | - | - | 248.8 | |||||||||||||||||||||||||||||||||||||
Long-term debt payments | - | (2.1 | ) | (0.6 | ) | (2.6 | ) | - | - | (2.6 | ) | | - | | (194.4 | ) | | (0.8 | ) | | (195.2 | ) | | - | | - | | (195.2 | ) | |||||||||||||||
Intercompany financing | - | 194.4 | (194.4 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fees paid relating to financing activities | | (0.3 | ) | | - | | (2.7 | ) | | (2.7 | ) | | - | | - | | (3.0 | ) | ||||||||||||||||||||||||||
Deferred acquisition payments | | (10.0 | ) | | - | | - | | - | | - | | - | | (10.0 | ) | (10.0 | ) | - | - | - | - | - | (10.0 | ) | |||||||||||||||||||
Lease financing obligation payment | - | - | - | - | (2.3 | ) | - | (2.3 | ) | |||||||||||||||||||||||||||||||||||
Fees paid related to financing activities | | (0.2 | ) | | (0.4 | ) | | - | | (0.4 | ) | | - | | - | | (0.6 | ) | ||||||||||||||||||||||||||
Dividends paid | (33.8 | ) | - | - | - | - | - | (33.8 | ) | | (11.2 | ) | | - | | - | | - | | - | | - | | (11.2 | ) | |||||||||||||||||||
Distribution to noncontrolling interest | | - | | - | | - | | - | | (7.7 | ) | | - | | (7.7 | ) | ||||||||||||||||||||||||||||
Excess tax benefits from share-based payment arrangements | 2.3 | - | - | - | - | - | 2.3 | |||||||||||||||||||||||||||||||||||||
Stock compensation plan activity | | (7.0 | ) | | - | | - | | - | | - | | - | | (7.0 | ) | (0.4 | ) | - | - | - | - | - | (0.4 | ) | |||||||||||||||||||
Distribution to affiliate | - | (9.2 | ) | (9.2 | ) | (9.2 | ) | (11.6 | ) | 20.8 | - | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net cash used in financing activities | | (48.7 | ) | | (11.7 | ) | | (9.8 | ) | | (12.2 | ) | | (21.6 | ) | | 20.8 | | (61.7 | ) | ||||||||||||||||||||||||
Net cash used in (provided by) financing activities | | (21.9 | ) | | - | | 50.9 | | 50.9 | | - | | - | | 29.0 | |||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | - | - | - | - | (4.4 | ) | - | (4.4 | ) | - | - | - | - | (5.5 | ) | - | (5.5 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net change in cash and cash equivalents | | - | | - | | (22.6 | ) | | (22.6 | ) | | (30.2 | ) | | - | | (52.8 | ) | | - | | - | | (1.9 | ) | | (1.9 | ) | | (30.2 | ) | | - | | (32.1 | ) | ||||||||
Cash and cash equivalents at beginning of period | - | - | 76.9 | 76.9 | 89.6 | - | 166.5 | - | - | 78.2 | 78.2 | 88.6 | - | 166.8 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Cash and cash equivalents at end of period | $ | - | $ | - | $ | 54.3 | $ | 54.3 | $ | 59.4 | $ | - | $ | 113.7 | $ | - | $ | - | $ | 76.3 | $ | 76.3 | $ | 58.4 | $ | - | $ | 134.7 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 3430 of 6453
AXIALL CORPORATIONSupplementalGuarantor Condensed Consolidating Statement of Cash FlowsNine monthsThree Months Ended September 30, 2013March 31, 2014
(Unaudited)
(In millions) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | Parent Company (a) | Eagle Spinco Inc. | Guarantor Subsidiaries Excluding Eagle Spinco Inc. | Guarantor Subsidiaries Including Eagle Spinco Inc. (b) | Non- Guarantor Subsidiaries (c) | Eliminations (d) | Consolidated (a)+(b)+(c)+(d) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by (used in) operating activities | $ | 64.7 | $ | 111.3 | $ | (38.9 | ) | $ | 72.4 | $ | 18.9 | $ | - | $ | 156.0 | $ | 13.0 | $ | 0.7 | $ | 5.9 | $ | 6.6 | $ | (41.4 | ) | $ | - | $ | (21.8 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | | (2.9 | ) | | - | | (91.9 | ) | | (91.9 | ) | | (13.7 | ) | | - | | (108.5 | ) | | (1.8 | ) | | - | | (34.2 | ) | | (34.2 | ) | | (6.9 | ) | | - | | (42.9 | ) | ||||||
Proceeds from sale of assets and other | - | - | 11.1 | 11.1 | - | 11.1 | ||||||||||||||||||||||||||||||||||||||
Distribution from affiliate | | 15.9 | | 15.9 | | 19.9 | | 19.9 | | - | | (35.8 | ) | | - | |||||||||||||||||||||||||||||
Acquisitions, net of cash acquired | - | - | - | - | 26.7 | - | 26.7 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net cash provided by (used in) investing activities | | 13.0 | | 15.9 | | (60.9 | ) | | (60.9 | ) | | 13.0 | | (35.8 | ) | | (70.7 | ) | ||||||||||||||||||||||||||
Net cash used in investing activities | (1.8 | ) | - | (34.2 | ) | (34.2 | ) | (6.9 | ) | - | (42.9 | ) | ||||||||||||||||||||||||||||||||
Cash flows from financing activities: | | | | | | | | |||||||||||||||||||||||||||||||||||||
Borrowings on ABL revolver | | 396.6 | | - | | - | | - | | 5.9 | | - | | 402.5 | ||||||||||||||||||||||||||||||
Repayments on ABL revolver | (396.6 | ) | - | - | - | (5.9 | ) | - | (402.5 | ) | ||||||||||||||||||||||||||||||||||
Issuance of long-term debt | | 450.0 | | - | | - | | - | | - | | - | | 450.0 | ||||||||||||||||||||||||||||||
Long-term debt payments | (450.0 | ) | (81.1 | ) | - | (81.1 | ) | - | - | (531.1 | ) | - | (0.7 | ) | - | (0.7 | ) | - | - | (0.7 | ) | |||||||||||||||||||||||
Make-whole and other fees paid related to financing activities | | (65.8 | ) | | (30.2 | ) | | - | | (30.2 | ) | | (2.0 | ) | | - | | (98.0 | ) | |||||||||||||||||||||||||
Dividends paid | (11.2 | ) | - | - | - | - | - | (11.2 | ) | | (11.2 | ) | | - | | - | | - | | - | | - | | (11.2 | ) | |||||||||||||||||||
Distribution to noncontrolling interest | | - | | - | | - | | - | | (13.3 | ) | | - | | (13.3 | ) | ||||||||||||||||||||||||||||
Excess tax benefits from share based payment arrangements | 0.8 | - | - | - | - | - | 0.8 | |||||||||||||||||||||||||||||||||||||
Stock compensation plan activity | | (1.5 | ) | | - | | - | | - | | - | | - | | (1.5 | ) | ||||||||||||||||||||||||||||
Distribution to affiliate | - | (15.9 | ) | (15.9 | ) | (15.9 | ) | (19.9 | ) | 35.8 | - | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net cash used in financing activities | | (77.7 | ) | | (127.2 | ) | | (15.9 | ) | | (127.2 | ) | | (35.2 | ) | | 35.8 | | (204.3 | ) | (11.2 | ) | (0.7 | ) | - | (0.7 | ) | - | - | (11.9 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | - | - | - | - | (1.4 | ) | - | (1.4 | ) | | - | | - | | - | | - | | (3.4 | ) | | - | | (3.4 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Net change in cash and cash equivalents | | - | | - | | (115.7 | ) | | (115.7 | ) | | (4.7 | ) | | - | | (120.4 | ) | - | - | (28.3 | ) | (28.3 | ) | (51.7 | ) | - | (80.0 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | - | - | 131.4 | 131.4 | 68.9 | - | 200.3 | | - | | - | | 76.9 | | 76.9 | | 89.6 | | - | | 166.5 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Cash and cash equivalents at end of period | $ | - | $ | - | $ | 15.7 | $ | 15.7 | $ | 64.2 | $ | - | $ | 79.9 | $ | - | $ | - | $ | 48.6 | $ | 48.6 | $ | 37.9 | $ | - | $ | 86.5 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Page 3531 of 6453
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We are a leading North American manufacturer and international marketer of chemicals and building products. Our chlorovinyls and aromatics chemical products are sold for further processing into a wide variety of end-use applications, including plastic pipe and pipe fittings, siding and window frames, bonding agents for wood products, high-quality plastics, acrylic sheeting and coatings for wire and cable, paper, minerals, metals and water treatment industries. Our building products segment manufactures window and door profiles, trim, mouldings and deck products, siding, pipe and pipe fittings.
Merger with PPG's Chemicals Business
On January 28, 2013, we completed a series of transactions that resulted in our acquisition of substantially all of the assets and liabilities of PPG Industries, Inc.'s ("PPG") business relating to the production of chlorine, caustic soda and related chemicals (the "Merged Business") through a merger between a subsidiary of PPG and a subsidiary of the company (the "Merger") and the related financings (collectively, the "Transactions"). The operations of the Merged Business are included in our chlorovinyls segment and are reflected in our financial results from January 28, 2013, the closing date of the Merger.
The purchase price of the Merged Business of approximately $2.8 billion consists of: (i) the issuance of approximately 35.2 million shares of our common stock valued at approximately $1.8 billion; (ii) assumed debt of approximately $967.0 million; and (iii) the assumption of other liabilities, including pension liabilities and other postretirement obligations.
We expect to continue incurring significant costs in connection with the Merger. These costs are expected to include costs to attain synergies including plant reliability improvement initiatives, and transition costs such as consulting professionals' fees, information technology implementation costs, relocation costs and severance costs, which management believes are necessary to realize approximately $140.0 million of anticipated annualized cost synergies within two years from the consummation of the Merger. We estimate the expected costs to attain synergies to total approximately $55.0 million in the aggregate, a portion of which may be capitalized. The table below depicts costs incurred to attain Merger-related synergies and the impacted financial statement line item in the condensed consolidated statements of operations, during the three and nine month periods ended September 30, 2014 and 2013:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | |||||||||
Costs to attain Merger-related synergies: | |||||||||||||
Costs included in cost of sales | $ | - | $ | 3.0 | $ | 2.5 | $ | 9.0 | |||||
Costs included in transaction-related costs and other, net | 1.0 | 3.4 | 5.4 | 9.4 | |||||||||
| | | | | | | | | | | | | |
Total costs to attain Merger-related synergies | $ | 1.0 | $ | 6.4 | $ | 7.9 | $ | 18.4 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of September 30, 2014, we have incurred $47.1 million of the expected $55.0 million in costs to attain Merger-related synergies, which includes capitalized expenditures.
Page 36 of 64
Consolidated Overview
For the three months ended September 30, 2014,March 31, 2015, net sales totaled $1,269.4$947.6 million, an increasea decrease of 65 percent compared to $1,197.5$993.7 million for the three months ended September 30, 2013.March 31, 2014. Operating income was $74.2 million and $78.1$15.6 million for the three months ended September 30, 2014 and 2013, respectively. Adjusted EBITDA was $139.3March 31, 2015, compared to an operating loss of $0.4 million for the three months ended September 30, 2014 compared to $175.0March 31, 2014. Adjusted EBITDA was $83.2 million for the three months ended September 30, 2013.March 31, 2015 compared to $67.6 million for the three months ended March 31, 2014. In addition, the companyCompany reported net incomeloss attributable to Axiall of $44.5$10.6 million, or $0.63$0.15 loss per diluted share for the three months ended September 30, 2014,March 31, 2015, compared to net incomeloss attributable to Axiall of $39.0$11.6 million, or $0.55$0.17 loss per diluted share for the three months ended September 30, 2013. The company reportedMarch 31, 2014. Adjusted Net Income of $50.8Loss was $3.6 million and Adjusted EarningsNet Loss Per Share of $0.72was $0.05 for the three months ended September 30, 2014,March 31, 2015, compared to Adjusted Net IncomeLoss of $68.3$5.3 million and Adjusted EarningsNet Loss Per Share of $0.97$0.08 for the three months ended September 30, 2013.March 31, 2014. See Reconciliation of Non-GAAP Financial Measures in this Quarterly Report on Form 10-Q.
The increasedecrease in net sales for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013March 31, 2014 was primarily attributable to decreases in the net sales of our chlorovinyls and aromatics segments, partially offset by an increase in the net sales for each of our reportable segments.building products segment. Net sales in our chlorovinyls segment increased $19.4decreased $33.8 million primarily due to: (i) higher vinyl resins sales volumes resulting from increased demand;lower PVC and VCM prices, driven by lower feedstock costs; and (ii) higher vinyl resins pricing driven by a favorable industry supply and demand balance and higher feedstock costs, partially offset by lower electro-chemical unit or, "ECU,"ECU values, especially with respect to caustic soda pricing, resultingcaused primarily fromby the addition of new production capacity in North America in 2014, coupled with slower growth in the demand needed to absorb that capacity. An ECU is the equivalent of 1 unit of chlorine production and 1.1 unit of caustic soda production. Chlorine and caustic soda are co-producedNet sales in our aromatics segment decreased $24.0 million primarily due to a decline in the manufacturing process.sales prices for cumene, phenol and acetone, driven by lower feedstock costs, as well as the overall continued weakness in the aromatics markets, and partially offset by increases in sales volumes for cumene, phenol and acetone. These sales volume increases were caused by: (i) customers restocking inventories in the first quarter of 2015, following inventory reductions in the fourth quarter of 2014; (ii) increased sales volumes for phenol in the export spot market; and (iii) increased cumene sales volumes in the domestic spot market. Net sales in our building products segment increased $24.4$11.7 million, asprimarily due to a result of higher13 percent increase in sales volumes in the United States and Canada. Net sales in our aromatics segment increased $28.1 million due primarily to ana 7 percent increase in cumene sales volume, partiallyvolumes in Canada, offset in part by a 14 percent decrease in phenol and acetone sales volumes.stronger United States dollar against a weaker Canadian dollar.
The decreasesincreases in operating income and Adjusted EBITDA, and the decreases in net loss attributable to Axiall and Adjusted Net Income,Loss, for the three months ended September 30, 2014,March 31, 2015, as compared to the three months ended September 30, 2013,March 31, 2014, were primarily attributable to: (1)(i) decreases in our cost of natural gas and ethylene; (ii) higher operating rates and related sales volume increases in our chlorovinyls segment; and, to a lesser extent, (iii) decreased maintenance expenses in our chlorovinyls segment, all of which was partially offset by lower PVC and VCM sales prices, lower ECU values, especially with respect to caustic soda pricing, resulting primarily from the addition of new production capacity in North America coupled with slower growth in the demand needed to absorb that capacity; (2) an increase in ethylene costs, and (3) an increase in our cost of natural gas. The impact of these unfavorable factors was partially offset by higher sales prices for vinyl resins, VCM and chlorinated ethylene products, and by lower maintenancecumene, phenol and operating costs attributable to fewer outages in the third quarter of 2014 compared to the same quarter in 2013, particularly in our chlorovinyls segment.
For the nine months ended September 30, 2014, netacetone sales totaled $3,500.0 million, a decrease of 1 percent compared to $3,531.5 million for the nine months ended September 30, 2013. Operating income was $132.2 million for the nine months ended September 30, 2014, compared to $273.9 million for the nine months ended September 30, 2013. Adjusted EBITDA was $335.0 million for the nine months ended September 30, 2014 compared to $506.5 million for the nine months ended September 30, 2013. In addition, the company reported net income attributable to Axiall of $60.1 million, or $0.85 per diluted share for the nine months ended September 30, 2014, compared to net income attributable to Axiall of $108.3 million, or $1.62 per diluted share for the nine months ended September 30, 2013. The company reported Adjusted Net Income of $79.0 million and Adjusted Earnings Per Share of $1.12 for the nine months ended September 30, 2014, compared to Adjusted Net Income of $197.5 million and Adjusted Earnings Per Share of $2.95 for the nine months ended September 30, 2013. See Reconciliation of Non-GAAP Financial Measures in this Quarterly Report on Form 10-Q.prices.
Page 3732 of 6453
The decrease in net sales for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily attributable to a $111.0 million decrease in the net sales of our aromatics segment which was due to decreased domestic demand for cumene and decreased export opportunities for phenol, partially offset by increases in the net sales of our chlorovinyls and building products segments. The $63.2 million increase in our chlorovinyls segment's net sales was partly due to the inclusion of nine months of sales results from the Merged Business for the year-to-date period ended September 30, 2014 versus eight months in the year-to-date period ended September 30, 2013, coupled with higher vinyl resin pricing during the nine months ended September 30, 2014. Net sales in our building products segment increased $16.3 million due to higher sales volumes in the United States.
The decreases in operating income, Adjusted EBITDA, net income attributable to Axiall and Adjusted Net Income, for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, were primarily attributable to: (1) lower ECU values, especially with respect to caustic soda pricing, resulting primarily from the addition of new production capacity in North America coupled with slower growth in the demand needed to absorb that capacity; (2) lower operating rates and higher maintenance and operating costs in our chlorovinyls segment, primarily due to an extended unplanned outage at our PHH VCM manufacturing facility, which did not return to full service until the end of June 2014; and (3) a significant increase in our cost of ethylene and natural gas.
Chlorovinyls Business Overview
Our chlorovinyls segment produces a highly integrated chain of chlor-alkali and derivative products (chlorine, caustic soda, VCM, vinyl resins, ethylene dichloride, chlorinated solvents, calcium hypochlorite, and muriatic acid and phosgene derivatives)acid) and compound products (vinyl compounds and compound additives and plasticizers). As discussed further below, certain highlights from our chlorovinyls segment results of operations for the three and nine months ended September 30, 2014March 31, 2015 compared to the three and nine months ended September 30, 2013March 31, 2014 were as follows:
•
• Operating income and Adjusted EBITDA decreased to $159.5 million and $316.3 million, respectively, during the ninethree months ended September 30, 2014 versus operating income and Adjusted EBITDA of $311.0 million and $463.3 million, respectively, for the comparable period in the prior year.
Our chlorovinyls segment is cyclical in nature and is affected by domestic and worldwide economic conditions. Cyclical price swings, driven by changes in supply and demand, can lead to significant changes in the overall profitability of our chlorovinyls segment. The demand for our chlorovinyls products tends to reflect fluctuations in downstream markets that are affected by consumer spending for durable and non-durable goods as well as construction. Global capacity also materially affects the prices of chlorovinyls products. Historically, in periods of high operating rates, prices rise and margins increase and, as a result, new capacity is announced. Since world scale size plants are generally the most cost-competitive, new increases in capacity tend to be on a large scale and are often undertaken
Page 38 of 64
by existing industry participants. Usually, as new capacity is added, prices decline until increases in demand improve operating rates and the new capacity is absorbed or, in some instances, until less efficient producers withdraw capacity from the market. As the additional supply is absorbed, operating rates rise, prices increase and the cycle repeats.
In addition, purchased raw materials and natural gas costs account for the majority of our cost of sales and can also have a material effect on our profitability and margins. Some of the primary raw materials used in our chlorovinyls products includingare ethylene, are crude oil and natural gas derivatives and therefore follow the oil and gas industry price trends.
Building Products Business Overview
Our building products segment consists of two primary product groups: (i) window and door profiles and trim, mouldings and deck products, which include extruded vinyl window and door profiles, interior and exterior trim and mouldings products, as well as deck products; and (ii) outdoor building products, which includes siding, pipe and pipe fittings. As discussed further below, certain highlights from our building products segment results of operations for the three and nine months ended September 30, 2014March 31, 2015 compared to the three and nine months ended September 30, 2013March 31, 2014 were as follows:
Page 33 of 53
• For the nine months ended September 30, 2014, our building products segment's geographical sales to the United States and Canada were 54 percent and 45 percent respectively, compared with 49 percent and 50 percent for the nine months ended September 30, 2013.
•
• Operating income was $27.4 million and Adjusted EBITDA was $58.7 million for the nine months ended September 30, 2014 compared to operating loss of $0.9 million and Adjusted EBITDA of $56.8 million for the nine months ended September 30, 2013.
The building products segment is impacted by changes in the North American home repair and remodeling sectors as well asand the new construction industry, which may be significantly affected by changes in economic and other conditions such as gross domestic product levels, employment levels, demographic trends, consumer confidence, increases in interest rates and availability of consumer financing for home repair and remodeling projects as well as the availability of financing for new home purchases. These factors can lower the demand for, and pricing of our products, while we may not be able to reduce our costs by an equivalent amount.
Page 39 of 64
Aromatics Business Overview
Our aromatics segment manufactures cumene products and phenol and acetone products (co-products made from cumene). As discussed further below, certain highlights of our aromatics segment results of operations for the three and nine months ended September 30, 2014March 31, 2015 compared to the three and nine months ended September 30, 2013March 31, 2014 were as follows:
• Net sales were $594.2 million and $705.2 million for the nine months ended September 30, 2014 and 2013, respectively, decreasing 16 percent in the aggregate and reflecting a 19 percent decrease in cumene sales volume and a 25 percent decrease in phenol and acetone sales volumes, while sales prices increased due to higher benzene costs.
approximately 15 percent.
• Operating loss was $0.9 million and Adjusted EBITDA was $0.5 million for the nine months ended September 30, 2014March 31, 2015 compared to operating income of $22.5$4.5 million and Adjusted EBITDA of $23.4$4.9 million for the comparable period in the prior year.
In our aromatics business, significant volatility in raw materials costs can decrease product margins as sales price increases sometimes lag raw materials cost increases. Product margins may also suffer from a sharp decline in raw materials costs due to the time lag between the purchase of raw materials and the sale of the finished goods manufactured using those raw materials.
Page 4034 of 6453
The following table sets forth our unaudited condensed consolidated statements of operations data for each of the three and nine month periods ended September 30,March 31, 2015 and 2014, and 2013, and the percentage of net sales of each line item for the three and nine month periods presented.
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
Net sales | $ | 1,269.4 | | 100.0% | $ | 1,197.5 | | 100.0% | $ | 3,500.0 | | 100.0% | $ | 3,531.5 | | 100.0% | $ | 947.6 | | 100.0 | % | $ | 993.7 | | 100.0 | % | ||||||||||||
Cost of sales | 1,107.3 | 87.2% | 1,003.9 | 83.8% | 3,110.6 | 88.9% | 2,975.7 | 84.3% | 844.6 | 89.1 | % | 913.3 | 91.9 | % | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Gross margin | | 162.1 | | 12.8% | | 193.6 | | 16.2% | | 389.4 | | 11.1% | | 555.8 | | 15.7% | | 103.0 | | 10.9 | % | | 80.4 | | 8.1 | % | ||||||||||||
Selling, general and administrative expenses | 79.8 | 6.3% | 74.9 | 6.3% | 232.4 | 6.6% | 219.8 | 6.2% | 81.3 | 8.6 | % | 73.6 | 7.4 | % | ||||||||||||||||||||||||
Transaction-related costs and other, net | | 7.8 | | 0.6% | | 14.8 | | 1.2% | | 23.8 | | 0.7% | | 33.7 | | 1.0% | | 5.8 | | 0.6 | % | | 6.6 | | 0.7 | % | ||||||||||||
Long-lived asset impairment charges, net | 0.3 | -% | 25.8 | 2.2% | 1.0 | -% | 28.4 | 0.8% | 0.3 | - | % | 0.6 | 0.1 | % | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Operating income | | 74.2 | | 5.8% | | 78.1 | | 6.5% | | 132.2 | | 3.8% | | 273.9 | | 7.8% | ||||||||||||||||||||||
Operating income (loss) | | 15.6 | | 1.6 | % | | (0.4 | ) | | - | % | |||||||||||||||||||||||||||
Interest expense, net | (19.5 | ) | (1.5% | ) | (19.7 | ) | (1.6% | ) | (56.9 | ) | (1.6% | ) | (57.4 | ) | (1.6% | ) | (18.8 | ) | (2.0 | %) | (18.3 | ) | (1.8 | %) | ||||||||||||||
Loss on redemption and other debt costs | | - | | -% | | - | | -% | | - | | -% | | (78.5 | ) | | (2.2% | ) | ||||||||||||||||||||
Gain on acquisition of controlling interest | - | -% | - | -% | - | -% | 23.5 | 0.7% | ||||||||||||||||||||||||||||||
Foreign currency exchange loss | | (0.3 | ) | | -% | | (0.4 | ) | | -% | | (0.2 | ) | | -% | | - | | -% | |||||||||||||||||||
Debt refinancing costs | | (3.2 | ) | | (0.3 | %) | | - | | - | % | |||||||||||||||||||||||||||
Foreign exchange gain (loss) | (0.2 | ) | - | % | 0.4 | - | % | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Income before taxes | 54.4 | 4.3% | 58.0 | 4.8% | 75.1 | 2.1% | 161.5 | 4.6% | ||||||||||||||||||||||||||||||
Less provision for income taxes | | 9.3 | | 0.7% | | 18.7 | | 1.6% | | 12.5 | | 0.4% | | 51.3 | | 1.5% | ||||||||||||||||||||||
Consolidated loss before income taxes | | (6.6 | ) | | (0.7 | %) | | (18.3 | ) | | (1.8 | %) | ||||||||||||||||||||||||||
Provision for (benefit from) income taxes | 2.2 | 0.2 | % | (7.7 | ) | (0.8 | %) | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Consolidated net income | 45.1 | 3.6% | 39.3 | 3.3% | 62.6 | 1.8% | 110.2 | 3.1% | ||||||||||||||||||||||||||||||
Consolidated net loss | | (8.8 | ) | | (0.9 | %) | | (10.6 | ) | | (1.1 | %) | ||||||||||||||||||||||||||
Less net income attributable to noncontrolling interest | | 0.6 | | -% | | 0.3 | | -% | | 2.5 | | 0.1% | | 1.9 | | 0.1% | 1.8 | 0.2 | % | 1.0 | 0.1 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Net income attributable to Axiall | $ | 44.5 | 3.5% | $ | 39.0 | 3.3% | $ | 60.1 | 1.7% | $ | 108.3 | 3.0% | ||||||||||||||||||||||||||
Net loss attributable to Axiall | $ | (10.6 | ) | | (1.1 | %) | $ | (11.6 | ) | | (1.2 | %) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | |
The following table sets forth certain financial data, by reportable segment, for each of the three and nine month periods ended September 30, 2014March 31, 2015 and 2013.2014.
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
Sales | | | | | | | | | | | | | ||||||||||||||||||||||||||
Chlorovinyls products | $ | 769.4 | 60.6% | $ | 750.0 | 62.6% | $ | 2,229.5 | 63.7% | $ | 2,166.3 | 61.3% | ||||||||||||||||||||||||||
Chlorovinyls | $ | 648.4 | 68.4 | % | $ | 682.2 | 68.6 | % | ||||||||||||||||||||||||||||||
Building products | $ | 277.8 | | 21.9% | $ | 253.4 | | 21.2% | $ | 676.3 | | 19.3% | $ | 660.0 | | 18.7% | | 166.4 | | 17.6 | % | | 154.7 | | 15.6 | % | ||||||||||||
Aromatics products | $ | 222.2 | 17.5% | $ | 194.1 | 16.2% | $ | 594.2 | 17.0% | $ | 705.2 | 20.0% | ||||||||||||||||||||||||||
Aromatics | 132.8 | 14.0 | % | 156.8 | 15.8 | % | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Net sales | $ | 1,269.4 | | 100.0% | $ | 1,197.5 | | 100.0% | $ | 3,500.0 | | 100.0% | $ | 3,531.5 | | 100.0% | $ | 947.6 | | 100.0 | % | $ | 993.7 | | 100.0 | % | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
Operating income (loss) | ||||||||||||||||||||||||||||||||||||||
Chlorovinyls products | $ | 69.6 | | | $ | 101.6 | | | $ | 159.5 | | | $ | 311.0 | | | ||||||||||||||||||||||
Chlorovinyls | $ | 43.7 | | | $ | 23.3 | | | ||||||||||||||||||||||||||||||
Building products | $ | 24.0 | $ | (6.7 | ) | $ | 27.4 | $ | (0.9 | ) | (10.3 | ) | (10.8 | ) | ||||||||||||||||||||||||
Aromatics products | $ | 2.0 | | | $ | 5.2 | | | $ | (0.9 | ) | | | $ | 22.5 | | | |||||||||||||||||||||
Aromatics | | 0.2 | | | | 4.5 | | | ||||||||||||||||||||||||||||||
Unallocated corporate | $ | (21.4 | ) | $ | (22.0 | ) | $ | (53.8 | ) | $ | (58.7 | ) | (18.0 | ) | (17.4 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Total operating income | $ | 74.2 | | | $ | 78.1 | | | $ | 132.2 | | | $ | 273.9 | | | ||||||||||||||||||||||
Total operating income (loss) | $ | 15.6 | | | $ | (0.4 | ) | | | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | |
Page 35 of 53
Three Months Ended September 30, 2014March 31, 2015 versus Three Months Ended September 30, 2013March 31, 2014
Net sales. For the three months ended September 30, 2014,March 31, 2015, net sales totaled $1,269.4$947.6 million, an increasea decrease of 65 percent compared to $1,197.5 million for the comparable three months ended September 30, 2013. The net sales increase was primarily attributable to the increase in net sales for each of our reportable segments. Net sales in our chlorovinyls segment increased $19.4 million due
Page 41 of 64
to: (i) higher vinyl resins sales volumes resulting from increased demand; and (ii) higher vinyl resins pricing driven by a favorable industry supply and demand balance and higher feedstock costs, partially offset by lower ECU values, especially with respect to caustic soda pricing, resulting primarily from the addition of new production capacity in North America coupled with slower growth in the demand needed to absorb that capacity. Net sales in our building products segment increased $24.4 million as a result of higher sales volumes in the United States and Canada. Net sales in our aromatics segment increased $28.1 million due primarily to a 13 percent increase in cumene sales volume, partially offset by a 14 percent decrease in phenol and acetone sales volumes.
Gross margin percentage. Total gross margin percentage decreased to 13 percent for the three months ended September 30, 2014 from 16 percent for the three months ended September 30, 2013. This decrease was principally due to: (1) lower ECU values caused by the factors discussed above; (2) an increase in ethylene costs; and (3) an increase in our natural gas costs. In September 2014, IHS Inc. ("IHS") reported that natural gas prices increased 14 percent and ethylene prices increased 12 percent for the three months ended September 30, 2014 as compared to the same period in the prior year. The impact of these unfavorable factors was partially offset by higher pricing for vinyl resins, VCM and chlorinated ethylene products.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $79.8$993.7 million for the three months ended September 30, 2014, an increase of 7 percent from $74.9 millionMarch 31, 2014. The decrease in net sales for the three months ended September 30, 2013. This increase was primarily due to increased amortization expense, information technology costs, and sales expenses in our building products segment.
Transaction-related costs and other, net. Transaction-related costs and other, net, decreased 47 percent to $7.8 million during the three months ended September 30, 2014 from $14.8 million during the three months ended September 30, 2013. The $7.0 million decrease was primarily due to lower restructuring and integration costs, lower costs to attain Merger-related synergies and a decrease in deal-related costs during the three months ended September 30, 2014, versus the three months ended September 30, 2013.
Long-lived asset impairment charges, net. Long-lived asset impairment charges totaled $0.3 million and $25.8 million for the three months ended September 30, 2014 and 2013, respectively. Long lived asset impairment charges totaled $25.8 million for the three months ended September 30, 2013, primarily due to a $24.9 million non-cash impairment charge to write-down goodwill and other intangible assets related to our window and door profiles reporting unit in our building products segment. There were no similar charges in the three months ended September 30, 2014.
Operating income. Operating income was $74.2 million for the three months ended September 30, 2014 compared to an operating income of $78.1 million for the three months ended September 30, 2013. The decrease in operating income was primarily a result of: (i) lower ECU values, especially with respect to caustic soda pricing; (ii) higher ethylene costs; and (iii) higher natural gas costs, offset partially by an increase in operating income for our building products segment.
Interest expense, net. Interest expense, net, was $19.5 million and $19.7 million for the three month periods ended September 30, 2014 and 2013, respectively.
Foreign currency exchange loss. Foreign currency exchange loss was $0.3 million and $0.4 million for the three months ended September 30, 2014 and 2013, respectively.
Page 42 of 64
Provision for income taxes. The provision for income taxes was $9.3 million for the three months ended September 30, 2014, compared to a provision for income taxes of $18.7 million for the three months ended September 30, 2013. The decrease was primarily due to a lower income before income taxes during the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013.
Our effective income tax rates for the three months ended September 30, 2014 and 2013 were 17.1 percent and 32.2 percent, respectively. The difference in the effective income tax rate as compared to the United States statutory federal income tax rate inMarch 31, 2014 was primarily due to various permanent differences including deductions for manufacturing activities as well as the favorable impact of changes in uncertain tax positions of $4.5attributable to: (i) a $33.8 million and the favorable impact of the expiration of a statutory time period that would have impacted the tax deductibility of certain accruals of $2.1 million. The difference in the effective income tax rate as compared to the United States statutory federal income tax rate in 2013 was primarily due to various permanent differences including deductions for manufacturing activities and the favorable impact of changes in uncertain tax positions of $2.8 million.
Chlorovinyls Segment
Net sales. Net sales totaled $769.4 million for the three months ended September 30, 2014, an increase of 3 percent versus net sales of $750.0 million for the comparable three month period in 2013. Our overall net sales increase was primarily due to: (1) higher vinyl resins sales volumes due to increased demand; and (2) higher vinyl resins pricing driven by a favorable industry supply and demand balance and higher feedstock costs, partially offset by lower ECU values, especially with respect to caustic soda pricing, resulting primarily from the addition of new production capacity in North America coupled with slower growth in the demand needed to absorb that capacity.
Operating income. Operating income decreased by $32.0 million to $69.6 million for the three months ended September 30, 2014 from $101.6 million for the three months ended September 30, 2013. The decrease was principally due to: (1) lower ECU values, caused primarily by the factors discussed above; (2) an increase in our ethylene costs; and (3) an increase in our natural gas costs. In September 2014, IHS reported that industry natural gas prices increased 14 percent and ethylene prices increased 12 percent for the three months ended September 30, 2014, as compared to the same period in the prior year. The impact of these unfavorable factors was partially offset by higher pricing for vinyl resins, VCM and chlorinated ethylene products, and by lower maintenance and operating costs due to fewer outages in the third quarter of 2014 as compared to the same quarter last year. The Adjusted EBITDA decrease of $33.0 million to $118.5 million for the three months ended September 30, 2014 from $151.5 million for the three months ended September 30, 2013 was predominantly due to lower ECU values and higher ethylene and natural gas costs, partially offset by higher pricing for vinyl resins, VCM and chlorinated ethylene products, and by lower maintenance costs, attributable to fewer outages in the third quarter of 2014 compared to the same quarter in 2013.
Building Products Segment
Net Sales. Net sales totaled $277.8 million for the three months ended September 30, 2014, increasing 10 percent versus net sales of $253.4 million for the comparable three month period in 2013. The net sales increase was driven by a 15 percent increase in sales volume, with sales volumes in the United States higher by 21 percent and sales volumes in Canada higher by 8 percent, offset in part by the impact of a weaker Canadian dollar. On a constant currency basis, net sales increased by 12 percent. For the three months ended September 30, 2014, our building products segment's geographical sales to the United States and Canada were 52 percent and 47 percent, respectively, compared with 48 percent and 51 percent, respectively, for the three months ended September 30, 2013.
Page 43 of 64
Operating Income. Operating income was $24.0 million for the three months ended September 30, 2014, compared to an operating loss of $6.7 million for the three months ended September 30, 2013. The increase in operating income was the result of $27.4 million in lower impairment and restructuring charges in the three months ended September 30, 2014 versus the three months ended September 30, 2013. The three months ended September 30, 2013 included a $24.9 million non-cash impairment charge to write down goodwill and other intangible assets as a result of our evaluation of the window and door profiles reporting unit's fair value. There were no such impairment charges related to goodwill and other intangible assets in the three months ended September 30, 2014. In addition, we recorded $2.6 million lower restructuring charges relating to various plant consolidation and cost saving initiatives during the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Adjusted EBITDA was $34.0 million for the three months ended September 30, 2014 compared to Adjusted EBITDA of $31.1 million for the three months ended September 30, 2013. The $2.9 million increase in Adjusted EBITDA was primarily a result of higher sales volumes and lower conversion costs, offset in part by a weaker Canadian dollar and higher material and distribution costs.
Aromatics Segment
Net Sales. Net sales were $222.2 million for the three months ended September 30, 2014, an increase of 14 percent versus $194.1 million for the comparable three month period in 2013. The net sales increase primarily resulted from a 13 percent increase in cumene sales volume, partially offset by a 14 percent decrease in phenol and acetone sales volumes. The decrease in our phenol sales volume is primarily due to a significant decline in export demand for phenol produced in the United States, which largely resulted from the recent addition of a significant amount of new phenol production capacity in Asia. We expect these lower levels in phenol sales volumes to continue for the remainder of 2014.
Operating income. Operating income was $2.0 million and $5.2 million for the three months ended September 30, 2014 and 2013, respectively. Our operating rates for the aromatics segment were lower in the three months ended September 30, 2014, versus the comparable three month period ended September 30, 2013, and were lower than the industry operating rates for the three months ended September 30, 2014, as reported in the September 2014 IHS publication. The $3.2 million decrease in operating income was primarily due to increased raw materials costs, partially offset by higher sales prices. Adjusted EBITDA was $2.6 million and $5.5 million for the three months ended September 30, 2014 and 2013, respectively, decreasing $2.9 million principally due to higher raw materials costs, partially offset by higher sales prices.
Nine months Ended September 30, 2014 versus Nine months Ended September 30, 2013
Consolidated Results
Net sales. For the nine months ended September 30, 2014, net sales totaled $3,500.0 million, a decrease of 1 percent compared to $3,531.5 million for the nine months ended September 30, 2013. The decrease in our consolidated net sales was primarily attributable to a $111.0 million decrease in the net sales in our aromatics segment partially offset by increases in the net sales of our chlorovinyls and building products segments. The decrease in our aromatics net sales was primarily due to decreased domestic demand for cumene and decreased export opportunities for phenol, both of which were due primarily to significant recent additions of phenol production capacity in Asia. Net sales in our chlorovinyls segment increased by $63.2 million primarily due to the inclusion of nine months of sales results from the Merged Business for the year-to-date period ended September 30, 2014 versus the inclusion of only eight months of sales results from the Merged Business for the year-to-date period ended September 30, 2013, offset by: (1) lower ECU values, especially with respect to caustic soda
Page 44 of 64
pricing, caused primarily by the addition of new production capacity in North America coupled with slower growth in the demand needed to absorb that capacity; and (2) decreased operating rates, primarily as a result of the extended unplanned outage at our PHH VCM manufacturing facility, which did not return to full service until the end of June 2014. Net sales in our building products segment increased by $16.3 million primarily driven by an 18 percent increase in sales volumes in the United States, partially offset by a 1 percent decline in Canadian sales volumes, as well as the impact of a weaker Canadian dollar.
Gross margin percentage. Total gross margin percentage decreased to 11 percent for the nine months ended September 30, 2014 from 16 percent for the nine months ended September 30, 2013. This decrease was principally due to: (1) lower ECU values, especially with respect to caustic soda pricing, caused primarily by the factors discussed in the preceding paragraph; (2) lower operating rates and higher operating costs in our chlorovinyls segment, due primarily to the extended unplanned outage at our PHH VCM manufacturing facility, which did not return to full service until the end of June 2014; and (3) higher natural gas and ethylene costs. In September 2014, IHS reported that natural gas prices increased 23 percent and ethylene prices increased by 5 percent for the nine months ended September 30, 2014 as compared to the same period in the prior year. These unfavorable factors were partially offset by higher pricing for our vinyl resin, VCM and chlorinated ethylene products. In 2013, the chlorovinyls segment's gross margin was negatively impacted by approximately $13.4 million due to the fair value inventory purchase accounting adjustment related to the Merged Business.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $232.4 million for the nine months ended September 30, 2014, an increase of 6 percent from $219.8 million for the nine months ended September 30, 2013. This increase was primarily due to the inclusion of nine months of expenses from the Merged Business during the year-to-date period ended September 30, 2014, versus only eight months for the year-to-date period ended September 30, 2013, as well as increased amortization expense, professional fees and information technology costs.
Transaction-related costs and other, net. Transaction-related costs and other, net, decreased 29 percent to $23.8 million during the nine months ended September 30, 2014 from $33.7 million during the nine months ended September 30, 2013. The $9.9 million decrease was primarily due to lower integrationPVC and VCM prices, driven by lower feedstock costs, deal-related costs and costs to attain Merger-related synergies, partially offset by higher restructuring and other costs during the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013.
Long-lived asset impairment charges, net. Long-lived asset impairment charges totaled $1.0 million and $28.4 million for the nine months ended September 30, 2014 and 2013, respectively. The $27.4 million decrease for the nine months ended September 30, 2014, was primarily due to a $24.9 million non-cash impairment charge to write-down goodwill and other intangible assets related to our window and door profiles reporting unit in our building products segment during the nine months ended September 30, 2013. There were no similar charges in the nine months ended September 30, 2014.
Operating income. Operating income was $132.2 million for the nine months ended September 30, 2014 compared to an operating income of $273.9 million for the nine months ended September 30, 2013. The decrease in operating income was primarily a result of: (i) lower ECU values, especially with respect to caustic soda pricing; (ii) lower operating rates and higher operating costs in our chlorovinlys segment, due primarily to the extended unplanned outage at our PHH VCM manufacturing facility, which did not return to full service until the end of June 2014; and (iii) higher natural gas and ethylene costs.
Interest expense, net. Interest expense, net, totaled $56.9 million and $57.4 million for the nine month periods ended September 30, 2014 and 2013, respectively.
Page 45 of 64
Loss on redemption and other debt cost. Loss on redemption and other debt cost resulted from the financing of the Transactions and financing fees associated with the retirement of our 9 percent notes in 2013, which included a $55.4 million make-whole payment. There were no similar transactions or refinancing activities during the nine months ended September 30, 2014.
Gain on acquisition of controlling interest. In the Transactions, we acquired the Merged Business and the remaining 50 percent interest of PHH that we did not previously own. Prior to the Transactions, we owned 50 percent of PHH and accounted for our ownership interest as an equity method investment. During the nine months ended September 30, 2013, we recognized a gain of $23.5 million as a result of remeasuring our prior equity interest in PHH held before the Merger in accordance with GAAP. We had no such gain during the nine months ended September 30, 2014.
Foreign currency exchange loss. Foreign currency exchange loss totaled $0.2 million and nil during the nine months ended September 30, 2014 and 2013, respectively. The foreign currency exchange loss for the third quarter of 2014 is primarily due to the impact of a weaker Canadian dollar.
Provision for income taxes. The provision for income taxes was $12.5 million for the nine months ended September 30, 2014, compared to a provision for income taxes of $51.3 million for the nine months ended September 30, 2013. The decrease was primarily due to a lower income before income taxes during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.
Our effective income tax rates for the nine months ended September 30, 2014 and 2013 were 16.6 percent and 31.8 percent, respectively. The difference in the effective income tax rate as compared to the United States statutory federal income tax rate in 2014 was primarily due to various permanent differences including deductions for manufacturing activities, as well as the favorable impact of changes in uncertain tax positions of $8.0 million and the favorable impact of the expiration of a statutory time period that would have impacted the tax deductibility of certain accruals of $2.1 million in the nine months ended September 30, 2014. The difference in the effective income tax rate as compared to the United States statutory federal income tax rate in 2013 was primarily due to various permanent differences including deductions for manufacturing activities and the favorable impact of changes in uncertain tax positions of $3.7 million.
Chlorovinyls Segment
Net sales. Net sales totaled $2,229.5 million for the nine months ended September 30, 2014, an increase of 3 percent versus net sales of $2,166.3 million for the comparable nine month period in 2013. Our overall net sales increase was primarily due to the inclusion of nine months of sales results from the Merged Business for the year-to-date period ended September 30, 2014 versus the inclusion of only eight months of sales results from the Merged Business for the year-to-date period ended September 30, 2013, offset by: (1) lower ECU values, especially with respect to caustic soda pricing, caused primarily by the addition of new production capacity in North America in 2014 coupled with slower growth in the demand needed to absorb that capacity; and (2) decreased operating rates(ii) a $24.0 million decrease in the net sales of our aromatics segment which primarily resulted from a significant decline in the sales prices for cumene, phenol and associatedacetone during the three months ended March 31, 2015, driven by lower feedstock costs, as industry prices for benzene and propylene declined by 58 percent and 39 percent, respectively, according to the April 2015 IHS report. The decrease in sales prices for our aromatics products was also caused by the overall weakening of the domestic and international aromatics markets, which has resulted in part, from the addition of significant amounts of new phenol production capacity in Asia in recent years. The decreases in sales prices for our aromatics products were partially offset by a significant increase in sales volumes primarily resulting fromfor cumene, phenol and acetone, caused by: (i) customers restocking inventories during the extended unplanned outage atfirst quarter of 2015 following inventory reductions in the fourth quarter of 2014; (ii) increased sales volumes for phenol in the export spot market; and (iii) increased cumene sales volumes in the domestic spot market. The decreases in the net sales of our PHH VCM manufacturing facility, which did not returnchlorovinyls and aromatics segments were partially offset by an $11.7 million increase in the net sales of our building products segment due to full service untilhigher sales volumes in the endUnited States and Canada, partially offset by the impact of June 2014.a stronger United States dollar against a weaker Canadian dollar.
Operating income.Gross margin percentage. Operating income decreased by $151.5 millionTotal gross margin percentage increased to $159.5 million11 percent for the ninethree months ended September 30, 2014March 31, 2015 from $311.0 million8 percent for the ninethree months ended September 30, 2013. The decreaseMarch 31, 2014. This increase was principally due to: (1)to a lower ECU values resulting primarily fromcost of sales during the reasons discussed above; (2) an increasethree months ended March 31, 2015, versus the comparable period in our2014, driven by the decline in raw material costs, including natural gas and ethylene costs;in particular. In its April 2015 report, IHS reported that industry natural gas prices decreased 39 percent and (3)ethylene prices decreased by 28 percent for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. In 2014, the chlorovinyls segment's gross margin was negatively impacted by higher cost of sales during the three months ended March 31, 2014 driven by higher energy and maintenance costs, and lower operating ratesrates.
Selling, general and higher operating costs,administrative expenses. Selling, general and administrative expenses totaled $81.3 million for the three months ended March 31, 2015, an increase of 10 percent from $73.6 million for the three months ended March 31, 2014. The increase in selling, general and administrative expenses was primarily due to increases in wage and benefit costs, and advertising expenses.
Transaction-related costs and other, net. Transaction-related costs and other, net, decreased 12 percent to $5.8 million during the extended unplanned outage atthree months ended March 31, 2015 from $6.6 million during the three months ended March 31, 2014.
Long-lived asset impairment charges, net. Long-lived asset impairment charges, net totaled $0.3 million and $0.6 million for the three month periods ended March 31, 2015 and 2014, respectively, due to the write-down of impaired assets in the window and door and siding reporting units of our PHH VCM manufacturing facility, which did not return to full service until the end of June 2014. The impact ofbuilding products segment in both quarters.
Page 4636 of 6453
these unfavorable factorsOperating income (loss). Operating income was $15.6 million for the three months ended March 31, 2015 compared to an operating loss of $0.4 million for the three months ended March 31, 2014. The increase in operating income (loss) was primarily attributable to a $20.4 million increase in the operating income of our chlorovinyls segment, principally due to: (i) decreases in our cost of natural gas and ethylene; (ii) higher operating rates and related sales volume increases; and, to a lesser extent, (iii) decreased maintenance expenses, all of which was partially offset by lower PVC and VCM prices and lower ECU values, especially with respect to caustic soda pricing. The overall increase in operating income (loss) was partially offset by a $4.3 million decrease in the operating income of our aromatics segment due primarily to significant decreases in sales prices for phenol, cumene and acetone, caused by decreased feedstock costs and by the overall weakening of the domestic and international aromatics markets, which has resulted in part from the addition of significant amounts of new phenol production capacity in Asia in recent years.
Interest expense, net. Interest expense, net, was $18.8 million and $18.3 million for the three months ended March 31, 2015 and 2014, respectively. The increase in interest expense, net was due primarily to the increase in our average principal outstanding debt balances during the three months ended March 31, 2015 when compared to the three months ended March 31, 2014, coupled with the higher interest rate on our New Term Loan Facility, as compared to our prior term loan facility.
Foreign currency exchange gain (loss). Foreign currency exchange loss totaled $0.2 million and foreign currency exchange gain totaled $0.4 million during the three months ended March 31, 2015 and 2014, respectively. The decrease in foreign currency exchange gain (loss) was primarily due to the strengthening of the United States dollar against other currencies in which we conduct our businesses, primarily the Canadian dollar.
Provision for (benefit from) income taxes. The provision for income taxes was $2.2 million for the three months ended March 31, 2015, compared to a benefit for income taxes of $7.7 million for the three months ended March 31, 2014. The income tax expense in 2015 was primarily due to losses generated within a tax jurisdiction for which an income tax benefit was not recognized and the tax expense associated with the relative mix of earnings in the tax jurisdictions in which we operate.
Our effective income tax rate for the three month period ended March 31, 2015 was negative 33.4 percent, as compared to 42.1 percent for the three month period ended March 31, 2014. The negative effective income tax rate for the first three months of 2015 was primarily due to the relative mix of earnings by tax jurisdiction and losses generated within a tax jurisdiction for which an income tax benefit was not recognized. The benefit resulting from the application of the effective income tax rate for the three months ended March 31, 2014 was higher than the United States statutory federal income tax rate, primarily due to the $3.6 million favorable impact of changes in uncertain tax positions.
Net sales. Net sales totaled $648.4 million for the three months ended March 31, 2015, a decrease of approximately 5 percent versus net sales of $682.2 million for the comparable three month period in 2014. This net sales decrease was primarily due to: (i) lower PVC and VCM prices, driven by lower feedstock costs; and (ii) lower ECU values, especially with respect to caustic soda pricing, caused primarily by the addition of new production capacity in North America in 2014 coupled with slower growth in the demand needed to absorb that capacity. These unfavorable factors were partially offset by higher operating rates and related sales volume increases, as the quarter ended March 31, 2014 was impacted by an extended outage at our PHH VCM manufacturing facility, which we did not experience during the quarter ended March 31, 2015.
Page 37 of 53
Operating income. Operating income increased by $20.4 million to $43.7 million for the three months ended March 31, 2015 from $23.3 million for the three months ended March 31, 2014. The increase was principally due to: (i) decreases in our vinyl resins,cost of natural gas and ethylene; (ii) higher operating rates and related sales volume increases, due to the reasons discussed above and, to a lesser extent (iii) decreased maintenance expenses, as the three months ended March 31, 2014 was impacted by increased maintenance expenses primarily in connection with the outage at our PHH VCM facility. These favorable factors were partially offset by: (i) lower PVC and chlorinated ethylene products. In September 2014,VCM prices, driven by lower feedstock costs; and (ii) lower ECU values, especially with respect to caustic soda pricing, caused primarily by the factors discussed above. IHS reported in its April 2015 report that industry natural gas prices increased 23decreased 39 percent and ethylene prices increased 5decreased 28 percent for the ninethree months ended September 30, 2014March 31, 2015, compared to the same period in the prior year. During the ninethree months ended September 30, 2013, the segment's operating income was negatively impacted by approximately $13.4 million due to the fair value inventory purchase accounting adjustment related to the Merged Business and by $11.6 million of costs to attain Merger-related synergies, which included plant reliability improvement initiatives.March 31, 2014. The Adjusted EBITDA decreased $147.0increase of $20.5 million to $316.3$96.7 million for the ninethree months ended September 30, 2014March 31, 2015 from $463.3$76.2 million for the ninethree months ended September 30, 2013. That decreaseMarch 31, 2014 was predominantly due to the same three factors discussed above with respect to operating income, partially offset by the nine full months of Adjusted EBITDA contributed by the Merged Business.income.
Net Sales. Net sales totaled $676.3$166.4 million for the ninethree months ended September 30, 2014,March 31, 2015, increasing 28 percent versus $660.0$154.7 million for the comparable ninethree month period in 2013.2014. The net sales increase was primarily driven by an 18a 10 percent increase in sales volumes, with sales volumes in the United States partially offsethigher by a 113 percent decline in Canadianand sales volumes as well asin Canada higher by 7 percent, offset in part by the impact of a stronger United States dollar relative to a weaker Canadian dollar. On a constant currency basis, net sales increased by 513 percent. For the ninethree months ended September 30, 2014,March 31, 2015, our building products segment's geographical sales to the United States and Canada were 5462 percent and 4537 percent respectively, compared with 4959 percent and 5040 percent for the ninethree months ended September 30, 2013.March 31, 2014.
Operating Income.Loss. Operating incomeloss was $27.4$10.3 million for the ninethree months ended September 30, 2014,March 31, 2015, compared to an operating loss of $0.9$10.8 million for the ninethree months ended September 30, 2013.March 31, 2014. The increasedecrease in operating income was primarily a result of $26.2 million in lower impairment and restructuring charges in the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The nine months ended September 30, 2013 included a $24.9 million non-cash impairment charge to write down goodwill and other intangible assets as a result of our evaluation of the window and door profiles reporting unit's fair value. There were no such impairment charges related to goodwill and other intangible assets for the nine months ended September 30, 2014. In addition, we recorded $1.2 million lower restructuring charges relating to various plant consolidation and cost saving initiatives during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. Adjusted EBITDA was $58.7 million for the nine months ended September 30, 2014 compared to Adjusted EBITDA of $56.8 million for the nine months ended September 30, 2013. The $1.9 million increase in Adjusted EBITDAloss was primarily a result of higher sales volumes lower conversion costs and lower charges relating to plant consolidation activities, offset in part by the impact of a stronger United States dollar relative to a weaker Canadian dollar and higher selling, general and administrative expenses. Adjusted EBITDA was negative $0.8 million for the three months ended March 31, 2015, compared to break-even Adjusted EBITDA for the three months ended March 31, 2014. The decrease in Adjusted EBITDA was primarily due to a foreign currency exchange rate impact of approximately $1.8 million from a stronger United States dollar relative to a weaker Canadian dollar, and also due to higher selling, general and administrative expenses, partially offset in part by a weaker Canadian dollar, higher distribution and material costs and higher selling related expenditures.sales volumes.
Net Sales. Net sales were $594.2$132.8 million for the ninethree months ended September 30, 2014,March 31, 2015, a decrease of 1615 percent versus $705.2$156.8 million for the comparable ninethree month period in 2013.2014. The net sales decrease primarily resulted from a 19 percent decreasesignificant decline in cumenethe sales volume and a 25 percent decrease inprices for cumene, phenol and acetone sales volumes, partially offset by sales price increases due to higher benzene costs. The decrease in our sales volume of phenol is primarily due to a significant decline in export demand for phenol produced induring the United States, which is primarily the result of the recent addition of a significant amount of new phenol production capacity in Asia. These same factors are also primarily responsible for the decrease in our sales volume of cumene. Specifically, domestic producers of phenol are manufacturing less phenol, for which cumene is a raw material, in response to the decline in export demand for phenol. Accordingly, those domestic producers, some of which have historically been our
Page 47 of 64
customers, have required significantly less cumene. In addition, with respect to the decline in our cumene sales volume, that decline has been caused in part by certain of our customers purchasing less cumene from us. We expect these lower levels of phenol sales volumes to continue throughout the remainder of 2014.
Operating income (loss). Operating loss was $0.9 million and operating income was $22.5 million for the ninethree months ended September 30, 2014March 31, 2015, driven primarily by lower feedstock costs and 2013, respectively. Our operating rates for the aromatics segment were lower in the nine months ended September 30, 2014, versus the comparable nine months ended September 30, 2013 and were lower than the industry operating rates for the nine months ended September 30, 2014, as reported in the IHS September 2014 publication. The $23.4 million decrease in operating income and our lower operating rates were due primarily toby the overall weakening of the domestic and international aromatics markets. The Adjusted EBITDA decreasemarkets, which has resulted in part, from the addition of $22.9 millionsignificant amounts of new phenol production capacity in Asia in recent years. Industry benzene prices declined by 58 percent and industry propylene prices declined by 39 percent according to $0.5 million for the nine months ending September 30, 2014 from $23.4 million for the nine months ending September 30, 2013 was principally due to lower domestic and export sales volumes, which were a result of the factors discussed in the preceding paragraph.
Liquidity and Capital Resources
Operating Activities. Net cash provided by operating activities was $161.5 million and $156.0 million, for the nine months ended September 30, 2014 and 2013, respectively. Total working capital used in operations for the nine month periods ended September 30, 2014 and 2013 was $48.9 million and $206.4 million, respectively.April 2015 IHS report. The decrease in working capital used duringpricing was partially offset by significant increases in sales volumes for cumene, phenol and acetone. Those increased sales volumes were primarily caused by: (i) customers restocking inventories in the first nine monthsquarter of 2014 as compared to the first nine months of 2013 was primarily attributable to a decrease of $46.3 million in cash flows used for2015 following inventory and a $31.8 million decrease in working capital used by receivables due to our improved collection efforts in 2014 versus 2013 and a $29.0 million increase in payables. As of September 30, 2014 and December 31, 2013, net working capital was $622.2 million and $625.4 million, respectively.
Investing Activities. Net cash used in investing activities was $148.2 million and $70.7 million for the nine months ended September 30, 2014 and 2013, respectively. The increase in investing activities was primarily attributable to: (i) an increase in cash used for capital expenditures to $147.4 millionreductions in the nine months ended September 30, 2014 from $108.5 millionfourth quarter of 2014; (ii) increased sales volume for phenol in the nine months ended September 30, 2013, primarily due to the investments in our chlorovinyls segment;export spot market; and (ii) the inclusion of $26.7 million of cash acquired(iii) increased sales volume for cumene in the Merger that reduced our net cash used in investing activities during the nine months ended September 30, 2013.
Financing Activities. Net cash used in financing activities was $61.7 million and $204.3 million for the nine months ended September 30, 2014 and 2013, respectively. During the nine months ended September 30, 2014, our financing activities primarily consisted of $33.8 million and $7.7 million for the distribution of dividends to our shareholders and the noncontrolling interest partner in our TCI joint venture, respectively, and for a $10 million payment owed to PPG pursuant to an agreement related to the Merger. During the nine months ended September 30, 2013, our financing activities included: (1) the assumption of $688.0 million in aggregate principal amount of 4.625 percent senior notes of Eagle Spinco, Inc. ("Spinco") due 2021 (the "4.625 Notes"); (2) $195.3 million of borrowings under Spinco's term loan facility (the "Term Loan") in connection with the Transactions; and (3) the tender offer for, and redemption of $500.0 million of our outstanding 9 percent senior secured notes due 2017 (the "9 percent notes") with the proceeds from the issuance of $450 million in aggregate principal amount of 4.875 percent senior notes of Axiall Corporation due 2023 (the "4.875 Notes"). Also, during the nine months ended September 30, 2013, we repaid approximately $81.1 million of the outstanding balance of the Term Loan.domestic spot market.
Page 4838 of 6453
ABL RevolverOperating income.
The Company's asset based revolving credit facility (the "ABL Revolver") provides Operating income decreased $4.3 million to $0.2 million for a maximum of $500.0the three months ended March 31, 2015 compared to $4.5 million of revolving credit. The agreement governingfor the ABL Revolver (the "ABL Credit Agreement") contains customary covenants (subject to certain exceptions), including certain restrictions onthree months ended March 31, 2014. Our operating rates for the Company and its subsidiaries to pay dividends. In addition, the Company is subject to a fixed charge coverage ratio (as definedaromatics segment were higher in the ABL Credit Agreement) of 1.10three months ended March 31, 2015, as compared to 1.00 if excess availability is lessthe three months ended March 31, 2014, but were lower than $62.5the industry operating rates for the three months ended March 31, 2015, as reported by IHS in its April 2015 report. Adjusted EBITDA decreased $4.0 million to $0.9 million for six consecutive business days. At September 30, 2014 and December 31, 2013, we had no outstanding balance on the ABL Revolver. Our availability under the ABL Revolver at September 30, 2014 was approximately $414.6 million, net of outstanding letters of credit totaling $85.4 million.
As of September 30, 2014, we were in compliance with all covenants under the ABL Credit Agreement, the Term Loan agreement and the indentures governing our 4.625 Notes and 4.875 Notes.
Management believes, based on current and projected levels of operations and conditions in our markets and cash flow from operations, together with our cash and cash equivalents on hand and the availability to borrow under our ABL Revolver, we have adequate funding for the foreseeable future to make the required payments of interest on our debt, fund our operating needs, working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements. We have no significant scheduled required payments of principal on our outstanding debt until January 2017. However, under our Term Loan agreement, we would be required to make prepayments of our Term Loan in an amount equal to a specified percentage of our Excess Cash Flow (as defined in the Term Loan agreement) for a given fiscal year if, as of the last day of that year, our Total Leverage Ratio (as defined in the Term Loan agreement) was greater than 2.00 to 1.0. We do not expect that any material payment will be required under this provision of our Term Loan agreement with respect to the 2014 fiscal year. To the extent our cash flow and liquidity exceeds the levels necessary for us to make required payments on our debt, fund our working capital and capital expenditure requirements and comply with our ABL Revolver, we may use the excess liquidity to further grow our business through investments or acquisitions, payment of dividends and/or to reduce our debt.
Dividends. During the ninethree months ended September 30, 2014, the Company's Board of Directors declared dividends of $0.48 per share, in equal installments of $0.16 per share, according to the following record and payment dates:
Page 49 of 64
Contractual Obligations. Our aggregate future payments under contractual obligations by category as of September 30, 2014, were as follows:
(In millions) | Total | 2014 (a) | 2015 | 2016 | 2017 | 2018 | 2019 and thereafter | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual obligations: | | | | | | | | |||||||||||||||
Purchase obligations | $ | 1,059.1 | $ | 503.3 | $ | 260.4 | $ | 66.4 | $ | 56.4 | $ | 36.5 | $ | 136.1 | ||||||||
Long-term debt—principal | | 1,333.1 | | 0.7 | | 2.8 | | 2.8 | | 188.8 | | - | | 1,138.0 | ||||||||
Long-term debt—interest | 407.8 | 15.3 | 60.5 | 60.4 | 54.3 | 53.8 | 163.5 | |||||||||||||||
Lease financing obligations | | 14.2 | | 1.4 | | 5.7 | | 5.7 | | 1.4 | | - | | - | ||||||||
Capital lease obligations | 6.1 | 0.3 | 1.1 | 1.1 | 1.1 | 1.0 | 1.5 | |||||||||||||||
Operating lease obligations | | 147.1 | | 9.9 | | 35.7 | | 29.9 | | 23.8 | | 14.1 | | 33.7 | ||||||||
Expected pension and other post- retirement benefit contributions | 266.1 | 2.3 | 9.6 | 9.4 | 9.4 | 9.1 | 226.3 | |||||||||||||||
Deferred acquisition payments | | 40.0 | | - | | 10.0 | | 15.0 | | 15.0 | | - | | - | ||||||||
Asset retirement obligation | 139.6 | - | - | - | 3.0 | - | 136.6 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | $ | 3,413.1 | $ | 533.2 | $ | 385.8 | $ | 190.7 | $ | 353.2 | $ | 114.5 | $ | 1,835.7 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) ForMarch 31, 2015 from $4.9 million for the three months ending December 31, 2014.
Purchase obligations. Purchase obligations primarily include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. We have certain long-term raw material supply contracts and energy purchase agreements with various terms extending through 2026. These commitments are designed to assure sources of supply for our normal requirements. Amounts are based upon contractual raw material volumes and market rates as of September 30, 2014.
Long-term debt, principal. Long-term debt principal obligations are listed based on the contractual due dates.
Long-term debt, interest. Long-term debt interest payments are based on our contractual rates, or in the case of variable interest rate obligations, the weighted average interest rates as of September 30, 2014.
Lease financing obligations. We lease land and buildings for certain of our Canadian manufacturing facilities under leases with varying maturities through the year 2017.
Capital lease obligations. We lease railcars for certain of our chlorovinyls segment under capital leases with varying maturities through the year 2020.
Operating lease obligations. We lease railcars, storage terminals, computer equipment, automobiles, barges and warehouse and office space under non-cancelable operating leases with varying maturities through the year 2025.
Expected pension and other post-retirement benefit contributions. Expected pension contributions for the funded obligations represent the projected minimum required contributions based on assumptions as of September 30, 2014 and determined in accordance with local requirements such as the Employee Retirement Income Security Act. Also included are contributions for the unfunded pension and other postretirement benefit plans which are based on the expected benefit payments estimated as of September 30, 2014.
Page 50 of 64
Deferred acquisition payments. Payments of deferred purchase price represent amounts due to PPG based upon the final funding status of the pension plans acquired in the acquisition of the Merged Business.
Asset retirement obligations. We have recognized a liability for the present value of cost we estimate we will incur to retire certain assets. The amount reported in the Contractual Obligations table above, represents the undiscounted estimated cost to retire such assets. The estimated average timing of these obligations is in excess of forty years.
Uncertain income tax positions. We have recognized a liability for our uncertain income tax positions of approximately $11.2 million as of September 30, 2014. We do not believe we are likely to pay any amounts during the year ended DecemberMarch 31, 2014. The ultimate resolutiondecreases in operating income and timingAdjusted EBITDA were primarily due to: (i) a $6.2 million inventory holding loss recognized during the three months ended March 31, 2015, due to the decline in feedstock costs and the corresponding decreases in sales prices, caused in part by the overall weakening of payment for remaining matters continues to be uncertainthe domestic and are therefore excludedinternational aromatics markets, resulting from the Contractual Obligations table above.addition of significant amounts of new phenol production capacity in Asia in recent years, partially offset by increases in our sales volume for cumene, phenol and acetone; and (ii) a $1.2 million lower of cost-or-market inventory adjustment recorded in March 2015.
Reconciliation of Non-GAAP Financial Measures
Axiall has supplemented its financial statements prepared in accordance with GAAP that are set forth in this Quarterly Report on Form 10-Q (the "Financial Statements") with four non-GAAP financial measures: (i) Adjusted Net Income;Loss; (ii) Adjusted EarningsLoss Per Share; (iii) Adjusted EBITDA; and (iv) building products net sales on a constant currency basis.
Adjusted Net Income (Loss) is defined as net income (loss) attributable to Axiall excluding adjustments for tax effected cash and non-cash restructuring charges and certain other charges, if any, related to financial restructuring and business improvement initiatives, gains or losses on redemption and other debt costs, and sales of certain assets, debt refinancing costs, certain purchaseacquisition accounting and certain non-income tax reserve adjustments, certain professional fees related to a previously disclosedassociated with various potential and withdrawn unsolicited offercompleted merger and the Merger,acquisitions, joint venture and other transactions, costs to attain Merger-related synergies related to the integration of the former chemicals business of PPG Industries (the "Merged Business"), impairments charges for goodwill, intangible assets, and other long-lived asset impairments.assets.
Adjusted Earnings (Loss) Per Share is calculated using Adjusted Net Income (Loss) rather than consolidated net income (loss) attributable to Axiall calculated in accordance with GAAP.
Adjusted EBITDA is defined as Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization, cash and non-cash restructuring charges and certain other charges, if any, related to financial restructuring and business improvement initiatives, gains or losses on redemption and other debt costs, and sales of certain assets, debt refinancing costs, certain purchaseacquisition accounting and certain non-income tax reserve adjustments, certain professional fees related to a previously disclosedassociated with various potential and withdrawn unsolicited offercompleted mergers and the Merger,acquisitions, joint venture and other transactions, costs to attain Merger-related synergies related to the integration of the Merged Business, impairment charges for goodwill, intangible assets, and other long-lived asset impairments,assets, certain pension and other post-retirement plan curtailment gains and settlement losses and interest expense related to the lease-financing transaction discussed in Note 87 to the accompanying unaudited condensed consolidated financial statements.this Quarterly Report on Form 10-Q.
Axiall has supplemented the financial statements with Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share because investors commonly use financial measures such as Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share as a component of performance and valuation analysis for companies, such as Axiall, that recently have engaged in transactions and have incurred expenses such as professional fees related to potential transactions, that result in non-recurring pre-tax charges or benefits that have a significant impact on the calculation of consolidated net income (loss) attributable to Axiall pursuant to GAAP, in order to approximate the amount of net income (loss) that such a company would have achieved absent those non-recurring, transaction-related charges or
Page 39 of 53
benefits. In addition, Axiall has supplemented the Financial Statementsfinancial statements with Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share because we believe these financial measures will be helpful to investors in approximating what Axiall'sour net income (loss) would have been absent the impact of certain non-recurring, pre-tax charges and benefits related to the
Page 51 of 64
Merger, the Company's issuance of its 4.875 Notes and the tender offer for, and related redemption of, its 9 percent notes. Axiall hasbenefits. We have supplemented the financial statements with Adjusted EBITDA because investors commonly use Adjusted EBITDA as a main component of valuation analysis of cyclical companies such as Axiall.
In addition, Axiallwe may compare certain financial information, including building products net sales, on a constant currency basis. We present such information to provide a framework for investors to assess how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations, primarily fluctuations in the Canadian dollar. To present this information, current and comparative prior period financial information for certain businesses reporting in currencies other than United States dollars are converted into United States dollars at the average exchange rate in effect during the base period, rather than the average exchange rates in effect during the respective periods.
Adjusted Earnings (Loss) Per Share, Adjusted Net Income (Loss), Adjusted EBITDA and building products net sales on a constant currency basis, are not measurements of financial performance under GAAP and should not be considered as an alternative to net income (loss), GAAP diluted earnings (loss) per share or net sales, as a measure of performance or to cash provided by (used in) operating activities as a measure of liquidity. In addition, our calculation of Adjusted Net Income, Adjusted Earnings Per Share, Adjusted EBITDA and building products net sales on a constant currency basis,these various non-GAAP measurements may be different from the calculationcalculations used by other companies and, therefore, comparability may be limited. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are presented in the tables set forth below.
Adjusted EarningsLoss Per Share Reconciliation
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||
Diluted earnings per share attributable to Axiall | $ | 0.63 | $ | 0.55 | $ | 0.85 | $ | 1.62 | ||||||||||||
Earnings per share related to adjustments between net income attributable to Axiall and Adjusted Net Income | 0.09 | 0.42 | 0.27 | 1.33 | ||||||||||||||||
Diluted loss per share attributable to Axiall | $ | (0.15 | ) | $ | (0.17 | ) | ||||||||||||||
Earnings per share related to adjustments between net loss attributable to Axiall and Adjusted Net loss | 0.10 | 0.09 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||
Adjusted Earnings Per Share | $ | 0.72 | $ | 0.97 | $ | 1.12 | $ | 2.95 | ||||||||||||
Adjusted Loss Per Share | $ | (0.05 | ) | $ | (0.08 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | | | |
Adjusted Net Income (Loss) Reconciliation
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
(In millions, except per share data) | 2015 | 2014 | |||||
Net loss attributable to Axiall | $ | (10.6 | ) | $ | (11.6 | ) | |
Pre-tax charges: | |||||||
Merger-related and other, net | | 5.3 | | 4.5 | |||
Costs to attain Merger-related synergies | 1.2 | 4.6 | |||||
Long-lived asset impairment charges, net | | 0.3 | | 0.6 | |||
Debt refinancing costs | 3.2 | - | |||||
| | | | | | | |
Total pre-tax charges | | 10.0 | | 9.7 | |||
Provision for taxes related to these items | 3.0 | 3.4 | |||||
| | | | | | | |
After tax effect of above items | | 7.0 | | 6.3 | |||
| | | | | | | |
Adjusted Net Loss | $ | (3.6 | ) | $ | (5.3 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Page 5240 of 6453
Adjusted Net Income ReconciliationEBITDA Reconciliations
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions, except per share data) | 2014 | 2013 | 2014 | 2013 | |||||||||
Net income attributable to Axiall | $ | 44.5 | $ | 39.0 | $ | 60.1 | $ | 108.3 | |||||
Pretax charges: | |||||||||||||
Fair value of inventory—purchase accounting | | - | | - | | - | | 13.4 | |||||
Merger-related and other, net | 6.8 | 11.4 | 18.3 | 24.3 | |||||||||
Costs to attain Merger-related synergies | | 1.0 | | 6.4 | | 7.9 | | 18.4 | |||||
Long-lived asset impairment charges, net | 0.3 | 25.8 | 1.0 | 28.4 | |||||||||
Gain on acquisition of controlling interests | | - | | - | | - | | (23.5 | ) | ||||
Loss on redemption and other debt costs | - | - | - | 78.5 | |||||||||
| | | | | | | | | | | | | |
Total pretax charges | | 8.1 | | 43.6 | | 27.2 | | 139.5 | |||||
Provision for taxes related to these items | 1.8 | 14.3 | 8.3 | 50.3 | |||||||||
| | | | | | | | | | | | | |
After tax effect of above items | | 6.3 | | 29.3 | | 18.9 | | 89.2 | |||||
| | | | | | | | | | | | | |
Adjusted Net Income | $ | 50.8 | $ | 68.3 | $ | 79.0 | $ | 197.5 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted earnings per share attributable to Axiall | $ | 0.63 | $ | 0.55 | $ | 0.85 | $ | 1.62 | |||||
Adjusted Earnings Per Share | $ | 0.72 | $ | 0.97 | $ | 1.12 | $ | 2.95 | |||||
Adjusted EBITDA | $ | 139.3 | $ | 175.0 | $ | 335.0 | $ | 506.5 |
Adjusted EBITDA Reconciliations
Three Months Ended September 30, 2014 | | | | | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended March 31, 2015 | | | | | | |||||||||||||||||||||||||||
(In millions) | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | ||||||||||||||||||||||
Adjusted EBITDA | $ | 118.5 | $ | 34.0 | $ | 2.6 | $ | (15.8 | ) | $ | 139.3 | $ | 96.7 | $ | (0.8 | ) | $ | 0.9 | $ | (13.6 | ) | $ | 83.2 | |||||||||
Costs to attain Merger-related synergies | (0.4 | ) | - | - | (0.6 | ) | (1.0 | ) | (0.8 | ) | - | - | (0.4 | ) | (1.2 | ) | ||||||||||||||||
Merger-related and other, net | | (0.5 | ) | | (0.7 | ) | | - | | (4.1 | ) | | (5.3 | ) | ||||||||||||||||||
Long-lived asset impairment charges, net | | - | | (0.3 | ) | | - | | - | | (0.3 | ) | - | (0.3 | ) | - | - | (0.3 | ) | |||||||||||||
Depreciation and amortization | (48.4 | ) | (8.8 | ) | (0.6 | ) | (2.5 | ) | (60.3 | ) | | (52.6 | ) | | (7.8 | ) | | (0.6 | ) | | (2.6 | ) | | (63.6 | ) | |||||||
Interest expense, net | | - | | - | | - | | (19.5 | ) | | (19.5 | ) | - | - | - | (18.8 | ) | (18.8 | ) | |||||||||||||
Provision for income taxes | - | - | - | (9.3 | ) | (9.3 | ) | |||||||||||||||||||||||||
Debt refinancing costs | | - | | - | | - | | (3.2 | ) | | (3.2 | ) | ||||||||||||||||||||
Benefit from income taxes | - | - | - | (2.2 | ) | (2.2 | ) | |||||||||||||||||||||||||
Other | | (0.3 | ) | | (1.0 | ) | | - | | (2.5 | ) | | (3.8 | ) (a) | | - | | - | | - | | 2.6 | | 2.6 | (1) | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
Consolidated net income (loss) (b) | $ | 69.4 | $ | 23.9 | $ | 2.0 | $ | (50.2 | ) | $ | 45.1 | |||||||||||||||||||||
Consolidated net income (loss) (2) | $ | 42.8 | $ | (9.6 | ) | $ | 0.3 | $ | (42.3 | ) | $ | (8.8 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | |
(a)(1) Includes $6.8 million Merger-related and other, net, partially offset by $1.6$1.4 million of lease financing obligations interest and $1.3$1.1 million for debt issuance cost amortization.
(b) Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services, and provision for income taxes.
Page 53 of 64
Three Months Ended September 30, 2013 | | | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | |||||||||||
Adjusted EBITDA | $ | 151.5 | $ | 31.1 | $ | 5.5 | $ | (13.1 | ) | $ | 175.0 | |||||
Costs to attain Merger-related synergies | (3.4 | ) (a) | - | - | (3.0 | ) | (6.4 | ) | ||||||||
Long-lived asset impairment charges, net | | - | | (25.8 | ) | | - | | - | | (25.8 | ) | ||||
Depreciation and amortization | (45.7 | ) | (9.1 | ) | (0.3 | ) | (1.7 | ) | (56.8 | ) | ||||||
Interest expense, net | | - | | - | | - | | (19.7 | ) | | (19.7 | ) | ||||
Provision for income taxes | - | - | - | (18.7 | ) | (18.7 | ) | |||||||||
Other | | (1.1 | ) | | (2.9 | ) | | - | | (4.3 | ) | | (8.3 | ) (b) | ||
| | | | | | | | | | | | | | | | |
Consolidated net income (loss) (c) | $ | 101.3 | $ | (6.7 | ) | $ | 5.2 | $ | (60.5 | ) | $ | 39.3 | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(a) Includes $3.0 million of plant reliability improvement initiatives that are included in cost of sales on our condensed consolidated statements of operations.
(b) Includes $11.4 million Merger-related and other, partially offset by $1.8 million of lease financing obligations interest and $1.3 million for debt issuance cost amortization.
(c)(2) Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services, and provision for income taxes.
Nine Months Ended September 30, 2014 | | | | | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended March 31, 2014 | | | | | | |||||||||||||||||||||||||||
(In millions) | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | ||||||||||||||||||||||
Adjusted EBITDA | $ | 316.3 | $ | 58.7 | $ | 0.5 | $ | (40.5 | ) | $ | 335.0 | $ | 76.2 | $ | - | $ | 4.9 | $ | (13.5 | ) | $ | 67.6 | ||||||||||
Costs to attain Merger-related synergies | (3.9 | ) (a) | - | - | (4.0 | ) | (7.9 | ) | (3.3 | ) (1) | - | - | (1.3 | ) | (4.6 | ) | ||||||||||||||||
Merger-related and other, net | | - | | (1.1 | ) | | - | | (3.4 | ) | | (4.5 | ) | |||||||||||||||||||
Long-lived asset impairment charges, net | | - | | (1.0 | ) | | - | | - | | (1.0 | ) | - | (0.6 | ) | - | - | (0.6 | ) | |||||||||||||
Depreciation and amortization | (149.9 | ) | (26.2 | ) | (1.4 | ) | (7.0 | ) | (184.5 | ) | | (49.6 | ) | | (8.7 | ) | | (0.4 | ) | | (2.0 | ) | | (60.7 | ) | |||||||
Interest expense, net | | - | | - | | - | | (56.9 | ) | | (56.9 | ) | - | - | - | (18.3 | ) | (18.3 | ) | |||||||||||||
Provision for income taxes | - | - | - | (12.5 | ) | (12.5 | ) | | - | | - | | - | | 7.7 | | 7.7 | |||||||||||||||
Other | | (3.3 | ) | | (3.9 | ) | | - | | (2.4 | ) | | (9.6 | ) (b) | - | - | - | 2.8 | 2.8 | (2) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
Consolidated net income (loss) | $ | 159.2 | $ | 27.6 | $ | (0.9 | ) | $ | (123.3 | ) | $ | 62.6 | $ | 23.3 | $ | (10.4 | ) | $ | 4.5 | $ | (28.0 | ) | $ | (10.6 | ) | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | |
(a)(1) Includes $2.5$2.4 million of plant reliability improvement initiatives that are included in cost of sales on our unaudited condensed consolidated statements of operations.
(b)(2) Includes $18.3 million in Merger-related and other, net, offset by $4.9$1.7 million of lease financing obligations interest and $3.9$1.1 million for debt issuance cost amortization expense.amortization.
(c)(3) Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services, and provision for income taxes.
Building Products Constant Currency Net Sales Reconciliation
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
(In millions) | 2015 | 2014 | |||||
Building products net sales | $ | 166.4 | $ | 154.7 | |||
Impact of currency exchange rates | 7.8 | - | |||||
| | | | | | | |
Building products constant currency sales | $ | 174.2 | $ | 154.7 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Page 5441 of 6453
Liquidity and Capital Resources
Overview
Historically, our primary sources of liquidity and capital resources have included cash provided by operations, the issuance of debt, and the use of available borrowing facilities. The net change in cash and cash equivalents for the three months ended March 31, 2015 and 2014 consisted of the following:
Nine Months Ended September 30, 2013 | | | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | Chlorovinyls | Building Products | Aromatics | Unallocated Corporate & Non-operating expenses, net | Total | |||||||||||
Adjusted EBITDA | $ | 463.3 | $ | 56.8 | $ | 23.4 | $ | (37.0 | ) | $ | 506.5 | |||||
Costs to attain Merger-related synergies | (11.6 | ) (a) | - | - | (6.8 | ) | (18.4 | ) | ||||||||
Long-lived asset impairment charges, net | | - | | (28.4 | ) | | - | | - | | (28.4 | ) | ||||
Depreciation and amortization | (124.7 | ) | (26.5 | ) | (0.9 | ) | (5.0 | ) | (157.1 | ) | ||||||
Interest expense, net | | - | | - | | - | | (57.4 | ) | | (57.4 | ) | ||||
Loss on redemption and other debt cost, net | - | - | - | (78.5 | ) | (78.5 | ) | |||||||||
Gain on acquisition of controlling interest | | 23.5 | | - | | - | | - | | 23.5 | ||||||
Provision for income taxes | - | - | - | (51.3 | ) | (51.3 | ) | |||||||||
Other | | (15.7 | ) | | (2.7 | ) | | - | | (10.3 | ) | | (28.7 | ) (b) | ||
| | | | | | | | | | | | | | | | |
Consolidated net income (loss) (c) | $ | 334.8 | $ | (0.8 | ) | $ | 22.5 | $ | (246.3 | ) | $ | 110.2 | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
(In millions) | 2015 | 2014 | |||||
Net cash used in operating activities | $ | (18.8 | ) | $ | (21.8 | ) | |
| | | | | | | |
| |||||||
| | | | | | | |
Net cash used in investing activities | $ | (36.8 | ) | $ | (42.9 | ) | |
| | | | | | | |
| |||||||
| | | | | | | |
Net cash provided by (used in) financing activities | $ | 29.0 | $ | (11.9 | ) | ||
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | (5.5 | ) | (3.4 | ) | |||
| | | | | | | |
Net change in cash and cash equivalents | $ | (32.1 | ) | $ | (80.0 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(a) Includes $9.0 million of plant reliability improvement initiatives that are included in cost of sales on ourOperating Activities. In the condensed consolidated statements of operations.cash flows, changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency, non-cash transactions and the effects of acquisitions and divestitures. Accordingly, the amounts in the condensed consolidated statements of cash flows differ from changes in the operating assets and liabilities that are presented in the condensed consolidated balance sheets.
As of March 31, 2015, net working capital was $648.9 million. Net cash used in operating activities decreased $3.0 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Investing Activities. For the three months ended March 31, 2015, net cash used in investing activities decreased $6.1 million as compared to the three months ended March 31, 2014, due to a reduction in capital expenditures. In the three months ended March 31, 2014, our capital expenditures were higher due to reconstruction and replacement activities at our PHH VCM manufacturing facility located in Lake Charles, Louisiana, undertaken after the fire that occurred at that facility in December 2013.
(b) Includes $24.3Financing Activities. For the three months ended March 31, 2015, net cash provided by financing activities was $29.0 million as compared to net cash used in financing activities of Merger-related and other,$11.9 million during the three months ended March 31, 2014. During the three months ended March 31, 2015, our financing activities included entering into our New Term Loan Facility totaling $248.8 million, net, and $13.4 million of inventory fair value purchase accounting adjustment, partially offset by $5.4by: (i) $195.2 million in long-term debt repayments; (ii) $11.2 million in dividend payments to shareholders; and (iii) a $10.0 million deferred acquisition payment to PPG in connection with the funding status of leasecertain assumed pension plans of the Merged Business. For the three months ended March 31, 2014, net cash used in financing obligations interest and $3.8activities was primarily comprised of $11.2 million for debt issuance cost amortization expense.in dividend payments to shareholders.
(c) EarningsPage 42 of 53
As of March 31, 2015 and December 31, 2014, our segments exclude interest income and expense, unallocated corporate expenses and general plant services, and provision for income taxes.
Constant Currency Reconciliationslong-term debt consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2014 | 2013 | 2014 | 2013 | Maturity Date | March 31, 2015 | December 31, 2014 | |||||||||||||||
Building Products net sales | $ | 277.8 | $ | 253.4 | $ | 676.3 | $ | 660.0 | ||||||||||||||
Impact of currency exchange rates | 6.4 | - | 19.3 | - | ||||||||||||||||||
4.625 Notes | February 15, 2021 | $ | 688.0 | $ | 688.0 | |||||||||||||||||
4.875 Notes | May 15, 2023 | 450.0 | 450.0 | |||||||||||||||||||
Term Loan (net of debt issuance costs totaling$1.8 million at December 31, 2014) | January 28, 2017 | | - | | 192.6 | |||||||||||||||||
Term Loan (net of debt issuance costs and discounts totaling$2.9 million at March 31, 2015) | February 27, 2022 | 246.5 | - | |||||||||||||||||||
ABL Revolver | December 17, 2019 | | - | | - | |||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||
Building Products constant currency sales | $ | 284.2 | $ | 253.4 | $ | 695.6 | $ | 660.0 | ||||||||||||||
Total debt | 1,384.5 | 1,330.6 | ||||||||||||||||||||
Less current portion of long-term debt | | | (2.5 | ) | | (2.8 | ) | |||||||||||||||
| | | | | | | | |||||||||||||||
Long-term debt, net | $ | 1,382.0 | $ | 1,327.8 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||
| | | | | | | |
Outlook4.625 Notes
Axiall Corporation and certain of its subsidiaries guarantee $688.0 million aggregate principal amount of senior unsecured notes due 2021 bearing interest at a rate of 4.625 percent per annum (the "4.625 Notes") that were issued by Eagle Spinco Inc. ("Spinco"). Interest payments on the 4.625 Notes commenced on August 15, 2013 and interest is payable semi-annually in arrears on February 15 and August 15 of each year. The 4.625 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Axiall Corporation and by its existing and future domestic subsidiaries, other than certain excluded subsidiaries.
4.875 Notes
On February 1, 2013, Axiall Corporation issued $450.0 million in aggregate principal amount of senior unsecured notes due 2023 which bear interest at a rate of 4.875 percent per annum (the "4.875 Notes"). Interest payments on the 4.875 Notes commenced on May 15, 2013 and interest is payable semi-annually in arrears on May 15 and November 15 of each year. The 4.875 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our existing and future domestic subsidiaries, other than certain excluded subsidiaries.
Term Loan
On February 27, 2015, Axiall Holdco entered into a Term Loan Agreement for our New Term Loan Facility in order to refinance the principal amount outstanding under the Company's existing Term Loan Facility, pay related fees and expenses, and for general corporate purposes. Obligations under the New Term Loan Facility are fully and unconditionally guaranteed, on a senior secured basis, by the Company and by each of the Company's existing and future wholly-owned domestic subsidiaries, other than certain excluded subsidiaries. The obligations under the New Term Loan Facility are secured by substantially all of the assets of Axiall Holdco, the Company and the subsidiary guarantors.
The New Term Loan Facility contains an accordion feature that permits Axiall Holdco, subject to certain conditions and to obtaining lender commitments, to incur additional term loans under the New Term Loan Facility in an amount up to the greater of: (i) $250 million; and (ii) an amount that would not result in the Company's consolidated secured debt ratio being greater than 2.50 to 1.00.
Page 43 of 53
At the election of Axiall Holdco, the New Term Loan Facility bears interest at a rate equal to: (i) the Base Rate (as defined in the Term Loan Agreement) plus 1.50 percent per annum; or (ii) LIBOR (as defined in the Term Loan Agreement) plus 3.25 percent per annum; provided that at no time will the Base Rate be deemed to be less than 2.00 percent per annum or LIBOR be deemed to be less than 0.75 percent per annum. As of March 31, 2015, outstanding borrowings under the Company's New Term Loan Facility had a stated interest rate of 4.00 percent per annum.
The Term Loan Agreement contains customary covenants (subject to exceptions), including certain restrictions on the Company and its subsidiaries to pay dividends.
ABL Revolver
The Company's ABL Revolver provides for a maximum of $600.0 million of revolving credit, subject to applicable borrowing base limitations and certain other conditions. The ABL Credit Agreement contains customary covenants, including certain restrictions on the Company and its subsidiaries to pay dividends and repurchase shares of Company stock. These covenants are subject to certain exceptions and qualifications. Under the ABL Revolver, dividend payments and repurchases of our common stock in an aggregate amount not to exceed $150 million in any fiscal year may be made if both borrowing availability under the ABL Revolver would have exceeded $75 million at all times during the thirty days immediately preceding any such restricted payment and our consolidated fixed charge coverage ratio (as defined in the ABL Revolver) is equal to or exceeds 1.00 to 1.00, each on a pro forma basis after giving effect to any such proposed restricted payment. In addition, under the ABL Revolver, additional cash dividend payments may be made if both borrowing availability under the ABL Revolver then exceeds $100 million and our consolidated fixed charge coverage ratio (as defined in the ABL Revolver) is equal to or exceeds 1.10 to 1.00, each on a pro forma basis after giving effect to the proposed cash dividend payment.
As of March 31, 2015 and December 31, 2014, we had no outstanding balance under our ABL Revolver. Our availability under the ABL Revolver at March 31, 2015 was approximately $455.5 million, net of outstanding letters of credit totaling $82.0 million. As of March 31, 2015, the applicable rate for future borrowings would have been 1.75 percent to 3.75 percent based on LIBOR or certain United States index rates plus the applicable margin under the ABL Revolver.
As of March 31, 2015, we were in compliance with the covenants under our ABL Credit Agreement, the Term Loan Agreement and the indentures governing our 4.625 Notes and 4.875 Notes.
As of March 31, 2015 and December 31, 2014, we had a lease financing obligation of $86.4 million and $94.2 million, respectively. The change from the December 31, 2014 balance is due to the change in the Canadian dollar exchange rate as of March 31, 2015. The lease financing obligation is the result of the sale and concurrent leaseback of certain land and buildings in Canada in 2007 for a term of ten years. In connection with this transaction, certain terms and conditions, including the requirement to execute a collateralized letter of credit in favor of the buyer-lessor, resulted in the transaction being recorded as a financing transaction rather than a sale for GAAP purposes. As a result, the land, building and related accounts continue to be recognized in the unaudited condensed consolidated balance sheets. The collateralized letter of credit expired on February 2, 2015 and is no longer required. We are not obligated to repay the lease financing obligation amount of $86.4 million. Our obligation is for the future minimum lease payments under the terms of the related lease agreements. The future minimum lease payments under the terms of the related lease agreements as of March 31, 2015 are $3.8 million in 2015, $5.0 million in 2016, and $1.3 million in 2017, the final year of the lease agreements. The change in the future minimum lease payments from such amounts disclosed as of December 31, 2014 is
Page 44 of 53
due to current period payments and the change in the Canadian dollar exchange rate as of March 31, 2015.
Dividends. On March 3, 2015, the Company's Board of Directors declared a $0.16 per share cash dividend, with a record date of March 27, 2015 and a payment date of April 10, 2015.
Management believes, based on current and projected levels of operations and conditions in our markets and cash flow from operations, together with our cash and cash equivalents on hand and the availability to borrow under our ABL Revolver, we have adequate funding for the foreseeable future to make required payments of interest on our debt, fund our operating needs, working capital and capital expenditure requirements, comply with the financial ratios in our debt agreements, and make any required prepayments of principal under our debt agreements. As of March 31, 2015, we have no significant required payments of principal on our debt until February 2021. To the extent our cash flow and liquidity exceeds the levels necessary for us to make required payments on our debt, fund our working capital and capital expenditure requirements and comply with our ABL Revolver, we may use the excess liquidity to further grow our business through investments or acquisitions, payment of dividends and/or to reduce our debt.
Contractual Obligations. Information related to our contractual obligations as of December 31, 2014 can be found in our 2014 Annual Report on Form 10-K (our "2014 Annual Report") in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Our contractual obligations at March 31, 2015 have increased by approximately 39 percent since December 31, 2014. The increase from December 31, 2014 is primarily related to an increase in our raw material feedstocks purchase obligations due to a new commodity contractual agreement signed during the three months ended March 31, 2015.
Our aggregate future payments under contractual obligations by category as of March 31, 2015, were as follows:
(In millions) | Total | 2015 (1) | 2016 | 2017 | 2018 | 2019 | 2020 and thereafter | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual obligations: | | | | | | | | |||||||||||||||
Purchase obligations | $ | 2,151.3 | $ | 465.0 | $ | 333.6 | $ | 350.8 | $ | 240.2 | $ | 239.1 | $ | 522.6 | ||||||||
Long-term debt—principal | | 1,387.4 | | 1.9 | | 2.5 | | 2.5 | | 2.5 | | 2.5 | | 1,375.5 | ||||||||
Long-term debt—interest | 424.2 | 48.0 | 63.5 | 63.5 | 63.4 | 63.2 | 122.6 | |||||||||||||||
Lease financing obligations | | 10.1 | | 3.8 | | 5.0 | | 1.3 | | - | | - | | - | ||||||||
Capital lease obligations | 5.6 | 0.8 | 1.1 | 1.1 | 1.0 | 0.8 | 0.8 | |||||||||||||||
Operating lease obligations | | 168.2 | | 31.1 | | 35.5 | | 30.0 | | 20.4 | | 14.9 | | 36.3 | ||||||||
Expected pension and other postretirement benefit contributions (2) | 308.6 | 10.8 | 10.2 | 9.8 | 9.7 | 11.0 | 257.1 | |||||||||||||||
Acquisition purchase price consideration | | 30.0 | | - | | 15.0 | | 15.0 | | - | | - | | - | ||||||||
Asset retirement obligation | 191.9 | - | 2.1 | 3.7 | - | 2.2 | 183.9 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | $ | 4,677.3 | $ | 561.4 | $ | 468.5 | $ | 477.7 | $ | 337.2 | $ | 333.7 | $ | 2,498.8 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) For the nine months ending December 31, 2015.
(2)Based on current trendsassumptions as of December 31, 2014.
Page 45 of 53
Purchase obligations. Purchase obligations primarily include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. We have certain long-term raw material supply contracts and energy purchase agreements with various terms extending through 2026. These commitments are designed to assure sources of supply for our normal requirements. Amounts are based upon contractual raw material volumes and market rates as of March 31, 2015.
Long-term debt, principal. Long-term debt, principal obligations are listed based on the contractual due dates. On February 27, 2015, we entered into our New Term Loan Facility, which matures on February 27, 2022, to refinance our existing term loan facility, pay related fees and expenses, and for general corporate purposes. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Long-term debt, interest. Long-term debt, interest payments are based on our contractual rates, or in the case of variable interest rate obligations, the weighted average interest rates as of March 31, 2015.
Lease financing obligations. We lease land and buildings for certain of our Canadian manufacturing facilities under leases with varying maturities through the year 2017.
Capital lease obligations. We lease railcars for our chlorovinyls segment under capital leases with varying maturities through the year 2020.
Operating lease obligations. We lease railcars, storage terminals, computer equipment, automobiles, barges and warehouse and office space under non-cancelable operating leases with varying maturities through the year 2025.
Expected pension and other postretirement benefit contributions. Expected pension contributions for the funded obligations represent the projected minimum required contributions based on assumptions as of March 31, 2015 and determined in accordance with local requirements such as the Employee Retirement Income Security Act. Also included are contributions for the unfunded pension and other postretirement benefit plans which are based on the expected benefit payments estimated as of March 31, 2015.
Deferred acquisition payments. Payments of deferred purchase price represent amounts due to PPG based upon the final funding status of the pension plans assumed in the Merger. During the three months ended March 31, 2015, we made a $10 million deferred acquisition payment to PPG in connection with the funding status of certain assumed pension plans of the Merged Business. We will make remaining payments in the aggregate amount of $30 million to PPG over the next two years.
Asset retirement obligations. We have recognized a liability for the present value of cost we estimate we will incur to retire certain assets. The amount reported in the Contractual Obligations table above, represents the undiscounted estimated cost to retire such assets.
Uncertain income tax positions. We have recognized a liability for our uncertain income tax positions of approximately $10.5 million as of March 31, 2015. We do not believe we are likely to pay any amounts during the year ending December 31, 2015. The ultimate resolution and timing of payment for remaining matters continues to be uncertain and is therefore excluded from the Contractual Obligations table above.
Page 46 of 53
As compared to our thirdfirst quarter 20142015 financial results, we expect our fourthsecond quarter 20142015 results to be influenced by a number of factors, including, among others, the following:
Given current market conditions, we expect the low industry operating rates continuingcombined Adjusted EBITDA of our chlorovinyls and aromatics segments for the fourth quarter.
Page 55second quarter of 64
Table2015 to be at a similar level to that of Contentsthe first quarter of 2015.
Based on whatOver the longer term, we observed in the market, we still believe ECU values have bottomed or are close to bottoming. The timingwill be driven higher by the strength of domestic demand and impact of net new capacity additions by our competitors is difficult to predict. Over the next several years, however, we expect chlorine and caustic soda demand growth to offset capacity added in North America.
Longer term weimproved export volumes for ECU products. We believe we are also well positioned to benefit fromtake advantage of a number of macro-economic and industry trends. WeIn particular, we expect that North America's natural gas cost advantage over oil-based economies in other parts of the world will continue to provide a competitive cost advantage to us. We expect this advantage to allow consistent access to growing export markets for both chlorine, in the form of PVC, and caustic soda. In addition, we believe the pace of global capacity growth in our key products has slowed dramatically compared to the beginning of the decade, which should improve the supply-demand balance for those products. Moreover, we believe the gradual improvement in the United States housing market, both in terms of starts and renovation activity is in its early stages. We believe an improving housing marketwill continue, which should drive building products volumes higher. We expect the combination of these macro-economic and industry trends to increase demand for ECU and vinyl demand. In addition, we anticipate that our integration and the breadth of our product offering will position us to take advantage of these factors.products.
This Quarterly Report on Form 10-Q contains certain statements relating to future events and our intentions, beliefs, expectations and predictions for the future. Any such statements other than statements of historical fact are forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Words or phrases such as "anticipate," "believe," "plan," "estimate," "project," "may," "will," "intend," "target," "expect," "would" or "could" (including the negative variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events generally identify forward-looking statements. These statements relate to, among other things, our outlook for future periods, supply and demand, pricing trends and market forces within the chemical and building industries, cost reduction strategies and their results, planned capital expenditures, long-term objectives of management, expected benefits of the Transactions,acquisitions and other transactions, integration plans and expected cost savings and synergies therefrom, and other statements of expectations concerning matters that are not historical facts. These statements are based on the current expectations of our management. There are a number of risks and uncertainties that could
Page 47 of 53
cause our actual results to differ materially from the forward-looking statements included in this Quarterly Report on Form 10-Q. These risks and uncertainties include, among other things:
Page 56 of 64
In light of these risks, uncertainties, assumptions and other factors, the forward-looking statements discussed in this Quarterly Report on Form 10-Q may not occur. Other unknown or unpredictable factors could also have a material adverse effect on our actual future results, performance or achievements. For a further discussion of these and other risks and uncertainties applicable to us and our business, see the section of this Quarterly Report on Form 10-Q entitled "Risk Factors" and in our subsequent periodic filings with the SEC. As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake, and expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or changes in our expectations, except as required by law.
Page 48 of 53
Critical Accounting Policies and Estimates
During the ninethree months ended September 30, 2014,March 31, 2015, we had no material changes to our critical accounting policies listed in Part II. Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our 20132014 Annual Report.
Page 57 of 64
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For a discussion of certain market risks related to Axiall, see Part II. Item 7A. "Quantitative and Qualitative Disclosures About Market Risk," in our 20132014 Annual Report. There have been no material changes with respect to our exposure to market risks from those set forth in such report.
Item 4. CONTROLS AND PROCEDURES.
Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of Axiall management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of September 30, 2014.March 31, 2015.
Changes in Internal Control. There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during the ninethree months ended September 30, 2014March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Page 5849 of 6453
Legal Proceedings.We are involved in a number of contingencies incidental to the normal conduct of our business including lawsuits, claims and environmental contingencies. The outcome of these contingencies is inherently unpredictable. We believe that, in the aggregate, the outcome of all known contingencies including lawsuits, claims and environmental contingencies will not have a material adverse effect on our financial statements; however, specific outcomes with respect to such contingencies may be material to the financial statements of any particular period in which costs, if any, are recognized. Our assessment of the potential impact of the environmental contingencies is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental contingencies, and the potential for technological and regulatory developments. In addition, the impact of evolving programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these environmental contingencies. We anticipate that the resolution of many contingencies, and in particular environmental contingencies, will occur over an extended period of time.
Environmental Matters. It is our policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental liabilities do not include any potential offsets related to claims against third parties.
Our operations and assets are subject to extensive environmental, health and safety regulations, including laws and regulations related to air emissions, water discharges, waste disposal and remediation of contaminated sites, at both the national and local levels in the United States. We are also subject to similar laws and regulations in Canada and other jurisdictions in which we operate. The nature of the chemical and building products industries exposes us to risks of liability under these laws and regulations due to the production, storage, use, transportation and sale of materials that can cause contamination or personal injury, including, in the case of chemicals, potential releases into the environment. Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished products, as well as the costs of the storage and disposal of wastes. We have and will continue to incur substantial operating and capital costs to comply with environmental laws and regulations. In addition, we may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations for violations arising under these laws and regulations.
As of September 30, 2014 and December 31, 2013, we had reserves for environmental contingencies totaling approximately $61 million and $64 million, respectively, of which approximately $10 million and $12 million, respectively were classified as a current liability. Our assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
Some of our significant environmental contingencies include the following matters:
Page 59 of 64
September 30, 2014 and December 31, 2013, we have reserved approximately $24 million and $25 million, respectively, for the costs associated with this matter.
Due to the nature of environmental laws, regulations and liabilities, it is possible that the reviews we conducted in connection with our evaluation of, and determination to enter into, the Transactions, may not have identified all potentially adverse conditions. Such conditions may not currently exist or be detectable through reasonable methods, or may not be able to be adequately valued. For example, our Natrium, West Virginia facility and Lake Charles South Facility have both been in operation for over 65 years. There may be significant latent liabilities or future claims arising from the operation of facilities of this age, and we may be required to incur material future remediation or other costs in connection with future actions or developments at these or other facilities.
We expect to be continually subjected to increasingly stringent environmental and health and safety laws and regulations, and that continued compliance will require increased capital expenditures and increased operating costs or may impose restrictions on our present or future operations. It is difficult to predict the future interpretation and development of these laws and regulations or their impact on our future earnings and operations. Any increase in these costs, or any material restrictions, could materially adversely affect our liquidity, financial condition and results of operations. However, estimated costs for future environmental compliance and remediation may be materially lower than actual costs, or we may not be able to quantify potential costs in advance. Actual costs related to any environmental compliance in excess of estimated costs could have a material adverse effect on our financial condition in one or more future periods.
Heightened interest in environmental regulation, such as climate change issues, has the potential to materially impact our costs and present and future operations. We, and other chemicals companies, are currently required to file certain governmental reports relating to greenhouse gas ("GHG") emissions. The U.S. Government has considered, and may in the future implement restrictions or other controls on GHG emissions which could require us to incur significant capital expenditures or further restrict our present or future operations.
In addition to GHG regulations, the United States Environmental Protection Agency (the "EPA") has recently taken certain actions to limit or control certain pollutants created by companies such as ours. For example:
Page 60 of 64
our Natrium, West Virginia facility would likely be our source most significantly impacted by the Boiler MACT regulations. While we are continuing to review the Boiler MACT regulations' impact on our operations, we believe bringing our operations into compliance with the new regulations will require significant capital expenditures, which we currently estimate at approximately $30 million. In addition, coming into compliance could result in increased operating costs. Because our evaluation of this matter is ongoing, no assurance as to the ultimate impact of the Boiler MACT regulations on our operations or overall business can be provided.
The potential impact of these and/or unrelated future, legislative or regulatory actions on our current or future operations cannot be predicted at this time but could be significant. Such impacts could include the potential for significant compliance costs, including capital expenditures, could result in operating restrictions or could require us to incur significant legal or other costs related to compliance or other activities. Any increase in the costs related to these initiatives, or restrictions on our operations, could materially adversely affect our liquidity, financial condition or results of operations.
During September 2010, our Lake Charles North and Plaquemine, Louisiana facilities each received a Consolidated Compliance Order and Notice of Potential Penalty, alleging violations of various requirements of those facilities' air permits, based largely on self-reported permit deviations related to record-keepingrecord- keeping violations. The companyCompany has been negotiating a possible settlement of these matters with LDEQ. Based upon a communication from LDEQ in September 2014, the companyCompany now believes this matter may require the payment of a monetary sanction in excess of $100,000.$100,000, but it does not expect that the resolution of this matter will have a material adverse effect on its financial statements for any period.
Environmental Remediation: Reasonably Possible Matters. Our assessmentOn December 20, 2013, a fire occurred at our PHH vinyl chloride monomer ("VCM") manufacturing plant in Lake Charles, Louisiana. As of March 31, 2015, approximately 2,615 individuals have filed lawsuits against the Company alleging personal injury or property damage related to the incident. We do not expect any other individuals to file lawsuits regarding this matter, as the prescribed deadline for doing so has expired. We have not recorded an accrual in connection with any of these lawsuits because, at this time, we are unable to reasonably determine whether any potential loss is probable or reasonably possible. In addition, we currently are unable to provide a reasonable estimate of the potential impactloss or range of environmental contingencies is subjectloss, if any, expected to considerable uncertaintyresult from this contingency. We are unable to make these determinations due to a number of variables, including without limitation, uncertainties related to: (1) the complex, ongoingfact that no written or oral discovery has been conducted by the Company in any of these lawsuits; (2) the procedural status and evolving processjurisdictions in which these lawsuits may be adjudicated; (3) the parties' respective litigation strategies; (4) the fact that none of investigationthe complaints have alleged specific injuries or a specific amount of damages; (5) any symptoms experienced by any of the plaintiffs, and remediation, if necessary,whether there will be any reliable information, documentation or other discovery related thereto; (6) the pre-and-post fire medical or physical condition of such environmental contingencies,the plaintiffs, and whether there will be any reliable information, documentation or other discovery related thereto; and (7) the location of any plaintiff at the time of the fire, and the potential for technologicalduration of any exposure related thereto, and regulatory developments. As such,whether there will be any reliable information, documentation or other discovery related thereto.
During April 2015, the Company received a communication from the United States Environmental Protection Agency (the "EPA") related to, among other things, the EPA's investigation of the December 2012 and December 2013 fires that occurred at the Company's PHH VCM plant in addition toLake Charles, Louisiana, and the amounts currently reserved, wepossible amount of the monetary sanction the Company may be subjectrequired to reasonably possible loss contingenciespay related to environmental matters inthereto. Based upon that communication, the range of $60 million to $100 million. Initial remedial actions are occurring with respect to these matters at two plant sites:Company believes this matter will require the Lake Charles South Facility and the Natrium Facility.
Page 6150 of 6453
We monitor our estimatepayment of a monetary sanction by the Company in excess of $100,000, but it does not expect that the resolution of this matter will have a material adverse effect on its financial statements for reasonably possible environmental losses on a quarterly basis to determine if any of the reasonably possible loss items have become probable and estimable during the current quarter. It is our policy to accrue expenses for environmental contingencies when management believes the amount of losses are probable and estimable. In addition, when environmental items that were previously reasonably possible become probable and estimable and, therefore, recorded in our condensed consolidated balance sheets and statements of operations, we adjust our environmental reasonably possible exposure range accordingly.period.
There have been no material changes to the information set forth in Part I. Item 1A. "Risk Factors" in our 20132014 Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthly basis during the three months ended September 30, 2014:March 31, 2015:
Period | Total Number Shares Purchased (a) | Average Price Paid Per Share | Total Number Shares Purchased (1) | Average Price Paid Per Share | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
July 1 - July 31, 2014 | | - | | $ - | |||||||||
August 1 - August 31, 2014 | - | $ - | |||||||||||
September 1 - September 30, 2014 | | 6,767 | | $41.61 | |||||||||
January 1 - January 31, 2015 | | - | $ | - | |||||||||
February 1 - February 28, 2015 | 12,348 | $ | 47.07 | ||||||||||
March 1 - March 31, 2015 | | 911 | $ | 47.63 | |||||||||
| | | | | | | | | | | |||
Total | 6,767 | 13,259 | |||||||||||
| | | | | | | | | | | | ||
| | | | | | |
(a)(1) The Company did not repurchase any of its equity securities during the period covered by this report pursuant to any publicly announced plan or program, and no such plan or program is presently in effect. All purchases reflected in the table above reflect purchases of common stock by the Company in connection with tax withholding obligations of the Company's employees upon vesting of such employees' restricted stock awards.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Page 6251 of 6453
Page 6352 of 6453
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.
AXIALL CORPORATION (Registrant) | ||
Date: | /s/ PAUL D. CARRICO Paul D. Carrico President and Chief Executive Officer (Principal Executive Officer) | |
Date: | /s/ GREGORY C. THOMPSON Gregory C. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) |
Page 6453 of 6453