# OLIN Corp: Form 10-Q for the period ended Mar 31, 2019

- Company: [OLIN Corp](/companies/oln.md) (CIK 74303)
- Form: 10-Q
- Filed: 2019-05-02
- Accepted by EDGAR: May 1, 2019, 17:42 ET
- Period: 2019-03-31
- Accession: 0000074303-19-000032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/74303/000007430319000032/oln-2019331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/74303/000007430319000032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $1.55bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-01-01 to 2019-03-31 | $1.35bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2019-01-01 to 2019-03-31 | $107.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | $95.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-01-01 to 2019-03-31 | $57.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | $11.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | $41.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.25 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 166,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2019-01-01 to 2019-03-31 | $104.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $102.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2019-01-01 to 2019-03-31 | $33.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2019-01-01 to 2019-03-31 | $13.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-03-31 | $105.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $1.68bn | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $9.17bn | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $1.14bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-03-31 | $6.33bn | us-gaap:Liabilities |
| Long-term debt | at 2019-03-31 | $3.07bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2019-03-31 | $126.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-03-31 | $2.84bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2019-03-31 | 164,859,571 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 56,401 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. The Epoxy segment’s upstream and midstream products are predominately commodity markets. We have little or no ability to influence prices in these large, global commodity markets. While competitive differentiation exists through downstream customization and product development opportunities, pricing is extremely competitive with a broad range of competitors across the globe.

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

### Executive Summary

### 2019 Overview

Net income was $41.7 million for the three months ended March 31, 2019 compared to net income of $20.9 million for the comparable prior year period. The increase in results from the prior year was due to improved Epoxy segment results, primarily due to lower maintenance costs and unabsorbed fixed manufacturing costs associated with maintenance turnarounds. Net income for the three months ended March 31, 2019 also included a pretax gain of $11.2 million on the sale of our equity interest in a non-consolidated affiliate. These increases were partially offset by lower Chlor Alkali Products and Vinyls and Winchester segment results and increased costs associated with the Information Technology Project. In 2017, we began a multi-year implementation of new enterprise resource planning, manufacturing and engineering systems, and related infrastructure (collectively, the Information Technology Project).

Chlor Alkali Products and Vinyls generated segment income of $120.4 million for the three months ended March 31, 2019. Chlor Alkali Products and Vinyls segment income was lower than in the comparable prior year period primarily due to lower caustic soda pricing partially offset by higher ethylene dichloride (EDC), chlorine and other chlorine-derivatives pricing and lower raw material and maintenance turnaround costs. The lower raw material costs were primarily due to lower electricity costs, driven by lower natural gas prices, partially offset by increased ethylene costs, driven by higher ethane prices. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $119.8 million and $113.7 million for the three months ended March 31, 2019 and 2018, respectively.

During 2018, North America caustic soda price contract indices increased $40 per ton while the caustic soda export price indices decreased approximately $270 per metric ton. However, during the second half of 2018 both domestic and export price indices experienced declines. In the first quarter of 2019, North America caustic soda price contract indices decreased an additional $35 per ton and caustic soda export price indices decreased an additional $73 per metric ton. During February 2019, a caustic soda price increase of $50 per ton was announced. This price increase is in the process of being implemented and while the extent to which this price increase is achieved is uncertain, the majority of the benefits, if realized, would impact second and third quarter 2019 results.

Epoxy reported segment income of $10.5 million for the three months ended March 31, 2019. Epoxy segment results were higher than in the comparable prior year period primarily due to lower maintenance costs and unabsorbed fixed manufacturing costs associated with maintenance turnarounds. Epoxy segment results for the three months ended March 31, 2018 were negatively impacted by an approximately two-month planned maintenance turnaround at our production facilities in Freeport, TX. The three months ended March 31, 2019 also included lower product prices offset by lower raw material costs, primarily benzene and propylene, compared to the prior year. Epoxy segment income included depreciation and amortization expense of $26.5 million and $26.7 million for the three months ended March 31, 2019 and 2018, respectively.

Winchester reported segment income of $9.1 million for the three months ended March 31, 2019. Winchester segment income declined from the comparable prior year period primarily due to lower sales volumes, a less favorable product mix and lower product prices. These decreases were partially offset by lower costs, primarily commodity and other material costs. Winchester segment income included depreciation and amortization expense of $4.9 million and $5.1 million for the three months ended March 31, 2019 and 2018, respectively.

On January 1, 2019, we sold our 9.1% limited partnership interest in Bay Gas for $20.0 million. The sale closed on February 7, 2019 which resulted in a pretax gain of $11.2 million for the three months ended March 31, 2019. For the year ended December 31, 2018, Chlor Alkali Products and Vinyls recorded a $21.5 million non-cash impairment charge related to an adjustment to the value of our interest in Bay Gas.

### Consolidated Results of Operations

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

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Sales | $1,553.4 | $1,710.3 |
| Cost of goods sold | 1,347.3 | 1,528.7 |
| Gross margin | 206.1 | 181.6 |
| Selling and administration | 107.0 | 100.5 |
| Restructuring charges | 4.0 | 4.0 |
| Acquisition-related costs | — | 0.3 |
| Other operating income | 0.1 | 8.1 |
| Operating income | 95.2 | 84.9 |
| Earnings of non-consolidated affiliates | — | 0.5 |
| Interest expense | 57.4 | 63.7 |
| Interest income | 0.2 | 0.4 |
| Non-operating pension income | 3.9 | 5.4 |
| Other income | 11.2 | — |
| Income before taxes | 53.1 | 27.5 |
| Income tax provision | 11.4 | 6.6 |
| Net income | $41.7 | $20.9 |
| Net income per common share: |  |  |
| Basic | $0.25 | $0.13 |
| Diluted | $0.25 | $0.12 |

### Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Sales for the three months ended March 31, 2019 were $1,553.4 million compared to $1,710.3 million in the same period last year, a decrease of $156.9 million, or 9%. Epoxy sales decreased by $79.3 million primarily due to lower product prices, an unfavorable effect of foreign currency translation and lower volumes. Chlor Alkali Products and Vinyls sales decreased by $63.9 million, primarily due to due to lower caustic soda pricing, partially offset by higher EDC, chlorine and other chlorine-derivatives pricing. Winchester sales decreased by $13.7 million primarily due to lower ammunition sales to military customers, law enforcement agencies and commercial customers.

Gross margin increased $24.5 million for the three months ended March 31, 2019 compared to the prior year. Epoxy gross margin increased $33.7 million primarily due to lower maintenance costs and unabsorbed fixed manufacturing costs associated with maintenance turnarounds. Chlor Alkali Products and Vinyls gross margin decreased by $6.3 million, primarily due to lower caustic soda pricing, partially offset by higher EDC, chlorine and other chlorine-derivatives pricing and lower raw material and maintenance turnaround costs. Winchester gross margin decreased $3.0 million primarily due to lower sales volumes, a less favorable product mix and lower product prices, partially offset by lower costs, primarily commodity and other material costs. Gross margin as a percentage of sales increased to 13% in 2019 from 11% in 2018.

Selling and administration expenses for the three months ended March 31, 2019 were $107.0 million, an increase of $6.5 million from the prior year. The increase was primarily due to higher costs associated with the Information Technology Project of $7.6 million and higher stock-based compensation expense of $3.6 million, which includes mark-to-market adjustments, partially offset by lower legal and legal-related settlement expenses of $6.2 million. Selling and administration expenses as a percentage of sales were 7% in 2019 and 6% in 2018.

Restructuring charges for both the three months ended March 31, 2019 and 2018 of $4.0 million were primarily associated with the March 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations.

Acquisition-related costs of $0.3 million for the three months ended March 31, 2018 were related to the integration of the Acquired Business.

Other operating income for the three months ended March 31, 2018 included an $8.0 million insurance recovery for a second quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility.

Interest expense decreased by $6.3 million for the three months ended March 31, 2019, primarily due to a lower level of debt outstanding partially offset by higher interest rates. Interest expense for the three months ended March 31, 2019 and 2018 included $4.0 million and $3.9 million, respectively, of accretion expense related to the 2020 ethylene payment discount. Interest expense for the three months ended March 31, 2018 also included $2.6 million for the write-off of unamortized deferred debt issuance costs associated with the prepayment of debt.

Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs.

Other income for the three months ended March 31, 2019 included a gain of $11.2 million on the sale of our equity interest in a non-consolidated affiliate.

The effective tax rate for the three months ended March 31, 2019 included a benefit associated with stock-based compensation, a benefit associated with prior year tax positions and a benefit from a net decrease in the valuation allowance related to state deferred tax assets. These factors resulted in a net $0.8 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended March 31, 2019 of 23.0% was higher than the 21% U.S. federal statutory rate, primarily due to state and foreign income taxes, foreign income inclusions and a net increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions. The effective tax rate for the three months ended March 31, 2018 included a benefit associated with stock-based compensation, a benefit associated with the estimated reduction of the one-time 2017 Tax Act transition tax and a benefit related to a foreign dividend payment. These factors resulted in a net $0.8 million tax benefit. After giving consideration to these items, the effective tax rate for the three months ended March 31, 2018 of 26.9% was higher than the 21% U.S. federal statutory rate, primarily due to state and foreign income taxes, partially offset by favorable permanent salt depletion deductions.

### Segment Results

We define segment results as income (loss) before interest expense, interest income, other operating income (expense), non-operating pension income, other income and income taxes, and includes the operating results of non-consolidated affiliates. Consistent with the guidance in Accounting Standards Codification (ASC) 280, “Segment Reporting,” we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.

*($ in millions)*

| Sales: | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Chlor Alkali Products and Vinyls | $872.2 | $936.1 |
| Epoxy | 524.0 | 603.3 |
| Winchester | 157.2 | 170.9 |
| Total sales | $1,553.4 | $1,710.3 |
| Income (loss) before taxes: |  |  |
| Chlor Alkali Products and Vinyls(1) | $120.4 | $130.5 |
| Epoxy | 10.5 | (22.1) |
| Winchester | 9.1 | 12.0 |
| Corporate/other: |  |  |
| Environmental expense | (1.8) | (2.3) |
| Other corporate and unallocated costs(2) | (39.1) | (36.5) |
| Restructuring charges | (4.0) | (4.0) |
| Acquisition-related costs | — | (0.3) |
| Other operating income(3) | 0.1 | 8.1 |
| Interest expense(4) | (57.4) | (63.7) |
| Interest income | 0.2 | 0.4 |
| Non-operating pension income | 3.9 | 5.4 |
| Other income(5) | 11.2 | — |
| Income before taxes | $53.1 | $27.5 |

(1) Earnings (losses) of non-consolidated affiliates are included in the Chlor Alkali Products and Vinyls segment results consistent with management’s monitoring of the operating segments. The earnings of non-consolidated affiliates were $0.5 million for the three months ended March 31, 2018.

(2) Other corporate and unallocated costs for the three months ended March 31, 2019 and 2018 included costs associated with the implementation of the Information Technology Project of $14.1 million and $6.5 million, respectively.

(3) Other operating income for the three months ended March 31, 2018 included an $8.0 million insurance recovery for a second quarter 2017 business interruption at our Freeport, TX vinyl chloride monomer facility.

(4) Interest expense for the three months ended March 31, 2019 and 2018 included $4.0 million and $3.9 million, respectively, of accretion expense related to the 2020 ethylene payment discount. Interest expense for the three months ended March 31, 2018 also included $2.6 million for the write-off of unamortized deferred debt issuance costs associated with the prepayment of debt.

(5) Other income for the three months ended March 31, 2019 included a gain of $11.2 million on the sale of our equity interest in a non-consolidated affiliate.

### Chlor Alkali Products and Vinyls

### Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Chlor Alkali Products and Vinyls sales for the three months ended March 31, 2019 were $872.2 million compared to $936.1 million for the same period in 2018, a decrease of $63.9 million, or 7%. The sales decrease was primarily due to lower caustic soda pricing, partially offset by higher EDC, chlorine and other chlorine-derivatives pricing.

Chlor Alkali Products and Vinyls segment income was $120.4 million for the three months ended March 31, 2019 compared to $130.5 million for the same period in 2018, a decrease of $10.1 million, or 8%. The decrease in Chlor Alkali Products and Vinyls segment income was primarily due to lower product prices ($59.3 million), primarily caustic soda, and increased depreciation and amortization expense ($6.1 million). Partially offsetting these decreases were lower raw material costs ($26.7 million), a favorable product mix ($15.2 million) and lower maintenance turnaround costs ($13.4 million). The lower raw material costs were primarily due to lower electricity costs, driven by lower natural gas prices, partially offset by increased ethylene costs, driven by higher ethane prices. Chlor Alkali Products and Vinyls segment income included depreciation and amortization expense of $119.8 million and $113.7 million for the three months ended March 31, 2019 and 2018, respectively.

### Epoxy

### Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Epoxy sales for the three months ended March 31, 2019 were $524.0 million compared to $603.3 million for the same period in 2018, a decrease of $79.3 million, or 13%. The sales decrease was primarily due to lower product prices ($37.7 million), an unfavorable effect of foreign currency translation ($21.0 million) and lower volumes ($20.6 million).

Epoxy segment income was $10.5 million for the three months ended March 31, 2019 compared to a segment loss of $22.1 million for the same period in 2018, an increase of $32.6 million. The increase in segment results was primarily due to lower maintenance costs and unabsorbed fixed manufacturing costs associated with maintenance turnarounds ($41.3 million). The first quarter 2018 Epoxy segment earnings reflected $44.7 million of maintenance costs and unabsorbed fixed manufacturing costs from lower production associated with an approximately two-month planned maintenance turnaround at our production facilities in Freeport, Texas. The three months ended March 31, 2019 also included lower raw material costs ($41.4 million), primarily benzene and propylene, partially offset by lower product prices ($37.7 million), higher operating costs ($6.3 million) and lower volumes ($6.1 million). A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros. Epoxy segment income included depreciation and amortization expense of $26.5 million and $26.7 million for the three months ended March 31, 2019 and 2018, respectively.

### Winchester

### Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Winchester sales were $157.2 million for the three months ended March 31, 2019 compared to $170.9 million for the same period in 2018, a decrease of $13.7 million, or 8%. The sales decrease was primarily due to lower ammunition sales to military customers and law enforcement agencies ($8.9 million) and commercial customers ($4.8 million).

Winchester segment income was $9.1 million for the three months ended March 31, 2019 compared to $12.0 million for the same period in 2018, a decrease of $2.9 million, or 24%. The decrease in segment income was due to lower sales volumes and a less favorable product mix ($2.3 million) and lower product prices ($2.3 million). These decreases were partially offset by lower costs, primarily commodity and other material costs ($1.7 million). Winchester segment income included depreciation and amortization expense of $4.9 million and $5.1 million for the three months ended March 31, 2019 and 2018, respectively.

### Corporate/Other

### Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

For the three months ended March 31, 2019, charges to income for environmental investigatory and remedial activities were $1.8 million compared with $2.3 million for the three months ended March 31, 2018. 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 March 31, 2019, other corporate and unallocated costs were $39.1 million compared to $36.5 million for the three months ended March 31, 2018, an increase of $2.6 million. The increase was primarily due to higher costs associated with the Information Technology Project of $7.6 million and higher stock-based compensation expense of $3.6 million, which includes mark-to-market adjustments, partially offset by lower legal and legal-related settlement expenses of $6.0 million and a favorable foreign currency impact of $1.6 million.

### Outlook

Net income in 2019 is projected to be approximately $1.60 per diluted share, which includes estimated pretax information technology integration project costs and restructuring costs totaling approximately $80 million and a pretax gain of $11.2 million on the sale of our equity interest in a non-consolidated affiliate. Net income in 2018 was $1.95 per diluted share, which includes pretax insurance recoveries for environmental costs incurred and expensed in prior periods of $111.0 million, pretax information technology integration project costs and restructuring costs of $58.4 million and a pretax non-cash impairment charge associated with our investment in a non-consolidated affiliate of $21.5 million.

Second quarter 2019 earnings are forecast to be lower compared to first quarter 2019 as maintenance turnaround costs are expected to increase approximately $40 million. The second half of 2019 is expected to be stronger than the first half with the second quarter forecasted to be the weakest quarter of the year. We expect second quarter 2019 Chlor Alkali Products and Vinyls segment earnings to decline sequentially as lower caustic soda pricing and higher planned maintenance turnaround costs are expected to be partially offset by improved pricing for chlorine and chlorine-derivatives. As the second quarter progresses, caustic soda prices are expected to begin to improve, with recovery continuing through the second half of 2019. We expect second quarter 2019 Epoxy segment earnings to be comparable to first quarter 2019 as increased maintenance turnaround costs are forecasted to be offset by higher product prices and increased volumes.

Chlor Alkali Products and Vinyls 2019 segment income is expected to be comparable to 2018 segment income of $637.1 million reflecting improved chlorine, EDC and other chlorine-derivatives pricing, which are expected to be offset by lower caustic soda pricing, higher freight and logistics costs, and higher ethylene costs, due to increased ethane pricing.

Epoxy 2019 segment results are expected to improve from the 2018 segment income of $52.8 million as increased volumes, lower raw material costs, primarily benzene and propylene, and lower planned maintenance turnaround costs are expected to more than offset lower product pricing.

Winchester 2019 segment income is expected to be similar to the 2018 segment income of $38.4 million primarily due to lower commodity and other material costs and lower operating costs offset by declines in commercial demand. Military and other government sales are expected to be consistent with 2018.

Other Corporate and Unallocated costs in 2019 are expected to be higher than 2018 Other Corporate and Unallocated costs of $158.3 million due to higher costs associated with the Information Technology Project and higher stock based compensation costs partially offset by lower legal and legal-related settlement expenses. Costs associated with the Information Technology Project are estimated to increase approximately $30 million in 2019 compared to 2018, which reflects duplicative costs incurred to maintain legacy systems while transitioning to new systems.

During 2019, we anticipate environmental expenses in the $30 million to $40 million range compared to $7.3 million, excluding the $111.0 million of insurance recoveries, in 2018. We do not believe that there will be any recoveries of environmental costs incurred and expensed in prior periods during 2019.

We expect non-operating pension income in 2019 to be in the $15 million to $20 million range compared to $21.7 million in 2018. 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 2019. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less than $5 million in 2019.

In 2019, we currently expect our capital spending to be in the $375 million to $425 million range, including the investment associated with the Information Technology Project of approximately $80 million. We expect 2019 depreciation and amortization expense to be in the $590 million to $610 million range. In first quarter 2019, we repaid $50.2 million of debt outstanding using available cash. We are targeting to repay approximately $250 million to $300 million of debt during 2019.

We currently believe that both the 2019 effective tax rate and the cash tax rate will be approximately 25%.

### Environmental Matters

Environmental provisions charged to income, which are included in costs of goods sold, were $1.8 million and $2.3 million for the three months ended March 31, 2019 and 2018, respectively.

Our liabilities for future environmental expenditures were as follows:

*($ in millions)*

|  | March 31, 2019 | 2018 |
| --- | ---: | ---: |
| **Balance at beginning of year** | $125.6 | $131.6 |
| Charges to income | 1.8 | 2.3 |
| Remedial and investigatory spending | (2.0) | (2.5) |
| Foreign currency translation adjustments | 0.1 | (0.2) |
| **Balance at end of period** | $125.5 | $131.2 |

Environmental investigatory and remediation activities spending was associated with former waste disposal sites and past manufacturing operations. Spending in 2019 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 expect to incur to protect our interests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to $8.7 million at March 31, 2019. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M. Charges to income for investigatory and remedial efforts could be material to our operating results in 2019.

Our condensed balance sheets included liabilities for future environmental expenditures to investigate and remediate known sites amounting to $125.5 million at March 31, 2019, $125.6 million at December 31, 2018 and $131.2 million at March 31, 2018, of which $108.5 million, $108.6 million and $111.2 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.

In connection with the October 5, 2015 acquisition of Dow’s U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities relating to releases of hazardous materials and violations of environmental law to the extent arising prior to October 5, 2015.

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

### Legal Matters and Contingencies

We are party to a dispute relating to a contract at our Plaquemine, LA facility. The other party to the contract filed a demand for arbitration alleging, among other things, that Olin breached the contract, and claims damages in excess of the amount Olin believes it is obligated to pay under the contract. The arbitration hearing is scheduled for the fourth quarter 2019. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material adverse effect on our financial position, cash flows or results of operations.

Olin, K.A. Steel Chemicals (a wholly owned subsidiary of Olin) and other caustic soda producers were named as defendants in six purported class action civil lawsuits filed March 22, 25 and 26, 2019 and April 12, 2019 in the U.S. District Court for the Western District of New York. The lawsuits allege the defendants conspired to fix, raise, maintain and stabilize the price of caustic soda, restrict domestic (U.S.) supply of caustic soda and allocate caustic soda customers. The other defendants named in the lawsuits are Occidental Petroleum Corporation, Occidental Chemical Corporation d/b/a OxyChem, Westlake Chemical Corporation, Shin-Etsu Chemical Co., Ltd., Shintech Incorporated, Formosa Plastics Corporation, and Formosa Plastics Corporation, U.S.A. The lawsuits are filed on behalf of the respective named plaintiffs and a putative class comprised of all persons and entities who purchased caustic soda in the U.S. directly from one or more of the defendants, their parents, predecessors, subsidiaries or affiliates at any time between October 1, 2015 and the present. Plaintiffs seek an unspecified amount of damages and injunctive relief. We believe we have meritorious legal positions and will continue to represent our interests vigorously in this matter. Any losses related to this matter are not currently estimable because of unresolved questions of fact and law which, if resolved unfavorably to Olin, could have a material adverse effect on our financial position, cash flows or results of operations.

We, and our subsidiaries, are defendants in various other legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. As of March 31, 2019, December 31, 2018 and March 31, 2018, our condensed balance sheets included accrued liabilities for these legal actions of $15.8 million, $15.6 million and $13.3 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 October 5, 2015 acquisition of Dow’s U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses, the prior owner of the businesses retained liabilities related to litigation to the extent arising prior to October 5, 2015.

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

### Liquidity, Investment Activity and Other Financial Data

### Cash Flow Data

*($ in millions)*

| Provided By (Used For) | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net operating activities | $104.3 | $80.9 |
| Capital expenditures | (102.2) | (89.5) |
| Proceeds from disposition of non-consolidated affiliate | 20.0 | — |
| Net investing activities | (82.2) | (89.4) |
| Long-term debt repayments, net | (50.2) | (59.6) |
| Common stock repurchased and retired | (13.2) | — |
| Stock options exercised | 1.4 | 1.0 |
| Debt issuance costs | — | (8.5) |
| Net financing activities | (95.0) | (100.5) |

### Operating Activities

For the three months ended March 31, 2019, cash provided by operating activities increased by $23.4 million from the three months ended March 31, 2018, primarily due to an increase in operating results partially offset by an increase in working capital. For the three months ended March 31, 2019, working capital increased $87.6 million compared to an increase of $73.2 million for the three months ended March 31, 2018. Receivables increased by $36.2 million from December 31, 2018 as a result of a decrease in receivables sold under the accounts receivable factoring arrangement. Lower selling prices were offset by higher volumes in the first quarter of 2019 compared to the fourth quarter of 2018.

### Investing Activities

Capital spending of $102.2 million for the three months ended March 31, 2019 was $12.7 million higher than the corresponding period in 2018, primarily due to capital spending related to the Information Technology Project. For the total year 2019, we expect our capital spending to be in the $375 million to $425 million range, which is expected to include $80 million for the Information Technology Project. For the total year 2019, depreciation and amortization expense is forecast to be in the $590 million to $610 million range.

During 2017, we began a multi-year implementation of the Information Technology Project. The project is planned to standardize business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency and control across our global operations. The project is anticipated to be completed during 2020. Total capital spending is forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the three months ended March 31, 2019 included $22.1 million of capital spending and $14.1 million of expenses associated with this project. Our results for the three months ended March 31, 2018 included $10.1 million of capital spending and $6.5 million of expenses associated with this project.

On January 1, 2019, we sold our 9.1% limited partnership interest in Bay Gas for $20.0 million. The sale closed on February 7, 2019 which resulted in a gain of $11.2 million.

### Financing Activities

For the three months ended March 31, 2019, we made long-term debt repayments of $50.2 million, primarily related to the $1,375.0 term loan facility (Term Loan Facility).

On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due February 1, 2030 (2030 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2030 Notes began accruing from January 19, 2018 and is paid semi-annually beginning on August 1, 2018. Proceeds from the 2030 Notes were used to redeem $550.0 million of debt under the Term Loan Facility.

For the three months ended March 31, 2018, we made long-term debt repayments of $609.9 million including $570.0 million related to the Term Loan Facility, $20.0 million related to the $600.0 million senior revolving credit facility (Senior Revolving Credit Facility), and $19.7 million related to the Receivables Financing Agreement.

For the three months ended March 31, 2018, we paid debt issuance costs of $8.5 million for the issuance of the 2030 Notes.

For the three months ended March 31, 2019, we repurchased and retired 0.6 million shares with a total cost of $13.2 million.

We issued 0.1 million shares representing stock options exercised for both the three months ended March 31, 2019 and 2018, with a total value of $1.4 million and $1.0 million, respectively.

The percent of total debt to total capitalization decreased to 52.9% as of March 31, 2019 from 53.3% as of December 31, 2018 as a result of a lower level of debt outstanding.

In the first quarter of 2019 and 2018, we paid a quarterly dividend of $0.20 per share. Dividends paid for the three months ended March 31, 2019 and 2018, were $33.0 million and $33.4 million, respectively. On April 25, 2019, our board of directors declared a dividend of $0.20 per share on our common stock, payable on June 10, 2019 to shareholders of record on May 10, 2019.

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

### Liquidity and Other Financing Arrangements

Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and short-term borrowings under our Senior Revolving Credit Facility, accounts receivable factoring arrangement and Receivables Financing Agreement. Additionally, we believe that we have access to the debt and equity markets.

The overall decrease in cash for the three months ended March 31, 2019 primarily reflects our long-term debt repayments and capital spending, partially offset by our operating results. We believe, based on current and projected levels of cash flow from our operations, together with our cash and cash equivalents on hand and the availability to borrow under our Senior Revolving Credit Facility and Receivables Financing Agreement, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements.

On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $500.0 million. This program will terminate upon the purchase of $500.0 million of our common stock. For the three months ended March 31, 2019, 0.6 million shares were repurchased and retired at a cost of $13.2 million. As of March 31, 2019, we had repurchased a total of $63.3 million of our common stock, representing 2.7 million shares, and $436.7 million of common stock remained authorized to be repurchased.

On January 19, 2018, Olin issued $550.0 million aggregate principal amount of 5.00% senior notes due February 1, 2030, which were registered under the Securities Act of 1933, as amended. Interest on the 2030 Notes began accruing from January 19, 2018 and is paid semi-annually beginning on August 1, 2018. Proceeds from the 2030 Notes were used to redeem $550.0 million of debt under the Term Loan Facility.

On March 9, 2017, we entered into the $1,975.0 million Senior Credit Facility, consisting of a $1,375.0 million Term Loan Facility and a $600.0 million Senior Revolving Credit Facility. At March 31, 2019, we had $596.5 million available under our Senior Revolving Credit Facility because we had issued $3.5 million of letters of credit. The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At March 31, 2019, $493.0 million of the Term Loan Facility remained outstanding. In connection with the $550.0 million prepayment of the Term Loan Facility in January 2018, the required quarterly installments of the Term Loan Facility were eliminated.

Under the Senior Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of March 31, 2019, 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 March 31, 2019, there were no covenants or other restrictions that would have limited our ability to borrow under these facilities.

In connection with the Acquisition, Olin and Dow entered into arrangements for the long-term supply of ethylene by Dow to Olin, pursuant to which, among other things, Olin made upfront payments in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional future ethylene supply at producer economics. On February 27, 2017, we exercised the remaining option to reserve additional ethylene at producer economics from Dow. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to Dow of between $440 million and $465 million on or about the fourth quarter of 2020.

On December 20, 2016, we entered into a three-year, $250.0 million Receivables Financing Agreement with PNC Bank, National Association, as administrative agent (Receivables Financing Agreement). Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the Senior Revolving Credit Facility. As of March 31, 2019, $352.8 million of our trade receivables were pledged as collateral and we had $125.0 million drawn under the agreement. As of March 31, 2019, we had $125.0 million additional borrowing capacity under the Receivables Financing Agreement. As of December 31, 2018, $360.4 million of our trade receivables were pledged as collateral and $125.0 million was drawn under the agreement and as of March 31, 2018, $382.7 million of our trade receivables were pledged as collateral and we had $230.3 million drawn under the agreement.

Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of $315.0 million. We will continue to service the outstanding accounts sold. These receivables qualify for sales treatment under ASC 860 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 March 31, 2019 and 2018 totaled $134.9 million and $413.1 million, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of March 31, 2019, December 31, 2018 and March 31, 2018. As of March 31, 2019, December 31, 2018 and March 31, 2018, $96.8 million, $132.4 million and $178.9 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.

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

For the three months ended March 31, 2019, cash provided by operating activities increased by $23.4 million from the three months ended March 31, 2018, primarily due to an increase in operating results partially offset by an increase in working capital. For the three months ended March 31, 2019, working capital increased $87.6 million compared to an increase of $73.2 million for the three months ended March 31, 2018. Receivables increased by $36.2 million from December 31, 2018 as a result of a decrease in receivables sold under the accounts receivable factoring arrangement. Lower selling prices were offset by higher volumes in the first quarter of 2019 compared to the fourth quarter of 2018.

Capital spending of $102.2 million for the three months ended March 31, 2019 was $12.7 million higher than the corresponding period in 2018, primarily due to capital spending related to the Information Technology Project. For the total year 2019, we expect our capital spending to be in the $375 million to $425 million range, which is expected to include $80 million for the Information Technology Project. For the total year 2019, depreciation and amortization expense is forecast to be in the $590 million to $610 million range.

During 2017, we began a multi-year implementation of the Information Technology Project. The project is planned to standardize business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency and control across our global operations. The project is anticipated to be completed during 2020. Total capital spending is forecast to be $250 million and associated expenses are forecast to be $100 million. Our results for the three months ended March 31, 2019 included $22.1 million of capital spending and $14.1 million of expenses associated with this project. Our results for the three months ended March 31, 2018 included $10.1 million of capital spending and $6.5 million of expenses associated with this project.

At March 31, 2019, we had total letters of credit of $75.0 million outstanding, of which $3.5 million were issued under our Senior Revolving Credit Facility. The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain international pension funding requirements.

Our current debt structure is used to fund our business operations. As of March 31, 2019, we had long-term borrowings, including the current installment and capital lease obligations, of $3,193.3 million, of which $773.9 million was at variable rates. Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and deferred losses on fair value interest rate swaps. Commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are additional sources 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 remaining swap agreement has been recorded at its fair market value of $3.6 million and is included in other current assets on the accompanying condensed balance sheet as of March 31, 2019, with the corresponding gain deferred as a component of other comprehensive loss. For both the three months ended March 31, 2019 and 2018, $1.3 million of income was recorded to interest expense on the accompanying condensed statements of operations related to these swap agreements.

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

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

We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed-rate debt due to changes in interest rates for a portion of our fixed-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of $23.5 million and are included in other long-term liabilities on the accompanying condensed balance sheet as of March 31, 2019, with a corresponding decrease in the carrying amount of the related debt. For the three months ended March 31, 2019 and 2018, $0.7 million of expense and $0.2 million of income, respectively, was recorded to interest expense on the accompanying condensed statements of operations related to these swap agreements.

### Off-Balance Sheet Arrangements

Purchasing commitments are utilized in our normal course of business for our projected needs. We have supply contracts with various third parties for certain raw materials including ethylene, electricity, propylene and benzene. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials.

### New Accounting Standards

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 carrying amount exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective basis with earlier application permitted. We plan to adopt this update on January 1, 2020 and do not expect the update to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 “Leases,” (ASU 2016-02) which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases” (ASC 842). Subsequent to the issuance of ASU 2016-02, ASC 842 was amended by various updates that amend and clarify the impact and implementation of the aforementioned update. These updates require lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified retrospective method which requires retrospective adoption to each prior reporting period presented with the cumulative effect of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires application of these updates beginning on the date of adoption with the cumulative effect of initially applying these updates recognized at the date of initial adoption. These updates also expand the required quantitative and qualitative disclosures surrounding leases. These updates are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. We adopted these updates on January 1, 2019 using the optional transition method. Accordingly, prior periods were not retrospectively adjusted. Adoption of these updates resulted in the recording of operating lease assets and lease liabilities on our condensed balance sheet of $291.9 million as of January 1, 2019. Our assets and liabilities for finance leases remained unchanged. We also recognized the cumulative effect of applying these updates as an adjustment to retained earnings of $11.2 million, net of tax, which was primarily related to the recognition of previously deferred sale/leaseback gains. Our condensed statements of operations and cash flows, along with our compliance with all covenants and restrictions under all our outstanding credit agreements, were not impacted by this adoption. These updates also impacted our accounting policies, internal controls and disclosures related to leases. Expanded disclosures regarding leases are included in Note 12 “Leases” in the notes to the consolidated financial statements.

## Market risk

As filed, 5,446 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 March 31, 2019, we maintained open positions on commodity contracts with a notional value totaling $168.6 million ($116.5 million at December 31, 2018 and $128.4 million at March 31, 2018). Assuming a hypothetical 10% increase in commodity prices which are currently hedged, as of March 31, 2019, we would experience a $16.9 million ($11.7 million at December 31, 2018 and $12.8 million at March 31, 2018) 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 $17.7 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.

We are exposed to changes in interest rates primarily as a result of our investing and financing activities. Our current debt structure is used to fund business operations, and commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are additional sources of liquidity. As of March 31, 2019, December 31, 2018 and March 31, 2018, we had long-term borrowings, including current installments and capital lease obligations, of $3,193.3 million, $3,230.3 million and $3,535.4 million, respectively, of which $773.9 million, $823.9 million and $1,139.6 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively, were issued at variable rates. Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and deferred losses on fair value interest rate swaps.

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

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

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

Assuming no changes in the $773.9 million of variable-rate debt levels from March 31, 2019, we estimate that a hypothetical change of 100-basis points in the LIBOR interest rates would impact annual interest expense by $7.7 million. A portion of this hypothetical change would be offset by our interest rate swaps.

Our interest rate swaps reduced interest expense by $0.6 million and $1.5 million for the three months ended March 31, 2019 and 2018, 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, 6,090 characters.

Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019. 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 March 31, 2019, 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. 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. 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, 2018, 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 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 reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
- higher-than-expected raw material, energy, transportation and/or logistics costs;
- failure to control costs or to achieve targeted cost reductions;
- new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
- the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
- complications resulting from our multiple enterprise resource planning systems and the conversion to a new system;
- changes in, or failure to comply with, legislation or government regulations or policies;
- the failure or an interruption of our information technology systems;
- 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;
- 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;
- unexpected litigation outcomes;
- adverse changes in international markets, including economic, political or regulatory changes;
- weak industry conditions affecting our ability to comply with the financial maintenance covenants in our senior credit facility;
- failure to attract, retain and motivate key employees;
- our substantial amount of indebtedness and significant debt service obligations;
- costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
- our long range plan assumptions not being realized causing a non-cash impairment charge of long-lived assets; and
- adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital.

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 May 2, 2019.
Source: SEC EDGAR, the filing index for accession 0000074303-19-000032. Last ingested by Listed: Nov 14, 2026, 11:28 ET. No prices; not investment advice.