# OLIN Corp: Form 10-Q for the period ended Jun 30, 2016

- Company: [OLIN Corp](/companies/oln.md) (CIK 74303)
- Form: 10-Q
- Filed: 2016-08-02
- Accepted by EDGAR: Aug 2, 2016, 17:18 ET
- Period: 2016-06-30
- Accession: 0000074303-16-000144
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/74303/000007430316000144/oln-2016630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/74303/000007430316000144/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $1.36bn | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2016-01-01 to 2016-06-30 | $2.71bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-04-01 to 2016-06-30 | $1.24bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2016-01-01 to 2016-06-30 | $2.41bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2016-04-01 to 2016-06-30 | $79.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2016-01-01 to 2016-06-30 | $167.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | $23.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2016-01-01 to 2016-06-30 | $15.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $47.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2016-01-01 to 2016-06-30 | $96.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | −$22.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | −$40.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | −$1.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | −$38.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 165,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2016-01-01 to 2016-06-30 | 165,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | $186.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $137.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2016-01-01 to 2016-06-30 | $66.1m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2016-06-30 | $66.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-06-30 | $1.56bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $8.91bn | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $918.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-06-30 | $6.58bn | us-gaap:Liabilities |
| Long-term debt | at 2016-06-30 | $3.62bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2016-06-30 | $80.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2016-06-30 | $2.33bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2016-06-30 | 165,164,132 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 72,078 characters.

### Business Background

We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. For segment reporting purposes, a portion of the Acquired Business’s operating results comprise the newly created Epoxy segment with the remaining operating results combined with Olin’s former Chlor Alkali Products and Chemical Distribution segments to comprise the newly created Chlor Alkali Products and Vinyls segment. 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 very significant changes in our overall profitability.

The Epoxy segment consumes products manufactured by the Chlor Alkali Products and Vinyls segment. While competitive differentiation exists through downstream customization and product development opportunities, pricing is extremely competitive with a broad range of competitors across the globe.

Winchester also has a commodity element to its business, but a majority of Winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance. While competitive pricing versus other branded ammunition products is important, it is not the only factor in product selection.

The year-over-year comparisons presented in Management Discussion and Analysis of Financial Condition and Results of Operations are intended to describe material changes in Olin legacy businesses as Olin did not own the Acquired Business until October of 2015.

### Executive Summary

Chlor Alkali Products and Vinyls generated segment income of $30.7 million and $98.8 million for the three and six months ended June 30, 2016, respectively. Chlor Alkali Products and Vinyls segment income was higher than the corresponding periods in the prior year due to contributions of the Acquired Chlor Alkali Business and lower operating costs, partially offset by lower product prices and the second quarter 2015 recognition of insurance recoveries associated with our Becancour, Canada chlor alkali facility. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $103.4 million and $29.4 million for the three months ended June 30, 2016 and 2015, respectively, and $205.3 million and $58.5 million for the six months ended June 30, 2016 and 2015, respectively.

Epoxy segment income was breakeven and $8.2 million for the three and six months ended June 30, 2016, respectively. Epoxy segment income included depreciation and amortization expense of $23.0 million and $44.7 million for the three and six months ended June 30, 2016, respectively.

Winchester reported segment income of $31.2 million and $59.9 million for the three and six months ended June 30, 2016, respectively. Winchester second quarter and year-to-date segment income decreased compared to the corresponding periods in the prior year primarily due to the impact of lower product prices and higher operating costs. These decreases were partially offset by lower commodity and other material costs. Winchester’s segment income included depreciation and amortization expense of $4.5 million and $4.1 million for the three months ended June 30, 2016 and 2015, respectively, and $9.1 million and $8.3 million for the six months ended June 30, 2016 and 2015, respectively.

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 will reconfigure 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 three and six months ended June 30, 2016, we recorded pretax restructuring charges of $7.9 million and $100.1 million, respectively, associated with these actions. For the six months ended June 30, 2016, $76.6 million of the restructuring charge were non-cash asset impairment charges.

Other operating (expense) income for the six months ended June 30, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident.

For the six months ended June 30, 2016, we made long-term debt repayments of $159.0 million including $125.0 million related to the 2016 Notes and $33.8 million under the required quarterly installments of the $1,350.0 million term loan facility.

For the three months ended June 30, 2016, payments of $69.5 million were made to TDCC related to certain acquisition-related liabilities including the final working capital adjustment.

During June 2016 and July 2016, Olin entered into arrangements to increase its 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 a payment of $85 million during the three months ended June 30, 2016. Additional payments of approximately $90 million are expected to be made in the third quarter of 2016 in connection with these arrangements.

### Consolidated Results of Operations

*($ in millions, except per share data)*

|  | Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $1,364.0 | $535.4 | $2,712.2 | $1,053.4 |
| Cost of goods sold | 1,236.9 | 445.5 | 2,412.3 | 878.7 |
| Gross margin | 127.1 | 89.9 | 299.9 | 174.7 |
| Selling and administration | 79.3 | 39.9 | 167.4 | 86.9 |
| Restructuring charges | 8.2 | 0.7 | 101.0 | 1.9 |
| Acquisition-related costs | 16.3 | 10.5 | 26.5 | 20.9 |
| Other operating (expense) income | (0.2) | 42.4 | 10.7 | 42.2 |
| Operating income | 23.1 | 81.2 | 15.7 | 107.2 |
| Earnings of non-consolidated affiliates | 0.4 | 0.4 | 0.6 | 0.8 |
| Interest expense | 47.6 | 18.2 | 96.1 | 25.3 |
| Interest income | 0.5 | 0.3 | 0.8 | 0.6 |
| Income (loss) before taxes | (23.6) | 63.7 | (79.0) | 83.3 |
| Income tax (benefit) provision | (22.6) | 21.4 | (40.1) | 27.9 |
| Net (loss) income | $(1.0) | $42.3 | $(38.9) | $55.4 |
| Net (loss) income per common share: |  |  |  |  |
| Basic | $(0.01) | $0.55 | $(0.24) | $0.71 |
| Diluted | $(0.01) | $0.54 | $(0.24) | $0.70 |

33

### Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Sales for the three months ended June 30, 2016 were $1,364.0 million compared to $535.4 million in the same period last year, an increase of $828.6 million, or 155%. Sales of the Acquired Business were $864.9 million. Chlor Alkali Products and Vinyls sales generated from legacy businesses decreased by $23.1 million primarily due to lower product prices and lower volumes of hydrochloric acid, partially offset by improved volumes of chlorine and caustic soda. The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. Winchester sales decreased by $13.2 million primarily due to decreased shipments to military and commercial customers.

Gross margin increased $37.2 million, or 41%, compared to the three months ended June 30, 2015. Gross margin of the Acquired Business was $48.0 million. Chlor Alkali Products and Vinyls gross margin from our legacy businesses declined $12.7 million, primarily due to lower product prices and the second quarter 2015 recognition of insurance recoveries associated with our Becancour, Canada chlor alkali facility. The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. These decreases were partially offset by lower operating costs. Winchester gross margin decreased $3.1 million primarily due to lower product prices and higher operating costs, partially offset by lower commodity and other material costs. Gross margin as a percentage of sales decreased to 9% in 2016 from 17% in 2015.

Selling and administration expenses for the three months ended June 30, 2016 increased $39.4 million, or 99%, from the three months ended June 30, 2015 primarily due to selling and administration costs of the Acquired Business of $32.6 million, increased consulting fees of $3.0 million and increased non-income tax expense of $1.0 million. Selling and administration expenses as a percentage of sales were 6% in 2016 and 7% in 2015.

Restructuring charges for the three months ended June 30, 2016 included $7.9 million associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations. Restructuring charges for the three months ended June 30, 2016 and 2015 were also associated with permanently closing a portion of the Becancour, Canada chlor alkali facility and the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.

Acquisition-related costs of $16.3 million and $10.5 million for the three months ended June 30, 2016 and 2015, respectively, were related to the Acquisition and consisted of advisory, legal, accounting, integration and other professional fees.

Other operating (expense) income for the three months ended June 30, 2015 included $42.3 million of insurance recoveries for property damage and business interruption related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014.

Interest expense increased by $29.4 million for the three months ended June 30, 2016, primarily due to a higher level of debt outstanding due to the financing of the Acquisition. The increase was partially offset by acquisition financing expenses of $11.6 million for the three months ended June 30, 2015 associated with the Bridge Financing.

The effective tax rate for the three months ended June 30, 2016 included a benefit of $4.5 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The June 30, 2016 return to provision adjustment included $14.2 million of benefit primarily associated with a change in estimate related to the calculation of salt depletion and $9.7 million of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate for the three months ended June 30, 2016 also included an expense of $4.9 million related to changes in uncertain tax positions for prior tax years. After giving consideration to these two items, the effective tax rate for the three months ended June 30, 2016 of 97.5% was higher than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss. The effective tax rate for the three months ended June 30, 2015 included a benefit of $1.0 million associated with a return to provision adjustment for the finalization of our prior years’ U.S. federal and state income tax returns and an expense of $0.3 million related to the remeasurement of deferred taxes due to an increase in state effective tax rates. After giving consideration to these two items, the effective tax rate for the three months ended June 30, 2015 of 34.7% was lower than the the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP, partially offset by the effect of state income taxes net of the utilization of certain state tax credits.

### Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Sales for the six months ended June 30, 2016 were $2,712.2 million compared to $1,053.4 million in the same period last year, an increase of $1,658.8 million, or 157%. Sales of the Acquired Business were $1,721.0 million. Chlor Alkali Products and Vinyls sales generated from legacy businesses decreased by $54.0 million primarily due to lower product prices and lower volumes of hydrochloric acid and potassium hydroxide, partially offset by increased volumes of chlorine and caustic soda. The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. Winchester sales decreased by $8.2 million primarily due to decreased shipments to military customers and law enforcement agencies, partially offset by increased shipments to commercial customers.

Gross margin increased $125.2 million, or 72%, compared to the six months ended June 30, 2015. Gross margin of the Acquired Business was $144.6 million. Chlor Alkali Products and Vinyls gross margin from our legacy businesses declined $22.4 million, primarily due to lower product prices and the second quarter 2015 recognition of insurance recoveries associated with our Becancour, Canada chlor alkali facility. The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. These decreases were partially offset by lower operating costs. Winchester gross margin decreased $1.8 million primarily due to lower product prices and higher operating costs, partially offset by lower commodity and other material costs. Gross margin as a percentage of sales decreased to 11% in 2016 from 17% in 2015.

Selling and administration expenses for the six months ended June 30, 2016 increased $80.5 million, or 93%, from the six months ended June 30, 2015 primarily due to selling and administration costs of the Acquired Business of $65.0 million, increased consulting fees of $7.6 million, higher legal and legal-related settlement expenses of $2.6 million and increased non-income tax expense of $2.2 million. Selling and administration expenses as a percentage of sales were 6% in 2016 and 8% in 2015.

Restructuring charges for the six months ended June 30, 2016 included $100.1 million associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations, of which $76.6 million were non-cash asset impairment charges. Restructuring charges for the six months ended June 30, 2016 and 2015 were also associated with permanently closing a portion of the Becancour, Canada chlor alkali facility and the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.

Acquisition-related costs of $26.5 million and $20.9 million for the six months ended June 30, 2016 and 2015, respectively, were related to the Acquisition and consisted of advisory, legal, accounting, integration and other professional fees.

Other operating (expense) income for the six months ended June 30, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident. Other operating (expense) income for the six months ended June 30, 2015 included $42.3 million of insurance recoveries for property damage and business interruption related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014.

Interest expense increased by $70.8 million for the six months ended June 30, 2016, primarily due to a higher level of debt outstanding due to the financing of the Acquisition. The increase was partially offset by acquisition financing expenses of $12.0 million for the six months ended June 30, 2015 associated with the Bridge Financing.

The effective tax rate for the six months ended June 30, 2016 included a benefit of $4.5 million associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The June 30, 2016 return to provision adjustment included $14.2 million of benefit primarily associated with a change in estimate related to the calculation of salt depletion and $9.7 million of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate for the six months ended June 30, 2016 also included an expense of $4.0 million related to changes in uncertain tax positions for prior tax years. After giving consideration to these two items, the effective tax rate for the six months ended June 30, 2016 of 50.1% was higher than the 35% U.S. federal statutory rate, primarily due to favorable permanent salt depletion deductions in combination with a pretax loss. The effective tax rate for the six months ended June 30, 2015 included a benefit of $1.0 million associated with a return to provision adjustment for the finalization of our prior years’ U.S. federal and state income tax returns and an expense of $0.3 million related to the remeasurement of deferred taxes due to an increase in state effective tax rates. After giving consideration to these two items, the effective tax rate for the six months ended June 30, 2015 of 34.3% was lower than the the 35% U.S. federal statutory rate, primarily due to favorable permanent tax deduction items, such as the domestic manufacturing deduction and tax deductible dividends paid to the CEOP, partially offset by the effect of state income taxes net of the utilization of certain state tax credits.

### Segment Results

We define segment results as income (loss) before interest expense, interest income, other operating income (expense), and income taxes, and include the operating results of non-consolidated affiliates. Consistent with the guidance in ASC 280, we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. Beginning in the fourth quarter of 2015, we modified our reportable segments due to changes in our organization resulting from the Acquisition. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the newly created Epoxy segment and the Acquired Chlor Alkali Business operating results combined with our former Chlor Alkali Products and Chemical Distribution segments comprise the newly created Chlor Alkali Products and Vinyls segment. The new reporting structure has been retrospectively applied to the financial results for all periods presented. 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.

*($ in millions)*

| Sales: | Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Chlor Alkali Products and Vinyls | $733.0 | $341.2 | $1,437.3 | $680.5 |
| Epoxy | 450.0 | — | 910.2 | — |
| Winchester | 181.0 | 194.2 | 364.7 | 372.9 |
| Total sales | $1,364.0 | $535.4 | $2,712.2 | $1,053.4 |
| Income (loss) before taxes: |  |  |  |  |
| Chlor Alkali Products and Vinyls(1) | $30.7 | $27.4 | $98.8 | $51.5 |
| Epoxy | — | — | 8.2 | — |
| Winchester | 31.2 | 33.9 | 59.9 | 63.7 |
| Corporate/other: |  |  |  |  |
| Pension income(2) | 12.6 | 7.4 | 24.8 | 14.5 |
| Environmental expense | (2.4) | (5.1) | (5.1) | (5.8) |
| Other corporate and unallocated costs | (23.9) | (13.2) | (53.5) | (35.3) |
| Restructuring charges(3) | (8.2) | (0.7) | (101.0) | (1.9) |
| Acquisition-related costs(4) | (16.3) | (10.5) | (26.5) | (20.9) |
| Other operating (expense) income(5) | (0.2) | 42.4 | 10.7 | 42.2 |
| Interest expense(6) | (47.6) | (18.2) | (96.1) | (25.3) |
| Interest income | 0.5 | 0.3 | 0.8 | 0.6 |
| Income (loss) before taxes | $(23.6) | $63.7 | $(79.0) | $83.3 |

(1) Earnings of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results consistent with management’s monitoring of the operating segments. The earnings of non-consolidated affiliates were $0.4 million for both the three months ended June 30, 2016 and 2015 and $0.6 million and $0.8 million for the six months ended June 30, 2016 and 2015, respectively.

(2) The service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data. All other components of pension costs are included in corporate/other and include items such as the expected return on plan assets, interest cost and recognized actuarial gains and losses.

(3) Restructuring charges for the three and six months ended June 30, 2016 included $7.9 million and $100.1 million, respectively, associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations. For the six months ended June 30, 2016, $76.6 million of these charges were non-cash asset impairment charges. Restructuring charges for the three and six months ended June 30, 2016 and 2015 were also associated with permanently closing a portion of the Becancour, Canada chlor alkali facility and the ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS.

(4) Acquisition-related costs for the three and six months ended June 30, 2016 and 2015 were related to the Acquisition and consisted of advisory, legal, accounting, integration and other professional fees.

(5) Other operating (expense) income for the six months ended June 30, 2016 included an $11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident. Other operating (expense) income for the three and six months ended June 30, 2015 included $42.3 million of insurance recoveries for property damage and business interruption related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014.

(6) Interest expense for the three and six months ended June 30, 2015 included acquisition financing expenses of $11.6 million and $12.0 million, respectively, for the Bridge Financing associated with the Acquisition.

### Chlor Alkali Products and Vinyls

### Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Chlor Alkali Products and Vinyls sales for the three months ended June 30, 2016 were $733.0 million compared to $341.2 million for the three months ended June 30, 2015, an increase of $391.8 million, or 115%. The sales increase was primarily due to the inclusion of the Acquired Chlor Alkali Business ($414.9 million) and increased volumes of chlorine and caustic soda ($5.1 million). These increases were partially offset by lower product prices ($19.4 million) and lower volumes of hydrochloric acid ($7.3 million). The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices.

Chlor Alkali Products and Vinyls segment income was $30.7 million for the three months ended June 30, 2016, compared to $27.4 million for the same period in 2015, an increase of $3.3 million, or 12%. Chlor Alkali Products and Vinyls segment income was higher primarily due to the contributions of the Acquired Chlor Alkali Business ($15.4 million) and lower operating and material costs ($17.8 million). These increases were partially offset by lower product prices ($19.4 million), the second quarter 2015 recognition of insurance recoveries associated with our Becancour, Canada chlor alkali facility ($9.9 million) and decreased volumes ($0.6 million). The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. The decreased volumes were primarily due to hydrochloric acid, partially offset by increased volumes of chlorine and caustic soda. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $103.4 million and $29.4 million for the three months ended June 30, 2016 and 2015, respectively.

### Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Chlor Alkali Products and Vinyls sales for the six months ended June 30, 2016 were $1,437.3 million compared to $680.5 million for the six months ended June 30, 2015, an increase of $756.8 million, or 111%. The sales increase was primarily due to the inclusion of the Acquired Chlor Alkali Business ($810.8 million) and increased volumes of chlorine and caustic soda ($6.3 million). These increases were partially offset by lower product prices ($36.0 million) and lower volumes of hydrochloric acid ($17.7 million) and potassium hydroxide ($4.1 million). The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices.

Chlor Alkali Products and Vinyls segment income was $98.8 million for the six months ended June 30, 2016, compared to $51.5 million for the same period in 2015, an increase of $47.3 million, or 92%. Chlor Alkali Products and Vinyls segment income was higher primarily due to the contributions of the Acquired Chlor Alkali Business ($71.7 million) and lower operating and material costs ($24.3 million). These increases were partially offset by lower product prices ($36.0 million), the second quarter 2015 recognition of insurance recoveries associated with our Becancour, Canada chlor alkali facility ($9.9 million) and decreased volumes ($2.8 million). The lower product prices were predominantly due to caustic soda, potassium hydroxide and hydrochloric acid prices, partially offset by increased chlorine prices. The decreased volumes were primarily due to hydrochloric acid and potassium hydroxide, partially offset by increased volumes of chlorine and caustic soda. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $205.3 million and $58.5 million for the six months ended June 30, 2016 and 2015, respectively.

### Epoxy

Epoxy sales for the three and six months ended June 30, 2016 were $450.0 million and $910.2 million, respectively. Epoxy segment income was breakeven and $8.2 million for the three and six months ended June 30, 2016, respectively. Epoxy segment income included depreciation and amortization expense of $23.0 million and $44.7 million for the three and six months ended June 30, 2016, respectively.

### Winchester

### Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Winchester sales were $181.0 million for the three months ended June 30, 2016 compared to $194.2 million for the three months ended June 30, 2015, a decrease of $13.2 million, or 7%. The sales decrease was primarily due to decreased shipments to military customers ($5.9 million), commercial customers ($5.1 million) and law enforcement agencies ($1.9 million).

Winchester reported segment income of $31.2 million for the three months ended June 30, 2016 compared to $33.9 million for the three months ended June 30, 2015, a decrease of $2.7 million, or 8%. The decrease was due to lower selling prices ($3.8 million) and higher operating costs ($3.2 million) and decreased volumes ($0.4 million). These decreases were partially offset by lower commodity and other material costs ($4.7 million). Winchester’s segment income included depreciation and amortization expense of $4.5 million and $4.1 million for the three months ended June 30, 2016 and 2015, respectively.

### Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Winchester sales were $364.7 million for the six months ended June 30, 2016 compared to $372.9 million for the six months ended June 30, 2015, a decrease of $8.2 million, or 2%. The sales decrease was primarily due to lower shipments to military customers ($10.8 million) and law enforcement agencies ($4.5 million). These decreases were partially offset by increased shipments to commercial customers ($6.6 million).

Winchester reported segment income of $59.9 million for the six months ended June 30, 2016 compared to $63.7 million for the six months ended June 30, 2015, a decrease of $3.8 million, or 6%. The decrease was due to higher operating costs ($8.4 million) and lower selling prices ($7.4 million). These decreases were partially offset by lower commodity and other material costs ($9.0 million) and increased volumes and a more favorable product mix ($3.0 million). Winchester’s segment income included depreciation and amortization expense of $9.1 million and $8.3 million for the six months ended June 30, 2016 and 2015, respectively.

### Corporate/Other

### Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

For the three months ended June 30, 2016, pension income included in corporate/other was $12.6 million compared to $7.4 million for the three months ended June 30, 2015. On a total company basis, defined benefit pension income for the three months ended June 30, 2016 was $9.5 million compared to $6.3 million for the three months ended June 30, 2015. The increase in pension income was primarily due to the impact of the change in the approach used to measure service and interest costs elected on the Closing Date.

For the three months ended June 30, 2016, charges to income for environmental investigatory and remedial activities were $2.4 million compared to $5.1 million for the three months ended June 30, 2015. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For the three months ended June 30, 2016, other corporate and unallocated costs were $23.9 million compared to $13.2 million for the three months ended June 30, 2015, an increase of $10.7 million. The increase was primarily due to increased corporate infrastructure costs, such as personnel, consulting and professional fees, that are necessary to support the newly acquired businesses of $6.1 million, higher stock-based compensation expense of $3.8 million, which includes mark-to-market adjustments, and increased non-income tax expense of $1.1 million.

### Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

For the six months ended June 30, 2016, pension income included in corporate/other was $24.8 million compared to $14.5 million for the six months ended June 30, 2015. On a total company basis, defined benefit pension income for the six months ended June 30, 2016 was $18.4 million compared to $12.1 million for the six months ended June 30, 2015. The increase in pension income was primarily due to the impact of the change in the approach used to measure service and interest costs elected on the Closing Date.

For the six months ended June 30, 2016, charges to income for environmental investigatory and remedial activities were $5.1 million compared to $5.8 million for the six months ended June 30, 2015. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For the six months ended June 30, 2016, other corporate and unallocated costs were $53.5 million compared to $35.3 million for the six months ended June 30, 2015, an increase of $18.2 million. The increase was primarily due increased corporate infrastructure costs, such as personnel, consulting and professional fees, that are necessary to support the newly acquired businesses of $11.1 million, increased legal and legal-related settlement expenses of $2.8 million, and higher non-income tax expense of $2.2 million.

### Outlook

Net income in the third quarter of 2016 is projected to be in the $0.10 to $0.20 per diluted share range, which includes pretax restructuring charges of approximately $5 million, pretax acquisition-related integration costs of approximately $15 million and estimated step-up acquisition depreciation and amortization expense of approximately $40 million. Net loss in the second quarter of 2016 was $0.01 per diluted share, which included pretax restructuring charges of $8.2 million and pretax acquisition-related costs of $16.3 million.

Chlor Alkali Products and Vinyls third quarter 2016 segment income is expected to improve compared to the second quarter of 2016 segment income of $30.7 million. The expected increase in segment income anticipates improved volumes and higher caustic soda prices.

Epoxy third quarter 2016 segment income is expected to improve compared to the breakeven results in the second quarter of 2016. The expected increase in segment income is due to improved expected volumes and the absence of significant maintenance-related outage costs.

Winchester third quarter 2016 segment income is expected to be higher than the $31.2 million of segment income achieved during the second quarter of 2016 primarily driven by expected seasonably stronger demand. The Oxford, MS relocation project was completed during the second quarter of 2016. The relocation is forecast to reduce Winchester's annual operating costs by approximately $40 million in 2016 compared to $35.0 million realized in 2015.

Third quarter 2016 Other Corporate and Unallocated costs are expected to be similar to the first quarter of 2016 Other Corporate and Unallocated costs of $29.6 million.

We anticipate third quarter 2016 to include approximately $15 million of acquisition-related integration costs. We anticipate full year 2016 to include approximately $50 million of acquisition-related integration costs associated with outside consulting and professional fees and other personnel related-costs.

During the third quarter of 2016, we are anticipating environmental expenses in the $2 million to $4 million range compared to $2.4 million in the second quarter of 2016. We anticipate that full year 2016 charges for environmental investigatory and remedial activities will be approximately $15 million range. We do not believe that there will be recoveries of environmental costs incurred and expensed in prior periods in 2016. In connection with the Acquisition, TDCC has retained liabilities relating to litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.

We expect qualified defined benefit pension plan income in 2016 to be higher than the 2015 level by approximately $10 million due to the impact of an actuarial change in the calculation of the plan discount rates, partially offset by the costs associated with the acquired plans. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2016. We do have several international qualified defined benefit pension plans to which we anticipate cash contributions of less than $5 million in 2016.

During the third quarter of 2016, we are anticipating pretax restructuring charges of approximately $5 million, associated with the Chlor Alkali Products and Vinyls capacity reduction, the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS and permanently closing a portion of the Becancour, Canada chlor alkali facility.

We have approximately 65% variable rate debt in our new debt profile. As a result, we are estimating our third quarter 2016 interest rate will be approximately 5%. During the second half of 2016, a total of approximately $45 million of debt will mature that is expected to be repaid using available cash.

In 2016, we currently expect our capital spending to be in the $280 million to $320 million range, which includes approximately $30 million of synergy-related capital, which we believe is necessary to realize the anticipated synergies. Based on the preliminary valuation of the newly acquired fixed assets and intangible assets, we estimate our depreciation and amortization expense in 2016 to be in the $515 million to $535 million range, including approximately $160 million of acquisition step-up depreciation and amortization expense.

In 2016, the effective tax rate is not meaningful as we expect significant variation in the customary relationship between tax expense and pretax income due to the lower level of forecasted pretax income and favorable permanent book-tax differences.

### Environmental Matters

Environmental provisions charged to income, which are included in costs of goods sold, were $2.4 million and $5.1 million for the three months ended June 30, 2016 and 2015, respectively, and $5.1 million and $5.8 million for the six months ended June 30, 2016 and 2015, respectively.

Our liabilities for future environmental expenditures were as follows:

*($ in millions)*

|  | June 30, 2016 | 2015 |
| --- | ---: | ---: |
| **Balance at beginning of year** | $138.1 | $138.3 |
| Charges to income | 5.1 | 5.8 |
| Remedial and investigatory spending | (4.9) | (5.4) |
| Currency translation adjustments | 0.6 | (0.8) |
| **Balance at end of period** | $138.9 | $137.9 |

40

Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in 2016 for investigatory and remedial efforts, the timing of which is subject to regulatory approvals and other uncertainties, is estimated to be approximately $20 million. Cash outlays for remedial and investigatory activities associated with former waste disposal sites and past manufacturing operations were not charged to income, but instead, were charged to reserves established for such costs identified and expensed to income in prior periods. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we may incur to protect our interest against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $2.1 million at June 30, 2016. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and Operation, Maintenance and Monitoring (OM&M) expenses that, in our experience, we may incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M. Charges to income for investigatory and remedial efforts were material to operating results in 2015 and are expected to be material to operating results in 2016.

In connection with the Acquisition, TDCC retained liabilities relating to releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.

Our condensed balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to $138.9 million at June 30, 2016, $138.1 million at December 31, 2015 and $137.9 million at June 30, 2015, of which $119.9 million, $119.1 million and $118.9 million, respectively, were classified as other noncurrent liabilities. These amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to income may be made for additional liabilities.

Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other PRPs, our ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial position or results of operations.

### Legal Matters and Contingencies

We, 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. As of June 30, 2016, December 31, 2015 and June 30, 2015, our condensed balance sheets included liabilities for these legal actions of $22.1 million, $21.2 million and $22.4 million, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, TDCC retained liabilities related to litigation to the extent arising prior to the Closing Date.

During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450, and, therefore, do not record gain contingencies and recognize income until it is earned and realizable.

For the six months ended June 30, 2016, we recognized an insurance recovery of $11.0 million in other operating (expense) income for property damage and business interruption related to a 2008 chlor alkali facility incident.

For the three months ended June 30, 2015 we recognized insurance recoveries of $52.2 million for property damage and business interruption related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. Cost of goods sold was reduced by $9.0 million and selling and administration was reduced by $0.9 million for the reimbursement of costs incurred and expensed in prior periods and other operating (expense) income included a gain of $42.3 million.

### Liquidity, Investment Activity and Other Financial Data

### Cash Flow Data

*($ in millions)*

| Provided By (Used For) | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net operating activities | $186.2 | $48.1 |
| Capital expenditures | (137.4) | (51.1) |
| Business acquired in purchase transaction, net of cash acquired | (69.5) | — |
| Payments under long-term supply contract | (85.0) | — |
| Net investing activities | (287.1) | (23.1) |
| Long-term debt repayments | (159.0) | (2.1) |
| Dividends paid | (66.1) | (31.0) |
| Debt and equity issuance costs | — | (18.7) |
| Net financing activities | (224.9) | (49.4) |

### Operating Activities

For the six months ended June 30, 2016, cash provided by operating activities increased by $138.1 million from the six months ended June 30, 2015, primarily due to an increase in our operating results. Our net loss for the six months ended June 30, 2016 included $76.6 million of non-cash impairment charges for equipment and facilities and a $193.0 million increase in depreciation and amortization as compared to prior year. For the six months ended June 30, 2016, working capital increased $63.2 million compared to $51.9 million for the six months ended June 30, 2015. Receivables increased from December 31, 2015 by $37.4 million primarily as a result of higher sales in the second quarter of 2016 compared with fourth quarter of 2015, which was partially offset by receivables sold under the AR Facility. Accounts payable and accrued liabilities decreased from December 31, 2015 by $57.0 million.

### Investing Activities

Capital spending of $137.4 million for the six months ended June 30, 2016 was $86.3 million higher than the corresponding period in 2015. The increased capital spending in 2016 was primarily due to capital spending of $102.1 million of the Acquired Business. For the total year 2016, we expect our capital spending to be in the $280 million to $320 million range, which includes approximately $30 million of synergy-related capital which we believe is necessary to realize the anticipated synergies. Depreciation and amortization expense is forecast to be in the $515 million to $535 million range, including acquisition step-up depreciation and amortization of approximately $160 million.

During the six months ended June 30, 2016, payments of $69.5 million were made related to the Acquisition for certain acquisition-related liabilities including the final working capital adjustment.

During the six months ended June 30, 2016, payments of $85.0 million were made related to arrangements for the long-term supply of low cost electricity.

Proceeds from disposition of property, plant and equipment for the six months ended June 30, 2015 included $24.0 million of insurance recoveries for property damage related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014.

We received $4.4 million from the October 2013 sale of a bleach joint venture for both the six months ended June 30, 2016 and 2015.

### Financing Activities

In June 2016, $125.0 million under the 2016 Notes became due and was repaid. For the six months ended June 30, 2016, we repaid $33.8 million under the required quarterly installments of the $1,350.0 million term loan facility. For the six months ended June 30, 2015, we repaid $1.9 million under the required quarterly installments of the $150.0 million term loan facility.

We issued less than 0.1 million shares and 0.1 million shares representing stock options exercised for the six months ended June 30, 2016 and 2015, respectively, with a total value of $0.2 million and $3.1 million, respectively.

For the six months ended June 30, 2015, we paid deferred debt issuance costs of $18.7 million for the Bridge Financing associated with the Acquisition.

The percent of total debt to total capitalization decreased to 61.3% at June 30, 2016 from 61.4% at December 31, 2015. The decrease was primarily due to a lower level of long-term debt outstanding due to the quarterly installment payments of the $1,350.0 million term loan facility and the repayment of the 2016 Notes. This decrease was partially offset by lower shareholders’ equity primarily resulting from the net loss for the six months ended June 30, 2016.

In the first two quarters of 2016 and 2015, we paid a quarterly dividend of $0.20 per share. Dividends paid for the six months ended June 30, 2016 and 2015 were $66.1 million and $31.0 million, respectively. On July 28, 2016, our board of directors declared a dividend of $0.20 per share on our common stock, payable on September 9, 2016 to shareholders of record on August 10, 2016.

The payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial condition, our capital requirements and other factors deemed relevant by our board of directors. In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

### Liquidity and Other Financing Arrangements

Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and short-term borrowings under our senior revolving credit facility. Additionally, we believe that we have access to the debt and equity markets.

The aggregate purchase price of the Acquired Business was $5,136.7 million, after the final post-closing adjustments. The $5,136.7 million consisted of $2,095.0 million of cash and debt transferred to TDCC and approximately 87.5 million shares of Olin common stock valued at approximately $1,527.4 million, plus the assumption of pension liabilities of $442.3 million and long-term debt of $569.0 million. The value of the common stock was based on the closing stock price on the last trading day prior to the Closing Date of $17.46.

Certain additional agreements have been entered into, including, among others, an Employee Matters Agreement, a Tax Matters Agreement, site, transitional and other service agreements, supply and purchase agreements, real estate agreements, technology licenses and intellectual property agreements. For the three months ended June 30, 2016, payments of $69.5 million were made related to certain acquisition-related liabilities including the final working capital adjustment. In addition, Olin and TDCC have agreed in connection with the Acquisition to enter into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin made upfront payments of $433.5 million in order to receive ethylene at producer economics and for certain reservation fees for the option to obtain additional future ethylene supply at producer economics. During the three months ended June 30, 2016, one of the options to obtain additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of approximately $210 million in 2017, which will increase the value of the long-term asset. If the remaining option is exercised by us, additional payments will be made to TDCC of between $425 million and $465 million in 2020, which will increase the value of the long-term asset.

Debt that was issued in the fourth quarter of 2015 relating to the Acquisition totaled $3,370.0 million, consisting of $1,350.0 million of term loans under senior credit facilities, an $800.0 million term loan under the Sumitomo Credit Facility and $1,220.0 million under the Notes. The new debt was used for the cash and debt transferred to TDCC, refinancing existing Spinco indebtedness outstanding at the Closing Date of the Acquisition, refinancing our existing senior term loan facility due in 2019, paying fees and expenses in connection with the Acquisition and for general corporate purposes.

During June 2016 and July 2016, Olin entered into arrangements to increase its 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 a payment of $85 million during the three months ended June 30, 2016. Additional payments of approximately $90 million are expected to be made in the third quarter of 2016 in connection with these arrangements. The payments made under these arrangements will be amortized over the life of the contracts as electrical power is received.

The overall cash decrease of $325.4 million for the six months ended June 30, 2016 primarily reflects the normal seasonal increase in working capital, capital spending, which includes capital spending of the Acquired Business, repayment of long-term debt, payments made under arrangements to increase our supply of low cost electricity and payments to TDCC related to certain acquisition related liabilities, including the final working capital adjustment. These decreases were partially offset by our operating results. We believe, based on current and projected levels of cash flow from our operations, together with our cash and cash equivalents on hand and the availability to borrow under our senior revolving credit facility, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, make amortization payments under the senior credit facilities, fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements.

On June 23, 2015, Spinco entered into a new five-year delayed-draw term loan facility of up to $1,050.0 million. As of the Closing Date, Spinco drew $875.0 million to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year $1,850.0 million senior credit facility consisting of a $500.0 million senior revolving credit facility, which replaced Olin’s $265.0 million senior revolving credit facility at the Closing Date, and a $1,350.0 million (subject to reduction by the aggregate amount of the term loans funded to Spinco under the Spinco term loan facility) delayed-draw term loan facility. As of the Closing Date, an additional $475.0 million was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Acquisition, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. As of the Closing Date, total borrowings under the term loan facilities were $1,350.0 million. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single $1,850.0 senior credit facility, which includes a $1,350.0 million term loan facility. This new senior credit facility will expire in 2020. The $500.0 million senior revolving credit facility includes a $100.0 million letter of credit subfacility. At June 30, 2016, we had $481.9 million available under our $500.0 million senior revolving credit facility because we had issued $18.1 million of letters of credit under the $100.0 million subfacility. The term loan facility includes amortization payable in equal quarterly installments at a rate of 5.0% per annum for the first two years, increasing to 7.5% per annum for the following year and to 10.0% per annum for the last two years. Under the new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of June 30, 2016 and 2015, and December 31, 2015, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. As of June 30, 2016, there were no covenants or other restrictions that limited our ability to borrow. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities.

On June 29, 2016, we entered into a trade accounts receivable factoring arrangement (the AR Facility). Pursuant to the terms of the AR Facility, certain of our subsidiaries may sell their accounts receivable up to a maximum of $100.0 million. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 and, accordingly, the proceeds are included in net cash provided by operating activities in the Condensed Statement of Cash Flows. The gross amount of receivables sold for the three months ended June 30, 2016 totaled $26.8 million. The factoring discount paid under the AR Facility is recorded as interest expense on the Condensed Statement of Operations. The agreement is without recourse and therefore no recourse liability has been recorded as of June 30, 2016.

Cash flow from operations is variable as a result of both the seasonal and the cyclical nature of our operating results, which have been affected by seasonal and economic cycles in many of the industries we serve, such as the vinyls, urethanes, bleach, ammunition and pulp and paper. The Acquired Business has significantly diversified our product and geographic base, which should enable us to be less cyclical. 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 the six months ended June 30, 2016, cash provided by operating activities increased by $138.1 million from the six months ended June 30, 2015, primarily due to an increase in our operating results. Our net loss for the six months ended June 30, 2016 included $76.6 million of non-cash impairment charges for equipment and facilities and a $193.0 million increase in depreciation and amortization as compared to prior year. For the six months ended June 30, 2016, working capital increased $63.2 million compared to $51.9 million for the six months ended June 30, 2015. Receivables increased from December 31, 2015 by $37.4 million primarily as a result of higher sales in the second quarter of 2016 compared with fourth quarter of 2015, which was partially offset by receivables sold under the AR Facility. Accounts payable and accrued liabilities decreased from December 31, 2015 by $57.0 million.

Capital spending of $137.4 million for the six months ended June 30, 2016 was $86.3 million higher than the corresponding period in 2015. The increased capital spending in 2016 was primarily due to capital spending of $102.1 million of the Acquired Business. For the total year 2016, we expect our capital spending to be in the $280 million to $320 million range, which includes approximately $30 million of synergy-related capital which we believe is necessary to realize the anticipated synergies. Depreciation and amortization expense is forecast to be in the $515 million to $535 million range, including acquisition step-up depreciation and amortization of approximately $160 million.

On April 24, 2014, our board of directors authorized a share repurchase program for up to 8 million shares of common stock that will terminate in three years for any of the remaining shares not yet repurchased. For the six months ended June 30, 2016, no shares were purchased and retired. As of June 30, 2016, we had purchased a total of 1.9 million shares under the April 2014 program, and 6.1 million shares remained authorized to be purchased. Under the Merger Agreement relating to the Acquisition, we were restricted from repurchasing shares of our common stock prior to the consummation of the merger. For a period of two years subsequent to the Closing Date, we will continue to be subject to certain restrictions on our ability to conduct share repurchases.

At June 30, 2016, we had total letters of credit of $72.4 million outstanding, of which $18.1 million were issued under our $500.0 million senior revolving credit facility. The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain Canadian pension funding requirements.

As of June 30, 2016, we had long-term borrowings, including current installments and capital lease obligations, of $3,695.8 million, of which $2,272.1 million was issued at variable rates. Commitments from banks under our senior revolving credit facility are an additional source of liquidity.

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, pays 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, pays 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 June 2012, we terminated $73.1 million of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of $2.2 million, which will be recognized through 2017. As of June 30, 2016, $0.3 million of this gain was included in long-term debt.

In March 2010, we entered into interest rate swaps on $125 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In October 2011, we entered into $125 million of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 2016 Notes. We have agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to these agreements was also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which as of June 30, 2016 has been recognized. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.

### Off-Balance Sheet Arrangements

Non-cancelable operating leases and purchasing commitments are utilized in our normal course of business for our projected needs. In connection with the Acquisition, certain additional agreements have been entered into with TDCC, including, long-term purchase agreements for raw materials. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key raw materials received from TDCC include ethylene, propylene and benzene.

### New Accounting Standards

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) 2016-09 “Improvements to Employee Share-Based Payment Accounting,” which amends ASC 718 “Compensation—Stock Compensation.” This update will simplify the income tax consequences, accounting for forfeitures and classification on the statements of cash flows of share-based payment arrangements. This standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which amends ASC 740. This update requires deferred income tax liabilities and assets, and any related valuation allowance, to be classified as noncurrent on the balance sheet. This update simplifies the current guidance requiring the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be applied either prospectively or retrospectively, with earlier application permitted. We adopted the provisions of ASU 2015-17 on December 31, 2015, which was applied prospectively, and, therefore, all prior periods have not been retrospectively adjusted.

In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement—Period Adjustments” (ASU 2015-16), which amends ASC 805 “Business Combinations.” This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. We adopted ASU 2015-16 on January 1, 2016. This update is applied prospectively to adjustments of provisional amounts that occur after the effective date with earlier application permitted. The adoption of this standard could impact our consolidated financial statements as we finalize the preliminary purchase accounting for the Acquired Business.

In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03) and, in August 2015, the FASB issued ASU 2015-15 “Interest—Imputation of Interest” (ASU 2015-15), which both amend ASC 835-30 “Interest—Imputation of Interest.” These updates require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability while debt issuance costs related to line-of-credit arrangements will continue to be presented as an asset. We adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016 which required retrospective application. As of June 30, 2016, December 31, 2015, and June 30, 2015, debt issuance costs of $29.1 million, $31.4 million and $5.3 million, respectively, were reclassified within our condensed balance sheet from other assets to long-term debt and zero, $1.5 million and $2.7 million, respectively, were reclassified within our condensed balance sheet from other assets to current installments of long-term debt.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). This update provides guidance on how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of this update 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. This update also expands the disclosure requirements surrounding revenue recorded from contracts with customers. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers,” which amends ASC 606. This update defers the effective date of ASU 2014-09 to fiscal years, and interim periods within those years, beginning after December 15, 2017, a deferral of one year from the previous effective date. In March 2016, the FASB issued ASU 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (ASU 2016-08), which amends ASC 606. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10 “Identifying Performance Obligations and Licensing” (ASU 2016-10), which amends ASC 606. ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. In May 2016, the FASB issued ASU 2016-12 “Narrow-Scope Improvements and Practical Expedients” (ASU 2016-12), which amends ASC 606. ASU 2016-12 addresses narrow-scope improvements to the guidance on collectibility, noncash consideration, and completed contracts at transition. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. We are currently evaluating the effect of these updates on our financial statements and have not yet determined the method of initial application we will use.

## Market risk

As filed, 6,016 characters.

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 and put and call option contracts in order to reduce the impact of commodity price fluctuations. As of June 30, 2016, we maintained open positions on futures contracts with a notional value totaling $55.5 million ($63.6 million at December 31, 2015 and $75.8 million at June 30, 2015). Assuming a hypothetical 10% increase in commodity prices which are currently hedged, as of June 30, 2016, we would experience a $5.6 million ($6.4 million at December 31, 2015 and $7.6 million at June 30, 2015) 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 $15.1 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.

We are exposed to changes in interest rates primarily as a result of our investing and financing activities. The effect of interest rates on our investing activity is not material to our consolidated financial position, results of operations or cash flows. Our current debt structure is used to fund business operations, and commitments from banks under our senior revolving credit facility are a source of liquidity. As of June 30, 2016, December 31, 2015 and June 30, 2015, we had long-term borrowings, including current installments and capital lease obligations, of $3,695.8 million, $3,848.8 million and $664.1 million, respectively, of which $2,272.1 million, $2,305.9 million and $304.0 million at June 30, 2016, December 31, 2015 and June 30, 2015, respectively, were issued at variable rates.

In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pays 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, pays 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 June 2012, we terminated $73.1 million of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of $2.2 million, which will be recognized through 2017. As of June 30, 2016, $0.3 million of this gain was included in long-term debt.

In March 2010, we entered into interest rate swaps on $125 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to a counterparty who, in turn, paid us fixed rates. The counterparty to these agreements was Citibank. In October 2011, we entered into $125 million of interest rate swaps with equal and opposite terms as the $125 million variable interest rate swaps on the 2016 Notes. We have agreed to pay a fixed rate to a counterparty who, in turn, paid us variable rates. The counterparty to these agreements was also Citibank. The result was a gain of $11.0 million on the $125 million variable interest rate swaps, which as of June 30, 2016 has been recognized. In October 2011, we de-designated our $125 million interest rate swaps that had previously been designated as fair value hedges. The $125 million variable interest rate swaps and the $125 million fixed interest rate swaps did not meet the criteria for hedge accounting. All changes in the fair value of these interest rate swaps were recorded currently in earnings.

Our interest rate swaps reduced interest expense by $1.9 million and $1.4 million for the six months ended June 30, 2016 and 2015, 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.

## Controls and procedures

As filed, 7,623 characters.

Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information Olin is required to disclose in the reports that it files or submits with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that information we are required to disclose in such reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, on October 5, 2015, we acquired from TDCC the Acquired Business. In accordance with the SEC's published guidance, our Annual Report on Form 10-K for the year ending December 31, 2015 did not include consideration of the internal controls of the Acquired Business within management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2015. We are in the process of integrating the Acquired Business into our overall internal control over financial reporting process and will incorporate the Acquired Business into our annual assessment of internal control over financial reporting as of December 31, 2016.

### Cautionary Statement Regarding Forward-Looking Statements

This quarterly report on Form 10-Q includes forward-looking statements. These statements relate to analyses and other information that are based on management’s beliefs, certain assumptions made by management, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which we and our various segments operate. These statements may include statements regarding the recent acquisition of the Acquired Business from TDCC, the expected benefits and synergies of the transaction, and future opportunities for the combined company following the transaction. The statements contained in this quarterly report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.

We have used the words “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “project,” “estimate,” “forecast,” “optimistic,” and variations of such words and similar expressions in this quarterly report to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control.

Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. Relative to the dividend, the payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial conditions, our capital requirements and other factors deemed relevant by our board of directors. In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the “Risk Factors” section of our our Annual Report on Form 10-K for the year ended December 31, 2015, include, but are not limited to the following:

- sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us, such as ammunition, vinyls, urethanes, and pulp and paper, and the migration by United States customers to low-cost foreign locations;
- the cyclical nature of our operating results, particularly declines in average selling prices in the chlor alkali industry and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products;
- our substantial amount of indebtedness and significant debt service obligation;
- weak industry conditions could affect our ability to comply with the financial maintenance covenants in our senior credit facilities;
- the integration of the Acquired Business being more difficult, time-consuming or costly than expected;
- higher-than-expected raw material and energy, transportation and/or logistics costs;
- our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
- economic and industry downturns that result in diminished product demand and excess manufacturing capacity in any of our segments and that, in many cases, result in lower selling prices and profits;
- new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
- changes in legislation or government regulations or policies;
- failure to control costs or to achieve targeted cost reductions;
- adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital;
- costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
- unexpected litigation outcomes;
- complications resulting from our multiple enterprise resource planning (ERP) systems;
- the failure or an interruption of our information technology systems;
- the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
- the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan;
- future funding obligations to our qualified defined benefit pension plan attributable to assumed pension liabilities;
- fluctuations in foreign currency exchange rates;
- failure to attract, retain and motivate key employees;
- our ability to provide the same types and levels of benefits, services and resources to the Acquired Business that historically have been provided by TDCC at the same cost;
- differences between the historical financial information of Olin and the Acquired Business and our future operating performance;
- the effect of any changes resulting from the transaction with TDCC in customer, supplier and other business relationships; and
- the effects of restrictions imposed on our business following the transaction with TDCC in order to avoid significant tax-related liabilities.

All of our forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.

Filed Aug 2, 2016.
Source: SEC EDGAR, the filing index for accession 0000074303-16-000144. Last ingested by Listed: Nov 4, 2026, 19:33 ET. No prices; not investment advice.