10-K 1 oln-2018x1231x10xk.htm FORM 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(State or other jurisdiction of
incorporation or organization)
190 Carondelet Plaza, Suite 1530, Clayton, MO
(Address of principal executive offices)
13-1872319
(I.R.S. Employer Identification No.)
63105
(Zip code)
Registrant’s telephone number, including area code: (314) 480-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock,
par value $1 per share
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically 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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x 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 x
As of June 30, 2018, the aggregate market value of registrant’s common stock, par value $1 per share, held by non-affiliates of registrant was approximately
$4,774,200,502 based on the closing sale price as reported on the New York Stock Exchange.
As of January 31, 2019, 164,877,488 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in this Form 10-K
as indicated herein:
Document
Proxy Statement relating to Olin’s Annual Meeting of Shareholders to be held in 2019
Part of 10-K into which incorporated
Part III
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TABLE OF CONTENTS FOR FORM 10-K
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Properties
Legal Proceedings
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Background
Recent Developments and Highlights
Consolidated Results of Operations
Segment Results
2019 Outlook
Pension and Postretirement Benefits
Environmental Matters
Legal Matters and Contingencies
Liquidity, Investment Activity and Other Financial Data
Liquidity and Other Financing Arrangements
Off-Balance Sheet Arrangements
Critical Accounting Policies and Estimates
New Accounting Pronouncements
Derivative Financial Instruments
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Cautionary Statement About Forward-Looking Statements
Item 8. Consolidated Financial Statements and Supplementary Data
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits and Consolidated Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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Item 1. BUSINESS
GENERAL
PART I
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton,
MO. We are a manufacturer concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and
Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene
dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride,
perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium
hydroxide, which represent 57% of 2018 sales. The Epoxy segment produces and sells a full range of epoxy materials,
including allyl chloride, epichlorohydrin, liquid epoxy resins, solid epoxy resins and downstream products such as differentiated
epoxy resins and additives, which represent 33% of 2018 sales. The Winchester segment produces and sells sporting
ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges, which
represent 10% of 2018 sales. See our discussion of our segment disclosures contained in Item 7—“Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
GOVERNANCE
We maintain an Internet website at www.olin.com. Our reports on Form 10-K, Form 10-Q and Form 8-K, as well as
amendments to those reports, are available free of charge on our website, as soon as reasonably practicable after we file the
reports with the Securities and Exchange Commission (SEC). Also, a copy of our electronically filed materials can be obtained
at www.sec.gov. Our Principles of Corporate Governance, Committee Charters and Code of Conduct are available on our
website at www.olin.com in the Leadership & Governance Section under Governance Documents and Committees.
In May 2018, our Chief Executive Officer executed the annual Section 303A.12(a) CEO Certification required by the
New York Stock Exchange (NYSE), certifying that he was not aware of any violation of the NYSE’s corporate governance
listing standards by us. Additionally, our Chief Executive Officer and Chief Financial Officer executed the required Sarbanes-
Oxley Act of 2002 Sections 302 and 906 certifications relating to this Annual Report on Form 10-K, which are filed with the
SEC as exhibits to this Annual Report on Form 10-K.
PRODUCTS, SERVICES AND STRATEGIES
Chlor Alkali Products and Vinyls
Products and Services
We have been involved in the chlor alkali industry for more than 120 years and are a major participant in the global chlor
alkali industry. Chlorine, caustic soda and hydrogen are co-produced commercially by the electrolysis of salt. These co-
produced products are produced simultaneously, and in a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic soda and 0.03
tons of hydrogen. The industry refers to this as an Electrochemical Unit or ECU. With a demonstrated capacity of 5.8 million
ECUs as of the end of 2018, we have the largest global chlor alkali capacity, according to data from IHS, Inc. (IHS). IHS is a
global information consulting company established in 1959 that provides information to a variety of industries.
Chlorine is used as a raw material in the production of thousands of products, including vinyls, urethanes, epoxy, water
treatment chemicals and a variety of other organic and inorganic chemicals. A significant portion of chlorine production is
consumed in the manufacture of ethylene dichloride (EDC) and vinyl chloride monomer (VCM), both of which our Chlor
Alkali Products and Vinyls segment produces. A large portion of our EDC production is utilized in the production of VCM, but
we are also one of the largest global participants in merchant EDC sales. EDC and VCM are precursors for polyvinyl chloride
(PVC). PVC is a plastic used in applications such as vinyl siding, pipe, pipe fittings and automotive parts.
Our Chlor Alkali Products and Vinyls segment is one of the largest global marketers of caustic soda, including caustic
soda produced by DowDuPont Inc. (DowDuPont) (f/k/a The Dow Chemical Company) in Brazil. The off-take arrangement
with DowDuPont in Brazil entitles the Chlor Alkali Products and Vinyls segment the right to market and sell the caustic soda
produced at DowDuPont’s Aratu, Brazil site. The diversity of caustic soda sourcing allows us to cost effectively supply
customers worldwide. Caustic soda has a wide variety of end-use applications, the largest of which includes water treatment,
alumina, pulp and paper, urethanes, detergents and soaps and a variety of other organic and inorganic chemicals.
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Our Chlor Alkali Products and Vinyls segment also includes our chlorinated organics business which is the largest global
producer of chlorinated organic products that include chloromethanes (methyl chloride, methylene chloride, chloroform and
carbon tetrachloride) and chloroethenes (perchloroethylene, trichloroethylene, and vinylidene chloride). Chlorinated organics
participates in both the solvent segment, as well as the intermediate segment of the global chlorocarbon industry with a focus
on sustainable applications and in applications where we can benefit from our cost advantages. Intermediate products are used
as feedstocks in the production of fluoropolymers, fluorocarbon refrigerants and blowing agents, silicones, cellulosics and
agricultural chemicals. Solvent products are sold into end uses such as surface preparation, dry cleaning, pharmaceuticals and
regeneration of refining catalysts. This business’s unique technology allows us to utilize both hydrochloric acid and chlorinated
hydrocarbon byproducts (RCls), produced by our other production processes, as raw materials in an integrated system. These
manufacturing facilities also consume chlorine, which generates caustic soda production and sales.
We also manufacture and sell other chlor alkali-related products, including hydrochloric acid, sodium hypochlorite
(bleach) and potassium hydroxide, which we refer to as co-products. The production of co-products, chlorinated organics and
epoxy generally consume chlorine as a raw material creating downstream applications that upgrade the value of chlorine and
enable caustic soda production. Our industry leadership in the production of chlorinated organics and epoxy resins, as well as
other co-products, offer us nineteen integrated outlets for our captive chlorine.
The Chlor Alkali Products and Vinyls segment’s products are delivered by pipeline, marine vessel, deep-water and coastal
barge, railcar and truck. Our logistics and terminal infrastructure provides us with geographically advantaged storage capacity
and provides us with a private fleet of trucks, tankers and trailers that expands our geographic coverage and enhances our
service capabilities. At our largest integrated product sites, our deep-water access enables us to reach global markets.
Our Chlor Alkali Products and Vinyls segment maintains strong relationships with DowDuPont as both a customer and
supplier. These relationships are maintained through long-term cost based contracts that provide us with a reliable supply of
key raw materials and predictable and consistent demand for our end use products. Key products sold to DowDuPont include
chlorine, caustic soda, chlorinated organics and VCM. Key raw materials received from DowDuPont include ethylene and
electricity. Ethylene is supplied for the vinyls business under a long-term supply arrangement with DowDuPont whereby we
receive ethylene at integrated producer economics.
Electricity, salt, ethylene and methanol are the major purchased raw materials for our Chlor Alkali Products and Vinyls
segment. Electricity is the single largest raw material component in the production of Chlor Alkali Products and Vinyls’
products. Approximately 77% of our electricity is generated from natural gas or hydroelectric sources. Approximately 69% of
our salt requirements are met by internal supply. Methanol is primarily sourced domestically and internationally from large
producers. The high volume nature of this industry places an emphasis on cost management and we believe that our scale,
integration and raw material positions make us one of the low cost producers in the industry.
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The following table lists principal products and services of our Chlor Alkali Products and Vinyls segment.
Products &
Services
Chlorine/caustic
soda
Ethylene
dichloride/vinyl
chloride monomer
Chlorinated
organics
intermediates
Major End Uses
Pulp & paper processing, chemical
manufacturing, water purification, vinyl chloride
manufacturing, bleach, swimming pool chemicals
and urethane chemicals
Plants & Facilities
Becancour, Canada
Charleston, TN
Freeport, TX
McIntosh, AL
Niagara Falls, NY
Plaquemine, LA
St. Gabriel, LA
Major Raw Materials &
Components for
Products/Services
salt, electricity
Precursor to polyvinyl chloride used in vinyl
siding, plumbing and automotive parts
Freeport, TX
Plaquemine, LA
chlorine, ethylene, ethylene
dichloride
Used as feedstocks in the production of
fluoropolymers, fluorocarbon refrigerants and
blowing agents, silicones, cellulosics and
agricultural chemicals
Freeport, TX
Plaquemine, LA
Stade, Germany
chlorine, ethylene
dichloride, hydrochloric
acid, methanol, RCls
Chlorinated
organics solvents
Surface preparation, dry cleaning and
pharmaceuticals
Sodium
hypochlorite
(bleach)
Household cleaners, laundry bleaching,
swimming pool sanitizers, semiconductors, water
treatment, textiles, pulp & paper and food
processing
Hydrochloric acid
Steel, oil & gas, plastics, organic chemical
synthesis, water & wastewater treatment, brine
treatment, artificial sweeteners, pharmaceuticals,
food processing and ore & mineral processing
Potassium
hydroxide
Hydrogen
Fertilizer manufacturing, soaps, detergents &
cleaners, battery manufacturing, food processing
chemicals and deicers
Fuel source, hydrogen peroxide and hydrochloric
acid
chlorine, ethylene
dichloride, hydrochloric
acid, RCls
caustic soda, chlorine
chlorine, hydrogen
electricity, potassium
chloride
electricity, salt
Freeport, TX
Plaquemine, LA
Stade, Germany
Augusta, GA
Becancour, Canada
Charleston, TN
Freeport, TX
Henderson, NV
Lemont, IL
McIntosh, AL*
Niagara Falls, NY*
Santa Fe Springs, CA
Tracy, CA
Becancour, Canada
Charleston, TN
Freeport, TX
McIntosh, AL
Niagara Falls, NY
Charleston, TN
Becancour, Canada
Charleston, TN
Freeport, TX
McIntosh, AL
Niagara Falls, NY
Plaquemine, LA
St. Gabriel, LA
* Includes low salt, high strength bleach manufacturing.
Strategies
Strengthen Our Role as Preferred Supplier in North America. Take maximum advantage of our world-scale integrated
facilities on the U.S. Gulf Coast, our geographically-advantaged plants across North America and our extensive logistics and
terminal network to provide a reliable and preferred supply position to our North American customers.
Capitalize on Our Low Cost Position. Our advantaged cost position is derived from low-cost energy, scale, integration,
and deep-water ports. We expect to maximize our low cost position to ship our products to customers worldwide.
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Optimize the Breadth of Products and Pursue Incremental Expansion Opportunities. Fully utilize the portfolio of co-
products and integrated derivatives to continually upgrade chlorine and caustic soda to the highest value applications and
provide expansion opportunities.
Products and Services
Epoxy
The Epoxy business was one of the first major manufacturers of epoxy products, and has continued to build on more
than half a century of history through product innovation and technical excellence. According to data from IHS, the Epoxy
segment is one of the largest fully integrated global producers of epoxy resins, curing agents and intermediates. The Epoxy
segment has a favorable manufacturing cost position which is driven by a combination of scale and integration into low cost
feedstocks (including chlorine, caustic soda, allylics and aromatics). With its advantaged cost position, the Epoxy segment is
among the lowest cost producers in the world. The Epoxy segment produces and sells a full range of epoxy materials, including
upstream products such as allyl chloride (Allyl) and epichlorohydrin (EPI), midstream products such as liquid epoxy resins
(LER) and solid epoxy resins (SER) and downstream products such as differentiated epoxy resins and additives.
The Epoxy segment serves a diverse array of applications, including wind energy, electrical laminates, marine coatings,
consumer goods and composites, as well as numerous applications in civil engineering and protective coatings. The Epoxy
segment has important relationships with established customers, some of which span decades. The Epoxy segment’s primary
geographies are North America and Western Europe. The segment’s product is delivered primarily by marine vessel, deep-
water and coastal barge, railcar and truck.
Allyl is used not only as a feedstock in the production of EPI, but also as a chemical intermediate in multiple industries
and applications, including water purification chemicals. EPI is primarily produced as a feedstock for use in the business’s
epoxy resins, and also sold to epoxy producers globally who produce their own resins for end use segments such as coatings
and adhesives. LER is manufactured in liquid form and cures with the addition of a hardener into a thermoset solid material
offering a distinct combination of strength, adhesion and chemical resistance that is well-suited to coatings and composites
applications. SER is processed further with bisphenol (BisA) to meet specific end market applications. While LER and SER are
sold externally, a significant portion of LER production is further converted into differentiated epoxy resins where value-added
modifications produce higher margin resins.
Our Epoxy segment maintains strong relationships with DowDuPont as both a customer and supplier. These relationships
are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key products
sold to DowDuPont include aromatics and key raw materials received from DowDuPont include benzene and propylene.
The Epoxy segment’s production economics benefit from its integration into chlor alkali and aromatics which are key
inputs in epoxy production. This fully integrated structure provides both access to low cost materials and significant operational
flexibility. The Epoxy segment operates an integrated aromatics production chain producing cumene, phenol, acetone and BisA
for internal consumption and external sale. The Epoxy segment’s consumption of chlorine enables the Chlor Alkali Products
and Vinyls segment to generate caustic soda production and sales. Chlorine used in our Epoxy segment is transferred at cost
from the Chlor Alkali Products and Vinyls segment.
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The following table lists principal products and services of our Epoxy segment.
Products & Services
Allylics (allyl chloride and
epichlorohydrin) &
aromatics (acetone,
bisphenol, cumene and
phenol)
Major End Uses
Manufacturers of polymers, resins
and other plastic materials, water
purification, and pesticides
Plants & Facilities
Freeport, TX
Stade, Germany
Terneuzen, Netherlands
Liquid epoxy resin/solid
epoxy resin
Adhesives, paint and coatings,
composites and flooring
Differentiated epoxy resins
Electrical laminates, paint and
coatings, wind blades, electronics
and construction
Freeport, TX
Guaruja, Brazil
Stade, Germany
Baltringen, Germany
Freeport, TX
Guaruja, Brazil
Gumi, South Korea
Pisticci, Italy
Rheinmunster, Germany
Roberta, GA
Stade, Germany
Zhangjiagang, China
Major Raw Materials &
Components for
Products/Services
benzene, caustic soda,
chlorine, propylene
bisphenol, caustic soda,
epichlorohydrin
liquid epoxy resins, solid
epoxy resins
Strategies
Continue to Focus on Capturing the Full Value of Our Asset Base. The Epoxy segment continues to focus on fully
utilizing our integrated asset base. We expect to optimize our production capabilities allowing us to more fully benefit from our
access to low-cost materials and significant operational flexibility.
Focus on Upgrading Our Sales Portfolio and Product Mix. The Epoxy segment will focus on improving product mix to
drive more value-added product introductions and modifications that produce higher margin sales. This leverages our leading
technology and quality positions.
Drive Productivity to Sustain Our Cost Advantage. The Epoxy segment continues to drive productivity cost
improvements through the entire supply chain, enhancing reliability and delivering yield improvements.
Products and Services
Winchester
In 2019, Winchester is in its 153rd year of operation and its 89th year as part of Olin. Winchester is a premier developer
and manufacturer of small caliber ammunition for sale to domestic and international retailers (commercial customers), law
enforcement agencies and domestic and international militaries. We believe we are a leading U.S. producer of ammunition for
recreational shooters, hunters, law enforcement agencies and the U.S. Armed Forces. Winchester also manufacturers industrial
products that have various applications in the construction industry.
In December 2018, Winchester announced it submitted a proposal for the operation and maintenance of the Lake City
Army Ammunition Plant. The Lake City Army Ammunition Plant is the U.S. Army’s primary manufacturing location for small
caliber ammunition. It is expected that a decision will be made during the third quarter of 2019 and, that after a one-year
transition period, the selected contractor will assume responsibility for the plant on October 1, 2020. This represents a long-
term opportunity for Winchester.
In September 2018, the U.S. Immigration and Customs Enforcement, Department of Homeland Security awarded
Winchester a $12 million, five-year contract for 9mm “Readily Identifiable Training Ammunition.”
In April 2018, Winchester was awarded a $5 million, five-year contract from the Federal Bureau of Investigation for 9mm
duty and frangible training ammunition.
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In May 2017, Winchester was awarded, along with one other company, a shared contract to provide small caliber
ammunition non-recurring engineering services for the U.S. Army. The contract has the potential to generate approximately
$65 million of sales over the five-year contract.
In January 2017, SIG Sauer, Inc. was awarded a $580 million, ten-year contract for the modular handgun system pistol
contract by the U.S. Army. Winchester will supply the pistol ammunition as a subcontractor to SIG Sauer, Inc.
In February 2016, Winchester was awarded a “Pistol Family Ammunition” contract for 9mm NATO, as well as .38
caliber and .45 caliber ammunition to be used by the U.S. Army. The contract has the potential to generate approximately $99
million of sales over the five-year contract.
In January 2016, Winchester was awarded a five-year contract for 5.56mm, 7.62mm and .50 caliber ammunition to be
used by the U.S. Army. The contract has the potential to generate approximately $300 million of sales over the five-year
contract.
Our legendary Winchester® product line includes all major gauges and calibers of shotgun shells, rimfire and centerfire
ammunition for pistols and rifles, reloading components and industrial cartridges. We believe we are a leading U.S. supplier of
small caliber commercial ammunition.
Winchester has strong relationships throughout the sales and distribution chain and strong ties to traditional dealers and
distributors. Winchester has also built its business with key high-volume mass merchants and specialty sporting goods
retailers. Winchester has consistently developed industry-leading ammunition, which is recognized in the industry for
manufacturing excellence, design innovation and consumer value. Winchester’s new ammunition products continue to receive
awards from major industry publications, with recent awards including: American Hunter magazine’s Golden Bullseye Award
as “Ammunition Product of the Year” in 2018 and 2016; Guns & Ammo magazine’s “Ammunition of the Year” award in
2017; and American Rifleman magazine’s Golden Bullseye Award as “Ammunition Product of the Year” in 2017.
Winchester purchases raw materials such as copper-based strip and ammunition cartridge case cups and lead from
vendors based on a conversion charge or premium. These conversion charges or premiums are in addition to the market prices
for metal as posted on exchanges such as the Commodity Exchange, or COMEX, and London Metals Exchange, or
LME. Winchester’s other main raw material is propellant, which is purchased predominantly from one of the U.S.’s largest
propellant suppliers.
The following table lists principal products and services of our Winchester segment.
Products & Services
Winchester® sporting
ammunition (shotshells,
small caliber centerfire &
rimfire ammunition)
Small caliber military
ammunition
Major End Uses
Hunters & recreational shooters, law
enforcement agencies
Major Raw Materials &
Components for
Products/Services
brass, lead, steel, plastic,
propellant, explosives
Plants & Facilities
East Alton, IL
Geelong, Australia
Oxford, MS
Infantry and mounted weapons
East Alton, IL
Oxford, MS
brass, lead, propellant,
explosives
Industrial products (8
gauge loads & powder-
actuated tool loads)
Maintenance applications in power &
concrete industries, powder-actuated tools in
construction industry
East Alton, IL
Geelong, Australia
Oxford, MS
brass, lead, plastic,
propellant, explosives
Strategies
Maximize Existing Strengths. Winchester plans to seek new opportunities to fully utilize the legendary Winchester brand
name and will continue to offer a full line of ammunition products to the markets we serve, with specific focus on investments
that make Winchester ammunition the retail brand of choice.
Focus on Product Line Growth. With a long record of pioneering new product offerings, Winchester has built a strong
reputation as an industry innovator. This includes the introduction of reduced-lead and non-lead products, which are growing
in popularity for use in indoor shooting ranges and for outdoor hunting.
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Cost Reduction Strategy. Winchester plans to continue to focus on strategies that will lower our costs. During 2016, we
completed the relocation of our centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford,
MS. Our focus will continue to optimize the Oxford facility and maximize production output. During 2018, we initiated a cost
reduction plan which will permanently close the ammunition assembly operations at our Winchester facility in Geelong,
Australia.
INTERNATIONAL OPERATIONS
Olin has an international presence, including the geographic regions of Europe, Asia Pacific and Latin America.
Approximately 43% of Olin’s 2018 sales were generated outside of the U.S., including 35% of our Chlor Alkali Products and
Vinyls 2018 segment sales, 68% of our Epoxy 2018 segment sales and 10% of our Winchester 2018 segment sales. See Note
21 “Segment Information” of the notes to consolidated financial statements contained in Item 8, for geographic segment
data. We are incorporating our segment information from that Note into this section of our Form 10-K.
CUSTOMERS AND DISTRIBUTION
Products we sell to industrial or commercial users or distributors for use in the production of other products constitute a
major part of our total sales. We sell some of our products, such as epoxy resins, caustic soda and sporting ammunition, to a
large number of users or distributors, while we sell other products, such as chlorine and chlorinated organics, in substantial
quantities to a relatively small number of industrial users. Olin has entered into or has significant relationships with a few
customers including DowDuPont, who was our largest customer by revenue in 2018, representing approximately 14% of our
total sales. We expect this relationship to continue to be significant to Olin and to represent more than 10% of our annual sales
in the future. No other single customer accounted for more than 5% of sales. We discuss the customers for each of our three
business segments in more detail above under “Products and Services.”
We market most of our products and services primarily through our sales force and sell directly to various industrial
customers, mass merchants, retailers, wholesalers, other distributors and the U.S. Government and its prime contractors.
Sales to all U.S. Government agencies and sales under U.S. Government contracting activities in total accounted for
approximately 2% of sales in 2018. Because we engage in some government contracting activities and make sales to the U.S.
Government, we are subject to extensive and complex U.S. Government procurement laws and regulations. These laws and
regulations provide for ongoing government audits and reviews of contract procurement, performance and administration.
Failure to comply, even inadvertently, with these laws and regulations and with laws governing the export of munitions and
other controlled products and commodities could subject us or one or more of our businesses to civil and criminal penalties,
and under certain circumstances, suspension and debarment from future government contracts and the exporting of products
for a specified period of time.
BACKLOG
The total amount of estimated backlog was approximately $224 million and $174 million as of January 31, 2019 and
2018, respectively. The backlog orders are associated with contractual orders in our Winchester business. Backlogs in our
other businesses are not significant. Backlog is comprised of all open customer orders which have been received, but not yet
shipped. The backlog was estimated based on expected volume to be shipped from firm contractual orders, which are subject
to customary terms and conditions, including cancellation and modification provisions. Approximately 59% of contracted
backlog as of January 31, 2019 is expected to be fulfilled during 2019, with the remainder expected to be fulfilled during 2020.
COMPETITION
We are in active competition with businesses producing or distributing the same or similar products, as well as, in some
instances, with businesses producing or distributing different products designed for the same uses.
Chlor alkali manufacturers in North America, with approximately 17 million tons of chlorine and 18 million tons of caustic
soda capacity, accounted for approximately 17% of worldwide chlor alkali production capacity. In 2018, according to IHS, we
have the largest chlor alkali capacity in North America and globally. While the technologies to manufacture and transport
chlorine and caustic soda are widely available, the production facilities require large capital investments, and are subject to
significant regulatory and permitting requirements. Approximately 76% of the total North American chlor alkali capacity is
located in the U.S. Gulf Coast region. There is a worldwide market for caustic soda, which attracts imports and
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allows exports depending on market conditions. Other large chlor alkali producers in North America include The Occidental
Petroleum Corporation (Oxy) and Westlake Chemical Corporation (Westlake).
We are also a leading integrated global producer of chlorinated organic products with a strong cost position due to our
scale and access to chlor alkali feedstocks. This industry includes large diversified producers such as Oxy, Westlake and Solvay
S.A., as well as multiple producers located in China.
We are a major global fully integrated epoxy producer, with access to key low cost feedstocks and a cost advantaged
infrastructure. With its advantaged cost position, the Epoxy segment is among the lowest cost producers in the world. The
markets in which our Epoxy segment operates are highly competitive and are dependent on significant capital investment, the
development of proprietary technology and maintenance of product research and development. Among our competitors are
Huntsman Corporation (Huntsman) and Hexion, Inc., as well as multiple producers located in Asia.
We are among the largest manufacturers in the U.S. of commercial small caliber ammunition based on independent
market research sponsored by the National Shooting Sports Foundation (NSSF). Formed in 1961, NSSF has a membership of
more than 12,000 manufacturers, distributors, firearms retailers, shooting ranges, sportsmen’s organizations and publishers.
According to NSSF, our Winchester business, Vista Outdoor Inc. (Vista), and Remington Outdoor Company, Inc. (Remington)
are the three largest commercial ammunition manufacturers in the U.S. The ammunition industry is highly competitive with us,
Vista, Remington, numerous smaller domestic manufacturers and foreign producers competing for sales to the commercial
ammunition customers. Many factors influence our ability to compete successfully, including price, delivery, service,
performance, product innovation and product recognition and quality, depending on the product involved.
EMPLOYEES
As of December 31, 2018, we had approximately 6,500 employees, with 5,400 working in the U.S. and 1,100 working in
foreign countries. Various labor unions represent a significant number of our hourly-paid employees for collective bargaining
purposes.
The following labor contract is scheduled to expire in 2019:
Location
McIntosh (Chlor Alkali Products and Vinyls)
Number of Employees
197
Expiration Date
April 2019
While we believe our relations with our employees and their various representatives are generally satisfactory, we cannot
assure that we can conclude this labor contract or any other labor agreements without work stoppages and cannot assure that
any work stoppages will not have a material adverse effect on our business, financial condition or results of operations.
RESEARCH ACTIVITIES; PATENTS
Our research activities are conducted on a product-group basis at a number of facilities. Company-sponsored research
expenditures were $14.9 million in 2018, $14.5 million in 2017 and $10.9 million in 2016.
We own or license a number of patents, patent applications and trade secrets covering our products and processes. We
believe that, in the aggregate, the rights under our patents and licenses are important to our operations, but we do not consider
any individual patent, license or group of patents and licenses related to a specific process or product to be of material
importance to our total business.
SEASONALITY
Our sales are affected by the cyclicality of the economy and the seasonality of several industries we serve, including
building and construction, coatings, infrastructure, electronics, automotive, bleach, refrigerants and ammunition. The
seasonality of the ammunition business is typically driven by the U.S. fall hunting season. Our chlor alkali businesses generally
experience their highest level of activity during the spring and summer months, particularly when construction, refrigerants,
coatings and infrastructure activity is higher. The chlor alkali industry is cyclical, both as a result of changes in demand for each
of the co-produced products and as a result of the large increments in which new capacity is added and removed. Because
chlorine and caustic soda are produced in a fixed ratio, the supply of one product can be constrained both by the physical
capacity of the production facilities and/or by the ability to sell the co-produced product. Prices for both products respond
rapidly to changes in supply and demand. The cyclicality of the chlor alkali industry has further impacts on
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downstream products. We have significant diversification of our chlorine outlets, which allow us to better manage the cyclical
nature of the industry.
RAW MATERIALS AND ENERGY
Basic raw materials are processed through an integrated manufacturing process to produce a number of products that are
sold at various points throughout the process. We purchase a portion of our raw material requirements and also utilize internal
resources, co-products and finished goods as raw materials for downstream products. We believe we have reliable sources of
supply for our raw materials under normal market conditions. However, we cannot predict the likelihood or impact of any
future raw material shortages.
The principal basic raw materials for our production of Chlor Alkali Products and Vinyls’ products are electricity, salt,
ethylene and methanol. Electricity is the predominant energy source for our manufacturing facilities. Approximately 77% of
our electricity is generated from natural gas or hydroelectric sources. We have long-term power supply contracts with
DowDuPont in addition to utilizing our own power assets, which allow for cost differentiation at specific U.S. manufacturing
sites. A portion of our purchases of raw materials, including ethylene, are made under long-term supply agreements, while
approximately 69% of the salt used in our Chlor Alkali Products and Vinyls segment is produced from internal resources.
Methanol is primarily sourced domestically and internationally from large producers.
The Epoxy segment’s principal raw materials are chlorine, benzene, propylene and aromatics, which consist of cumene,
phenol, acetone and BisA. A portion of our purchases of raw materials, including benzene, propylene and a portion of our
aromatics requirements, are made under long-term supply agreements, while a portion of our aromatics requirements are
produced from our integrated production chain. Chlorine is predominately sourced from our Chlor Alkali Products and Vinyls
segment.
Lead, brass and propellant are the principal raw materials used in the Winchester business. We typically purchase our
ammunition cartridge case cups and copper-based strip, and propellants pursuant to multi-year contracts.
We provide additional information with respect to specific raw materials in the tables set forth under “Products and
Services.”
ENVIRONMENTAL AND TOXIC SUBSTANCES CONTROLS
As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling,
generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes in all of the countries in which we do business.
The establishment and implementation of national, state or provincial and local standards to regulate air, water and land
quality affect substantially all of our manufacturing locations around the world. Laws providing for regulation of the
manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites have
imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of
environmental laws has required and will continue to require new capital expenditures and will increase operating costs.
We are a party to various government and private environmental actions associated with former waste disposal sites and
past manufacturing facilities. Charges to income for investigatory and remedial efforts were $7.3 million, $10.3 million and
$9.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. These charges may be material to operating
results in future years. These charges do not include insurance recoveries for costs incurred and expensed in prior periods.
In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated
Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to releases of hazardous
materials and violations of environmental law to the extent arising prior to October 5, 2015.
See our discussion of our environmental matters contained in Item 3—“Legal Proceedings” below, Note 22
“Environmental” of the notes to consolidated financial statements contained in Item 8 and Item 7—“Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
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Item 1A. RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating Olin and
our business. All of our forward-looking statements should be considered in light of these factors. Additional risks and
uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect us.
Sensitivity to Global Economic Conditions and Cyclicality—Our operating results could be negatively affected during
economic downturns.
The businesses of most of our customers, particularly our vinyls, urethanes and pulp and paper customers are, to varying
degrees, cyclical and have historically experienced periodic downturns. These economic and industry downturns have been
characterized by diminished product demand, excess manufacturing capacity and, in some cases, lower average selling prices.
Therefore, any significant downturn in our customers’ businesses or in global economic conditions could result in a reduction in
demand for our products and could adversely affect our results of operations or financial condition.
Although a majority of our sales are within North America, a large part of our financial performance is dependent upon a
healthy economy beyond North America because we have a significant amount of sales abroad and our customers sell their
products abroad. As a result, our business is and will continue to be affected by general economic conditions and other factors
in Europe, Asia Pacific, particularly China, and Latin America, including fluctuations in interest rates, customer demand, labor
and energy costs, currency changes and other factors beyond our control. The demand for our products and our customers’
products is directly affected by such fluctuations. In addition, our customers could decide to move some or all of their
production to foreign locations, and this could reduce demand in North America for our products. We cannot assure you that
events having an adverse effect on the industries in which we operate will not occur or continue, such as a downturn in the
European, Asian Pacific, particularly Chinese, Latin American, or world economies, increases in interest rates or unfavorable
currency fluctuations. Economic conditions in other regions of the world, predominantly Asia and Europe, can increase the
amount of caustic soda produced and available for export to North America. The increased caustic soda supply can put
downward pressure on our caustic soda prices, negatively impacting our profitability.
Cyclical Pricing Pressure—Our profitability could be reduced by declines in average selling prices of our products,
particularly declines in ECU netbacks for chlorine and caustic soda.
Our historical operating results reflect the cyclical and sometimes volatile nature of the chemical and ammunition
industries. We experience cycles of fluctuating supply and demand in each of our business segments, particularly in our Chlor
Alkali Products and Vinyls segment, which result in changes in selling prices. Periods of high demand, tight supply and
increasing operating margins tend to result in increases in capacity and production until supply exceeds demand, generally
followed by periods of oversupply and declining prices. Another factor influencing demand and pricing for chlorine and caustic
soda is the price of natural gas. Higher natural gas prices increase our customers’ and competitors’ manufacturing costs, and
depending on the ratio of crude oil to natural gas prices, could make them less competitive in world markets.
In the chlor alkali industry, price is the major supplier selection criterion. We have little or no ability to influence prices in
these large commodity markets. Decreases in the average selling prices of our products could have a material adverse effect on
our profitability. While we strive to maintain or increase our profitability by reducing costs through improving production
efficiency, emphasizing higher margin products and by controlling transportation, selling and administration expenses, we
cannot assure you that these efforts will be sufficient to fully offset the effect of possible decreases in pricing on operating
results.
Because of the cyclical nature of our businesses, we cannot assure you that pricing or profitability in the future will be
comparable to any particular historical period, including the most recent period shown in our operating results. We cannot
assure you that the chlor alkali industry will not experience adverse trends in the future, or that our business, financial condition
and results of operations will not be adversely affected by them.
Our Winchester and Epoxy segments are also subject to changes in operating results as a result of cyclical pricing
pressures, but to a lesser extent than our Chlor Alkali Products and Vinyls segment. Selling prices of ammunition and epoxy
materials are affected by changes in raw material costs and availability and customer demand, and declines in average selling
prices of products of our Winchester and Epoxy segments could adversely affect our profitability.
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Suppliers—We rely on a limited number of third-party suppliers for specified feedstocks and services.
We obtain a significant portion of our raw materials from a few key suppliers. If any of these suppliers are unable to meet
their obligations under present or any future supply agreements, we may be forced to pay higher prices to obtain the necessary
raw materials. Any interruption of supply or any price increase of raw materials could have a material adverse effect on our
business, financial condition and results of operations. We have entered into long-term agreements with DowDuPont to provide
specified feedstocks and services for a number of our facilities. These facilities are dependent upon DowDuPont’s
infrastructure for services such as wastewater and ground water treatment. Any failure of DowDuPont to perform its
obligations under those agreements could adversely affect the operation of the affected facilities and our business, financial
condition and results of operations. Most of these agreements are automatically renewable after their initial terms, but may be
terminated by us or DowDuPont after specified notice periods. If we are required to obtain an alternate source for these
feedstocks or services, we may not be able to obtain pricing on as favorable terms. Additionally, we may be forced to pay
additional transportation costs or to invest in capital projects for pipelines or alternate facilities to accommodate railcar or other
delivery methods or to replace other services.
A vendor may choose, subject to existing contracts, to modify its relationship due to general economic concerns or
concerns relating to the vendor or us, at any time. Any significant change in the terms that we have with our key suppliers
could materially and adversely affect our business, financial condition and results of operations, as could significant additional
requirements from suppliers that we provide them additional security in the form of prepayments or posting letters of credit.
Raw Materials—Availability of purchased feedstocks and energy, and the volatility of these costs, impact our
operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of our total production costs and operating
expenses. We purchase certain raw materials as feedstocks.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile.
Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and
energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact our business,
financial condition and results of operations.
If the availability of any of our principal feedstocks is limited or we are unable to obtain natural gas or energy from any of
our energy sources, we may be unable to produce some of our products in the quantities demanded by our customers, which
could have a material adverse effect on plant utilization and our sales of products requiring such raw materials. We have long-
term supply contracts with various third parties for certain raw materials, including ethylene, electricity, propylene and benzene.
As these contracts expire, we may be unable to renew these contracts or obtain new long-term supply agreements on terms
comparable or as favorable to us, depending on market conditions, which may have a material adverse effect on our business,
financial condition and results of operations. In addition, many of our long-term contracts contain provisions that allow our
suppliers to limit the amount of raw materials shipped to us below the contracted amount in force majeure circumstances. If we
are required to obtain alternate sources for raw materials because our suppliers are unwilling or unable to perform under raw
material supply agreements or if a supplier terminates its agreements with us, we may not be able to obtain these raw materials
from alternative suppliers or obtain new long-term supply agreements on terms comparable or favorable to us.
Cost Control—Our profitability could be reduced if we experience increasing raw material, utility, transportation or
logistics costs, or if we fail to achieve targeted cost reductions.
Our operating results and profitability are dependent upon our continued ability to control, and in some cases reduce, our
costs. If we are unable to do so, or if costs outside of our control, particularly our costs of raw materials, utilities, transportation
and similar costs, increase beyond anticipated levels, our profitability will decline.
For example, our chlor alkali product transportation costs, particularly railroad shipment costs, have been increasing over
the past several years. If transportation costs continue to increase, and we are unable to control those costs or pass the
increased costs on to customers, our profitability in our Chlor Alkali Products and Vinyls and Epoxy segments would be
negatively affected. Similarly, costs of commodity metals and other materials used in our Winchester business, such as copper
and lead, can vary. If we experience significant increases in these costs and are unable to raise our prices to offset the higher
costs, the profitability in our Winchester business would be negatively affected.
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Third-Party Transportation—We rely heavily on third-party transportation, which subjects us to risks and costs that
we cannot control, and which risks and costs may have a material adverse effect on our financial position or results of
operations.
We rely heavily on railroad, truck, marine vessel, barge and other shipping companies to transport finished products to
customers and to transport raw materials to the manufacturing facilities used by each of our businesses. These transport
operations are subject to various hazards and risks, including extreme weather conditions, work stoppages and operating
hazards, as well as domestic and international transportation and maritime regulations. In addition, the methods of
transportation we utilize, including shipping chlorine and other chemicals by railroad and by barge, may be subject to additional,
more stringent and more costly regulations in the future. If we are delayed or unable to ship finished products or unable to
obtain raw materials as a result of any such new regulations or public policy changes related to transportation safety, or these
transportation companies’ failure to operate properly, or if there are significant changes in the cost of these services due to new
additional regulations, or otherwise, we may not be able to arrange efficient alternatives and timely means to obtain raw
materials or ship goods, which could result in a material adverse effect on our business, financial position or results of
operations. If any third-party railroad which we utilize to transport chlorine and other chemicals ceases to transport toxic-by-
inhalation hazardous (TIH) materials, or if there are significant changes in the cost of shipping TIH materials by rail or
otherwise, we may not be able to arrange efficient alternatives and timely means to deliver our products or at all, which could
result in a material adverse effect on our business, financial position or results of operations.
Security and Chemicals Transportation—New regulations on the transportation of hazardous chemicals and/or the
security of chemical manufacturing facilities and public policy changes related to transportation safety could result in
significantly higher operating costs.
The transportation of our products and feedstocks, including transportation by pipeline, and the security of our chemical
manufacturing facilities are subject to extensive regulation. Government authorities at the local, state and federal levels could
implement new or stricter regulations that would impact the security of chemical plant locations and the transportation of
hazardous chemicals. Our Chlor Alkali Products and Vinyls and Epoxy segments could be adversely impacted by the cost of
complying with any new regulations. Our business also could be adversely affected if an incident were to occur at one of our
facilities or while transporting products. The extent of the impact would depend on the requirements of future regulations and
the nature of an incident, which are unknown at this time.
Production Hazards—Our facilities are subject to operating hazards, which may disrupt our business.
We are dependent upon the continued safe operation of our production facilities. Our production facilities are subject to
hazards associated with the manufacture, handling, storage and transportation of chemical materials and products and
ammunition, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unexpected utility
disruptions or outages, unscheduled downtime, transportation interruptions, transportation accidents involving our chemical
products, chemical spills and other discharges or releases of toxic or hazardous substances or gases and environmental hazards.
From time to time in the past, we have had incidents that have temporarily shut down or otherwise disrupted our
manufacturing, causing production delays and resulting in liability for workplace injuries and fatalities. Some of our products
involve the manufacture and/or handling of a variety of explosive and flammable materials. Use of these products by our
customers could also result in liability if an explosion, fire, spill or other accident were to occur. We cannot assure you that we
will not experience these types of incidents in the future or that these incidents will not result in production delays or otherwise
have a material adverse effect on our business, financial condition or results of operations. Major hurricanes have caused
significant disruption in our operations on the U.S. Gulf Coast, logistics across the region and the supply of certain raw
materials, which have had an adverse impact on volume and cost for some of our products. Due to the substantial presence we
have on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect
our results of operations, for which we may not be fully insured.
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Integration of Information Technology Systems—Operation on multiple Enterprise Resource Planning (ERP)
information systems, and the conversion to a new system, may negatively impact our operations.
We are highly dependent on our information systems infrastructure in order to process orders, track inventory, ship
products in a timely manner, prepare invoices to our customers, maintain regulatory compliance and otherwise carry on our
business in the ordinary course. We currently operate on multiple ERP information systems. Since we are required to process
and reconcile our information from multiple systems, the chance of errors is greater. Inconsistencies in the information from
multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to
our ability to maintain our books and records and comply with regulatory requirements. In 2017, we began a multi-year
implementation of new enterprise resource planning, manufacturing, and engineering systems. The project includes the required
information technology infrastructure (collectively, the Information Technology Project). The project is planned to standardize
business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency and control
across our global operations. The project is anticipated to be completed during 2020. The transition to a new ERP system
involves numerous risks, including:
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diversion of management’s attention away from normal daily business operations;
loss of, or delays in accessing, data;
increased demand on our operations support personnel;
increased costs;
initial dependence on unfamiliar systems while training personnel to use new systems; and
increased operating expenses resulting from training, conversion and transition support activities.
Any of the foregoing could result in a material increase in information technology compliance or other related costs, and
could materially and negatively impact our business, financial condition or results of operations.
Effects of Regulation—Changes in or failure to comply with legislation or government regulations or policies could
have a material adverse effect on our financial position or results of operations.
Legislation or regulations that may be adopted or modified by U.S. or foreign governments, including import and export
duties and quotas, anti-dumping regulations and related tariffs, and tax regulation could significantly affect the sales, costs and
profitability of our business. The chemical and ammunition industries are subject to legislative and regulatory actions, which
could have a material adverse effect on our business, financial position or results of operations. Existing and future government
regulations and laws may reduce the demand for our products, including certain chlorinated organic products, such as dry
cleaning solvents. Any decrease in the demand for chlorinated organic products could result in lower unit sales and lower selling
prices for such chlorinated organic products, which would have a material adverse effect on our business, financial condition
and results of operations.
Information Security—A failure of our information technology systems, or an interruption in their operation due to
internal or external factors including cyber-attacks, could have a material adverse effect on our business, financial
condition or results of operations.
Our operations are dependent on our ability to protect our information systems, computer equipment and information
databases from systems failures. We rely on our information technology systems generally to manage the day-to-day operation
of our business, operate elements of our manufacturing facilities, manage relationships with our customers, fulfill customer
orders and maintain our financial and accounting records. Failure of our information technology systems could be caused by
internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or
software, or power or telecommunication fluctuations or failures. The failure of our information technology systems to perform
as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse
consequences, including reduced effectiveness and efficiency of operations, increased costs or loss of important information,
any of which could have a material adverse effect on our business, financial condition or results of operations. We have
technology and information security processes and disaster recovery plans in place to mitigate our risk to these vulnerabilities.
However, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur.
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Imbalance in Demand for Our Chlor Alkali Products—A loss of a substantial customer for our chlorine or caustic
soda could cause an imbalance in customer demand for these products, which could have an adverse effect on our results
of operations.
Chlorine and caustic soda are produced simultaneously and in a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic
soda. The loss of a substantial chlorine or caustic soda customer could cause an imbalance in customer demand for our
chlorine and caustic soda products. An imbalance in customer demand may require Olin to reduce production of both chlorine
and caustic soda or take other steps to correct the imbalance. Since Olin cannot store large quantities of chlorine, we may not
be able to respond to an imbalance in customer demand for these products as quickly or efficiently as some of our competitors.
If a substantial imbalance occurred, we would need to reduce prices or take other actions that could have a material adverse
impact on our business, results of operations and financial condition.
Pension Plans—The impact of declines in global equity and fixed income markets on asset values and any declines
in interest rates and/or improvements in mortality assumptions used to value the liabilities in our pension plans may
result in higher pension costs and the need to fund the pension plans in future years in material amounts.
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Substantially all
domestic defined benefit pension plan participants are no longer accruing benefits. 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. The determinations of pension expense and pension funding are based on a variety of rules and regulations. Changes
in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets.
They may also result in higher pension costs, additional financial statement disclosure, and the need to fund the pension plan.
At December 31, 2018, the projected benefit obligation of $2,661.9 million exceeded the market value of assets in our
qualified defined benefit pension plans by $668.9 million, as calculated under Accounting Standards Codification (ASC) 715
“Compensation—Retirement Benefits” (ASC 715). During 2016, we made a discretionary cash contribution to our domestic
qualified defined benefit pension plan of $6.0 million. Based on our plan assumptions and estimates, we will not be required to
make any cash contributions to the domestic qualified defined benefit pension plan at least through 2019.
We also have several international qualified defined benefit pension plans to which we made cash contributions of $2.6
million in 2018, $1.7 million in 2017 and $1.3 million in 2016, and we anticipate less than $5 million of cash contributions to
international qualified defined benefit pension plans in 2019.
The impact of declines in global equity and fixed income markets on asset values may result in higher pension costs and
may increase and accelerate the need to fund the pension plans in future years. For example, holding all other assumptions
constant, a 100-basis point decrease or increase in the assumed long-term rate of return on plan assets for our domestic
qualified defined benefit pension plan would have decreased or increased, respectively, the 2018 defined benefit pension plan
income by approximately $19.9 million. Holding all other assumptions constant for our domestic qualified defined benefit
pension plan, a 50-basis point decrease in the discount rate used to calculate pension income for 2018 and the projected benefit
obligation as of December 31, 2018 would have decreased pension income by $0.5 million and increased the projected benefit
obligation by $137.0 million. A 50-basis point increase in the discount rate used to calculate pension income for 2018 and the
projected benefit obligation as of December 31, 2018 for our domestic qualified defined benefit pension plan would have
increased pension income by $0.7 million and decreased the projected benefit obligation by $125.0 million.
Litigation and Claims—We are subject to litigation and other claims, which could cause us to incur significant
expenses.
We are regularly a defendant in legal proceedings relating to our present and former operations. These include contract
disputes, product liability claims, including ammunition and firearms, and proceedings alleging injurious exposure of plaintiffs to
various chemicals and other substances (including proceedings based on alleged exposures to asbestos). Frequently, the
proceedings alleging injurious exposure involve claims made by numerous plaintiffs against many defendants. Because of the
inherent uncertainties of litigation, we are unable to predict the outcome of these proceedings and therefore cannot determine
whether the financial impact, if any, will be material to our financial position, cash flows or results of operations.
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International Sales and Operations—We are subject to risks associated with our international sales and operations
that could have a material adverse effect on our business or results of operations.
Olin has an international presence, including the geographic regions of Europe, Asia Pacific and Latin America. In 2018,
approximately 43% of our sales were generated outside of the United States. These international sales and operations expose us
to risks, including:
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difficulties and costs associated with complying with complex and varied laws, treaties, and regulations;
tariffs and trade barriers;
changes in laws and regulations, including the imposition of economic or trade sanctions affecting international
commercial transactions;
risk of non-compliance with anti-bribery laws and regulations, such as the U.S. Foreign Corrupt Practices Act;
restrictions on, or difficulties and costs associated with, the repatriation of cash from foreign countries to the
United States;
unfavorable currency fluctuations;
changes in local economic conditions;
unexpected changes in political or regulatory environments;
labor compliance and costs associated with a global workforce;
data privacy regulations;
difficulties in maintaining overseas subsidiaries and international operations; and
challenges in protecting intellectual property rights.
Any one or more of the above factors could have a material adverse effect on our business, financial condition or results
of operations.
Credit Facility—Weak industry conditions could affect our ability to comply with the financial maintenance
covenants in our senior credit facility.
Our senior credit facility includes certain financial maintenance covenants requiring us to not exceed a maximum leverage
ratio and to maintain a minimum coverage ratio.
Depending on the magnitude and duration of chlor alkali cyclical downturns, including deterioration in prices and volumes,
there can be no assurance that we will continue to be in compliance with these ratios. If we failed to comply with either of
these covenants in a future period and were not able to obtain waivers from the lenders, we would need to refinance our
current senior credit facility. However, there can be no assurance that such refinancing would be available to us on terms that
would be acceptable to us or at all.
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Ability to Attract and Retain Qualified Employees—We must attract, retain and motivate key employees, and the
failure to do so may adversely affect our business, financial condition or results of operations.
We feel our success depends on hiring, retaining and motivating key employees, including executive officers. We may
have difficulty locating and hiring qualified personnel. In addition, we may have difficulty retaining such personnel once hired,
and key people may leave and compete against us. The loss of key personnel or our failure to attract and retain other qualified
and experienced personnel could disrupt or materially adversely affect our business, financial condition or results of operations.
In addition, our operating results could be adversely affected by increased costs due to increased competition for employees or
higher employee turnover, which may result in the loss of significant customer business or increased costs.
Indebtedness—Our indebtedness could adversely affect our financial condition.
As of December 31, 2018, we had $3,230.3 million of indebtedness outstanding. Outstanding indebtedness does not
include amounts that could be borrowed under our $600.0 million senior revolving credit facility, under which $596.5 million
was available for borrowing as of December 31, 2018 because we had issued $3.5 million of letters of credit. As of December
31, 2018, our indebtedness represented 53.3% of our total capitalization. At December 31, 2018, $125.9 million of our
indebtedness was due within one year. Despite our level of indebtedness, we expect to continue to have the ability to borrow
additional debt.
Our indebtedness could have important consequences, including but not limited to:
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limiting our ability to fund working capital, capital expenditures, and other general corporate purposes;
limiting our ability to accommodate growth by reducing funds otherwise available for other corporate purposes
and to compete, which in turn could prevent us from fulfilling our obligations under our indebtedness;
limiting our operational flexibility due to the covenants contained in our debt agreements;
to the extent that our debt is subject to floating interest rates, increasing our vulnerability to fluctuations in
market interest rates;
limiting our ability to pay cash dividends;
limiting our flexibility for, or reacting to, changes in our business or industry or economic conditions, thereby
limiting our ability to compete with companies that are not as highly leveraged; and
increasing our vulnerability to economic downturns.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a
range of economic, competitive and business factors, many of which are outside our control. There can be no assurance that
our business will generate sufficient cash flow from operations to make these payments. If we are unable to meet our expenses
and debt obligations, we may need to refinance all or a portion of our indebtedness before maturity, sell assets or issue
additional equity. We may not be able to refinance any of our indebtedness, sell assets or issue additional equity on
commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our
inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our debt obligations on commercially
reasonable terms, would have a material adverse effect on our business, financial condition and results of operations, as well as
on our ability to satisfy our debt obligations.
Environmental Costs—We have ongoing environmental costs, which could have a material adverse effect on our
financial position or results of operations.
Our operations and assets are subject to extensive environmental, health and safety regulations, including laws and
regulations related to air emissions, water discharges, waste disposal and remediation of contaminated sites. The nature of our
operations and products, including the raw materials we handle, exposes us to the risk of liabilities, obligations or claims under
these laws and regulations due to the production, storage, use, transportation and sale of materials that can adversely impact the
environment or cause personal injury, including, in the case of chemicals, unintentional releases into the environment.
Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished
products, as well as the costs of storage, transportation and disposal of wastes. In addition, we are party to various government
and private environmental actions associated with past manufacturing facilities and former waste disposal sites. We have
incurred, and expect to incur, significant costs and capital expenditures in complying with environmental laws and regulations.
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The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws
relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held
responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal.
We could incur significant costs, including clean-up costs, natural resource damages, civil or criminal fines and sanctions and
third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or
liabilities under, environmental or other laws.
In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require us to
make additional expenditures, modify or curtail our operations and/or install additional pollution control equipment. It is
possible that regulatory agencies may enact new or more stringent clean-up standards for chemicals of concern, including
chlorinated organic products that we manufacture. This could lead to expenditures for environmental remediation in the future
that are additional to existing estimates.
Accordingly, it is possible that some of the matters in which we are involved or may become involved may be resolved
unfavorably to us, which could materially and adversely affect our business, financial position, cash flows or results of
operations. See “Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
Labor Matters—We cannot assure you that we can conclude future labor contracts or any other labor agreements
without work stoppages.
Various labor unions represent a significant number of our hourly paid employees for collective bargaining purposes. The
following labor contract is scheduled to expire in 2019:
Location
McIntosh (Chlor Alkali Products and Vinyls)
Number of Employees
197
Expiration Date
April 2019
While we believe our relations with our employees and their various representatives are generally satisfactory, we cannot
assure that we can conclude any labor agreements without work stoppages and cannot assure that any work stoppages will not
have a material adverse effect on our business, financial condition or results of operations.
Asset Impairment—If our goodwill, other intangible assets or property, plant and equipment become impaired in the
future, we may be required to record non-cash charges to earnings, which could be significant.
The process of impairment testing for our goodwill involves a number of judgments and estimates made by management
including future cash flows, discount rates, profitability assumptions and terminal growth rates with regards to our reporting
units. Our internally generated long-range plan includes cyclical assumptions regarding pricing and operating forecasts for the
chlor alkali industry. If the judgments and estimates used in our analysis are not realized or are affected by external factors,
then actual results may not be consistent with these judgments and estimates, and we may be required to record a goodwill
impairment charge in the future, which could be significant and have an adverse effect on our financial position and results of
operations.
We review long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for
impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the
fair value is less than the carrying amount of the asset, an impairment is recognized for the difference. Factors which may
cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or
market trends, a significant underperformance relative to historical or projected future operating results, extended period of
idleness or a likely sale or disposal of the asset before the end of its estimated useful life. If our property, plant and equipment
and identifiable amortizing intangible assets are determined to be impaired in the future, we may be required to record non-cash
charges to earnings during the period in which the impairment is determined, which could be significant and have an adverse
effect on our financial position and results of operations.
Credit and Capital Market Conditions—Adverse conditions in the credit and capital markets may limit or prevent
our ability to borrow or raise capital.
While we believe we have facilities in place that should allow us to borrow funds as needed to meet our ordinary course
business activities, adverse conditions in the credit and financial markets could prevent us from obtaining financing, if the need
arises. Our ability to invest in our businesses and refinance or repay maturing debt obligations could require access to the credit
and capital markets and sufficient bank credit lines to support cash requirements. If we are unable to access the credit and
capital markets on commercially reasonable terms, we could experience a material adverse effect on our business, financial
position or results of operations.
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Table of Contents
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
Information concerning our principal locations from which our products and services are manufactured, distributed or
marketed are included in the tables set forth under the caption “Products and Services” contained in Item 1—“Business.”
Generally, these facilities are well maintained, in good operating condition, and suitable and adequate for their use. Our two
largest facilities are co-located with DowDuPont. The land in which these facilities are located is leased with a 99 year initial
term that commenced in 2015. Additionally, we lease warehouses, terminals and distribution offices and space for executive
and branch sales offices and service departments. We believe our current facilities are adequate to meet the requirements of
our present operations.
Item 3. LEGAL PROCEEDINGS
Saltville
We have completed all work in connection with remediation of mercury contamination at the site of our former mercury
cell chlor alkali plant in Saltville, VA required to date. In mid-2003, the Trustees for natural resources in the North Fork
Holston River, the Main Stem Holston River and associated floodplains, located in Smyth and Washington Counties in Virginia
and in Sullivan and Hawkins Counties in Tennessee notified us of, and invited our participation in, an assessment of alleged
damages to natural resources resulting from the release of mercury. The Trustees also notified us that they have made a
preliminary determination that we are potentially liable for natural resource damages in said rivers and floodplains. We agreed
to participate in the assessment. We and the Trustees have entered into discussions concerning a resolution of this matter. In
light of the ongoing discussions and inherent uncertainties of the assessment, we cannot at this time determine whether the
financial impact, if any, of this matter will be material to our financial position or results of operations. See “Environmental
Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Other
As part of the continuing environmental investigation by federal, state and local governments of waste disposal sites, we
have entered into a number of settlement agreements requiring us to participate in the investigation and cleanup of a number of
sites. Under the terms of such settlements and related agreements, we may be required to manage or perform one or more
elements of a site cleanup, or to manage the entire remediation activity for a number of parties, and subsequently seek recovery
of some or all of such costs from other Potentially Responsible Parties (PRPs). In many cases, we do not know the ultimate
costs of our settlement obligations at the time of entering into particular settlement agreements, and our liability accruals for our
obligations under those agreements are often subject to significant management judgment on an ongoing basis. Those cost
accruals are provided for in accordance with generally accepted accounting principles and our accounting policies set forth in
“Environmental Matters” contained in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
We, and our subsidiaries, are defendants in various legal actions (including proceedings based on alleged exposures to
asbestos) incidental to our past and current business activities. At December 31, 2018 and 2017, our consolidated balance
sheets included liabilities for these legal actions of $15.6 million and $24.8 million, respectively. These liabilities do not include
costs associated with legal representation and do not include $8.0 million of insurance recoveries included in receivables, net
within the accompanying consolidated balance sheet as of December 31, 2017. Based on our analysis, and considering the
inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will
materially and adversely affect our financial position, cash flows or results of operations.
In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated
Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to litigation, releases of
hazardous materials and violations of environmental law to the extent arising prior to October 5, 2015.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
As of January 31, 2019, we had 3,718 record holders of our common stock.
Our common stock is traded on the NYSE under the “OLN” ticker symbol.
A dividend of $0.20 per common share was paid during each of the four quarters in 2018 and 2017.
Issuer Purchases of Equity Securities
Total Number of
Shares (or Units)
Purchased (1)
Average Price
Paid per Share
(or Unit)
52,323 $
1,236,851
301,481
25.27
20.87
20.13
Period
October 1-31, 2018
November 1-30,
2018
December 1-31,
2018
Total
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
52,323
1,236,851
301,481
$
449,950,761 (1)
(1) On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common
stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of
our common stock. Through December 31, 2018, 2,138,103 shares had been repurchased at a total value of $50,049,239
and $449,950,761 of common stock remained available for purchase under the program.
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Performance Graph
This graph compares the total shareholder return on our common stock with the cumulative total return of the Standard &
Poor’s 1000 Index (the S&P 1000 Index) and our current peer group of four companies comprised of: Huntsman, Trinseo
S.A., Oxy and Westlake (collectively, the Peer Group).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Olin Corporation, the S&P 1000 Index,
and the Peer Group
oln-2018fiveyearperfgraph.jpg
Olin Corporation
S&P 1000 Index
Peer Group
12/13
100
100
100
12/14
81
109
92
12/15
64
106
79
12/16
99
130
91
12/17
141
150
111
12/18
82
135
88
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
Data is for the five-year period from December 31, 2013 through December 31, 2018. The cumulative return includes
reinvestment of dividends. The Peer Group is weighted in accordance with market capitalization (closing stock price multiplied
by the number of shares outstanding) as of the beginning of each of the five years covered by the performance graph. We
calculated the weighted return for each year by multiplying (a) the percentage that each corporation’s market capitalization
represented of the total market capitalization for all corporations in the Peer Group for such year by (b) the total shareholder
return for that corporation for such year.
22
Table of Contents
Item 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
Operations
Sales
Cost of goods sold
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating income
Earnings (losses) of non-consolidated affiliates
Interest expense
Interest income and other income
Non-operating pension income (expense)
Income (loss) before taxes from continuing operations
Income tax provision (benefit)
Income (loss) from continuing operations
Discontinued operations, net
Net income (loss)
Financial position
Cash and cash equivalents
Working capital, excluding cash and cash equivalents
Property, plant and equipment, net
Total assets
Capitalization:
Short-term debt
Long-term debt
Shareholders’ equity
Total capitalization
Per share data
Basic:
Continuing operations
Discontinued operations, net
Net income (loss)
Diluted:
Continuing operations
Discontinued operations, net
Net income (loss)
Common cash dividends
Other
Capital expenditures
Depreciation and amortization
Common dividends paid
Repurchases of common stock
Current ratio
Total debt to total capitalization
Effective tax rate
Average common shares outstanding - diluted
Shareholders
2014
2015
2017
2018
2016
($ and shares in millions, except per share data)
$ 5,551
4,945
347
113
49
11
2
192
3
45
(34)
(30)
(4)
—
(4)
$ 6,268
5,555
369
38
13
3
2
217
2
34
117
(432)
549
—
549
$ 2,854
2,499
201
3
76
46
2
97
1
(20)
7
8
(1)
—
(1)
$ 2,241
1,863
179
16
4
2
2
44
1
23
163
58
105
1
106
$ 6,946
5,822
431
22
1
6
(20)
243
2
22
437
109
328
—
328
$
$
$
$
$
$
179
410
3,482
8,997
$
218
527
3,576
9,218
$
185
439
3,705
8,763
$
392
395
3,953
9,289
$
257
182
931
2,689
126
3,104
2,832
$ 6,062
1
3,611
2,754
$ 6,366
81
3,537
2,273
$ 5,891
205
3,644
2,419
$ 6,268
16
650
1,013
$ 1,679
$
1.97
$
3.31
$ (0.02)
$ (0.01)
$
—
—
—
—
$
1.97
$
3.31
$ (0.02)
$ (0.01)
$
$
1.95
$
3.26
$ (0.02)
$ (0.01)
$
—
—
—
—
$
1.95
0.80
3.26
0.80
$ (0.02)
0.80
$ (0.01)
0.80
$
1.33
0.01
1.34
1.32
0.01
1.33
0.80
$
$
$
385
601
134
50
1.5
53.3%
25.0%
168.4
3,700
$
294
559
133
—
1.8
56.7 %
(368.9)%
168.5
3,900
$
278
534
132
—
1.7
61.4%
88.6%
165.2
4,200
$
131
229
80
—
1.7
61.4%
120.9%
103.4
4,500
72
139
63
65
2.2
39.7%
35.5%
79.7
3,600
Employees
6,500
6,400
6,400
6,200
3,900
On October 5, 2015 (the Closing Date), we acquired from DowDuPont its U.S. Chlor Alkali and Vinyl, Global
Chlorinated Organics and Global Epoxy businesses (collectively, the Acquired Business) using a Reverse Morris Trust
Structure (collectively, the Acquisition). Since the Closing Date, our Selected Financial Data reflects the operating results of the
Acquired Business. Our Selected Financial Data also reflects the adoption of Accounting Standards Update (ASU) 2017-07,
“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which required
retrospective application. See Note 3 “Recent Accounting Pronouncements” of the notes to consolidated financial statements
contained in Item 8. For the year ended December 31, 2015, non-operating pension income (expense) included $47.1 million of
costs incurred as a result of the change in control which created a mandatory acceleration of expenses under our domestic non-
qualified pension plan as a result of the Acquisition. These costs were previously included in acquisition-related costs.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS BACKGROUND
We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S.
manufacturer of ammunition. Our operations are concentrated in three business segments: Chlor Alkali Products and Vinyls,
Epoxy and Winchester. All of our business segments are capital intensive manufacturing businesses. Chlor Alkali Products
and Vinyls operating rates are closely tied to the general economy. Each segment has a commodity element to it, and
therefore, our ability to influence pricing is quite limited on the portion of the segment’s business that is strictly commodity.
Our Chlor Alkali Products and Vinyls segment is a commodity business where all supplier products are similar and price is
the major supplier selection criterion. We have little or no ability to influence prices in the large, global commodity
markets. Our Chlor Alkali Products and Vinyls segment produces some of the most widely used chemicals in the world that
can be upgraded into a wide variety of downstream chemical products used in many end-markets. Cyclical price swings, driven
by changes in supply/demand, can be abrupt and significant and, given capacity in our Chlor Alkali Products and Vinyls
segment, can lead to significant changes in our overall profitability.
The Epoxy segment consumes products manufactured by the Chlor Alkali Products and Vinyls segment. The Epoxy
segment’s upstream and midstream products are predominately commodity markets. We have little or no ability to influence
prices in these large, global commodity markets. While competitive differentiation exists through downstream customization
and product development opportunities, pricing is extremely competitive with a broad range of competitors across the globe.
Winchester also has a commodity element to its business, but a majority of Winchester ammunition is sold as a branded
consumer product where there are opportunities to differentiate certain offerings through innovative new product development
and enhanced product performance. While competitive pricing versus other branded ammunition products is important, it is
not the only factor in product selection.
RECENT DEVELOPMENTS AND HIGHLIGHTS
2018 Overview
Net income was $327.9 million for the year ended December 31, 2018 compared to $549.5 million for 2017. Net income
for the year ended December 31, 2017 reflects a tax benefit of $437.9 million from the U.S. Tax Cuts & Jobs Act (the 2017
Tax Act). After adjusting for the provisional benefit of the 2017 Tax Act, the increase in results from the prior year was due to
improved Chlor Alkali Products and Vinyls and Epoxy segment results, primarily due to higher product prices. Net income for
the year ended December 31, 2018 also included insurance recoveries for environmental costs incurred and expensed in prior
periods of $111.0 million. These increases were partially offset by lower Winchester segment results and increased costs
associated with the Information Technology Project. In 2017, we began a multi-year implementation of new enterprise
resource planning, manufacturing and engineering systems, and related infrastructure (collectively, the Information Technology
Project). Net income for the year ended December 31, 2018 also included a $21.5 million non-cash impairment charge
associated with our investment in a non-consolidated affiliate and an $8.0 million pretax gain from an insurance recovery
resulting from a second quarter 2017 Freeport, TX vinyl chloride monomer facility business interruption claim.
In 2018, Chlor Alkali Products and Vinyls generated segment income of $637.1 million compared to $405.8 million for
2017. Chlor Alkali Products and Vinyls segment income was higher than in the prior year due to increased pricing for caustic
soda, EDC, chlorine and other chlorine-derivatives. Chlor Alkali Products and Vinyls 2018 segment income was negatively
impacted by lower caustic soda volumes, a less favorable product mix and higher costs, including raw material and freight
costs, maintenance to improve reliability and depreciation and amortization expense, partially offset by lower ethylene costs
associated with the acquisition of additional cost-based ethylene from DowDuPont in late September 2017. Chlor Alkali
Products and Vinyls 2018 segment income for the year ended December 31, 2018 was negatively impacted by the $21.5
million non-cash impairment charge associated with our investment in a non-consolidated affiliate. Chlor Alkali Products and
Vinyls 2017 segment income was negatively impacted by incremental costs to continue operations and unabsorbed fixed
manufacturing costs associated with Hurricane Harvey of $27.0 million. Chlor Alkali Products and Vinyls segment income
included depreciation and amortization expense of $473.1 million and $432.2 million in 2018 and 2017, respectively.
For the year ended December 31, 2018, Chlor Alkali Products and Vinyls recorded a $21.5 million non-cash impairment
charge related to an adjustment to the value of our 9.1% limited partnership interest in Bay Gas Storage Company, Ltd. (Bay
Gas). Bay Gas owns, leases and operates underground gas storage and related pipeline facilities which are used to provide
24
Table of Contents
storage in the McIntosh, AL area and delivery of natural gas. The general partner, Sempra Energy (Sempra), announced in the
second quarter of 2018 its plan to sell several assets including its 90.9% interest in Bay Gas. In connection with this decision,
Sempra recorded an impairment charge related to Bay Gas adjusting the related assets’ carrying values to an estimated fair
value. We recorded a reduction in our investment in the non-consolidated affiliate for the proportionate share of the non-cash
impairment charge. Olin has no other non-consolidated affiliates. On January 1, 2019, we entered into an agreement to sell our
9.1% limited partnership interest in Bay Gas for approximately $20 million. The sale closed on February 7, 2019 which
resulted in a gain of approximately $11 million which will be included in first quarter 2019 results.
During 2017, North America caustic soda price contract indices increased $140 per ton and the caustic soda export price
indices increased approximately $260 per metric ton creating positive pricing momentum entering 2018. During 2018, North
America caustic soda price contract indices increased an additional $40 per ton while the caustic soda export price indices
decreased $270 per metric ton. However, during the second half of 2018 both domestic and export price indices experienced
declines.
In 2018, Epoxy generated segment income of $52.8 million compared to a segment loss of $11.8 million for 2017. Epoxy
segment results were higher than the prior year primarily due to higher product prices, partially offset by increased raw material
costs, primarily benzene and propylene, and lower volumes and a less favorable product mix. Epoxy segment results for the
year ended December 31, 2018 were negatively impacted by $23.1 million of additional maintenance costs and unabsorbed
fixed manufacturing costs associated with maintenance turnarounds, which were primarily associated with an approximately
two-month planned maintenance turnaround at our production facilities in Freeport, TX. Epoxy 2017 segment results were
negatively impacted by incremental costs to continue operations and unabsorbed fixed manufacturing costs associated with
Hurricane Harvey of $27.7 million. Epoxy segment income included depreciation and amortization expense of $102.4 million
and $94.3 million in 2018 and 2017, respectively.
Winchester reported segment income of $38.4 million for 2018 compared to $72.4 million for 2017. Winchester segment
income declined from the prior year primarily due to increased commodity and other material costs and decreased demand for
commercial ammunition resulting in lower commercial sales volumes and lower product pricing. Winchester segment income
included depreciation and amortization expense of $20.0 million and $19.5 million in 2018 and 2017, respectively.
During 2018, we settled certain disputes with respect to insurance coverage for costs at various environmental
remediation sites for $121.0 million. We recorded a pretax gain of $111.0 million to the environmental provision, which was
net of estimated liabilities of $10.0 million associated with claims by subsequent owners of certain of the settled environmental
sites. We incurred legal fees of $21.5 million for the year ended December 31, 2018 associated with these recovery actions.
For the year ended December 31, 2018, we made long-term debt repayments, net of long-term debt borrowings,
of $376.1 million. On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due
February 1, 2030 (2030 Notes), which were registered under the Securities Act of 1933, as amended. Proceeds from the 2030
Notes were used to redeem $550.0 million of debt under the $1,375.0 million Term Loan Facility. This prepayment of the
Term Loan Facility eliminated the required quarterly installments under the $1,375.0 million Term Loan Facility.
On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common
stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our
common stock. For the year ended December 31, 2018, 2.1 million shares were repurchased and retired at a cost of $50.0
million.
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CONSOLIDATED RESULTS OF OPERATIONS
Sales
Cost of goods sold
Gross margin
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating income
Operating income
Earnings (losses) of non-consolidated affiliates
Interest expense
Interest income
Non-operating pension income
Income (loss) before taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
2018 Compared to 2017
$
$
$
$
Years ended December 31,
2016
2017
2018
($ in millions, except per share data)
6,946.1 $
5,822.1
1,124.0
430.6
21.9
1.0
6.4
676.9
(19.7)
243.2
1.6
21.7
437.3
109.4
327.9 $
6,268.4 $
5,554.9
713.5
369.8
37.6
12.8
3.3
296.6
1.8
217.4
1.8
34.4
117.2
(432.3)
549.5 $
5,550.6
4,944.5
606.1
347.2
112.9
48.8
10.6
107.8
1.7
191.9
3.4
44.8
(34.2)
(30.3)
(3.9)
1.97 $
1.95 $
3.31 $
3.26 $
(0.02)
(0.02)
Sales for 2018 were $6,946.1 million compared to $6,268.4 million in 2017, an increase of $677.7 million, or 11%. Chlor
Alkali Products and Vinyls sales increased by $485.9 million primarily due to increased pricing for caustic soda, EDC, chlorine
and other chlorine-derivatives, partially offset by lower caustic soda volumes and a less favorable product mix. Epoxy sales
increased by $216.7 million primarily due to higher product prices, partially offset by lower volumes and a less favorable
product mix. Winchester sales decreased by $24.9 million primarily due to lower sales to commercial customers, partially offset
by higher sales to military customers and law enforcement agencies.
Gross margin increased $410.5 million, or 58%, from 2017. Gross margin was positively impacted by insurance
recoveries for environmental costs incurred and expensed in prior periods of $111.0 million. Chlor Alkali Products and Vinyls
gross margin increased by $263.8 million, primarily due to higher product pricing partially offset by increased costs, lower
caustic soda volumes and a less favorable product mix. Epoxy gross margin increased $78.3 million primarily due to higher
product prices partially offset by increased raw material costs, primarily benzene and propylene. Epoxy gross margin was also
negatively impacted by the cost of an approximately two-month planned maintenance turnaround at our production facilities in
Freeport, TX, which also reduced volumes. Both Chlor Alkali Products and Vinyls and Epoxy 2017 gross margins were
negatively impacted by incremental costs to continue operations and unabsorbed fixed manufacturing costs associated with
Hurricane Harvey. Winchester gross margin decreased $34.0 million primarily due to increased commodity and other material
costs, lower commercial sales volumes and a less favorable product mix and lower selling prices. Gross margin as a percentage
of sales increased to 16% in 2018 from 11% in 2017.
Selling and administration expenses in 2018 increased $60.8 million, or 16%, from 2017. The increase was primarily due
to higher costs associated with the Information Technology Project of $31.2 million, higher legal and legal-related settlement
expenses of $15.6 million, primarily associated with environmental recovery actions, increased incentive compensation expense
of $11.6 million, an unfavorable foreign currency impact of $10.9 million and higher consulting and contract services of $10.4
million, which include transition service fees from DowDuPont. These increased costs were partially offset by lower stock-
based compensation expense of $15.0 million, which includes mark-to-market adjustments. Selling and administration expenses
as a percentage of sales were 6% in both 2018 and 2017.
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Restructuring charges in 2018 and 2017 were primarily associated with the March 2016 closure of 433,000 tons of chlor
alkali capacity across three separate locations. Restructuring charges in 2018 were also associated with a December 2018
decision to permanently close the ammunition assembly operations at our Winchester facility in Geelong, Australia.
Acquisition-related costs for the years ended December 31, 2018 and 2017 were related to the integration of the Acquired
Business, and consisted of advisory, legal, accounting and other professional fees.
Other operating income for the year ended December 31, 2018 included an $8.0 million insurance recovery for a second
quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility partially offset by a $1.7 million loss on
the sale of land. Other operating income for the year ended December 31, 2017 included a gain of $3.3 million from the sale of
a former manufacturing facility.
Earnings (losses) of non-consolidated affiliates decreased by $21.5 million for the year ended December 31, 2018, which
reflect a $21.5 million non-cash impairment charge recorded during 2018.
Interest expense increased by $25.8 million for the year ended December 31, 2018 primarily due to higher interest rates
and an increase of $12.1 million of accretion expense related to the 2020 ethylene payment discount, partially offset by a lower
level of debt outstanding for the year ended December 31, 2018 compared to 2017.
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 year ended December 31, 2018, primarily due to an increase in
the amortization of actuarial losses and higher Pension Benefit Guaranty Corporation fees associated with our domestic
qualified defined benefit pension plan.
The effective tax rate for 2018 included benefits associated with the 2017 Tax Act, stock-based compensation, changes in
tax contingencies, a foreign dividend payment, changes associated with prior year tax positions and the remeasurement of
deferred taxes due to a decrease in our state effective tax rates. The effective tax rate also included expenses associated with a
net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions and the remeasurement of deferred
taxes due to changes in our foreign tax rates. These factors resulted in a net $2.9 million tax benefit, of which $3.8 million
related to the increase of the 2017 Tax Act benefit. After giving consideration to these items, the effective tax rate for 2018 of
25.7% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, foreign income
inclusions and a net increase in the valuation allowance related to current year losses in foreign jurisdictions, partially offset by
favorable permanent salt depletion deductions. The effective tax rate for 2017 included benefits associated with the 2017 Tax
Act, an agreement with the Internal Revenue Service on prior period tax examinations, stock based compensation, U.S. federal
tax credits, changes to prior year tax positions and a reduction to the deferred tax liability on unremitted foreign earnings. The
effective tax rate also included an expense associated with a net increase in the valuation allowance, primarily related to foreign
net operating losses and remeasurement of deferred taxes due to an increase in our state effective tax rates. These factors
resulted in a net $452.3 million tax benefit, of which $437.9 million was a provisional benefit from the 2017 Tax Act. After
giving consideration to these items, the effective tax rate for 2017 of 17.1% was lower than the 35% U.S. federal statutory
rate, primarily due to favorable permanent salt depletion deductions.
2017 Compared to 2016
Sales for 2017 were $6,268.4 million compared to $5,550.6 million in 2016, an increase of $717.8 million, or 13%. Chlor
Alkali Products and Vinyls sales increased by $501.5 million primarily due to higher caustic soda and EDC product prices and
increased volumes. Epoxy sales increased by $264.4 million primarily due to higher product prices and increased volumes.
Both Chlor Alkali Products and Vinyls and Epoxy sales volumes were negatively impacted by Hurricane Harvey. Winchester
sales decreased by $48.1 million primarily due to decreased shipments to commercial customers, partially offset by increased
shipments to military customers and law enforcement agencies.
Gross margin in 2017 increased $107.4 million, or 18%, from 2016. Chlor Alkali Products and Vinyls gross margin
increased by $183.6 million, primarily due to higher caustic soda and EDC product prices and increased volumes. Partially
offsetting these increases were higher electricity costs, primarily driven by higher natural gas prices, compared to 2016. Epoxy
gross margin decreased $26.6 million primarily due to increased raw material costs, primarily benzene and propylene, partially
offset by higher product prices and increased volumes. Both Chlor Alkali Products and Vinyls and Epoxy gross margins were
also negatively impacted by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales
associated with turnarounds and outages and Hurricane Harvey. Winchester gross margin decreased $52.9 million primarily due
to lower commercial volumes, a less favorable product mix and increased commodity and other material costs. Gross margin as
a percentage of sales were 11% in both 2017 and 2016.
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Selling and administration expenses in 2017 increased $22.6 million, or 7%, from 2016. The increase was primarily due to
higher consulting and contract services of $10.5 million, which include transition service fees from DowDuPont, and higher
stock-based compensation expense of $8.2 million, which includes mark-to-market adjustments. Selling and administration
expenses for 2017 also included costs associated with the Information Technology Project of $5.3 million. Selling and
administration expenses as a percentage of sales were 6% in both 2017 and 2016.
Restructuring charges in 2017 and 2016 were primarily associated with the March 2016 closure of 433,000 tons of chlor
alkali capacity across three separate locations. For the year ended December 31, 2016, $76.6 million of these charges were
non-cash asset impairment charges for equipment and facilities. Restructuring charges for the years ended December 31, 2017
and 2016 were also associated with permanently closing a portion of the Becancour, Canada chlor alkali facility in 2014 and the
relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was
completed during 2016.
Acquisition-related costs for the years ended December 31, 2017 and 2016 were related to the integration of the Acquired
Business, and consisted of advisory, legal, accounting and other professional fees.
Other operating income for the year ended December 31, 2017 included a gain of $3.3 million from the sale of a former
manufacturing facility. Other operating income for the year ended December 31, 2016 included an $11.0 million insurance
recovery for property damage and business interruption related to a 2008 chlor alkali facility incident.
Interest expense increased by $25.5 million in 2017 from 2016 primarily due to higher interest rates, $3.9 million of
accretion expense related to the 2020 ethylene payment discount and the write-off of unamortized deferred debt issuance costs
of $2.7 million associated with the redemption of the Sumitomo Credit Facility and a portion of the $1,850.0 million senior
credit facility.
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 year ended December 31, 2017, primarily due to an increase in
the amortization of actuarial losses.
The effective tax rate for 2017 included benefits associated with the 2017 Tax Act, an agreement with the Internal
Revenue Service on prior period tax examinations, stock based compensation, U.S. federal tax credits, changes to prior year tax
positions and a reduction to the deferred tax liability on unremitted foreign earnings. The effective tax rate also included an
expense associated with a net increase in the valuation allowance, primarily related to foreign net operating losses and
remeasurement of deferred taxes due to an increase in our state effective tax rates. These factors resulted in a net $452.3
million tax benefit, of which $437.9 million was a provisional benefit from the 2017 Tax Act. After giving consideration to
these items, the effective tax rate for 2017 of 17.1% was lower than the 35% U.S. federal statutory rate, primarily due to
favorable permanent salt depletion deductions. The effective tax rate for 2016 included benefits associated with return to
provision adjustments, primarily related to salt depletion and non-deductible acquisition costs, and the remeasurement of
deferred taxes due to a decrease in our state effective tax rates. The effective tax rate also included an expense associated with
a change in prior year uncertain tax positions. These factors resulted in a net $3.9 million tax benefit. After giving consideration
to these items, the effective tax rate for 2016 of 77.2% was higher than the 35% U.S. federal statutory rate, primarily due to
favorable permanent salt depletion deductions in combination with a pretax loss.
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SEGMENT RESULTS
We define segment results as income (loss) before interest expense, interest income, other operating income (expense),
non-operating pension income and income taxes, and includes the operating results of non-consolidated affiliates. Consistent
with the guidance in ASC 280 “Segment Reporting,” we have determined it is appropriate to include the operating results of
non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products
and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for
purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the
Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for
all caustic soda generated and sold by Olin.
Sales:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Total sales
Income (loss) before taxes:
Chlor Alkali Products and Vinyls(1)
Epoxy
Winchester
Corporate/Other:
Environmental income (expense)(2)
Other corporate and unallocated costs(3)
Restructuring charges(4)
Acquisition-related costs(5)
Other operating income(6)
Interest expense(7)
Interest income
Non-operating pension income(8)
Income (loss) before taxes
2018
Years ended December 31,
2017
($ in millions)
2016
3,986.7 $
2,303.1
656.3
6,946.1 $
3,500.8 $
2,086.4
681.2
6,268.4 $
2,999.3
1,822.0
729.3
5,550.6
637.1 $
52.8
38.4
103.7
(158.3)
(21.9)
(1.0)
6.4
(243.2)
1.6
21.7
437.3 $
405.8 $
(11.8)
72.4
(8.5)
(112.4)
(37.6)
(12.8)
3.3
(217.4)
1.8
34.4
117.2 $
224.9
15.4
120.9
(9.2)
(91.4)
(112.9)
(48.8)
10.6
(191.9)
3.4
44.8
(34.2)
$
$
$
$
(1) Earnings (losses) of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results
consistent with management’s monitoring of the operating segment. The losses of non-consolidated affiliates were $19.7
million for the year ended December 31, 2018, which reflect a $21.5 million non-cash impairment charge recorded during
2018. The earnings of non-consolidated affiliates were $1.8 million and $1.7 million for the years ended December 31,
2017 and 2016, respectively.
(2) Environmental income (expense) for the year ended December 31, 2018 included insurance recoveries for environmental
costs incurred and expensed in prior periods of $111.0 million. Environmental income (expense) is included in cost of
goods sold in the consolidated statements of operations.
(3) Other corporate and unallocated costs for the years ended December 31, 2018 and 2017 included costs associated with
the implementation of the Information Technology Project of $36.5 million and $5.3 million, respectively.
(4) Restructuring charges for the year ended December 31, 2018 included costs associated with permanently closing the
ammunition assembly operations at our Geelong, Australia facility in December 2018. Restructuring charges for the years
ended December 31, 2018, 2017 and 2016 were primarily associated with the March 2016 closure of 433,000 tons of
chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor
alkali facility in 2014. For the year ended December 31, 2016, $76.6 million of these charges were non-cash asset
impairment charges for equipment and facilities. Restructuring charges for the years ended December 31, 2017 and 2016
also included costs associated with the relocation of our Winchester centerfire ammunition manufacturing operations from
East Alton, IL to Oxford, MS which was completed during 2016.
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(5) Acquisition-related costs for the years ended December 31, 2018, 2017 and 2016 were related to the integration of the
Acquired Business and consisted of advisory, legal, accounting and other professional fees.
(6) Other operating income for the year ended December 31, 2018 included an $8.0 million insurance recovery for a second
quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility partially offset by a $1.7 million
loss on the sale of land. Other operating income for the year ended December 31, 2017 included a gain of $3.3 million
from the sale of a former manufacturing facility. Other operating income for the year ended December 31, 2016 included
an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility
incident.
(7)
Interest expense for the years ended December 31, 2018 and 2017 included $16.0 million and $3.9 million, respectively,
of accretion expense related to the 2020 ethylene payment discount. Interest expense was reduced by capitalized interest
of $6.0 million, $3.0 million and $1.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.
(8) Non-operating pension income reflects the adoption of ASU 2017-07 and includes all components of pension and other
postretirement income (costs) other than service costs, which are allocated to the operating segments based on their
respective estimated census data. Operating segment results for 2017 and 2016 have been restated to reflect this
accounting change.
2018 Compared to 2017
Chlor Alkali Products and Vinyls
Chlor Alkali Products and Vinyls sales for 2018 were $3,986.7 million compared to $3,500.8 million for 2017, an increase
of $485.9 million, or 14%. The sales increase was primarily due to increased caustic soda, EDC, chlorine and other chlorine-
derivatives pricing. The higher product prices were partially offset by lower caustic soda volumes and a less favorable product
mix. Chlor Alkali Products and Vinyls 2017 sales volumes were negatively impacted by lost sales associated with Hurricane
Harvey.
Chlor Alkali Products and Vinyls generated segment income of $637.1 million for 2018 compared to $405.8 million for
2017, an increase of $231.3 million, or 57%. The increase in Chlor Alkali Products and Vinyls segment income was primarily
due to higher product prices ($502.9 million) and lower ethylene costs associated with the acquisition of additional cost-based
ethylene from DowDuPont in late September 2017, partially offset by higher ethane prices ($8.0 million). Partially offsetting
these benefits were higher raw material and freight costs ($147.5 million), lower volumes, primarily caustic soda, and a less
favorable product mix ($71.1 million), increased depreciation and amortization expense ($40.9 million) and increased operating
costs ($25.6 million), primarily maintenance to improve reliability. Chlor Alkali Products and Vinyls 2018 segment income was
also negatively impacted by a non-cash impairment charge associated with our investment in a non-consolidated affiliate ($21.5
million). Chlor Alkali Products and Vinyls 2017 segment income was negatively impacted by incremental costs to continue
operations and unabsorbed fixed manufacturing costs associated with Hurricane Harvey ($27.0 million). Chlor Alkali Products
and Vinyls segment income included depreciation and amortization expense of $473.1 million and $432.2 million in 2018 and
2017, respectively.
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2017 Compared to 2016
Chlor Alkali Products and Vinyls sales for 2017 were $3,500.8 million compared to $2,999.3 million for 2016, an increase
of $501.5 million, or 17%. The sales increase was primarily due to higher product prices and increased volumes. The higher
product prices and increased volumes were primarily related to caustic soda and EDC. Chlor Alkali Products and Vinyls sales
volumes were negatively impacted by Hurricane Harvey.
Chlor Alkali Products and Vinyls generated segment income of $405.8 million for 2017 compared to $224.9 million for
2016, an increase of $180.9 million, or 80%. Chlor Alkali Products and Vinyls segment income was higher due to higher
product prices ($385.5 million) and increased volumes and a more favorable product mix ($8.7 million). The higher product
prices and increased volumes were primarily related to caustic soda and EDC. These increases were partially offset by higher
maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with turnarounds and
outages ($102.5 million) and incremental costs to continue operations, unabsorbed fixed manufacturing costs and reduced profit
from lost sales associated with Hurricane Harvey ($27.0 million). Electricity costs, primarily driven by higher natural gas prices
($51.6 million), and operating costs ($32.2 million) were also higher compared to 2016. Chlor Alkali Products and Vinyls
segment income included depreciation and amortization expense of $432.2 million and $418.1 million in 2017 and 2016,
respectively.
2018 Compared to 2017
Epoxy
Epoxy sales were $2,303.1 million for 2018 compared to $2,086.4 million for 2017, an increase of $216.7 million, or
10%. The sales increase was primarily due to higher product prices ($322.4 million) and a favorable effect of foreign currency
translation ($48.2 million), partially offset by lower volumes ($153.9 million). Epoxy 2018 sales volumes were negatively
impacted by lost sales associated with planned maintenance turnarounds, while 2017 Epoxy sales volumes were negatively
impacted by Hurricane Harvey.
Epoxy reported segment income of $52.8 million for 2018 compared to a segment loss of $11.8 million for 2017, an
increase of $64.6 million. The increase in Epoxy segment results was primarily due to higher product prices ($322.4 million)
partially offset by higher raw material costs ($190.8 million), primarily benzene and propylene. Epoxy results were also
negatively impacted by lower volumes and a less favorable product mix ($42.2 million), higher maintenance costs and
unabsorbed fixed manufacturing costs associated with turnarounds and outages ($23.1 million), increased operating costs,
including utilities ($21.3 million) and higher depreciation and amortization expense ($8.1 million). Additionally, Epoxy 2017
segment results were negatively impacted by incremental costs to continue operations and unabsorbed fixed manufacturing
costs associated with Hurricane Harvey ($27.7 million). Epoxy segment results included depreciation and amortization expense
of $102.4 million and $94.3 million in 2018 and 2017, respectively.
2017 Compared to 2016
Epoxy sales were $2,086.4 million for 2017 compared to $1,822.0 million for 2016, an increase of $264.4 million, or
15%. The sales increase was primarily due to higher product prices ($211.7 million) and increased volumes and a more
favorable product mix ($52.7 million). Epoxy sales volumes were negatively impacted by Hurricane Harvey.
Epoxy reported a segment loss of $11.8 million for 2017 compared to segment income of $15.4 million for 2016, a
decrease of $27.2 million. Epoxy segment results were negatively impacted by incremental costs to continue operations,
unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with Hurricane Harvey ($27.7 million) and
higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with turnarounds
and outages ($15.3 million). Epoxy segment results were also impacted by increased raw material costs ($227.8 million),
primarily benzene and propylene, and higher operating costs ($1.7 million). These decreases impacting segment results were
partially offset by higher product prices ($211.7 million) and increased volumes and a more favorable product mix ($33.6
million). Epoxy segment results included depreciation and amortization expense of $94.3 million and $90.0 million in 2017 and
2016, respectively.
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2018 Compared to 2017
Winchester
Winchester sales were $656.3 million for 2018 compared to $681.2 million for 2017, a decrease of $24.9 million, or
4%. The sales decrease was primarily due to lower ammunition sales to commercial customers ($43.4 million), partially offset
by higher sales to military customers and law enforcement agencies ($18.5 million).
Winchester reported segment income of $38.4 million for 2018 compared to $72.4 million for 2017, a decrease of $34.0
million, or 47%. The decrease in segment income was due to higher commodity and other material costs ($19.6 million), lower
commercial sales volumes and a less favorable product mix ($9.4 million) and lower product prices ($8.0 million). These
decreases were partially offset by lower operating costs ($3.0 million), including depreciation and amortization expense.
Winchester segment income included depreciation and amortization expense of $20.0 million and $19.5 million in 2018 and
2017, respectively.
2017 Compared to 2016
Winchester sales were $681.2 million for 2017 compared to $729.3 million for 2016, a decrease of $48.1 million, or
7%. The sales decrease was primarily due to lower ammunition sales to commercial customers ($89.4 million), partially offset
by increased shipments to military customers and law enforcement agencies ($41.3 million). The decrease in commercial sales
primarily reflects lower demand in shotshell, pistol and rifle ammunition.
Winchester reported segment income of $72.4 million for 2017 compared to $120.9 million for 2016, a decrease of $48.5
million, or 40%. The decrease in segment income in 2017 compared to 2016 was due to lower volumes and a less favorable
product mix ($35.0 million), increased commodity and other material costs ($10.6 million) and lower product prices ($8.0
million). These decreases were partially offset by the impact of lower operating costs ($5.1 million). Winchester segment
income included depreciation and amortization expense of $19.5 million and $18.5 million in 2017 and 2016, respectively.
2018 Compared to 2017
Corporate/Other
Credits to income for environmental investigatory and remedial activities were $103.7 million for 2018, which include
$111.0 million of insurance recoveries for environmental costs incurred and expensed in prior periods. Without these
recoveries, charges to income for environmental investigatory and remedial activities would have been $7.3 million for the year
ended December 31, 2018 compared with $8.5 million for the year ended December 31, 2017. These charges related
primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former
waste disposal sites.
For 2018, other corporate and unallocated costs were $158.3 million compared to $112.4 million for 2017, an increase of
$45.9 million, or 41%. The increase was primarily due to higher costs associated with the Information Technology Project of
$31.2 million, higher legal and legal-related settlement expenses of $18.0 million and an unfavorable foreign currency impact of
$10.6 million. The increases were partially offset by lower stock-based compensation expense of $15.0 million, which includes
mark-to-market adjustments. The higher legal and legal-related settlement expenses were primarily due to legal fees associated
with environmental recovery actions.
2017 Compared to 2016
Charges to income for environmental investigatory and remedial activities were $8.5 million for 2017 compared to $9.2
million for 2016. These charges related primarily to expected future investigatory and remedial activities associated with past
manufacturing operations and former waste disposal sites.
For 2017, other corporate and unallocated costs were $112.4 million compared to $91.4 million for 2016, an increase of
$21.0 million, or 23%. The increase was primarily due to higher stock-based compensation expense of $8.2 million, which
includes mark-to-market adjustments, increased consulting charges of $7.3 million and costs associated with the
implementation of the Information Technology Project of $5.3 million.
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Restructurings
On December 10, 2018, we announced that we had made the decision to permanently close the ammunition assembly
operations at our Winchester facility in Geelong, Australia. Subsequent to the facility’s closure, product for customers in the
region will be sourced from Winchester manufacturing facilities located in the United States. For the year ended December 31,
2018, we recorded pretax restructuring charges of $4.1 million for the write-off of equipment and facility costs, employee
severance and related benefit costs and lease and other contract termination costs related to this action. We expect to incur
additional restructuring charges through 2019 of approximately $1 million related to this closure.
On March 21, 2016, we announced that we had made the decision to close a combined total of 433,000 tons of chlor
alkali capacity across three separate locations. Associated with this action, we have permanently closed our Henderson, NV
chlor alkali plant with 153,000 tons of capacity and have reconfigured the site to manufacture bleach and distribute caustic soda
and hydrochloric acid. Also, the capacity of our Niagara Falls, NY chlor alkali plant has been reduced from 300,000 tons to
240,000 tons and the chlor alkali capacity at our Freeport, TX facility was reduced by 220,000 tons. This 220,000 ton
reduction was entirely from diaphragm cell capacity. For the years ended December 31, 2018, 2017 and 2016, we recorded
pretax restructuring charges of $15.7 million, $32.6 million and $111.3 million, respectively, for the write-off of equipment and
facility costs, lease and other contract termination costs, employee severance and related benefit costs, employee relocation
costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2019 of
approximately $10 million related to these capacity reductions.
2019 OUTLOOK
Net income in 2019 is projected to be approximately $1.60 per diluted share, which includes estimated pretax information
technology integration project costs and restructuring costs totaling approximately $80 million. Net income in 2018 was $1.95
per diluted share, which includes pretax insurance recoveries for environmental costs incurred and expensed in prior periods of
$111.0 million, pretax information technology integration project costs and restructuring costs of $58.4 million and a pretax
non-cash impairment charge associated with our investment in a non-consolidated affiliate of $21.5 million.
We currently expect the first quarter of 2019 to have the lowest quarterly earnings per diluted share in 2019. We expect
the first quarter of 2019 earnings per diluted share to be sequentially lower than fourth quarter 2018 levels but higher than first
quarter 2018 levels. The year over year increase reflects improved pricing for chlorine, ethylene dichloride and chlorine
derivatives and lower planned maintenance turnaround costs in the Epoxy business partially offset by the lower year over year
caustic soda prices.
Chlor Alkali Products and Vinyls 2019 segment income is expected to be comparable to 2018 segment income of $637.1
million reflecting improved chlorine, EDC and chlorine-derivatives pricing, which are expected to be offset by lower caustic
soda pricing, higher freight and logistics costs, and higher ethylene costs, due to increased ethane pricing.
Epoxy 2019 segment results are expected to improve from the 2018 segment income of $52.8 million as increased
volumes, lower raw material costs, primarily benzene and propylene, and lower planned maintenance turnaround costs are
expected to more than offset lower product pricing.
Winchester 2019 segment income is expected to be similar to the 2018 segment income of $38.4 million primarily due to
expected lower commodity and other material costs and lower operating costs offset by declines in commercial demand.
Military and other government sales are expected to be consistent with 2018.
Other Corporate and Unallocated costs in 2019 are expected to be higher than 2018 Other Corporate and Unallocated
costs of $158.3 million due to higher costs associated with the Information Technology Project and higher stock based
compensation costs partially offset by lower legal and legal-related settlement expenses. Costs associated with the Information
Technology Project are estimated to increase approximately $30 million in 2019 compared to 2018, which reflects duplicative
costs incurred to maintain legacy systems while transitioning to new systems.
During 2019, we anticipate environmental expenses in the $15 million to $20 million range compared to $7.3 million,
excluding the $111.0 million of insurance recoveries, in 2018. We do not believe that there will be additional recoveries of
environmental costs incurred and expensed in prior periods during 2019.
We expect non-operating pension income in 2019 to be in the $15 million to $20 million range compared to $21.7 million
in 2018. We expect higher amortization of deferred pension actuarial losses. Based on our plan assumptions and
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estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in
2019. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less
than $5 million in 2019.
In 2019, we currently expect our capital spending to be in the $375 million to $425 million range, including the investment
associated with the Information Technology Project of approximately $80 million. We expect 2019 depreciation and
amortization expense to be in the $590 million to $610 million range.
We currently believe that both the 2019 effective tax rate and the cash tax rate will be approximately 25%.
PENSION AND POSTRETIREMENT BENEFITS
Under ASC 715, we recorded an after-tax charge of $74.9 million ($98.5 million pretax) to shareholders’ equity as of
December 31, 2018 for our pension and other postretirement plans. This charge primarily reflected unfavorable performance
on plan assets during 2018, partially offset by a 60-basis point increase in the domestic pension plans’ discount rate. In 2017,
we recorded an after-tax charge of $21.6 million ($27.3 million pretax) to shareholders’ equity as of December 31, 2017 for
our pension and other postretirement plans. This charge primarily reflected a 50-basis point decrease in the domestic pension
plans’ discount rate, partially offset by favorable performance on plan assets during 2017. In 2016, we recorded an after-tax
charge of $37.5 million ($61.0 million pretax) to shareholders’ equity as of December 31, 2016 for our pension and other
postretirement plans. This charge primarily reflected a 30-basis point decrease in the domestic pension plans’ discount rate,
partially offset by favorable performance on plan assets during 2016. These non-cash charges to shareholders’ equity do not
affect our ability to borrow under our senior credit facility.
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0
million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic
qualified defined benefit pension plan at least through 2019.
In connection with international qualified defined benefit pension plans, we made cash contributions of $2.6 million, $1.7
million and $1.3 million in 2018, 2017 and 2016, respectively, and we anticipate less than $5 million of cash contributions to
international qualified defined benefit pension plans in 2019.
At December 31, 2018, the projected benefit obligation of $2,661.9 million exceeded the market value of assets in our
qualified defined benefit pension plans by $668.9 million, as calculated under ASC 715.
Components of net periodic benefit (income) costs were:
Pension benefits
Other postretirement benefit costs
2018
Years ended December 31,
2017
($ in millions)
2016
$
(14.5) $
5.2
(26.4) $
2.5
(37.1)
2.5
The service cost component of net periodic benefit (income) costs related to employees of the operating segments are
allocated to the operating segments based on their respective estimated census data.
ENVIRONMENTAL MATTERS
Cash outlays:
Remedial and investigatory spending (charged to reserve)
Capital spending
Plant operations (charged to cost of goods sold)
Total cash outlays
2018
Years ended December 31,
2017
($ in millions)
2016
$
$
13.0 $
2.3
197.6
212.9 $
16.5 $
1.7
199.7
217.9 $
10.3
3.5
192.6
206.4
Cash outlays for remedial and investigatory activities associated with former waste sites and past operations were not
charged to income but instead were charged to reserves established for such costs identified and expensed to income in prior
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years. Cash outlays for normal plant operations for the disposal of waste and the operation and maintenance of pollution
control equipment and facilities to ensure compliance with mandated and voluntarily imposed environmental quality standards
were charged to income.
Total environmental-related cash outlays for 2019 are estimated to be approximately $220 million, of which
approximately $17 million is expected to be spent on investigatory and remedial efforts, approximately $3 million on capital
projects and approximately $200 million on normal plant operations. Remedial and investigatory spending is anticipated to be
higher in 2019 than 2018 due to the timing of continuing remedial action plans and investigations. Historically, we have funded
our environmental capital expenditures through cash flow from operations and expect to do so in the future.
Annual environmental-related cash outlays for site investigation and remediation, capital projects and normal plant
operations are expected to range between $200 million to $220 million over the next several years, $15 million to $25 million of
which is for investigatory and remedial efforts, which are expected to be charged against reserves recorded on our consolidated
balance sheet. While we do not anticipate a material increase in the projected annual level of our environmental-related cash
outlays for site investigation and remediation, there is always the possibility that such an increase may occur in the future in
view of the uncertainties associated with environmental exposures.
Our liabilities for future environmental expenditures were as follows:
Beginning balance
Charges to income
Remedial and investigatory spending
Foreign currency translation adjustments
Ending balance
2018
December 31,
2017
($ in millions)
2016
$
$
131.6 $
7.3
(13.0)
(0.3)
125.6 $
137.3 $
10.3
(16.5)
0.5
131.6 $
138.1
9.2
(10.3)
0.3
137.3
As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling,
generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes in all of the countries in which we do business.
The establishment and implementation of national, state or provincial and local standards to regulate air, water and land
quality affect substantially all of our manufacturing locations around the world. Laws providing for regulation of the
manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites, have
imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of
environmental laws has required and will continue to require new capital expenditures and will increase plant operating
costs. We employ waste minimization and pollution prevention programs at our manufacturing sites.
In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated
Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to releases of hazardous
materials and violations of environmental law to the extent arising prior to October 5, 2015.
We are party to various government and private environmental actions associated with past manufacturing facilities and
former waste disposal sites. Associated costs of investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to
estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With
respect to unasserted claims, we accrue liabilities for costs that, in our experience, we expect to incur to protect our interests
against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $8.6 million at December 31,
2018. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action
and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with
the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not
exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M.
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Environmental provisions (credited) charged to income, which are included in cost of goods sold, were as follows:
Provisions charged to income
Insurance recoveries for costs incurred and expensed
Environmental (income) expense
2018
Years ended December 31,
2017
($ in millions)
2016
$
$
7.3 $
(111.0)
(103.7) $
10.3 $
(1.8)
8.5 $
9.2
—
9.2
During 2018, we settled certain disputes with respect to insurance coverage for costs at various environmental
remediation sites for $121.0 million. Environmental (income) expense for the year ended December 31, 2018 includes
insurance recoveries for environmental costs incurred and expensed in prior periods of $111.0 million. The recoveries are
reduced by estimated liabilities of $10.0 million associated with claims by subsequent owners of certain of the settled
environmental sites.
These charges relate primarily to remedial and investigatory activities associated with past manufacturing operations and
former waste disposal sites and may be material to operating results in future years.
Our total estimated environmental liability at the end of 2018 was attributable to 60 sites, 14 of which were United States
Environmental Protection Agency National Priority List sites. Nine sites accounted for 79% of our environmental liability and,
of the remaining 51 sites, no one site accounted for more than 3% of our environmental liability. At three of the nine sites, part
of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At two of the nine sites, a
remedial action plan is being developed for part of the site and at another part a remedial design is being developed. At one of
the nine sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At
one of the nine sites, a remedial action plan is being developed for part of the site and another part is in the long-term OM&M
stage. The two remaining sites are in long-term OM&M. All nine sites are either associated with past manufacturing
operations or former waste disposal sites. None of the nine largest sites represents more than 22% of the liabilities reserved on
our consolidated balance sheet at December 31, 2018 for future environmental expenditures.
Our consolidated balance sheets included liabilities for future environmental expenditures to investigate and remediate
known sites amounting to $125.6 million at December 31, 2018, and $131.6 million at December 31, 2017, of which $108.6
million and $111.6 million, respectively, were classified as other noncurrent liabilities. Our environmental liability amounts do
not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in
technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or
remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to
income may be made for additional liabilities. Of the $125.6 million included on our consolidated balance sheet at December
31, 2018 for future environmental expenditures, we currently expect to utilize $68.9 million of the reserve for future
environmental expenditures over the next 5 years, $14.1 million for expenditures 6 to 10 years in the future, and $42.6 million
for expenditures beyond 10 years in the future. These estimates are subject to a number of risks and uncertainties, as
described in “Environmental Costs” contained in Item 1A—“Risk Factors.”
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites,
developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and
regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the
difficulty in assessing the involvement and financial capability of other PRPs, our ability to obtain contributions from other
parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes
of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our
financial position or results of operations. At December 31, 2018, we estimate it is reasonably possible that we may have
additional contingent environmental liabilities of $60 million in addition to the amounts for which we have already recorded as a
reserve.
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LEGAL MATTERS AND CONTINGENCIES
We are party to a dispute relating to a contract at our Plaquemine, LA facility. The other party to the contract has filed a
demand for arbitration alleging, among other things, that Olin breached the related agreement and claiming damages in excess
of the amount Olin believes it is obligated to pay under the contract. The arbitration hearing is scheduled for the fourth quarter
2019. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact
and law but, if resolved unfavorably to Olin, they could have a material adverse effect on our financial position, cash flows or
results of operations.
We, and our subsidiaries, are defendants in various other legal actions (including proceedings based on alleged exposures
to asbestos) incidental to our past and current business activities. We describe some of these matters in Item 3—“Legal
Proceedings.” At December 31, 2018 and 2017, our consolidated balance sheets included liabilities for these legal actions of
$15.6 million and $24.8 million, respectively. These liabilities do not include costs associated with legal representation and do
not include $8.0 million of insurance recoveries included in receivables, net within the accompanying consolidated balance
sheet as of December 31, 2017. Based on our analysis, and considering the inherent uncertainties associated with litigation, we
do not believe that it is reasonably possible that these legal actions will materially and adversely affect our financial position,
cash flows or results of operations. In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and
Vinyl, Global Chlorinated Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities related to
litigation to the extent arising prior to October 5, 2015.
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 clean-up and remediation of an environmental site. There exists
the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with
the provisions of ASC 450 “Contingencies” and therefore do not record gain contingencies and recognize income until it is
earned and realizable.
For the year ended December 31, 2018, we recognized an insurance recovery of $8.0 million in other operating income
for a second quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility. For the year ended
December 31, 2016, we recognized an insurance recovery of $11.0 million in other operating income for property damage and
business interruption related to a 2008 chlor alkali facility incident.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
Cash Flow Data
Provided by (used for)
Net operating activities
Capital expenditures
Business acquired and related transactions, net of cash acquired
Payments under long-term supply contracts
Proceeds from sale/leaseback of equipment
Net investing activities
Long-term debt repayments, net
Common stock repurchased and retired
Stock options exercised
Debt issuance costs
Net financing activities
Operating Activities
$
2018
Years ended December 31,
2017
($ in millions)
2016
907.8 $
(385.2)
—
—
—
(382.3)
(376.1)
(50.0)
3.4
(8.5)
(564.8)
648.8 $
(294.3)
—
(209.4)
—
(498.5)
(2.4)
—
29.8
(11.2)
(116.8)
603.2
(278.0)
(69.5)
(175.7)
40.4
(473.5)
(205.3)
—
0.5
(1.0)
(337.5)
For 2018, cash provided by operating activities increased by $259.0 million from 2017, primarily due to an increase in
operating results, partially offset by an increase in working capital. For 2018, working capital increased $71.6 million compared
to a decrease of $9.8 million in 2017. Receivables increased from December 31, 2017 by $46.3 million primarily as
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a result of higher sales in the fourth quarter of 2018 compared to the fourth quarter of 2017 and a decrease in receivables sold
under the accounts receivable factoring arrangement. In 2018, inventories increased by $35.5 million and accounts payable and
accrued liabilities increased by $14.5 million. The increases in inventories and accounts payable were primarily due to higher
raw material costs. The increase in accrued liabilities was primarily related to the Information Technology Project.
For 2017, cash provided by operating activities increased by $45.6 million from 2016, primarily due to an increase in our
operating results. For 2017, working capital decreased $9.8 million compared to a decrease of $80.9 million in 2016.
Receivables increased from December 31, 2016 by $49.9 million primarily as a result of higher sales in the fourth quarter of
2017 compared to the fourth quarter of 2016, partially offset by additional receivables sold under the accounts receivable
factoring arrangement. In 2017, inventories increased by $37.8 million and accounts payable and accrued liabilities increased by
$100.0 million. The increase in inventories and accounts payable and accrued liabilities were primarily due to an increase in raw
material costs, primarily benzene and propylene.
Capital Expenditures
Capital spending was $385.2 million, $294.3 million and $278.0 million in 2018, 2017 and 2016, respectively. Capital
spending was 64%, 63% and 64% of depreciation in 2018, 2017 and 2016, respectively.
During 2017, we began a multi-year implementation of the Information Technology Project. The project is planned to
standardize business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency
and control across our global operations. The project is anticipated to be completed during 2020. Total capital spending is
forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the years ended
December 31, 2018 and 2017 include $84.5 million and $35.8 million, respectively, of capital spending and $36.5 million and
$5.3 million, respectively, of expenses associated with this project.
In 2019, we expect our capital spending to be in the $375 million to $425 million range, which includes approximately $80
million of capital spending related to the Information Technology Project.
Investing Activities
In 2017, a payment of $209.4 million was made associated with long-term supply contracts to reserve additional ethylene
at producer economics. In 2016, payments of $175.7 million were made related to arrangements for the long-term supply of
low cost electricity.
In 2016, payments of $69.5 million were made related to the Acquisition for certain acquisition-related liabilities including
the final working capital adjustment.
In 2016, we entered into sale/leaseback transactions for railcars that we acquired in connection with the Acquisition. We
received proceeds from the sales of $40.4 million.
In 2016, we received $8.8 million from the October 2013 sale of a bleach joint venture.
Financing Activities
For the year ended December 31, 2018, our long-term debt repayments, net of long-term debt borrowings, were $376.1
million, which included $780.4 million related to the $1,375.0 million Term Loan Facility, $124.7 million related to the
Receivables Financing Agreement and $20.0 million related to the $600.0 million Senior Revolving Credit Facility.
On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due February 1, 2030
(2030 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2030 Notes began accruing
from January 19, 2018 and is paid semi-annually beginning on August 1, 2018. Proceeds from the 2030 Notes were used to
redeem $550.0 million of debt under the $1,375.0 million Term Loan Facility.
In 2018, we repurchased and retired 2.1 million shares with a total value of $50.0 million under the share repurchase
program approved by our board of directors on April 26, 2018.
For the year ended December 31, 2017, our long-term debt repayments, net of long-term debt borrowings, were $2.4
million, which included $51.6 million under the required quarterly installments of the $1,375.0 million term loan facility and the
remaining $12.2 million due under the $97.5 million Series O and $97.5 million Series G SunBelt notes (SunBelt Notes).
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On March 9, 2017, we entered into a new five-year, $1,975.0 million senior credit facility (Senior Credit Facility)
consisting of a $600.0 million senior revolving credit facility (Senior Revolving Credit Facility), which replaced our previous
$500.0 million senior revolving credit facility, and a $1,375.0 million term loan facility (Term Loan Facility). We recognized
interest expense of $1.2 million for the write-off of unamortized deferred debt issuance costs related to this action during 2017.
The proceeds of the $1,375.0 million Term Loan Facility were used to redeem the remaining balance of the existing $1,350.0
million term loan facility and a portion of the $800.0 million Sumitomo credit facility (Sumitomo Credit Facility). The Senior
Credit Facility will mature in March 2022.
On March 9, 2017, Olin issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15, 2027
(2027 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing
from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to
redeem the remaining balance of the Sumitomo Credit Facility.
On December 20, 2016, we entered into a three-year, $250.0 million Receivables Financing Agreement with PNC Bank,
National Association, as administrative agent (Receivables Financing Agreement). Under the Receivables Financing Agreement,
our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the
Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the Senior Revolving
Credit Facility. As of December 31, 2018 and 2017, we had $125.0 million and $249.7 million, respectively, drawn under the
agreement. For the year ended December 31, 2017, we borrowed $40.0 million under the Receivables Financing Agreement
and used the proceeds to fund a portion of the payment to DowDuPont associated with a long-term ethylene supply contract to
reserve additional ethylene at producer economics. For the year ended December 31, 2016, the proceeds of the Receivables
Financing Agreement were used to repay $210.0 million of the Sumitomo Credit Facility.
During 2016, we repaid $67.5 million under the required quarterly installments of the $1,350.0 million term loan facility.
We also repaid $210.0 million under the Sumitomo Credit Facility using proceeds from the Receivables Financing Agreement
during 2016. During 2017, the remaining balance of $590.0 million was repaid using proceeds from the Senior Credit Facility
and the 2027 Notes. We recognized interest expense of $1.5 million related to the write-off of unamortized deferred debt
issuance costs related to this action in 2017.
In December 2017 and 2016, we repaid $12.2 million due under the annual requirements of the SunBelt Notes. At
December 31, 2017, all amounts due under the SunBelt Notes have been repaid.
In June 2016, we also repaid $125.0 million of 6.75% senior notes (2016 Notes), which became due.
In 2018, 2017 and 2016, we issued 0.2 million, 1.7 million and 0.3 million shares, respectively, with a total value of $3.4
million, $32.4 million and $4.1 million, respectively, representing stock options exercised.
In 2018, we paid debt issuance costs of $8.5 million relating to the 2030 Notes. In 2017, we paid debt issuance costs of
$11.2 million relating to the Senior Credit Facility and the 2027 Notes. In 2016, we paid debt issuance costs of $1.0 million for
the registration of the $720.0 million aggregate principal amount of 9.75% senior notes due October 15, 2023 and $500.0
million aggregate principal amount of 10.00% senior notes due October 15, 2025 under the Securities Act of 1933.
The percent of total debt to total capitalization decreased to 53.3% at December 31, 2018 compared to 56.7% at
December 31, 2017, resulting from higher shareholders’ equity primarily due to our operating results, partially offset by the
payment of dividends, and a lower level of debt outstanding. The percent of total debt to total capitalization decreased to
56.7% at December 31, 2017 compared to 61.4% at December 31, 2016, resulting from higher shareholders’ equity primarily
due to our operating results partially offset by the payment of dividends.
Dividends per common share were $0.80 in 2018, 2017 and 2016. Total dividends paid on common stock amounted to
$133.6 million, $133.0 million and $132.1 million in 2018, 2017 and 2016, respectively. On January 25, 2019, our board of
directors declared a dividend of $0.20 per share on our common stock, payable on March 11, 2019 to shareholders of record
on February 11, 2019.
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.
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LIQUIDITY AND OTHER FINANCING ARRANGEMENTS
Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and short-term
borrowings under our Senior Revolving Credit Facility, accounts receivable factoring arrangement and Receivables Financing
Agreement. Additionally, we believe that we have access to the debt and equity markets.
The overall cash decrease of $39.6 million in 2018 primarily reflects our capital spending and long-term debt repayments,
net, partially offset by our operating results. We believe, based on current and projected levels of cash flow from our
operations, together with our cash and cash equivalents on hand and the availability to borrow under our Senior Revolving
Credit Facility and Receivables Financing Agreement, 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, fund working capital and capital expenditure
requirements and comply with the financial ratios in our debt agreements.
On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common
stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our
common stock. For the year ended December 31, 2018, 2.1 million shares were repurchased and retired at a cost of $50.0
million. As of December 31, 2018, $450.0 million of common stock remained authorized to be repurchased.
On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due February 1, 2030,
which were registered under the Securities Act of 1933, as amended. Interest on the 2030 Notes began accruing from January
19, 2018 and is paid semi-annually beginning on August 1, 2018. Proceeds from the 2030 Notes were used to redeem $550.0
million of debt under the $1,375.0 million Term Loan Facility. This prepayment of the Term Loan Facility eliminates the
required quarterly installments under the Term Loan Facility.
For the year ended December 31, 2018, long-term debt repayments included $780.4 million related to the $1,375.0
million Term Loan Facility, $124.7 million related to the Receivables Financing Agreement and $20.0 million related to the
$600.0 million Senior Revolving Credit Facility.
On March 9, 2017, we entered into the $1,975.0 million Senior Credit Facility, which amended and restated the existing
$1,850.0 million senior credit facility. Pursuant to the agreement, the aggregate principal amount under the Term Loan Facility
was increased to $1,375.0 million, and the aggregate commitments under the Senior Revolving Credit Facility were increased
from $500.0 million to $600.0 million. At December 31, 2018, we had $596.5 million available under our $600.0 million Senior
Revolving Credit Facility because we had issued $3.5 million of letters of credit. In March 2017, we drew the entire $1,375.0
million term loan and used the proceeds to redeem the remaining balance of the existing $1,350.0 million term loan facility of
$1,282.5 million and a portion of the $800.0 million Sumitomo Credit Facility. The maturity date for the Senior Credit Facility
was extended from October 5, 2020 to March 9, 2022. The $600.0 million Senior Revolving Credit Facility includes a $100.0
million letter of credit subfacility. The Term Loan Facility included amortization payable in equal quarterly installments at a rate
of 5.0% per annum for the first two years, increasing to 7.5% per annum for the following year and to 10.0% per annum for
the last two years. However, in connection with the $550.0 million prepayment of the Term Loan Facility in January 2018, the
required quarterly installments of the Term Loan Facility were eliminated. For the years ended December 31, 2017 and 2016,
we repaid $51.6 million and $67.5 million, respectively, under the required quarterly installments of the term loan facilities.
Under the Senior Credit Facility, we may select various floating rate borrowing options. The actual interest rate paid on
borrowings under the Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated
under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive
covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and
amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest
expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We
were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2018
and 2017, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to
accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will
determine the amounts available to be borrowed under these facilities. As of December 31, 2018, there were no covenants or
other restrictions that would have limited our ability to borrow under these facilities.
On March 9, 2017, Olin issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15,
2027, which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from
March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to
redeem the remaining balance of the Sumitomo Credit Facility.
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In connection with the Acquisition, Olin and DowDuPont entered into arrangements for the long-term supply of ethylene
by DowDuPont to Olin, pursuant to which, among other things, Olin made upfront payments of $433.5 million on the Closing
Date in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional
ethylene at producer economics. During 2017, we made an additional payment of $209.4 million in connection with our option
to reserve additional ethylene supply at producer economics from DowDuPont. On February 27, 2017, we also exercised the
remaining option to obtain additional ethylene at producer economics from DowDuPont. In connection with the exercise of this
option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to DowDuPont of
between $440 million and $465 million on or about the fourth quarter of 2020.
During 2016, Olin entered into arrangements to increase our supply of low cost electricity. These arrangements improve
manufacturing flexibility at our Freeport, TX and Plaquemine, LA facilities, reduce our overall electricity cost and accelerate
the realization of cost synergies available from the Acquired Business. In conjunction with these arrangements, Olin made
payments of $175.7 million during 2016.
On December 20, 2016, we entered into a three-year, $250.0 million Receivables Financing Agreement with PNC Bank,
National Association, as administrative agent. 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 leverage and coverage covenants that are contained in the Senior Revolving Credit Facility. As of December
31, 2018 and 2017, we had $125.0 million and $249.7 million, respectively, drawn under the agreement. As of December 31,
2018, we had $125.0 million of additional borrowing capacity under the Receivables Financing Agreement. For the year ended
December 31, 2017, we borrowed $40.0 million under the Receivables Financing Agreement and used the proceeds to fund a
portion of the payment to DowDuPont associated with a long-term ethylene supply contract to reserve additional ethylene at
producer economics. For the year ended December 31, 2016, the proceeds of the Receivables Financing Agreement were used
to repay $210.0 million of the Sumitomo Credit Facility.
Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR
Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of $315.0 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 consolidated statements of cash
flows. The gross amount of receivables sold for the years ended December 31, 2018, 2017 and 2016 totaled $1,372.3 million,
$1,655.2 million and $533.6 million, respectively. The factoring discount paid under the AR Facilities is recorded as interest
expense on the consolidated statements of operations. The factoring discount for the years ended December 31, 2018, 2017
and 2016 was $4.3 million, $3.7 million and $1.1 million, respectively. The agreements are without recourse and therefore no
recourse liability has been recorded as of December 31, 2018. As of December 31, 2018, 2017 and 2016, $132.4 million,
$182.3 million and $126.1 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue
to be serviced by us.
We finalized our purchase price allocation of the Acquisition during the third quarter of 2016. During 2016, payments of
$69.5 million were made related to certain acquisition related liabilities including the final working capital adjustment.
During 2016, $210.0 million was repaid under the Sumitomo Credit Facility using proceeds from the Receivables
Financing Agreement. During 2017, the remaining balance of $590.0 million was repaid using proceeds from the Senior Credit
Facility and the 2027 Notes.
Cash flow from operations is variable as a result of both the seasonal and the cyclical nature of our operating results,
which have been affected by seasonal and economic cycles in many of the industries we serve, such as the vinyls, urethanes,
bleach, ammunition and pulp and paper. Cash flow from operations is affected by changes in chlorine, caustic soda and EDC
selling prices caused by the changes in the supply/demand balance of these products, resulting in the Chlor Alkali Products and
Vinyls segment having significant leverage on our earnings and cash flow. For example, assuming all other costs remain
constant, internal consumption remains approximately the same and we are operating at full capacity, a $10 selling price change
per ton of chlorine equates to an approximate $10 million annual change in our revenues and pretax profit, a $10 selling price
change per ton of caustic soda equates to an approximate $30 million annual change in our revenues and pretax profit, and a
$0.01 selling price change per pound of EDC equates to an approximate $20 million annual change in our revenues and pretax
profit.
For 2018, cash provided by operating activities increased by $259.0 million from 2017, primarily due to an increase in
operating results, partially offset by an increase in working capital. For 2018, working capital increased $71.6 million compared
to a decrease of $9.8 million in 2017. Receivables increased from December 31, 2017 by $46.3 million primarily as
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a result of higher sales in the fourth quarter of 2018 compared to the fourth quarter of 2017 and a decrease in receivables sold
under the accounts receivable factoring arrangement. In 2018, inventories increased by $35.5 million and accounts payable and
accrued liabilities increased by $14.5 million. The increases in inventories and accounts payable were primarily due to higher
raw material costs. The increase in accrued liabilities was primarily related to the Information Technology Project.
Capital spending was $385.2 million, $294.3 million and $278.0 million in 2018, 2017 and 2016, respectively. Capital
spending was 64%, 63% and 64% of depreciation in 2018, 2017 and 2016, respectively.
During 2017, we began a multi-year implementation of the Information Technology Project. The project is planned to
standardize business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency
and control across our global operations. The project is anticipated to be completed during 2020. Total capital spending is
forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the years ended
December 31, 2018 and 2017 include $84.5 million and $35.8 million, respectively, of capital spending and $36.5 million and
$5.3 million, respectively, of expenses associated with this project.
In 2019, we expect our capital spending to be in the $375 million to $425 million range, which includes approximately $80
million of capital spending related to the Information Technology Project.
In December 2017 and 2016, $12.2 million was repaid on the SunBelt Notes. At December 31, 2017, all amounts due
under the SunBelt Notes had been repaid.
In June 2016, we repaid $125.0 million of the 2016 Notes, which became due.
At December 31, 2018, we had total letters of credit of $74.7 million outstanding, of which $3.5 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 and certain international pension funding
requirements.
Our current debt structure is used to fund our business operations. As of December 31, 2018, we had long-term
borrowings, including the current installment and capital lease obligations, of $3,230.3 million, of which $823.9 million was at
variable rates. Annual maturities of long-term debt, including capital lease obligations, are $125.9 million in 2019, $1.8 million
in 2020, $0.5 million in 2021, $743.4 million in 2022, $720.3 million in 2023 and a total of $1,706.2 million thereafter.
Commitments from banks under our Senior Revolving Credit Facility and AR Facilities are an additional source of liquidity.
Included within the $3,230.3 million of long-term borrowings on the consolidated balance sheet as of December 31, 2018 were
deferred debt issuance costs and deferred losses on fair value interest rate swaps of $67.8 million.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates
to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million, and $400.0 million of our
underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016,
December 31, 2017, and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets,
Inc., Wells Fargo Bank, N.A. (Wells Fargo), PNC Bank, National Association and Toronto-Dominion Bank. These
counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty
could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the
risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the remaining swap agreement
has been recorded at its fair market value of $5.3 million and is included in other current assets on the accompanying
consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. For the years
ended December 31, 2018 and 2017, $8.9 million and $3.1 million, respectively, of income was recorded to interest expense
on the accompanying consolidated statements of operations related to these swap agreements.
In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby
we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements
are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt
obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties
to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of
changes in the value of fixed rate debt due to changes in interest rates for a portion of our fixed rate borrowings. Accordingly,
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the swap agreements have been recorded at their fair market value of $33.7 million and are included in other long-term
liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related
debt. For the year ended December 31, 2018, $2.1 million of expense has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements. For the years ended December 31,
2017 and 2016, $2.9 million and $2.6 million, respectively, of income has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt
securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
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OFF-BALANCE SHEET ARRANGEMENTS
Our operating lease commitments are primarily for railroad cars, but also include logistics, manufacturing, office and
storage facilities and equipment, information technology equipment and land. Virtually none of our lease agreements contain
escalation clauses or step rent provisions.
Our long-term contractual commitments, including the on and off-balance sheet arrangements, consisted of the following:
Contractual Obligations
Debt obligations, including capital lease
obligations(1)
Interest payments under debt obligations and
interest rate swap agreements(2)
Contingent tax liability
Domestic qualified pension plan
contributions(3)
International qualified pension plan
contributions(4)
Non-qualified pension plan payments
Postretirement benefit payments
Long-term supply contracts
Off-Balance Sheet Commitments:
Non-cancelable operating leases
Purchasing commitments:
Raw materials
Capital expenditures
Utilities
Total
Payments Due by Period
Total
Less than 1
Year
1-3 Years
($ in millions)
3-5 Years
More than 5
Years
$
3,298.1 $
125.9 $
2.3 $
1,463.7 $
1,706.2
1,421.4
34.6
213.8
0.4
—
232.8
5.9
47.0
441.0
—
4.3
0.5
3.9
—
431.8
7.6
—
11.3
1.4
6.7
441.0
345.4
82.2
105.6
383.4
4.3
—
14.2
0.7
5.9
—
55.0
392.4
22.3
—
203.0
3.3
30.5
—
102.6
7,920.7
1.9
1.0
$
13,749.8 $
676.2
1.9
0.4
1,109.5 $
1,369.6
—
0.6
2,377.9 $
1,450.0
—
—
3,377.2 $
4,424.9
—
—
6,885.2
(1) Excludes debt issuance costs and deferred losses on fair value interest rate swaps of $67.8 million at December 31, 2018.
(2) For the purposes of this table, we have assumed for all periods presented that there are no changes in the rates from those
in effect at December 31, 2018 which ranged from 2.52% to 10.00% and excludes $31.9 million of remaining accretion
expense related to the 2020 ethylene payment discount.
(3) Given the inherent uncertainty as to actual minimum funding requirements for qualified defined benefit pension plans, no
amounts are included in this table for any period beyond one year. Based on the current funding requirements, we will
not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through
2019. During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of
$6.0 million.
(4) These amounts are only estimated payments assuming for our foreign qualified pension plans a weighted average annual
expected rate of return on pension plan assets of 5.2% and a discount rate on pension plan obligations of 2.2%. These
estimated payments are subject to significant variation and the actual payments may be more than the amounts
estimated. In connection with international qualified defined benefit pension plans we made cash contributions of $2.6
million, $1.7 million and $1.3 million in 2018, 2017 and 2016, respectively, and we anticipate less than $5 million of cash
contributions to international qualified defined benefit pension plans in 2019.
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Non-cancelable operating leases and 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 contracts have initial terms ranging from several to 20 years. For losses that we believe are
probable and which are estimable, we have accrued for such amounts in our consolidated balance sheets. In addition to the
table above, we have various commitments and contingencies including: defined benefit and postretirement healthcare plans (as
described below), environmental matters (see discussion above under “Environmental Matters”) and litigation claims (see
Item 3—“Legal Proceedings”).
We have several defined benefit pension and defined contribution plans, as described in Note 14 “Pension Plans” and
Note 18 “Contributing Employee Ownership Plan” in the notes to consolidated financial statements contained in Item 8. We
fund the defined benefit pension plans based on the minimum amounts required by law plus such amounts we deem
appropriate. We have postretirement healthcare plans that provide health and life insurance benefits to certain retired
employees and their beneficiaries, as described in Note 15 “Postretirement Benefits” in the notes to consolidated financial
statements contained in Item 8. The defined contribution and other postretirement plans are not pre-funded and expenses are
paid by us as incurred.
We also have standby letters of credit of $74.7 million of which $3.5 million have been issued through our Senior
Revolving Credit Facility. At December 31, 2018, we had $596.5 million available under our Senior Revolving Credit Facility
because we had issued $3.5 million of letters of credit.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Significant estimates in our
consolidated financial statements include goodwill recoverability, environmental, restructuring and other unusual items,
litigation, income tax reserves including deferred tax asset valuation allowances, pension, postretirement and other benefits and
allowance for doubtful accounts. We base our estimates on prior experience, current facts and circumstances and other
assumptions. Actual results may differ from these estimates.
We believe the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of the consolidated financial statements.
Goodwill
Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter and/or when circumstances or
other events indicate that impairment may have occurred. ASC 350 “Intangibles—Goodwill and Other” (ASC 350) permits
entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its
carrying amount before applying the two-step goodwill impairment test. Circumstances that are considered as part of the
qualitative assessment and could trigger the two-step impairment test include, but are not limited to: a significant adverse
change in the business climate; a significant adverse legal judgment; adverse cash flow trends; an adverse action or assessment
by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a
reporting unit. We define reporting units at the business segment level or one level below the business segment level. For
purposes of testing goodwill for impairment, goodwill has been allocated to our reporting units to the extent it relates to each
reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair value of our reporting units are
greater than their carrying amounts as of December 31, 2018. No impairment charges were recorded for 2018, 2017 or 2016.
It is our practice, at a minimum, to perform a quantitative goodwill impairment test in the fourth quarter every three
years. In the fourth quarter of 2016, we performed our triennial quantitative goodwill impairment test for our reporting units.
We use a discounted cash flow approach to develop the estimated fair value of a reporting unit when a quantitative review is
performed. Management judgment is required in developing the assumptions for the discounted cash flow model. We also
corroborate our discounted cash flow analysis by evaluating a market-based approach that considers earnings before interest,
taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies. As a
further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the aggregate fair
value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying
amount of a reporting unit exceeded the estimated fair value. Based on the aforementioned analysis, the estimated fair value of
our reporting units substantially exceeded the carrying value of the reporting units.
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The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of the
chlor alkali industry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of
each reporting unit. The discount rate reflects a weighted-average cost of capital, which is calculated based on observable
market data. Some of this data (such as the risk free or treasury rate and the pretax cost of debt) are based on the market data
at a point in time. Other data (such as the equity risk premium) are based upon market data over time for a peer group of
companies in the chemical manufacturing or distribution industries with a market capitalization premium added, as applicable.
The discounted cash flow analysis requires estimates, assumptions and judgments about future events. Our analysis uses
our internally generated long-range plan. Our discounted cash flow analysis uses the assumptions in our long-range plan about
terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the
implied fair value of each reporting unit. The long-range plan reflects management judgment, supplemented by independent
chemical industry analyses which provide multi-year chlor alkali industry operating and pricing forecasts.
We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of
the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the
impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill
impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are
not achieved, we may be required to record goodwill impairment charges in future periods. It is not possible at this time to
determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Environmental
Accruals (charges to income) for environmental matters are recorded when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessments and
remediation efforts progress or additional technical or legal information becomes available. Environmental costs are capitalized
if the costs increase the value of the property and/or mitigate or prevent contamination from future operations. Environmental
costs and recoveries are included in costs of goods sold.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites,
developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and
regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the
difficulty in assessing the involvement and financial capability of other PRPs and our ability to obtain contributions from other
parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes
of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our
financial position, cash flows or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-14, “Disclosure Framework—
Changes to the Disclosure Requirements for Defined Benefit Plans” which amends ASC 715. This update includes adding,
clarifying and removing various disclosure requirements related to defined benefit pension and other postretirement plans. This
update is effective for fiscal years beginning after December 15, 2020, with earlier application permitted. The guidance in this
update is applied on a retrospective basis to all periods presented. We adopted this update on December 31, 2018. The
adoption of this update did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement” which amends ASC 820 “Fair Value Measurements.” This update includes adding, modifying and
removing various disclosure requirements related to fair value measurements. This update is effective for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal years, with earlier application permitted. This update will be
applied on a prospective basis for certain changes and retrospectively for other changes. We adopted this update on December
31, 2018. The adoption of this update did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118” (SAB 118) which amends ASC 740 “Income Taxes.” This update codifies the guidance in SAB 118. SAB
118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” provided guidance for companies that have not
completed their accounting for the income tax effects of the U.S. Tax Cuts and Jobs Act (2017 Tax Act) in the period of
enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related
tax impacts. During 2017, we recognized a provisional deferred tax benefit of $437.9 million, which was included as a
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component of income tax (benefit) provision. At December 31, 2018, we have completed our accounting for the tax effects of
enactment of the 2017 Tax Act. During 2018, we increased the deferred tax benefit by $3.9 million as a result of filing the
2017 U.S. and foreign tax returns and decreased the deferred tax benefit by $0.1 million as a result of additional guidance
issued by the Internal Revenue Service.
In February 2018, FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” which amends ASC 220 “Income Statement—Reporting Comprehensive Income.” This update
allows a reclassification from accumulated other comprehensive loss to retained earnings for the stranded tax effects resulting
from the 2017 Tax Act during each fiscal year or quarter in which the effect of the lower tax rate is recorded. The update is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier
application permitted. We adopted this update in March 2018 and reclassified $85.9 million related to the deferred gain
resulting from the 2017 Tax Act from accumulated other comprehensive loss to retained earnings.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedge Activities” which
amends ASC 815 “Derivatives and Hedging” (ASC 815). This update is intended to more closely align hedge accounting with
companies’ risk management strategies, simplify the application of hedge accounting guidance, and increase transparency as to
the scope and results of hedge programs. The update is effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years, with earlier application permitted. We adopted this update on January 1, 2018. The
adoption of this update did not have a material impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost” which amends ASC 715. This update requires the presentation of the service cost
component of net periodic benefit (income) costs in the same income statement line item as other employee compensation
costs arising from services rendered during the period. The update requires the presentation of the other components of the net
periodic benefit (income) costs separately from the line item that includes the service cost and outside of any subtotal of
operating income. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. We adopted this
update on January 1, 2018 using the retrospective method. The adoption of ASU 2017-07 resulted in a change in our net
periodic benefit (income) costs within operating income, which was offset by a corresponding change in non-operating pension
income to reflect the impact of presenting the interest cost, expected return on plan assets and amortization of prior service cost
and net actuarial loss components of net periodic benefit (income) costs outside of operating income. For the years ended
December 31, 2017 and 2016, the adoption of ASU 2017-07 resulted in a reclassification of $15.3 million and $20.8 million,
respectively, from cost of goods sold, and $19.1 million and $24.0 million, respectively, from selling and administration
expenses to non-operating pension income reflecting the aforementioned reclassification on our consolidated statements of
operations. The service cost component of net periodic benefit (income) costs continues to be included in the same income
statement line item as other employee compensation costs arising from services rendered during the period.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC
350. This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment
test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a
reporting unit to determine if the quantitative impairment test is necessary. This update is effective for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective
basis with earlier application permitted. We plan to adopt this update on January 1, 2020 and do not expect the update to have
a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which
amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after
December 15, 2017. The update will require adoption on a retrospective basis unless it is impracticable to apply, in which case
it would be required to apply the amendments prospectively as of the earliest date practicable. We adopted this update on
January 1, 2018. In connection with this update, we made an accounting policy election to apply the nature of the distribution
approach when determining the proper classification of distributions received from equity method investments. The adoption of
this update did not have a material impact on our consolidated financial statements.
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In February 2016, the FASB issued ASU 2016-02 “Leases,” (ASU 2016-02) which supersedes ASC 840 “Leases” and
creates a new topic, ASC 842 “Leases.” Subsequent to the issuance of ASU 2016-02, ASC 842 was amended by various
updates that amend and clarify the impact and implementation of the aforementioned update. These updates require lessees to
recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its
balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified
retrospective method which requires retrospective adoption to each prior reporting period presented with the cumulative effect
of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires
retrospective adoption beginning on the date of adoption with the cumulative effect of initially applying these updates
recognized at the date of initial adoption. These updates also expand the required quantitative and qualitative disclosures
surrounding leases. These updates are effective for fiscal years beginning after December 15, 2018 and interim periods within
those fiscal years, with earlier application permitted. We adopted these updates on January 1, 2019 using the optional transition
method. Adoption of these updates resulted in the recording of additional operating lease assets and lease liabilities on our
consolidated balance sheet of between approximately $275 million and $325 million as of January 1, 2019. Our assets and
liabilities for finance leases remained unchanged. We also recognized the cumulative effect of applying these updates as an
adjustment to retained earnings of between approximately $10 million and $15 million, net of the deferred tax impact, primarily
related to the recognition of previously deferred sale/leaseback gains. Our consolidated statements of operations and cash flows
were not impacted by this adoption. These updates also impacted our accounting policies, internal controls and disclosures
related to leases.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends
ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606).
Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and
implementation of the aforementioned update. These updates provide guidance on how an entity should recognize revenue to
depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates
are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect
of initially applying this update recognized at the date of initial application. These updates also expand the disclosure
requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. We adopted these updates on January 1, 2018 using
the modified retrospective transition method. The cumulative effect of applying the updates did not have a material impact on
our consolidated financial statements. The most significant impact the updates had was on our accounting policies and
disclosures on revenue recognition. Expanded disclosures regarding revenue recognition are included within our notes to
consolidated financial statements.
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 requires an entity to recognize all derivatives as either assets or liabilities in the consolidated 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.
For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative
is recognized as a component of other comprehensive income (loss) until the hedged item is recognized into earnings. Gains
and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We 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. Settlements on derivative contracts resulted in gains
of $5.4 million and $1.5 million in 2018 and 2017, respectively, and losses of $5.8 million in 2016 which were included in cost
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of goods sold. At December 31, 2018, we had open derivative notional contract positions through 2022 totaling $116.5 million
(2017—$92.8 million). If all open futures contracts had been settled on December 31, 2018, we would have recognized a
pretax loss of $2.6 million.
If commodity prices were to remain at December 31, 2018 levels, approximately $2.3 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.
We use interest rate swaps as a means of minimizing cash flow fluctuations that may arise from volatility in interest rates
of our variable-rate borrowings. In April 2016, we entered into three tranches of forward starting interest rate swaps whereby
we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million and
$400.0 million of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on
December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are
SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association, and Toronto-Dominion Bank. These
counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty
could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the
risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the remaining swap agreement
has been recorded at its fair market value of $5.3 million and is included in other current assets on the accompanying
consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. For the years
ended December 31, 2018 and 2017, $8.9 million and $3.1 million, respectively, of income was recorded to interest expense
on the accompanying consolidated statements of operations related to these swap agreements. If all open interest rate swap
contracts had been settled on December 31, 2018, we would have recognized a pretax gain of $5.3 million.
If interest rates were to remain at December 31, 2018 levels, $5.3 million of deferred gains would be reclassified into
earnings during the next twelve months. The actual effect on earnings will be dependent on actual interest rates when the
forecasted transactions occur.
We also 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. As of both December 31, 2018 and 2017, the total notional amounts of our interest rate
swaps designated as fair value hedges were $500.0 million.
We have designated these interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed-
rate debt due to changes in interest rates for a portion of our fixed-rate borrowings. Accordingly, the swap agreements have
been recorded at their fair market value of $33.7 million and are included in other long-term liabilities on the accompanying
consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended
December 31, 2018, $2.1 million of expense has been recorded to interest expense on the accompanying consolidated
statements of operations related to these swap agreements. For the years ended December 31, 2017 and 2016, $2.9 million and
$2.6 million, respectively, of income has been recorded to interest expense on the accompanying consolidated statements of
operations related to these swap agreements.
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 to offset our net exposures,
by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At December 31,
2018, we had outstanding forward contracts to buy foreign currency with a notional value of $123.7 million and to sell foreign
currency with a notional value of $82.6 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, 2017, we had outstanding forward contracts to buy foreign currency with a notional value of $135.5 million and
to sell foreign currency with a notional value of $97.7 million.
Our foreign currency forward contracts and certain commodity derivatives did not meet the criteria to qualify for hedge
accounting. The effect on operating results of items not qualifying for hedge accounting was a (loss) gain of $(5.4) million,
$1.8 million and $(11.5) million in 2018, 2017 and 2016, respectively.
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The fair value of our derivative asset and liability balances were:
Other current assets
Other assets
Total derivative asset
Accrued liabilities
Other liabilities
Total derivative liability
December 31,
2018
2017
($ in millions)
$
$
$
$
5.7 $
0.7
6.4 $
3.5 $
34.1
37.6 $
19.2
3.6
22.8
3.8
28.1
31.9
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the normal course of our business operations due to our purchases of certain
commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can
be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established
policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to
such risks.
Energy costs, including electricity 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 December 31, 2018, we
maintained open positions on commodity contracts with a notional value totaling $116.5 million ($92.8 million at December 31,
2017). Assuming a hypothetical 10% increase in commodity prices, which are currently hedged, as of December 31, 2018, we
would experience an $11.7 million ($9.3 million at December 31, 2017) 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 $19.7 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 and
Receivables Financing Agreement are sources of liquidity. As of December 31, 2018, we had long-term borrowings, including
current installments of long-term debt and capital lease obligations, of $3,230.3 million ($3,612.0 million at December 31,
2017) of which $823.9 million ($1,749.0 million at December 31, 2017) was issued at variable rates.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates
to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million and $400.0 million of our
underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016,
December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets,
Inc., Wells Fargo, PNC Bank, National Association, and Toronto-Dominion Bank. These counterparties are large financial
institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our
financial position or results of operations.
In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby
we agreed to pay variable rates to the counterparties, who, in turn, pay us fixed rates. The counterparties to these agreements
are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt
obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties
to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
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Assuming no changes in the $823.9 million of variable-rate debt levels from December 31, 2018, we estimate that a
hypothetical change of 100-basis points in the LIBOR interest rates from 2018 would impact annual interest expense by $8.2
million. A portion of this hypothetical change would be offset by our interest rate swaps.
Our interest rate swaps reduced interest expense by $6.8 million, $6.1 million and $3.7 million in 2018, 2017 and 2016,
respectively.
If the actual changes in commodities, foreign currency, or interest pricing is substantially different than expected, the net
impact of commodity risk, foreign currency risk, or interest rate risk on our cash flow may be materially different than that
disclosed above.
We do not enter into any derivative financial instruments for speculative purposes.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements. These statements relate to analyses and other information that are based
on management’s beliefs, certain assumptions made by management, forecasts of future results and current expectations,
estimates and projections about the markets and economy in which we and our various segments operate. The statements
contained in this report that are not statements of historical fact may include forward-looking statements that involve a number
of risks and uncertainties.
We have used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “estimate,” “project,”
“forecast,” “optimistic” and variations of such words and similar expressions in this report to identify such forward-looking
statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results
may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation
to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.
The risks, uncertainties, and assumptions involved in our forward-looking statements include those discussed under Item
1A—“Risk Factors.” You should consider all of our forward-looking statements in light of these factors. In addition, other
risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-
looking statements.
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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Olin Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting. Olin’s internal control system was designed to provide reasonable assurance to the company’s management
and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation, and may not prevent or detect all misstatements.
The management of Olin Corporation has assessed the effectiveness of the company’s internal control over financial
reporting as of December 31, 2018. In making this assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) to guide our analysis
and assessment. Based on our assessment as of December 31, 2018, the company’s internal control over financial reporting
was effective based on those criteria.
Our independent registered public accountants, KPMG LLP, have audited and issued a report on our internal control over
financial reporting, which appears in this Form 10-K.
/s/ John E. Fischer
Chairman, President and Chief Executive Officer
/s/ Todd A. Slater
Vice President and Chief Financial Officer
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Olin Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Olin Corporation and subsidiaries (the Company) as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes
(collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial
reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1954.
St. Louis, Missouri
February 25, 2019
54
CONSOLIDATED BALANCE SHEETS
December 31
(In millions, except per share data)
Assets
2018
2017
Table of Contents
Current assets:
Cash and cash equivalents
Receivables, net
Income taxes receivable
Inventories, net
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Other assets
Intangible assets, net
Goodwill
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt
Accounts payable
Income taxes payable
Accrued liabilities
Total current liabilities
Long-term debt
Accrued pension liability
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $1 per share:
Authorized, 240.0 shares;
Issued and outstanding, 165.3 shares (167.1 in 2017)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
178.8 $
776.3
5.9
711.4
35.0
1,707.4
3,482.1
26.3
1,150.4
511.6
2,119.6
8,997.4 $
125.9 $
636.5
22.6
333.3
1,118.3
3,104.4
674.3
518.9
749.3
6,165.2
218.4
733.2
16.9
682.6
48.1
1,699.2
3,575.8
36.4
1,208.4
578.5
2,120.0
9,218.3
0.7
669.8
9.4
274.4
954.3
3,611.3
635.9
511.2
751.9
6,464.6
165.3
2,247.4
(651.0)
1,070.5
2,832.2
8,997.4 $
167.1
2,280.9
(484.6)
790.3
2,753.7
9,218.3
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(In millions, except per share data)
Sales
Operating expenses:
Cost of goods sold
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating income
Operating income
Earnings (losses) of non-consolidated affiliates
Interest expense
Interest income
Non-operating pension income
Income (loss) before taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Average common shares outstanding:
Basic
Diluted
2018
2017
2016
$
6,946.1 $
6,268.4 $
5,550.6
5,822.1
430.6
21.9
1.0
6.4
676.9
(19.7)
243.2
1.6
21.7
437.3
109.4
327.9 $
5,554.9
369.8
37.6
12.8
3.3
296.6
1.8
217.4
1.8
34.4
117.2
(432.3)
549.5 $
1.97 $
1.95 $
3.31 $
3.26 $
166.8
168.4
166.2
168.5
4,944.5
347.2
112.9
48.8
10.6
107.8
1.7
191.9
3.4
44.8
(34.2)
(30.3)
(3.9)
(0.02)
(0.02)
165.2
165.2
$
$
$
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31
(In millions)
Net income (loss)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net
Unrealized (losses) gains on derivative contracts, net
Pension and postretirement liability adjustments, net
Amortization of prior service costs and actuarial losses, net
Total other comprehensive (loss) income, net of tax
Comprehensive income (loss)
$
2018
2017
2016
$
327.9 $
549.5 $
(3.9)
(22.2)
(11.7)
(74.9)
28.3
(80.5)
247.4 $
31.7
(1.7)
(21.6)
17.0
25.4
574.9 $
(12.0)
19.7
(37.5)
12.3
(17.5)
(21.4)
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share data)
Common Stock
Shares
Issued
165.1 $ 165.1 $
Par
Value
—
—
—
—
Balance at January 1, 2016
Net loss
Other comprehensive loss
Dividends paid:
Common stock ($0.80 per share)
—
—
Common stock issued for:
Stock options exercised
Other transactions
Stock-based compensation
Balance at December 31, 2016
Net income
Other comprehensive income
Dividends paid:
0.3
—
—
0.3
—
—
165.4 $ 165.4 $
—
—
—
—
Common stock ($0.80 per share)
—
—
Additional
Paid-In
Capital
2,236.4 $
—
—
—
3.8
(0.8)
4.4
2,243.8 $
—
—
—
Common stock issued for:
Stock options exercised
Other transactions
Stock-based compensation
Balance at December 31, 2017
Income tax reclassification
adjustment
Net income
Other comprehensive loss
Dividends paid:
1.7
—
—
1.7
—
—
167.1 $ 167.1 $
30.7
(0.9)
7.3
2,280.9 $
—
—
—
—
—
—
—
—
—
—
Common stock ($0.80 per share)
—
—
Common stock repurchased and
retired
Common stock issued for:
Stock options exercised
Other transactions
Stock-based compensation
Balance at December 31, 2018
(2.1)
(2.1)
(47.9)
0.2
0.1
—
0.2
0.1
—
165.3 $ 165.3 $
3.2
2.0
9.2
2,247.4 $
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
(492.5) $
—
(17.5)
509.8 $
(3.9)
—
2,418.8
(3.9)
(17.5)
—
(132.1)
(132.1)
—
—
—
(510.0) $
—
25.4
—
—
—
373.8 $
549.5
—
4.1
(0.8)
4.4
2,273.0
549.5
25.4
—
(133.0)
(133.0)
—
—
—
(484.6) $
—
—
—
790.3 $
(85.9)
—
(80.5)
85.9
327.9
—
32.4
(0.9)
7.3
2,753.7
—
327.9
(80.5)
—
(133.6)
(133.6)
—
—
—
—
—
—
—
—
(651.0) $ 1,070.5 $
(50.0)
3.4
2.1
9.2
2,832.2
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(In millions)
Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided by (used for) operating activities:
Losses (earnings) of non-consolidated affiliates
Losses (gains) on disposition of property, plant and equipment
Stock-based compensation
Depreciation and amortization
Deferred income taxes
Write-off of equipment and facility included in restructuring charges
Qualified pension plan contributions
Qualified pension plan income
Change in assets and liabilities:
Receivables
Income taxes receivable/payable
Inventories
Other current assets
Accounts payable and accrued liabilities
Other assets
Other noncurrent liabilities
Other operating activities
Net operating activities
Investing Activities
Capital expenditures
Business acquired and related transactions, net of cash acquired
Payments under long-term supply contracts
Proceeds from sale/leaseback of equipment
Proceeds from disposition of property, plant and equipment
Proceeds from disposition of affiliated companies
Net investing activities
Financing Activities
Long-term debt:
Borrowings
Repayments
Common stock repurchased and retired
Stock options exercised
Excess tax benefits from stock-based compensation
Dividends paid
Debt issuance costs
Net financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash paid for interest and income taxes:
Interest, net
Income taxes, net of refunds
2018
2017
2016
$
327.9 $
549.5 $
(3.9)
19.7
2.0
12.0
601.4
35.6
2.6
(2.6)
(15.0)
(46.3)
24.5
(35.5)
0.2
(14.5)
(2.6)
4.3
(5.9)
907.8
(385.2)
—
—
—
2.9
—
(382.3)
(1.8)
(3.1)
9.1
558.9
(452.7)
1.4
(1.7)
(26.9)
(49.9)
9.6
(37.8)
(12.1)
100.0
5.8
(5.9)
6.4
648.8
(294.3)
—
(209.4)
—
5.2
—
(498.5)
570.0
(946.1)
(50.0)
3.4
—
(133.6)
(8.5)
(564.8)
(0.3)
(39.6)
218.4
178.8 $
2,035.5
(2,037.9)
—
29.8
—
(133.0)
(11.2)
(116.8)
0.4
33.9
184.5
218.4 $
208.8 $
52.9 $
200.9 $
18.0 $
$
$
$
(1.7)
0.7
7.5
533.5
(32.7)
76.6
(7.3)
(37.5)
38.5
10.7
23.9
20.9
(13.1)
(4.3)
(12.1)
3.5
603.2
(278.0)
(69.5)
(175.7)
40.4
0.5
8.8
(473.5)
230.0
(435.3)
—
0.5
0.4
(132.1)
(1.0)
(337.5)
0.3
(207.5)
392.0
184.5
200.8
(2.6)
The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 manufacturer concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and
Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene
dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride,
perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium
hydroxide. The Epoxy segment produces and sells a full range of epoxy materials, including allyl chloride, epichlorohydrin,
liquid epoxy resins, solid epoxy resins and downstream products such as differentiated epoxy resins and additives. The
Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and
components, and industrial cartridges.
NOTE 2. ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires estimates and assumptions that affect amounts reported
and disclosed in the financial statements and related notes. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Olin and all majority-owned subsidiaries. Investment in our
affiliates are accounted for on the equity method. Accordingly, we include only our share of earnings or losses of these
affiliates in consolidated net income (loss). Certain reclassifications were made to prior year amounts to conform to the 2018
presentation.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
“Revenue from Contracts with Customers” (ASU 2014-09), which amends Accounting Standards Codification (ASC) 605
“Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). Subsequent
to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and
implementation of the aforementioned update. We adopted these updates on January 1, 2018 using the modified retrospective
transition method. The cumulative effect of applying the updates did not have a material impact on our consolidated financial
statements. The most significant impact the updates had was on our accounting policies and disclosures on revenue recognition.
We derive our revenues primarily from the manufacturing and delivery of goods to customers. Revenues are recognized
on sales of goods at the time when control of those goods is transferred to our customers at an amount that reflects the
consideration to which we expect to be entitled in exchange for those goods. We primarily sell our goods directly to customers,
and to a lesser extent, through distributors. Payment terms are typically 30 to 90 days from date of invoice. Our contracts do
not typically have a significant financing component. Right to payment is determined at the point in time in which control has
transferred to the customer.
A performance obligation is a promise in a contract to transfer a distinct good to the customer. At contract inception, we
assess the goods promised in our contracts with customers and identify a performance obligation for each promise to transfer to
the customer a good (or bundle of goods) that is distinct. A contract’s transaction price is based on the price stated in the
contract and allocated to each distinct performance obligation and revenue is recognized when the performance obligation is
satisfied. Substantially all of our contracts have a single distinct performance obligation or multiple performance obligations
which are distinct and represent individual promises within the contract. Substantially all of our performance obligations are
satisfied at a single point in time, when control is transferred, which is generally upon shipment or delivery as stated in the
contract terms.
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All taxes assessed by governmental authorities that are both imposed on and concurrent with our revenue-producing
transactions and collected from our customers are excluded from the measurement of the transaction price. Shipping and
handling fees billed to customers are included in revenue and are considered activities to fulfill the promise to transfer the
good. Allowances for estimated returns, discounts and rebates are considered variable consideration, which may be
constrained, and are estimated and recognized when sales are recorded. The estimates are based on various market data,
historical trends and information from customers. Actual returns, discounts and rebates have not been materially different from
estimates. For all contracts that have a duration of one year or less at contract inception, we do not adjust the promised amount
of consideration for the effects of a significant financing component.
Substantially all of our revenue is derived from contracts with an original expected length of time of one year or less and
for which we recognize revenue for the amount in which we have the right to invoice at the point in time in which control has
transferred to the customer. However, a portion of our revenue is derived from long-term contracts which have contract
periods that vary between one to multi-year. Certain of these contracts represent contracts with minimum purchase obligations,
which can be substantially different than the actual revenue recognized. Such contracts consist of varying types of products
across our chemical businesses. Certain contracts include variable volumes and/or variable pricing with pricing provisions tied
to commodity, consumer price or other indices. The transaction price allocated to the remaining performance obligations related
to our contracts was excluded from the disclosure of our remaining performance obligations based on the following practical
expedients that we elected to apply: (i) contracts with index-based pricing or variable volume attributes in which such variable
consideration is allocated entirely to a wholly unsatisfied performance obligation; and (ii) contracts with an original expected
duration of one year or less.
Refer to Note 21 “Segment Information” for information regarding the disaggregation of revenue by primary geographical
markets and major product lines.
Cost of Goods Sold and Selling and Administration Expenses
Cost of goods sold includes the costs of inventory sold, related purchasing, distribution and warehousing costs, costs
incurred for shipping and handling, depreciation and amortization expense related to these activities and environmental
remediation costs and recoveries. Selling and administration expenses include personnel costs associated with sales, marketing
and administration, research and development, legal and legal-related costs, consulting and professional services fees,
advertising expenses, depreciation expense related to these activities, foreign currency translation and other similar costs.
Acquisition-related Costs
Acquisition-related costs include advisory, legal, accounting and other professional fees incurred in connection with the
purchase and integration of our acquisitions. Acquisition-related costs also may include costs which arise as a result of
acquisitions, including contractual change in control provisions, contract termination costs, compensation payments related to
the acquisition or pension and other postretirement benefit plan settlements.
Other Operating Income
Other operating income consists of miscellaneous operating income items, which are related to our business activities, and
gains (losses) on disposition of property, plant and equipment.
Included in other operating income were the following:
Gains (losses) on disposition of property, plant and equipment, net
Gains on insurance recoveries
Other
Other operating income
2018
Years Ended December 31,
2017
($ in millions)
2016
$
$
(2.0) $
8.0
0.4
6.4 $
3.1 $
—
0.2
3.3 $
(0.7)
11.0
0.3
10.6
Other operating income for 2018 included an $8.0 million insurance recovery for a second quarter 2017 business
interruption at our Freeport, TX vinyl chloride monomer facility partially offset by a $1.7 million loss on the sale of land. The
gains on disposition of property, plant and equipment in 2017 included a gain of $3.3 million from the sale of a former
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manufacturing facility. The gains on insurance recoveries in 2016 included insurance recoveries for property damage and
business interruption related to a 2008 Henderson, NV chlor alkali facility incident.
Other Income (Expense)
Other income (expense) consists of non-operating income and expense items which are not related to our primary
business activities.
Foreign Currency Translation
Our worldwide operations utilize the U.S. dollar (USD) or local currency as the functional currency, where applicable. For
foreign entities where the USD is the functional currency, gains and losses resulting from balance sheet translations are included
in selling and administration. For foreign entities where the local currency is the functional currency, assets and liabilities
denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation
adjustments are included in accumulated other comprehensive loss. Assets and liabilities denominated in other than the local
currency are remeasured into the local currency prior to translation into USD and the resultant exchange gains or losses are
included in income in the period in which they occur. Income and expenses are translated into USD using an approximation of
the average rate prevailing during the period. We change the functional currency of our separate and distinct foreign entities
only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Cash and Cash Equivalents
All highly liquid investments, with a maturity of three months or less at the date of purchase, are considered to be cash
equivalents.
Short-Term Investments
We classify our marketable securities as available-for-sale, which are reported at fair market value with unrealized gains
and losses included in accumulated other comprehensive loss, net of applicable taxes. The fair value of marketable securities is
determined by quoted market prices. Realized gains and losses on sales of investments, as determined on the specific
identification method, and declines in value of securities judged to be other-than-temporary are included in other income
(expense) in the consolidated statements of operations. Interest and dividends on all securities are included in interest income
and other income (expense), respectively. As of December 31, 2018 and 2017, we had no short-term investments recorded on
our consolidated balance sheets.
Allowance for Doubtful Accounts Receivable
We evaluate the collectibility of accounts receivable based on a combination of factors. We estimate an allowance for
doubtful accounts as a percentage of net sales based on historical bad debt experience. This estimate is periodically adjusted
when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result
of changes in the overall aging of accounts receivable. While we have a large number of customers that operate in diverse
businesses and are geographically dispersed, a general economic downturn in any of the industry segments in which we operate
could result in higher than expected defaults, and, therefore, the need to revise estimates for the provision for doubtful accounts
could occur.
Inventories
Inventories are valued at the lower of cost and net realizable value. For U.S. inventories, inventory costs are determined
principally by the last-in, first-out (LIFO) method of inventory accounting while for international inventories, inventory costs
are determined principally by the first-in, first-out (FIFO) method of inventory accounting. Costs for other inventories have
been determined principally by the average-cost method (primarily operating supplies, spare parts and maintenance
parts). Elements of costs in inventories include raw materials, direct labor and manufacturing overhead.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are
capitalized as part of the historical cost and included in property, plant and equipment and are depreciated over the useful lives
of the related assets. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the
improvement, whichever is shorter. Start-up costs are expensed as incurred. Expenditures for maintenance and repairs are
charged to expense when incurred while the costs of significant improvements, which extend the useful life of the underlying
asset, are capitalized.
Property, plant and equipment are reviewed for impairment when conditions indicate that the carrying values of the assets
may not be recoverable. Such impairment conditions include an extended period of idleness or a plan of disposal. If such
impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be
recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flow analysis at the
lowest level for which identifiable cash flows exist. For our Chlor Alkali Products and Vinyls, Epoxy and Winchester
segments, the lowest level for which identifiable cash flows exist is the operating facility level or an appropriate grouping of
operating facilities level. The amount of impairment loss, if any, is measured by the difference between the net book value of
the assets and the estimated fair value of the related assets.
Asset Retirement Obligations
We record the fair value of an asset retirement obligation associated with the retirement of a tangible long-lived asset as a
liability in the period incurred. The liability is measured at discounted fair value and is adjusted to its present value in
subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the
carrying amount of the related long-lived asset and depreciated over the asset’s useful life. Asset retirement obligations are
reviewed annually in the fourth quarter and/or when circumstances or other events indicate that changes underlying retirement
assumptions may have occurred.
The activities of our asset retirement obligations were as follows:
Beginning balance
Accretion
Spending
Foreign currency translation adjustments
Adjustments
Ending balance
December 31,
2018
2017
($ in millions)
54.3 $
3.2
(8.0)
(0.2)
10.9
60.2 $
55.4
3.0
(8.8)
0.2
4.5
54.3
$
$
At December 31, 2018 and 2017, our consolidated balance sheets included an asset retirement obligation of $49.6 million
and $43.8 million, respectively, which were classified as other noncurrent liabilities.
In 2018, we had net adjustments that increased the asset retirement obligation by $10.9 million which was primarily
related to additional asset retirement obligations for leased assets.
In 2017, we had net adjustments that increased the asset retirement obligation by $4.5 million which was primarily
comprised of increases in estimated costs for certain assets.
Comprehensive Income (Loss)
Accumulated other comprehensive loss consists of foreign currency translation adjustments, pension and postretirement
liability adjustments, pension and postretirement amortization of prior service costs and actuarial losses and net unrealized
(losses) gains on derivative contracts.
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Goodwill
Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter and/or when circumstances or
other events indicate that impairment may have occurred. Accounting Standards Codification (ASC) 350 “Intangibles—
Goodwill and Other” (ASC 350) permits entities to make a qualitative assessment of whether it is more likely than not that a
reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. Circumstances
that are considered as part of the qualitative assessment and could trigger the two-step impairment test include, but are not
limited to: a significant adverse change in the business climate; a significant adverse legal judgment; adverse cash flow trends;
an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a
significant restructuring charge within a reporting unit. We define reporting units at the business segment level or one level
below the business segment level. For purposes of testing goodwill for impairment, goodwill has been allocated to our reporting
units to the extent it relates to each reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair
value of our reporting units are greater than their carrying amounts as of December 31, 2018. No impairment charges were
recorded for 2018, 2017 or 2016.
It is our practice, at a minimum, to perform a quantitative goodwill impairment test in the fourth quarter every three
years. In the fourth quarter of 2016, we performed our triennial quantitative goodwill impairment test for our reporting units.
We use a discounted cash flow approach to develop the estimated fair value of a reporting unit when a quantitative test is
performed. Management judgment is required in developing the assumptions for the discounted cash flow model. We also
corroborate our discounted cash flow analysis by evaluating a market-based approach that considers earnings before interest,
taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies. As a
further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the aggregate fair
value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying
amount of a reporting unit exceeded the estimated fair value. Based on the aforementioned analysis, the estimated fair value of
our reporting units substantially exceeded the carrying value of the reporting units.
The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of the
chlor alkali industry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of
each reporting unit. The discount rate reflects a weighted-average cost of capital, which is calculated based on observable
market data. Some of this data (such as the risk free or treasury rate and the pretax cost of debt) are based on the market data
at a point in time. Other data (such as the equity risk premium) are based upon market data over time for a peer group of
companies in the chemical manufacturing or distribution industries with a market capitalization premium added, as applicable.
The discounted cash flow analysis requires estimates, assumptions and judgments about future events. Our analysis uses
our internally generated long-range plan. Our discounted cash flow analysis uses the assumptions in our long-range plan about
terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the
implied fair value of each reporting unit. The long-range plan reflects management judgment, supplemented by independent
chemical industry analyses which provide multi-year industry operating and pricing forecasts.
We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of
the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the
impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill
impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are
not achieved, we may be required to record goodwill impairment charges in future periods. It is not possible at this time to
determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Intangible Assets
In conjunction with our acquisitions, we have obtained access to the customer contracts and relationships, trade names,
acquired technology and other intellectual property of the acquired companies. These relationships are expected to provide
economic benefit for future periods. Amortization expense is recognized on a straight-line basis over the estimated lives of the
related assets. The amortization period of customer contracts and relationships, trade names, acquired technology and other
intellectual property represents our best estimate of the expected usage or consumption of the economic benefits of the
acquired assets, which is based on the company’s historical experience.
Intangible assets with finite lives are reviewed for impairment when conditions indicate that the carrying values of the
assets may not be recoverable. Circumstances that are considered as part of the qualitative assessment and could trigger a
quantitative impairment test include, but are not limited to: a significant adverse change in the business climate; a significant
adverse legal judgment including asset specific factors; adverse cash flow trends; an adverse action or assessment by a
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government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a
reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair value of our intangible assets are
greater than the carrying amount as of December 31, 2018. No impairment of our intangible assets were recorded in 2018,
2017 or 2016.
Environmental Liabilities and Expenditures
Accruals (charges to income) for environmental matters are recorded when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessment and
remediation efforts progress or additional technical or legal information becomes available. Environmental costs are capitalized
if the costs increase the value of the property and/or mitigate or prevent contamination from future operations.
Income Taxes
Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to
offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the value of the
deferred tax assets will not be realized.
Derivative Financial Instruments
We are exposed to market risk in the normal course of our business operations due to our purchases of certain
commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can
be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established
policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to
such risks. We use hedge accounting treatment for a significant amount of our business transactions whose risks are covered
using derivative instruments. The hedge accounting treatment provides for the deferral of gains or losses on derivative
instruments until such time as the related transactions occur.
Concentration of Credit Risk
Accounts receivable is the principal financial instrument which subjects us to a concentration of credit risk. Credit is
extended based upon the evaluation of a customer’s financial condition and, generally, collateral is not required. Concentrations
of credit risk with respect to receivables are somewhat limited due to our large number of customers, the diversity of these
customers’ businesses and the geographic dispersion of such customers. Our accounts receivable are predominantly derived
from sales denominated in USD or the Euro. We maintain an allowance for doubtful accounts based upon the expected
collectibility of all trade receivables.
Fair Value
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable,
willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to
settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived
from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These
valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the
price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 “Fair Value
Measurement” (ASC 820), and directly related to the amount of subjectivity associated with the inputs to fair valuation of these
assets and liabilities, are as follows:
Level 1 — Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for
the asset or liability through correlation with market data at the measurement date and for the duration of the
instrument’s anticipated life.
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Level 3 — Inputs reflected management’s best estimate of what market participants would use in pricing the asset
or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and
the risk inherent in the inputs to the model.
Retirement-Related Benefits
We account for our defined benefit pension plans and non-pension postretirement benefit plans using actuarial models
required by ASC 715 “Compensation—Retirement Benefits” (ASC 715). These models use an attribution approach that
generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives
of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of
compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by
the plan are treated as actuarial gains or losses. The principle underlying the required attribution approach is that employees
render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits
earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth
pattern. Substantially all domestic defined benefit pension plan participants are no longer accruing benefits; therefore, actuarial
gains and losses are amortized based upon the remaining life expectancy of the inactive plan participants. For the years ended
December 31, 2018 and 2017, the average remaining life expectancy of the inactive participants in the domestic defined benefit
pension plan were 18 and 19 years, respectively.
One of the key assumptions for the net periodic pension calculation is the expected long-term rate of return on plan
assets, used to determine the “market-related value of assets.” The “market-related value of assets” recognizes differences
between the plan’s actual return and expected return over a five year period. The required use of an expected long-term rate
of return on the market-related value of plan assets may result in recognized pension income that is greater or less than the
actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to
approximate the actual long-term returns and, therefore, result in a pattern of income and expense recognition that more closely
matches the pattern of the services provided by the employees. As differences between actual and expected returns are
recognized over five years, they subsequently generate gains and losses that are subject to amortization over the average
remaining life expectancy of the inactive plan participants, as described in the preceding paragraph.
We use long-term historical actual return information, the mix of investments that comprise plan assets, and future
estimates of long-term investment returns and inflation by reference to external sources to develop the expected long-term rate
of return on plan assets as of December 31.
The discount rate assumptions used for pension and non-pension postretirement benefit plan accounting reflect the rates
available on high-quality fixed-income debt instruments on December 31 of each year. The rate of compensation increase is
based upon our long-term plans for such increases. For retiree medical plan accounting, we review external data and our own
historical trends for healthcare costs to determine the healthcare cost trend rates.
For our defined benefit pension and other postretirement benefit plans, we measure service and interest costs by applying
the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe this approach provides a more
precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding
spot rates on the yield curve.
Stock-Based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments, such as stock
options, performance shares and restricted stock, based on the grant-date fair value of the award. This cost is recognized over
the period during which an employee is required to provide service in exchange for the award, the requisite service period
(usually the vesting period). An initial measurement is made of the cost of employee services received in exchange for an
award of liability instruments based on its current fair value and the value of that award is subsequently remeasured at each
reporting date through the settlement date. Changes in fair value of liability awards during the requisite service period are
recognized as compensation cost over that period.
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The fair value of each option granted, which typically vests ratably over three years, but not less than one year, was
estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:
Dividend yield
Risk-free interest rate
Expected volatility
Expected life (years)
Weighted-average grant fair value (per option)
Weighted-average exercise price
Shares granted
2018
2017
2.43%
2.72%
32%
6.0
8.89
32.94
927,000
$
$
2.69%
2.06%
34%
6.0
7.78
29.82
1,621,000
$
$
2016
6.09%
1.35%
32%
6.0
1.90
13.14
1,670,400
$
$
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.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for
Defined Benefit Plans” which amends ASC 715. This update includes adding, clarifying and removing various disclosure
requirements related to defined benefit pension and other postretirement plans. This update is effective for fiscal years
beginning after December 15, 2020, with earlier application permitted. The guidance in this update is applied on a retrospective
basis to all periods presented. We adopted this update on December 31, 2018. The adoption of this update did not have a
material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement” which amends ASC 820. This update includes adding, modifying and removing various disclosure
requirements related to fair value measurements. This update is effective for fiscal years beginning after December 15, 2019,
and interim periods within those fiscal years, with earlier application permitted. This update will be applied on a prospective
basis for certain changes and retrospectively for other changes. We adopted this update on December 31, 2018. The adoption
of this update did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05, “Amendments to Securities and Exchange Commission (SEC)
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (SAB 118) which amends ASC 740 “Income Taxes.” This
update codifies the guidance in SAB 118. SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,”
provided guidance for companies that have not completed their accounting for the income tax effects of U.S. Tax Cuts and
Jobs Act (the 2017 Tax Act) in the period of enactment, allowing for a measurement period of up to one year after the
enactment date to finalize the recording of the related tax impacts. During 2017, we recognized a provisional deferred tax
benefit of $437.9 million, which was included as a component of income tax (benefit) provision. At December 31, 2018, we
have completed our accounting for the tax effects of enactment of the 2017 Tax Act. During 2018, we increased the deferred
tax benefit by $3.9 million as a result of filing the 2017 U.S. and foreign tax returns and decreased the deferred tax benefit by
$0.1 million as a result of additional guidance issued by the Internal Revenue Service.
In February 2018, FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” which amends ASC 220 “Income Statement—Reporting Comprehensive Income.” This update
allows a reclassification from accumulated other comprehensive loss to retained earnings for the stranded tax effects resulting
from the 2017 Tax Act during each fiscal year or quarter in which the effect of the lower tax rate is recorded. The update is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier
application permitted. We adopted this update in March 2018 and reclassified $85.9 million related to the deferred gain
resulting from the 2017 Tax Act from accumulated other comprehensive loss to retained earnings.
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In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedge Activities” which
amends ASC 815 “Derivatives and Hedging” (ASC 815). This update is intended to more closely align hedge accounting with
companies’ risk management strategies, simplify the application of hedge accounting guidance, and increase transparency as to
the scope and results of hedge programs. The update is effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years, with earlier application permitted. We adopted this update on January 1, 2018. The
adoption of this update did not have a material impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost” which amends ASC 715. This update requires the presentation of the service cost
component of net periodic benefit (income) costs in the same income statement line item as other employee compensation
costs arising from services rendered during the period. The update requires the presentation of the other components of the net
periodic benefit (income) costs separately from the line item that includes the service cost and outside of any subtotal of
operating income. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. We adopted this
update on January 1, 2018 using the retrospective method. The adoption of ASU 2017-07 resulted in a change in our net
periodic benefit (income) costs within operating income, which was offset by a corresponding change in non-operating pension
income to reflect the impact of presenting the interest cost, expected return on plan assets and amortization of prior service cost
and net actuarial loss components of net periodic benefit (income) costs outside of operating income. For the years ended
December 31, 2017 and 2016, the adoption of ASU 2017-07 resulted in a reclassification of $15.3 million and $20.8 million,
respectively, from cost of goods sold, and $19.1 million and $24.0 million, respectively, from selling and administration
expenses to non-operating pension income reflecting the aforementioned reclassification on our consolidated statements of
operations. The service cost component of net periodic benefit (income) costs continues to be included in the same income
statement line item as other employee compensation costs arising from services rendered during the period.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC
350. This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment
test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a
reporting unit to determine if the quantitative impairment test is necessary. This update is effective for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective
basis with earlier application permitted. We plan to adopt this update on January 1, 2020 and do not expect the update to have
a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which
amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after
December 15, 2017. The update will require adoption on a retrospective basis unless it is impracticable to apply, in which case
it would be required to apply the amendments prospectively as of the earliest date practicable. We adopted this update on
January 1, 2018. In connection with this update, we made an accounting policy election to apply the nature of the distribution
approach when determining the proper classification of distributions received from equity method investments. The adoption of
this update did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases,” (ASU 2016-02) which supersedes ASC 840 “Leases” and
creates a new topic, ASC 842 “Leases.” Subsequent to the issuance of ASU 2016-02, ASC 842 was amended by various
updates that amend and clarify the impact and implementation of the aforementioned update. These updates require lessees to
recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its
balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified
retrospective method which requires retrospective adoption to each prior reporting period presented with the cumulative effect
of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires
retrospective adoption beginning on the date of adoption with the cumulative effect of initially applying these updates
recognized at the date of initial adoption. These updates also expand the required quantitative and qualitative disclosures
surrounding leases. These updates are effective for fiscal years beginning after December 15, 2018 and interim periods within
those fiscal years, with earlier application permitted. We adopted these updates on January 1, 2019 using the optional transition
method. Adoption of these updates resulted in the recording of additional operating lease assets and lease liabilities on our
consolidated balance sheet of between approximately $275 million and $325 million as of January 1, 2019. Our assets and
liabilities for finance leases remained unchanged. We also recognized the cumulative effect of applying these updates as an
adjustment to retained earnings of between approximately $10 million and $15 million, net of the deferred tax impact, primarily
related to the recognition of previously deferred sale/leaseback gains. Our consolidated statements of operations and cash
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flows were not impacted by this adoption. These updates also impacted our accounting policies, internal controls and
disclosures related to leases.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends
ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606).
Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and
implementation of the aforementioned update. These updates provide guidance on how an entity should recognize revenue to
depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates
are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect
of initially applying this update recognized at the date of initial application. These updates also expand the disclosure
requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. We adopted these updates on January 1, 2018 using
the modified retrospective transition method. The cumulative effect of applying the updates did not have a material impact on
our consolidated financial statements. The most significant impact the updates had was on our accounting policies and
disclosures on revenue recognition. Expanded disclosures regarding revenue recognition are included within our consolidated
financial statements.
NOTE 4. ACQUISITION
On October 5, 2015 (the Closing Date), we completed the acquisition (the Acquisition) from DowDuPont Inc.
(DowDuPont) (f/k/a The Dow Chemical Company) of its U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global
Epoxy businesses (collectively, the Acquired Business), whose operating results are included in the accompanying financial
statements since the Closing Date.
We finalized our purchase price allocation of the Acquired Business during the third quarter of 2016. For the year ended
December 31, 2016, the aggregate purchase price was adjusted for the final working capital adjustment and the final valuation
for the pension liabilities assumed from DowDuPont which resulted in a payment of $69.5 million.
For the years ended December 31, 2018, 2017 and 2016, we incurred costs related to the integration of the Acquired
Business of $1.0 million, $12.8 million and $48.8 million, respectively, which consisted of advisory, legal, accounting and other
professional fees.
NOTE 5. RESTRUCTURING CHARGES
On December 10, 2018, we announced that we had made the decision to permanently close the ammunition assembly
operations at our Winchester facility in Geelong, Australia. Subsequent to the facility’s closure, product for customers in the
region will be sourced from Winchester manufacturing facilities located in the United States. For the year ended December 31,
2018, we recorded pretax restructuring charges of $4.1 million for the write-off of equipment and facility costs, employee
severance and related benefit costs and lease and other contract termination costs related to this action. We expect to incur
additional restructuring charges through 2019 of approximately $1 million related to this closure.
On March 21, 2016, we announced that we had made the decision to close a combined total of 433,000 tons of chlor
alkali capacity across three separate locations. Associated with this action, we have permanently closed our Henderson, NV
chlor alkali plant with 153,000 tons of capacity and have reconfigured the site to manufacture bleach and distribute caustic soda
and hydrochloric acid. Also, the capacity of our Niagara Falls, NY chlor alkali plant has been reduced from 300,000 tons to
240,000 tons and the chlor alkali capacity at our Freeport, TX facility was reduced by 220,000 tons. This 220,000 ton
reduction was entirely from diaphragm cell capacity. For the years ended December 31, 2018, 2017 and 2016, we recorded
pretax restructuring charges of $15.7 million, $32.6 million and $111.3 million, respectively, for the write-off of equipment and
facility costs, lease and other contract termination costs, employee severance and related benefit costs, employee relocation
costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2019 of
approximately $10 million related to these capacity reductions.
For the years ended December 31, 2018, 2017 and 2016, we recorded pretax restructuring charges of $2.1 million, $3.3
million and $0.8 million, respectively, for lease and other contract termination costs and facility exit costs related to our
permanent reduction in capacity at our Becancour, Canada chlor alkali facility in 2014. We expect to incur additional
restructuring charges through 2019 of less than $1 million related to this action.
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For the years ended December 31, 2017 and 2016, we recorded pretax restructuring charges of $1.7 million and $0.8
million, respectively, for employee severance and related benefit costs, employee relocation costs and facility exit costs related
to the relocation of our Winchester centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to
Oxford, MS that was announced in 2010 and completed in 2016.
The following table summarizes the 2018, 2017 and 2016 activities by major component of these restructuring actions
and the remaining balances of accrued restructuring costs as of December 31, 2018:
Employee
severance
and related
benefit costs
Lease and
other contract
termination
costs
Employee
relocation
costs
Facility
exit
costs
Write-off of
equipment
and facility Total
($ in millions)
Balance at January 1, 2016
2016 restructuring charges
Amounts utilized
Balance at December 31, 2016
2017 restructuring charges
Amounts utilized
Balance at December 31, 2017
2018 restructuring charges
Amounts utilized
Balance at December 31, 2018
$
$
4.6 $
5.1
(6.3)
3.4
2.0
(3.6)
1.8
1.7
(2.0)
1.5 $
2.1
13.6
(8.2)
7.5
22.1
(26.3)
3.3
5.6
(2.9)
6.0
$
$
— $ — $
2.1
(2.1)
15.5
(13.7)
1.8
11.7
(13.5)
—
12.0
(11.3)
—
0.3
(0.3)
—
—
—
— $
— $
76.6
(76.6)
—
1.5
(1.5)
—
2.6
(2.6)
6.7
112.9
(106.9)
12.7
37.6
(45.2)
5.1
21.9
(18.8)
8.2
0.7 $
— $
The following table summarizes the cumulative restructuring charges of these 2018, 2016, 2014 and 2010 restructuring
actions by major component through December 31, 2018:
Chlor Alkali Products and
Vinyls
Winchester
Becancour
Capacity
Reductions Oxford
Geelong
Total
Write-off of equipment and facility
Employee severance and related benefit costs
Facility exit costs
Pension and other postretirement benefits
curtailment
Employee relocation costs
Lease and other contract termination costs
Total cumulative restructuring charges
$
$
3.5 $
2.7
5.9
—
—
6.1
18.2 $
($ in millions)
78.1 $
5.9
33.8
—
1.7
40.2
159.7 $
— $
14.7
2.3
4.1
6.0
—
27.1 $
2.6 $
1.3
—
—
—
0.2
4.1 $
84.2
24.6
42.0
4.1
7.7
46.5
209.1
As of December 31, 2018, we have incurred cash expenditures of $112.2 million and non-cash charges of $88.7 million
related to these restructuring actions. The remaining balance of $8.2 million is expected to be paid out through 2020.
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NOTE 6. EARNINGS PER SHARE
Basic and diluted income (loss) per share are computed by dividing net income (loss) by the weighted-average number of
common shares outstanding. Diluted net income (loss) per share reflects the dilutive effect of stock-based compensation.
Computation of Income (Loss) per Share
Net income (loss)
Basic shares
Basic net income (loss) per share
Diluted shares:
Basic shares
Stock-based compensation
Diluted shares
Diluted net income (loss) per share
$
$
$
2018
2016
Years ended December 31,
2017
(In millions, except per share data)
327.9 $
166.8
1.97 $
549.5 $
166.2
3.31 $
166.8
1.6
168.4
1.95 $
166.2
2.3
168.5
3.26 $
(3.9)
165.2
(0.02)
165.2
—
165.2
(0.02)
The computation of dilutive shares from stock-based compensation does not include 2.4 million, 1.6 million and 6.5
million shares in 2018, 2017 and 2016, respectively, as their effect would have been anti-dilutive.
NOTE 7. ACCOUNTS RECEIVABLES
On December 20, 2016, we entered into a three-year, $250.0 million Receivables Financing Agreement with PNC Bank,
National Association, as administrative agent (Receivables Financing Agreement). Under the Receivables Financing Agreement,
our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the
Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving
credit facility. As of December 31, 2018 and 2017, $360.4 million and $340.9 million, respectively, of our trade receivables
were pledged as collateral and we had $125.0 million and $249.7 million, respectively, drawn under the agreement. As of
December 31, 2018, we had $125.0 million of additional borrowing capacity under the Receivables Financing Agreement.
Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR
Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of $315.0 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 consolidated statements of cash
flows. The following table summarizes the AR Facilities activity:
December 31,
2018
2017
Beginning Balance
Gross receivables sold
Payments received from customers on sold accounts
Ending Balance
$
$
1,372.3
(1,422.2)
132.4 $
126.1
1,655.2
(1,599.0)
182.3
($ in millions)
182.3 $
The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of
operations. The factoring discount for the years ended December 31, 2018, 2017 and 2016 was $4.3 million, $3.7 million and
$1.1 million, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of
December 31, 2018.
At December 31, 2018 and 2017, our consolidated balance sheets included other receivables of $58.0 million and $105.5
million, respectively, which were classified as receivables, net.
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NOTE 8. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES
Allowance for doubtful accounts receivable consisted of the following:
Beginning balance
Provisions charged
Write-offs, net of recoveries
Foreign currency translation adjustments
Ending balance
NOTE 9. INVENTORIES
Supplies
Raw materials
Work in process
Finished goods
LIFO reserve
Inventories, net
December 31,
2018
2017
($ in millions)
12.3 $
1.7
(0.7)
(0.4)
12.9 $
10.1
1.8
(0.1)
0.5
12.3
December 31,
2018
2017
($ in millions)
66.4 $
66.7
139.6
488.5
761.2
(49.8)
711.4 $
66.1
75.3
127.8
462.6
731.8
(49.2)
682.6
$
$
$
$
Inventories valued using the LIFO method comprised 55% of the total inventories at both December 31, 2018 and
2017. The replacement cost of our inventories would have been approximately $49.8 million and $49.2 million higher than that
reported at December 31, 2018 and 2017, respectively.
NOTE 10. OTHER ASSETS
Included in other assets were the following:
Supply contracts
Investments in non-consolidated affiliates
Other
Other assets
December 31,
2018
2017
($ in millions)
$
$
1,099.5 $
8.8
42.1
1,150.4 $
1,137.1
28.5
42.8
1,208.4
For the year ended December 31, 2018, we recorded a $21.5 million non-cash impairment charge related to an
adjustment to the value of our 9.1% limited partnership interest in Bay Gas Storage Company, Ltd. (Bay Gas). Bay Gas
owns, leases and operates underground gas storage and related pipeline facilities, which are used to provide storage in the
McIntosh, AL area and delivery of natural gas. The general partner, Sempra Energy (Sempra), announced in the second
quarter of 2018 its plan to sell several assets including its 90.9% interest in Bay Gas. In connection with this decision, Sempra
recorded an impairment charge related to Bay Gas adjusting the related assets’ carrying values to an estimated fair value. We
recorded a reduction in our investment in the non-consolidated affiliate for the proportionate share of the non-cash impairment
charge. Olin has no other non-consolidated affiliates.
The losses of non-consolidated affiliates were $19.7 million for the year ended December 31, 2018, which reflect a $21.5
million non-cash impairment charge recorded during 2018. The earnings of non-consolidated affiliates were $1.8 million and
$1.7 million for the years ended December 31, 2017 and 2016, respectively.
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On January 1, 2019, we entered into an agreement to sell our 9.1% limited partnership interest in Bay Gas for
approximately $20 million. The sale closed on February 7, 2019 which resulted in a gain of approximately $11 million which
will be included in first quarter 2019 results.
In connection with the Acquisition, Olin and DowDuPont entered into arrangements for the long-term supply of ethylene
by DowDuPont to Olin, pursuant to which, among other things, Olin made upfront payments of $433.5 million on the Closing
Date in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional
ethylene at producer economics. The fair value of the long-term supply contracts recorded as of the Closing Date was a long-
term asset of $416.1 million which will be amortized over the life of the contracts as ethylene is received. During 2017, we
made an additional payment of $209.4 million in connection with our option to reserve additional ethylene supply at producer
economics from DowDuPont which increased the value of the long-term asset.
On February 27, 2017, we also exercised the remaining option to obtain additional future ethylene at producer economics
from DowDuPont. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a
result, an additional payment will be made to DowDuPont of between $440 million and $465 million on or about the fourth
quarter of 2020. During September 2017, as a result of DowDuPont’s new Texas 9 ethylene cracker becoming operational,
Olin recognized a long-term asset and other liabilities of $389.2 million, which represents the present value of the additional
estimated payment. The discounted amount of $51.8 million will be recorded as interest expense through the fourth quarter of
2020. For the years ended December 31, 2018 and 2017, interest expense of $16.0 million and $3.9 million, respectively, was
recorded for accretion on the 2020 payment discount.
During 2016, Olin entered into arrangements to increase our supply of low cost electricity. In conjunction with these
arrangements, Olin made payments of $175.7 million in 2016. The payments made under these arrangements will be amortized
over the life of the contracts as electrical power is received.
The weighted-average useful life of long-term supply contracts at December 31, 2018 was 20 years. For the years ended
December 31, 2018, 2017 and 2016, amortization expense of $37.6 million, $28.2 million and $21.5 million, respectively, was
recognized within cost of goods sold related to these supply contracts and is reflected in depreciation and amortization on the
consolidated statements of cash flows. We estimate that amortization expense will be approximately $38 million in 2019 and
2020 and $60 million in 2021, 2022 and 2023 related to these long-term supply contracts. The long-term supply contracts are
monitored for impairment each reporting period.
NOTE 11. PROPERTY, PLANT AND EQUIPMENT
Land and improvements to land
Buildings and building equipment
Machinery and equipment
Leasehold improvements
Construction in progress
Property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
Useful Lives
2018
2017
December 31,
$
10-20 Years
10-30 Years
3-20 Years
$
($ in millions)
276.9 $
387.6
5,252.0
5.2
341.4
6,263.1
(2,781.0)
3,482.1 $
281.7
382.4
5,028.4
3.9
212.5
5,908.9
(2,333.1)
3,575.8
The weighted-average useful life of machinery and equipment at December 31, 2018 was 11 years. Depreciation expense
was $497.8 million, $465.1 million and $435.7 million for 2018, 2017 and 2016, respectively. Interest capitalized was $6.0
million, $3.0 million and $1.9 million for 2018, 2017 and 2016, respectively.
The consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016, included decreases
of $25.5 million, $0.5 million and $29.9 million, respectively, to capital expenditures, with the corresponding change to
accounts payable and accrued liabilities, related to purchases of property, plant and equipment included in accounts payable
and accrued liabilities at December 31, 2018, 2017 and 2016.
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During 2016, we entered into sale/leaseback transactions for railcars that we acquired in connection with the Acquisition.
We received proceeds from the sales of $40.4 million for the year ended December 31, 2016.
NOTE 12. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill were as follows:
Chlor Alkali Products
and Vinyls
Epoxy
($ in millions)
Total
Balance at January 1, 2017
Foreign currency translation adjustment
Balance at December 31, 2017
Foreign currency translation adjustment
Balance at December 31, 2018
$
$
Intangible assets consisted of the following:
1,831.3 $
1.6
1,832.9
(0.3)
1,832.6 $
286.7 $
0.4
287.1
(0.1)
287.0 $
2,118.0
2.0
2,120.0
(0.4)
2,119.6
December 31,
Useful Lives
Gross
Amount
2018
Accumulated
Amortization Net
Gross
Amount
2017
Accumulated
Amortization Net
($ in millions)
10-15 Years $
5 Years
7 Years
10 Years
$
675.2 $
7.0
85.4
0.7
768.3 $
(211.9) $ 463.3 $
(4.6)
(39.6)
(0.6)
2.4
45.8
0.1
(256.7) $ 511.6 $
679.5 $
7.1
86.1
2.3
775.0 $
(163.6) $ 515.9
3.9
58.4
0.3
(196.5) $ 578.5
(3.2)
(27.7)
(2.0)
Customers, customer
contracts and
relationships
Trade name
Acquired technology
Other
Total intangible assets
In connection with the integration of the Acquired Business, in the first quarter of 2016, the K.A. Steel Chemicals Inc.
trade name was changed from an indefinite life intangible asset to an intangible asset with a finite useful life of one year.
Amortization expense of $10.9 million was recognized within cost of goods sold for the year ended December 31, 2016 related
to the change in useful life.
Amortization expense relating to intangible assets was $62.8 million, $62.8 million and $73.8 million in 2018, 2017 and
2016, respectively. We estimate that amortization expense will be approximately $63 million in 2019 and 2020, approximately
$61 million in 2021, approximately $54 million in 2022 and approximately $35 million in 2023.
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NOTE 13. DEBT
Long-Term Debt
Notes payable:
December 31,
2018
2017
($ in millions)
Variable-rate Senior Term Loan Facility, due 2022 (4.02% and 3.57% at December 31,
2018 and 2017, respectively)
$
543.0 $
1,323.4
Variable-rate Recovery Zone bonds, due 2024-2035 (3.67% and 3.27% at December 31,
2018 and 2017, respectively)
Variable-rate Go Zone bonds, due 2024 (3.67% and 3.27% at December 31, 2018 and
2017, respectively)
Variable-rate Industrial development and environmental improvement obligations, due
2025 (2.52% and 1.27% at December 31, 2018 and 2017, respectively)
9.75%, due 2023
10.00%, due 2025
5.50%, due 2022
5.125%, due 2027
5.00%, due 2030
Senior Revolving Credit Facility
Receivables Financing Agreement
Capital lease obligations
Total notes payable
Deferred debt issuance costs
Interest rate swaps
Total debt
Amounts due within one year
Total long-term debt
103.0
50.0
2.9
720.0
500.0
200.0
500.0
550.0
—
125.0
4.2
3,298.1
(34.1)
(33.7)
3,230.3
125.9
3,104.4 $
103.0
50.0
2.9
720.0
500.0
200.0
500.0
—
20.0
249.7
3.7
3,672.7
(32.6)
(28.1)
3,612.0
0.7
3,611.3
$
On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due February 1, 2030
(2030 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2030 Notes began accruing
from January 19, 2018 and is paid semi-annually beginning on August 1, 2018. Proceeds from the 2030 Notes were used to
redeem $550.0 million of debt under the $1,375.0 million term loan facility (Term Loan Facility). For the year ended
December 31, 2018, we recognized interest expense of $2.6 million for the write-off of unamortized deferred debt issuance
costs related to the redemption of $550.0 million of debt under the Term Loan Facility.
On March 9, 2017, we entered into a new five-year $1,975.0 million senior credit facility, which amended and restated
the existing $1,850.0 million senior credit facility. We recognized interest expense of $1.2 million for the write-off of
unamortized deferred debt issuance costs related to this action during 2017. Pursuant to the agreement, the aggregate principal
amount under the term loan facility was increased to $1,375.0 million, and the aggregate commitments under the senior
revolving credit facility were increased to $600.0 million (Senior Revolving Credit Facility and, together with the Term Loan
Facility, the Senior Credit Facility), from $500.0 million. At December 31, 2018, we had $596.5 million available under our
$600.0 million Senior Revolving Credit Facility because we had issued $3.5 million of letters of credit. In March 2017, we
drew the entire $1,375.0 million term loan and used the proceeds to redeem the remaining balance of the existing $1,350.0
million senior credit facility of $1,282.5 million and a portion of the $800.0 million Sumitomo Credit Facility (Sumitomo Credit
Facility). The maturity date for the Senior Credit Facility was extended from October 5, 2020 to March 9, 2022. The $600.0
million Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. The Term Loan Facility included
amortization payable in equal quarterly installments at a rate of 5.0% per annum for the first two years, increasing to 7.5% per
annum for the following year and to 10.0% per annum for the last two years. However, in connection with the $550.0 million
prepayment of the Term Loan Facility in January 2018, the required quarterly installments of the Term Loan Facility were
eliminated. For the years ended December 31, 2017 and 2016, we repaid $51.6 million and $67.5 million, respectively, under
the required quarterly installments of the term loan facilities.
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Under the Senior Credit Facility, we may select various floating rate borrowing options. The actual interest rate paid on
borrowings under the Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated
under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive
covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and
amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest
expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We
were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2018
and 2017, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to
accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will
determine the amounts available to be borrowed under these facilities. As of December 31, 2018, there were no covenants or
other restrictions that would have limited our ability to borrow under these facilities.
On March 9, 2017, Olin issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15,
2027 (2027 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began
accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were
used to redeem the remaining balance of the Sumitomo Credit Facility.
On December 20, 2016, we entered into a three-year, $250.0 million Receivables Financing Agreement. Under the
Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be
serviced by us. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are
contained in the senior revolving credit facility. As of December 31, 2018 and 2017, $360.4 million and $340.9 million,
respectively, of our trade receivables were pledged as collateral and we had $125.0 million and $249.7 million, respectively,
drawn under the agreement. As of December 31, 2018, we had $125.0 million of additional borrowing capacity under the
Receivables Financing Agreement. For the year ended December 31, 2017, we borrowed $40.0 million under the Receivables
Financing Agreement and used the proceeds to fund a portion of the payment to DowDuPont associated with a long-term
ethylene supply contract to reserve additional ethylene at producer economics. For the year ended December 31, 2016, the
proceeds of the Receivables Financing Agreement were used to repay $210.0 million of the Sumitomo Credit Facility.
During 2016, $210.0 million was repaid under the Sumitomo Credit Facility using proceeds from the Receivables
Financing Agreement. During 2017, the remaining balance of $590.0 million was repaid using proceeds from the Senior Credit
Facility and the 2027 Notes. We recognized interest expense of $1.5 million related to the write-off of unamortized deferred
debt issuance costs related to this action in 2017.
In June 2016, we repaid $125.0 million of 6.75% senior notes due 2016, which became due.
In 2018, we paid debt issuance costs of $8.5 million relating to the 2030 Notes. In 2017, we paid debt issuance costs
of $11.2 million relating to the Senior Credit Facility and the 2027 Notes. In 2016, we paid debt issuance costs of $1.0 million
for the registration of the $720.0 million aggregate principal amount of 9.75% senior notes due October 15, 2023 and $500.0
million aggregate principal amount of 10.00% senior notes due October 15, 2025 under the Securities Act of 1933.
Pursuant to a note purchase agreement dated December 22, 1997, SunBelt sold $97.5 million of Guaranteed Senior
Secured Notes due 2017, Series O, and $97.5 million of Guaranteed Senior Secured Notes due 2017, Series G. We refer to
these notes as the SunBelt Notes. The SunBelt Notes accrued interest at a rate of 7.23% per annum, payable semi-annually in
arrears on each June 22 and December 22. In December 2017 and 2016, $12.2 million was repaid on these SunBelt Notes. At
December 31, 2017, all amounts due under the SunBelt Notes had been repaid.
At December 31, 2018, we had total letters of credit of $74.7 million outstanding, of which $3.5 million were issued
under our Senior Revolving Credit Facility. The letters of credit are used to support certain long-term debt, certain workers
compensation insurance policies, certain plant closure and post-closure obligations and certain international pension funding
requirements.
Annual maturities of long-term debt, including capital lease obligations, are $125.9 million in 2019, $1.8 million in 2020,
$0.5 million in 2021, $743.4 million in 2022, $720.3 million in 2023 and a total of $1,706.2 million thereafter.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates
to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million, and $400.0 million of our
underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016,
December 31, 2017, and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets,
Inc., Wells Fargo Bank, N.A. (Wells Fargo), PNC Bank, National Association, and Toronto-Dominion Bank. These
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counterparties are large financial institutions. We have designated the swaps as cash flow hedges of the risk of changes in
interest payments associated with our variable-rate borrowings. Accordingly, the remaining swap agreement has been recorded
at its fair market value of $5.3 million and is included in other current assets on the accompanying consolidated balance sheet,
with the corresponding gain deferred as a component of other comprehensive loss. For the years ended December 31, 2018
and 2017, $8.9 million and $3.1 million, respectively, of income was recorded to interest expense on the accompanying
consolidated statements of operations related to these swap agreements.
In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby
we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements
are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt
obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties
to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of
changes in the value of fixed rate debt due to changes in interest rates for a portion of our fixed rate borrowings. Accordingly,
the swap agreements have been recorded at their fair market value of $33.7 million and are included in other long-term
liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related
debt. For the year ended December 31, 2018, $2.1 million of expense has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements. For the years ended December 31,
2017 and 2016, $2.9 million and $2.6 million, respectively, of income has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements.
Our loss in the event of nonperformance by these counterparties could be significant to our financial position and results
of operations. Our interest rate swaps reduced interest expense by $6.8 million, $6.1 million and $3.7 million in 2018, 2017
and 2016, respectively. The difference between interest paid and interest received is included as an adjustment to interest
expense.
NOTE 14. PENSION PLANS
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic
employees participate in defined contribution 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 automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to
applicable collective bargaining requirements).
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0
million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic
qualified defined benefit pension plan at least through 2019.
We have international qualified defined benefit pension plans to which we made cash contributions of $2.6 million, $1.7
million and $1.3 million in 2018, 2017 and 2016, respectively, and we anticipate less than $5 million of cash contributions to
international qualified defined benefit pension plans in 2019.
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Pension Obligations and Funded Status
Changes in the benefit obligation and plan assets were as follows:
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Plan participant’s contributions
Plan amendments
Foreign currency translation adjustments
Benefit obligation at end of year
December 31, 2018
Foreign
U.S.
Total
U.S.
($ in millions)
December 31, 2017
Foreign
Total
$
2,579.9 $
1.4
80.6
(163.2)
(133.2)
—
—
—
$
2,365.5 $
303.4 $
9.7
5.7
1.5
(3.7)
1.2
(0.4)
(15.1)
302.3 $
2,883.3 $
11.1
86.3
(161.7)
(136.9)
1.2
(0.4)
(15.1)
2,667.8 $
2,466.2 $
1.2
81.3
161.7
(130.5)
—
—
—
2,579.9 $
251.0 $
8.2
5.3
9.6
(4.2)
1.0
1.7
30.8
303.4 $
2,717.2
9.4
86.6
171.3
(134.7)
1.0
1.7
30.8
2,883.3
Change in Plan Assets
Fair value of plans’ assets at beginning of
year
Actual return on plans’ assets
Employer contributions
Benefits paid
Foreign currency translation adjustments
Fair value of plans’ assets at end of year $
$
December 31, 2018
Foreign
U.S.
Total
U.S.
($ in millions)
December 31, 2017
Foreign
Total
2,172.5 $
(113.9)
0.4
(133.2)
—
1,925.8 $
74.4 $
(2.1)
1.8
(2.2)
(4.7)
67.2 $
2,246.9 $
(116.0)
2.2
(135.4)
(4.7)
1,993.0 $
2,012.0 $
290.6
0.4
(130.5)
—
2,172.5 $
66.5 $
5.0
2.2
(3.0)
3.7
74.4 $
2,078.5
295.6
2.6
(133.5)
3.7
2,246.9
Funded Status
Qualified plans
Non-qualified plans
Total funded status
December 31, 2018
Foreign
U.S.
Total
U.S.
December 31, 2017
Foreign
Total
$
$
(436.1) $
(3.6)
(439.7) $
(232.8) $
(2.3)
(235.1) $
($ in millions)
(668.9) $
(5.9)
(674.8) $
(403.7) $
(3.7)
(407.4) $
(226.9) $
(2.1)
(229.0) $
(630.6)
(5.8)
(636.4)
Under ASC 715, we recorded a $76.5 million after-tax charge ($100.6 million pretax) to shareholders’ equity as of
December 31, 2018 for our pension plans. This charge primarily reflected unfavorable performance on plan assets during
2018, partially offset by a 60-basis point increase in the domestic pension plans’ discount rate. In 2017, we recorded a $21.3
million after-tax charge ($26.9 million pretax) to shareholders’ equity as of December 31, 2017 for our pension plans. This
charge primarily reflected a 50-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable
performance on plan assets during 2017.
The $161.7 million actuarial gain for 2018 was primarily due to a 60-basis point increase in the domestic pension plans’
discount rate. The $171.3 million actuarial loss for 2017 was primarily due to a 50-basis point decrease in the domestic pension
plans’ discount rate.
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Amounts recognized in the consolidated balance sheets consisted of:
December 31, 2018
Foreign
U.S.
Total
U.S.
December 31, 2017
Foreign
Total
Accrued benefit in current liabilities
Accrued benefit in noncurrent liabilities
Accumulated other comprehensive loss
Net balance sheet impact
$
$
(0.4) $
(439.3)
796.5
356.8 $
(0.1) $
(235.0)
56.0
(179.1) $
($ in millions)
(0.5) $
(0.4) $
(674.3)
852.5
177.7 $
(407.0)
735.1
327.7 $
(0.1) $
(228.9)
51.4
(177.6) $
(0.5)
(635.9)
786.5
150.1
At December 31, 2018 and 2017, the benefit obligation of non-qualified pension plans was $5.9 million and $5.8 million,
respectively, and was included in the above pension benefit obligation. There were no plan assets for these non-qualified
pension plans. Benefit payments for the non-qualified pension plans are expected to be as follows: 2019—$0.5 million;
2020—$0.9 million; 2021—$0.5 million; 2022—$0.4 million; and 2023—$0.3 million. Benefit payments for the qualified
plans are projected to be as follows: 2019—$140.5 million; 2020—$140.3 million; 2021—$139.4 million; 2022—$138.0
million; and 2023—$135.2 million.
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of Net Periodic Benefit (Income) Costs
Service cost
Interest cost
Expected return on plans’ assets
Amortization of prior service cost
Recognized actuarial loss
Net periodic benefit (income) costs
Included in Other Comprehensive Loss (Pretax)
Liability adjustment
Amortization of prior service costs and actuarial losses
December 31,
2018
2017
($ in millions)
$
2,667.8 $
2,641.3
1,993.0
2,883.3
2,851.0
2,246.9
2018
Years Ended December 31,
2017
($ in millions)
2016
11.1 $
86.3
(146.5)
0.1
34.5
(14.5) $
9.4 $
86.6
(149.4)
2.2
24.8
(26.4) $
9.0
87.7
(154.5)
—
20.7
(37.1)
100.6 $
(34.6)
26.9 $
(27.0)
66.1
(20.7)
$
$
$
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost” (ASU 2017-07) which amends ASC 715 “Compensation—Retirement Benefits.” The
adoption of ASU 2017-07 resulted in a change in our net periodic benefit (income) costs within operating income, which was
offset by a corresponding change in non-operating pension income to reflect the impact of presenting the interest cost, expected
return on plan assets, amortization of prior service cost and net actuarial loss components of net periodic benefit (income) costs
outside of operating income. We adopted this update on January 1, 2018 using the retrospective method. For the years ended
December 31, 2017 and 2016, the adoption of ASU 2017-07 resulted in a reclassification of $15.3 million and $20.8 million,
respectively, from cost of goods sold and $19.1 million and $24.0 million, respectively, from selling and administration to non-
operating pension income reflecting the aforementioned reclassification on our consolidated statements of operations. The
service cost component of net periodic benefit (income) costs continues to be included in the same income statement line item
as other employee compensation costs arising from services rendered during the period.
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The service cost component of net periodic benefit (income) cost related to the employees of the operating segments are
allocated to the operating segments based on their respective estimated census data.
Pension Plan Assumptions
Certain actuarial assumptions, such as discount rate and long-term rate of return on plan assets, have a significant effect
on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts. We use a measurement date of
December 31 for our pension plans.
Weighted-Average Assumptions
Discount rate—periodic benefit
cost
Expected return on assets
Rate of compensation increase
Discount rate—benefit obligation
U.S. Pension Benefits
2017
2016
2018
Foreign Pension Benefits
2017
2016
2018
3.6% (1)
7.75%
3.0%
4.2%
4.1%
7.75%
3.0%
3.6%
4.4%
7.75%
3.0%
4.1%
2.2%
5.2%
2.9%
2.2%
2.3%
5.6%
3.0%
2.2%
2.7%
6.0%
3.0%
2.3%
(1) The discount rate—periodic benefit cost for our domestic qualified pension plan is comprised of the discount rate used to
determine interest costs of 3.2% and the discount rate used to determine service costs of 3.7%.
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon
bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of
AA or better per Standard & Poor’s, be non-callable, and have at least $250 million par outstanding. The yield curve is then
applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the
single rate that produces the same yield as the matching bond portfolio is used as the discount rate.
The long-term expected rate of return on plan assets represents an estimate of the long-term rate of returns on the
investment portfolio consisting of equities, fixed income and alternative investments. We use long-term historical actual return
information, the allocation mix of investments that comprise plan assets, and forecast estimates of long-term investment
returns, including inflation rates, by reference to external sources. The historic rates of return on plan assets have been 6.3%
for the last 5 years, 9.2% for the last 10 years and 8.8% for the last 15 years. The following rates of return by asset class were
considered in setting the long-term rate of return assumption:
U.S. equities
Non-U.S. equities
Fixed income/cash
Alternative investments
Absolute return strategies
Plan Assets
9%
6%
5%
5%
8%
to
to
to
to
to
13%
11%
9%
15%
12%
Our pension plan asset allocations at December 31, 2018 and 2017 by asset class were as follows:
Asset Class
U.S. equities
Non-U.S. equities
Fixed income/cash
Alternative investments
Absolute return strategies
Total
Percentage of Plan Assets
2018
2017
12%
15%
32%
24%
17%
100%
19%
17%
24%
21%
19%
100%
The Alternative Investments asset class includes hedge funds, real estate and private equity investments. The Alternative
Investments class is intended to help diversify risk and increase returns by utilizing a broader group of assets.
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Absolute Return Strategies further diversify the plan’s assets through the use of asset allocations that seek to provide a
targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be
undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.
A master trust was established by our pension plan to accumulate funds required to meet benefit payments of our plan
and is administered solely in the interest of our plan’s participants and their beneficiaries. The master trust’s investment
horizon is long term. Its assets are managed by professional investment managers or invested in professionally managed
investment vehicles.
Our pension plan maintains a portfolio of assets designed to achieve an appropriate risk adjusted return. The portfolio of
assets is also structured to manage risk by diversifying assets across asset classes whose return patterns are not highly
correlated, investing in passively and actively managed strategies and in value and growth styles, and by periodic rebalancing of
asset classes, strategies and investment styles to objectively set targets.
As of December 31, 2018, the following target allocation and ranges have been set for each asset class:
Asset Class
U.S. equities(1)
Non-U.S. equities(1)
Fixed income/cash(1)
Alternative investments
Absolute return strategies
Target Allocation Target Range
15-31
2-32
21-75
0-29
10-30
20%
16%
43%
4%
17%
(1) The target allocation for these asset classes include alternative investments, primarily hedge funds, based on the
underlying investments in each hedge fund.
Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table
summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2018:
Investments
Measured at Net
Asset Value
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
($ in millions)
Significant
Unobservable Inputs
(Level 3)
Total
$
111.5 $
255.8
136.6 $
44.5
Asset Class
Equity securities
U.S. equities
Non-U.S. equities
Fixed income/cash
Cash
Government treasuries
Corporate debt
instruments
Asset-backed securities
Alternative investments
Hedge fund of funds
Real estate funds
Private equity funds
Absolute return strategies
Total assets
$
—
0.7
83.7
153.6
440.8
22.3
7.6
347.5
1,423.5 $
55.7
—
—
—
—
—
—
—
236.8 $
81
— $
0.9
—
175.0
139.2
17.6
—
—
—
—
332.7 $
— $
—
—
—
—
—
—
—
—
—
— $
248.1
301.2
55.7
175.7
222.9
171.2
440.8
22.3
7.6
347.5
1,993.0
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The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of
December 31, 2017:
Asset Class
Equity securities
U.S. equities
Non-U.S. equities
Fixed income/cash
Investments
Measured at Net
Asset Value
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
($ in millions)
Significant
Unobservable Inputs
(Level 3)
$
230.7 $
321.9
203.7 $
55.6
Cash
Government treasuries
Corporate debt
instruments
Asset-backed securities
Alternative investments
Hedge fund of funds
Real estate funds
Private equity funds
Absolute return strategies
Total assets
$
—
0.7
80.9
104.3
430.7
21.8
11.5
418.3
1,620.8 $
41.9
—
—
—
—
—
—
—
301.2 $
— $
14.6
—
151.2
115.1
44.0
—
—
—
—
324.9 $
— $
—
—
—
—
—
—
—
—
—
— $
Total
434.4
392.1
41.9
151.9
196.0
148.3
430.7
21.8
11.5
418.3
2,246.9
U.S. equities—This class included actively and passively managed equity investments in common stock and commingled
funds comprised primarily of large-capitalization stocks with value, core and growth strategies.
Non-U.S. equities—This class included actively managed equity investments in commingled funds comprised primarily of
international large-capitalization stocks from both developed and emerging markets.
Fixed income and cash—This class included commingled funds comprised of debt instruments issued by the U.S. and
Canadian Treasuries, U.S. Agencies, corporate debt instruments, asset- and mortgage-backed securities and cash.
Hedge fund of funds—This class included a hedge fund which invests in the following types of hedge funds:
Event driven hedge funds—This class included hedge funds that invest in securities to capture excess returns that
are driven by market or specific company events including activist investment philosophies and the arbitrage of
equity and private and public debt securities.
Market neutral hedge funds—This class included investments in U.S. and international equities and fixed income
securities while maintaining a market neutral position in those markets.
Other hedge funds—This class primarily included long-short equity strategies and a global macro fund which
invested in fixed income, equity, currency, commodity and related derivative markets.
Real estate funds—This class included several funds that invest primarily in U.S. commercial real estate.
Private equity funds—This class included several private equity funds that invest primarily in infrastructure and U.S.
power generation and transmission assets.
Absolute return strategies—This class included multiple strategies which use asset allocations that seek to provide a
targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be
undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.
U.S. equities and non-U.S. equities are primarily valued at the net asset value provided by the independent administrator
or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on
an active market. U.S. equities are also valued at the closing price reported in an active market on which the individual
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securities are traded. A portion of our fixed income investments are valued at the net asset value provided by the independent
administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs
such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with
similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar
instruments, but includes adjustments for risks that may not be observable such as certain credit and liquidity risks. Alternative
investments are valued at the net asset value as determined by the independent administrator or custodian of the fund. The net
asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical
instruments, discounted future cash flows, independent appraisals and market-based comparable data. Absolute return
strategies are commingled funds which reflect the fair value of our ownership interest in these funds. The investments in these
commingled funds include some or all of the above asset classes and are primarily valued at net asset values based on the
underlying investments, which are valued consistent with the methodologies described above for each asset class.
NOTE 15. POSTRETIREMENT BENEFITS
We 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. We use a measurement date of December 31 for our postretirement plans.
Other Postretirement Benefits Obligations and Funded Status
Changes in the benefit obligation were as follows:
December 31, 2018
Foreign
U.S.
Total
U.S.
December 31, 2017
Foreign
Total
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Foreign currency translation adjustments
Benefit obligation at end of year
$
$
40.6 $
0.9
1.2
(2.0)
(3.2)
—
37.5 $
10.2 $
0.4
0.3
(0.1)
(0.4)
(0.9)
9.5 $
($ in millions)
50.8 $
1.3
1.5
(2.1)
(3.6)
(0.9)
47.0 $
43.6 $
0.8
1.2
(0.6)
(4.4)
—
40.6 $
8.6 $
0.3
0.3
1.0
(0.3)
0.3
10.2 $
52.2
1.1
1.5
0.4
(4.7)
0.3
50.8
Funded status
$
(37.5) $
(9.5) $
($ in millions)
(47.0) $
(40.6) $
(10.2) $
(50.8)
December 31, 2018
Foreign
U.S.
Total
U.S.
December 31, 2017
Foreign
Total
Under ASC 715, we recorded a $1.6 million after-tax benefit ($2.1 million pretax) to shareholders’ equity as of December
31, 2018 for our other postretirement plans. In 2017, we recorded an after-tax charge of $0.3 million ($0.4 million pretax) to
shareholders’ equity as of December 31, 2017 for our other postretirement plans.
Amounts recognized in the consolidated balance sheets consisted of:
December 31, 2018
Foreign
U.S.
Total
U.S.
($ in millions)
December 31, 2017
Foreign
Total
Accrued benefit in current
liabilities
Accrued benefit in noncurrent
liabilities
Accumulated other comprehensive
loss
Net balance sheet impact
$
$
(3.6) $
(0.3) $
(3.9) $
(4.0) $
(0.3) $
(4.3)
(33.9)
(9.2)
(43.1)
(36.6)
(9.9)
(46.5)
20.1
(17.4) $
1.0
(8.5) $
21.1
(25.9) $
24.7
(15.9) $
0.9
(9.3) $
25.6
(25.2)
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Table of Contents
Components of Net Periodic Benefit Cost
Service cost
Interest cost
Amortization of prior service cost
Recognized actuarial loss
Net periodic benefit cost
Included in Other Comprehensive Loss (Pretax)
Liability adjustment
Amortization of prior service costs and actuarial losses
2018
Years Ended December 31,
2017
($ in millions)
2016
1.3 $
1.5
—
2.4
5.2 $
1.1 $
1.5
(2.2)
2.1
2.5 $
(2.1) $
(2.4)
0.4 $
0.1
1.2
1.6
(2.6)
2.3
2.5
(5.1)
0.3
$
$
$
The service cost component of net periodic postretirement benefit cost related to the employees of the operating segments
are allocated to the operating segments based on their respective estimated census data.
Other Postretirement Benefits Plan Assumptions
Certain actuarial assumptions, such as discount rate, have a significant effect on the amounts reported for net periodic
benefit cost and accrued benefit obligation amounts.
Weighted-Average Assumptions
Discount rate—periodic benefit cost
Discount rate—benefit obligation
2018
3.5%
4.1%
December 31,
2017
3.8%
3.5%
2016
4.1%
3.8%
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon
bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of
AA or better per Standard & Poor’s, be non-callable, and have at least $250 million par outstanding. The yield curve is then
applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the
single rate that produces the same yield as the matching bond portfolio is used as the discount rate.
We review external data and our own internal trends for healthcare costs to determine the healthcare cost for the post
retirement benefit obligation. The assumed healthcare cost trend rates for pre-65 retirees were as follows:
Healthcare cost trend rate assumed for next year
Rate that the cost trend rate gradually declines to
Year that the rate reaches the ultimate rate
December 31,
2018
2017
7.5%
4.5%
2024
8.0%
4.5%
2024
For post-65 retirees, we provide a fixed dollar benefit, which is not subject to escalation.
We expect to make payments of approximately $4 million for each of the next five years under the provisions of our other
postretirement benefit plans.
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NOTE 16. INCOME TAXES
Components of Income (Loss) Before Taxes
Domestic
Foreign
Income (loss) before taxes
Components of Income Tax Provision (Benefit)
Current expense (benefit):
Federal
State
Foreign
Deferred expense (benefit):
Federal
State
Foreign
Income tax provision (benefit)
2018
Years ended December 31,
2017
($ in millions)
2016
$
$
$
$
288.0 $
149.3
437.3 $
21.7 $
5.1
48.0
74.8
27.0
(0.8)
8.4
34.6
109.4 $
53.3 $
63.9
117.2 $
(4.0) $
3.0
24.1
23.1
(549.6)
14.6
79.6
(455.4)
(432.3) $
(23.3)
(10.9)
(34.2)
(11.6)
0.9
15.7
5.0
(10.1)
(5.1)
(20.1)
(35.3)
(30.3)
The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the
statutory U.S. federal income tax rate to the income (loss) before taxes.
Effective Tax Rate Reconciliation (Percent)
Statutory federal tax rate
State income taxes, net
Foreign rate differential
U.S. tax on foreign earnings
Salt depletion
Change in valuation allowance
Remeasurement of U.S. state deferred taxes
Change in tax contingencies
U.S. Tax Cuts and Jobs Act
Share-based payments
Dividends paid to Contributing Employee Ownership Plan
Return to provision
U.S. Federal tax credits
Other, net
Effective tax rate
Years ended December 31,
2017
2016
2018
21.0 %
2.0
1.8
1.1
(2.4)
3.8
(0.6)
(0.7)
(0.8)
—
(0.1)
(0.1)
(0.4)
0.4
25.0 %
35.0 %
(1.2)
(7.7)
(70.8)
(16.1)
76.0
10.2
(7.7)
(373.5)
(5.7)
(0.6)
(0.6)
(4.2)
(2.0)
(368.9)%
35.0 %
8.0
(25.1)
24.4
45.4
(0.7)
9.4
(9.7)
—
—
2.8
5.3
0.6
(6.8)
88.6 %
The effective tax rate for 2018 included benefits associated with the 2017 Tax Act, stock-based compensation, changes in
tax contingencies, a foreign dividend payment, changes associated with prior year tax positions and the remeasurement of
deferred taxes due to a decrease in our state effective tax rates. The effective tax rate also included expenses associated with a
net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions and the remeasurement of deferred
taxes due to changes in our foreign tax rates. These factors resulted in a net $2.9 million tax benefit, of which $3.8 million
related to the increase of the 2017 Tax Act benefit. After giving consideration to these items, the effective tax rate for 2018 of
25.7% was higher than the 21% U.S. federal statutory rate primarily due to state and foreign income taxes, foreign income
inclusions and a net increase in the valuation allowance related to current year losses in foreign jurisdictions, partially offset by
favorable permanent salt depletion deductions.
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The effective tax rate for 2017 included benefits associated with the 2017 Tax Act, an agreement with the Internal
Revenue Service (IRS) on prior period tax examinations, stock based compensation, U.S. federal tax credits, changes to prior
year tax positions and a reduction to the deferred tax liability on unremitted foreign earnings. The effective tax rate also
included an expense associated with a net increase in the valuation allowance, primarily related to foreign net operating losses
and remeasurement of deferred taxes due to an increase in our state effective tax rates. These factors resulted in a net $452.3
million tax benefit, of which $437.9 million was a provisional benefit from the 2017 Tax Act. After giving consideration to
these items, the effective tax rate for 2017 of 17.1% was lower than the 35% U.S. federal statutory rate, primarily due to
favorable permanent salt depletion deductions.
The effective tax rate for 2016 included benefits associated with return to provision adjustments, primarily related to salt
depletion and non-deductible acquisition costs, and the remeasurement of deferred taxes due to a decrease in our state effective
tax rates. The effective tax rate also included an expense associated with a change in prior year uncertain tax positions. These
factors resulted in a net $3.9 million tax benefit. After giving consideration to these items, the effective tax rate for 2016 of
77.2% was higher than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in
combination with a pretax loss.
The 2017 Tax Act was enacted on December 22, 2017 and included a broad range of provisions impacting the taxation of
businesses. Included within the provisions, the 2017 Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%,
required companies to pay a one-time transition tax on unremitted earnings of foreign subsidiaries that were previously tax
deferred and transitioned the U.S. from a worldwide tax system to a modified territorial tax system.
The SEC Staff issued SAB 118, which provided guidance on accounting for the tax effects of the 2017 Tax Act. SAB
118 provided a measurement period of up to one year from the 2017 Tax Act’s enactment date for companies to complete the
accounting under ASC 740 “Income Taxes” (ASC 740). In accordance with SAB 118, to the extent that a company’s
accounting for certain income tax effects of the 2017 Tax Act was incomplete but it was able to determine a reasonable
estimate, it should have recorded a provisional estimate in the financial statements. If a company could not determine a
provisional estimate to be included in the financial statements, it should have continued to apply ASC 740 on the basis of the
provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.
At December 31, 2018, we have completed our accounting for the tax effects of the 2017 Tax Act and accounted for
updates to estimates of significant items including: (1) the effects on our existing deferred tax balances, (2) the remeasurement
of deferred taxes on foreign unremitted earnings and (3) the one-time transition tax.
In connection with our initial analysis of the 2017 Tax Act, we recognized a provisional deferred tax benefit of $437.9
million at December 31, 2017. This benefit included: (1) a provisional $315.8 million deferred tax benefit to reflect the
reduction of the U.S. corporate tax rate from 35% to 21% and (2) a provisional $122.1 million deferred tax benefit to reflect an
estimated reduction of $162.6 million in our deferred tax liability on unremitted foreign earnings partially offset by an estimate
of the one-time transition tax of $40.5 million. We utilized existing U.S. federal net operating loss carryforwards and foreign tax
credits to fully offset the cash tax impact of the one-time transition tax liability.
For the year ended December 31, 2018, we decreased the deferred tax benefit by $0.1 million as a result of additional
guidance issued by the IRS.
For the year ended December 31, 2018, we increased the deferred tax benefit by $3.9 million as a result of filing the 2017
U.S. and foreign tax returns.
A provision of the 2017 Tax Act established a minimum tax on certain foreign earnings (i.e. global intangible low-taxed
income or GILTI). We have completed our analysis of the GILTI tax rules and have made the accounting policy election to
treat the taxes due from GILTI as a period expense when incurred.
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Components of Deferred Tax Assets and Liabilities
Deferred tax assets:
Pension and postretirement benefits
Environmental reserves
Asset retirement obligations
Accrued liabilities
Tax credits
Net operating losses
Capital loss carryforward
Other miscellaneous items
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangible amortization
Inventory and prepaids
Partnerships
Taxes on unremitted earnings
Total deferred tax liabilities
Net deferred tax liability
December 31,
2018
2017
($ in millions)
156.8 $
31.9
15.5
37.0
19.5
50.2
2.0
23.9
336.8
(147.4)
189.4
541.8
61.6
8.3
65.2
5.1
682.0
(492.6) $
147.3
33.2
14.0
37.6
37.1
53.3
2.1
11.2
335.8
(121.4)
214.4
550.3
67.3
1.0
67.5
3.1
689.2
(474.8)
$
$
Realization of the net deferred tax assets, irrespective of indefinite-lived deferred tax liabilities, is dependent on future
reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary
differences and carryforwards. Although realization is not assured, we believe that it is more likely than not that the net
deferred tax assets will be realized.
At December 31, 2018, we had a U.S. net operating loss carryforward (NOL) of approximately $0.5 million (representing
$0.1 million of deferred tax assets) that will expire after 2019, if not utilized.
At December 31, 2018, we had deferred state tax benefits of $12.2 million relating to state NOLs, which are available to
offset future state taxable income through 2037.
At December 31, 2018, we had deferred state tax benefits of $18.1 million relating to state tax credits, which are available
to offset future state tax liabilities through 2033.
At December 31, 2018, we had a capital loss carryforward of $8.3 million (representing $2.0 million of deferred tax
assets) which is available to offset future consolidated capital gains that will expire in years 2019 through 2022, if not utilized.
At December 31, 2018, we had foreign tax credits of $5.0 million, which are available to offset certain federal tax
liabilities through 2028.
At December 31, 2018, we had NOLs of approximately $225.8 million (representing $38.0 million of deferred tax assets)
in various foreign jurisdictions. Of these, $44.8 million (representing $11.0 million of deferred tax assets) expire in various
years from 2020 to 2028. The remaining $181.0 million (representing $27.0 million of deferred tax assets) do not expire.
As of December 31, 2018, we had recorded a valuation allowance of $147.4 million, compared to $121.4 million as of
December 31, 2017. The increase of $26.0 million is primarily due to the recent history of cumulative losses within foreign
jurisdictions and projections of future taxable income insufficient to overcome the loss history. We continue to have net
deferred tax assets in several jurisdictions which we expect to realize, assuming sufficient taxable income can be generated to
utilize these deferred tax benefits, which is based on certain estimates and assumptions. If these estimates and related
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assumptions change in the future, we may be required to reduce the value of the deferred tax assets resulting in additional tax
expense.
The activity of our deferred income tax valuation allowance was as follows:
Beginning balance
Increases to valuation allowances
U.S. Tax Cuts and Jobs Act
Decreases to valuation allowances
Currency translation adjustment
Ending balance
December 31,
2018
2017
($ in millions)
121.4 $
31.9
—
(0.9)
(5.0)
147.4 $
29.0
94.5
2.2
(5.0)
0.7
121.4
$
$
As of December 31, 2018, we had $33.8 million of gross unrecognized tax benefits, which would have a net $33.0 million
impact on the effective tax rate, if recognized. As of December 31, 2017, we had $36.3 million of gross unrecognized tax
benefits, which would have a net $35.5 million impact on the effective tax rate, if recognized. The change for 2018 primarily
relates to additional gross unrecognized benefits for current and prior year tax positions, as well as decreases for prior year tax
positions. The change for 2017 primarily relates to additional gross unrecognized benefits for current and prior year tax
positions, as well as decreases for prior year tax positions. The amounts of unrecognized tax benefits were as follows:
Beginning balance
Increase for current year tax positions
Increase for prior year tax positions
Reductions due to statute of limitations
Decrease for prior year tax positions
Decrease due to tax settlements
Ending balance
December 31,
2018
2017
($ in millions)
36.3 $
2.1
0.3
—
(4.9)
—
33.8 $
38.4
2.9
5.4
(0.1)
(9.2)
(1.1)
36.3
$
$
In May 2017, we reached an agreement in principle with the IRS regarding their examination of our U.S. income tax
returns for 2008 and 2010 to 2012. The settlement resulted in a reduction of income tax expense of $9.5 million related
primarily to favorable adjustments in uncertain tax positions for prior tax years.
We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax
provision. As of December 31, 2018 and 2017, interest and penalties accrued were $1.6 million and $1.2 million,
respectively. For 2018, 2017 and 2016, we recorded expense (benefit) related to interest and penalties of $0.4 million, $(1.8)
million and $(0.4) million, respectively.
As of December 31, 2018, we believe it is reasonably possible that our total amount of unrecognized tax benefits will
decrease by approximately $7.2 million over the next twelve months. The anticipated reduction primarily relates to settlements
with tax authorities and the expiration of federal, state and foreign statutes of limitation.
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We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by
various federal, state and local tax authorities. None of our U.S. federal income tax returns are currently under examination by
the IRS. In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated
Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to taxes to the extent arising
prior to October 5, 2015. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing
authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to
examination are as follows:
U.S. federal income tax
U.S. state income tax
Canadian federal income tax
Brazil
Germany
China
The Netherlands
NOTE 17. ACCRUED LIABILITIES
Included in accrued liabilities were the following:
Accrued compensation and payroll taxes
Tax-related accruals
Accrued interest
Legal and professional costs
Accrued employee benefits
Environmental (current portion only)
Asset retirement obligation (current portion only)
Restructuring reserves (current portion only)
Other
Accrued liabilities
Tax Years
2013 - 2017
2006 - 2017
2012 - 2017
2014 - 2017
2015 - 2017
2014 - 2017
2014 - 2017
December 31,
2018
2017
($ in millions)
100.0 $
23.1
48.9
54.4
25.3
17.0
10.6
7.3
46.7
333.3 $
80.6
21.7
37.4
34.8
21.7
20.0
10.5
3.3
44.4
274.4
$
$
NOTE 18. 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 was $28.6
million, $29.0 million and $28.2 million for 2018, 2017 and 2016, respectively.
Company matching contributions are invested in the same investment allocation as the employee’s contribution. Our
matching contributions for eligible employees amounted to $14.9 million, $11.5 million and $11.2 million in 2018, 2017 and
2016, respectively.
Employees generally become vested in the value of the contributions we make to the CEOP according to a schedule
based on service. After two years of service, participants are 25% vested. They vest in increments of 25% for each additional
year and after five years of service, they are 100% vested in the value of the contributions that we have made to their
accounts.
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Employees may transfer any or all of the value of the investments, including Olin common stock, to any one or
combination of investments available in the CEOP. Employees may transfer balances daily and may elect to transfer any
percentage of the balance in the fund from which the transfer is made. However, when transferring out of a fund, employees
are prohibited from trading out of the fund to which the transfer was made for seven calendar days. This limitation does not
apply to trades into the money market fund or the Olin Common Stock Fund.
NOTE 19. STOCK-BASED COMPENSATION
Stock-based compensation expense was allocated to the operating segments for the portion related to employees whose
compensation would be included in cost of goods sold with the remainder recognized in corporate/other. There were no
significant capitalized stock-based compensation costs. Stock-based compensation granted includes stock options, performance
stock awards, restricted stock awards and deferred directors’ compensation. Stock-based compensation expense was as
follows:
Stock-based compensation
Mark-to-market adjustments
Total expense
Stock Plans
2018
Years ended December 31,
2017
($ in millions)
2016
$
$
19.3 $
(10.1)
9.2 $
18.7 $
4.5
23.2 $
11.2
3.0
14.2
Under the stock option and long-term incentive plans, options may be granted to purchase shares of our common stock at
an exercise price not less than fair market value at the date of grant, and are exercisable for a period not exceeding ten years
from that date. Stock options, restricted stock and performance shares typically vest over three years. We issue shares to
settle stock options, restricted stock and share-based performance awards. In 2018, 2017 and 2016, long-term incentive
awards included stock options, performance share awards and restricted stock. The stock option exercise price was set at the
fair market value of common stock on the date of the grant, and the options have a ten-year term.
Stock option transactions were as follows:
Exercisable
Outstanding at January 1, 2018
Granted
Exercised
Canceled
Outstanding at December 31, 2018
Shares
5,342,526 $13.14-31.90 $
Option Price
927,000
(204,064)
(201,246)
5,864,216 $13.14-32.94 $
32.94-32.94
13.14-29.75
13.14-32.94
Weighted-
Average
Option Price Options
Weighted-
Average
Exercise
Price
22.72
32.94
17.68
25.92
24.40
2,603,962 $
21.78
3,571,732 $
22.27
At December 31, 2018, the average exercise period for all outstanding and exercisable options was 79 months and 66
months, respectively. At December 31, 2018, the aggregate intrinsic value (the difference between the exercise price and
market value) for outstanding options was $9.5 million and exercisable options was $6.4 million. The total intrinsic value of
options exercised during the years ended December 31, 2018, 2017 and 2016 was $2.9 million, $26.5 million and $2.1 million,
respectively.
The total unrecognized compensation cost related to unvested stock options at December 31, 2018 was $9.8 million and
was expected to be recognized over a weighted-average period of 1.3 years.
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The following table provides certain information with respect to stock options exercisable at December 31, 2018:
Range of
Exercise Prices
Options
Exercisable
Weighted-
Average
Exercise Price
14.19
23.77
28.49
Weighted-
Average
Exercise Price
13.89
23.77
30.22
Options
Outstanding
1,579,848 $
1,290,236
2,994,132
5,864,216
1,129,630 $
1,290,236
1,151,866
3,571,732
Under $20.00
$20.00 - $26.00
Over $26.00
At December 31, 2018, common shares reserved for issuance and available for grant or purchase under the following
plans consisted of:
Stock Option Plans
2000 long term incentive plan
2003 long term incentive plan
2006 long term incentive plan
2009 long term incentive plan
2014 long term incentive plan
2016 long term incentive plan
2018 long term incentive plan
Total under stock option plans
Stock Purchase Plans
1997 stock plan for non-employee directors
Number of Shares
Reserved for
Issuance
44,130
215,584
278,270
1,873,421
2,098,802
2,326,334
9,263,665
16,100,206
Available for
Grant or
Purchase(1)
—
—
—
—
—
—
9,252,665
9,252,665
Number of Shares
Reserved for
Issuance
Available for
Grant or
Purchase
536,295
375,245
(1) All available to be issued as stock options, but includes a sub-limit for all types of stock awards of 1,989,000 shares.
Under the stock purchase plans, our non-employee directors may defer certain elements of their compensation into shares
of our common stock based on fair market value of the shares at the time of deferral. Non-employee directors annually
receive stock grants as a portion of their director compensation. Of the shares reserved under the stock purchase plans at
December 31, 2018, 161,049 shares were committed.
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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 granted prior to December 31, 2016 are based on Olin’s average annual return on capital over a
three-year performance cycle in relation to the average annual return on capital over the same period among a portfolio of
public companies which are selected in concert with outside compensation consultants. Payouts for performance share awards
granted during 2017 and 2018 are based on two criteria: (1) 50% of the award is based on Olin’s total shareholder returns over
the applicable three-year performance cycle in relation to the total shareholder return 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.
Performance share transactions were as follows:
Outstanding at January 1, 2018
Granted
Paid/Issued
Converted from shares to cash
Canceled
Outstanding at December 31, 2018
Total vested at December 31, 2018
To Settle in Cash
To Settle in Shares
Weighted-
Average Fair
Value per
Share
35.62
32.67
35.62
17.88
34.68
19.89
19.89
Shares
650,689 $
81,626
(77,262)
29,375
(14,125)
670,303 $
564,686 $
Weighted-
Average Fair
Value per
Share
19.81
33.03
27.40
17.88
26.51
21.58
18.95
Shares
480,200 $
88,500
(34,500)
(29,375)
(14,125)
490,700 $
385,083 $
The summary of the status of our unvested performance shares to be settled in cash were as follows:
Unvested at January 1, 2018
Granted
Vested
Canceled
Unvested at December 31, 2018
Weighted-
Average Fair
Value per
Share
35.62
32.67
19.89
34.68
19.89
Shares
202,017 $
81,626
(163,901)
(14,125)
105,617 $
At December 31, 2018, the liability recorded for performance shares to be settled in cash totaled $11.2 million. The total
unrecognized compensation cost related to unvested performance shares at December 31, 2018 was $5.4 million and was
expected to be recognized over a weighted-average period of 1.3 years.
NOTE 20. SHAREHOLDERS’ EQUITY
On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common
stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our
common stock. For the year ended December 31, 2018, 2.1 million shares were repurchased and retired at a cost of $50.0
million. As of December 31, 2018, $450.0 million of common stock remained authorized to be repurchased.
During 2018, 2017 and 2016, we issued 0.2 million, 1.7 million and 0.3 million shares, respectively, with a total value of
$3.4 million, $32.4 million and $4.1 million, respectively, representing stock options exercised.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt
securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” (ASU 2018-02) which amends ASC 220 “Income Statement—Reporting Comprehensive Income.”
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This update allows a reclassification from accumulated other comprehensive loss to retained earnings for the stranded tax
effects resulting from the 2017 Tax Act during each fiscal year or quarter in which the effect of the lower tax rate is recorded.
We adopted this update in March 2018 and reclassified $85.9 million related to the deferred gain resulting from the 2017 Tax
Act from accumulated other comprehensive loss to retained earnings.
The following table represents the activity included in accumulated other comprehensive loss:
Foreign
Currency
Translation
Adjustment (net
of taxes)
Unrealized
(Losses) Gains
on Derivative
Contracts (net of
taxes)
Pension and
Other
Postretirement
Benefits (net of
taxes)
Accumulated
Other
Comprehensive
Loss
Balance at January 1, 2016
Unrealized (losses) gains
Reclassification adjustments of losses into
$
income
Tax benefit (provision)
Net change
Balance at December 31, 2016
Unrealized gains (losses)
Reclassification adjustments of (gains) losses
into income
Tax (provision) benefit
Net change
Balance at December 31, 2017
Unrealized losses
Reclassification adjustments of (gains) losses
into income
Tax benefit (provision)
Net change
Income tax reclassification adjustment
Balance at December 31, 2018
$
(12.1) $
(22.4)
—
10.4
(12.0)
(24.1)
55.6
—
(23.9)
31.7
7.6
(22.2)
—
—
(22.2)
15.3
0.7 $
($ in millions)
(6.9) $
26.3
(473.5) $
(61.0)
5.8
(12.4)
19.7
12.8
1.9
(4.6)
1.0
(1.7)
11.1
(1.1)
(14.3)
3.7
(11.7)
2.4
1.8 $
20.4
15.4
(25.2)
(498.7)
(27.3)
26.9
(4.2)
(4.6)
(503.3)
(98.5)
37.0
14.9
(46.6)
(103.6)
(653.5) $
(492.5)
(57.1)
26.2
13.4
(17.5)
(510.0)
30.2
22.3
(27.1)
25.4
(484.6)
(121.8)
22.7
18.6
(80.5)
(85.9)
(651.0)
Net income (loss) and cost of goods sold included reclassification adjustments for realized gains and losses on derivative
contracts from accumulated other comprehensive loss.
Net income (loss) and non-operating pension income included the amortization of prior service costs and actuarial losses
from accumulated other comprehensive loss.
NOTE 21. SEGMENT INFORMATION
We define segment results as income (loss) before interest expense, interest income, other operating income (expense),
non-operating pension income and income taxes, and includes the operating results of non-consolidated affiliates. Consistent
with the guidance in ASC 280 “Segment Reporting,” we have determined it is appropriate to include the operating results of
non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products
and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for
purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the
Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for
all caustic soda generated and sold by Olin.
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Sales:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Total sales
Income (loss) before taxes:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Corporate/Other:
Environmental income (expense)
Other corporate and unallocated costs
Restructuring charges
Acquisition-related costs
Other operating income
Interest expense
Interest income
Non-operating pension income
Income (loss) before taxes
Earnings (losses) of non-consolidated affiliates:
Chlor Alkali Products and Vinyls
Depreciation and amortization expense:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Corporate/Other
Total depreciation and amortization expense
Capital spending:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Corporate/Other
Total capital spending
2018
Years ended December 31,
2017
($ in millions)
2016
3,986.7 $
2,303.1
656.3
6,946.1 $
3,500.8 $
2,086.4
681.2
6,268.4 $
2,999.3
1,822.0
729.3
5,550.6
637.1 $
52.8
38.4
103.7
(158.3)
(21.9)
(1.0)
6.4
(243.2)
1.6
21.7
437.3 $
405.8 $
(11.8)
72.4
(8.5)
(112.4)
(37.6)
(12.8)
3.3
(217.4)
1.8
34.4
117.2 $
224.9
15.4
120.9
(9.2)
(91.4)
(112.9)
(48.8)
10.6
(191.9)
3.4
44.8
(34.2)
(19.7) $
1.8 $
1.7
473.1 $
102.4
20.0
5.9
601.4 $
259.9 $
36.3
14.7
74.3
385.2 $
432.2 $
94.3
19.5
12.9
558.9 $
209.5 $
37.9
22.5
24.4
294.3 $
418.1
90.0
18.5
6.9
533.5
195.1
45.4
19.5
18.0
278.0
$
$
$
$
$
$
$
$
$
Segment assets include only those assets which are directly identifiable to an operating segment. Assets of the
corporate/other segment include primarily such items as cash and cash equivalents, deferred taxes and other assets.
Assets:
Chlor Alkali Products and Vinyls
Epoxy
Winchester
Corporate/Other
Total assets
Investments—affiliated companies (at equity):
Chlor Alkali Products and Vinyls
December 31,
2018
2017
($ in millions)
6,837.2 $
1,521.9
399.9
238.4
8,997.4 $
7,008.0
1,597.1
425.2
188.0
9,218.3
8.8 $
28.5
$
$
$
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Long-lived assets are attributed to geographic areas based on asset location and sales are attributed to geographic areas
based on customer location.
Long-lived assets:
United States
Foreign
Total long-lived assets
Sales:
United States
Europe
Other foreign
Total Sales
Sales:
United States
Europe
Other foreign
Total Sales
Sales:
United States
Europe
Other foreign
Total Sales
December 31,
2018
2017
($ in millions)
$
$
3,147.6 $
334.5
3,482.1 $
3,211.9
363.9
3,575.8
Year Ended
December 31, 2018
Epoxy
Winchester
Total
($ in millions)
742.7 $
991.1
569.3
2,303.1 $
Year Ended
December 31, 2017
591.0 $
11.0
54.3
656.3 $
3,944.4
1,183.9
1,817.8
6,946.1
Epoxy
Winchester
Total
($ in millions)
646.5 $
940.8
499.1
2,086.4 $
Year Ended
December 31, 2016
615.2 $
11.6
54.4
681.2 $
3,556.1
1,082.5
1,629.8
6,268.4
Chlor Alkali Products
and Vinyls
$
$
2,610.7 $
181.8
1,194.2
3,986.7 $
Chlor Alkali Products
and Vinyls
$
$
2,294.4 $
130.1
1,076.3
3,500.8 $
Chlor Alkali Products
and Vinyls
$
$
2,161.3 $
121.3
716.7
2,999.3 $
Epoxy
Winchester
Total
($ in millions)
532.4 $
787.6
502.0
1,822.0 $
661.5 $
15.0
52.8
729.3 $
3,355.2
923.9
1,271.5
5,550.6
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Sales:
Chlor Alkali Products and Vinyls
Caustic soda
Chlorine, chlorine derivatives and other co-products
Total Chlor Alkali Products and Vinyls
Epoxy
Aromatics and allylics
Epoxy resins
Total Epoxy
Winchester
Commercial
Military and law enforcement
Total Winchester
Total Sales
NOTE 22. ENVIRONMENTAL
2018
Years ended December 31,
2017
($ in millions)
2016
$
2,198.6 $
1,788.1
3,986.7
1,904.3 $
1,596.5
3,500.8
1,479.3
1,520.0
2,999.3
1,145.7
1,157.4
2,303.1
1,051.1
1,035.3
2,086.4
427.6
228.7
656.3
6,946.1 $
471.0
210.2
681.2
6,268.4 $
$
844.4
977.6
1,822.0
559.7
169.6
729.3
5,550.6
As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling,
generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes in all of the countries in which we do business.
The establishment and implementation of national, state or provincial and local standards to regulate air, water and land
quality affect substantially all of our manufacturing locations around the world. Laws providing for regulation of the
manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites, have
imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of
environmental laws has required and will continue to require new capital expenditures and will increase plant operating
costs. We employ waste minimization and pollution prevention programs at our manufacturing sites.
In connection with the October 5, 2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated
Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to releases of hazardous
materials and violations of environmental law to the extent arising prior to October 5, 2015.
We are party to various government and private environmental actions associated with past manufacturing facilities and
former waste disposal sites. Associated costs of investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to
estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With
respect to unasserted claims, we accrue liabilities for costs that, in our experience, we expect to incur to protect our interests
against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $8.6 million at December 31,
2018. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action
and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with
the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not
exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M.
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Our liabilities for future environmental expenditures were as follows:
Beginning balance
Charges to income
Remedial and investigatory spending
Foreign currency translation adjustments
Ending balance
December 31,
2018
2017
($ in millions)
131.6 $
7.3
(13.0)
(0.3)
125.6 $
137.3
10.3
(16.5)
0.5
131.6
$
$
At December 31, 2018 and 2017, our consolidated balance sheets included environmental liabilities of $108.6 million and
$111.6 million, respectively, which were classified as other noncurrent liabilities. Our environmental liability amounts do not
take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in
technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or
remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to
income may be made for additional liabilities. Of the $125.6 million included on our consolidated balance sheet at December
31, 2018 for future environmental expenditures, we currently expect to utilize $68.9 million of the reserve for future
environmental expenditures over the next 5 years, $14.1 million for expenditures 6 to 10 years in the future, and $42.6 million
for expenditures beyond 10 years in the future.
Our total estimated environmental liability at December 31, 2018 was attributable to 60 sites, 14 of which were United
States Environmental Protection Agency National Priority List sites. Nine sites accounted for 79% of our environmental liability
and, of the remaining 51 sites, no one site accounted for more than 3% of our environmental liability. At three of the nine sites,
part of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At two of the nine sites,
a remedial action plan is being developed for part of the site and another part a remedial design is being developed. At one of
the nine sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At
one of the nine sites, a remedial action plan is being developed for part of the site and another part is in the long-term OM&M
stage. The two remaining sites are in long-term OM&M. All nine sites are either associated with past manufacturing
operations or former waste disposal sites. None of the nine largest sites represents more than 22% of the liabilities reserved on
our consolidated balance sheet at December 31, 2018 for future environmental expenditures.
Environmental provisions (credited) charged to income, which are included in cost of goods sold, were as follows:
Provisions charged to income
Insurance recoveries for costs incurred and expensed
Environmental (income) expense
2018
Years ended December 31,
2017
($ in millions)
2016
$
$
7.3 $
(111.0)
(103.7) $
10.3 $
(1.8)
8.5 $
9.2
—
9.2
During 2018, we settled certain disputes with respect to insurance coverage for costs at various environmental
remediation sites for $121.0 million. Environmental (income) expense for the year ended December 31, 2018 include insurance
recoveries for environmental costs incurred and expensed in prior periods of $111.0 million. The recoveries are reduced by
estimated liabilities of $10.0 million associated with claims by subsequent owners of certain of the settled environmental sites.
These charges relate primarily to remedial and investigatory activities associated with past manufacturing operations and
former waste disposal sites and may be material to operating results in future years.
Annual environmental-related cash outlays for site investigation and remediation are expected to range between
approximately $15 million to $25 million over the next several years, which are expected to be charged against reserves
recorded on our consolidated balance sheet. While we do not anticipate a material increase in the projected annual level of our
environmental-related cash outlays for site investigation and remediation, there is always the possibility that such an increase
may occur in the future in view of the uncertainties associated with environmental exposures. Environmental exposures are
difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from
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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. At December 31, 2018, we estimate that it is reasonably possible that we may have additional
contingent environmental liabilities of $60 million in addition to the amounts for which we have already recorded as a reserve.
NOTE 23. COMMITMENTS AND CONTINGENCIES
The following table summarizes our contractual commitments under non-cancelable operating leases and purchase
contracts as of December 31, 2018:
2019
2020
2021
2022
2023
Thereafter
Total commitments
Operating
Leases
Purchase
Commitments
($ in millions)
82.2 $
61.4
44.2
31.8
23.2
102.6
345.4 $
678.5
642.5
727.7
725.0
725.0
4,424.9
7,923.6
$
$
Our operating lease commitments are primarily for railroad cars, but also include logistics, manufacturing, office and
storage facilities and equipment, information technology equipment and land. Virtually none of our lease agreements contain
escalation clauses or step rent provisions. Total rent expense charged to operations amounted to $122.4 million, $118.5 million
and $95.5 million in 2018, 2017 and 2016, respectively (sublease income is not significant). The above purchase commitments
include raw material, capital expenditure and utility purchasing commitments utilized in our normal course of business for our
projected needs. In connection with the Acquisition, certain additional agreements have been entered into with DowDuPont,
including, long-term purchase agreements for raw materials. These agreements are maintained through long-term cost based
contracts that provide us with a reliable supply of key raw materials. Key raw materials received from DowDuPont include
ethylene, electricity, propylene and benzene. On February 27, 2017, we exercised the remaining option to obtain additional
future ethylene at producer economics from DowDuPont. In connection with the exercise of this option, we also secured a
long-term customer arrangement. As a result, an additional payment will be made to DowDuPont of between $440 million and
$465 million on or about the fourth quarter of 2020.
We are party to a dispute relating to a contract at our Plaquemine, LA facility. The other party to the contract has filed a
demand for arbitration alleging, among other things, that Olin breached the related agreement and claiming damages in excess
of the amount Olin believes it is obligated to pay under the contract. The arbitration hearing is scheduled for the fourth quarter
2019. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact
and law but, if resolved unfavorably to Olin, they could have a material adverse effect on our financial position, cash flows or
results of operations.
We, and our subsidiaries, are defendants in various other legal actions (including proceedings based on alleged exposures
to asbestos) incidental to our past and current business activities. At December 31, 2018 and 2017, our consolidated balance
sheets included liabilities for these legal actions of $15.6 million and $24.8 million, respectively. These liabilities do not include
costs associated with legal representation and do not include $8.0 million of insurance recoveries included in receivables, net
within the accompanying consolidated balance sheet as of December 31, 2017. Based on our analysis, and considering the
inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will
materially and adversely affect our financial position, cash flows or results of operations. In connection with the October 5,
2015 acquisition of DowDuPont’s U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses, the
prior owner of the businesses retained liabilities related to litigation to the extent arising prior to October 5, 2015.
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
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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.
For the year ended December 31, 2018, we recognized an insurance recovery of $8.0 million in other operating income
for a second quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility. For the year ended
December 31, 2016, we recognized an insurance recovery of $11.0 million in other operating income for property damage and
business interruption related to a 2008 chlor alkali facility incident.
NOTE 24. 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 requires an entity to recognize all derivatives as either assets or liabilities in the consolidated 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 to offset our net exposures,
by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At December 31,
2018, we had outstanding forward contracts to buy foreign currency with a notional value of $123.7 million and to sell foreign
currency with a notional value of $82.6 million. All of the currency derivatives expire within one year and are for 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, 2017, we had outstanding forward contracts to buy foreign currency with a notional value of $135.5 million and to sell
foreign currency with a notional value of $97.7 million.
Cash Flow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative
is recognized as a component of other comprehensive income (loss) until the hedged item is recognized into earnings. Gains
and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We had the following notional amounts of outstanding commodity contracts that were entered into to hedge forecasted
purchases:
Natural gas
Other commodities
Total notional
December 31,
2018
2017
($ in millions)
58.4 $
58.1
116.5 $
39.2
53.6
92.8
$
$
As of December 31, 2018, the counterparties to these commodity contracts were Wells Fargo, Citibank and JPMorgan
Chase Bank, National Association, all of which are major financial institutions.
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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 December 31, 2018, we had open derivative
contract positions through 2022. If all open futures contracts had been settled on December 31, 2018, we would have
recognized a pretax loss of $2.6 million.
If commodity prices were to remain at December 31, 2018 levels, approximately $2.3 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.
We use interest rate swaps as a means of minimizing cash flow fluctuations that may arise from volatility in interest rates
of our variable-rate borrowings. In April 2016, we entered into three tranches of forward starting interest rate swaps whereby
we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million and
$400.0 million of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on
December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are
SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association, and Toronto-Dominion Bank. These
counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty
could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the
risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the remaining swap agreement
has been recorded at its fair market value of $5.3 million and is included in other current assets on the accompanying
consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. For the years
ended December 31, 2018 and 2017, $8.9 million and $3.1 million, respectively, of income was recorded to interest expense
on the accompanying consolidated statements of operations related to these swap agreements.
At December 31, 2018, we had open interest rate swaps designated as cash flow hedges with maximum terms through
2019. If all open interest rate swap contracts had been settled on December 31, 2018, we would have recognized a pretax gain
of $5.3 million.
If interest rates were to remain at December 31, 2018 levels, $5.3 million of deferred gains would be reclassified into
earnings during the next twelve months. The actual effect on earnings will be dependent on actual interest rates when the
forecasted transactions occur.
Fair Value Hedges
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. As of both December 31, 2018 and 2017, the total notional amounts of our interest rate
swaps designated as fair value hedges were $500.0 million.
In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby
we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements
are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt
obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties
to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of
changes in the value of fixed-rate debt due to changes in interest rates for a portion of our fixed-rate borrowings. Accordingly,
the swap agreements have been recorded at their fair market value of $33.7 million and are included in other long-term
liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related
debt. For the year ended December 31, 2018, $2.1 million of expense has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements. For the years ended December 31,
2017 and 2016, $2.9 million and $2.6 million, respectively, of income has been recorded to interest expense on the
accompanying consolidated statements of operations related to these swap agreements.
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Financial Statement Impacts
We present our derivative assets and liabilities in our consolidated balance sheets on a net basis whenever we have a
legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to
manage and substantially reduce our potential counterparty credit risk.
The following table summarizes the location and fair value of the derivative instruments on our consolidated balance
sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis
before giving effect to master netting arrangements:
Asset Derivatives:
Other current assets
Derivatives designated as hedging instruments:
Interest rate contracts - gains
Commodity contracts - gains
Commodity contracts - losses
Derivatives not designated as hedging instruments:
Foreign exchange contracts - gains
Foreign exchange contracts - losses
Total other current assets
Other assets
Derivatives designated as hedging instruments:
Interest rate contracts - gains
Commodity contracts - gains
Commodity contracts - losses
Total other assets
Total Asset Derivatives(1)
Liability Derivatives:
Accrued liabilities
Derivatives designated as hedging instruments:
Commodity contracts - losses
Commodity contracts - gains
Derivatives not designated as hedging instruments:
Foreign exchange contracts - losses
Foreign exchange contracts - gains
Total accrued liabilities
Other liabilities
Derivatives designated as hedging instruments:
Interest rate contracts - losses
Commodity contract - losses
Commodity contract - gains
Total other liabilities
Total Liability Derivatives(1)
December 31,
2018
2017
($ in millions)
$
$
$
$
5.3 $
—
—
0.9
(0.5)
5.7
—
0.9
(0.2)
0.7
6.4 $
4.9 $
(1.9)
0.6
(0.1)
3.5
33.7
0.5
(0.1)
34.1
37.6 $
6.9
11.4
(0.1)
2.0
(1.0)
19.2
3.6
—
—
3.6
22.8
3.8
—
—
—
3.8
28.1
—
—
28.1
31.9
(1) Does not include the impact of cash collateral received from or provided to counterparties.
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The following table summarizes the effects of derivative instruments on our consolidated statements of operations:
Location of (Loss) Gain
2018
Derivatives – Cash Flow Hedges
Recognized in other comprehensive loss:
Commodity contracts
Interest rate contracts
———
———
Reclassified from accumulated other comprehensive loss into income:
Interest rate contracts
Commodity contracts
Interest expense
Cost of goods sold
Derivatives – Fair Value Hedges
Interest rate contracts
Derivatives Not Designated as Hedging Instruments
Interest expense
Amount of (Loss) Gain
Years Ended December 31,
2017
($ in millions)
2016
$
$
$
$
$
(4.8) $
3.7
(1.1) $
8.9 $
5.4
14.3 $
(2.1) $
4.0
1.9 $
3.1 $
1.5
4.6 $
16.7
9.6
26.3
—
(5.8)
(5.8)
(2.1) $
3.0 $
3.7
Commodity contracts
Foreign exchange contracts
Credit Risk and Collateral
Cost of goods sold
Selling and administration
$
$
— $
(5.4)
(5.4) $
— $
1.8
1.8 $
(0.4)
(11.1)
(11.5)
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 December 31, 2018 and 2017, 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.
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NOTE 25. FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and liabilities. We are required to separately disclose
assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring
basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed
for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have
occurred. Determining which hierarchical level an asset or liability falls within requires significant judgment. The following
table summarizes the assets and liabilities measured at fair value in the consolidated balance sheets:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
($ in millions)
$
$
$
$
$
$
$
$
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $
—
— $
5.3 $
0.7
0.4
6.4 $
33.7 $
3.4
0.5
37.6 $
10.5 $
11.3
1.0
22.8 $
28.1 $
3.8
31.9 $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $
—
— $
5.3
0.7
0.4
6.4
33.7
3.4
0.5
37.6
10.5
11.3
1.0
22.8
28.1
3.8
31.9
Balance at December 31, 2018
Assets
Interest rate swaps
Commodity contracts
Foreign exchange contracts
Total Assets
Liabilities
Interest rate swaps
Commodity contracts
Foreign exchange contracts
Total Liabilities
Balance at December 31, 2017
Assets
Interest rate swaps
Commodity contracts
Foreign exchange contracts
Total Assets
Liabilities
Interest rate swaps
Commodity contracts
Total Liabilities
Interest Rate Swaps
Interest rate swap financial instruments were valued using the “income approach” valuation technique. This method used
valuation techniques to convert future amounts to a single present amount. The measurement was based on the value indicated
by current market expectations about those future amounts. We use interest rate swaps as a means of managing interest
expense and floating interest rate exposure to optimal levels.
Commodity 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.
103
Table of Contents
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. The fair value of our long-term debt was determined based on current market
rates for debt of similar risk and maturities. The following table summarizes the fair value measurements of debt and the actual
debt recorded on our balance sheets:
Fair Value Measurements
Level 1 Level 2 Level 3 Total
($ in millions)
Amount recorded
on balance sheets
Balance at December 31, 2018
Balance at December 31, 2017
$
— $3,137.2 $ 153.0 $3,290.2 $
— 3,758.0
153.0 3,911.0
3,230.3
3,612.0
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair
value on a nonrecurring basis as required by ASC 820. There were no assets measured at fair value on a nonrecurring basis as
of December 31, 2018 and 2017.
NOTE 26. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In October 2015, Blue Cube Spinco LLC (the Issuer) issued $720.0 million aggregate principal amount of 9.75% senior
notes due October 15, 2023 and $500.0 million aggregate principal amount 10.00% senior notes due October 15, 2025
(collectively, the Notes). During 2016, the Notes were registered under the Securities Act of 1933, as amended. The Issuer was
formed on March 13, 2015 as a wholly owned subsidiary of DowDuPont and upon closing of the Acquisition became a 100%
owned subsidiary of Olin (the Parent Guarantor). The Notes are fully and unconditionally guaranteed by the Parent Guarantor.
The following condensed consolidating financial information presents the condensed consolidating balance sheets as of
December 31, 2018 and 2017, and the related condensed consolidating statements of operations, comprehensive income (loss)
and cash flows for each of the years in the three-year period ended December 31, 2018 of (a) the Parent Guarantor, (b) the
Issuer, (c) the non-guarantor subsidiaries, (d) elimination entries necessary to consolidate the Parent Guarantor with the Issuer
and the non-guarantor subsidiaries and (e) Olin on a consolidated basis. Investments in consolidated subsidiaries are presented
under the equity method of accounting.
104
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2018
(In millions)
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
$
$
$
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Intercompany receivables
Income taxes receivable
Inventories, net
Other current assets
Total current assets
Property, plant and equipment, net
Investment in subsidiaries
Deferred income taxes
Other assets
Long-term receivables—affiliates
Intangible assets, net
Goodwill
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt
Accounts payable
Intercompany payables
Income taxes payable
Accrued liabilities
Total current liabilities
Long-term debt
Accrued pension liability
Deferred income taxes
Long-term payables—affiliates
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
— $
—
—
—
—
—
—
—
4,286.9
—
—
1,247.2
—
966.3
6,500.4 $
— $
—
—
—
—
—
1,746.9
—
6.0
—
5.5
1,758.4
—
4,125.7
—
616.3
4,742.0
6,500.4 $
92.0 $
99.7
—
2.6
161.4
220.2
575.9
651.4
6,943.3
7.3
24.3
—
0.3
—
8,202.5 $
0.9 $
90.1
2,558.2
3.9
150.3
2,803.4
1,357.5
439.1
—
469.6
300.7
5,370.3
165.3
2,247.4
(651.0)
1,070.5
2,832.2
8,202.5 $
105
86.8 $
676.6
2,558.2
3.3
550.0
1.8
3,876.7
2,830.7
—
27.4
1,126.1
—
511.3
1,153.3
9,525.5 $
125.0 $
549.4
—
18.7
367.5
1,060.6
—
235.2
521.3
777.6
443.1
3,037.8
— $
—
(2,558.2)
—
—
(187.0)
(2,745.2)
—
(11,230.2)
(8.4)
—
(1,247.2)
—
—
(15,231.0) $
— $
(3.0)
(2,558.2)
—
(184.5)
(2,745.7)
—
—
(8.4)
(1,247.2)
—
(4,001.3)
178.8
776.3
—
5.9
711.4
35.0
1,707.4
3,482.1
—
26.3
1,150.4
—
511.6
2,119.6
8,997.4
125.9
636.5
—
22.6
333.3
1,118.3
3,104.4
674.3
518.9
—
749.3
6,165.2
14.6
4,808.2
(6.9)
1,671.8
6,487.7
9,525.5 $
(14.6)
(8,933.9)
6.9
(2,288.1)
(11,229.7)
(15,231.0) $
165.3
2,247.4
(651.0)
1,070.5
2,832.2
8,997.4
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2017
(In millions)
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
$
$
$
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Intercompany receivables
Income taxes receivable
Inventories, net
Other current assets
Total current assets
Property, plant and equipment, net
Investment in subsidiaries
Deferred income taxes
Other assets
Long-term receivables—affiliates
Intangible assets, net
Goodwill
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt
Accounts payable
Intercompany payables
Income taxes payable
Accrued liabilities
Total current liabilities
Long-term debt
Accrued pension liability
Deferred income taxes
Long-term payables—affiliates
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
161.3 $
637.6
2,093.2
6.3
527.2
5.3
3,430.9
3,031.4
—
34.5
1,162.5
—
578.2
1,153.7
9,391.2 $
— $
—
(2,093.2)
(1.1)
—
(163.4)
(2,257.7)
—
(10,772.7)
(36.2)
—
(2,137.8)
—
—
(15,204.4) $
— $
— $
590.0
—
10.5
318.1
918.6
249.7
229.2
544.4
887.8
455.8
3,285.5
(3.4)
(2,093.2)
(1.1)
(161.4)
(2,259.1)
—
—
(36.2)
(2,137.8)
—
(4,433.1)
218.4
733.2
—
16.9
682.6
48.1
1,699.2
3,575.8
—
36.4
1,208.4
—
578.5
2,120.0
9,218.3
0.7
669.8
—
9.4
274.4
954.3
3,611.3
635.9
511.2
—
751.9
6,464.6
14.6
4,808.2
(4.6)
1,287.5
6,105.7
9,391.2 $
(14.6)
(8,933.9)
4.6
(1,827.4)
(10,771.3)
(15,204.4) $
167.1
2,280.9
(484.6)
790.3
2,753.7
9,218.3
— $
—
—
—
—
—
—
—
4,092.3
—
—
2,137.8
—
966.3
7,196.4 $
— $
—
—
—
—
—
2,522.2
—
3.0
—
5.6
2,530.8
—
4,125.7
—
539.9
4,665.6
7,196.4 $
57.1 $
95.6
—
11.7
155.4
206.2
526.0
544.4
6,680.4
38.1
45.9
—
0.3
—
7,835.1 $
0.7 $
83.2
2,093.2
—
117.7
2,294.8
839.4
406.7
—
1,250.0
290.5
5,081.4
167.1
2,280.9
(484.6)
790.3
2,753.7
7,835.1 $
106
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2018
(In millions)
Sales
Operating expenses:
Cost of goods sold
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating (loss) income
Operating income
Losses of non-consolidated affiliates
Equity income in subsidiaries
Interest expense
Interest income
Non-operating pension income (expense)
Income before taxes
Income tax (benefit) provision
Net income
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
$
1,423.8 $
— $
5,937.0 $
(414.7) $
1,153.1
206.0
—
1.0
(3.0)
60.7
(19.7)
310.7
68.6
5.8
26.6
315.5
(12.4)
327.9 $
$
—
—
—
—
—
—
—
289.6
153.3
—
—
136.3
(35.1)
171.4 $
5,083.7
224.6
21.9
—
9.4
616.2
—
—
26.9
1.4
(4.9)
585.8
156.9
428.9 $
(414.7)
—
—
—
—
—
—
(600.3)
(5.6)
(5.6)
—
(600.3)
—
(600.3) $
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2017
(In millions)
Sales
Operating expenses:
Cost of goods sold
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating (loss) income
Operating (loss) income
Earnings of non-consolidated affiliates
Equity income in subsidiaries
Interest expense
Interest income
Non-operating pension income (expense)
Income before taxes
Income tax provision (benefit)
Net income
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
$
1,330.3 $
— $
5,344.9 $
(406.8) $
—
—
—
—
—
—
—
357.6
165.8
—
—
191.8
(310.0)
501.8 $
4,766.2
212.8
35.9
—
14.4
344.4
—
—
13.0
1.4
(4.1)
328.7
(165.5)
494.2 $
(406.8)
—
—
—
—
—
—
(996.0)
(5.9)
(5.9)
—
(996.0)
—
(996.0) $
1,195.5
157.0
1.7
12.8
(11.1)
(47.8)
1.8
638.4
44.5
6.3
38.5
592.7
43.2
549.5 $
107
$
Total
6,946.1
5,822.1
430.6
21.9
1.0
6.4
676.9
(19.7)
—
243.2
1.6
21.7
437.3
109.4
327.9
Total
6,268.4
5,554.9
369.8
37.6
12.8
3.3
296.6
1.8
—
217.4
1.8
34.4
117.2
(432.3)
549.5
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2016
(In millions)
Sales
Operating expenses:
Cost of goods sold
Selling and administration
Restructuring charges
Acquisition-related costs
Other operating (loss) income
Operating (loss) income
Earnings of non-consolidated affiliates
Equity income in subsidiaries
Interest expense
Interest income
Non-operating pension income (expense)
Income (loss) before taxes
Income tax (benefit) provision
Net (loss) income
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
$
1,321.3 $
— $
4,720.2 $
(490.9) $
1,153.0
162.1
0.8
47.4
(2.2)
(44.2)
1.7
16.2
38.8
4.7
48.3
(12.1)
(8.2)
(3.9) $
$
—
—
—
—
—
—
—
139.0
153.9
—
—
(14.9)
(57.6)
42.7 $
4,282.4
185.1
112.1
1.4
12.8
152.0
—
—
4.7
4.2
(3.5)
148.0
35.5
112.5 $
(490.9)
—
—
—
—
—
—
(155.2)
(5.5)
(5.5)
—
(155.2)
—
(155.2) $
Total
5,550.6
4,944.5
347.2
112.9
48.8
10.6
107.8
1.7
—
191.9
3.4
44.8
(34.2)
(30.3)
(3.9)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2018
(In millions)
Net income
Other comprehensive loss, net of tax:
Foreign currency translation adjustments,
net
Unrealized losses on derivative contracts,
net
Pension and postretirement liability
adjustments, net
Amortization of prior service costs and
actuarial losses, net
Total other comprehensive loss, net of
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
$
327.9 $
171.4 $
428.9 $
(600.3) $
327.9
—
(11.7)
(69.6)
26.3
—
—
—
—
(22.2)
—
(5.3)
2.0
—
—
—
—
(22.2)
(11.7)
(74.9)
28.3
(80.5)
247.4
tax
Comprehensive income
(55.0)
272.9 $
—
171.4 $
(25.5)
403.4 $
—
(600.3) $
$
108
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2017
(In millions)
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
$
549.5 $
501.8 $
494.2 $
(996.0) $
549.5
Net income
Other comprehensive income, net of tax:
Foreign currency translation adjustments,
net
Unrealized losses on derivative contracts,
net
Pension and postretirement liability
adjustments, net
Amortization of prior service costs and
actuarial losses, net
Total other comprehensive income, net
—
(1.7)
(12.3)
15.3
—
—
—
—
31.7
—
(9.3)
1.7
—
—
—
—
31.7
(1.7)
(21.6)
17.0
25.4
574.9
of tax
Comprehensive income
1.3
550.8 $
—
501.8 $
24.1
518.3 $
—
(996.0) $
$
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2016
(In millions)
Net (loss) income
Other comprehensive income (loss), net of
tax:
$
Foreign currency translation adjustments,
net
Unrealized gains on derivative contracts,
net
Pension and postretirement liability
adjustments, net
Amortization of prior service costs and
actuarial losses, net
Total other comprehensive income
(loss), net of tax
Comprehensive income (loss)
$
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
(3.9) $
42.7 $
112.5 $
(155.2) $
(3.9)
—
19.7
(25.3)
10.9
—
—
—
—
(12.0)
—
(12.2)
1.4
—
—
—
—
5.3
1.4 $
—
42.7 $
(22.8)
89.7 $
—
(155.2) $
(12.0)
19.7
(37.5)
12.3
(17.5)
(21.4)
109
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2018
(In millions)
Net operating activities
$
529.8 $
— $
378.0 $
— $
907.8
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
Investing Activities
Capital expenditures
Proceeds from disposition of property,
plant and equipment
Distributions from consolidated
subsidiaries, net
Net investing activities
Financing Activities
Long-term debt:
Borrowings
Repayments
Common stock repurchased and retired
Stock options exercised
Dividends paid
Debt issuance costs
Intercompany financing activities
Net financing activities
Effect of exchange rate changes on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
(149.8)
—
95.0
(54.8)
550.0
(21.0)
(50.0)
3.4
(133.6)
(8.5)
(780.4)
(440.1)
—
34.9
57.1
92.0 $
—
—
95.0
95.0
—
(780.4)
—
—
(95.0)
—
780.4
(95.0)
—
—
—
— $
110
(235.4)
2.9
—
(232.5)
20.0
(144.7)
—
—
(95.0)
—
—
(219.7)
(0.3)
(74.5)
161.3
86.8 $
—
—
(190.0)
(190.0)
—
—
—
—
190.0
—
—
190.0
—
—
—
— $
(385.2)
2.9
—
(382.3)
570.0
(946.1)
(50.0)
3.4
(133.6)
(8.5)
—
(564.8)
(0.3)
(39.6)
218.4
178.8
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2017
(In millions)
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
Net operating activities
$
472.0 $
— $
176.8 $
— $
648.8
Investing Activities
Capital expenditures
Payments under long-term supply
contracts
Proceeds from disposition of property,
plant and equipment
Distribution from consolidated
subsidiaries, net
Net investing activities
Financing Activities
Long-term debt:
Borrowings
Repayments
Stock options exercised
Dividends paid
Debt issuance costs
Intercompany financing activities
Net financing activities
Effect of exchange rate changes on
cash and cash equivalents
Net increase in cash and cash
equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year $
(89.1)
—
—
2.7
(86.4)
620.0
(690.8)
29.8
(133.0)
(8.3)
(171.4)
(353.7)
—
31.9
25.2
57.1 $
—
—
—
—
—
(205.2)
(209.4)
—
(294.3)
—
(209.4)
5.2
—
5.2
—
(409.4)
(2.7)
(2.7)
—
(498.5)
40.5
(13.0)
—
(2.7)
—
209.4
234.2
0.4
2.0
—
—
—
2.7
—
—
2.7
—
—
159.3
161.3 $
—
— $
2,035.5
(2,037.9)
29.8
(133.0)
(11.2)
—
(116.8)
0.4
33.9
184.5
218.4
1,375.0
(1,334.1)
—
—
(2.9)
(38.0)
—
—
—
—
— $
111
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2016
(In millions)
Parent
Guarantor
Issuer
Subsidiary
Non-
Guarantor
Eliminations
Total
$
702.6 $
— $
(99.4) $
— $
603.2
Net operating activities
Investing Activities
Capital expenditures
Business acquired and related
transactions, net of cash acquired
Payments under long-term supply
contracts
Proceeds from sale/leaseback of
equipment
Proceeds from disposition of property,
plant and equipment
Proceeds from disposition of affiliated
companies
Net investing activities
Financing Activities
Long-term debt:
Borrowings
Repayments
Stock options exercised
Excess tax benefits from stock-based
compensation
Dividends paid
Debt issuance costs
Intercompany financing activities
Net financing activities
Effect of exchange rate changes on cash
and cash equivalents
Net decrease in cash and cash
equivalents
(65.7)
(69.5)
—
—
0.2
8.8
(126.2)
—
(335.6)
0.5
0.4
(132.1)
—
(203.8)
(670.6)
—
(94.2)
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
119.4
25.2 $
112
—
—
—
—
—
—
—
—
(67.5)
—
—
—
(1.0)
68.5
—
—
—
—
— $
(212.3)
—
(175.7)
40.4
0.3
—
(347.3)
230.0
(32.2)
—
—
—
—
135.3
333.1
0.3
(113.3)
272.6
159.3 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(278.0)
(69.5)
(175.7)
40.4
0.5
8.8
(473.5)
230.0
(435.3)
0.5
0.4
(132.1)
(1.0)
—
(337.5)
0.3
(207.5)
392.0
184.5
Table of Contents
NOTE 27. OTHER FINANCIAL DATA
Quarterly Data (Unaudited)
($ in millions, except per share data)
2018
Sales
Cost of goods sold
Net income
Net income per common share:
Basic
Diluted
Common dividends per share
2017
Sales
Cost of goods sold
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Common dividends per share
First Quarter
$
1,710.3 $
1,528.7
20.9
Second
Quarter
Third Quarter
Fourth
Quarter
1,728.4 $
1,460.7
58.6
1,872.4 $
1,441.7
195.1
1,635.0 $
1,391.0
53.3
0.13
0.12
0.20
0.35
0.35
0.20
1.17
1.16
0.20
0.32
0.32
0.20
First Quarter
$
1,567.1 $
1,397.5
13.4
Second
Quarter
Third Quarter
Fourth
Quarter
1,526.5 $
1,407.9
(5.9)
1,554.9 $
1,349.3
52.7
1,619.9 $
1,400.2
489.3
0.08
0.08
0.20
(0.04)
(0.04)
0.20
0.32
0.31
0.20
2.93
2.89
0.20
Year
6,946.1
5,822.1
327.9
1.97
1.95
0.80
Year
6,268.4
5,554.9
549.5
3.31
3.26
0.80
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2018. Based on that evaluation, our chief executive officer and chief financial officer have
concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information Olin is
required to disclose in the reports that it files or submits with the SEC under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that
information required to be disclosed in such reports is accumulated and communicated to our management, including our chief
executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Management’s report on internal control over financial reporting and the related report of Olin’s independent registered
public accounting firm, KPMG LLP, are included in Item 8—“Consolidated Financial Statements and Supplementary Data.”
Item 9B. OTHER INFORMATION
Not applicable.
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PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We incorporate the biographical information relating to our Directors under the heading ITEM 1—“PROPOSAL FOR
THE ELECTION OF DIRECTORS” in our Proxy Statement relating to our 2019 Annual Meeting of Shareholders (the “Proxy
Statement”) by reference in this Report. We incorporate the biographical information regarding executive officers under the
heading “EXECUTIVE OFFICERS” in our Proxy Statement by reference in this report. We incorporate the information
regarding compliance with Section 16 of the Securities Exchange Act of 1934, as amended, under the heading entitled
“SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in our Proxy Statement by reference in this
Report.
The information with respect to our audit committee, including the audit committee financial expert, is incorporated by
reference in this Report to the information contained in the paragraph entitled “CORPORATE GOVERNANCE MATTERS—
What Are The Committees Of The Board?” in our Proxy Statement. We incorporate by reference in this Report information
regarding procedures for shareholders to nominate a director for election, in the Proxy Statement under the headings
“MISCELLANEOUS—How can I directly nominate a director for election to the board at the 2020 annual meeting?” and
“CORPORATE GOVERNANCE MATTERS—What Is Olin’s Director Nomination Process?”.
We have adopted a code of business conduct and ethics for directors, officers and employees, known as the Code of
Conduct. The Code of Conduct is available in the About, Our Values section of our website at www.olin.com. Olin intends to
satisfy disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision of the
Code of Conduct with respect to its executive officers or directors by posting such amendment or waiver on its website.
Item 11. EXECUTIVE COMPENSATION
The information in the Proxy Statement under the heading “CORPORATE GOVERNANCE MATTERS—
Compensation Committee Interlocks and Insider Participation,” and the information under the heading “COMPENSATION
DISCUSSION AND ANALYSIS” through the information under the heading “COMPENSATION COMMITTEE REPORT,”
are incorporated by reference in this Report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
We incorporate the information concerning holdings of our common stock by certain beneficial owners contained under
the heading “CERTAIN BENEFICIAL OWNERS” in our Proxy Statement, and the information concerning beneficial
ownership of our common stock by our directors and officers under the heading “SECURITY OWNERSHIP OF
DIRECTORS AND OFFICERS” in our Proxy Statement by reference in this Report.
114
Table of Contents
Equity Compensation Plan Information
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
excluding securities
reflected in column (a)(1)
7,008,591 (3)
$
N/A
7,008,591
$
24.40 (3)
N/A
24.40 (3)
9,627,910
N/A
9,627,910
Plan Category
Equity compensation plans approved by
security holders(2)
Equity compensation plans not approved
by security holders
Total
(1) Number of shares is subject to adjustment for changes in capitalization for stock splits and stock dividends and similar
events.
(2) Consists of the 2000 Long Term Incentive Plan, the 2003 Long Term Incentive Plan, the 2006 Long Term Incentive
(3)
Plan, the 2009 Long Term Incentive Plan, the 2014 Long Term Incentive Plan, the 2016 Long Term Incentive Plan, the
2018 Long Term Incentive Plan and the 1997 Stock Plan for Non-employee Directors.
Includes:
•
5,864,216 shares issuable upon exercise of options with a weighted-average exercise price of $24.40, and a weighted
average remaining term of 6.6 years,
130,600 shares issuable under restricted stock unit grants, with a weighted-average remaining term of 1.4 years,
852,725 shares issuable in connection with outstanding performance share awards, with a weighted-average term of
2.1 years remaining in the performance measurement period, and
161,050 shares under the 1997 Stock Plan for Non-employee Directors which represent stock grants for retainers,
other board and committee fees and dividends on deferred stock under the plan.
•
•
•
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
We incorporate the information under the headings “CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS” and “CORPORATE GOVERNANCE MATTERS—Which Board Members Are Independent?” in our
Proxy Statement by reference in this Report.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
We incorporate the information concerning the accounting fees and services of our independent registered public
accounting firm, KPMG LLP, under the heading ITEM 3—“PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” in our Proxy Statement by reference in this Report.
115
Table of Contents
PART IV
Item 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements
Consolidated financial statements of the registrant are included in Item 8 above.
2. Financial Statement Schedules
Schedules not included herein are omitted because they are inapplicable or not required or because the required
information is given in the consolidated financial statements and notes thereto.
Separate consolidated financial statements of our 50% or less owned subsidiaries accounted for by the equity
method are not summarized herein and have been omitted because, in the aggregate, they would not constitute a
significant subsidiary.
3. Exhibits
The following exhibits are filed with this Annual Report on Form 10-K, unless incorporated by reference.
Management contracts and compensatory plans and arrangements are listed as Exhibits 10(a) through 10(jj). We are party
to a number of other instruments defining the rights of holders of long-term debt. No such instrument authorizes an
amount of securities in excess of 10% of the total assets of Olin and its subsidiaries on a consolidated basis. Olin agrees to
furnish a copy of each instrument to the Commission upon request.
2 (a)
3 (a)
(b)
(c)
4 (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Merger Agreement dated as of March 26, 2015, among The Dow Chemical Company, Blue Cube Spinco
Inc., Olin Corporation and Blue Cube Acquisition Corp.—Exhibit 2.1 to Olin’s Form 8-K dated March 27,
2015.*
Amended and Restated Articles of Incorporation of Olin Corporation as amended effective October 1, 2015
—Exhibit 3.1 to Olin’s Form 10-Q for the quarter ended September 30, 2015.*
Bylaws of Olin Corporation as amended effective January 25, 2019—Exhibit 3.1 to Olin’s Form 8-K dated
January 30, 2019.*
Articles of Amendment of the Amended and Restated Articles of Incorporation of Olin Corporation,
effective on October 1, 2015—Exhibit 3.1 to Olin’s Form 8-K dated October 5, 2015.*
Trust Indenture effective October 1, 2010 between The Industrial Development Authority of Washington
County and U. S. Bank National Association, as trustee—Exhibit 4.1 to Olin’s Form 8-K dated October 20,
2010.*
Loan Agreement effective October 1, 2010 between The Industrial Development Authority of Washington
County and Olin Corporation—Exhibit 4.2 to Olin’s Form 8-K dated October 20, 2010.*
Bond Purchase Agreement dated October 14, 2010 between The Industrial Development Authority of
Washington County, Olin Corporation and PNC Bank, National Association, as administrative agent—
Exhibit 4.3 to Olin’s Form 8-K dated October 20, 2010.*
Trust Indenture effective December 1, 2010 between Mississippi Business Finance Corporation and U. S.
Bank National Association—Exhibit 4.1 to Olin’s Form 8-K dated December 10, 2010.*
Second Supplemental Indenture dated as of August 9, 2012 between Olin Corporation, The Bank of New
York Mellon Trust Company, N.A. and U. S. Bank National Association—Exhibit 4.1 to Olin’s Form 8-K
dated August 9, 2012.*
Third Supplemental Indenture dated as of August 22, 2012 between Olin Corporation and U. S. Bank
National Association—Exhibit 4.1 to Olin’s Form 8-K dated August 22, 2012.*
Fourth Supplemental Indenture dated as of March 9, 2017 between Olin Corporation and U.S. Bank
National Association—Exhibit 4.3 to Olin’s Form 8-K dated March 9, 2017.*
Fifth Supplemental Indenture dated January 16, 2018 between Olin Corporation and U.S. Bank National
Association, as trustee, governing the Senior Notes—Exhibit 4.1 to Olin’s Form 8-K dated January 19,
2018.*
Loan Agreement effective December 1, 2010 between Mississippi Business Finance Corporation and Olin
Corporation—Exhibit 4.2 to Olin’s Form 8-K dated December 10, 2010.*
116
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(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
(aa)
(bb)
(cc)
10 (a)
Bond Purchase Agreement dated December 9, 2010 between Mississippi Business Finance Corporation, Olin
Corporation and PNC Bank, National Association, as administrative agent—Exhibit 4.3 to Olin’s Form 8-K
dated December 10, 2010.*
Amended and Restated Credit and Funding Agreement dated December 9, 2010 between Olin Corporation,
as borrower; PNC Bank, National Association, as administrative agent; PNC Capital Markets LLC, as lead
arranger; and the Lenders party thereto—Exhibit 4.4 to Olin’s Form 8-K dated December 10, 2010.*
First Amendment dated December 27, 2010 to the Amended and Restated Credit and Funding Agreement
dated December 9, 2010 between Olin Corporation, as borrower; PNC Bank, National Association, as
administrative agent; PNC Capital Markets LLC, as lead arranger; and the Lenders party thereto—Exhibit
4.4 to Olin’s Form 8-K dated December 30, 2010.*
Second Amendment dated April 27, 2012 to Amended and Restated Credit and Funding Agreement dated
December 9, 2010 among Olin Corporation, the Lenders, as defined therein, and PNC Bank, National
Association, as administrative agent for the Lenders—Exhibit 4.2 to Olin’s Form 8-K dated May 3, 2012.*
Third Amendment dated June 23, 2014 to Amended and Restated Credit and Funding Agreement dated
December 9, 2010 among Olin Corporation, the Lenders, as defined therein, and PNC Bank, National
Association, as administrative agent for the Lenders—Exhibit 4.2 to Olin’s Form 8-K dated June 25, 2014.*
Amendment No. 4 dated June 23, 2015 to the Amended and Restated Credit and Funding Agreement dated
December 9, 2010 among Olin Corporation, the Lenders, as defined therein, and PNC Bank, National
Association, as administrative agent—Exhibit 10.3 to Olin’s Form 8-K dated June 29, 2015.*
Fifth Amendment dated September 29, 2016 to Amended and Restated Credit and Funding Agreement dated
December 9, 2010 among Olin Corporation, the Lenders as defined therein, and PNC Bank, National
Association, as administrative agent for the Lenders—Exhibit 4.1 to Olin’s Form 10-Q dated May 3, 2017.*
Sixth Amendment dated March 9, 2017 to Amended and Restated Credit and Funding Agreement dated
December 9, 2010 among Olin Corporation, the Lenders as defined therein, and PNC Bank, National
Association, as administrative agent for the Lenders—Exhibit 4.1 to Olin’s Form 8-K dated March 9, 2017.*
Form of 5.50% Senior Notes due 2022—Exhibit 4.2 to Olin’s Form 8-K dated August 22, 2012.*
Forward Purchase Agreement, dated as of March 9, 2017, among Olin Corporation, the Lenders, as defined
therein, and PNC Bank, National Association, as administrative agent—Exhibit 4.1 to Olin’s Form 8-K dated
March 9, 2017.*
Senior Notes Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and U. S. Bank
National Association, as trustee, governing the 9.75% Senior Notes due 2023—Exhibit 4.1 to Olin’s Form 8-
K dated October 5, 2015.*
Senior Notes Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and U. S. Bank
National Association, as trustee, governing the 10.00% Senior Notes due 2025—Exhibit 4.2 to Olin’s Form
8-K dated October 5, 2015.*
First Supplemental Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and Olin
Corporation, as guarantor, and U. S. Bank National Association, as trustee, governing the 9.75% Senior
Notes due 2023—Exhibit 4.3 to Olin’s Form 8-K dated October 5, 2015.*
First Supplemental Indenture dated October 5, 2015 between Blue Cube Spinco Inc., as issuer, and Olin
Corporation, as guarantor, and U. S. Bank National Association, as trustee, governing the 10.00% Senior
Notes due 2025—Exhibit 4.4 to Olin’s Form 8-K dated October 5, 2015.*
Form of 9.75% Senior Notes due 2023—Exhibit 4.5 (included in Exhibit 4.1) to Olin’s Form 8-K dated
October 5, 2015.*
Form of 10.00% Senior Notes due 2025—Exhibit 4.6 (included in Exhibit 4.2) to Olin’s Form 8-K dated
October 5, 2015.*
Form of 5.125% Senior Notes due 2027—Exhibit 4.4 (included in Exhibit 4.3) to Olin’s Form 8-K dated
March 9, 2017.*
Form of 5.000% Senior Notes due 2030—Exhibit 4.1 to Olin’s Form 8-K dated January 19, 2018.*
Registration Rights Agreement dated October 5, 2015 relating to the 9.75% Senior Notes due 2023 and
10.00% Senior Notes due 2025 by and among Blue Cube Spinco Inc., Olin Corporation, J.P. Morgan
Securities LLC and Wells Fargo Securities LLC for themselves and as representatives of other initial
purchasers—Exhibit 4.7 to Olin’s Form 8-K dated October 5, 2015.*
Receivables Financing Arrangement dated December 20, 2016 by and among Olin Finance Company, LLC,
PNC Bank, National Association, Olin Corporation, PNC Capital Markets LLC and the Lender parties
thereto—Exhibit 4(x) to Olin’s Form 10-K for 2016.*
Employee Deferral Plan as amended and restated effective as of January 30, 2003—Exhibit 10(b) to Olin’s
Form 10-K for 2002.*
(b)
Amendment to Employee Deferral Plan effective January 1, 2005—Exhibit 10(b)(1) to Olin’s Form 10-K
for 2005.*
117
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(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
(aa)
Senior Executive Pension Plan amended and restated effective October 24, 2008—Exhibit 10.1 to Olin’s
Form 10-Q for the quarter ended September 30, 2008.*
Supplemental Contributing Employee Ownership Plan as amended and restated effective January 1, 2018—
Exhibit 99.1 to Olin’s Form 8-K dated December 12, 2017.*
Olin Corporation Key Executive Life Insurance Program—Exhibit 10(e) to Olin’s Form 10-K for 2002.*
Form of executive agreement between Olin Corporation and Mr. Fischer—Exhibit 99.1 to Olin’s Form 8-K
dated January 26, 2005.*
Form of amendment to executive agreement between Olin Corporation and Mr. Fischer dated November 9,
2007—Exhibit 10(g) to Olin’s Form 10-K for 2007.*
Form of executive agreement between Olin Corporation and Mr. McIntosh dated November 1, 2007—
Exhibit 10.1 to Olin’s Form 10-Q for the quarter ended September 30, 2007.*
Form of amendment to executive agreement between Olin Corporation and Messrs. Fischer and McIntosh
dated October 25, 2010—Exhibit 10.1 to Olin’s Form 10-K for 2010.*
Form of amendment to executive agreement between Olin Corporation and Messrs. Fischer and McIntosh
dated October 19, 2015—Exhibit 10(i) to Olin’s Form 10-K for 2015.*
Form of executive change in control agreement between Olin Corporation and Mr. Slater dated January 29,
2014—Exhibit 10(l) to Olin’s Form 10-K for 2013.*
Form of executive change in control agreement between Olin Corporation and Messrs. Fischer and McIntosh
dated January 29, 2014—Exhibit 10.1 to Olin’s Form 8-K dated January 30, 2014.*
Form of amendment to executive change in control agreement between Olin Corporation and Messrs.
Fischer, McIntosh and Slater dated October 19, 2015—Exhibit 10(m) to Olin’s Form 10-K for 2015.*
Form of executive change in control agreement between Olin Corporation and Messrs. Dawson, Sampson
and Varilek dated February 15, 2016—Exhibit 10(n) to Olin’s Form 10-K for 2015.*
Form of executive change in control agreement between Olin Corporation and Ms. Sumner dated February
15, 2016—Exhibit 10(o) to Olin’s Form 10-K for 2015.*
Form of executive agreement between Olin Corporation and Mr. Blanchard dated April 26, 2017—Exhibit
10.1 to Olin’s Form 10-Q for the quarter ended June 30, 2017.*
Form of executive change in control agreement between Olin Corporation and Mr. Blanchard dated April 26,
2017—Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended June 30, 2017.*
Olin Corporation Change in Control Severance Plan for Section 16(b) Officers effective January 27, 2019—
Exhibit 10.1 to Olin’s Form 8-K filed December 14, 2018.*
Olin Corporation Severance Plan for Section 16(b) Officers effective January 27, 2019—Exhibit 10.2 to
Olin’s Form 8-K filed December 14, 2018.*
Amended and Restated 1997 Stock Plan for Non-employee Directors codified to reflect amendments
adopted through February 26, 2016—Exhibit 10(p) to Olin’s Form 10-K for 2015.*
Description of Restricted Stock Unit Awards granted under the 2000, 2003, 2006, 2009, 2014, 2016 or 2018
Long Term Incentive Plans—Exhibit 10(p) to Olin’s Form 10-K for 2008.*
Supplementary and Deferral Benefit Pension Plan as amended and restated effective October 24, 2008—
Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended September 30, 2008.*
Amended and Restated Olin Corporation 2000 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.1 to Olin’s Form 8-K dated January 30, 2019.*
Amended and Restated Olin Corporation 2003 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.2 to Olin’s Form 8-K dated January 30, 2019.*
Amended and Restated Olin Corporation 2006 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.3 to Olin’s Form 8-K dated January 30, 2019.*
Amended and Restated Olin Corporation 2009 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.4 to Olin’s Form 8-K dated January 30, 2019.*
Amended and Restated Olin Corporation 2014 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.5 to Olin’s Form 8-K dated January 30, 2019.*
(bb) Amended and Restated Olin Corporation 2016 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.6 to Olin’s Form 8-K dated January 30, 2019.*
Amended and Restated Olin Corporation 2018 Long Term Incentive Plan codified as of January 27, 2019—
Exhibit 10.7 to Olin’s Form 8-K dated January 30, 2019.*
Performance Share Program as amended through January 25, 2018—Exhibit 10.1 to Olin’s Form 10-Q for
the quarter ended March 31, 2018.*
Form of Non-Qualified Stock Option Award Certificate—Exhibit 10(bb) to Olin’s Form 10-K for 2007.*
(cc)
(dd)
(ee)
118
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(ff)
(gg)
(hh)
(ii)
(jj)
Form of Restricted Stock Unit Award Certificate—Exhibit 10(cc) to Olin’s Form 10-K for 2007.*
Form of Restricted Stock Unit Award Certificate—Exhibit 10.7 to Olin’s Form 10-Q for the quarter ended
September 30, 2015.*
Form of Performance Award and Senior Performance Award Certificates—Exhibit 10(dd) to Olin’s Form
10-K for 2007.*
Summary of Stock Option Continuation Policy—Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended
March 31, 2009.*
Olin Corporation Contributing Employee Ownership Plan Amended and Restated effective as of October 24,
2008, and as amended effective September 29, 2015—Exhibit 99.1 to Olin’s Form S-8 filed February 16,
2016.*
(kk) Distribution Agreement between Olin Corporation and Arch Chemicals, Inc., dated as of February 1, 1999—
(ll)
Exhibit 2.1 to Olin’s Form 8-K filed February 23, 1999.*
Purchase Agreement dated as of February 28, 2011, by and among PolyOne Corporation, 1997 Chloralkali
Venture, LLC, Olin Corporation and Olin SunBelt II, Inc.—Exhibit 2.1 to Olin’s Form 8-K dated March 3,
2011.*
(mm) Note Purchase Agreement dated December 22, 1997 between the SunBelt Chlor Alkali Partnership and the
Purchasers named therein—Exhibit 99.5 to Olin’s Form 8-K dated December 3, 2001.*
(nn) Guarantee Agreement dated December 22, 1997 between Olin Corporation and the Purchasers named
(oo)
(pp)
(qq)
(rr)
(ss)
(tt)
(uu)
(vv)
therein—Exhibit 99.6 to Olin’s Form 8-K dated December 3, 2001.*
Subordination Agreement dated December 22, 1997 between Olin Corporation and the Subordinated Parties
named therein—Exhibit 99.7 to Olin’s Form 8-K dated December 3, 2001.*
Credit Agreement dated as of April 27, 2012 among Olin Corporation, Olin Canada ULC and the banks
named therein—Exhibit 10.1 to Olin’s Form 8-K dated May 3, 2012.*
Stock Purchase Agreement dated as of July 17, 2012, by and among K. A. Steel Chemicals Inc., the
stockholders of K. A. Steel Chemicals Inc. and Robert F. Steel, as the sellers’ representative—Exhibit 2.1 to
Olin’s Form 8-K dated July 18, 2012.*
Credit Agreement dated June 23, 2015 among Olin Corporation, Olin Canada ULC, the Lenders named
therein and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.1 to Olin’s Form 8-
K dated June 29, 2015.*
Credit Agreement dated June 23, 2015 among Blue Cube Spinco Inc., the Lenders named therein and Wells
Fargo Bank, National Association, as administrative agent—Exhibit 10.2 to Olin’s Form 8-K dated June 29,
2015.*
Amendment Agreement dated June 23, 2015 among Olin, Olin Canada ULC, Blue Cube Spinco Inc., the
Lenders named therein and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.5 to
Olin’s Form 8-K dated October 5, 2015.*
Second Amendment Agreement, dated as of March 9, 2017 among Olin Corporation, Olin Canada ULC and
Blue Cube Spinco Inc., the Lenders named therein and Wells Fargo Bank, National Association, as
administrative agent—Exhibit 10.1 to Olin’s Form 8-K dated March 9, 2017.*
Third Amendment Agreement, dated as of June 28, 2018, among Olin Corporation, Olin Canada ULC and
Blue Cube Spinco LLC, the Lenders named therein and Wells Fargo Bank, National Association, as
administrative agent—Exhibit 10.2 to Olin’s Form 10-Q for the quarter ended June 30, 2018.*
(ww) Separation Agreement dated March 26, 2015 between The Dow Chemical Company and Blue Cube Spinco
(xx)
Inc.—Exhibit 10.1 to Olin’s Form 8-K dated March 27, 2015.*
Credit Agreement dated August 25, 2015 among Olin Corporation, Olin subsidiaries, the Lenders (as defined
therein) and Sumitomo Mitsui Banking Corporation, as administrative agent—Exhibit 10.1 to Olin’s Form 8-
K dated August 25, 2015.*
(yy) Amended and Restated Credit Agreement, dated as of October 5, 2015 and Amended and Restated by the
Second Amendment Agreement dated as of March 9, 2017 among Olin Corporation, Olin Canada ULC and
Blue Cube Spinco Inc., the Lenders named therein and Wells Fargo Bank, National Association, as
administrative agent—Exhibit 10.2 to Olin’s Form 8-K dated March 9, 2017.*
Guaranty Agreement dated October 5, 2015 among Blue Cube Spinco Inc., Olin Corporation and Wells
Fargo Bank, National Association, as administrative agent—Exhibit 10.2 to Olin’s Form 8-K dated October
5, 2015.*
(zz)
(aaa) Borrowing Subsidiary Agreement dated October 5, 2015 among Olin Corporation, Blue Cube Spinco Inc.
and Wells Fargo Bank, National Association, as administrative agent—Exhibit 10.3 to Olin’s Form 8-K dated
October 5, 2015.*
(bbb) Guaranty Joinder dated October 5, 2015 among Olin subsidiaries, Blue Cube Spinco Inc. and Sumitomo
Mitsui Banking Corporation, as administrative agent—Exhibit 10.4 to Olin’s Form 8-K dated October 5,
2015.*
119
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(ccc)
11
21
23
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Incremental Term Loan Agreement dated November 3, 2015 among Olin Corporation, Blue Cube Spinco
Inc., the Lenders (as defined therein) and Sumitomo Mitsui Banking Corporation, as administrative agent—
Exhibit 10.1 to Olin’s Form 8-K dated November 9, 2015.*
Computation of Per Share Earnings (included in the Note 6 “Earnings Per Share” to Notes to Consolidated
Financial Statements in Item 8).
List of Subsidiaries.
Consent of KPMG LLP.
Section 302 Certification Statement of Chief Executive Officer.
Section 302 Certification Statement of Chief Financial Officer.
Section 906 Certification Statement of Chief Executive Officer and Chief Financial Officer.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC file
No. 1-1070 unless otherwise indicated.
Any exhibit is available from Olin by writing to the Secretary, Olin Corporation, 190 Carondelet Plaza, Suite 1530,
Clayton, MO 63105 USA.
Shareholders may obtain information from EQ Shareowner Services, our registrar and transfer agent, who also manages
our Automatic Dividend Reinvestment Plan by writing to: EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101,
MAC N9173-010, Mendota Heights, MN 55120 USA, by telephone from the United States at 1-800-468-9716 or outside the
United States at 1-651-450-4064 or via the Internet at www.shareowneronline.com, click on “contact us”.
Item 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 25, 2019
OLIN CORPORATION
/s/ John E. Fischer
By:
John E. Fischer
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
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Signature
Title
Date
/s/ JOHN E. FISCHER
John E. Fischer
Chairman, President and Chief Executive Officer and Director
(Principal Executive Officer)
February 25, 2019
/s/ GRAY G. BENOIST
Director
February 25, 2019
Gray G. Benoist
/s/ DONALD W. BOGUS
Director
February 25, 2019
Donald W. Bogus
/s/ C. ROBERT BUNCH
Director
February 25, 2019
C. Robert Bunch
/s/ RANDALL W. LARRIMORE
Director
February 25, 2019
Randall W. Larrimore
/s/ JOHN M. B. O’CONNOR
Director
February 25, 2019
John M. B. O’Connor
/s/ EARL L. SHIPP
Director
February 25, 2019
Earl L. Shipp
/s/ VINCENT J. SMITH
Director
February 25, 2019
Vincent J. Smith
/s/ SCOTT M. SUTTON
Director
February 25, 2019
Scott M. Sutton
/s/ WILLIAM H. WEIDEMAN
Director
February 25, 2019
William H. Weideman
/s/ CAROL A. WILLIAMS
Director
February 25, 2019
Carol A. Williams
/s/ TODD A. SLATER
Todd A. Slater
Vice President and Chief Financial Officer (Principal Financial
Officer)
February 25, 2019
/s/ RANDEE N. SUMNER
Vice President and Controller (Principal Accounting Officer)
February 25, 2019
Randee N. Sumner
EX-21 2 oln-2018xexhibit21.htm SUBSIDIARIES OF OLIN CORPORATION
122
SUBSIDIARIES OF OLIN CORPORATION1
(As of December 31, 2018)
Exhibit 21
Company
Blue Cube Holding LLC
Blue Cube Intermediate Holding 1 LLC
Blue Cube Intermediate Holding 2 LLC
Blue Cube International Holdings LLC
Blue Cube IP LLC
Blue Cube Operations LLC
Blue Cube Spinco LLC
Bridgeport Brass Corporation
Henderson Groundwater LLC
HPCM LLC
Hunt Trading Co.
Imperial West Chemical Co.
K. A. Steel Chemicals Inc.
K. A. Steel International Inc.
KAS Muscatine LLC
KNA California, Inc. (see footnote 2)
KWT, Inc.
LTC Reserve Corp.
Monarch Brass & Copper Corp.
Monarch Brass & Copper of New England
Corp.
New Haven Copper Company
Olin Benefits Management, Inc.
Olin Business Holdings
Olin Chlor Alkali Logistics Inc.
Olin Chlorine 7, LLC
Olin Engineered Systems, Inc.
Olin Far East, Limited
Olin Finance Company, LLC
Olin Financial Services Inc.
Olin Funding Company LLC
Olin Russellville Cell Technologies LLC
Olin North American Holdings, Inc.
Olin Sunbelt, Inc.
Olin Sunbelt II, Inc.
Olin Winchester, LLC
Pioneer Americas LLC
Pioneer Companies, LLC
Pioneer (East), Inc.
Pioneer Licensing, Inc.
Shareholders/Members
Blue Cube Spinco LLC
Blue Cube Holdings C.V.
Blue Cube Holdings C.V.
Blue Cube Spinco LLC
Blue Cube Holding LLC
Blue Cube Holding LLC
Olin
Olin
Pioneer Americas LLC has a 1/3 ownership in
this limited liability company that will be
treated as a partnership for income tax
purposes
K. A. Steel Chemicals Inc.
Olin
Pioneer Companies, LLC
Olin
K. A. Steel Chemicals Inc.
K. A. Steel Chemicals Inc.
Imperial West Chemical Co.
Pioneer Water Technologies, Inc.
Olin
Olin
Monarch Brass & Copper Corp.
Monarch Brass & Copper Corp.
Olin
Olin Corporation;
Olin Engineered Systems, Inc.;
Pioneer Americas LLC
Olin Sunbelt, Inc.;
Olin Sunbelt II, Inc.
Blue Cube Holding LLC
Olin
Olin
Olin
Olin
Olin
Olin
Olin
Olin
Olin
Olin
Olin Canada ULC
Olin North American Holdings, Inc.
Pioneer Companies, LLC
Pioneer Companies, LLC
% Ownership Jurisdiction
100
100
100
100
100
100
100
100
33
DE
DE
DE
DE
DE
DE
DE
IN
NV
100
100
100
100
100
100
100
100
100
100
100
100
100
62.05
36.15
1.80
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
DE
MO
NV
DE
DE
IA
DE
DE
DE
NY
RI
CT
CA
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
Pioneer Transportation LLC
Pioneer Water Technologies, Inc.
Ravenna Arsenal, Inc.
Sunbelt Chlor Alkali Partnership
TriOlin, LLC
Olin Business Holdings
Pioneer Companies, LLC
Olin
Olin;
Olin Sunbelt, Inc.;
Olin Sunbelt II, Inc.
Olin
100
100
100
24.8
44.5
30.7
100
DE
DE
OH
DE
DE
Waterbury Rolling Mills, Inc.
Winchester Ammunition, Inc.
Winchester Defense, LLC
Monarch Brass & Copper Corp.
Olin
Olin
INTERNATIONAL
3229897 Nova Scotia Co.
Blue Cube Holding LLC
BC Switzerland GmbH
Blue Cube Argentina Srl
Blue Cube Australia Pty Ltd
Blue Cube Belgium BVBA
Blue Cube Brasil Comércio de Produtos
Químicos Ltda. (See footnote 3 for
Subordinates)
Blue Cube Chemicals FZE
Blue Cube Chemicals Hong Kong Limited
Blue Cube Chemicals India Private Limited
Blue Cube Chemicals Italy S.r.l.
Blue Cube Chemical Korea Ltd.
Blue Cube Chemicals Singapore Pte. Ltd.
Blue Cube Chemicals Singapore Pte. Ltd.
Taiwan Branch
Blue Cube Chemicals South Africa Pty Ltd
Blue Cube Chemicals (UK) Limited
Nedastra Holding B.V.
Blue Cube Holding LLC
Blue Cube Chemicals Singapore Pte. Ltd.
Nedastra Holding B.V.
Nedastra Holding B.V.
Nedastra Holding B.V.
Blue Cube Chemicals Singapore Pte. Ltd.
Blue Cube Chemicals Singapore Pte. Ltd.
(41,259,999 equity shares)
Blue Cube Chemicals Hong Kong Limited (1
equity share)
Nedastra Holding B.V.
Blue Cube Chemicals (Zhangjiagang) Co.,
Ltd.
Nedastra Holding B.V.
Blue Cube Chemicals Singapore Pte. Ltd.
Nedastra Holding B.V.
Nedastra Holding B.V.
Blue Cube Chemicals (Zhangjiagang) Co., Ltd. Blue Cube Chemicals Singapore Pte. Ltd.
Blue Cube Chemicals (Zhangjiagang) Co.,
Blue Cube Chemicals (Zhangjiagang) Co., Ltd.
Ltd.
Shanghai Branch
Blue Cube Holding LLC;
Blue Cube Colombia Ltda
1% minority interest owned by Blue Cube
Operations LLC
Nedastra Holding B.V.
Nedastra Holding B.V.
Blue Cube Denmark ApS
Blue Cube France
Blue Cube Germany Assets GmbH & Co. KG Blue Cube Germany Assets Management
Blue Cube Germany Assets Management
GmbH
Blue Cube Germany Productions GmbH & Co.
KG
Blue Cube Germany Productions Management
GmbH
Blue Cube Holdings C.V.
Blue Cube Japan LLC
Blue Cube Mexico, S. de R.L. de C.V.
Blue Cube Netherlands B.V.
GmbH (General partner);
Nedastra Holding B.V. (Limited partner)
Nedastra Holding B.V.
Blue Cube Germany Productions
Management GmbH (General partner);
Nedastra Holding B.V. (Limited partner)
Nedastra Holding B.V.
Blue Cube International Holdings LLC;
Blue Cube Holding LLC
Blue Cube Chemicals Singapore Pte. Ltd.
Blue Cube Holding LLC;
2% minority interest owned by Blue Cube
Operations LLC
Nedastra International C.V.
99.99
0.01
100
98
02
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
01
100
100
0
100
100
0
100
100
CT
DE
DE
Nova Scotia,
Canada
Switzerland
Argentina
Australia
Belgium
Brazil
UAE
Hong Kong
India
Italy
Korea
Singapore
Taiwan
South Africa
United
Kingdom
China
China
Colombia
Denmark
France
Germany
Germany
Germany
Germany
Netherlands
Japan
Mexico
Netherlands
Blue Cube Poland Sp.z.o.o.
Blue Cube Rasha OOO
Blue Cube Servicios Administrativos S. de R.
L. de C.V.
Blue Cube Spain S.L.U.
Blue Cube (Thailand) Company Limited
Nedastra Holding B.V.
Nedastra Holding B.V.;
Blue Cube Netherlands B.V.
Blue Cube Holding LLC;
10% minority interest owned by Blue Cube
Operations LLC
Nedastra Holding B.V.
Blue Cube Holding LLC;
100
99.995
0.005
90
10
100
99.998
Poland
Russia
Netherlands
Mexico
Spain
Thailand
Blue Cube (Thailand) Company Limited Hong
Kong Branch
Blue Cube Turkey Kimyasal Ürünler Limited
Şirketi
CANSO Chemicals Limited
Olin Germany AP LTP GmbH
Olin Germany Upstream GmbH & Co. KG
Olin Hunt Specialty Products S.r.l.
Nedastra Holding B.V.
Nedastra International C.V.
Niloco Cyprus Limited
Nutmeg Insurance Limited
Olin Canada ULC
0.001% minority interest owned by Blue
Cube Operations LLC;
0.001% minority interest owned by Blue
Cube IP LLC
Blue Cube (Thailand) Company Limited
Nedastra Holding B.V.
0.001
0.001
100
100
50
50
Olin Canada ULC;
Northern Pulp is the other 50% owner
(Pioneer related)
Blue Cube Germany Assets GmbH & Co. KG 100
Blue Cube Germany Assets GmbH & Co. KG 100
99
Olin Corporation;
01
Hunt Trading Co.
100
Nedastra International C.V.
99.496
Blue Cube Intermediate Holding 2 LLC;
0.504
Blue Cube Intermediate Holding 1 LLC
100
Nedastra International C.V.
100
Olin
100
Olin North American Holdings, Inc.
Winchester Australia Limited
Olin
100
Hong Kong
Turkey
Nova Scotia,
Canada
Germany
Germany
Italy
Netherlands
Netherlands
Cyprus
Bermuda
Nova Scotia,
Canada
Australia
Footnotes:
1
2
3
Omitted from the following list are the names of certain subsidiaries which, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary
In California only, this entity conducts business under the name of Kemwater KNA California, Inc.
Subordinates of Blue Cube Brasil Comércio de Produtos Químicos Ltda.:
• Sâo Paulo Branch of Blue Cube Brasil Comércio de Produtos Químicos Ltda.
• Bahia Branch of Blue Cube Brasil Comércio de Produtos Químicos Ltda. (Caustic Soda)
• Paraná Branch of Blue Cube Brasil Comércio de Produtos Químicos Ltda. (Caustic Soda)
EX-23 3 oln-2018xexhibit23.htm CONSENT OF KPMG LLP
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Olin Corporation:
We consent to the incorporation by reference in registration statements No. 333-216461 on Form S-3 and Nos. 333-18619,
333-39305, 333-35818, 333-97759, 333-110135, 333-110136, 333-124483, 333-133731, 333-148918, 333-158799, 333-
166288, 333-176432, 333-195500, 333-209534, 333-211434, and 333-224569 on Form S-8 of Olin Corporation of our report
dated February 25, 2019, with respect to the consolidated balance sheets of Olin Corporation as of December 31, 2018 and
2017, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated
financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2018, which report
appears in the December 31, 2018 annual report on Form 10-K of Olin Corporation.
/s/ KPMG LLP
St. Louis, Missouri
February 25, 2019
EX-31.1 4 oln-2018xexhibit311.htm SECTION 302 CERTIFICATION STATEMENT OF CEO
Exhibit 31.1
CERTIFICATIONS
I, John E. Fischer, certify that:
1. I have reviewed this annual report on Form 10-K of Olin Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2019
/s/ John E. Fischer
John E. Fischer
Chairman, President and Chief Executive Officer
EX-31.2 5 oln-2018xexhibit312.htm SECTION 302 CERTIFICATION STATEMENT OF CFO
Exhibit 31.2
CERTIFICATIONS
I, Todd A. Slater, certify that:
1. I have reviewed this annual report on Form 10-K of Olin Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2019
/s/ Todd A. Slater
Todd A. Slater
Vice President and Chief Financial Officer
EX-32 6 oln-2018xexhibit32.htm SECTION 906 CERTIFICATION STATEMENT OF CEO AND CFO
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Olin Corporation (the “Company”) on Form 10-K for the period ended December 31,
2018 as filed with the Securities and Exchange Commission (the “Report”), I, John E. Fischer, Chairman, President and Chief
Executive Officer and I, Todd A. Slater, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge: (1) the
Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its Staff upon request.
/s/ John E. Fischer
John E. Fischer
Chairman, President and Chief Executive Officer
Dated: February 25, 2019
/s/ Todd A. Slater
Todd A. Slater
Vice President and Chief Financial Officer
Dated: February 25, 2019