OLIN Corp - Quarter Report: 2023 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023
OR
| ☐ | 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 1-1070
Olin Corporation
(Exact name of registrant as specified in its charter)
| Virginia | 13-1872319 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| 190 Carondelet Plaza, | Suite 1530, | Clayton, | MO | 63105 | ||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(314) 480-1400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading symbol: | Name of each exchange on which registered: | ||||||||||||
| Common Stock, $1.00 par value per share | OLN | New York Stock Exchange | ||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2023, 125,826,232 shares of the registrant’s common stock were outstanding.
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| TABLE OF CONTENTS FOR FORM 10-Q | Page | |||||||
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Part I — Financial Information
Item 1. Financial Statements.
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions, except per share data)
(Unaudited)
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 161.1 | $ | 194.0 | $ | 304.6 | |||||||||||
| Receivables, net | 869.8 | 924.6 | 1,299.2 | ||||||||||||||
| Income taxes receivable | 32.8 | 43.2 | 8.0 | ||||||||||||||
| Inventories, net | 1,081.2 | 941.9 | 945.7 | ||||||||||||||
| Other current assets | 53.3 | 52.7 | 109.0 | ||||||||||||||
| Total current assets | 2,198.2 | 2,156.4 | 2,666.5 | ||||||||||||||
| Property, plant and equipment (less accumulated depreciation of $4,636.9, $4,413.1 and $4,217.9) | 2,550.6 | 2,674.1 | 2,755.0 | ||||||||||||||
| Operating lease assets, net | 335.7 | 356.0 | 360.1 | ||||||||||||||
| Deferred income taxes | 82.6 | 60.5 | 86.5 | ||||||||||||||
| Other assets | 1,108.6 | 1,102.5 | 1,090.0 | ||||||||||||||
| Intangible assets, net | 255.9 | 273.8 | 296.2 | ||||||||||||||
| Goodwill | 1,420.9 | 1,420.9 | 1,420.9 | ||||||||||||||
| Total assets | $ | 7,952.5 | $ | 8,044.2 | $ | 8,675.2 | |||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Current installments of long-term debt | $ | 9.0 | $ | 9.7 | $ | 201.1 | |||||||||||
| Accounts payable | 750.0 | 837.7 | 983.7 | ||||||||||||||
| Income taxes payable | 139.6 | 133.4 | 112.9 | ||||||||||||||
| Current operating lease liabilities | 70.2 | 71.8 | 75.1 | ||||||||||||||
| Accrued liabilities | 426.9 | 508.8 | 483.8 | ||||||||||||||
| Total current liabilities | 1,395.7 | 1,561.4 | 1,856.6 | ||||||||||||||
| Long-term debt | 2,717.3 | 2,571.0 | 2,579.6 | ||||||||||||||
| Operating lease liabilities | 273.6 | 292.5 | 292.1 | ||||||||||||||
| Accrued pension liability | 225.4 | 234.5 | 322.6 | ||||||||||||||
| Deferred income taxes | 505.9 | 507.3 | 582.1 | ||||||||||||||
| Other liabilities | 363.0 | 333.9 | 346.1 | ||||||||||||||
| Total liabilities | 5,480.9 | 5,500.6 | 5,979.1 | ||||||||||||||
| Commitments and contingencies | |||||||||||||||||
| Shareholders’ equity: | |||||||||||||||||
| Common stock, $1.00 par value per share: authorized, 240.0 shares; issued and outstanding, 125.8, 132.3 and 145.1 shares | 125.8 | 132.3 | 145.1 | ||||||||||||||
| Additional paid-in capital | 313.7 | 682.7 | 1,318.5 | ||||||||||||||
| Accumulated other comprehensive loss | (483.4) | (495.9) | (535.5) | ||||||||||||||
| Retained earnings | 2,475.9 | 2,224.5 | 1,768.0 | ||||||||||||||
| Olin Corporation’s shareholders’ equity | 2,432.0 | 2,543.6 | 2,696.1 | ||||||||||||||
| Noncontrolling interests | 39.6 | — | — | ||||||||||||||
| Total equity | 2,471.6 | 2,543.6 | 2,696.1 | ||||||||||||||
| Total liabilities and equity | $ | 7,952.5 | $ | 8,044.2 | $ | 8,675.2 | |||||||||||
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
3
OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Operations
(In millions, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of goods sold | 1,392.6 | 1,951.4 | 2,834.3 | 3,758.9 | |||||||||||||||||||
| Selling and administration | 101.2 | 99.0 | 213.0 | 203.3 | |||||||||||||||||||
| Restructuring charges | 19.2 | 3.6 | 80.1 | 6.7 | |||||||||||||||||||
| Other operating income | 27.0 | 3.3 | 27.5 | 3.3 | |||||||||||||||||||
| Operating income | 216.7 | 565.4 | 447.1 | 1,111.9 | |||||||||||||||||||
| Interest expense | 45.3 | 34.5 | 87.7 | 67.4 | |||||||||||||||||||
| Interest income | 1.1 | 0.3 | 2.2 | 0.7 | |||||||||||||||||||
| Non-operating pension income | 5.4 | 9.5 | 11.1 | 19.1 | |||||||||||||||||||
| Income before taxes | 177.9 | 540.7 | 372.7 | 1,064.3 | |||||||||||||||||||
| Income tax provision | 33.2 | 118.6 | 74.0 | 249.2 | |||||||||||||||||||
| Net income | $ | 144.7 | $ | 422.1 | $ | 298.7 | $ | 815.1 | |||||||||||||||
| Net loss attributable to noncontrolling interests | (2.2) | — | (4.5) | — | |||||||||||||||||||
| Net income attributable to Olin Corporation | $ | 146.9 | $ | 422.1 | $ | 303.2 | $ | 815.1 | |||||||||||||||
| Net income attributable to Olin Corporation per common share: | |||||||||||||||||||||||
| Basic | $ | 1.15 | $ | 2.83 | $ | 2.35 | $ | 5.37 | |||||||||||||||
| Diluted | $ | 1.13 | $ | 2.76 | $ | 2.29 | $ | 5.24 | |||||||||||||||
| Average common shares outstanding: | |||||||||||||||||||||||
| Basic | 127.4 | 149.2 | 129.2 | 151.9 | |||||||||||||||||||
| Diluted | 130.4 | 152.8 | 132.4 | 155.6 | |||||||||||||||||||
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
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OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income | $ | 144.7 | $ | 422.1 | $ | 298.7 | $ | 815.1 | |||||||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (8.5) | (26.0) | (3.0) | (36.5) | |||||||||||||||||||
| Unrealized losses (gains) on derivative contracts, net | 7.4 | (55.0) | 14.8 | (24.3) | |||||||||||||||||||
| Amortization of prior service costs and actuarial losses, net | 0.4 | 6.7 | 0.7 | 13.3 | |||||||||||||||||||
| Total other comprehensive (loss) income, net of tax | (0.7) | (74.3) | 12.5 | (47.5) | |||||||||||||||||||
| Comprehensive income | 144.0 | 347.8 | 311.2 | 767.6 | |||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | (2.2) | — | (4.5) | — | |||||||||||||||||||
| Comprehensive income attributable to Olin Corporation | $ | 146.2 | $ | 347.8 | $ | 315.7 | $ | 767.6 | |||||||||||||||
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
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OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance at beginning of period | $ | 129.3 | $ | 151.8 | $ | 132.3 | $ | 156.8 | |||||||||||||||
| Common stock repurchased and retired | (3.5) | (7.4) | (7.1) | (12.6) | |||||||||||||||||||
| Common stock issued for: | |||||||||||||||||||||||
| Stock options exercised | — | 0.7 | 0.4 | 0.9 | |||||||||||||||||||
| Other transactions | — | — | 0.2 | — | |||||||||||||||||||
| Balance at end of period | $ | 125.8 | $ | 145.1 | $ | 125.8 | $ | 145.1 | |||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance at beginning of period | $ | 491.6 | $ | 1,719.3 | $ | 682.7 | $ | 1,969.6 | |||||||||||||||
| Common stock repurchased and retired | (183.4) | (419.1) | (385.9) | (677.1) | |||||||||||||||||||
| Common stock issued for: | |||||||||||||||||||||||
| Stock options exercised | 0.7 | 15.0 | 11.5 | 20.0 | |||||||||||||||||||
| Other transactions | 0.1 | 0.8 | 1.5 | 3.0 | |||||||||||||||||||
| Stock-based compensation | 4.7 | 2.5 | 3.9 | 3.0 | |||||||||||||||||||
| Balance at end of period | $ | 313.7 | $ | 1,318.5 | $ | 313.7 | $ | 1,318.5 | |||||||||||||||
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||
| Balance at beginning of period | $ | (482.7) | $ | (461.2) | $ | (495.9) | $ | (488.0) | |||||||||||||||
| Other comprehensive (loss) income | (0.7) | (74.3) | 12.5 | (47.5) | |||||||||||||||||||
| Balance at end of period | $ | (483.4) | $ | (535.5) | $ | (483.4) | $ | (535.5) | |||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance at beginning of period | $ | 2,354.6 | $ | 1,376.0 | $ | 2,224.5 | $ | 1,013.8 | |||||||||||||||
| Net income | 146.9 | 422.1 | 303.2 | 815.1 | |||||||||||||||||||
| Common stock dividends paid | (25.6) | (30.1) | (51.8) | (60.9) | |||||||||||||||||||
| Balance at end of period | $ | 2,475.9 | $ | 1,768.0 | $ | 2,475.9 | $ | 1,768.0 | |||||||||||||||
| Olin Corporation’s Shareholders’ Equity | $ | 2,432.0 | $ | 2,696.1 | $ | 2,432.0 | $ | 2,696.1 | |||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance at beginning of period | $ | 41.8 | $ | — | $ | — | $ | — | |||||||||||||||
| Net loss | (2.2) | — | (4.5) | — | |||||||||||||||||||
| Contributions from noncontrolling interests | — | — | 44.1 | — | |||||||||||||||||||
| Balance at end of period | $ | 39.6 | $ | — | $ | 39.6 | $ | — | |||||||||||||||
| Total Equity | $ | 2,471.6 | $ | 2,696.1 | $ | 2,471.6 | $ | 2,696.1 | |||||||||||||||
| Dividends declared per share of common stock | $ | 0.20 | $ | 0.20 | $ | 0.40 | $ | 0.40 | |||||||||||||||
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
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OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | 298.7 | $ | 815.1 | |||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by (used for) operating activities: | |||||||||||
| Gains on disposition of property, plant and equipment | (27.0) | — | |||||||||
| Stock-based compensation | 8.4 | 6.3 | |||||||||
| Depreciation and amortization | 273.9 | 300.5 | |||||||||
| Deferred income taxes | (27.7) | 31.9 | |||||||||
| Write-off of equipment and facility included in restructuring charges | 17.7 | — | |||||||||
| Qualified pension plan contributions | (1.5) | (0.8) | |||||||||
| Qualified pension plan income | (9.9) | (16.3) | |||||||||
| Change in: | |||||||||||
| Receivables | 52.8 | (228.5) | |||||||||
| Income taxes receivable/payable | 14.3 | 12.8 | |||||||||
| Inventories | (137.9) | (90.4) | |||||||||
| Other current assets | (1.8) | (16.1) | |||||||||
| Accounts payable and accrued liabilities | (141.1) | 138.6 | |||||||||
| Other assets | (13.4) | 2.5 | |||||||||
| Other noncurrent liabilities | 43.1 | 0.7 | |||||||||
| Other operating activities | (5.6) | 2.9 | |||||||||
| Net operating activities | 343.0 | 959.2 | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (128.8) | (103.9) | |||||||||
| Payments under other long-term supply contracts | (29.6) | — | |||||||||
| Proceeds from disposition of property, plant and equipment | 28.8 | — | |||||||||
| Other investing activities | (1.0) | — | |||||||||
| Net investing activities | (130.6) | (103.9) | |||||||||
| Financing Activities | |||||||||||
| Long-term debt: | |||||||||||
| Borrowings | 415.0 | 115.0 | |||||||||
| Repayments | (271.3) | (115.5) | |||||||||
| Common stock repurchased and retired | (393.0) | (689.7) | |||||||||
| Stock options exercised | 11.9 | 20.9 | |||||||||
| Dividends paid | (51.8) | (60.9) | |||||||||
| Contributions received from noncontrolling interests | 44.1 | — | |||||||||
| Net financing activities | (245.1) | (730.2) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (0.2) | (1.0) | |||||||||
| Net (decrease) increase in cash and cash equivalents | (32.9) | 124.1 | |||||||||
| Cash and cash equivalents, beginning of year | 194.0 | 180.5 | |||||||||
| Cash and cash equivalents, end of period | $ | 161.1 | $ | 304.6 | |||||||
| Cash paid for interest and income taxes: | |||||||||||
| Interest, net | $ | 84.6 | $ | 63.5 | |||||||
| Income taxes, net of refunds | $ | 70.9 | $ | 185.6 | |||||||
| Non-cash investing activities: | |||||||||||
| Decrease in capital expenditures included in accounts payable and accrued liabilities | $ | 18.3 | $ | 15.3 | |||||||
The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.
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OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO. We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. Our operations are concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. All of our business segments are capital intensive manufacturing businesses. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells a full range of epoxy materials and precursors, including aromatics (acetone and phenol), allyl chloride, epichlorohydrin, liquid epoxy resins, solid epoxy resins and systems and growth products such as converted epoxy resins and additives. The Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
On January 10, 2023, Blue Water Alliance (BWA), our joint venture with Mitsui & Co., Ltd. (Mitsui), began operations after receiving all necessary regulatory approvals. BWA is an independent global trader of ECU-based derivatives, focused on globally traded caustic soda and ethylene dichloride. Olin holds 51% interest and exercises control in BWA and the joint venture is consolidated in our consolidated financial statements with Mitsui’s 49% interest in BWA classified as noncontrolling interest. All intercompany accounts and transactions are eliminated in consolidation.
We have prepared the condensed financial statements included herein, without audit, pursuant to the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC). The preparation of the financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. In our opinion, these financial statements reflect all adjustments (consisting only of normal accruals), which are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate. We recommend that you read these condensed financial statements in conjunction with the financial statements, accounting policies and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
We do not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying condensed financial statements.
NOTE 3. RESTRUCTURING CHARGES
As a result of weak global resin demand and higher cost structures within the European region, we began a review of our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model. As part of this review we announced operational cessations in the fourth quarter of 2022 and the first and second quarters of 2023 (collectively, Epoxy Optimization Plan). The foregoing actions will complete the rightsizing plan of our Epoxy business.
On June 20, 2023, we announced we had made the decision to cease all remaining operations at our Gumi, South Korea facility, reduce epoxy resin capacity at our Freeport, TX facility, and reduce our sales and support staffing across Asia. These actions are expected to be substantially completed by December 31, 2023. On March 21, 2023, we announced we had made the decision to cease operations at our cumene facility in Terneuzen, Netherlands and solid epoxy resin production at our facilities in Gumi, South Korea and Guaruja, Brazil. The closures were completed in the first quarter 2023. During the fourth quarter of 2022, we committed to and completed a plan to close down one of our bisphenol production lines at our Stade, Germany site. For the three and six months ended June 30, 2023, we recorded pretax restructuring charges of $13.3 million and $71.1 million, respectively, for the write-off of equipment and facility costs, employee severance and related benefit costs, contract
8
termination costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2026 of approximately $50 million related to these actions.
During 2021, we announced that we had made the decision to permanently close our diaphragm-grade chlor alkali capacity, representing 400,000 tons, at our McIntosh, AL facility (McIntosh Plan). The closure was completed during third quarter of 2022. For the three months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $2.5 million and $0.7 million, respectively, for lease and other contract termination costs and for facility exit costs related to this action. For the six months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $3.9 million and $1.6 million, respectively, for lease and other contract termination costs and for facility exit costs related to this action. We expect to incur additional restructuring charges through 2027 of approximately $30 million related to these actions.
On January 18, 2021, we announced we had made the decision to permanently close our trichloroethylene and anhydrous hydrogen chloride liquefaction facilities in Freeport, TX (collectively, Freeport 2021 Plan), which were completed in the fourth quarter of 2021. For the three months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $1.4 million and $1.2 million, respectively, for facility exit costs related to these actions. For the six months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $2.1 million and $1.5 million, respectively, for facility exit costs related to these actions. We expect to incur additional restructuring charges through 2025 of approximately $15 million related to these actions.
On December 11, 2019, we announced that we had made the decision to permanently close a chlor alkali plant with a capacity of 230,000 tons and our vinylidene chloride (VDC) production facility, both in Freeport, TX (collectively, Freeport 2019 Plan). The VDC facility and related chlor alkali plant were closed during the fourth quarter of 2020 and second quarter of 2021, respectively. For the three months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $2.0 million and $1.5 million, respectively, for facility exit costs related to these actions. For the six months ended June 30, 2023 and 2022, we recorded pretax restructuring charges of $3.0 million and $3.2 million, respectively, for facility exit costs related to these actions. We expect to incur additional restructuring charges through 2026 of approximately $30 million related to these actions.
On March 21, 2016, we announced that we had made the decision to close a combined total of 433,000 tons of chlor alkali capacity across three separate locations (collectively, Chlor Alkali 2016 Plan). For the three and six months ended June 30, 2022, we recorded pretax restructuring charges of $0.2 million and $0.4 million, respectively, for facility exit costs and lease and other contract termination costs related to these actions. We do not expect to incur additional restructuring charges related to these capacity reductions.
The following table summarizes the 2023 and 2022 activities by major component of these restructuring actions and the remaining balances of accrued restructuring costs as of June 30, 2023 and 2022:
| Employee severance and related benefit costs | Lease and other contract termination costs | Facility exit costs | Write-off of equipment and facility | Total | |||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 6.9 | $ | 5.4 | $ | — | $ | — | $ | 12.3 | |||||||||||||||||||
| Restructuring charges: | |||||||||||||||||||||||||||||
| First quarter | — | 0.1 | 2.6 | 0.4 | 3.1 | ||||||||||||||||||||||||
| Second quarter | — | 0.2 | 3.1 | 0.3 | 3.6 | ||||||||||||||||||||||||
| Amounts utilized | (3.7) | (1.0) | (5.7) | (0.7) | (11.1) | ||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 3.2 | $ | 4.7 | $ | — | $ | — | $ | 7.9 | |||||||||||||||||||
| Balance at January 1, 2023 | $ | 9.4 | $ | 4.2 | $ | — | $ | — | $ | 13.6 | |||||||||||||||||||
| Restructuring charges: | |||||||||||||||||||||||||||||
| First quarter | — | 39.7 | 8.4 | 12.8 | 60.9 | ||||||||||||||||||||||||
| Second quarter | 3.3 | 1.7 | 9.3 | 4.9 | 19.2 | ||||||||||||||||||||||||
| Amounts utilized | (1.4) | (7.2) | (17.7) | (17.7) | (44.0) | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | 11.3 | $ | 38.4 | $ | — | $ | — | $ | 49.7 | |||||||||||||||||||
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The following table summarizes the cumulative restructuring charges of these restructuring actions by major component through June 30, 2023:
| Chlor Alkali Products and Vinyls | Epoxy | Corporate/other | Total | ||||||||||||||||||||||||||||||||||||||
| McIntosh Plan | Freeport 2021 Plan | Freeport 2019 Plan | Chlor Alkali 2016 Plan | Epoxy Optimization Plan | Productivity Plan | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||
| Write-off of equipment and facility | $ | 2.7 | $ | — | $ | 58.9 | $ | 78.1 | $ | 18.3 | $ | — | $ | 158.0 | |||||||||||||||||||||||||||
| Employee severance and related benefit costs | — | — | 2.1 | 6.7 | 10.7 | 10.3 | 29.8 | ||||||||||||||||||||||||||||||||||
| Facility exit costs | 8.7 | 11.2 | 14.6 | 53.2 | 8.7 | — | 96.4 | ||||||||||||||||||||||||||||||||||
| Employee relocation costs | — | — | — | 1.7 | — | — | 1.7 | ||||||||||||||||||||||||||||||||||
| Lease and other contract termination costs | 6.4 | — | — | 43.0 | 41.4 | — | 90.8 | ||||||||||||||||||||||||||||||||||
| Total cumulative restructuring charges | $ | 17.8 | $ | 11.2 | $ | 75.6 | $ | 182.7 | $ | 79.1 | $ | 10.3 | $ | 376.7 | |||||||||||||||||||||||||||
As of June 30, 2023, we have incurred cash expenditures of $169.0 million and non-cash charges of $158.0 million related to these restructuring actions. The remaining balance of $49.7 million is expected to be paid out through 2028.
NOTE 4. EARNINGS PER SHARE
Basic and diluted net income attributable to Olin Corporation per share are computed by dividing net income attributable to Olin Corporation by the weighted-average number of common shares outstanding. Diluted net income attributable to Olin Corporation per share reflects the dilutive effect of stock-based compensation.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Computation of Net Income per Share | (In millions, except per share data) | ||||||||||||||||||||||
| Net income | $ | 144.7 | $ | 422.1 | $ | 298.7 | $ | 815.1 | |||||||||||||||
| Net loss attributable to noncontrolling interests | (2.2) | — | (4.5) | — | |||||||||||||||||||
| Net income attributable to Olin Corporation | $ | 146.9 | $ | 422.1 | $ | 303.2 | $ | 815.1 | |||||||||||||||
| Basic shares | 127.4 | 149.2 | 129.2 | 151.9 | |||||||||||||||||||
| Basic net income attributable to Olin Corporation per share | $ | 1.15 | $ | 2.83 | $ | 2.35 | $ | 5.37 | |||||||||||||||
| Diluted shares: | |||||||||||||||||||||||
| Basic shares | 127.4 | 149.2 | 129.2 | 151.9 | |||||||||||||||||||
| Stock-based compensation | 3.0 | 3.6 | 3.2 | 3.7 | |||||||||||||||||||
| Diluted shares | 130.4 | 152.8 | 132.4 | 155.6 | |||||||||||||||||||
| Diluted net income attributable to Olin Corporation per share | $ | 1.13 | $ | 2.76 | $ | 2.29 | $ | 5.24 | |||||||||||||||
The computation of dilutive shares does not include 1.3 million shares for both the three and six months ended June 30, 2023 and 0.8 million shares for both the three and six months ended June 30, 2022, as their effect would have been anti-dilutive.
NOTE 5. ACCOUNTS RECEIVABLES
We maintain a $425.0 million Receivables Financing Agreement (Receivables Financing Agreement) that is scheduled to mature on October 14, 2025. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the net leverage ratio covenant that is contained in the $1,550.0 million senior credit facility. As of June 30, 2023, December 31, 2022 and June 30, 2022, we had $234.8 million, $300.0 million and $300.0 million, respectively, drawn under the agreement.
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As of June 30, 2023, $478.6 million of our trade receivables were pledged as collateral and we had $120.0 million of additional borrowing capacity under the Receivables Financing Agreement, which was limited by our borrowing base.
Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR Facilities, certain of our domestic subsidiaries may sell their accounts receivable up to a maximum of $207.7 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €42.9 million. We will continue to service the outstanding accounts sold. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows. The following table summarizes the AR Facilities activity:
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| ($ in millions) | |||||||||||
| Balance at beginning of year | $ | 111.8 | $ | 83.3 | |||||||
| Gross receivables sold | 532.6 | 477.2 | |||||||||
| Payments received from customers on sold accounts | (567.2) | (450.6) | |||||||||
| Balance at end of period | $ | 77.2 | $ | 109.9 | |||||||
The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The factoring discount was $1.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $2.5 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively. The agreements are without recourse and therefore no recourse liability had been recorded as of June 30, 2023, December 31, 2022 or June 30, 2022.
Our condensed balance sheets included an allowance for doubtful accounts receivables of $13.0 million, $12.6 million and $15.0 million and other receivables of $81.7 million, $71.6 million and $50.3 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, which were included in receivables, net.
NOTE 6. INVENTORIES
Inventories consisted of the following:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||
| ($ in millions) | |||||||||||||||||
| Supplies | $ | 145.1 | $ | 137.6 | $ | 136.8 | |||||||||||
| Raw materials | 181.6 | 201.2 | 202.0 | ||||||||||||||
| Work in process | 202.5 | 199.6 | 192.7 | ||||||||||||||
| Finished goods | 725.8 | 559.3 | 580.2 | ||||||||||||||
| Inventories excluding LIFO reserve | 1,255.0 | 1,097.7 | 1,111.7 | ||||||||||||||
| LIFO reserve | (173.8) | (155.8) | (166.0) | ||||||||||||||
| Inventories, net | $ | 1,081.2 | $ | 941.9 | $ | 945.7 | |||||||||||
Inventories under the LIFO method are based on annual estimates of quantities and costs as of year-end; therefore, the condensed financial statements at June 30, 2023 reflect certain estimates relating to inventory quantities and costs at December 31, 2023. The replacement cost of our inventories would have been approximately $173.8 million, $155.8 million and $166.0 million higher than reported at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.
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NOTE 7. OTHER ASSETS
Included in other assets were the following:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||
| ($ in millions) | |||||||||||||||||
| Supply contracts | $ | 1,052.9 | $ | 1,048.0 | $ | 1,026.9 | |||||||||||
| Other | 55.7 | 54.5 | 63.1 | ||||||||||||||
| Other assets | $ | 1,108.6 | $ | 1,102.5 | $ | 1,090.0 | |||||||||||
Amortization expense of $17.8 million and $17.6 million for the three months ended June 30, 2023 and 2022, respectively, and amortization expense of $35.6 million and $35.2 million for the six months ended June 30, 2023 and 2022, respectively, was recognized within cost of goods sold related to our long-term supply contracts and is reflected in depreciation and amortization on the condensed statements of cash flows.
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill were as follows:
| Chlor Alkali Products and Vinyls | Epoxy | Total | |||||||||||||||
| ($ in millions) | |||||||||||||||||
| Balance at January 1, 2022 | $ | 1,275.6 | $ | 145.0 | $ | 1,420.6 | |||||||||||
| Foreign currency translation adjustment | 0.3 | — | 0.3 | ||||||||||||||
| Balance at June 30, 2022 | $ | 1,275.9 | $ | 145.0 | $ | 1,420.9 | |||||||||||
| Balance at January 1, 2023 | $ | 1,275.8 | $ | 145.1 | $ | 1,420.9 | |||||||||||
| Foreign currency translation adjustment | — | — | — | ||||||||||||||
| Balance at June 30, 2023 | $ | 1,275.8 | $ | 145.1 | $ | 1,420.9 | |||||||||||
Intangible assets consisted of the following:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net | Gross Amount | Accumulated Amortization | Net | Gross Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customers, customer contracts and relationships | $ | 670.5 | $ | (419.5) | $ | 251.0 | $ | 669.1 | $ | (401.2) | $ | 267.9 | $ | 667.4 | $ | (382.2) | $ | 285.2 | |||||||||||||||||||||||||||||||||||
| Acquired technology | 93.2 | (89.4) | 3.8 | 93.1 | (88.3) | 4.8 | 92.7 | (82.8) | 9.9 | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 1.8 | (0.7) | 1.1 | 1.8 | (0.7) | 1.1 | 1.8 | (0.7) | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 765.5 | $ | (509.6) | $ | 255.9 | $ | 764.0 | $ | (490.2) | $ | 273.8 | $ | 761.9 | $ | (465.7) | $ | 296.2 | |||||||||||||||||||||||||||||||||||
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NOTE 9. DEBT
| Long-term Debt Borrowings (Repayments) for the Six Months Ended | ||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||
| Debt Instruments | ($ in millions) | |||||||||||||
| Borrowings: | ||||||||||||||
| Senior Revolving Credit Facility | 215.0 | 70.0 | ||||||||||||
| Receivables Financing Agreement | 200.0 | 45.0 | ||||||||||||
| Total borrowings | $ | 415.0 | $ | 115.0 | ||||||||||
| Repayments: | ||||||||||||||
| Senior Term Loan | (4.4) | — | ||||||||||||
| Senior Revolving Credit Facility | — | (70.0) | ||||||||||||
| Receivables Financing Agreement | (265.2) | (45.0) | ||||||||||||
| Finance leases | (1.7) | (0.5) | ||||||||||||
| Total repayments | $ | (271.3) | $ | (115.5) | ||||||||||
| Long-term debt borrowings (repayments), net | $ | 143.7 | $ | (0.5) | ||||||||||
Senior Credit Facility
On October 11, 2022, we entered into a new $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our previous senior credit facility (2021 Senior Credit Facility), which included outstanding term loans of $350.0 million and a senior revolving credit facility with aggregate commitments in an amount equal to $800.0 million. The Senior Credit Facility includes a senior term loan facility with aggregate commitments of $350.0 million (Term Loan Facility) and a senior revolving credit facility with aggregate commitments of $1,200.0 million (Senior Revolving Credit Facility). The Term Loan Facility was fully drawn on the closing date with the proceeds of the Term Loan Facility used to refinance the loans and commitments outstanding under the 2021 Senior Credit Facility. The Term Loan Facility requires principal amortization amounts payable beginning March 31, 2023 at a rate of 0.625% per quarter through the end of 2024, increasing to 1.250% per quarter thereafter until maturity. The maturity date for the Senior Credit Facility is October 11, 2027.
The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At June 30, 2023, we had $984.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had $215.0 million borrowed under the facility and issued $0.4 million of letters of credit.
We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of June 30, 2023, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As a result of our restrictive covenant related to the net leverage ratio, the maximum additional borrowings available to us could be limited in the future. The limitation, if an amendment or waiver from our lenders is not obtained, could restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of June 30, 2023, there were no covenants or other restrictions that limited our ability to borrow.
NOTE 10. PENSION PLANS AND RETIREMENT BENEFITS
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic employees participate in defined contribution plans. However, a portion of our bargaining hourly employees continue to participate in our domestic qualified defined benefit pension plans under a flat-benefit formula. Our funding policy for the qualified defined benefit pension plans is consistent with the requirements of federal laws and regulations. Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with local statutory practices.
Our domestic qualified defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger, or transfer thereafter takes place, plan benefits would
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automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).
We also provide certain postretirement healthcare (medical) and life insurance benefits for eligible active and retired domestic employees. The healthcare plans are contributory with participants’ contributions adjusted annually based on medical rates of inflation and plan experience.
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Components of Net Periodic Benefit (Income) Cost | ($ in millions) | ||||||||||||||||||||||
| Service cost | $ | 1.4 | $ | 2.2 | $ | 0.2 | $ | 0.3 | |||||||||||||||
| Interest cost | 26.4 | 15.5 | 0.4 | 0.3 | |||||||||||||||||||
| Expected return on plans’ assets | (32.7) | (34.3) | — | — | |||||||||||||||||||
| Amortization of prior service cost | (0.1) | (0.2) | 0.1 | 0.1 | |||||||||||||||||||
| Recognized actuarial loss | 0.3 | 8.6 | 0.2 | 0.5 | |||||||||||||||||||
| Net periodic benefit (income) cost | $ | (4.7) | $ | (8.2) | $ | 0.9 | $ | 1.2 | |||||||||||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Components of Net Periodic Benefit (Income) Cost | ($ in millions) | ||||||||||||||||||||||
| Service cost | $ | 2.8 | $ | 4.5 | $ | 0.4 | $ | 0.6 | |||||||||||||||
| Interest cost | 52.7 | 30.9 | 0.9 | 0.6 | |||||||||||||||||||
| Expected return on plans’ assets | (65.6) | (68.5) | — | — | |||||||||||||||||||
| Amortization of prior service cost | (0.2) | (0.4) | 0.1 | 0.1 | |||||||||||||||||||
| Recognized actuarial loss | 0.6 | 17.2 | 0.4 | 1.0 | |||||||||||||||||||
| Net periodic benefit (income) cost | $ | (9.7) | $ | (16.3) | $ | 1.8 | $ | 2.3 | |||||||||||||||
We made cash contributions to our international qualified defined benefit pension plans of $1.5 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively.
NOTE 11. INCOME TAXES
The effective tax rate for the three months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $12.0 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2023 of 25.4% was higher than the 21% U.S. federal statutory rate primarily due to state income tax and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions. The effective tax rate for the three months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $8.5 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2022 of 23.5% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.
The effective tax rate for the six months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit from remeasurement of deferred taxes due to a decrease in our state effective tax rates, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $17.2 million tax benefit. After
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giving consideration to these items, the effective tax rate for the six months ended June 30, 2023 of 24.5% was higher than the 21% U.S. federal statutory rate primarily due to state income tax and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions. The effective tax rate for the six months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $10.8 million tax benefit. After giving consideration to these items, the effective tax rate for the six months ended June 30, 2022 of 24.4% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.
As of June 30, 2023, we had $58.7 million of gross unrecognized tax benefits, which would have a net $56.8 million impact on the effective tax rate, if recognized. As of June 30, 2022, we had $46.0 million of gross unrecognized tax benefits, of which $45.4 million would have impacted the effective tax rate, if recognized. The amounts of unrecognized tax benefits were as follows:
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| ($ in millions) | |||||||||||
| Balance at beginning of year | $ | 51.6 | $ | 43.4 | |||||||
| Increases for prior year tax positions | 1.3 | 0.3 | |||||||||
| Decreases for prior year tax positions | (0.3) | (0.7) | |||||||||
| Increases for current year tax positions | 5.4 | 5.3 | |||||||||
| Foreign currency translation adjustments | 0.7 | (2.3) | |||||||||
| Balance at end of period | $ | 58.7 | $ | 46.0 | |||||||
As of June 30, 2023, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $38.1 million over the next twelve months. The anticipated reduction primarily relates to settlements with taxing authorities and the expiration of federal, state and foreign statutes of limitation.
We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. Additionally, examinations are ongoing in various states and foreign jurisdictions. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:
| Tax Years | |||||
| U.S. federal income tax | 2018 - 2022 | ||||
| U.S. state income tax | 2012 - 2022 | ||||
| Canadian federal income tax | 2016 - 2022 | ||||
| Brazil | 2016 - 2022 | ||||
| Germany | 2015 - 2022 | ||||
| China | 2014 - 2022 | ||||
| The Netherlands | 2016 - 2022 | ||||
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NOTE 12. CONTRIBUTING EMPLOYEE OWNERSHIP PLAN
The Contributing Employee Ownership Plan (CEOP) is a defined contribution plan available to essentially all domestic employees. We provide a contribution to an individual retirement contribution account maintained with the CEOP equal to an amount of between 5.0% and 7.5% of the employee’s eligible compensation. The defined contribution plan expense for the three months ended June 30, 2023 and 2022 was $8.6 million and $8.8 million, respectively, and for the six months ended June 30, 2023 and 2022 was $20.3 million and $19.4 million, respectively.
Company matching contributions are invested in the same investment allocation as the employee’s contribution. Our matching contributions for eligible employees for the three months ended June 30, 2023 and 2022 was $3.7 million and $3.6 million, respectively, and for the six months ended June 30, 2023 and 2022 was $7.4 million and $6.7 million, respectively.
NOTE 13. STOCK-BASED COMPENSATION
Stock-based compensation granted includes stock options, performance stock awards, restricted stock awards and deferred directors’ compensation. Stock-based compensation expense (benefit) was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||
| Stock-based compensation | $ | 8.3 | $ | 9.6 | $ | 12.8 | $ | 14.2 | |||||||||||||||
| Mark-to-market adjustments | (1.6) | (5.6) | (0.1) | (8.5) | |||||||||||||||||||
| Total expense | $ | 6.7 | $ | 4.0 | $ | 12.7 | $ | 5.7 | |||||||||||||||
The fair value of each stock option granted, which typically vests ratably over three years, but not less than one year, was estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| Grant date | 2023 | 2022 | ||||||
| Dividend yield | 1.32 | % | 1.60 | % | ||||
| Risk-free interest rate | 4.07 | % | 1.93 | % | ||||
| Expected volatility of Olin common stock | 47 | % | 48 | % | ||||
| Expected life (years) | 7.0 | 7.0 | ||||||
| Weighted-average grant fair value (per option) | $ | 28.74 | $ | 21.18 | ||||
| Weighted-average exercise price | $ | 60.55 | $ | 49.71 | ||||
| Options granted | 562,124 | 737,100 | ||||||
Dividend yield was based on our current dividend yield as of the option grant date. Risk-free interest rate was based on zero coupon U.S. Treasury securities rates for the expected life of the options. Expected volatility was based on our historical stock price movements, as we believe that historical experience is the best available indicator of the expected volatility. Expected life of the option grant was based on historical exercise and cancellation patterns, as we believe that historical experience is the best estimate for future exercise patterns.
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Performance share awards are denominated in shares of our stock and are paid half in cash and half in stock. Payouts for performance share awards are based on two criteria: (1) 50% of the award is based on Olin’s total shareholder returns (TSR) over the applicable three-year performance cycle in relation to the TSR over the same period among a portfolio of public companies which are selected in concert with outside compensation consultants and (2) 50% of the award is based on Olin’s net income over the applicable three-year performance cycle in relation to the net income goal for such period as set by the compensation committee of Olin’s board of directors. The expense associated with performance shares is recorded based on our estimate of our performance relative to the respective target. If an employee leaves the company before the end of the performance cycle, the performance shares may be prorated based on the number of months of the performance cycle worked and are settled in cash instead of half in cash and half in stock when the three-year performance cycle is completed.
The fair value of each performance share award based on net income was estimated on the date of grant, using the current stock price. The fair value of each performance share award based on TSR was estimated on the date of grant, using a Monte Carlo simulation model with the following weighted average assumptions:
| Grant date | 2023 | 2022 | ||||||
| Risk-free interest rate | 4.46 | % | 1.74 | % | ||||
| Expected volatility of Olin common stock | 52 | % | 59 | % | ||||
| Expected average volatility of peer companies | 42 | % | 47 | % | ||||
| Average correlation coefficient of peer companies | 0.51 | 0.51 | ||||||
| Expected life (years) | 3.0 | 3.0 | ||||||
| Grant date fair value (TSR based award) | $ | 86.98 | $ | 64.13 | ||||
| Grant date fair value (net income based award) | $ | 60.55 | $ | 49.71 | ||||
| Awards granted | 161,474 | 184,000 | ||||||
Risk-free interest rate was based on zero coupon U.S. Treasury securities rates for the expected life of the performance stock awards. Expected volatility of Olin common stock and peer companies was based on historical stock price movements, as we believe that historical experience is the best available indicator of the expected volatility. The average correlation coefficient of peer companies was determined based on historical trends of Olin’s common stock price compared to the peer companies. Expected life of the performance share award grant was based on historical exercise and cancellation patterns, as we believe that historical experience is the best estimate of future exercise patterns.
NOTE 14. SHAREHOLDERS’ EQUITY
On July 28, 2022, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $2.0 billion (the 2022 Repurchase Authorization). This program will terminate upon the purchase of $2.0 billion of common stock.
For the six months ended June 30, 2023 and 2022, 7.1 million and 12.6 million shares, respectively, of common stock were repurchased and retired at a total value of $393.0 million and $689.7 million, respectively. As of June 30, 2023, 13.0 million shares of common stock have been repurchased and retired at a total value of $687.8 million under the 2022 Repurchase Authorization program, and $1,312.2 million of common stock remained authorized to be repurchased under the program.
We issued 0.4 million and 0.9 million shares representing stock options exercised for the six months ended June 30, 2023 and 2022, respectively, with a total value of $11.9 million and $20.9 million, respectively.
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The following table represents the activity included in accumulated other comprehensive loss:
| Foreign Currency Translation Adjustment | Unrealized (Losses) Gains on Derivative Contracts (net of taxes) | Pension and Other Postretirement Benefits (net of taxes) | Accumulated Other Comprehensive Loss | ||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (10.9) | $ | 22.8 | $ | (499.9) | $ | (488.0) | |||||||||||||||
| Unrealized (losses) gains: | |||||||||||||||||||||||
| First quarter | (10.5) | 52.8 | — | 42.3 | |||||||||||||||||||
| Second quarter | (26.0) | (36.4) | — | (62.4) | |||||||||||||||||||
| Reclassification adjustments of (gains) losses into income: | |||||||||||||||||||||||
| First quarter | — | (12.4) | 8.9 | (3.5) | |||||||||||||||||||
| Second quarter | — | (36.1) | 9.0 | (27.1) | |||||||||||||||||||
| Tax (provision) benefit: | |||||||||||||||||||||||
| First quarter | — | (9.7) | (2.3) | (12.0) | |||||||||||||||||||
| Second quarter | — | 17.5 | (2.3) | 15.2 | |||||||||||||||||||
| Net change | (36.5) | (24.3) | 13.3 | (47.5) | |||||||||||||||||||
| Balance at June 30, 2022 | $ | (47.4) | $ | (1.5) | $ | (486.6) | $ | (535.5) | |||||||||||||||
| Balance at January 1, 2023 | $ | (38.6) | $ | (32.5) | $ | (424.8) | $ | (495.9) | |||||||||||||||
| Unrealized gains (losses): | |||||||||||||||||||||||
| First quarter | 5.5 | (20.8) | — | (15.3) | |||||||||||||||||||
| Second quarter | (8.5) | (10.7) | — | (19.2) | |||||||||||||||||||
| Reclassification adjustments of losses into income: | |||||||||||||||||||||||
| First quarter | — | 30.7 | 0.4 | 31.1 | |||||||||||||||||||
| Second quarter | — | 20.5 | 0.5 | 21.0 | |||||||||||||||||||
| Tax provision: | |||||||||||||||||||||||
| First quarter | — | (2.5) | (0.1) | (2.6) | |||||||||||||||||||
| Second quarter | — | (2.4) | (0.1) | (2.5) | |||||||||||||||||||
| Net change | (3.0) | 14.8 | 0.7 | 12.5 | |||||||||||||||||||
| Balance at June 30, 2023 | $ | (41.6) | $ | (17.7) | $ | (424.1) | $ | (483.4) | |||||||||||||||
Net income and cost of goods sold included reclassification adjustments for realized gains and losses on derivative contracts from accumulated other comprehensive loss.
Net income and non-operating pension income included the amortization of prior service costs and actuarial losses from accumulated other comprehensive loss.
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NOTE 15. SEGMENT INFORMATION
We define segment results as income (loss) before interest expense, interest income, other operating income (expense), non-operating pension income, other income and income taxes. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine and caustic soda used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. BWA is consolidated in our Chlor Alkali Products and Vinyls segment. Sales are attributed to geographic areas based on customer location.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales: | ($ in millions) | ||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | $ | 1,002.3 | $ | 1,403.5 | $ | 2,119.4 | $ | 2,648.7 | |||||||||||||||
| Epoxy | 333.8 | 772.7 | 694.5 | 1,562.2 | |||||||||||||||||||
| Winchester | 366.6 | 439.9 | 733.1 | 866.6 | |||||||||||||||||||
| Total sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
| Income (loss) before taxes: | |||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | $ | 180.1 | $ | 346.5 | $ | 426.0 | $ | 675.1 | |||||||||||||||
| Epoxy | (0.5) | 139.9 | 20.9 | 277.9 | |||||||||||||||||||
| Winchester | 64.7 | 119.3 | 125.7 | 238.2 | |||||||||||||||||||
| Corporate/other: | |||||||||||||||||||||||
| Environmental expense | (13.0) | (5.0) | (16.2) | (10.6) | |||||||||||||||||||
| Other corporate and unallocated costs | (22.4) | (35.0) | (56.7) | (65.3) | |||||||||||||||||||
| Restructuring charges | (19.2) | (3.6) | (80.1) | (6.7) | |||||||||||||||||||
| Other operating income | 27.0 | 3.3 | 27.5 | 3.3 | |||||||||||||||||||
| Interest expense | (45.3) | (34.5) | (87.7) | (67.4) | |||||||||||||||||||
| Interest income | 1.1 | 0.3 | 2.2 | 0.7 | |||||||||||||||||||
| Non-operating pension income | 5.4 | 9.5 | 11.1 | 19.1 | |||||||||||||||||||
| Income before taxes | $ | 177.9 | $ | 540.7 | $ | 372.7 | $ | 1,064.3 | |||||||||||||||
Other operating income for both the three and six months ended June 30, 2023 included a gain of $27.0 million for the sale of our domestic private trucking fleet and operations.
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales by geography: | ($ in millions) | ||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | |||||||||||||||||||||||
| United States | $ | 652.3 | $ | 946.4 | $ | 1,418.8 | $ | 1,765.8 | |||||||||||||||
| Europe | 45.0 | 82.4 | 117.4 | 152.8 | |||||||||||||||||||
| Other foreign | 305.0 | 374.7 | 583.2 | 730.1 | |||||||||||||||||||
| Total Chlor Alkali Products and Vinyls | 1,002.3 | 1,403.5 | 2,119.4 | 2,648.7 | |||||||||||||||||||
| Epoxy | |||||||||||||||||||||||
| United States | 148.8 | 252.8 | 300.4 | 495.7 | |||||||||||||||||||
| Europe | 77.4 | 354.5 | 174.0 | 713.4 | |||||||||||||||||||
| Other foreign | 107.6 | 165.4 | 220.1 | 353.1 | |||||||||||||||||||
| Total Epoxy | 333.8 | 772.7 | 694.5 | 1,562.2 | |||||||||||||||||||
| Winchester | |||||||||||||||||||||||
| United States | 325.3 | 401.2 | 655.2 | 803.1 | |||||||||||||||||||
| Europe | 15.8 | 16.8 | 23.6 | 19.5 | |||||||||||||||||||
| Other foreign | 25.5 | 21.9 | 54.3 | 44.0 | |||||||||||||||||||
| Total Winchester | 366.6 | 439.9 | 733.1 | 866.6 | |||||||||||||||||||
| Total | |||||||||||||||||||||||
| United States | 1,126.4 | 1,600.4 | 2,374.4 | 3,064.6 | |||||||||||||||||||
| Europe | 138.2 | 453.7 | 315.0 | 885.7 | |||||||||||||||||||
| Other foreign | 438.1 | 562.0 | 857.6 | 1,127.2 | |||||||||||||||||||
| Total sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales by product line: | ($ in millions) | ||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | |||||||||||||||||||||||
| Caustic soda | $ | 454.9 | $ | 635.1 | $ | 1,001.7 | $ | 1,154.0 | |||||||||||||||
| Chlorine, chlorine-derivatives and other products | 547.4 | 768.4 | 1,117.7 | 1,494.7 | |||||||||||||||||||
| Total Chlor Alkali Products and Vinyls | 1,002.3 | 1,403.5 | 2,119.4 | 2,648.7 | |||||||||||||||||||
| Epoxy | |||||||||||||||||||||||
| Aromatics and allylics | 128.7 | 384.1 | 271.0 | 776.1 | |||||||||||||||||||
| Epoxy resins | 205.1 | 388.6 | 423.5 | 786.1 | |||||||||||||||||||
| Total Epoxy | 333.8 | 772.7 | 694.5 | 1,562.2 | |||||||||||||||||||
| Winchester | |||||||||||||||||||||||
| Commercial | 199.4 | 320.6 | 399.9 | 634.8 | |||||||||||||||||||
| Military and law enforcement | 167.2 | 119.3 | 333.2 | 231.8 | |||||||||||||||||||
| Total Winchester | 366.6 | 439.9 | 733.1 | 866.6 | |||||||||||||||||||
| Total sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
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NOTE 16. ENVIRONMENTAL
We are party to various government and private environmental actions associated with past manufacturing facilities and former waste disposal sites. The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $151.8 million, $146.6 million and $148.9 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, of which $126.8 million, $121.6 million and $123.9 million, respectively, were classified as other noncurrent liabilities.
Environmental provisions charged to income, which are included in costs of goods sold, were $13.0 million and $5.0 million for the three months ended June 30, 2023 and 2022, respectively, and $16.2 million and $10.6 million for the six months ended June 30, 2023 and 2022, respectively.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other Potentially Responsible Parties (PRPs), our ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial position or results of operations.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Olin, K.A. Steel Chemicals (a wholly owned subsidiary of Olin) and other caustic soda producers were named as defendants in six purported class action civil lawsuits filed March 22, 25 and 26, 2019 and April 12, 2019 in the U.S. District Court for the Western District of New York. Those cases were consolidated on May 22, 2019; the claims in the consolidated “Direct Purchaser” lawsuit, as modified, are on behalf of the respective named plaintiffs and a putative class comprised of all persons and entities who purchased certain types of caustic soda in the U.S. directly from one or more of the defendants, their parents, predecessors, subsidiaries or affiliates at any time on or after October 1, 2015 through December 31, 2018. Olin, K.A. Steel Chemicals and other caustic soda producers were also named as defendants in two purported class action civil lawsuits filed July 25 and 29, 2019 in the U.S. District Court for the Western District of New York on behalf of the respective named plaintiffs and a putative class comprised of all persons and entities who purchased caustic soda in the U.S. indirectly from distributors at any time on or after October 1, 2015. Those cases were consolidated and a consolidated, amended complaint in the “Indirect Purchaser” lawsuit was filed on August 23, 2021. The other current defendants in the Direct Purchaser and Indirect Purchaser lawsuits are Occidental Chemical Corporation d/b/a OxyChem, Westlake Chemical Corporation, Shin-Etsu Chemical Co., Ltd., and Formosa Plastics Corporation, U.S.A. The Direct Purchaser and Indirect Purchaser lawsuits allege the defendants conspired to fix, raise, maintain and stabilize the price of caustic soda, restrict domestic (U.S.) supply of caustic soda and allocate caustic soda customers. Plaintiffs seek damages and injunctive relief.
Olin, K.A. Steel Chemical, Olin Canada ULC, 3229897 Nova Scotia Co. (wholly owned subsidiaries of Olin) and other alleged caustic soda producers were named as defendants in a proposed class action civil lawsuit filed on October 7, 2020 in the Quebec Superior Court (Province of Quebec) on behalf of the respective named plaintiff and a putative class comprised of all Canadian persons and entities who, between October 1, 2015 and the date of the eventual class action certification, directly or indirectly purchased caustic soda or products containing caustic soda, produced by one or more of the defendants. Olin, K.A. Steel Chemical, Olin Canada ULC, 3229897 Nova Scotia Co. and other alleged caustic soda producers were also named as defendants in a proposed class action civil lawsuit filed November 13, 2020 in the Federal Court of Canada on behalf of the respective named plaintiff and a putative class comprised of all legal persons in Canada who, at any time on or after October 1, 2015 to the present, directly or indirectly purchased caustic soda. The other defendants named in the two Canadian lawsuits are Occidental Petroleum Corporation, Occidental Chemical Corporation, Oxy Canada Sales, Inc., Westlake Chemical Corporation, Axiall Canada, Inc., Shin-Etsu Chemical Co., Ltd., Shintech Incorporated, Formosa Plastics Corporation, and Formosa Plastics Corporation, U.S.A. The lawsuits allege the defendants conspired to fix, raise, maintain control, and stabilize the price of caustic soda, divide and allocate markets, sales, customers and territories, fix, maintain, control, prevent, restrict, lessen or eliminate production and supply of caustic soda, and agree to idle capacity of production and/or refrain from increasing their production capacity. Plaintiffs seek damages, including punitive damages.
We believe we have meritorious legal positions and will continue to represent our interests vigorously in the above matters. Any losses related to these matters are not currently estimable because of unresolved questions of fact and law, but if resolved unfavorably to Olin, could have a material adverse effect on our financial position, cash flows or results of operations.
21
We, and our subsidiaries, are defendants in various other legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. As of June 30, 2023, December 31, 2022 and June 30, 2022, our condensed balance sheets included accrued liabilities for these other legal actions of $15.9 million, $14.4 million and $14.5 million, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these other legal actions will materially adversely affect our financial position, cash flows or results of operations.
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances, such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450 “Contingencies” and, therefore, do not record gain contingencies and recognize income until it is earned and realizable.
NOTE 18. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks. ASC 815 “Derivatives and Hedging” (ASC 815) requires an entity to recognize all derivatives as either assets or liabilities in the condensed balance sheets and measure those instruments at fair value. In accordance with ASC 815, we designate derivative contracts as cash flow hedges of forecasted purchases of commodities and forecasted interest payments related to variable-rate borrowings and designate certain interest rate swaps as fair value hedges of fixed-rate borrowings. We do not enter into any derivative instruments for trading or speculative purposes.
Energy costs, including electricity and natural gas, and certain raw materials used in our production processes are subject to price volatility. Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations. The majority of our commodity derivatives expire within one year.
We actively manage currency exposures that are associated with net monetary asset positions, currency purchases and sales commitments denominated in foreign currencies and foreign currency denominated assets and liabilities created in the normal course of business. We enter into forward sales and purchase contracts to manage currency risk to offset our net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At June 30, 2023, we had outstanding forward contracts to buy foreign currency with a notional value of $10.9 million and to sell foreign currency with a notional value of $126.1 million. All of the currency derivatives expire within one year and are for U.S. dollar (USD) equivalents. The counterparties to the forward contracts are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. At December 31, 2022, we had outstanding forward contracts to buy foreign currency with a notional value of $275.8 million and to sell foreign currency with a notional value of $110.7 million. At June 30, 2022, we had outstanding forward contracts to buy foreign currency with a notional value of $235.5 million and to sell foreign currency with a notional value of $81.0 million.
22
Cash Flow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive income (loss) until the hedged item is recognized in earnings.
We had the following notional amounts of outstanding commodity contracts that were entered into to hedge forecasted purchases:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||
| ($ in millions) | |||||||||||||||||
| Natural gas | $ | 79.3 | $ | 107.6 | $ | 98.0 | |||||||||||
| Ethane | 25.0 | 46.0 | 52.7 | ||||||||||||||
| Metals | 139.8 | 107.6 | 157.9 | ||||||||||||||
| Total notional | $ | 244.1 | $ | 261.2 | $ | 308.6 | |||||||||||
As of June 30, 2023, the counterparties to these commodity contracts were Wells Fargo Bank, N.A., Citibank, N.A., JPMorgan Chase Bank, National Association and Bank of America Corporation, all of which are major financial institutions.
We use cash flow hedges for certain raw material and energy costs such as copper, zinc, lead, ethane, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations associated with forecasted purchases of raw materials and energy used in our manufacturing process. At June 30, 2023, we had open derivative contract positions through 2028. If all open futures contracts had been settled on June 30, 2023, we would have recognized a pretax loss of $23.8 million.
If commodity prices were to remain at June 30, 2023 levels, approximately $16.7 million of deferred losses, net of tax, would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur.
Fair Value Hedges
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. We include the gain or loss on the hedged items (fixed-rate borrowings) in the same line item, interest expense, as the offsetting loss or gain on the related interest rate swaps.
Financial Statement Impacts
We present our derivative assets and liabilities in our condensed balance sheets on a net basis whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to manage and substantially reduce our potential counterparty credit risk.
23
The following table summarizes the location and fair value of the derivative instruments on our condensed balance sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||
| ($ in millions) | |||||||||||||||||
| Asset derivatives: | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Commodity contracts - gains | $ | 1.7 | $ | 2.4 | $ | 27.1 | |||||||||||
| Commodity contracts - losses | (1.5) | (0.9) | (1.3) | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign exchange contracts - gains | 0.6 | 0.3 | 2.2 | ||||||||||||||
| Foreign exchange contracts - losses | (0.5) | — | (0.2) | ||||||||||||||
| Total other current assets | 0.3 | 1.8 | 27.8 | ||||||||||||||
| Other assets | |||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Commodity contracts - gains | 3.2 | 4.0 | 5.4 | ||||||||||||||
| Total other assets | 3.2 | 4.0 | 5.4 | ||||||||||||||
Total asset derivatives(1) | $ | 3.5 | $ | 5.8 | $ | 33.2 | |||||||||||
| Liability derivatives: | |||||||||||||||||
| Accrued liabilities | |||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Commodity contracts - losses | $ | 23.7 | $ | 43.3 | $ | 38.7 | |||||||||||
| Commodity contracts - gains | (1.6) | (1.7) | (7.6) | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign exchange contracts - losses | 0.7 | 1.7 | — | ||||||||||||||
| Foreign exchange contracts - gains | — | (0.8) | — | ||||||||||||||
| Total accrued liabilities | 22.8 | 42.5 | 31.1 | ||||||||||||||
| Other liabilities | |||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Commodity contracts - losses | 5.4 | 8.0 | 2.0 | ||||||||||||||
| Commodity contracts - gains | (0.3) | (0.6) | — | ||||||||||||||
| Total other liabilities | 5.1 | 7.4 | 2.0 | ||||||||||||||
Total liability derivatives(1) | $ | 27.9 | $ | 49.9 | $ | 33.1 | |||||||||||
(1) Does not include the impact of cash collateral received from or provided to counterparties.
24
The following table summarizes the effects of derivative instruments on our condensed statements of operations:
| Amount of Gain (Loss) | |||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| Location of Gain (Loss) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Derivatives – Cash Flow Hedges | ($ in millions) | ||||||||||||||||||||||||||||
| Recognized in other comprehensive loss: | |||||||||||||||||||||||||||||
| Commodity contracts | ——— | $ | (10.7) | $ | (36.4) | $ | (31.5) | $ | 16.4 | ||||||||||||||||||||
| Reclassified from accumulated other comprehensive loss into income: | |||||||||||||||||||||||||||||
| Commodity contracts | Cost of goods sold | $ | (20.5) | $ | 36.1 | $ | (51.2) | $ | 48.5 | ||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||
| Commodity contracts | Cost of goods sold | $ | — | $ | — | $ | (0.6) | $ | 0.5 | ||||||||||||||||||||
| Foreign exchange contracts | Selling and administration | $ | (11.8) | $ | (8.5) | $ | (13.2) | $ | (27.1) | ||||||||||||||||||||
Credit Risk and Collateral
By using derivative instruments, we are exposed to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes us, thus creating a repayment risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, assume no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties. We monitor our positions and the credit ratings of our counterparties, and we do not anticipate non-performance by the counterparties.
Based on the agreements with our various counterparties, cash collateral is required to be provided when the net fair value of the derivatives, with the counterparty, exceeds a specific threshold. If the threshold is exceeded, cash is either provided by the counterparty to us if the value of the derivatives is our asset, or cash is provided by us to the counterparty if the value of the derivatives is our liability. As of June 30, 2023, December 31, 2022 and June 30, 2022, this threshold was not exceeded. In all instances where we are party to a master netting agreement, we offset the receivable or payable recognized upon payment of cash collateral against the fair value amounts recognized for derivative instruments that have also been offset under such master netting agreements.
NOTE 19. FAIR VALUE MEASUREMENTS
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the condensed balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 “Fair Value Measurements and Disclosures” (ASC 820) are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
25
Level 1 — Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 — Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter. The following table summarizes the assets and liabilities measured at fair value in the condensed balance sheets:
| Fair Value Measurements | |||||||||||||||||||||||
| Balance at June 30, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets | ($ in millions) | ||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 3.4 | $ | — | $ | 3.4 | |||||||||||||||
| Foreign exchange contracts | — | 0.1 | — | 0.1 | |||||||||||||||||||
| Total Assets | $ | — | $ | 3.5 | $ | — | $ | 3.5 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 27.2 | $ | — | $ | 27.2 | |||||||||||||||
| Foreign exchange contracts | — | 0.7 | — | 0.7 | |||||||||||||||||||
| Total Liabilities | $ | — | $ | 27.9 | $ | — | $ | 27.9 | |||||||||||||||
| Balance at December 31, 2022 | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 5.5 | $ | — | $ | 5.5 | |||||||||||||||
| Foreign exchange contracts | — | 0.3 | — | 0.3 | |||||||||||||||||||
| Total Assets | $ | — | $ | 5.8 | $ | — | $ | 5.8 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 49.0 | $ | — | $ | 49.0 | |||||||||||||||
| Foreign exchange contracts | — | 0.9 | — | 0.9 | |||||||||||||||||||
| Total Liabilities | $ | — | $ | 49.9 | $ | — | $ | 49.9 | |||||||||||||||
| Balance at June 30, 2022 | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 31.2 | $ | — | $ | 31.2 | |||||||||||||||
| Foreign exchange contracts | — | 2.0 | — | 2.0 | |||||||||||||||||||
| Total Assets | $ | — | $ | 33.2 | $ | — | $ | 33.2 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 33.1 | $ | — | $ | 33.1 | |||||||||||||||
| Foreign exchange contracts | — | — | — | — | |||||||||||||||||||
| Total Liabilities | $ | — | $ | 33.1 | $ | — | $ | 33.1 | |||||||||||||||
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Commodity Contracts
Commodity contract financial instruments were valued primarily based on prices and other relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for commodities. We use commodity derivative contracts for certain raw materials and energy costs such as copper, zinc, lead, ethane, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations.
Foreign Currency Contracts
Foreign currency contract financial instruments were valued primarily based on relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for currencies. We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated fair values due to the short-term maturities of these instruments. Since our long-term debt instruments may not be actively traded, the inputs used to measure the fair value of our long-term debt are based on current market rates for debt of similar risk and maturities and is classified as Level 2 in the fair value measurement hierarchy. As of June 30, 2023, December 31, 2022 and June 30, 2022, the fair value measurements of debt were $2,661.1 million, $2,517.7 million and $2,635.3 million, respectively.
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis as required by ASC 820. There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2023, December 31, 2022 and June 30, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Background
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO. We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. Our operations are concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. All of our business segments are capital intensive manufacturing businesses. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells a full range of epoxy materials and precursors, including aromatics (acetone and phenol), allyl chloride, epichlorohydrin, liquid epoxy resins, solid epoxy resins and systems and growth products such as converted epoxy resins and additives. The Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
Executive Summary
2023 Overview
Net income for the three and six months ended June 30, 2023 was $146.9 million and $303.2 million, respectively, compared to $422.1 million and $815.1 million, respectively, for the comparable prior year periods in 2022. The decrease in net income from the prior year periods was primarily due to lower operating results across all of our business segments. Net income for both the three and six months ended June 30, 2023 also reflects a gain of $27.0 million for the sale of our domestic private trucking fleet and operations for cash proceeds of $28.5 million.
On January 10, 2023, Blue Water Alliance (BWA), our joint venture with Mitsui & Co., Ltd. (Mitsui), began operations after receiving all necessary regulatory approvals. BWA is an independent global trader of ECU-based derivatives, focused on globally traded caustic soda and ethylene dichloride. Olin holds 51% interest and exercises control in BWA and the joint venture is consolidated in our consolidated financial statements with Mitsui’s 49% interest in BWA classified as noncontrolling interest. All intercompany accounts and transactions are eliminated in consolidation.
Chlor Alkali Products and Vinyls reported segment income of $180.1 million and $426.0 million for the three and six months ended June 30, 2023, respectively. Chlor Alkali Products and Vinyls segment results were lower than in the comparable prior year periods primarily due to lower volumes, partially offset by higher pricing across all products except vinyls intermediates. The Chlor Alkali Products and Vinyls second quarter 2023 segment results were also negatively impacted by $78.9 million for the maintenance turnaround and subsequent operating issues with the vinyl chloride monomer plant at the Freeport, TX facility resulting in higher costs and reduced profit from lost sales.
Epoxy reported segment loss of $0.5 million for the three months ended June 30, 2023 and segment income of $20.9 million for the six months ended June 30, 2023. Epoxy segment results were lower than in the comparable prior year periods primarily due to lower volumes and lower product pricing, which were both impacted by record exports out of Asia into Europe and North America markets. Partially offsetting the lower volumes and pricing were lower raw material and operating costs.
Winchester reported segment income of $64.7 million and $125.7 million for the three and six months ended June 30, 2023, respectively. Winchester segment results were lower than in the comparable prior year periods primarily due to lower commercial volumes and pricing, and higher commodity and operating costs, partially offset by higher domestic and international military sales.
Liquidity and Share Repurchases
During the six months ended June 30, 2023, we repurchased and retired 7.1 million shares of common stock at a total value of $393.0 million. As of June 30, 2023, we had $1,312.2 million of remaining authorized common stock to be purchased under our 2022 Repurchase Authorization Program.
During the six months ended June 30, 2023, we had net borrowings of $143.7 million with $215.0 million borrowed under our Senior Revolving Credit Facility and repayments of $65.2 million under our Receivables Financing Agreement. The net borrowings were used to fund our normal seasonal working capital growth.
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Consolidated Results of Operations
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| ($ in millions, except per share data) | |||||||||||||||||||||||
| Sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
| Cost of goods sold | 1,392.6 | 1,951.4 | 2,834.3 | 3,758.9 | |||||||||||||||||||
| Gross margin | 310.1 | 664.7 | 712.7 | 1,318.6 | |||||||||||||||||||
| Selling and administration | 101.2 | 99.0 | 213.0 | 203.3 | |||||||||||||||||||
| Restructuring charges | 19.2 | 3.6 | 80.1 | 6.7 | |||||||||||||||||||
| Other operating income | 27.0 | 3.3 | 27.5 | 3.3 | |||||||||||||||||||
| Operating income | 216.7 | 565.4 | 447.1 | 1,111.9 | |||||||||||||||||||
| Interest expense | 45.3 | 34.5 | 87.7 | 67.4 | |||||||||||||||||||
| Interest income | 1.1 | 0.3 | 2.2 | 0.7 | |||||||||||||||||||
| Non-operating pension income | 5.4 | 9.5 | 11.1 | 19.1 | |||||||||||||||||||
| Income before taxes | 177.9 | 540.7 | 372.7 | 1,064.3 | |||||||||||||||||||
| Income tax provision | 33.2 | 118.6 | 74.0 | 249.2 | |||||||||||||||||||
| Net income | $ | 144.7 | $ | 422.1 | $ | 298.7 | $ | 815.1 | |||||||||||||||
| Net loss attributable to noncontrolling interests | (2.2) | — | (4.5) | — | |||||||||||||||||||
| Net income attributable to Olin Corporation | $ | 146.9 | $ | 422.1 | $ | 303.2 | $ | 815.1 | |||||||||||||||
| Net income attributable to Olin Corporation per common share: | |||||||||||||||||||||||
| Basic | $ | 1.15 | $ | 2.83 | $ | 2.35 | $ | 5.37 | |||||||||||||||
| Diluted | $ | 1.13 | $ | 2.76 | $ | 2.29 | $ | 5.24 | |||||||||||||||
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Sales for the three months ended June 30, 2023 were $1,702.7 million compared to $2,616.1 million in the same period last year, a decrease of $913.4 million, or 35%. Epoxy sales decreased by $438.9 million, primarily due to lower volumes, including the closure of our cumene facility and one of our bisphenol (BisA) production lines, and lower product pricing. Chlor Alkali Products and Vinyls sales decreased by $401.2 million primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates. Winchester sales decreased by $73.3 million, primarily due to lower commercial sales volumes, partially offset by higher domestic and international military sales.
Gross margin decreased $354.6 million for the three months ended June 30, 2023 compared to the prior year. Chlor Alkali Products and Vinyls gross margin decreased by $157.3 million primarily due to lower volumes. Epoxy gross margin decreased by $139.9 million primarily due to lower volumes and lower product pricing. Winchester gross margin decreased by $53.1 million primarily due to lower commercial volumes. Gross margin as a percentage of sales decreased to 18% in 2023 from 25% in 2022.
Selling and administration expenses for the three months ended June 30, 2023 were $101.2 million, an increase of $2.2 million from the prior year. The increase was primarily due to higher stock-based compensation expense of $2.7 million, which includes mark-to-market adjustments. Selling and administration expenses as a percentage of sales increased to 6% in 2023 from 4% in 2022.
Restructuring charges for the three months ended June 30, 2023 and 2022 were $19.2 million and $3.6 million, respectively. The increase in charges was primarily due to our actions to configure our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model, which resulted in pretax restructuring charges of $13.3 million.
Other operating income for the three months ended June 30, 2023 included a gain of $27.0 million for the sale of our domestic private trucking fleet and operations.
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Interest expense increased by $10.8 million for the three months ended June 30, 2023 from the prior year primarily due to higher average interest rates.
Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs. Non-operating pension income was lower for the three months ended June 30, 2023 primarily due to an increase in the discount rate used to determine interest costs, partially offset by lower actuarial losses recognized to income.
The effective tax rate for the three months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $12.0 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2023 of 25.4% was higher than the 21% U.S. federal statutory rate primarily due to state income taxes and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions. The effective tax rate for the three months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $8.5 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2022 of 23.5% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Sales for the six months ended June 30, 2023 were $3,547.0 million compared to $5,077.5 million in the same period last year, a decrease of $1,530.5 million, or 30%. Epoxy sales decreased by $867.7 million, primarily due to lower volumes, including the closure of our cumene facility and one of our BisA production lines, and lower product pricing. Chlor Alkali Products and Vinyls sales decreased by $529.3 million primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates. Winchester sales decreased by $133.5 million, primarily due to lower commercial sales volumes, partially offset by higher domestic and international military sales.
Gross margin decreased $605.9 million for the six months ended June 30, 2023 compared to the prior year. Epoxy gross margin decreased by $260.3 million primarily due to lower volumes and lower product pricing. Chlor Alkali Products and Vinyls gross margin decreased by $232.5 million primarily due to lower volumes, partially offset by higher prices across all products except vinyls intermediates. Winchester gross margin decreased by $111.1 million primarily due to lower commercial volumes. Gross margin as a percentage of sales decreased to 20% in 2023 from 26% in 2022.
Selling and administration expenses for the six months ended June 30, 2023 were $213.0 million, an increase of $9.7 million from the prior year. The increase was primarily due to higher stock-based compensation expense of $7.0 million, which includes mark-to-market adjustments. Selling and administration expenses as a percentage of sales increased to 6% in 2023 from 4% in 2022.
Restructuring charges for the six months ended June 30, 2023 and 2022 were $80.1 million and $6.7 million, respectively. The increase in charges was primarily due to our actions to configure our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model, which resulted in pretax restructuring charges of $71.1 million.
Other operating income for the six months ended June 30, 2023 included a gain of $27.0 million for the sale of our domestic private trucking fleet and operations.
Interest expense increased by $20.3 million for the six months ended June 30, 2023 from the prior year primarily due to higher average interest rates.
Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs. Non-operating pension income was lower for the six months ended June 30, 2023 primarily due to an increase in the discount rate used to determine interest costs, partially offset by lower actuarial losses recognized to income.
The effective tax rate for the six months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit from remeasurement of deferred taxes due to a decrease in our state effective tax rates, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $17.2 million tax benefit. After giving consideration to these items, the effective tax rate for the six months ended June 30, 2023 of 24.5% was higher than
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the 21% U.S. federal statutory rate primarily due to state and foreign income taxes and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions. The effective tax rate for the six months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $10.8 million tax benefit. After giving consideration to these items, the effective tax rate for the six months ended June 30, 2022 of 24.4% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.
Segment Results
We define segment results as income (loss) before interest expense, interest income, other operating income (expense), non-operating pension income, other income and income taxes. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine and caustic soda used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. BWA is consolidated in our Chlor Alkali Products and Vinyls segment.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales: | ($ in millions) | ||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | $ | 1,002.3 | $ | 1,403.5 | $ | 2,119.4 | $ | 2,648.7 | |||||||||||||||
| Epoxy | 333.8 | 772.7 | 694.5 | 1,562.2 | |||||||||||||||||||
| Winchester | 366.6 | 439.9 | 733.1 | 866.6 | |||||||||||||||||||
| Total sales | $ | 1,702.7 | $ | 2,616.1 | $ | 3,547.0 | $ | 5,077.5 | |||||||||||||||
| Income (loss) before taxes: | |||||||||||||||||||||||
| Chlor Alkali Products and Vinyls | $ | 180.1 | $ | 346.5 | $ | 426.0 | $ | 675.1 | |||||||||||||||
| Epoxy | (0.5) | 139.9 | 20.9 | 277.9 | |||||||||||||||||||
| Winchester | 64.7 | 119.3 | 125.7 | 238.2 | |||||||||||||||||||
| Corporate/other: | |||||||||||||||||||||||
| Environmental expense | (13.0) | (5.0) | (16.2) | (10.6) | |||||||||||||||||||
| Other corporate and unallocated costs | (22.4) | (35.0) | (56.7) | (65.3) | |||||||||||||||||||
| Restructuring charges | (19.2) | (3.6) | (80.1) | (6.7) | |||||||||||||||||||
| Other operating income | 27.0 | 3.3 | 27.5 | 3.3 | |||||||||||||||||||
| Interest expense | (45.3) | (34.5) | (87.7) | (67.4) | |||||||||||||||||||
| Interest income | 1.1 | 0.3 | 2.2 | 0.7 | |||||||||||||||||||
| Non-operating pension income | 5.4 | 9.5 | 11.1 | 19.1 | |||||||||||||||||||
| Income before taxes | $ | 177.9 | $ | 540.7 | $ | 372.7 | $ | 1,064.3 | |||||||||||||||
Chlor Alkali Products and Vinyls
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Chlor Alkali Products and Vinyls sales for the three months ended June 30, 2023 were $1,002.3 million compared to $1,403.5 million for the same period in 2022, a decrease of $401.2 million, or 29%. The sales decrease was primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.
Chlor Alkali Products and Vinyls segment income was $180.1 million for the three months ended June 30, 2023 compared to $346.5 million for the same period in 2022. The decrease in segment results of $166.4 million was due to lower volumes across all products ($276.3 million), partially offset by lower raw material and operating costs ($65.7 million), higher prices across all products except vinyls intermediates ($28.3 million) and lower costs associated with product purchased from other parties ($15.9 million). Chlor Alkali Products and Vinyls second quarter 2023 segment results were negatively impacted by the maintenance turnaround and subsequent operating issues with the vinyl chloride monomer plant at the Freeport, TX facility, resulting in higher costs and reduced profit from lost sales. Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $113.3 million and $120.4 million for the three months ended June 30, 2023 and 2022, respectively.
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Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Chlor Alkali Products and Vinyls sales for the six months ended June 30, 2023 were $2,119.4 million compared to $2,648.7 million for the same period in 2022, a decrease of $529.3 million, or 20%. The sales decrease was primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.
Chlor Alkali Products and Vinyls segment income was $426.0 million for the six months ended June 30, 2023 compared to $675.1 million for the same period in 2022. The decrease in segment results of $249.1 million was due to lower volumes across all products ($457.8 million) and increased costs associated with product purchased from other parties ($16.2 million), partially offset by higher prices across all products except vinyls intermediates ($151.3 million) and lower raw material and operating costs ($73.6 million). Chlor Alkali Products and Vinyls second quarter 2023 segment results were negatively impacted by the maintenance turnaround and subsequent operating issues with the vinyl chloride monomer plant at the Freeport, TX facility, resulting in higher costs and reduced profit from lost sales. Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $227.7 million and $243.5 million for the six months ended June 30, 2023 and 2022, respectively.
Epoxy
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Epoxy sales for the three months ended June 30, 2023 were $333.8 million compared to $772.7 million for the same period in 2022, a decrease of $438.9 million, or 57%. The sales decrease was primarily due to the closure of our cumene facility and one of our BisA production lines ($206.9 million), lower volumes ($118.7 million), lower product prices ($110.8 million) and an unfavorable effect of foreign currency translation ($2.5 million).
Epoxy segment loss was $0.5 million for the three months ended June 30, 2023 compared to segment income of $139.9 million for the same period in 2022. The decrease in segment results of $140.4 million was primarily due to lower product prices ($110.8 million) and lower volumes ($75.6 million), which were both impacted by record exports out of Asia into Europe and North America markets, partially offset by lower raw material and operating costs ($46.0 million). A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros. Epoxy segment results included depreciation and amortization expense of $15.2 million and $20.4 million for the three months ended June 30, 2023 and 2022, respectively.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Epoxy sales for the six months ended June 30, 2023 were $694.5 million compared to $1,562.2 million for the same period in 2022, a decrease of $867.7 million, or 56%. The sales decrease was primarily due to the closure of our cumene facility and one of our BisA production lines ($391.6 million), lower volumes ($312.7 million), lower product prices ($153.4 million) and an unfavorable effect of foreign currency translation ($10.0 million).
Epoxy segment income was $20.9 million for the six months ended June 30, 2023 compared to $277.9 million for the same period in 2022. The decrease in segment results of $257.0 million was primarily due to lower volumes ($193.1 million) and lower product prices ($153.4 million), which were both impacted by record exports out of Asia into Europe and North America markets, partially offset by lower raw material and operating costs ($89.5 million). A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros. Epoxy segment results included depreciation and amortization expense of $29.7 million and $40.8 million for the six months ended June 30, 2023 and 2022, respectively.
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Winchester
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Winchester sales were $366.6 million for the three months ended June 30, 2023 compared to $439.9 million for the same period in 2022, a decrease of $73.3 million, or 17%. The decrease was due to lower ammunition sales to commercial customers ($121.2 million), partially offset by higher sales to domestic and international military customers ($46.9 million) and law enforcement agencies ($1.0 million). Commercial ammunition sales were primarily impacted by lower volumes.
Winchester segment income was $64.7 million for the three months ended June 30, 2023 compared to $119.3 million for the same period in 2022, a decrease of $54.6 million. The decrease in segment results was due to lower volumes ($43.8 million), lower product pricing ($7.7 million) and higher commodity and operating costs ($3.1 million). Winchester segment income included depreciation and amortization expense of $6.3 million and $5.9 million for the three months ended June 30, 2023 and 2022, respectively.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Winchester sales were $733.1 million for the six months ended June 30, 2023 compared to $866.6 million for the same period in 2022, a decrease of $133.5 million, or 15%. The decrease was due to lower ammunition sales to commercial customers ($234.9 million), partially offset by higher sales to domestic and international military customers ($92.8 million) and law enforcement agencies ($8.6 million). Commercial ammunition sales were primarily impacted by lower volumes.
Winchester segment income was $125.7 million for the six months ended June 30, 2023 compared to $238.2 million for the same period in 2022, a decrease of $112.5 million. The decrease in segment results was due to lower volumes ($89.7 million), higher commodity and operating costs ($14.1 million) and lower product pricing ($8.7 million). Winchester segment income included depreciation and amortization expense of $12.5 million and $12.1 million for the six months ended June 30, 2023 and 2022, respectively.
Corporate/Other
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
For the three months ended June 30, 2023, charges to income for environmental investigatory and remedial activities were $13.0 million compared to $5.0 million for the three months ended June 30, 2022. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the three months ended June 30, 2023, other corporate and unallocated costs were $22.4 million compared to $35.0 million for the three months ended June 30, 2022, a decrease of $12.6 million. The decrease was primarily due to lower variable incentive compensation costs ($6.4 million), which includes mark-to-market adjustments on stock-based compensation expense, and lower legal and legal-related settlement expenses ($4.5 million).
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
For the six months ended June 30, 2023, charges to income for environmental investigatory and remedial activities were $16.2 million compared to $10.6 million for the six months ended June 30, 2022. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.
For the six months ended June 30, 2023, other corporate and unallocated costs were $56.7 million compared to $65.3 million for the six months ended June 30, 2022, a decrease of $8.6 million. The decrease was primarily due to lower legal and legal-related settlement expenses ($5.5 million) and lower variable incentive compensation costs ($2.0 million), which includes mark-to-market adjustments on stock-based compensation expense.
Restructurings
As a result of weak global resin demand and higher cost structures within the European region, we began a review of our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model.
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As part of this review we announced operational cessations in the fourth quarter of 2022 and the first and second quarters of 2023 (collectively, Epoxy Optimization Plan). The foregoing actions will complete the rightsizing plan of our Epoxy business.
On June 20, 2023, we announced we had made the decision to cease all remaining operations at our Gumi, South Korea facility, reduce epoxy resin capacity at our Freeport, TX facility, and reduce our sales and support staffing across Asia. These actions are expected to be substantially completed by December 31, 2023. On March 21, 2023, we announced we had made the decision to cease operations at our cumene facility in Terneuzen, Netherlands and solid epoxy resin production at our facilities in Gumi, South Korea and Guaruja, Brazil. The closures were completed in the first quarter 2023. During the fourth quarter of 2022, we committed to and completed a plan to close down one of our BisA production lines at our Stade, Germany site. For the three and six months ended June 30, 2023, we recorded pretax restructuring charges of $13.3 million and $71.1 million, respectively, for the write-off of equipment and facility costs, employee severance and related benefit costs, contract termination costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2026 of approximately $50 million related to these actions.
Outlook
In 2023, we expect the on-going challenging global economic conditions to continue as we expect operating results to decline across all our business segments compared to 2022. We expect our Chlor Alkali Products and Vinyls business to continue to be negatively impacted during the third quarter 2023 by the operating issues with the vinyl chloride monomer plant at the Freeport, TX facility. We also expect Chlor Alkali Products and Vinyls to experience declining caustic soda market conditions and continued vinyls intermediates demand weakness in the third quarter 2023. We expect our Epoxy business to continue to be challenged by European and North American demand weakness, aggravated by elevated Asian exports and a muted recovery of Chinese domestic demand. We expect the third quarter 2023 operating results from our Chemical businesses to be lower than second quarter 2023 levels. We expect our Winchester business third quarter 2023 results to increase sequentially from second quarter 2023 levels as we anticipate international and domestic military growth. Overall, we expect Olin’s third quarter 2023 operating results to decline from second quarter 2023 levels.
Other Corporate and Unallocated costs in 2023 are expected to be comparable with the $131.5 million in 2022.
During 2023, we anticipate environmental expenses in the $25 million to $30 million range, compared to $23.2 million in 2022.
We expect non-operating pension income in 2023 to be in the $20 million to $25 million range compared to $38.7 million in 2022. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2023. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less than $5 million in 2023.
In 2023, we currently expect our capital spending to be in the $200 million to $250 million range and we expect to make payments under other long-term supply contracts in the $50 million to $100 million range for energy modernization on the U.S. Gulf Coast. We expect 2023 depreciation and amortization expense to be in the $525 million to $550 million range.
We currently believe the 2023 effective tax rates will be in the 25% range and our cash tax rate to be in the 35% to 40% range as a result of previously deferred international tax payments expected to be made in 2023.
Environmental Matters
Environmental provisions charged to income, which are included in costs of goods sold, were $13.0 million and $5.0 million for the three months ended June 30, 2023 and 2022, respectively, and were $16.2 million and $10.6 million for the six months ended June 30, 2023 and 2022, respectively.
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Our liabilities for future environmental expenditures were as follows:
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| ($ in millions) | |||||||||||
| Balance at beginning of year | $ | 146.6 | $ | 147.3 | |||||||
| Charges to income | 16.2 | 10.6 | |||||||||
| Remedial and investigatory spending | (11.0) | (9.0) | |||||||||
| Foreign currency translation adjustments | — | — | |||||||||
| Balance at end of period | $ | 151.8 | $ | 148.9 | |||||||
Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in 2023 for investigatory and remedial efforts, the timing of which is subject to regulatory approvals and other uncertainties, is estimated to be approximately $25 million. Cash outlays for remedial and investigatory activities associated with former waste disposal sites and past manufacturing operations were not charged to income, but instead, were charged to reserves established for such costs identified and expensed to income in prior periods. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we expect to incur to protect our interests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $8.9 million at June 30, 2023. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M. Charges to income for investigatory and remedial efforts may be material to our operating results in 2023.
The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $151.8 million, $146.6 million and $148.9 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, of which $126.8 million, $121.6 million and $123.9 million, respectively, were classified as other noncurrent liabilities. These amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to income may be made for additional liabilities.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other Potentially Responsible Parties (PRPs), our ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial position or results of operations.
Legal Matters and Contingencies
Discussion of legal matters and contingencies can be referred to under Item 1, within Note 17, “Commitments and Contingencies.”
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Liquidity and Capital Resources
Cash Flow Data
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Provided By (Used For) | ($ in millions) | ||||||||||
| Net operating activities | $ | 343.0 | $ | 959.2 | |||||||
| Capital expenditures | (128.8) | (103.9) | |||||||||
| Payments under other long-term supply contracts | (29.6) | — | |||||||||
| Proceeds from disposition of property, plant and equipment | 28.8 | — | |||||||||
| Long-term debt borrowings (repayments), net | 143.7 | (0.5) | |||||||||
| Common stock repurchased and retired | (393.0) | (689.7) | |||||||||
| Stock options exercised | 11.9 | 20.9 | |||||||||
| Contributions received from noncontrolling interests | 44.1 | — | |||||||||
| Net financing activities | (245.1) | (730.2) | |||||||||
Operating Activities
For the six months ended June 30, 2023, cash provided by operating activities decreased by $616.2 million from the six months ended June 30, 2022, primarily due to a decrease in operating results and an increase in working capital compared with the prior year. For the six months ended June 30, 2023, working capital increased $213.7 million compared to an increase of $183.6 million for the six months ended June 30, 2022. The working capital increase reflects normal seasonal working capital growth and incremental working capital associated with BWA. Inventories increased by $137.9 million from December 31, 2022. Accounts payable and accrued liabilities decreased $141.1 million primarily as a result of timing of payments during the first half of 2023.
Investing Activities
Capital spending of $128.8 million for the six months ended June 30, 2023 compared to $103.9 million for the corresponding period in 2022. For the total year 2023, we currently expect our capital spending to be in the $200 million to $250 million range. We expect 2023 depreciation and amortization expense to be in the $525 million to $550 million range.
For the six months ended June 30, 2023, payments under other long-term supply contracts was $29.6 million for energy modernization on the U.S. Gulf Coast and we expect to make payments for the total year 2023 in the $50 million to $100 million range.
For the six months ended June 30, 2023, we received $28.5 million of cash proceeds for the sale of our domestic private trucking fleet and operations.
Financing Activities
For the six months ended June 30, 2023, we had long-term debt borrowings, net of long-term debt repayments of $143.7 million. For the six months ended June 30, 2022, we had long-term debt repayments, net of long-term debt borrowings of $0.5 million.
For the six months ended June 30, 2023 and 2022, 7.1 million and 12.6 million shares, respectively, of common stock were repurchased and retired at a total value of $393.0 million and $689.7 million, respectively.
We issued 0.4 million and 0.9 million shares representing stock options exercised for the six months ended June 30, 2023 and 2022, respectively, with a total value of $11.9 million and $20.9 million, respectively.
For the six months ended June 30, 2023, we received $44.1 million of cash contributions from noncontrolling interests for BWA.
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The percent of total debt to total capitalization increased to 52.5% as of June 30, 2023 from 50.4% as of December 31, 2022, primarily as a result of a higher level of debt outstanding, partially offset by lower shareholders’ equity, primarily due to common stock repurchases partially offset by our operating results.
In the first and second quarters of 2023 and 2022, we paid a quarterly dividend of $0.20 per share. Dividends paid for the six months ended June 30, 2023 and 2022, were $51.8 million and $60.9 million, respectively. On July 27, 2023, our Board of Directors declared a dividend of $0.20 per share on our common stock, payable on September 8, 2023 to shareholders of record on August 10, 2023.
The payment of cash dividends is subject to the discretion of our Board of Directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial condition, our capital requirements and other factors deemed relevant by our Board of Directors. In the future, our Board of Directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
Liquidity and Other Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and borrowings under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities. Additionally, we believe that we have access to the high-yield debt and equity markets.
On October 11, 2022, we entered into a new $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our previous senior credit facility (2021 Senior Credit Facility). The Senior Credit Facility includes a senior term loan facility with aggregate commitments of $350.0 million (Term Loan Facility) and a senior revolving credit facility with aggregate commitments of $1,200.0 million (Senior Revolving Credit Facility). The Term Loan Facility was fully drawn on the closing date with the proceeds of the Term Loan Facility used to refinance the loans and commitments outstanding under the 2021 Senior Credit Facility. The Term Loan Facility requires principal amortization amounts payable beginning March 31, 2023 at a rate of 0.625% per quarter through the end of 2024, increasing to 1.250% per quarter thereafter until maturity. The maturity date for the Senior Credit Facility is October 11, 2027.
The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At June 30, 2023, we had $984.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had $215.0 million borrowed under the facility and issued $0.4 million of letters of credit.
We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of June 30, 2023, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As a result of our restrictive covenant related to the net leverage ratio, the maximum additional borrowings available to us could be limited in the future. The limitation, if an amendment or waiver from our lenders is not obtained, could restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of June 30, 2023, there were no covenants or other restrictions that limited our ability to borrow.
The overall decrease in cash for the six months ended June 30, 2023 primarily reflects our share repurchases, capital spending, and dividends paid, partially offset by our debt borrowings, operating results and contributions from noncontrolling interests. We believe, based on current and projected levels of cash flow from our operations, together with our cash and cash equivalents on hand and the availability to borrow under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, fund our operating needs, working capital and our capital expenditure requirements, and comply with the financial ratios in our debt agreements.
On July 28, 2022, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $2.0 billion. This program will terminate upon the purchase of $2.0 billion of common stock.
For the six months ended June 30, 2023, 7.1 million shares of common stock have been repurchased and retired at a total value of $393.0 million. As of June 30, 2023, 13.0 million shares of common stock have been repurchased and retired at a total value of $687.8 million under the 2022 Repurchase Authorization program, and $1,312.2 million of common stock remained authorized to be repurchased under the program.
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We maintain a $425.0 million Receivables Financing Agreement (Receivables Financing Agreement) that is scheduled to mature on October 14, 2025. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the net leverage ratio covenant that is contained in the Senior Credit Facility. As of June 30, 2023, December 31, 2022 and June 30, 2022, we had $234.8 million, $300.0 million and $300.0 million, respectively, drawn under the agreement. As of June 30, 2023, $478.6 million of our trade receivables were pledged as collateral and we had $120.0 million of additional borrowing capacity under the Receivables Financing Agreement, which was limited by our borrowing base.
Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR Facilities, certain of our domestic subsidiaries may sell their accounts receivable up to a maximum of $207.7 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €42.9 million. We will continue to service the outstanding accounts sold. These receivables qualify for sales treatment under ASC 860 and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows. The gross amount of receivables sold for the six months ended June 30, 2023 and 2022 totaled $532.6 million and $477.2 million, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The factoring discount was $1.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $2.5 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of June 30, 2023, December 31, 2022 and June 30, 2022. As of June 30, 2023, December 31, 2022 and June 30, 2022, $77.2 million, $111.8 million and $109.9 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.
At June 30, 2023, we had total letters of credit of $79.0 million outstanding, of which $0.4 million were issued under our Senior Revolving Credit Facility. The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations, certain international payment obligations and certain international pension funding requirements.
Our current debt structure is used to fund our business operations. As of June 30, 2023, we had long-term borrowings, including the current installment and finance lease obligations, of $2,726.3 million, of which $951.3 million were at variable rates. Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount of $18.5 million as of June 30, 2023. Commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are additional sources of liquidity.
Credit Ratings
We receive ratings from three independent credit rating agencies: Fitch Ratings (Fitch), Moody's Investor Service (Moody's) and Standard & Poor's (S&P). The following table summarizes our credit ratings as of June 30, 2023:
| Credit Ratings | Long-term Rating | Outlook | ||||||||||||
| Fitch Ratings | BBB- | Stable | ||||||||||||
| Moody’s Investors Service | Ba1 | Stable | ||||||||||||
| Standard & Poor’s | BB+ | Positive | ||||||||||||
On January 12, 2023, Fitch assigned a first-time inaugural rating of BBB- and a stable outlook. On June 30, 2023, Moody’s affirmed Olin’s Ba1 rating and stable outlook. On April 4, 2023, S&P affirmed Olin’s BB+ rating and positive outlook.
Contractual Obligations
Purchasing commitments are utilized in our normal course of business for our projected needs. We have supply contracts with various third parties for certain raw materials including ethylene, electricity, propylene and benzene. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials.
There have been no material changes in our contractual obligations and commitments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 other than those which occur in the ordinary course of business.
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New Accounting Pronouncements
Discussion of new accounting pronouncements can be referred to under Item 1, within Note 2, “Recent Accounting Pronouncements.”
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks.
Energy costs, including electricity and natural gas, and certain raw materials used in our production processes are subject to price volatility. Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations. As of June 30, 2023, we maintained open positions on commodity contracts with a notional value totaling $244.1 million ($261.2 million at December 31, 2022 and $308.6 million at June 30, 2022). Assuming a hypothetical 10% increase in commodity prices which are currently hedged, as of June 30, 2023, we would experience a $24.4 million ($26.1 million at December 31, 2022 and $30.9 million at June 30, 2022) increase in our cost of inventory purchased, which would be substantially offset by a corresponding increase in the value of related hedging instruments.
We transact business in various foreign currencies other than the USD which exposes us to movements in exchange rates which may impact revenue and expenses, assets and liabilities and cash flows. Our significant foreign currency exposure is denominated with European currencies, primarily the Euro, although exposures also exist in other currencies of Asia Pacific, Latin America, Middle East and Africa. For all derivative positions, we evaluated the effects of a 10% shift in exchange rates between those currencies and the USD, holding all other assumptions constant. Unfavorable currency movements of 10% would negatively affect the fair values of the derivatives held to hedge currency exposures by $13.7 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.
We are exposed to changes in interest rates primarily as a result of our investing and financing activities. Our current debt structure is used to fund business operations, and commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are additional sources of liquidity. As of June 30, 2023, December 31, 2022 and June 30, 2022, we had long-term borrowings, including current installments and finance lease obligations, of $2,726.3 million, $2,580.7 million and $2,780.7 million, respectively, of which $951.3 million, $805.9 million and $805.9 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, were issued at variable rates. Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount.
Assuming no changes in the $951.3 million of variable-rate debt levels from June 30, 2023, we estimate that a hypothetical change of 100-basis points in the secured overnight financing rate (SOFR) would impact annual interest expense by $9.5 million.
If the actual changes in commodities, foreign currency, or interest pricing is substantially different than expected, the net impact of commodity risk, foreign currency risk, or interest rate risk on our cash flow may be materially different than that disclosed above.
We do not enter into any derivative financial instruments for speculative purposes.
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Item 4. Controls and Procedures.
Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information Olin is required to disclose in the reports that it files or submits with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that information we are required to disclose in such reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q includes forward-looking statements. These statements relate to analyses and other information that are based on management’s beliefs, certain assumptions made by management, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which we and our various segments operate. The statements contained in this quarterly report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.
We have used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “outlook,” “project,” “estimate,” “forecast,” “optimistic,” “target,” and variations of such words and similar expressions in this quarterly report to identify such forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding the Company’s intent to repurchase, from time to time, the Company’s common stock. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The payment of cash dividends is subject to the discretion of our Board of Directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial conditions, our capital requirements and other factors deemed relevant by our Board of Directors. In the future, our Board of Directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, and our Quarterly Reports on Form 10-Q and other reports furnished or filed with the SEC, include, but are not limited to, the following:
Business, Industry and Operational Risks
•sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us;
•declines in average selling prices for our products and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products;
•unsuccessful execution of our strategic operating model, which prioritizes Electrochemical Unit (ECU) margins over sales volumes;
•failure to control costs and inflation impacts or failure to achieve targeted cost reductions;
•our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
•the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions, production hazards and weather-related events;
•availability of and/or higher-than-expected costs of raw material, energy, transportation, and/or logistics;
•the failure or an interruption of our information technology systems;
•failure to identify, attract, develop, retain and motivate qualified employees throughout the organization;
•our inability to complete future acquisitions or joint venture transactions or successfully integrate them into our business;
•risks associated with our international sales and operations, including economic, political or regulatory changes;
•the negative impact from a public health crisis, such as a pandemic, endemic or outbreak of infectious disease, including the COVID-19 pandemic and the global response to the pandemic, including without limitation adverse impacts in complying with governmental mandates;
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•our indebtedness and debt service obligations;
•weak industry conditions affecting our ability to comply with the financial maintenance covenants in our senior credit facility;
•adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital;
•the effects of any declines in global equity markets on asset values and any declines in interest rates or other significant assumptions used to value the liabilities in, and funding of, our pension plans;
•our long-range plan assumptions not being realized causing a non-cash impairment charge of long-lived assets;
Legal, Environmental and Regulatory Risks
•changes in, or failure to comply with, legislation or government regulations or policies, including changes regarding our ability to manufacture or use certain products and changes within the international markets in which we operate;
•new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
•unexpected outcomes from legal or regulatory claims and proceedings;
•costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
•various risks associated with our Lake City U.S. Army Ammunition Plant contract and performance under other governmental contracts; and
•failure to effectively manage environmental, social and governance (ESG) issues and related regulations, including climate change and sustainability.
All of our forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.
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Part II — Other Information
Item 1. Legal Proceedings.
Discussion of legal matters and contingencies can be referred to under Item 1, within Note 17, “Commitments and Contingencies.”
Item 1A. Risk Factors.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not Applicable.
(b) Not Applicable.
(c)
Issuer Purchases of Equity Securities
| Period | Total Number of Shares (or Units) Purchased(1) | Average Price Paid per Share (or Unit)(2) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||
| April 1-30, 2023 | 1,062,500 | $ | 56.06 | 1,062,500 | |||||||||||||||||||||||||
| May 1-31, 2023 | 1,826,906 | $ | 52.11 | 1,826,906 | |||||||||||||||||||||||||
| June 1-30, 2023 | 592,451 | $ | 51.15 | 592,451 | |||||||||||||||||||||||||
| Total | $ | 1,312,165,921 | (1) | ||||||||||||||||||||||||||
(1)On July 28, 2022, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $2.0 billion (the 2022 Repurchase Authorization). This program will terminate upon the purchase of $2.0 billion of common stock. Through June 30, 2023, 13,036,222 shares of common stock had been repurchased and retired at a total value of $687,834,079 and $1,312,165,921 of common stock remained available for purchase under the 2022 Repurchase Authorization program.
(2)Average price paid per share includes transaction costs including commissions and fees paid to acquire the shares and excludes costs accrued associated with 1% excise tax on the fair market value of stock repurchases.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
(a) Not Applicable.
(b) Not Applicable.
(c) During the three months ended June 30, 2023, no director or officer of Olin adopted, terminated or modified a ‘Rule 10b5-1 trading arrangement’ or ‘non-Rule 10b5-1 trading arrangement,’ as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits.
| Exhibit | Exhibit Description | |||||||
| 3.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL document) | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded in the Exhibit 101 Interactive Data Files) | |||||||
*Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC file No. 1-1070 unless otherwise indicated. | ||||||||
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SIGNATURES
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.
| OLIN CORPORATION | ||||||||
| (Registrant) | ||||||||
| By: | /s/ Todd A. Slater | |||||||
| Senior Vice President and Chief Financial Officer (Authorized Officer) | ||||||||
Date: July 28, 2023
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