# OLIN Corp: Form 10-Q for the period ended Jun 30, 2017

- Company: [OLIN Corp](/companies/oln.md) (CIK 74303)
- Form: 10-Q
- Filed: 2017-08-01
- Accepted by EDGAR: Aug 1, 2017, 15:48 ET
- Period: 2017-06-30
- Accession: 0000074303-17-000063
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/74303/000007430317000063/oln-2017630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/74303/000007430317000063/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-04-01 to 2017-06-30 | $1.40bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2017-01-01 to 2017-06-30 | $2.80bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2017-04-01 to 2017-06-30 | $80.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2017-01-01 to 2017-06-30 | $168.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-04-01 to 2017-06-30 | $29.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2017-01-01 to 2017-06-30 | $99.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-04-01 to 2017-06-30 | $52.5m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2017-01-01 to 2017-06-30 | $104.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-04-01 to 2017-06-30 | −$15.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2017-01-01 to 2017-06-30 | −$11.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-04-01 to 2017-06-30 | −$5.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2017-01-01 to 2017-06-30 | $7.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-04-01 to 2017-06-30 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2017-01-01 to 2017-06-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-04-01 to 2017-06-30 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2017-01-01 to 2017-06-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-04-01 to 2017-06-30 | 166,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2017-01-01 to 2017-06-30 | 168,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2017-01-01 to 2017-06-30 | $227.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2017-01-01 to 2017-06-30 | $150.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2017-01-01 to 2017-06-30 | $66.3m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2017-06-30 | $184.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-06-30 | $1.69bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-06-30 | $8.79bn | us-gaap:Assets |
| Current liabilities | at 2017-06-30 | $1.01bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-06-30 | $6.54bn | us-gaap:Liabilities |
| Long-term debt | at 2017-06-30 | $3.52bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2017-06-30 | $81.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2017-06-30 | $2.26bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2017-06-30 | 166,258,140 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 71,129 characters.

### 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 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.

### Executive Summary

### 2017 Overview

Chlor Alkali Products and Vinyls generated segment income of $52.8 million and $140.3 million for the three and six months ended June 30, 2017, respectively. Chlor Alkali Products and Vinyls segment income was higher than the comparable prior year periods due to higher caustic soda and EDC product prices and lower operating costs, partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages. Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher than the comparable prior year periods. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $106.6 million and $103.4 million for the three months ended June 30, 2017 and 2016, respectively, and $211.2 million and $205.3 million for the six months ended June 30, 2017 and 2016, respectively.

For the final nine months of 2016, caustic soda price indices increased resulting in positive product price momentum into 2017. During the first two quarters of 2017, North America caustic soda price contract indices increased an additional $60 per ton. During May 2017, a caustic soda price increase of $70 per ton was announced. This price increase is in the process of being implemented and while the success of this price increase is not yet known, the majority of the benefit, if realized, would impact third and fourth quarters of 2017 results.

Epoxy reported a segment loss of $8.1 million and $9.3 million for the three and six months ended June 30, 2017, respectively. Epoxy segment results are lower than the comparable prior year periods due to increased raw material costs, primarily associated with benzene and propylene, partially offset by increased product prices. Epoxy segment income included depreciation and amortization expense of $22.8 million and $23.0 million for the three months ended June 30, 2017 and 2016, respectively, and $45.2 million and $44.7 million for the six months ended June 30, 2017 and 2016, respectively.

Winchester reported segment income of $19.0 million and $44.1 million for the three and six months ended June 30, 2017, respectively. Winchester segment income declined from the comparable prior year periods primarily due to a lower level of commercial demand for shotshell, pistol and rifle ammunition and a less favorable product mix, partially offset by increased shipments to military customers. Winchester segment income included depreciation and amortization expense of $4.5 million for both the three months ended June 30, 2017 and 2016, and $9.4 million and $9.1 million for the six months ended June 30, 2017 and 2016, respectively.

### Financing

On March 9, 2017, we entered into a new five-year $1,975.0 million senior credit facility consisting of a $600.0 million senior revolving credit facility, which replaced our previous $500.0 million senior revolving credit facility, and a $1,375.0 million term loan facility. The proceeds of the term loan facility were used to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The Amended Senior Credit Facility will mature in March 2022.

On March 9, 2017, we issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15, 2027. The proceeds of the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.

For the six months ended June 30, 2017, we made long-term debt repayments of $1,890.1 million including $1,282.5 million related to the existing term loan facility, $590.0 million related to the Sumitomo Credit Facility and $17.2 million under the required quarterly installments of the $1,375.0 million term loan facility.

### Consolidated Results of Operations

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

|  | Three Months Ended June 30, 2017 | 2016 | Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $1,526.5 | $1,364.0 | $3,093.6 | $2,712.2 |
| Cost of goods sold | 1,404.1 | 1,236.9 | 2,797.8 | 2,412.3 |
| Gross margin | 122.4 | 127.1 | 295.8 | 299.9 |
| Selling and administration | 80.0 | 79.3 | 168.2 | 167.4 |
| Restructuring charges | 8.5 | 8.2 | 16.7 | 101.0 |
| Acquisition-related costs | 4.4 | 16.3 | 11.4 | 26.5 |
| Other operating income (expense) | 0.3 | (0.2) | (0.1) | 10.7 |
| Operating income | 29.8 | 23.1 | 99.4 | 15.7 |
| Earnings of non-consolidated affiliates | 0.5 | 0.4 | 1.0 | 0.6 |
| Interest expense | 52.5 | 47.6 | 104.9 | 96.1 |
| Interest income | 0.4 | 0.5 | 0.6 | 0.8 |
| Loss before taxes | (21.8) | (23.6) | (3.9) | (79.0) |
| Income tax benefit | (15.9) | (22.6) | (11.4) | (40.1) |
| Net (loss) income | $(5.9) | $(1.0) | $7.5 | $(38.9) |
| Net (loss) income per common share: |  |  |  |  |
| Basic | $(0.04) | $(0.01) | $0.05 | $(0.24) |
| Diluted | $(0.04) | $(0.01) | $0.04 | $(0.24) |

39

### Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Sales for the three months ended June 30, 2017 were $1,526.5 million compared to $1,364.0 million in the same period last year, an increase of $162.5 million, or 12%. Chlor Alkali Products and Vinyls sales increased by $132.1 million primarily due to higher caustic soda and EDC product prices and increased volumes. Epoxy sales increased by $42.0 million primarily due to higher product prices. Winchester sales decreased by $11.6 million primarily due to decreased shipments to commercial customers, partially offset by increased shipments to military customers.

Gross margin decreased $4.7 million compared to the three months ended June 30, 2016. Epoxy gross margin decreased $12.9 million primarily due to increased raw material costs, primarily associated with benzene and propylene, partially offset by higher product prices. Winchester gross margin decreased $12.4 million primarily due to lower level of commercial demand for shotshell, pistol and rifle ammunition and a less favorable product mix, partially offset by increased shipments to military customers. Chlor Alkali Products and Vinyls gross margin increased by $18.9 million primarily due to higher caustic soda and EDC product prices and lower operating costs, partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages. Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher than the comparable prior year period. Gross margin as a percentage of sales decreased to 8% in 2017 from 9% in 2016.

Selling and administration expenses for the three months ended June 30, 2017 were $80.0 million, an increase of $0.7 million from the same period last year. The increase was primarily due to an unfavorable foreign currency impact of $2.4 million and higher consulting and contract services of $1.7 million, partially offset by lower legal and legal-related settlement expenses of $1.3 million and lower stock-based compensation expense of $0.8 million, which includes mark-to-market adjustments. Selling and administration expenses as a percentage of sales were 5% in 2017 and 6% in 2016.

Restructuring charges for the three months ended June 30, 2017 and 2016 of $8.5 million and $8.2 million, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. Restructuring charges for the three months ended June 30, 2016 were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS, which was completed in 2016.

Acquisition-related costs of $4.4 million and $16.3 million for the three months ended June 30, 2017 and 2016, respectively, were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.

Interest expense increased by $4.9 million for the three months ended June 30, 2017, primarily due to higher interest rates, partially offset by a lower level of debt outstanding.

The effective tax rate for the three months ended June 30, 2017 included a benefit of $9.5 million related to an agreement reached with the Internal Revenue Service (IRS) for the years 2008, 2010 to 2012 tax examinations. The effective tax rate for the three months ended June 30, 2017 also included a benefit of $0.9 million associated with stock-based compensation. After giving consideration to these items, the effective tax rate for the three months ended June 30, 2017 of 25.2% was lower than the 35% U.S. federal statutory rate primarily due to favorable permanent tax deduction items, such as the salt depletion deduction and tax deductible dividends paid to the Contributing Employee Ownership Plan (CEOP). 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 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.

### Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Sales for the six months ended June 30, 2017 were $3,093.6 million compared to $2,712.2 million in the same period last year, an increase of $381.4 million, or 14%. Chlor Alkali Products and Vinyls sales increased by $264.7 million primarily due to higher caustic soda and EDC product prices and increased volumes. Epoxy sales increased by $149.4 million primarily due to higher product prices and increased volumes. Winchester sales decreased by $32.7 million primarily due to decreased shipments to commercial customers, partially offset by increased shipments to military customers.

Gross margin decreased $4.1 million compared to the six months ended June 30, 2016. Epoxy gross margin decreased $23.9 million primarily due to increased raw material costs, primarily associated with benzene and propylene, partially offset by higher product prices and increased volumes. Winchester gross margin decreased $18.1 million primarily due to lower volumes and a less favorable product mix, primarily due to lower level of commercial demand for shotshell, pistol and rifle ammunition, partially offset by increased shipments to military customers. Chlor Alkali Products and Vinyls gross margin increased by $35.8 million, primarily due to higher caustic soda and EDC product prices, increased volumes with a favorable product mix and lower operating costs. These increases were partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages. Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher than the comparable prior year period. Gross margin as a percentage of sales decreased to 10% in 2017 from 11% in 2016.

Selling and administration expenses for the six months ended June 30, 2017 were $168.2 million, an increase of $0.8 million from the same period last year. The increase was primarily due to an unfavorable foreign currency impact of $4.0 million and higher stock-based compensation expense of $4.5 million, which includes mark-to-market adjustments, partially offset by lower legal and legal-related settlement expenses of $6.0 million. Selling and administration expenses as a percentage of sales were 5% in 2017 and 6% in 2016.

Restructuring charges for the six months ended June 30, 2017 and 2016 of $16.7 million and $101.0 million, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. For the six months ended June 30, 2016, $76.6 million of these charges were non-cash asset impairment charges for equipment and facilities. Restructuring charges for the six months ended June 30, 2016 were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS, which was completed in 2016.

Acquisition-related costs of $11.4 million and $26.5 million for the six months ended June 30, 2017 and 2016, respectively, were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.

Other operating income (expense) 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.

Interest expense increased by $8.8 million for the six months ended June 30, 2017, primarily due to higher interest rates and the write-off of unamortized deferred debt issuance costs of $2.7 million associated with the redemption of the Sumitomo Credit Facility and the Senior Credit Facility. These increases were partially offset by a lower level of debt outstanding.

The effective tax rate for the six months ended June 30, 2017 included a benefit of $9.5 million related to an agreement reached with the IRS for the years 2008, 2010 to 2012 tax examinations and a benefit of $2.4 million associated with stock-based compensation. The effective tax rate for the six months ended June 30, 2017 also included $1.0 million of tax expense associated with prior year tax positions. After giving consideration to these items, the effective tax rate for the six months ended June 30, 2017 of 12.8% was lower than the 35% U.S. federal statutory rate primarily due to favorable permanent tax deduction items, such as the salt depletion deduction and tax deductible dividends paid to the CEOP. 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 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.

### 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, “Segment Reporting” (ASC 280), we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. 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.

*($ in millions)*

| Sales: | Three Months Ended June 30, 2017 | 2016 | Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Chlor Alkali Products and Vinyls | $865.1 | $733.0 | $1,702.0 | $1,437.3 |
| Epoxy | 492.0 | 450.0 | 1,059.6 | 910.2 |
| Winchester | 169.4 | 181.0 | 332.0 | 364.7 |
| Total sales | $1,526.5 | $1,364.0 | $3,093.6 | $2,712.2 |
| Income (loss) before taxes: |  |  |  |  |
| Chlor Alkali Products and Vinyls(1) | $52.8 | $30.7 | $140.3 | $98.8 |
| Epoxy | (8.1) | — | (9.3) | 8.2 |
| Winchester | 19.0 | 31.2 | 44.1 | 59.9 |
| Corporate/other: |  |  |  |  |
| Pension income(2) | 10.7 | 12.6 | 21.0 | 24.8 |
| Environmental expense | (1.8) | (2.4) | (4.4) | (5.1) |
| Other corporate and unallocated costs | (29.7) | (23.9) | (63.1) | (53.5) |
| Restructuring charges(3) | (8.5) | (8.2) | (16.7) | (101.0) |
| Acquisition-related costs(4) | (4.4) | (16.3) | (11.4) | (26.5) |
| Other operating income (expense)(5) | 0.3 | (0.2) | (0.1) | 10.7 |
| Interest expense | (52.5) | (47.6) | (104.9) | (96.1) |
| Interest income | 0.4 | 0.5 | 0.6 | 0.8 |
| Loss before taxes | $(21.8) | $(23.6) | $(3.9) | $(79.0) |

(1) Earnings of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results consistent with management’s monitoring of the operating segments. The earnings of non-consolidated affiliates were $0.5 million and $0.4 million for the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively.

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

(3) Restructuring charges for the three months ended June 30, 2017 and 2016 of $8.5 million and $8.2 million, respectively, and for the six months ended June 30, 2017 and 2016 of $16.7 million and $101.0 million, respectively, were primarily associated with the closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the Becancour, Canada chlor alkali facility. For six months ended June 30, 2016, $76.6 million of these charges were non-cash asset impairment charges for equipment and facilities. Restructuring charges for the three and six months ended June 30, 2016 were also associated with the relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS which was completed in 2016.

(4) Acquisition-related costs for the three and six months ended June 30, 2017 and 2016 were related to the integration of the Acquired Business, and consisted of advisory, legal, accounting and other professional fees.

(5) Other operating income (expense) 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.

### Chlor Alkali Products and Vinyls

### Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Chlor Alkali Products and Vinyls sales for the three months ended June 30, 2017 were $865.1 million compared to $733.0 million for the same period in 2016, an increase of $132.1 million, or 18%. The sales increase was primarily due to higher product prices ($103.8 million) and increased volumes ($28.3 million). The higher product prices were primarily related to caustic soda and EDC prices.

Chlor Alkali Products and Vinyls segment income was $52.8 million for the three months ended June 30, 2017 compared to $30.7 million for the same period in 2016, an increase of $22.1 million, or 72%. Chlor Alkali Products and Vinyls segment income was higher due to higher product prices ($103.8 million) and lower operating costs ($11.1 million). These increases were partially offset by higher maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages ($74.8 million). Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher compared to the prior year ($18.0 million). The higher product prices were primarily related to caustic soda and EDC prices. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $106.6 million and $103.4 million for the three months ended June 30, 2017 and 2016, respectively.

### Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Chlor Alkali Products and Vinyls sales for the six months ended June 30, 2017 were $1,702.0 million compared to $1,437.3 million for the same period in 2016, an increase of $264.7 million, or 18%. The sales increase was primarily due to increased product prices ($177.9 million) and increased volumes ($86.8 million). The higher product prices and increased volumes were primarily due to caustic soda and EDC.

Chlor Alkali Products and Vinyls segment income was $140.3 million for the six months ended June 30, 2017 compared to $98.8 million for the same period in 2016, an increase of $41.5 million, or 42%. Chlor Alkali Products and Vinyls segment income was higher due to higher product prices ($177.9 million), lower operating costs ($15.0 million) and increased volumes with a favorable product mix ($5.8 million). These increases were partially offset by higher planned maintenance costs, unabsorbed fixed manufacturing costs and reduced profit from lost sales associated with the turnarounds and outages ($102.5 million). Electricity costs, primarily driven by higher natural gas prices, and ethylene costs were also higher compared to the prior year ($54.7 million). The higher product prices and increased volumes were primarily related to caustic soda and EDC. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $211.2 million and $205.3 million for the six months ended June 30, 2017 and 2016, respectively.

### Epoxy

### Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Epoxy sales for the three months ended June 30, 2017 were $492.0 million compared to $450.0 million for the same period in 2016, an increase of $42.0 million, or 9%. The sales increase was primarily due to higher product prices ($42.0 million).

Epoxy segment loss was $8.1 million for the three months ended June 30, 2017, compared to breakeven for the same period in 2016, a decrease in segment results of $8.1 million. Epoxy segment results were lower primarily due to increased raw material costs ($56.6 million), primarily associated with benzene and propylene. These decreases were partially offset by higher product prices ($42.0 million) and lower operating costs ($6.5 million). Epoxy segment income included depreciation and amortization expense of $22.8 million and $23.0 million for the three months ended June 30, 2017 and 2016, respectively.

### Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Epoxy sales for the six months ended June 30, 2017 were $1,059.6 million compared to $910.2 million for the same period in 2016, an increase of $149.4 million, or 16%. The sales increase was primarily due to higher product prices ($82.1 million) and increased volumes and product mix ($67.3 million).

Epoxy segment loss was $9.3 million for the six months ended June 30, 2017 compared to segment income of $8.2 million for the same period in 2016, a decrease in segment results of $17.5 million. Epoxy segment results were lower primarily due to increased raw material costs ($134.2 million), primarily associated with benzene and propylene. These decreases were partially offset by higher product prices ($82.1 million), increased volumes and product mix ($30.9 million) and lower operating costs ($3.7 million). Epoxy segment income included depreciation and amortization expense of $45.2 million and $44.7 million for the six months ended June 30, 2017 and 2016, respectively.

### Winchester

### Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Winchester sales were $169.4 million for the three months ended June 30, 2017 compared to $181.0 million for the same period in 2016, a decrease of $11.6 million, or 6%. The sales decrease was primarily due to lower ammunition sales to commercial customers ($20.9 million), partially offset by increased shipments to military customers ($10.6 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.

Winchester reported segment income of $19.0 million for the three months ended June 30, 2017 compared to $31.2 million for the same period in 2016, a decrease of $12.2 million, or 39%. The decrease was due to lower volumes and a less favorable product mix ($4.9 million), increased operating costs ($3.4 million), increased commodity and other material costs ($2.1 million) and lower product prices ($1.8 million). Winchester segment income included depreciation and amortization expense of $4.5 million for both the three months ended June 30, 2017 and 2016.

### Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Winchester sales were $332.0 million for the six months ended June 30, 2017 compared to $364.7 million for the same period in 2016, a decrease of $32.7 million, or 9%. The sales decrease was primarily due to lower ammunition sales to commercial customers ($49.7 million), partially offset by increased shipments to military customers ($17.0 million). The decrease in commercial sales primarily reflects lower demand in shotshell, pistol and rifle ammunition.

Winchester reported segment income of $44.1 million for the six months ended June 30, 2017 compared to $59.9 million for the same period in 2016, a decrease of $15.8 million, or 26%. The decrease was due to lower volumes and a less favorable product mix ($12.5 million), increased commodity and other material costs ($2.0 million) and lower product prices ($2.5 million). These decreases were partially offset by lower operating costs ($1.2 million). Winchester segment income included depreciation and amortization expense of $9.4 million and $9.1 million for the six months ended June 30, 2017 and 2016, respectively.

### Corporate/Other

### Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

For the three months ended June 30, 2017, pension income included in corporate/other was $10.7 million compared to $12.6 million for the three months ended June 30, 2016. On a total company basis, defined benefit pension income for the three months ended June 30, 2017, was $6.9 million compared to $9.5 million for the three months ended June 30, 2016.

For the three months ended June 30, 2017, charges to income for environmental investigatory and remedial activities were $1.8 million compared to $2.4 million for the three months ended June 30, 2016. 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, 2017, other corporate and unallocated costs were $29.7 million compared to $23.9 million for the three months ended June 30, 2016, an increase of $5.8 million. The increase was primarily due to an unfavorable foreign currency impact of $2.4 million, increased consulting charges of $1.6 million and increased legal and legal-related settlement expenses of $1.4 million.

### Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

For the six months ended June 30, 2017, pension income included in corporate/other was $21.0 million compared to $24.8 million for the six months ended June 30, 2016. On a total company basis, defined benefit pension income for the six months ended June 30, 2017, was $13.4 million compared to $18.4 million for the six months ended June 30, 2016.

For the six months ended June 30, 2017, charges to income for environmental investigatory and remedial activities were $4.4 million compared to $5.1 million for the six months ended June 30, 2016. 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, 2017, other corporate and unallocated costs were $63.1 million compared to $53.5 million for the six months ended June 30, 2016, an increase of $9.6 million. The increase was primarily due to an unfavorable foreign currency impact of $4.0 million, higher stock-based compensation expense of $4.5 million, which includes mark-to-market adjustments, and increased consulting charges of $3.3 million. Partially offsetting these increases were decreased legal and legal-related settlement expenses of $2.5 million.

### Outlook

Net income in 2017 is projected to be in the $0.70 to $1.15 per diluted share range, which includes pretax restructuring charges and pretax acquisition-related integration costs totaling approximately $50 million. Net loss in 2016 was $0.02 per diluted share, which included pretax acquisition-related integration costs of $48.8 million and pretax restructuring charges of $112.9 million.

The second half 2017 earnings are forecast to improve compared to first half 2017 levels. The second half 2017 earnings are expected to benefit from reduced maintenance turnaround activity compared to first half 2017 levels. The Chlor Alkali Products and Vinyls segment is forecast to benefit in the second half 2017 from stronger demand across all products, improved caustic soda and chlorine pricing and lower ethylene costs. The second half 2017 Epoxy segment income is expected to benefit from higher product prices and lower raw material costs associated with benzene and propylene than experienced in the first half 2017. In second half 2017, we expect Winchester will benefit from the seasonally strong third quarter commercial ammunition demand and an expected improvement in military sales.

Chlor Alkali Products and Vinyls 2017 segment income is expected to be higher compared to 2016 segment income of $224.9 million reflecting higher chlorine, caustic soda and EDC prices and additional cost synergy realization, partially offset by the impact of higher maintenance turnaround costs and higher electricity costs, driven by increased natural gas costs. We also expect the benefits of lower purchased ethylene prices beginning in the third quarter.

Epoxy 2017 segment income is expected to be equal to or slightly lower than 2016 segment income of $15.4 million as improved volumes and pricing year over year are expected to be more than offset by the higher raw material costs, associated with benzene and propylene, and increased turnaround and outage costs.

Winchester 2017 segment income is expected to be in the $95 million to $105 million range, compared to $120.9 million of segment income achieved during 2016. The forecast for Winchester is primarily driven by lower ammunition demand, due primarily to an overall reduction in both purchases and inventory reductions by our customers and higher commodity and material costs. We expect the decrease in commercial sales to be partially offset by an increase year over year in military sales. The Oxford, MS relocation project was completed during 2016. This relocation reduced Winchester's annual operating costs by approximately $40 million in 2016 and, in 2017, we expect the cost savings from the completed project to reach approximately $45 million.

Other Corporate and Unallocated costs in 2017 are expected to be higher than 2016 Other Corporate and Unallocated costs of $100.2 million driven by stock-based compensation, legal and litigation costs and the full year effect of the increased corporate infrastructure costs to support the integration of the Acquired Business.

During 2017, we are anticipating environmental expenses in the $15 million to $20 million range compared to $9.2 million in 2016. We do not expect to recover any environmental costs incurred and expensed in prior periods in 2017. In connection with the Acquisition, TDCC has retained liabilities relating to litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.

We expect qualified defined benefit pension plan income in 2017 to be lower than the 2016 level by approximately $10 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2017. We do have several international qualified defined benefit pension plans to which we anticipate cash contributions of less than $5 million in 2017.

Approximately 30% of our debt is at variable rates, including the impact of our interest rate swaps. We are estimating our 2017 average interest rate on outstanding debt will be approximately 5%. During 2017, a total of approximately $65 million of debt will mature that is expected to be repaid using available cash.

In 2017, we currently expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of synergy-related capital, which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of $209.4 million associated with long-term supply contracts. We expect 2017 depreciation and amortization expense to be in the $530 million to $540 million range.

The effective tax rate for 2017 includes a benefit of $9.5 million related to an agreement reached with the IRS regarding tax examination years 2008, and 2010 to 2012. After giving consideration to this item, we currently believe the 2017 effective tax rate will be in the 25% to 30% range.

### Environmental Matters

Environmental provisions charged to income, which are included in costs of goods sold, were $1.8 million and $2.4 million for the three months ended June 30, 2017 and 2016, respectively, and $4.4 million and $5.1 million for the six months ended June 30, 2017 and 2016, respectively.

Our liabilities for future environmental expenditures were as follows:

*($ in millions)*

|  | June 30, 2017 | 2016 |
| --- | ---: | ---: |
| **Balance at beginning of year** | $137.3 | $138.1 |
| Charges to income | 4.4 | 5.1 |
| Remedial and investigatory spending | (6.1) | (4.9) |
| Currency translation adjustments | 0.1 | 0.6 |
| **Balance at end of period** | $135.7 | $138.9 |

Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in 2017 for investigatory and remedial efforts, the timing of which is subject to regulatory approvals and other uncertainties, is estimated to be approximately $17 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 $0.8 million at June 30, 2017. 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 could be material to operating results in 2017.

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 $135.7 million at June 30, 2017, $137.3 million at December 31, 2016 and $138.9 million at June 30, 2016, of which $118.7 million, $120.3 million and $119.9 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, 2017, December 31, 2016 and June 30, 2016, our condensed balance sheets included liabilities for these legal actions of $15.9 million, $13.6 million and $22.1 million, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, TDCC retained liabilities related to litigation to the extent arising prior to the Closing Date. In addition to the aforementioned legal actions, we are party to a dispute relating to a contract termination. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.

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 income (expense) for property damage and business interruption related to a 2008 chlor alkali facility incident.

### Liquidity, Investment Activity and Other Financial Data

### Cash Flow Data

*($ in millions)*

| Provided By (Used For) | Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: |
| Net operating activities | $227.4 | $186.2 |
| Capital expenditures | (150.9) | (137.4) |
| Business acquired in purchase transaction, net of cash acquired | — | (69.5) |
| Payments under long-term supply contract | — | (85.0) |
| Net investing activities | (150.8) | (287.1) |
| Long-term debt (repayments) borrowings, net | (15.1) | (159.0) |
| Stock options exercised | 15.8 | 0.2 |
| Debt issuance costs | (11.2) | — |
| Net financing activities | (76.8) | (224.9) |

### Operating Activities

For the six months ended June 30, 2017, cash provided by operating activities increased by $41.2 million from the six months ended June 30, 2016, primarily due to a smaller increase in working capital. For the six months ended June 30, 2017, working capital increased $31.6 million compared to an increase of $63.2 million for the six months ended June 30, 2016. Receivables increased from December 31, 2016 by $97.9 million primarily as a result of higher sales in the second quarter of 2017 compared to the fourth quarter of 2016. Inventories increased from December 31, 2016 by $26.3 million and accounts payable and accrued liabilities increased from December 31, 2016 by $99.6 million. The increase in inventories and accounts payable and accrued liabilities was primarily due to an increase in raw material costs, primarily associated with benzene and propylene.

### Investing Activities

Capital spending of $150.9 million for the six months ended June 30, 2017 was $13.5 million higher than the corresponding period in 2016. Capital spending for the six months ended June 30, 2017 included approximately $20 million of synergy-related capital. For the total year 2017, we expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of capital which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of $209.4 million associated with long-term supply contracts. Depreciation and amortization expense is forecast to be in the $530 million to $540 million range.

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.

During the six months ended June 30, 2016, we received $4.4 million from the October 2013 sale of a bleach joint venture.

### Financing Activities

On March 9, 2017, we entered into the Amended 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 to $600.0 million, from $500.0 million. In March 2017, we drew the entire $1,375.0 million term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from

October 5, 2020 to March 9, 2022.

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.

For the six months ended June 30, 2017, we made long-term debt repayments of $1,890.1 million including $1,282.5 million related to the existing term loan facility, $590.0 million related to the Sumitomo Credit Facility and $17.2 million under the required quarterly installments of the $1,375.0 million term loan facility.

In March 2017, we paid debt issuance costs of $11.2 million relating to the Amended Senior Credit Facility and the 2027 Notes.

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.

We issued 0.9 million and less than 0.1 million shares representing stock options exercised for the six months ended June 30, 2017 and 2016, respectively, with a total value of $15.8 million and $0.2 million, respectively.

The percent of total debt to total capitalization was 61.5% and 61.4% as of June 30, 2017 and December 31, 2016, respectively.

In the first two quarters of 2017 and 2016, we paid a quarterly dividend of $0.20 per share. Dividends paid for the six months ended June 30, 2017 and 2016, were $66.3 million and $66.1 million, respectively. On July 27, 2017, our board of directors declared a dividend of $0.20 per share on our common stock, payable on September 11, 2017 to shareholders of record on August 10, 2017.

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

### Liquidity and Other Financing Arrangements

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

In connection with the Acquisition, Olin and TDCC entered 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 on the Closing Date 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 2016, one of the options to reserve additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of $209.4 million in 2017. On February 27, 2017, we exercised the remaining option to reserve additional future ethylene supply and in connection with the exercise we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between $425 million and $465 million on or about the fourth quarter of 2020.

The overall change in cash for the six months ended June 30, 2017 primarily reflects capital spending and increased working capital 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 Term Loan Facility, make required payments under long-term supply agreements, fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements.

On March 9, 2017, we entered into the Amended 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 to $600.0 million, from $500.0 million. In March 2017, we drew the entire $1,375.0 million term loan and used the proceeds to redeem the remaining balance of the existing Senior Credit Facility and a portion of the Sumitomo Credit Facility. The maturity date for the Amended Senior Credit Facility was extended from October

5, 2020 to March 9, 2022. The $600.0 million Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. The Term Loan Facility includes amortization payable in equal quarterly installments at a rate of 5.0% per annum for the first two years, increasing to 7.5% per annum for the following year and to 10.0% per annum for the last two years.

Under the Amended Senior Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Amended Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of June 30, 2017, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will determine the amounts available to be borrowed under these facilities. As of June 30, 2017, as a result of our restrictive covenant related to the leverage ratio, the maximum additional borrowings available to us were $547.1 million. This limitation would restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of June 30, 2017, there were no other covenants or other restrictions that would have limited our ability to borrow.

On March 9, 2017, Olin issued $500.0 million aggregate principal amount of 5.125% senior notes due September 15, 2027, which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.

On June 29, 2016, we entered into a trade accounts receivable factoring arrangement which was amended on September 1, 2016 and, on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement which was amended on March 24, 2017. Pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of $256.5 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 statements of cash flows. The gross amount of receivables sold for the three months ended June 30, 2017 and 2016 totaled $388.0 million and $26.8 million, respectively, and for the six months ended June 30, 2017 and 2016 totaled $777.6 million and $26.8 million, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of June 30, 2017. As of June 30, 2017, December 31, 2016 and June 30, 2016, $148.4 million, $126.1 million and $26.8 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.

On December 20, 2016, we entered into a three year, $250.0 million Receivables Financing Agreement. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. As of June 30, 2017, $326.1 million of our trade receivables were pledged as collateral and we had $210.0 million drawn under the agreement. As of June 30, 2017, we had additional borrowing capacity of $32.3 million under the Receivables Financing Agreement. As of December 31, 2016, $282.3 million of our trade receivables were pledged as collateral. For the year ended December 31, 2016, the proceeds of the Receivables Financing Agreement were used to repay $210.0 million of the Sumitomo Credit Facility. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the Amended Senior Credit Facility.

Cash flow from operations is variable as a result of both the seasonal and the cyclical nature of our operating results, which have been affected by seasonal and economic cycles in many of the industries we serve, such as the vinyls, urethanes, bleach, ammunition and pulp and paper. The Acquired Business has significantly diversified our product and geographic base. Cash flow from operations is affected by changes in caustic soda, EDC and chlorine selling prices caused by the changes in the supply/demand balance of these products, resulting in the Chlor Alkali Products and Vinyls segment having significant leverage on our earnings and cash flow. For example, assuming all other costs remain constant, internal consumption remains approximately the same and we are operating at full capacity, a $10 selling price change per ton of caustic soda equates to an approximate $30 million annual change in our revenues and pretax profit, a $0.01 selling price change per pound of EDC equates to an approximate $20 million annual change in our revenues and pretax profit, and a $10 selling price change per ton of chlorine equates to an approximate $10 million annual change in our revenues and pretax profit.

For the six months ended June 30, 2017, cash provided by operating activities increased by $41.2 million from the six months ended June 30, 2016, primarily due to a smaller increase in working capital. For the six months ended June 30, 2017, working capital increased $31.6 million compared to an increase of $63.2 million for the six months ended June 30, 2016. Receivables increased from December 31, 2016 by $97.9 million primarily as a result of higher sales in the second quarter of 2017 compared to the fourth quarter of 2016. Inventories increased from December 31, 2016 by $26.3 million and accounts payable and accrued liabilities increased from December 31, 2016 by $99.6 million. The increase in inventories and accounts payable and accrued liabilities was primarily due to an increase in raw material costs, primarily associated with benzene and propylene.

Capital spending of $150.9 million for the six months ended June 30, 2017 was $13.5 million higher than the corresponding period in 2016. Capital spending for the six months ended June 30, 2017 included approximately $20 million of synergy-related capital. For the total year 2017, we expect our capital spending to be in the $300 million to $350 million range, which includes approximately $35 million of capital which we believe is necessary to realize the anticipated synergies. In 2017, we also expect to make payments of $209.4 million associated with long-term supply contracts. Depreciation and amortization expense is forecast to be in the $530 million to $540 million range.

On April 24, 2014, our board of directors authorized a share repurchase program for up to 8 million shares of common stock that terminated on April 24, 2017. For the six months ended June 30, 2017, no shares were purchased and retired. We purchased a total of 1.9 million shares under the April 2014 program, and the 6.1 million shares that remained authorized to be purchased have expired. Related to the Acquisition, for a period of two years subsequent to the Closing Date, we are subject to certain restrictions on our ability to conduct share repurchases.

At June 30, 2017, we had total letters of credit of $69.8 million outstanding, of which $16.6 million were issued under our $600.0 million Senior Revolving Credit Facility. The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain Canadian pension funding requirements.

As of June 30, 2017, we had long-term borrowings, including current installments and capital lease obligations, of $3,600.6 million, of which $1,723.7 million was issued at variable rates. Commitments from banks under our Senior Revolving Credit Facility, AR Facilities and Receivables Financing Agreement 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, 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 swap agreements have been recorded at their fair market value of $9.6 million and are included in other current assets and other assets on the accompanying condensed balance sheet as of June 30, 2017, with the corresponding gain deferred as a component of other comprehensive loss. For both the three and six months ended June 30, 2017, $0.5 million of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.

In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.

In October 2016, we entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.

We have designated the April 2016 and October 2016 interest rate swap agreements as fair value 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 $24.9 million and are included in other long-term liabilities on the accompanying condensed balance sheet as of June 30, 2017, with a corresponding decrease in the carrying amount of the related debt. For the three months ended June 30, 2017 and 2016, $0.7 million and $0.5 million, respectively, and for the six months ended June 30, 2017 and 2016, $1.9 million and $0.5 million, respectively, of income was recorded to interest expense on the accompanying condensed statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.

In 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, 2017, $0.1 million of this gain was included in current installments of long-term debt.

### 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, electricity, propylene and benzene.

### New Accounting Standards

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which amends ASC 715 “Compensation—Retirement Benefits.” This update requires the presentation of the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The update requires the presentation of the other components of the net period benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating income. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC 350 “Intangibles—Goodwill and Other.” This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carry amount exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the effect of this update on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” which amends ASC 718 “Compensation—Stock Compensation.” This update will simplify the income tax consequences, accounting for forfeitures and classification on the statements of cash flows of share-based payment arrangements. This standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We adopted ASU 2016-09 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.

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

In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory,” which amends ASC 330 “Inventory.” This update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. This update simplifies the current guidance under which an entity must measure inventory at the lower of cost or market. This update does not impact inventory measured using LIFO. This update is effective for fiscal years beginning after December 15, 2016. We adopted ASU 2015-11 on January 1, 2017, which was applied prospectively; therefore, prior periods have not been retrospectively adjusted. The adoption of this update did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and implementation of the aforementioned standard. These updates provide guidance on how an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. These updates also expand the disclosure requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based on the analysis conducted to date, we believe the most significant impact the updates will have will be on our accounting policies and disclosures on revenue recognition. Preliminarily, we do not expect that these updates will materially impact our consolidated financial statements and we have not yet determined the method of application we will use.

## Market risk

As filed, 5,696 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, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations. As of June 30, 2017, we maintained open positions on commodity contracts with a notional value totaling $95.7 million ($101.6 million at December 31, 2016 and $55.5 million at June 30, 2016). Assuming a hypothetical 10% increase in commodity prices which are currently hedged, as of June 30, 2017, we would experience a $9.6 million ($10.2 million at December 31, 2016 and $5.6 million at June 30, 2016) increase in our cost of inventory, which would be substantially offset by a corresponding increase in the value of related hedging instruments.

We transact business in various foreign currencies other than the USD which exposes us to movements in exchange rates which may impact revenue and expenses, assets and liabilities and cash flows. Our significant foreign currency exposure is denominated with European currencies, primarily the Euro, although exposures also exist in other currencies of Asia Pacific, Latin America, Middle East and Africa. For all derivative positions, we have evaluated the effects of a 10% shift in exchange rates between those currencies and the USD, holding all other assumptions constant. Unfavorable currency movements of 10% would negatively affect the fair values of the derivatives held to hedge currency exposures by $15.6 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.

We are exposed to changes in interest rates primarily as a result of our investing and financing activities. Our current debt structure is used to fund business operations, and commitments from banks under our senior revolving credit facility, AR Facilities and Receivables Financing Agreement are a source of liquidity. As of June 30, 2017, December 31, 2016 and June 30, 2016, we had long-term borrowings, including current installments and capital lease obligations, of $3,600.6 million, $3,617.6 million and $3,695.8 million, respectively, of which $1,723.7 million, $2,238.4 million and $2,289.0 million at June 30, 2017, December 31, 2016 and June 30, 2016, respectively, were issued at variable rates.

In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on $1,100.0 million, $900.0 million, and $400.0 million of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association and Toronto-Dominion Bank. These counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations.

In April 2016, we entered into interest rate swaps on $250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.

In October 2016, we also entered into interest rate swaps on an additional $250.0 million of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.

In June 2012, we terminated $73.1 million of interest rate swaps with Wells Fargo that had been entered into 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, 2017, $0.1 million of this gain was included in current installments of long-term debt.

Assuming no changes in the $1,723.7 million of variable-rate debt levels from June 30, 2017, we estimate that a hypothetical change of 100-basis points in the LIBOR interest rates would impact annual interest expense by $17.2 million. A portion of this hypothetical change would be offset by our interest rate swaps.

Our interest rate swaps reduced interest expense by $1.3 million and $1.2 million for the three months ended June 30, 2017 and 2016, respectively, and by $2.5 million and $1.9 million for the six months ended June 30, 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.

## Controls and procedures

As filed, 6,691 characters.

Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017. 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, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Cautionary Statement Regarding Forward-Looking Statements

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

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

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

The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016, 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;
- higher-than-expected raw material and energy, transportation and/or logistics costs;
- our substantial amount of indebtedness and significant debt service obligations;
- weak industry conditions could affect our ability to comply with the financial maintenance covenants in our senior credit facilities and certain tax-exempt bonds;
- our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
- failure to control costs or to achieve targeted cost reductions;
- the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
- 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;
- economic and industry downturns that result in diminished product demand and excess manufacturing capacity in any of our segments and that, in many cases, result in lower selling prices and profits;
- complications resulting from our multiple enterprise resource planning systems;
- the failure or an interruption of our information technology systems;
- unexpected litigation outcomes;
- costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
- the integration of the Acquired Business may not be successful in realizing the benefits of the anticipated synergies;
- the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan;
- fluctuations in foreign currency exchange rates;
- adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital;
- failure to attract, retain and motivate key employees;
- our assumptions included in long range plans not realized causing a non-cash impairment charge of long-lived assets;
- the effects of restrictions imposed on our business following the transaction with TDCC in order to avoid significant tax-related liabilities; and
- differences between the historical financial information of Olin and the Acquired Business and our future operating performance.

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

Filed Aug 1, 2017.
Source: SEC EDGAR, the filing index for accession 0000074303-17-000063. Last ingested by Listed: Nov 4, 2026, 19:33 ET. No prices; not investment advice.