NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS
Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO. We are a manufacturer concentrated in three business segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells a full range of epoxy materials, including allyl chloride, epichlorohydrin, liquid epoxy resins, solid epoxy resins and downstream products such as differentiated epoxy resins and additives. The Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
On October 5, 2015 (the Closing Date), we acquired from DowDuPont Inc. (DowDuPont) (f/k/a The Dow Chemical Company) its U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses (collectively, the Acquired Business), whose operating results are included in the accompanying financial statements since the Closing Date. For segment reporting purposes, a portion of the Acquired Business’s operating results comprise the Epoxy segment with the remaining operating results combined with Olin’s Chlor Alkali Products and Chemical Distribution segments to comprise the Chlor Alkali Products and Vinyls segment.
ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Olin and all majority-owned subsidiaries. Investment in our affiliates are accounted for on the equity method. Accordingly, we include only our share of earnings or losses of these affiliates in consolidated net income (loss). Certain reclassifications were made to prior year amounts to conform to the
2017
presentation.
Revenue Recognition
Revenues are recognized on sales of product at the time the goods are shipped and the risks of ownership have passed to the customer. Shipping and handling fees billed to customers are included in sales. Allowances for estimated returns, discounts and rebates are recognized when sales are recorded and are based on various market data, historical trends and information from customers. Actual returns, discounts and rebates have not been materially different from estimates.
Cost of Goods Sold and Selling and Administration Expenses
Cost of goods sold includes the costs of inventory sold, related purchasing, distribution and warehousing costs, costs incurred for shipping and handling, depreciation and amortization expense related to these activities and environmental remediation costs and recoveries. Selling and administration expenses include personnel costs associated with sales, marketing and administration, research and development, legal and legal-related costs, consulting and professional services fees, advertising expenses, depreciation expense related to these activities, foreign currency translation and other similar costs.
Acquisition-related Costs
Acquisition-related costs include advisory, legal, accounting and other professional fees incurred in connection with the purchase and integration of our acquisitions. Acquisition-related costs also may include costs which arise as a result of acquisitions, including contractual change in control provisions, contract termination costs, compensation payments related to the acquisition or pension and other postretirement benefit plan settlements. Acquisition-related costs for the years ended December 31,
2017
,
2016
and
2015
of
$12.8 million
,
$48.8 million
and
$123.4 million
, respectively, were related to the integration of the Acquired Business.
Other Operating Income
Other operating income consists of miscellaneous operating income items, which are related to our business activities, and gains (losses) on disposition of property, plant and equipment.
Included in other operating income were the following:
|
|
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|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
($ in millions)
|
Gains (losses) on disposition of property, plant and equipment, net
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.6
|
)
|
Gains on insurance recoveries
|
—
|
|
|
11.0
|
|
|
46.0
|
|
Other
|
0.2
|
|
|
0.3
|
|
|
0.3
|
|
Other operating income
|
$
|
3.3
|
|
|
$
|
10.6
|
|
|
$
|
45.7
|
|
The gains on disposition of property, plant and equipment in 2017 included a gain of
$3.3 million
from the sale of a former manufacturing facility. The gains on insurance recoveries in 2016 included insurance recoveries for property damage and business interruption related to a 2008 Henderson, NV chlor alkali facility incident. The gains on insurance recoveries in 2015 included insurance recoveries for property damage and business interruption of
$42.3 million
related to the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014 and
$3.7 million
related to the McIntosh, AL chlor alkali facility.
Other Income (Expense)
Other income consists of non-operating income items which are not related to our primary business activities.
Foreign Currency Translation
Our worldwide operations utilize the U.S. dollar (USD) or local currency as the functional currency, where applicable. For foreign entities where the USD is the functional currency, gains and losses resulting from balance sheet translations are included in selling and administration. For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are included in accumulated other comprehensive loss. Assets and liabilities denominated in other than the local currency are remeasured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD using an approximation of the average rate prevailing during the period. We change the functional currency of our separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Cash and Cash Equivalents
All highly liquid investments, with a maturity of three months or less at the date of purchase, are considered to be cash equivalents.
Short-Term Investments
We classify our marketable securities as available-for-sale, which are reported at fair market value with unrealized gains and losses included in accumulated other comprehensive loss, net of applicable taxes. The fair value of marketable securities is determined by quoted market prices. Realized gains and losses on sales of investments, as determined on the specific identification method, and declines in value of securities judged to be other-than-temporary are included in other income (expense) in the consolidated statements of operations. Interest and dividends on all securities are included in interest income and other income (expense), respectively. As of December 31,
2017
and
2016
, we had no short-term investments recorded on our consolidated balance sheets.
Allowance for Doubtful Accounts Receivable
We evaluate the collectibility of accounts receivable based on a combination of factors. We estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This estimate is periodically adjusted when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While we have a large number of customers that operate in diverse businesses and are geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and, therefore, the need to revise estimates for the provision for doubtful accounts could occur.
Inventories
Inventories are valued at the lower of cost and net realizable value. For U.S. inventories, inventory costs are determined principally by the last-in, first-out (LIFO) method of inventory accounting while for international inventories, inventory costs are determined principally by the first-in, first-out (FIFO) method of inventory accounting. Cost for other inventories has been determined principally by the average-cost method (primarily operating supplies, spare parts and maintenance parts). Elements of costs in inventories include raw materials, direct labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are capitalized as part of the historical cost and included in property, plant and equipment and are depreciated over the useful lives of the related assets. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Start-up costs are expensed as incurred. Expenditures for maintenance and repairs are charged to expense when incurred while the costs of significant improvements, which extend the useful life of the underlying asset, are capitalized.
Property, plant and equipment are reviewed for impairment when conditions indicate that the carrying values of the assets may not be recoverable. Such impairment conditions include an extended period of idleness or a plan of disposal. If such impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. For our Chlor Alkali Products and Vinyls, Epoxy and Winchester segments, the lowest level for which identifiable cash flows exist is the operating facility level or an appropriate grouping of operating facilities level. The amount of impairment loss, if any, is measured by the difference between the net book value of the assets and the estimated fair value of the related assets.
Asset Retirement Obligations
We record the fair value of an asset retirement obligation associated with the retirement of a tangible long-lived asset as a liability in the period incurred. The liability is measured at discounted fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s useful life. Asset retirement obligations are reviewed annually in the fourth quarter and/or when circumstances or other events indicate that changes underlying retirement assumptions may have occurred.
The activities of our asset retirement obligations were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Beginning balance
|
$
|
55.4
|
|
|
$
|
53.5
|
|
Accretion
|
3.0
|
|
|
3.1
|
|
Spending
|
(8.8
|
)
|
|
(8.8
|
)
|
Currency translation adjustments
|
0.2
|
|
|
0.2
|
|
Adjustments
|
4.5
|
|
|
7.4
|
|
Ending balance
|
$
|
54.3
|
|
|
$
|
55.4
|
|
At December 31,
2017
and
2016
, our consolidated balance sheets included an asset retirement obligation of
$43.8 million
and
$42.8 million
, respectively, which were classified as other noncurrent liabilities.
In
2017
and
2016
, we had net adjustments that increased the asset retirement obligation by
$4.5 million
and
$7.4 million
, respectively, which were primarily comprised of increases in estimated costs for certain assets.
Comprehensive Income (Loss)
Accumulated other comprehensive loss consists of foreign currency translation adjustments, pension and postretirement liability adjustments, pension and postretirement amortization of prior service costs and actuarial losses and net unrealized (losses) gains on derivative contracts.
Goodwill
Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. Accounting Standards Codification (ASC) 350 “Intangibles—Goodwill and Other” (ASC 350) permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. Circumstances that are considered as part of the qualitative assessment and could trigger the two-step impairment test include, but are not limited to: a significant adverse change in the business climate; a significant adverse legal judgment; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a reporting unit. We define reporting units at the business segment level or one level below the business segment level. For purposes of testing goodwill for impairment, goodwill has been allocated to our reporting units to the extent it relates to each reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair value of our reporting units are greater than their carrying amounts as of
December 31, 2017
. No impairment charges were recorded for
2017
,
2016
or
2015
.
It is our practice, at a minimum, to perform a quantitative goodwill impairment test in the fourth quarter every three years. In the fourth quarter of 2016, we performed our triennial quantitative goodwill impairment test for our reporting units. We use a discounted cash flow approach to develop the estimated fair value of a reporting unit when a quantitative test is performed. Management judgment is required in developing the assumptions for the discounted cash flow model. We also corroborate our discounted cash flow analysis by evaluating a market-based approach that considers earnings before interest, taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies. As a further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the aggregate fair value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying amount of a reporting unit exceeded the estimated fair value. Based on the aforementioned analysis, the estimated fair value of our reporting units substantially exceeded the carrying value of the reporting units.
The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of the chlor alkali industry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of each reporting unit. The discount rate reflects a weighted-average cost of capital, which is calculated based on observable market data. Some of this data (such as the risk free or treasury rate and the pretax cost of debt) are based on the market data at a point in time. Other data (such as the equity risk premium) are based upon market data over time for a peer group of companies in the chemical manufacturing or distribution industries with a market capitalization premium added, as applicable.
The discounted cash flow analysis requires estimates, assumptions and judgments about future events. Our analysis uses our internally generated long-range plan. Our discounted cash flow analysis uses the assumptions in our long-range plan about terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the implied fair value of each reporting unit. The long-range plan reflects management judgment, supplemented by independent chemical industry analyses which provide multi-year industry operating and pricing forecasts.
We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are not achieved, we may be required to record goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Intangible Assets
In conjunction with our acquisitions, we have obtained access to the customer contracts and relationships, trade names, acquired technology and other intellectual property of the acquired companies. These relationships are expected to provide economic benefit for future periods. Amortization expense is recognized on a straight-line basis over the estimated lives of the related assets. The amortization period of customer contracts and relationships, trade names, acquired technology and other intellectual property represents our best estimate of the expected usage or consumption of the economic benefits of the acquired assets, which is based on the company’s historical experience.
Intangible assets with finite lives are reviewed for impairment when conditions indicate that the carrying values of the assets may not be recoverable. Circumstances that are considered as part of the qualitative assessment and could trigger a quantitative impairment test include, but are not limited to: a significant adverse change in the business climate; a significant adverse legal judgment including asset specific factors; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; decline in our stock price; and a significant restructuring charge within a reporting unit. Based upon our qualitative assessment, it is more likely than not that the fair value of our intangible assets are greater than the carrying amount as of December 31,
2017
.
No
impairment of our intangible assets were recorded in
2017
,
2016
or
2015
.
Environmental Liabilities and Expenditures
Accruals (charges to income) for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessment and remediation efforts progress or additional technical or legal information becomes available. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations.
Income Taxes
Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the value of the deferred tax assets will not be realized.
Derivative Financial Instruments
We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks. We use hedge accounting treatment for a significant amount of our business transactions whose risks are covered using derivative instruments. The hedge accounting treatment provides for the deferral of gains or losses on derivative instruments until such time as the related transactions occur.
Concentration of Credit Risk
Accounts receivable is the principal financial instrument which subjects us to a concentration of credit risk. Credit is extended based upon the evaluation of a customer’s financial condition and, generally, collateral is not required. Concentrations of credit risk with respect to receivables are somewhat limited due to our large number of customers, the diversity of these customers’ businesses and the geographic dispersion of such customers. Our accounts receivable are predominantly derived from sales denominated in USD or the Euro. We maintain an allowance for doubtful accounts based upon the expected collectibility of all trade receivables.
Fair Value
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 “Fair Value Measurement” (ASC 820), and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 — Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 — Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Retirement-Related Benefits
We account for our defined benefit pension plans and non-pension postretirement benefit plans using actuarial models required by ASC 715 “Compensation—Retirement Benefits” (ASC 715). These models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as actuarial gains or losses. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern. Substantially all domestic defined benefit pension plan participants are no longer accruing benefits; therefore, actuarial gains and losses are amortized based upon the remaining life expectancy of the inactive plan participants. For both the years ended December 31,
2017
and
2016
, the average remaining life expectancy of the inactive participants in the domestic defined benefit pension plan was
19
years.
One of the key assumptions for the net periodic pension calculation is the expected long-term rate of return on plan assets, used to determine the “market-related value of assets.” The “market-related value of assets” recognizes differences between the plan’s actual return and expected return over a five year period. The required use of an expected long-term rate of return on the market-related value of plan assets may result in a recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and, therefore, result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. As differences between actual and expected returns are recognized over five years, they subsequently generate gains and losses that are subject to amortization over the average remaining life expectancy of the inactive plan participants, as described in the preceding paragraph.
We use long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns and inflation by reference to external sources to develop the expected long-term rate of return on plan assets as of December 31.
The discount rate assumptions used for pension and non-pension postretirement benefit plan accounting reflect the rates available on high-quality fixed-income debt instruments on December 31 of each year. The rate of compensation increase is based upon our long-term plans for such increases. For retiree medical plan accounting, we review external data and our own historical trends for healthcare costs to determine the healthcare cost trend rates.
Stock-Based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments, such as stock options, performance shares and restricted stock, based on the grant-date fair value of the award. This cost is recognized over the period during which an employee is required to provide service in exchange for the award, the requisite service period (usually the vesting period). An initial measurement is made of the cost of employee services received in exchange for an award of liability instruments based on its current fair value and the value of that award is subsequently remeasured at each reporting date through the settlement date. Changes in fair value of liability awards during the requisite service period are recognized as compensation cost over that period.
The fair value of each option granted, which typically vests ratably over
three
years, but not less than
one
year, was estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Dividend yield
|
2.69
|
%
|
|
6.09
|
%
|
|
2.92
|
%
|
Risk-free interest rate
|
2.06
|
%
|
|
1.35
|
%
|
|
1.69
|
%
|
Expected volatility
|
34
|
%
|
|
32
|
%
|
|
34
|
%
|
Expected life (years)
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
Weighted-average grant fair value (per option)
|
$
|
7.78
|
|
|
$
|
1.90
|
|
|
$
|
6.80
|
|
Weighted-average exercise price
|
$
|
29.82
|
|
|
$
|
13.14
|
|
|
$
|
27.40
|
|
Shares granted
|
1,621,000
|
|
|
1,670,400
|
|
|
776,750
|
|
Dividend yield was based on our current dividend yield as of the option grant date. Risk-free interest rate was based on zero coupon U.S. Treasury securities rates for the expected life of the options. Expected volatility was based on our historical stock price movements, as we believe that historical experience is the best available indicator of the expected volatility. Expected life of the option grant was based on historical exercise and cancellation patterns, as we believe that historical experience is the best estimate for future exercise patterns.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” which amends ASC 220 “Income Statement—Reporting Comprehensive Income.” This update allows a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for the stranded tax effects resulting from the 2017 Tax Act during each fiscal year or quarter in which the effect of the lower tax rate is recorded. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements; however, we expect the provisional deferred gain to be reclassified from AOCI to retained earnings to be approximately
$85 million
upon adoption.
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118), has provided guidance for companies that have not completed their accounting for the income tax effects of U.S. Tax Cuts and Jobs Act (the 2017 Tax Act) in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. We recognized a provisional deferred tax benefit of $437.9 million, which is included as a component of income tax (benefit) provision. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the 2017 Tax Act as the income tax benefit may require further adjustments in 2018 due to anticipated additional guidance from the U.S. Department of the Treasury, changes in Olin’s assumptions, completion of 2017 tax returns, and further information and interpretations that become available; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and of the one-time transition tax. Additional revisions to our estimates through the measurement period may have a material impact on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedge Activities” which amends ASC 815 “Derivatives and Hedging” (ASC 815). This update is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting guidance, and increase transparency as to the scope and results of hedge programs. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which amends ASC 715. This update requires the presentation of the service cost component of net periodic benefit income (costs) in the same income statement line item as other employee compensation costs arising from services rendered during the period. The update requires the presentation of the other components of the net periodic benefit income (costs) separately from the line item that includes the service cost and outside of any subtotal of operating income. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance in this update is applied on a retrospective basis with earlier application permitted. The adoption of ASU 2017-07 will result in a change in our net periodic benefit income (costs) within operating income, which will be offset by a corresponding change in non-operating income (expense) to reflect the impact of presenting the interest cost, expected return on plan assets and amortization of prior service cost and net actuarial loss components of net periodic benefit income (costs) outside of operating income. We have adopted this update on January 1, 2018 using the retrospective method reflecting the aforementioned reclassification on our consolidated statements of operations in the period of adoption. The adoption of this update did not have a material impact on our consolidated balance sheets or our consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC 350. This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective basis with earlier application permitted. We plan to adopt this update on January 1, 2020 and do not expect the update to have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017. The update will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We adopted this update on January 1, 2018. The adoption of this update did not have a material impact 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 update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We adopted this update 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.” 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. 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. These updates 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 these updates 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 this update 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 update. These updates provide guidance on how an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. These updates also expand the disclosure requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We adopted these updates on January 1, 2018 using the modified retrospective transition method. The cumulative effect of applying the updates will be recorded to retained earnings as of the date of adoption. The most significant impact the updates will have will be on our accounting policies and disclosures on revenue recognition. The adoption of these updates did not have a material impact on our consolidated financial statements. Expanded disclosures regarding revenue recognition will be included within our consolidated financial statements in the period of adoption.
ACQUISITION
On the Closing Date, Olin consummated the previously announced merger (the Merger), using a Reverse Morris Trust structure, of our wholly owned subsidiary, Blue Cube Acquisition Corp. (Merger Sub), with and into Blue Cube Spinco Inc. (Spinco), with Spinco as the surviving corporation and a wholly owned subsidiary of Olin, as contemplated by the Agreement and Plan of Merger (the Merger Agreement) dated March 26, 2015, among Olin, DowDuPont, Merger Sub and Spinco (collectively, the Acquisition). Pursuant to the Merger Agreement and a Separation Agreement dated March 26, 2015 between DowDuPont and Spinco (the Separation Agreement), prior to the Merger, (1) DowDuPont transferred the Acquired Business to Spinco and (2) DowDuPont distributed Spinco’s stock to DowDuPont’s shareholders by way of a split-off (the Distribution). Upon consummation of the transactions contemplated by the Merger Agreement and the Separation Agreement (the Transactions), the shares of Spinco common stock then outstanding were automatically converted into the right to receive approximately
87.5 million
shares of Olin common stock, which were issued by Olin on the Closing Date, and represented approximately
53%
of the then outstanding shares of Olin common stock, together with cash in lieu of fractional shares. Olin’s pre-Merger shareholders continued to hold the remaining approximately
47%
of the then outstanding shares of Olin common stock. On the Closing Date, Spinco became a wholly owned subsidiary of Olin.
The following table summarizes the aggregate purchase price for the Acquired Business and related transactions, after the final post-closing adjustments:
|
|
|
|
|
|
October 5,
2015
|
|
(In millions, except per share data)
|
Shares
|
87.5
|
|
Value of common stock on October 2, 2015
|
17.46
|
|
Equity consideration by exchange of shares
|
$
|
1,527.4
|
|
Cash and debt instruments received by DowDuPont
|
2,095.0
|
|
Payment for certain liabilities including the final working capital adjustment
|
69.5
|
|
Up-front payments under the ethylene agreements
|
433.5
|
|
Total cash, debt and equity consideration
|
$
|
4,125.4
|
|
Long-term debt assumed
|
569.0
|
|
Pension liabilities assumed
|
442.3
|
|
Aggregate purchase price
|
$
|
5,136.7
|
|
The value of the common stock was based on the closing stock price on the last trading day prior to the Closing Date. The aggregate purchase price was adjusted for the final working capital adjustment and the final valuation for the pension liabilities assumed from DowDuPont which resulted in a payment of
$69.5 million
for the year ended December 31, 2016.
In connection with the Acquisition, DowDuPont retained liabilities relating to the Acquired Business for litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
For the years ended December 31,
2017
,
2016
and
2015
, we incurred costs related to the integration of the Acquired Business which included
$12.8 million
,
$48.8 million
and
$76.3 million
, respectively, of advisory, legal, accounting, and other professional fees. For the year ended December 31, 2015, we also incurred
$30.5 million
of financing-related fees and
$47.1 million
as a result of the change in control which created a mandatory acceleration of expenses under deferred compensation plans as a result of the Transactions.
For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and U.S. Chlor Alkali and Vinyl and Global Chlorinated Organics (Acquired Chlor Alkali Business) operating results combined with our former Chlor Alkali Products and Chemical Distribution segments to comprise the Chlor Alkali Products and Vinyls segment. The Acquired Business’s results of operations have been included in our consolidated results for the period subsequent to the Closing Date. Our results for the years ended December 31,
2017
,
2016
and
2015
include Epoxy sales of
$2,086.4 million
,
$1,822.0 million
and
$429.6 million
, respectively, and segment (loss) income of
$(11.8) million
,
$15.4 million
and
$(7.5) million
, respectively. For the years ended December 31,
2017
,
2016
and
2015
, Chlor Alkali Products and Vinyls include sales of the Acquired Chlor Alkali Business of
$2,054.7 million
,
$1,715.7 million
and
$373.0 million
, respectively, and segment income of
$235.6 million
,
$164.5 million
and
$37.2 million
, respectively.
The Transactions have been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We finalized our purchase price allocation during the third quarter of 2016. The following table summarizes the final allocation of the purchase price to the Acquired Business’s assets and liabilities on the Closing Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Valuation
|
|
Measurement Period Adjustments
|
|
Final Valuation
|
|
($ in millions)
|
Total current assets
|
$
|
921.7
|
|
|
$
|
(38.0
|
)
|
|
$
|
883.7
|
|
Property, plant and equipment
|
3,090.8
|
|
|
(11.7
|
)
|
|
3,079.1
|
|
Deferred tax assets
|
76.8
|
|
|
8.2
|
|
|
85.0
|
|
Intangible assets
|
582.3
|
|
|
30.3
|
|
|
612.6
|
|
Other assets
|
426.5
|
|
|
12.4
|
|
|
438.9
|
|
Total assets acquired
|
5,098.1
|
|
|
1.2
|
|
|
5,099.3
|
|
Total current liabilities
|
357.6
|
|
|
2.3
|
|
|
359.9
|
|
Long-term debt
|
517.9
|
|
|
—
|
|
|
517.9
|
|
Accrued pension liability
|
447.1
|
|
|
(4.8
|
)
|
|
442.3
|
|
Deferred tax liabilities
|
1,054.9
|
|
|
(37.2
|
)
|
|
1,017.7
|
|
Other liabilities
|
2.0
|
|
|
6.6
|
|
|
8.6
|
|
Total liabilities assumed
|
2,379.5
|
|
|
(33.1
|
)
|
|
2,346.4
|
|
Net identifiable assets acquired
|
2,718.6
|
|
|
34.3
|
|
|
2,752.9
|
|
Goodwill
|
1,427.5
|
|
|
(55.0
|
)
|
|
1,372.5
|
|
Fair value of net assets acquired
|
$
|
4,146.1
|
|
|
$
|
(20.7
|
)
|
|
$
|
4,125.4
|
|
Measurement period adjustments to the initial valuation primarily consisted of the final working capital adjustment, the final valuation for the pension liabilities assumed from DowDuPont, changes in the estimated fair value of acquired intangible assets and property, plant and equipment, and the finalization of deferred tax assets and liabilities. Included in total current assets are cash and cash equivalents of
$25.4 million
, inventories of
$456.4 million
and receivables of
$401.6 million
with a contracted value of
$403.8 million
. Included in total current liabilities are current installments of long-term debt of
$51.1 million
.
Based on final valuations, purchase price was allocated to intangible assets as follows:
|
|
|
|
|
|
|
|
October 5, 2015
|
|
Weighted-Average Amortization Period
|
|
Gross Amount
|
|
|
|
($ in millions)
|
Customers, customer contracts and relationships
|
15 Years
|
|
$
|
520.5
|
|
Acquired technology
|
7 Years
|
|
85.1
|
|
Trade name
|
5 Years
|
|
7.0
|
|
Total acquired intangible assets
|
|
|
$
|
612.6
|
|
Based on final valuations,
$1,372.5 million
was assigned to goodwill,
none
of which is deductible for tax purposes. The primary reasons for the Acquisition and the principal factors that contributed to the Acquired Business purchase price that resulted in the recognition of goodwill are due to the providing of increased production capacity and diversification of Olin’s product portfolio, cost-saving opportunities and enhanced size and geographic presence. The cost-saving opportunities include improved operating efficiencies and asset optimization.
Goodwill recorded in the Acquisition is not amortized but will be reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
Transaction financing
Prior to the Distribution, DowDuPont received from Spinco distributions of cash and debt instruments of Spinco with an aggregate value of
$2,095.0 million
(collectively, the Cash and Debt Distribution). On the Closing Date, Spinco issued
$720.0 million
aggregate principal amount of
9.75%
senior notes due October 15, 2023 (2023 Notes) and
$500.0 million
aggregate principal amount of
10.00%
senior notes due October 15, 2025 (2025 Notes and, together with the 2023 Notes, the Notes) to DowDuPont. DowDuPont transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of DowDuPont held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and are paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Transactions, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a five-year delayed-draw term loan facility of up to
$1,050.0 million
. As of the Closing Date, Spinco drew
$875.0 million
to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a five-year
$1,850.0 million
senior credit facility consisting of a
$500.0 million
senior revolving credit facility, which replaced Olin’s
$265.0 million
senior revolving credit facility at the closing of the Merger, and a
$1,350.0 million
(subject to reduction by the aggregate amount of the term loans funded to Spinco under the Spinco term loan facility) delayed-draw term loan facility. As of the Closing Date, an additional
$475.0 million
was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Transactions, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single
$1,850.0 million
senior credit facility, which includes a
$1,350.0 million
term loan facility. The existing
$1,850.0 million
senior credit facility was refinanced in its entirety on March 9, 2017 by a five-year
$1,975.0 million
senior credit facility.
On August 25, 2015, Olin entered into a Credit Agreement (the Credit Agreement) with a syndicate of lenders and Sumitomo Mitsui Banking Corporation (Sumitomo), as administrative agent, in connection with the Transactions. The Credit Agreement provides for a term credit facility (the Sumitomo Credit Facility) under which Olin obtained term loans in an aggregate amount of
$600.0 million
. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by
$200.0 million
. On the Closing Date,
$600.0 million
of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015,
$200.0 million
of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility were set to mature on October 5, 2018 and had no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date, to pay fees and expenses in connection with the Transactions and for general corporate purposes. The Credit Agreement contained customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the
$1,850.0 million
senior credit facility. During 2016,
$210.0 million
was repaid under the Sumitomo Credit Facility using proceeds from the receivables financing agreement. During 2017, the remaining
$590.0 million
was repaid the Sumitomo Credit Facility using proceeds from the
$500.0 million
senior notes due 2027 and the
$1,975.0 million
senior credit facility.
On March 26, 2015, we and certain financial institutions executed commitment letters pursuant to which the financial institutions agreed to provide
$3,354.5 million
of financing to Spinco to finance the amount of the Cash and Debt Distribution and to provide financing, if needed, to Olin to refinance certain of our existing debt (the Bridge Financing), in each case on the terms and conditions set forth in the commitment letters. The Bridge Financing was not drawn on to facilitate the Transactions, and the commitments for the Bridge Financing were terminated as of the Closing Date. For the year ended December 31, 2015, we paid debt issuance costs of
$30.0 million
associated with the Bridge Financing, which were included in interest expense.
Other acquisition-related transactions
In connection with the Transactions, certain additional agreements have been entered into, including, among others, an Employee Matters Agreement, a Tax Matters Agreement, site, transitional and other services agreements, supply and purchase agreements, real estate agreements, technology licenses and intellectual property agreements.
In addition, Olin and DowDuPont entered into arrangements for the long-term supply of ethylene by DowDuPont to Olin, pursuant to which, among other things, Olin has made upfront payments of
$433.5 million
on the Closing Date in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional ethylene at producer economics. The fair value of the long-term supply contracts recorded as of the Closing Date was a long-term asset of
$416.1 million
which will be amortized over the life of the contracts as ethylene is received. During 2016, we exercised one of
the options to reserve additional ethylene at producer economics. In September 2017, DowDuPont’s new Texas 9 ethylene cracker in Freeport, TX became operational. As a result, during
2017
, a payment of
$209.4 million
was made in connection with this option which increased the value of the long-term asset.
On February 27, 2017, we exercised the remaining option to obtain additional ethylene at producer economics from DowDuPont. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to DowDuPont of between
$440 million
and
$465 million
on or about the fourth quarter of 2020. During September 2017, as a result of DowDuPont’s new Texas 9 ethylene cracker becoming operational, Olin recognized a long-term asset and other liabilities of
$389.2 million
, which represents the present value of the estimated 2020 payment. The discount amount of
$51.8 million
will be recorded as interest expense through the fourth quarter of 2020.
In connection with the Transactions and effective October 1, 2015, we filed a Certificate of Amendment to our Articles of Incorporation to increase the number of authorized shares of Olin common stock from
120.0 million
shares to
240.0 million
shares.
Pro forma financial information
The following pro forma summary reflects consolidated results of operations as if the Acquisition had occurred on January 1, 2015 (unaudited).
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
($ in millions, except
per share data)
|
Sales
|
$
|
5,681.8
|
|
Net loss
|
(36.6)
|
|
Net loss per common share:
|
|
Basic
|
$
|
(0.22
|
)
|
Diluted
|
$
|
(0.22
|
)
|
The pro forma financial information was prepared based on historical financial information and has been adjusted to give effect to pro forma adjustments that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The pro forma statement of operations uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may differ significantly from this pro forma financial information. The pro forma results presented do not include any anticipated synergies or other expected benefits that may be realized from the Transactions. The pro forma information is not intended to reflect the actual results that would have occurred had the companies actually been combined during the period presented.
The pro forma results for the year ended December 31, 2015 primarily includes recurring adjustments for re-pricing of sales, raw materials and services to/from DowDuPont relating to arrangements for long-term supply agreements for the sale of raw materials, including ethylene and benzene, and services pursuant to the Separation Agreement, adjustments to eliminate historical sales between the Acquired Business and Olin, additional amortization expense related to the fair value of acquired identifiable intangible assets, additional depreciation expense related to the fair value adjustment to property, plant and equipment, interest expense related to the incremental debt issued in conjunction with the Acquisition and an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments relate.
In addition to the above recurring adjustments, the pro forma results for the year ended December 31, 2015 included a non-recurring adjustment of
$47.0 million
relating to the elimination of transaction costs incurred that were directly related to the Transactions, and do not have a continuing impact on our combined operating results. The pro forma results for the year ended December 31, 2015 also included non-recurring adjustments of
$47.1 million
relating to the impact of costs incurred as a result of the change in control which created a mandatory acceleration of expenses under deferred compensation plans and
$24.0 million
related to additional costs of goods sold related to the increase of inventory to fair value at the acquisition date related to the purchase accounting for inventory.
RESTRUCTURING CHARGES
On March 21, 2016, we announced that we had made the decision to close a combined total of
433,000
tons of chlor alkali capacity across three separate locations. Associated with this action, we have permanently closed our Henderson, NV chlor alkali plant with
153,000
tons of capacity and have reconfigured the site to manufacture bleach and distribute caustic soda and hydrochloric acid. Also, the capacity of our Niagara Falls, NY chlor alkali plant has been reduced from
300,000
tons to
240,000
tons and the chlor alkali capacity at our Freeport, TX facility was reduced by
220,000
tons. This
220,000
ton reduction was entirely from diaphragm cell capacity. For the years ended December 31,
2017
and
2016
, we recorded pretax restructuring charges of
$32.6 million
and
$111.3 million
for the write-off of equipment and facility costs, lease and other contract termination costs, employee severance and related benefit costs, employee relocation costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through
2020
of approximately
$22 million
related to these capacity reductions.
On
December 12, 2014
, we announced that we had made the decision to permanently close the portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. This action reduced the facility’s chlor alkali capacity by
185,000
tons. Subsequent to the shut down, the plant predominantly focuses on bleach and hydrochloric acid, which are value-added products, as well as caustic soda. For the years ended December 31,
2017
,
2016
and
2015
, we recorded pretax restructuring charges of
$3.3 million
,
$0.8 million
and
$2.0 million
, respectively, for the write-off of equipment and facility costs, lease and other contract termination costs and facility exit costs related to these actions. We expect to incur additional restructuring charges through 2018 of approximately
$2 million
related to the shut down of this portion of the facility.
On
November 3, 2010
, we announced that we made the decision to relocate the Winchester centerfire pistol and rifle ammunition manufacturing operations from East Alton, IL to Oxford, MS. Consistent with this decision in 2010, we initiated an estimated
$110 million
five-year project, which includes approximately
$80 million
of capital spending. The capital spending was partially financed by
$31 million
of grants provided by the State of Mississippi and local governments. During 2016, the final rifle ammunition production equipment relocation was completed. For the years ended December 31,
2017
,
2016
and
2015
, we recorded pretax restructuring charges of
$1.7 million
,
$0.8 million
and
$0.7 million
, respectively, for employee severance and related benefit costs, employee relocation costs and facility exit costs related to these actions.
The following table summarizes the
2017
,
2016
and
2015
activities by major component of these restructuring actions and the remaining balances of accrued restructuring costs as of December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and job related benefits
|
|
Lease and other contract termination costs
|
|
Employee relocation costs
|
|
Facility exit costs
|
|
Write-off of equipment and facility
|
|
Total
|
|
($ in millions)
|
Balance at January 1, 2015
|
$
|
11.2
|
|
|
$
|
4.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
2015 restructuring charges
|
—
|
|
|
0.7
|
|
|
0.6
|
|
|
0.9
|
|
|
0.5
|
|
|
2.7
|
|
Amounts utilized
|
(6.0
|
)
|
|
(2.9
|
)
|
|
(0.6
|
)
|
|
(0.9
|
)
|
|
(0.5
|
)
|
|
(10.9
|
)
|
Currency translation adjustments
|
(0.6
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
Balance at December 31, 2015
|
4.6
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.7
|
|
2016 restructuring charges
|
5.1
|
|
|
13.6
|
|
|
2.1
|
|
|
15.5
|
|
|
76.6
|
|
|
112.9
|
|
Amounts utilized
|
(6.3
|
)
|
|
(8.2
|
)
|
|
(2.1
|
)
|
|
(13.7
|
)
|
|
(76.6
|
)
|
|
(106.9
|
)
|
Balance at December 31, 2016
|
3.4
|
|
|
7.5
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
12.7
|
|
2017 restructuring charges
|
2.0
|
|
|
22.1
|
|
|
0.3
|
|
|
11.7
|
|
|
1.5
|
|
|
37.6
|
|
Amounts utilized
|
(3.6
|
)
|
|
(26.3
|
)
|
|
(0.3
|
)
|
|
(13.5
|
)
|
|
(1.5
|
)
|
|
(45.2
|
)
|
Balance at December 31, 2017
|
$
|
1.8
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.1
|
|
The following table summarizes the cumulative restructuring charges of these 2016, 2014 and 2010 restructuring actions by major component through December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chlor Alkali Products
and Vinyls
|
|
Winchester
|
|
Total
|
|
|
Becancour
|
|
Capacity Reductions
|
|
|
|
|
($ in millions)
|
Write-off of equipment and facility
|
|
$
|
3.5
|
|
|
$
|
78.1
|
|
|
$
|
—
|
|
|
$
|
81.6
|
|
Employee severance and job related benefits
|
|
2.7
|
|
|
5.5
|
|
|
14.7
|
|
|
22.9
|
|
Facility exit costs
|
|
4.6
|
|
|
23.1
|
|
|
2.3
|
|
|
30.0
|
|
Pension and other postretirement benefits curtailment
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
4.1
|
|
Employee relocation costs
|
|
—
|
|
|
1.7
|
|
|
6.0
|
|
|
7.7
|
|
Lease and other contract termination costs
|
|
5.3
|
|
|
35.6
|
|
|
—
|
|
|
40.9
|
|
Total cumulative restructuring charges
|
|
$
|
16.1
|
|
|
$
|
144.0
|
|
|
$
|
27.1
|
|
|
$
|
187.2
|
|
As of December 31,
2017
, we have incurred cash expenditures of
$96.0 million
and non-cash charges of
$86.1 million
related to these restructuring actions. The remaining balance of
$5.1 million
is expected to be paid out through 2020.
EARNINGS PER SHARE
Basic and diluted income (loss) per share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income per share reflects the dilutive effect of stock-based compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Computation of Income (Loss) per Share
|
(In millions, except per share data)
|
Net income (loss)
|
$
|
549.5
|
|
|
$
|
(3.9
|
)
|
|
$
|
(1.4
|
)
|
Basic shares
|
166.2
|
|
|
165.2
|
|
|
103.4
|
|
Basic net income (loss) per share
|
$
|
3.31
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Diluted shares:
|
|
|
|
|
|
Basic shares
|
166.2
|
|
|
165.2
|
|
|
103.4
|
|
Stock-based compensation
|
2.3
|
|
|
—
|
|
|
—
|
|
Diluted shares
|
168.5
|
|
|
165.2
|
|
|
103.4
|
|
Diluted net income (loss) per share
|
$
|
3.26
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
The computation of dilutive shares from stock-based compensation does not include
1.6 million
,
6.5 million
and
5.2 million
shares in
2017
,
2016
and
2015
, respectively, as their effect would have been anti-dilutive.
ACCOUNTS RECEIVABLES
On December 20, 2016, we entered into a three year,
$250.0 million
Receivables Financing Agreement with PNC Bank, National Association, as administrative agent (Receivables Financing Agreement). Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. As of December 31,
2017
and
2016
,
$340.9 million
and
$282.3 million
, respectively, of our trade receivables were pledged as collateral and we had
$249.7 million
and
$210.0 million
, respectively, drawn under the agreement. For the year ended
December 31, 2017
, we borrowed
$40.0 million
under the Receivables Financing Agreement and used the proceeds to fund a portion of the payment to DowDuPont associated with a long-term ethylene supply contract to reserve additional ethylene at producer economics. For the year ended
December 31, 2016
, the proceeds of the Receivables Financing Agreement were used to repay
$210.0 million
of the Sumitomo Credit Facility. As of
December 31, 2017
, we had
$0.3 million
additional borrowing capacity under the Receivables Financing Agreement. In addition, the Receivables Financing Agreement incorporates the leverage and coverage covenants that are contained in the senior revolving credit facility.
On June 29, 2016, we entered into a trade accounts receivable factoring arrangement and, on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement, which were both subsequently amended (collectively the AR Facilities). Pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of
$294.0 million
. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” and, accordingly, the proceeds are included in net cash provided by operating activities in the consolidated statements of cash flows. The gross amount of receivables sold for the years ended
December 31, 2017
and
2016
totaled
$1,655.2 million
and
$533.6 million
, respectively. The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of operations. The factoring discount for the years ended
December 31, 2017
and
2016
was
$3.7 million
and
$1.1 million
, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of
December 31, 2017
. As of
December 31, 2017
and
2016
,
$182.3 million
and
$126.1 million
, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.
At December 31,
2017
and
2016
, our consolidated balance sheets included other receivables of
$105.5 million
and
$95.6 million
, respectively, which were classified as receivables, net.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES
Allowance for doubtful accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Beginning balance
|
$
|
10.1
|
|
|
$
|
6.4
|
|
Provisions charged
|
2.3
|
|
|
4.5
|
|
Write-offs, net of recoveries
|
(0.1
|
)
|
|
(0.8
|
)
|
Ending balance
|
$
|
12.3
|
|
|
$
|
10.1
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Supplies
|
$
|
66.1
|
|
|
$
|
58.1
|
|
Raw materials
|
75.3
|
|
|
72.6
|
|
Work in process
|
127.8
|
|
|
110.7
|
|
Finished goods
|
462.6
|
|
|
424.9
|
|
|
731.8
|
|
|
666.3
|
|
LIFO reserves
|
(49.2
|
)
|
|
(35.9
|
)
|
Inventories, net
|
$
|
682.6
|
|
|
$
|
630.4
|
|
Inventories valued using the LIFO method comprised
55%
and
54%
of the total inventories at December 31,
2017
and
2016
, respectively. The replacement cost of our inventories would have been approximately
$49.2 million
and
$35.9 million
higher than that reported at December 31,
2017
and
2016
, respectively.
OTHER ASSETS
Included in other assets were the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Investments in non-consolidated affiliates
|
$
|
28.5
|
|
|
$
|
26.7
|
|
Deferred debt issuance costs
|
2.5
|
|
|
2.6
|
|
Tax-related receivables
|
10.2
|
|
|
17.5
|
|
Interest rate swaps
|
3.6
|
|
|
7.7
|
|
Supply contracts
|
1,137.1
|
|
|
566.7
|
|
Other
|
26.5
|
|
|
23.2
|
|
Other assets
|
$
|
1,208.4
|
|
|
$
|
644.4
|
|
In connection with the Acquisition, Olin and DowDuPont entered into arrangements for the long-term supply of ethylene by DowDuPont to Olin, pursuant to which, among other things, Olin made upfront payments of
$433.5 million
on the Closing Date in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional ethylene at producer economics. The fair value of the long-term supply contracts recorded as of the Closing Date was a long-term asset of
$416.1 million
which will be amortized over the life of the contracts as ethylene is received. During 2016, we exercised one of the options to reserve additional ethylene supply at producer economics. In September 2017, DowDuPont’s new Texas 9 ethylene cracker in Freeport, TX became operational. As a result, during
2017
, a payment of
$209.4 million
was made in connection with this option which increased the value of the long-term asset.
On February 27, 2017, we exercised the remaining option to obtain additional future ethylene at producer economics from DowDuPont. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to DowDuPont of between
$440 million
and
$465 million
on or about the fourth quarter of 2020. During September 2017, as a result of DowDuPont’s new Texas 9 ethylene cracker becoming operational, Olin recognized a long-term asset and other liabilities of
$389.2 million
, which represents the present value of the estimated 2020 payment. The discount amount of
$51.8 million
will be recorded as interest expense through the fourth quarter of 2020. For the year ended
December 31, 2017
, interest expense of
$3.9 million
was recorded for the accretion on the 2020 payment discount.
During 2016, Olin entered into arrangements to increase our supply of low cost electricity. In conjunction with these arrangements, Olin made payments of
$175.7 million
in 2016. The payments made under these arrangements will be amortized over the life of the contracts as electrical power is received.
The weighted-average useful life of long-term supply contracts at December 31,
2017
was
20
years. For the years ended December 31,
2017
,
2016
and
2015
, amortization expense of
$28.2 million
,
$21.5 million
and
$4.3 million
, respectively, was recognized within cost of goods sold related to these supply contracts and is reflected in depreciation and amortization on the consolidated statements of cash flows. We estimate that amortization expense will be approximately
$38 million
in
2018
,
2019
and
2020
and
$62 million
in
2021
and
2022
related to these long-term supply contracts. The long-term supply contracts are monitored for impairment each reporting period.
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Useful Lives
|
|
2017
|
|
2016
|
|
|
|
($ in millions)
|
Land and improvements to land
|
10-20 Years
|
|
$
|
281.7
|
|
|
$
|
281.2
|
|
Buildings and building equipment
|
10-30 Years
|
|
382.4
|
|
|
375.0
|
|
Machinery and equipment
|
3-15 Years
|
|
5,028.4
|
|
|
4,765.9
|
|
Leasehold improvements
|
|
|
3.9
|
|
|
3.4
|
|
Construction in progress
|
|
|
212.5
|
|
|
171.0
|
|
Property, plant and equipment
|
|
|
5,908.9
|
|
|
5,596.5
|
|
Accumulated depreciation
|
|
|
(2,333.1
|
)
|
|
(1,891.6
|
)
|
Property, plant and equipment, net
|
|
|
$
|
3,575.8
|
|
|
$
|
3,704.9
|
|
The weighted-average useful life of machinery and equipment at December 31,
2017
was
12
years. Depreciation expense was
$465.1 million
,
$435.7 million
and
$198.1 million
for
2017
,
2016
and
2015
, respectively. Interest capitalized was
$3.0 million
,
$1.9 million
and
$1.1 million
for
2017
,
2016
and
2015
, respectively. Maintenance, turnaround costs and repairs charged to operations amounted to
$414.7 million
,
$329.6 million
and
$187.7 million
in
2017
,
2016
and
2015
, respectively.
The consolidated statements of cash flows for the years ended December 31,
2017
,
2016
and
2015
, included an increase of
$0.5 million
and decreases of
$29.9 million
and
$7.4 million
, respectively, to capital expenditures, with the corresponding change to accounts payable and accrued liabilities, related to purchases of property, plant and equipment included in accounts payable at December 31,
2017
,
2016
and
2015
.
During 2016, we entered into sale/leaseback transactions for railcars that we acquired in connection with the Acquisition. We received proceeds from the sales of
$40.4 million
for the year ended December 31, 2016.
INVESTMENTS—AFFILIATED COMPANIES
During 2013, we sold our equity interest in a bleach joint venture which resulted in a gain of
$6.5 million
.
During both 2016 and 2015, we received
$8.8 million
as a result of the sale. As of December 31, 2016, all amounts had been collected under the sale arrangement.
We hold a
9.1%
limited partnership interest in Bay Gas Storage Company, Ltd. (Bay Gas), an Alabama limited partnership, in which EnergySouth, Inc. (EnergySouth) is the general partner with interest of
90.9%
. Bay Gas owns, leases and operates underground gas storage and related pipeline facilities, which are used to provide storage in the McIntosh, AL area and delivery of natural gas to EnergySouth customers.
The following table summarizes our investment in our non-consolidated equity affiliate:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Bay Gas
|
$
|
28.5
|
|
|
$
|
26.7
|
|
The following table summarizes our equity earnings of our non-consolidated affiliate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
($ in millions)
|
Bay Gas
|
$
|
1.8
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
We did not receive any distributions from our non-consolidated affiliates in
2017
,
2016
and
2015
.
GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
|
Epoxy
|
|
Total
|
|
($ in millions)
|
Balance at January 1, 2016
|
$
|
1,877.5
|
|
|
$
|
296.6
|
|
|
$
|
2,174.1
|
|
Acquisition activity
|
(45.3
|
)
|
|
(9.7
|
)
|
|
(55.0
|
)
|
Foreign currency translation adjustment
|
(0.9
|
)
|
|
(0.2
|
)
|
|
(1.1
|
)
|
Balance at December 31, 2016
|
1,831.3
|
|
|
286.7
|
|
|
2,118.0
|
|
Foreign currency translation adjustment
|
1.6
|
|
|
0.4
|
|
|
2.0
|
|
Balance at December 31, 2017
|
$
|
1,832.9
|
|
|
$
|
287.1
|
|
|
$
|
2,120.0
|
|
The decrease in goodwill during 2016 was a result of measurement period adjustments from the preliminary valuation of the Acquisition and the effects of foreign currency translation adjustments. We finalized our purchase price allocation of the Acquisition during the third quarter of 2016.
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Useful Lives
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
|
|
($ in millions)
|
Customers, customer contracts and relationships
|
10-15 Years
|
|
$
|
679.5
|
|
|
$
|
(163.6
|
)
|
|
$
|
515.9
|
|
|
$
|
667.8
|
|
|
$
|
(112.9
|
)
|
|
$
|
554.9
|
|
Trade name
|
5 Years
|
|
7.1
|
|
|
(3.2
|
)
|
|
3.9
|
|
|
17.8
|
|
|
(12.7
|
)
|
|
5.1
|
|
Acquired technology
|
7 Years
|
|
86.1
|
|
|
(27.7
|
)
|
|
58.4
|
|
|
84.2
|
|
|
(15.0
|
)
|
|
69.2
|
|
Other
|
4-10 Years
|
|
2.3
|
|
|
(2.0
|
)
|
|
0.3
|
|
|
2.3
|
|
|
(1.9
|
)
|
|
0.4
|
|
Total intangible assets
|
|
|
$
|
775.0
|
|
|
$
|
(196.5
|
)
|
|
$
|
578.5
|
|
|
$
|
772.1
|
|
|
$
|
(142.5
|
)
|
|
$
|
629.6
|
|
In connection with the integration of the Acquired Business, in the first quarter of 2016, the K.A. Steel Chemicals Inc. trade name was changed from an indefinite life intangible asset to an intangible asset with a finite useful life of
one
year. Amortization expense of
$10.9 million
was recognized within cost of goods sold for the year ended December 31, 2016 related to the change in useful life.
Amortization expense relating to intangible assets was
$62.8 million
,
$73.8 million
and
$25.8 million
in
2017
,
2016
and
2015
, respectively. We estimate that amortization expense will be approximately
$63 million
in
2018
,
2019
and
2020
, approximately
$61 million
in
2021
and approximately
$54 million
in
2022
.
DEBT
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Notes payable:
|
($ in millions)
|
Variable-rate Senior Term Loan Facility, due 2022 and 2020, respectively, (3.57% and 2.77% at December 31, 2017 and 2016, respectively)
|
$
|
1,323.4
|
|
|
$
|
1,282.5
|
|
Variable-rate Sumitomo Credit Facility, due 2018 (2.27% at December 31, 2016)
|
—
|
|
|
590.0
|
|
Variable-rate Recovery Zone bonds, due 2024-2035 (3.27% and 2.47% at December 31, 2017 and 2016, respectively)
|
103.0
|
|
|
103.0
|
|
Variable-rate Go Zone bonds, due 2024 (3.27% and 2.47% at December 31, 2017 and 2016, respectively)
|
50.0
|
|
|
50.0
|
|
Variable-rate Industrial development and environmental improvement obligations, due 2025 (1.27% and 0.25% at December 31, 2017 and 2016, respectively)
|
2.9
|
|
|
2.9
|
|
9.75%, due 2023
|
720.0
|
|
|
720.0
|
|
10.00%, due 2025
|
500.0
|
|
|
500.0
|
|
5.50%, due 2022
|
200.0
|
|
|
200.0
|
|
5.125%, due 2027
|
500.0
|
|
|
—
|
|
7.23%, SunBelt Notes due 2013-2017
|
—
|
|
|
12.2
|
|
Senior Revolving Credit Facility
|
20.0
|
|
|
—
|
|
Receivables Financing Agreement
|
249.7
|
|
|
210.0
|
|
Capital lease obligations
|
3.7
|
|
|
3.9
|
|
Total notes payable
|
3,672.7
|
|
|
3,674.5
|
|
Deferred debt issuance costs
|
(32.6
|
)
|
|
(28.5
|
)
|
Interest rate swaps
|
(28.1
|
)
|
|
(28.4
|
)
|
Total debt
|
3,612.0
|
|
|
3,617.6
|
|
Amounts due within one year
|
0.7
|
|
|
80.5
|
|
Total long-term debt
|
$
|
3,611.3
|
|
|
$
|
3,537.1
|
|
On March 9, 2017, we entered into a new five-year
$1,975.0 million
senior credit facility, which amended and restated the existing
$1,850.0 million
senior credit facility. Pursuant to the agreement, the aggregate principal amount under the term loan facility was increased to
$1,375.0 million
(Term Loan Facility), and the aggregate commitments under the senior revolving credit facility were increased to
$600.0 million
(Senior Revolving Credit Facility and, together with the Term Loan Facility, the Senior Credit Facility), from
$500.0 million
. At
December 31, 2017
, we had
$574.9 million
available under our
$600.0 million
Senior Revolving Credit Facility because we had outstanding borrowings of
$20.0 million
and issued
$5.1 million
of letters of credit. In March 2017, we drew the entire
$1,375.0 million
term loan and used the proceeds to redeem the remaining balance of the existing
$1,350.0 million
senior credit facility of
$1,282.5 million
and a portion of the Sumitomo Credit Facility. The maturity date for the Senior Credit Facility was extended from October 5, 2020 to March 9, 2022. The
$600.0 million
Senior Revolving Credit Facility includes a
$100.0 million
letter of credit subfacility. The Term Loan Facility 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 Senior Credit Facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the Senior Credit Facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of
December 31, 2017
and 2016, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. In the future, our ability to generate sufficient operating cash flows, among other factors, will
determine the amounts available to be borrowed under these facilities. As of
December 31, 2017
, there were no covenants or other restrictions that would have limited our ability to borrow under these facilities.
On March 9, 2017, Olin issued
$500.0 million
aggregate principal amount of
5.125%
senior notes due September 15, 2027 (2027 Notes), which were registered under the Securities Act of 1933, as amended. Interest on the 2027 Notes began accruing from March 9, 2017 and is paid semi-annually beginning on September 15, 2017. Proceeds from the 2027 Notes were used to redeem the remaining balance of the Sumitomo Credit Facility.
On December 20, 2016, we entered into a three year,
$250.0 million
Receivables Financing Agreement. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and are continued to be serviced by us. As of December 31,
2017
and
2016
,
$340.9 million
and
$282.3 million
, respectively, of our trade receivables were pledged as collateral and we had
$249.7 million
and
$210.0 million
, respectively, drawn under the agreement. For the year ended
December 31, 2017
, we borrowed
$40.0 million
under the Receivables Financing Agreement and used the proceeds to fund a portion of the payment to DowDuPont associated with a long-term ethylene supply contract to reserve additional ethylene at producer economics. During
2016
, we drew
$230.0 million
under the agreement and subsequently repaid
$20.0 million
. 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 Senior Revolving Credit Facility.
On the Closing Date, Spinco issued
$720.0 million
aggregate principal 2023 Notes and
$500.0 million
aggregate principal 2025 Notes to DowDuPont. DowDuPont transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of DowDuPont held or acquired by those unaffiliated securityholders. On October 5, 2015, certain initial purchasers purchased the Notes from the unaffiliated securityholders. During 2016, the Notes were registered under the Securities Act of 1933, as amended. Interest on the Notes began accruing from October 1, 2015 and are paid semi-annually beginning on April 15, 2016. The Notes are not redeemable at any time prior to October 15, 2020. Neither Olin nor Spinco received any proceeds from the sale of the Notes. Upon the consummation of the Transactions, Olin became guarantor of the Notes.
On June 23, 2015, Spinco entered into a five-year delayed-draw term loan facility of up to
$1,050.0 million
. As of the Closing Date, Spinco drew
$875.0 million
to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a five-year
$1,850.0 million
senior credit facility consisting of a
$500.0 million
senior revolving credit facility, which replaced Olin’s
$265.0 million
senior revolving credit facility at the closing of the Merger, and a
$1,350.0 million
delayed-draw term loan facility. As of the Closing Date, an additional
$475.0 million
was drawn by Olin under this term loan facility which was used to pay fees and expenses of the Transactions, obtain additional funds for general corporate purposes and refinance Olin’s existing senior term loan facility due in 2019. Subsequent to the Closing Date, these senior credit facilities were consolidated into a single
$1,850.0 million
senior credit facility. The
$1,850.0 million
senior credit facility was refinanced in its entirety by the Senior Credit Facility during 2017. We recognized interest expense of
$1.2 million
for the write-off of unamortized deferred debt issuance costs related to this action during 2017.
For the years ended
December 31, 2017
and
2016
, we repaid
$51.6 million
and
$67.5 million
under the required quarterly installments of the term loan facilities, respectively.
On August 25, 2015, Olin entered into a Credit Agreement with a syndicate of lenders and Sumitomo Mitsui Banking Corporation, as administrative agent, in connection with the Transactions. Olin obtained term loans in an aggregate amount of
$600.0 million
under the Sumitomo Credit Facility. On November 3, 2015, we entered into an amendment to the Sumitomo Credit Facility which increased the aggregate amount of term loans available by
$200.0 million
. On the Closing Date,
$600.0 million
of loans under the Credit Agreement were made available and borrowed upon and on November 5, 2015,
$200.0 million
of loans under the Credit Agreement were made available and borrowed upon. The term loans under the Sumitomo Credit Facility were set to mature on October 5, 2018 and had no scheduled amortization payments. The proceeds of the Sumitomo Credit Facility were used to refinance existing Spinco indebtedness at the Closing Date of
$569.0 million
, to pay fees and expenses in connection with the Transactions and for general corporate purposes. The Credit Agreement contained customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the
$1,850.0 million
senior credit facility. During 2016,
$210.0 million
was repaid under the Sumitomo Credit Facility using proceeds from the Receivables Financing Agreement. During 2017, the remaining balance of
$590.0 million
was repaid using proceeds from the Senior Credit Facility and the 2027 Notes. We recognized interest expense of
$1.5 million
related to the write-off of unamortized deferred debt issuance costs related to this action in 2017.
In June 2016, we repaid
$125.0 million
of
6.75%
senior notes due 2016, which became due.
In 2017, we paid debt issuance costs of
$11.2 million
relating to the Senior Credit Facility and the 2027 Notes. In 2016, we paid debt issuance costs of
$1.0 million
for the registration of the Notes. In 2015, we paid debt issuance costs of
$13.3 million
relating to the Notes, the Sumitomo Credit Facility and the
$1,850.0 million
senior credit facility.
On March 26, 2015, we and certain financial institutions executed commitment letters pursuant to which the financial institutions agreed to provide
$3,354.5 million
of Bridge Financing, in each case on the terms and conditions set forth in the commitment letters. The Bridge Financing was not drawn on to facilitate the Acquisition and the commitments for the Bridge Financing have been terminated as of the Closing Date. For the year ended December 31, 2015, we paid debt issuance costs of
$30.0 million
associated with the Bridge Financing, which are included in interest expense.
On June 24, 2014, we entered into a five-year
$415.0 million
senior credit facility consisting of a
$265.0 million
senior revolving credit facility, which replaced our previous
$265.0 million
senior revolving credit facility, and a
$150.0 million
delayed-draw term loan facility. In August 2014, we drew the entire
$150.0 million
of the term loan and used the proceeds to redeem our 2019 Notes. In 2015, we repaid
$2.8 million
under the required quarterly installments of the
$150.0 million
term loan facility and, on the Closing Date of the Acquisition, the remaining
$146.3 million
was refinanced using the proceeds of the
$1,850.0 million
senior credit facility. We recognized interest expense of
$0.5 million
for the write-off of unamortized deferred debt issuance costs related to this action in 2015.
Pursuant to a note purchase agreement dated December 22, 1997, SunBelt sold
$97.5 million
of Guaranteed Senior Secured Notes due 2017, Series O, and
$97.5 million
of Guaranteed Senior Secured Notes due 2017, Series G. We refer to these notes as the SunBelt Notes. The SunBelt Notes bear interest at a rate of
7.23%
per annum, payable semi-annually in arrears on each June 22 and December 22. Beginning on December 22, 2002 and each year through 2017, SunBelt was required to repay
$12.2 million
of the SunBelt Notes, of which
$6.1 million
is attributable to the Series O Notes and of which
$6.1 million
is attributable to the Series G Notes. In December
2017
,
2016
and
2015
,
$12.2 million
was repaid on these SunBelt Notes. At
December 31, 2017
, all amounts due under the SunBelt Notes have been repaid.
At December 31,
2017
, we had total letters of credit of
$72.8 million
outstanding, of which
$5.1 million
were issued under our Senior Revolving Credit Facility. The letters of credit are used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations and certain international pension funding requirements.
Annual maturities of long-term debt, including capital lease obligations, are
$0.7 million
in
2018
,
$0.7 million
in
2019
,
$251.3 million
in
2020
,
$0.3 million
in
2021
,
$993.7 million
in
2022
and a total of
$2,426.0 million
thereafter. The long-term debt obligations reflects the issuance of the
$550.0 million
2030 Notes and related prepayment of the
$1,375.0 million
Term Loan Facility in January 2018.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
, and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017, and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo Bank, N.A. (Wells Fargo), PNC Bank, National Association, and Toronto-Dominion Bank. These counterparties are large financial institutions. 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
$10.5 million
and are included in other current assets and other assets on the accompanying consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. For the year ended December 31,
2017
,
$3.1 million
of income was recorded to interest expense 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
$28.1 million
and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related
debt. For the years ended December 31,
2017
and
2016
,
$2.9 million
and
$2.6 million
, respectively, of income has been recorded to interest expense on the accompanying consolidated statement of operations related to these swap agreements.
Our loss in the event of nonperformance by these counterparties could be significant to our financial position and results of operations. Our interest rate swaps reduced interest expense by
$6.1 million
,
$3.7 million
and
$2.8 million
in
2017
,
2016
and
2015
, respectively. The difference between interest paid and interest received is included as an adjustment to interest expense.
Subsequent Event
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. This prepayment of the Term Loan Facility eliminates the required quarterly installments under the Term Loan Facility.
PENSION PLANS
We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic employees participate in defined contribution plans. However, a portion of our bargaining hourly employees continue to participate in our domestic qualified defined benefit pension plans under a flat-benefit formula. Our funding policy for the qualified defined benefit pension plans is consistent with the requirements of federal laws and regulations. Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with local statutory practices.
Our domestic qualified defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).
During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of
$6.0 million
. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through
2018
.
We have international qualified defined benefit pension plans to which we made cash contributions of
$1.7 million
and
$1.3 million
in
2017
and
2016
, respectively, and we anticipate less than
$5 million
of cash contributions to international qualified defined benefit pension plans in
2018
.
Pension Obligations and Funded Status
Changes in the benefit obligation and plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
Change in Benefit Obligation
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Benefit obligation at beginning of year
|
$
|
2,466.2
|
|
|
$
|
251.0
|
|
|
$
|
2,717.2
|
|
|
$
|
2,458.5
|
|
|
$
|
227.4
|
|
|
$
|
2,685.9
|
|
Service cost
|
1.2
|
|
|
7.9
|
|
|
9.1
|
|
|
1.3
|
|
|
7.6
|
|
|
8.9
|
|
Interest cost
|
81.3
|
|
|
5.3
|
|
|
86.6
|
|
|
82.4
|
|
|
5.3
|
|
|
87.7
|
|
Actuarial loss
|
161.7
|
|
|
9.6
|
|
|
171.3
|
|
|
88.7
|
|
|
20.4
|
|
|
109.1
|
|
Benefits paid
|
(130.5
|
)
|
|
(4.2
|
)
|
|
(134.7
|
)
|
|
(132.2
|
)
|
|
(3.4
|
)
|
|
(135.6
|
)
|
Plan participant’s contributions
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|
—
|
|
|
0.9
|
|
|
0.9
|
|
Plan amendments
|
—
|
|
|
1.7
|
|
|
1.7
|
|
|
—
|
|
|
(1.2
|
)
|
|
(1.2
|
)
|
Business combination
|
—
|
|
|
—
|
|
|
—
|
|
|
(32.5
|
)
|
|
—
|
|
|
(32.5
|
)
|
Currency translation adjustments
|
—
|
|
|
31.1
|
|
|
31.1
|
|
|
—
|
|
|
(6.0
|
)
|
|
(6.0
|
)
|
Benefit obligation at end of year
|
$
|
2,579.9
|
|
|
$
|
303.4
|
|
|
$
|
2,883.3
|
|
|
$
|
2,466.2
|
|
|
$
|
251.0
|
|
|
$
|
2,717.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
Change in Plan Assets
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Fair value of plans’ assets at beginning of year
|
$
|
2,012.0
|
|
|
$
|
66.5
|
|
|
$
|
2,078.5
|
|
|
$
|
1,974.0
|
|
|
$
|
62.5
|
|
|
$
|
2,036.5
|
|
Actual return on plans’ assets
|
290.6
|
|
|
5.0
|
|
|
295.6
|
|
|
191.5
|
|
|
3.5
|
|
|
195.0
|
|
Employer contributions
|
0.4
|
|
|
2.2
|
|
|
2.6
|
|
|
6.4
|
|
|
2.0
|
|
|
8.4
|
|
Benefits paid
|
(130.5
|
)
|
|
(3.0
|
)
|
|
(133.5
|
)
|
|
(132.2
|
)
|
|
(3.4
|
)
|
|
(135.6
|
)
|
Business combination
|
—
|
|
|
—
|
|
|
—
|
|
|
(27.7
|
)
|
|
—
|
|
|
(27.7
|
)
|
Currency translation adjustments
|
—
|
|
|
3.7
|
|
|
3.7
|
|
|
—
|
|
|
1.9
|
|
|
1.9
|
|
Fair value of plans’ assets at end of year
|
$
|
2,172.5
|
|
|
$
|
74.4
|
|
|
$
|
2,246.9
|
|
|
$
|
2,012.0
|
|
|
$
|
66.5
|
|
|
$
|
2,078.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
Funded Status
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Qualified plans
|
$
|
(403.7
|
)
|
|
$
|
(226.9
|
)
|
|
$
|
(630.6
|
)
|
|
$
|
(450.6
|
)
|
|
$
|
(182.6
|
)
|
|
$
|
(633.2
|
)
|
Non-qualified plans
|
(3.7
|
)
|
|
(2.1
|
)
|
|
(5.8
|
)
|
|
(3.6
|
)
|
|
(1.9
|
)
|
|
(5.5
|
)
|
Total funded status
|
$
|
(407.4
|
)
|
|
$
|
(229.0
|
)
|
|
$
|
(636.4
|
)
|
|
$
|
(454.2
|
)
|
|
$
|
(184.5
|
)
|
|
$
|
(638.7
|
)
|
Under ASC 715, we recorded a
$21.3 million
after-tax charge (
$26.9 million
pretax) to shareholders’ equity as of December 31,
2017
for our pension plans. This charge reflected a
50
-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during
2017
. In
2016
, we recorded a
$40.7 million
after-tax charge (
$66.1 million
pretax) to shareholders’ equity as of
December 31, 2016
for our pension plans. This charge reflected a
30
-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2016.
The
$171.3 million
actuarial loss for
2017
was primarily due to a
50
-basis point decrease in the domestic pension plans’ discount rate. The
$109.1 million
actuarial loss for
2016
was primarily due to a
30
-basis point decrease in the plans’ discount rate.
Amounts recognized in the consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Accrued benefit in current liabilities
|
$
|
(0.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.6
|
)
|
Accrued benefit in noncurrent liabilities
|
(407.0
|
)
|
|
(228.9
|
)
|
|
(635.9
|
)
|
|
(453.8
|
)
|
|
(184.3
|
)
|
|
(638.1
|
)
|
Accumulated other comprehensive loss
|
735.1
|
|
|
51.4
|
|
|
786.5
|
|
|
743.1
|
|
|
43.5
|
|
|
786.6
|
|
Net balance sheet impact
|
$
|
327.7
|
|
|
$
|
(177.6
|
)
|
|
$
|
150.1
|
|
|
$
|
288.9
|
|
|
$
|
(141.0
|
)
|
|
$
|
147.9
|
|
At December 31,
2017
and
2016
, the benefit obligation of non-qualified pension plans was
$5.8 million
and
$5.5 million
, respectively, and was included in the above pension benefit obligation. There were no plan assets for these non-qualified pension plans. Benefit payments for the non-qualified pension plans are expected to be as follows:
2018
—
$0.5 million
;
2019
—
$0.6 million
;
2020
—
$0.6 million
;
2021
—
$0.6 million
; and
2022
—
$0.3 million
. Benefit payments for the qualified plans are projected to be as follows:
2018
—
$138.7 million
;
2019
—
$139.1 million
;
2020
—
$139.9 million
;
2021
—
$139.3 million
; and
2022
—
$138.0 million
.
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Projected benefit obligation
|
$
|
2,883.3
|
|
|
$
|
2,717.2
|
|
Accumulated benefit obligation
|
2,851.0
|
|
|
2,685.7
|
|
Fair value of plan assets
|
2,246.9
|
|
|
2,078.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Components of Net Periodic Benefit (Income) Costs
|
($ in millions)
|
Service cost
|
$
|
17.1
|
|
|
$
|
12.3
|
|
|
$
|
7.8
|
|
Interest cost
|
86.6
|
|
|
87.7
|
|
|
83.3
|
|
Expected return on plans’ assets
|
(157.1
|
)
|
|
(157.8
|
)
|
|
(147.4
|
)
|
Amortization of prior service cost
|
2.2
|
|
|
—
|
|
|
1.6
|
|
Recognized actuarial loss
|
24.8
|
|
|
20.7
|
|
|
26.2
|
|
Curtailments/settlements
|
—
|
|
|
—
|
|
|
47.2
|
|
Net periodic benefit (income) costs
|
$
|
(26.4
|
)
|
|
$
|
(37.1
|
)
|
|
$
|
18.7
|
|
|
|
|
|
|
|
Included in Other Comprehensive Loss (Pretax)
|
|
|
|
|
|
Liability adjustment
|
$
|
26.9
|
|
|
$
|
66.1
|
|
|
$
|
125.4
|
|
Amortization of prior service costs and actuarial losses
|
(27.0
|
)
|
|
(20.7
|
)
|
|
(62.4
|
)
|
The
$47.2 million
curtailments/settlements for 2015 were due to a settlement of
$47.1 million
of costs incurred as a result of the change in control which created a mandatory acceleration of payments under the domestic non-qualified pension plan as a result of the Acquisition. This charge was included in acquisition-related costs. For the year ended December 31, 2015, we also recorded a curtailment charge of
$0.1 million
associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. This charge was included in restructuring charges.
The defined benefit pension plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit income in
2018
will be approximately
$35 million
.
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.
Pension Plan Assumptions
Certain actuarial assumptions, such as discount rate and long-term rate of return on plan assets, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts. We use a measurement date of December 31 for our pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Foreign Pension Benefits
|
Weighted-Average Assumptions
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate—periodic benefit cost
|
4.1
|
%
|
(1)
|
4.4
|
%
|
|
3.9
|
%
|
|
2.3
|
%
|
|
2.7
|
%
|
|
2.8
|
%
|
Expected return on assets
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
5.6
|
%
|
|
6.0
|
%
|
|
6.0
|
%
|
Rate of compensation increase
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
Discount rate—benefit obligation
|
3.6
|
%
|
|
4.1
|
%
|
|
4.4
|
%
|
|
2.2
|
%
|
|
2.3
|
%
|
|
2.7
|
%
|
|
|
(1)
|
The discount rate—periodic benefit cost for our domestic qualified pension plan is comprised of the discount rate used to determine interest costs of
3.4%
and the discount rate used to determine service costs of
4.2%
.
|
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least
$250 million
par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio is used as the discount rate.
The long-term expected rate of return on plan assets represents an estimate of the long-term rate of returns on the investment portfolio consisting of equities, fixed income and alternative investments. We use long-term historical actual return information, the allocation mix of investments that comprise plan assets, and forecast estimates of long-term investment returns, including inflation rates, by reference to external sources. The historic rates of return on plan assets have been
7.9%
for the last 5 years,
8.7%
for the last 10 years and
10.9%
for the last 15 years. The following rates of return by asset class were considered in setting the long-term rate of return assumption:
|
|
|
|
|
|
|
U.S. equities
|
9%
|
|
to
|
|
13%
|
Non-U.S. equities
|
10%
|
|
to
|
|
14%
|
Fixed income/cash
|
5%
|
|
to
|
|
9%
|
Alternative investments
|
5%
|
|
to
|
|
15%
|
Absolute return strategies
|
8%
|
|
to
|
|
12%
|
Plan Assets
Our pension plan asset allocations at December 31,
2017
and
2016
by asset class were as follows:
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
Asset Class
|
2017
|
|
2016
|
U.S. equities
|
19
|
%
|
|
19
|
%
|
Non-U.S. equities
|
17
|
%
|
|
15
|
%
|
Fixed income/cash
|
24
|
%
|
|
35
|
%
|
Alternative investments
|
21
|
%
|
|
20
|
%
|
Absolute return strategies
|
19
|
%
|
|
11
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
The Alternative Investments asset class includes hedge funds, real estate and private equity investments. The Alternative Investments class is intended to help diversify risk and increase returns by utilizing a broader group of assets.
Absolute Return Strategies further diversify the plan’s assets through the use of asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.
A master trust was established by our pension plan to accumulate funds required to meet benefit payments of our plan and is administered solely in the interest of our plan’s participants and their beneficiaries. The master trust’s investment horizon is long term. Its assets are managed by professional investment managers or invested in professionally managed investment vehicles.
Our pension plan maintains a portfolio of assets designed to achieve an appropriate risk adjusted return. The portfolio of assets is also structured to manage risk by diversifying assets across asset classes whose return patterns are not highly correlated, investing in passively and actively managed strategies and in value and growth styles, and by periodic rebalancing of asset classes, strategies and investment styles to objectively set targets.
As of December 31,
2017
, the following target allocation and ranges have been set for each asset class:
|
|
|
|
|
|
Asset Class
|
Target Allocation
|
|
Target Range
|
U.S. equities
(1)
|
27
|
%
|
|
19-35
|
Non-U.S. equities
(1)
|
18
|
%
|
|
4-34
|
Fixed income/cash
(1)
|
29
|
%
|
|
20-72
|
Alternative investments
|
6
|
%
|
|
0-28
|
Absolute return strategies
|
20
|
%
|
|
10-30
|
|
|
(1)
|
The target allocation for these asset classes include alternative investments, primarily hedge funds, based on the underlying investments in each hedge fund.
|
Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
Investments Measured at NAV
|
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
|
|
($ in millions)
|
Equity securities
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
$
|
230.7
|
|
|
$
|
203.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
434.4
|
|
Non-U.S. equities
|
321.9
|
|
|
55.6
|
|
|
14.6
|
|
|
—
|
|
|
392.1
|
|
Fixed income/cash
|
|
|
|
|
|
|
|
|
|
Cash
|
—
|
|
|
41.9
|
|
|
—
|
|
|
—
|
|
|
41.9
|
|
Government treasuries
|
0.7
|
|
|
—
|
|
|
151.2
|
|
|
—
|
|
|
151.9
|
|
Corporate debt instruments
|
80.9
|
|
|
—
|
|
|
115.1
|
|
|
—
|
|
|
196.0
|
|
Asset-backed securities
|
104.3
|
|
|
—
|
|
|
44.0
|
|
|
—
|
|
|
148.3
|
|
Alternative investments
|
|
|
|
|
|
|
|
|
|
Hedge fund of funds
|
430.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
430.7
|
|
Real estate funds
|
21.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21.8
|
|
Private equity funds
|
11.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.5
|
|
Absolute return strategies
|
418.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
418.3
|
|
Total assets
|
$
|
1,620.8
|
|
|
$
|
301.2
|
|
|
$
|
324.9
|
|
|
$
|
—
|
|
|
$
|
2,246.9
|
|
The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
Investments Measured at NAV
|
|
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
|
|
($ in millions)
|
Equity securities
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
$
|
241.4
|
|
|
$
|
143.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
384.6
|
|
Non-U.S. equities
|
248.6
|
|
|
38.6
|
|
|
29.9
|
|
|
—
|
|
|
317.1
|
|
Fixed income/cash
|
|
|
|
|
|
|
|
|
|
|
Cash
|
—
|
|
|
259.6
|
|
|
—
|
|
|
—
|
|
|
259.6
|
|
Government treasuries
|
18.2
|
|
|
—
|
|
|
169.4
|
|
|
—
|
|
|
187.6
|
|
Corporate debt instruments
|
51.8
|
|
|
0.2
|
|
|
129.6
|
|
|
—
|
|
|
181.6
|
|
Asset-backed securities
|
61.4
|
|
|
—
|
|
|
36.4
|
|
|
—
|
|
|
97.8
|
|
Alternative investments
|
|
|
|
|
|
|
|
|
|
|
Hedge fund of funds
|
380.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380.6
|
|
Real estate funds
|
22.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.5
|
|
Private equity funds
|
16.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.4
|
|
Absolute return strategies
|
230.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230.7
|
|
Total assets
|
$
|
1,271.6
|
|
|
$
|
441.6
|
|
|
$
|
365.3
|
|
|
$
|
—
|
|
|
$
|
2,078.5
|
|
U.S. equities
—This class included actively and passively managed equity investments in common stock and commingled funds comprised primarily of large-capitalization stocks with value, core and growth strategies.
Non-U.S. equities
—This class included actively managed equity investments in commingled funds comprised primarily of international large-capitalization stocks from both developed and emerging markets.
Acquisition plan receivable
—This class included pension assets which were transferred from DowDuPont’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee in the form of cash related to the Acquisition. During 2016, assets of
$184.3 million
were transferred from DowDuPont’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee, resulting in the settlement of the acquisition plan receivable.
Fixed income and cash—
This class included commingled funds comprised of debt instruments issued by the U.S. and Canadian Treasuries, U.S. Agencies, corporate debt instruments, asset- and mortgage-backed securities and cash.
Hedge fund of funds—
This class included a hedge fund which invests in the following types of hedge funds:
Event driven hedge funds—
This class included hedge funds that invest in securities to capture excess returns that are driven by market or specific company events including activist investment philosophies and the arbitrage of equity and private and public debt securities.
Market neutral hedge funds
—This class included investments in U.S. and international equities and fixed income securities while maintaining a market neutral position in those markets.
Other hedge funds
—This class primarily included long-short equity strategies and a global macro fund which invested in fixed income, equity, currency, commodity and related derivative markets.
Real estate funds
—This class included several funds that invest primarily in U.S. commercial real estate.
Private equity funds
—This class included several private equity funds that invest primarily in infrastructure and U.S. power generation and transmission assets.
Absolute return strategies
—This class included multiple strategies which use asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.
U.S. equities and non-U.S. equities are primarily valued at the net asset value provided by the independent administrator or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on an active market. U.S. equities are also valued at the closing price reported in an active market on which the individual securities are traded. A portion of our fixed income investments are valued at the net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for risks that may not be observable such as certain credit and liquidity risks. Alternative investments are valued at the net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments, discounted future cash flows, independent appraisals and market-based comparable data. Absolute return strategies are commingled funds which reflect the fair value of our ownership interest in these funds. The investments in these commingled funds include some or all of the above asset classes and are primarily valued at net asset values based on the underlying investments, which are valued consistent with the methodologies described above for each asset class.
The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Realized
Gain/(Loss)
|
|
Unrealized Gain/(Loss) Relating to Assets Held at Period End
|
|
Purchases, Sales, Settlements, and Other
|
|
Transfers
In/(Out)
|
|
December 31, 2016
|
|
($ in millions)
|
Acquisition plan receivable
|
$
|
212.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(212.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
POSTRETIREMENT BENEFITS
We provide certain postretirement healthcare (medical) and life insurance benefits for eligible active and retired domestic employees. The healthcare plans are contributory with participants’ contributions adjusted annually based on medical rates of inflation and plan experience. We use a measurement date of December 31 for our postretirement plans.
Effective as of December 31, 2015, we changed the approach used to measure service and interest costs for our other postretirement benefits. For the year ended December 31, 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Beginning in 2016 for our other postretirement benefits, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.
Other Postretirement Benefits Obligations and Funded Status
Changes in the benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
Change in Benefit Obligation
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Benefit obligation at beginning of year
|
$
|
43.6
|
|
|
$
|
8.6
|
|
|
$
|
52.2
|
|
|
$
|
53.9
|
|
|
$
|
8.1
|
|
|
$
|
62.0
|
|
Service cost
|
0.8
|
|
|
0.3
|
|
|
1.1
|
|
|
0.8
|
|
|
0.4
|
|
|
1.2
|
|
Interest cost
|
1.2
|
|
|
0.3
|
|
|
1.5
|
|
|
1.2
|
|
|
0.4
|
|
|
1.6
|
|
Actuarial (gain) loss
|
(0.6
|
)
|
|
1.0
|
|
|
0.4
|
|
|
(5.1
|
)
|
|
—
|
|
|
(5.1
|
)
|
Benefits paid
|
(4.4
|
)
|
|
(0.3
|
)
|
|
(4.7
|
)
|
|
(7.2
|
)
|
|
(0.4
|
)
|
|
(7.6
|
)
|
Currency translation adjustments
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Benefit obligation at end of year
|
$
|
40.6
|
|
|
$
|
10.2
|
|
|
$
|
50.8
|
|
|
$
|
43.6
|
|
|
$
|
8.6
|
|
|
$
|
52.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Funded status
|
$
|
(40.6
|
)
|
|
$
|
(10.2
|
)
|
|
$
|
(50.8
|
)
|
|
$
|
(43.6
|
)
|
|
$
|
(8.6
|
)
|
|
$
|
(52.2
|
)
|
Under ASC 715, we recorded a
$0.3 million
after-tax benefit (
$0.4 million
pretax) to shareholders’ equity as of December 31,
2017
for our other postretirement plans. In
2016
, we recorded an after-tax benefit of
$3.2 million
(
$5.1 million
pretax) to shareholders’ equity as of December 31,
2016
for our other postretirement plans.
Amounts recognized in the consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
($ in millions)
|
|
($ in millions)
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
Accrued benefit in current liabilities
|
$
|
(4.0
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(5.1
|
)
|
Accrued benefit in noncurrent liabilities
|
(36.6
|
)
|
|
(9.9
|
)
|
|
(46.5
|
)
|
|
(38.8
|
)
|
|
(8.3
|
)
|
|
(47.1
|
)
|
Accumulated other comprehensive loss
|
24.7
|
|
|
0.9
|
|
|
25.6
|
|
|
24.8
|
|
|
0.3
|
|
|
25.1
|
|
Net balance sheet impact
|
$
|
(15.9
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(25.2
|
)
|
|
$
|
(18.8
|
)
|
|
$
|
(8.3
|
)
|
|
$
|
(27.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Components of Net Periodic Benefit Cost
|
($ in millions)
|
Service cost
|
$
|
1.1
|
|
|
$
|
1.2
|
|
|
$
|
1.2
|
|
Interest cost
|
1.5
|
|
|
1.6
|
|
|
2.3
|
|
Amortization of prior service cost
|
(2.2
|
)
|
|
(2.6
|
)
|
|
—
|
|
Recognized actuarial loss
|
2.1
|
|
|
2.3
|
|
|
3.1
|
|
Curtailment
|
—
|
|
|
—
|
|
|
0.1
|
|
Net periodic benefit cost
|
$
|
2.5
|
|
|
$
|
2.5
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
Included in Other Comprehensive Loss (Pretax)
|
|
|
|
|
|
Liability adjustment
|
$
|
0.4
|
|
|
$
|
(5.1
|
)
|
|
$
|
(0.1
|
)
|
Amortization of prior service costs and actuarial losses
|
0.1
|
|
|
0.3
|
|
|
(3.2
|
)
|
For the year ended December 31, 2015, we recorded a curtailment charge of
$0.1
million associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. This charge was included in restructuring charges.
The other postretirement plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit cost in
2018
will be approximately
$2 million
.
The service cost and amortization of prior service cost components of postretirement benefit expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data.
Other Postretirement Benefits Plan Assumptions
Certain actuarial assumptions, such as discount rate, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Weighted-Average Assumptions
|
2017
|
|
2016
|
|
2015
|
Discount rate—periodic benefit cost
|
3.8
|
%
|
|
4.1
|
%
|
|
3.7
|
%
|
Discount rate—benefit obligation
|
3.5
|
%
|
|
3.8
|
%
|
|
4.1
|
%
|
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least
$250 million
par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio is used as the discount rate.
We review external data and our own internal trends for healthcare costs to determine the healthcare cost for the post retirement benefit obligation. The assumed healthcare cost trend rates for pre-65 retirees were as follows:
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Healthcare cost trend rate assumed for next year
|
8.0
|
%
|
|
8.0
|
%
|
Rate that the cost trend rate gradually declines to
|
4.5
|
%
|
|
5.0
|
%
|
Year that the rate reaches the ultimate rate
|
2024
|
|
|
2022
|
|
For post-65 retirees, we provide a fixed dollar benefit, which is not subject to escalation.
Assumed healthcare cost trend rates have an effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
One-Percentage
Point Increase
|
|
One-Percentage
Point Decrease
|
|
($ in millions)
|
Effect on total of service and interest costs
|
$
|
0.5
|
|
|
$
|
(0.2
|
)
|
Effect on postretirement benefit obligation
|
1.7
|
|
|
(1.5
|
)
|
We expect to make payments of approximately
$4 million
for each of the next five years under the provisions of our other postretirement benefit plans.
INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Components of Income (Loss) Before Taxes
|
($ in millions)
|
Domestic
|
$
|
53.3
|
|
|
$
|
(23.3
|
)
|
|
$
|
(66.9
|
)
|
Foreign
|
63.9
|
|
|
(10.9
|
)
|
|
73.6
|
|
Income (loss) before taxes
|
$
|
117.2
|
|
|
$
|
(34.2
|
)
|
|
$
|
6.7
|
|
Components of Income Tax (Benefit) Provision
|
|
|
|
|
|
Current (benefit) expense:
|
|
|
|
|
|
Federal
|
$
|
(4.0
|
)
|
|
$
|
(11.6
|
)
|
|
$
|
(16.6
|
)
|
State
|
3.0
|
|
|
0.9
|
|
|
1.2
|
|
Foreign
|
24.1
|
|
|
15.7
|
|
|
14.4
|
|
|
23.1
|
|
|
5.0
|
|
|
(1.0
|
)
|
Deferred (benefit) expense:
|
|
|
|
|
|
Federal
|
$
|
(549.6
|
)
|
|
$
|
(10.1
|
)
|
|
$
|
8.9
|
|
State
|
14.6
|
|
|
(5.1
|
)
|
|
(2.4
|
)
|
Foreign
|
79.6
|
|
|
(20.1
|
)
|
|
2.6
|
|
|
(455.4
|
)
|
|
(35.3
|
)
|
|
9.1
|
|
Income tax (benefit) provision
|
$
|
(432.3
|
)
|
|
$
|
(30.3
|
)
|
|
$
|
8.1
|
|
The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of
35%
to the income (loss) before taxes.
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
Effective Tax Rate Reconciliation (Percent)
|
2017
|
|
2016
|
|
2015
|
Statutory federal tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net
|
(1.2
|
)
|
|
8.0
|
|
|
(38.2
|
)
|
Foreign rate differential
|
(7.7
|
)
|
|
(25.1
|
)
|
|
(129.8
|
)
|
U.S. tax on foreign earnings
|
(70.8
|
)
|
|
24.4
|
|
|
128.6
|
|
Salt depletion
|
(16.1
|
)
|
|
45.4
|
|
|
(38.8
|
)
|
Non-deductible transaction costs
|
—
|
|
|
—
|
|
|
133.1
|
|
Change in valuation allowance
|
76.0
|
|
|
(0.7
|
)
|
|
27.9
|
|
Remeasurement of U.S. state deferred taxes
|
10.2
|
|
|
9.4
|
|
|
7.6
|
|
Change in tax contingencies
|
(7.7
|
)
|
|
(9.7
|
)
|
|
5.0
|
|
U.S. Tax Cuts and Jobs Act
|
(373.5
|
)
|
|
—
|
|
|
—
|
|
Share-based payments
|
(5.7
|
)
|
|
—
|
|
|
—
|
|
Dividends paid to Contributing Employee Ownership Plan
|
(0.6
|
)
|
|
2.8
|
|
|
(11.1
|
)
|
Return to provision
|
(0.6
|
)
|
|
5.3
|
|
|
(4.2
|
)
|
U.S. Federal tax credits
|
(4.2
|
)
|
|
0.6
|
|
|
(3.1
|
)
|
Other, net
|
(2.0
|
)
|
|
(6.8
|
)
|
|
8.9
|
|
Effective tax rate
|
(368.9
|
)%
|
|
88.6
|
%
|
|
120.9
|
%
|
The effective tax rate for 2017 was favorably impacted by (1) the 2017 Tax Act, (2) an agreement with the Internal Revenue Service (IRS) on prior period tax examinations, (3) stock based compensation, (4) U.S. federal tax credits, (5) changes to prior year tax positions and (6) a reduction to the deferred tax liability on unremitted foreign earnings. The effective tax rate was also unfavorably impacted by a net increase in the valuation allowance, primarily related to foreign net operating losses and remeasurement of deferred taxes due to an increase in our state effective tax rates. These factors resulted in a net
$452.3 million
tax benefit of which
$437.9 million
was a provisional benefit from the 2017 Tax Act.
The effective tax rate for 2016 was favorably impacted by provision to return adjustments, primarily related to salt depletion and non-deductible acquisition costs, and the remeasurement of deferred taxes due to a decrease in our state effective tax rates. The effective tax rate was also unfavorably impacted a change in prior year uncertain tax positions. These factors resulted in a net
$3.9 million
tax benefit.
The tax rate for 2015 was unfavorably impacted by non-deductible acquisition costs, which was partially offset by a benefit for salt depletion deductions. The net impact of these factors was a net
$6.3 million
tax expense.
The 2017 Tax Act was enacted on December 22, 2017 and included a broad range of provisions impacting the taxation of businesses. Included within the provisions, the 2017 Tax Act reduces the U.S. federal corporate tax rate from
35%
to
21%
, requires companies to pay a one-time transition tax on unremitted earnings of foreign subsidiaries that were previously tax deferred and transitions the U.S. from a worldwide tax system to a modified territorial tax system.
The SEC issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period of up to one year from the 2017 Tax Act’s enactment date for companies to complete the accounting under ASC 740 “Income Taxes” (ASC 740). In accordance with SAB 118, to the extent that a company's accounting for certain income tax effects of the 2017 Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.
At December 31, 2017, we have not completed our accounting for the tax effects of the 2017 Tax Act. The impact of the 2017 Tax Act is expected to require further adjustments in 2018 due to anticipated additional guidance from the U.S. Department of the Treasury, changes in our assumptions, completion of 2017 U.S. and foreign tax returns and further information and interpretations that become available. However, we have made and recorded reasonable estimates of significant items including: (1) the effects on our existing deferred tax balances, (2) the remeasurement of deferred taxes on foreign unremitted earnings and (3) the one-time transition tax. We will make adjustments to these provisional estimates as new information becomes available during the one year measurement period. Our analyses of the 2017 Tax Act will continue throughout 2018 and will be completed when we file all U.S. and foreign tax returns.
In connection with our initial analysis of the 2017 Tax Act, we recognized a provisional deferred tax benefit of
$437.9 million
. The impact of the 2017 Tax Act includes: (1) a provisional
$315.8 million
deferred tax benefit to reflect the reduction of the U.S. corporate tax rate from
35%
to
21%
and (2) a provisional
$122.1 million
deferred tax benefit to reflect an estimated reduction of
$162.6 million
in our deferred tax liability on unremitted foreign earnings partially offset by an estimate of the one-time transition tax of
$40.5 million
. We expect to utilize existing U.S. federal net operating loss carryforwards and foreign tax credits to fully offset the cash tax impact of the one-time transition tax liability.
A provision of the 2017 Tax Act establishes a minimum tax on certain foreign earnings (i.e. global intangible low-taxed income or GILTI). We have not yet completed our analysis of the GILTI tax rules and are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on certain foreign differences between the financial statement and tax basis of foreign assets and liabilities. At December 31, 2017, we did not record a deferred tax liability for these differences. We will continue to analyze the impact of GILTI as more guidance is issued and a decision will be made during 2018 on whether to treat the GILTI as a period cost or a deferred tax item.
|
|
|
|
|
|
|
|
|
|
December 31,
|
Components of Deferred Tax Assets and Liabilities
|
2017
|
|
2016
|
|
($ in millions)
|
Deferred tax assets:
|
|
Pension and postretirement benefits
|
$
|
147.3
|
|
|
$
|
226.1
|
|
Environmental reserves
|
33.2
|
|
|
54.5
|
|
Asset retirement obligations
|
14.0
|
|
|
22.0
|
|
Accrued liabilities
|
37.6
|
|
|
53.0
|
|
Tax credits
|
37.1
|
|
|
13.2
|
|
Net operating losses
|
53.3
|
|
|
105.3
|
|
Capital loss carryforward
|
2.1
|
|
|
2.8
|
|
Other miscellaneous items
|
11.2
|
|
|
—
|
|
Total deferred tax assets
|
335.8
|
|
|
476.9
|
|
Valuation allowance
|
(121.4
|
)
|
|
(29.0
|
)
|
Net deferred tax assets
|
214.4
|
|
|
447.9
|
|
Deferred tax liabilities:
|
|
|
|
Property, plant and equipment
|
550.3
|
|
|
875.5
|
|
Intangible amortization
|
67.3
|
|
|
137.3
|
|
Inventory and prepaids
|
1.0
|
|
|
13.6
|
|
Partnerships
|
67.5
|
|
|
106.3
|
|
Taxes on unremitted earnings
|
3.1
|
|
|
223.6
|
|
Other miscellaneous items
|
—
|
|
|
4.6
|
|
Total deferred tax liabilities
|
689.2
|
|
|
1,360.9
|
|
Net deferred tax liability
|
$
|
(474.8
|
)
|
|
$
|
(913.0
|
)
|
Realization of the net deferred tax assets, irrespective of indefinite-lived deferred tax liabilities, is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, we believe that it is more likely than not that the net deferred tax assets will be realized.
At December 31,
2017
, we had a U.S. net operating loss carryforward (NOL) of approximately
$1.0 million
(representing
$0.2 million
of deferred tax assets) that will expire after 2019, if not utilized. The utilization is limited to
$0.5 million
in 2018 and 2019 under Section 382 of the U.S. Internal Revenue Code.
At December 31,
2017
, we had deferred state tax benefits of
$19.9 million
relating to state NOLs, which are available to offset future state taxable income through 2037.
At December 31,
2017
, we had deferred state tax benefits of
$15.9 million
relating to state tax credits, which are available to offset future state tax liabilities through 2032.
At December 31,
2017
, we had a capital loss carryforward of
$8.7 million
(representing
$1.8 million
of deferred tax assets) which are available to offset future consolidated capital gains that will expire in years 2018 through 2022, if not utilized.
At December 31,
2017
, we had foreign tax credits of
$18.6 million
, which are available to offset federal tax liabilities through 2027 and U.S. federal credits of
$7.4 million
, which expire between 2034 and 2037.
At December 31,
2017
, we had NOLs of approximately
$210.4 million
(representing
$33.1 million
of deferred tax assets) in various foreign jurisdictions. Of these,
$17.4 million
(representing
$3.8 million
of deferred tax assets) expire in various years from 2020 to 2027. The remaining
$193.0 million
(representing
$29.3 million
of deferred tax assets) do not expire.
As of December 31, 2017, we had recorded a valuation allowance of
$121.4 million
, compared to
$29.0 million
as of December 31, 2016. The increase of
$92.4 million
is primarily due to the recent history of cumulative losses within foreign jurisdictions and projections of future taxable income insufficient to overcome the loss history. We continue to have net
deferred tax assets in several jurisdictions which we expect to realize, assuming, based on certain estimates and assumptions, sufficient taxable income can be generated to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to reduce the value of the deferred tax assets resulting in additional tax expense.
The activity of our deferred income tax valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Beginning balance
|
$
|
29.0
|
|
|
$
|
29.3
|
|
Increases to valuation allowances
|
94.5
|
|
|
8.4
|
|
Acquisition activity
|
—
|
|
|
(4.3
|
)
|
U.S. Tax Cuts and Jobs Act
|
2.2
|
|
|
—
|
|
Decreases to valuation allowances
|
(5.0
|
)
|
|
(4.4
|
)
|
Currency translation adjustment
|
0.7
|
|
|
—
|
|
Ending balance
|
$
|
121.4
|
|
|
$
|
29.0
|
|
As of December 31,
2017
, we had
$36.3 million
of gross unrecognized tax benefits, which would have a net
$35.5 million
impact on the effective tax rate, if recognized. As of December 31,
2016
, we had
$38.4 million
of gross unrecognized tax benefits, which would have a net
$36.7 million
impact on the effective tax rate, if recognized. The change for
2017
primarily relates to additional gross unrecognized benefits for current and prior year tax positions, as well as decreases for prior year tax positions. The change for
2016
primarily relates to additional gross unrecognized benefits for prior year tax positions, as well as the settlement of ongoing audits. The amounts of unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Beginning balance
|
$
|
38.4
|
|
|
$
|
35.1
|
|
Increase for current year tax positions
|
2.9
|
|
|
1.7
|
|
Increase for prior year tax positions
|
5.4
|
|
|
5.8
|
|
Reductions due to statute of limitations
|
(0.1
|
)
|
|
(0.3
|
)
|
Decrease for prior year tax positions
|
(9.2
|
)
|
|
(1.8
|
)
|
Decrease due to tax settlements
|
(1.1
|
)
|
|
(2.1
|
)
|
Ending balance
|
$
|
36.3
|
|
|
$
|
38.4
|
|
In May 2017, we reached an agreement in principle with the IRS regarding their examination of our U.S. income tax returns for 2008 and 2010 to 2012. The settlement resulted in a reduction of income tax expense of
$9.5 million
related primarily to favorable adjustments in uncertain tax positions for prior tax years.
We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision. As of December 31,
2017
and
2016
, interest and penalties accrued were
$1.2 million
and
$3.0 million
, respectively. For
2017
,
2016
and
2015
, we recorded (benefit) expense related to interest and penalties of
$(1.8) million
,
$(0.4) million
and
$0.2 million
, respectively.
As of December 31,
2017
, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately
$5.7 million
over the next twelve months. The anticipated reduction primarily relates to settlements with tax authorities and the expiration of federal, state and foreign statutes of limitation.
We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. None of our U.S. federal income tax returns are currently under examination by the IRS. In connection with the Acquisition, DowDuPont retained liabilities relating to taxes to the extent arising prior to the Closing Date. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:
|
|
|
|
Tax Years
|
U.S. federal income tax
|
2013 - 2016
|
U.S. state income tax
|
2006 - 2016
|
Canadian federal income tax
|
2012 - 2016
|
Brazil
|
2014 - 2016
|
Germany
|
2015 - 2016
|
China
|
2014 - 2016
|
The Netherlands
|
2014 - 2016
|
ACCRUED LIABILITIES
Included in accrued liabilities were the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Accrued compensation and payroll taxes
|
$
|
82.5
|
|
|
$
|
77.8
|
|
Tax-related accruals
|
34.4
|
|
|
40.9
|
|
Accrued interest
|
37.4
|
|
|
30.7
|
|
Legal and professional costs
|
31.8
|
|
|
21.2
|
|
Accrued employee benefits
|
21.7
|
|
|
21.2
|
|
Environmental (current portion only)
|
20.0
|
|
|
17.0
|
|
Asset retirement obligation (current portion only)
|
10.5
|
|
|
12.6
|
|
Other
|
36.1
|
|
|
42.4
|
|
Accrued liabilities
|
$
|
274.4
|
|
|
$
|
263.8
|
|
CONTRIBUTING EMPLOYEE OWNERSHIP PLAN
The Contributing Employee Ownership Plan (CEOP) is a defined contribution plan available to essentially all domestic employees. We provide a contribution to an individual retirement contribution account maintained with the CEOP equal to an amount of between
5%
and
10%
of the employee’s eligible compensation. The defined contribution plan expense was
$29.0 million
,
$28.2 million
and
$18.1 million
for
2017
,
2016
and
2015
, respectively. The increase in defined contribution plan expense in 2016 compared to 2015 was due to the additional employees added in conjunction with the Acquired Business.
Company matching contributions are invested in the same investment allocation as the employee’s contribution. Our matching contributions for eligible employees amounted to
$11.5 million
,
$11.2 million
and
$6.9 million
in
2017
,
2016
and
2015
, respectively.
Employees generally become vested in the value of the contributions we make to the CEOP according to a schedule based on service. After
two
years of service, participants are
25%
vested. They vest in increments of
25%
for each additional year and after
five
years of service, they are
100%
vested in the value of the contributions that we have made to their accounts.
Employees may transfer any or all of the value of the investments, including Olin common stock, to any one or combination of investments available in the CEOP. Employees may transfer balances daily and may elect to transfer any percentage of the balance in the fund from which the transfer is made. However, when transferring out of a fund, employees are prohibited from trading out of the fund to which the transfer was made for
seven
calendar days. This limitation does not apply to trades into the money market fund or the Olin Common Stock Fund.
STOCK-BASED COMPENSATION
Stock-based compensation expense was allocated to the operating segments for the portion related to employees whose compensation would be included in cost of goods sold with the remainder recognized in corporate/other. There were no significant capitalized stock-based compensation costs. Stock-based compensation granted includes stock options, performance stock awards, restricted stock awards and deferred directors’ compensation. Stock-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
($ in millions)
|
Stock-based compensation
|
$
|
18.7
|
|
|
$
|
11.2
|
|
|
$
|
11.5
|
|
Mark-to-market adjustments
|
4.5
|
|
|
3.0
|
|
|
(3.0
|
)
|
Total expense
|
$
|
23.2
|
|
|
$
|
14.2
|
|
|
$
|
8.5
|
|
Stock Plans
Under the stock option and long-term incentive plans, options may be granted to purchase shares of our common stock at an exercise price not less than fair market value at the date of grant, and are exercisable for a period not exceeding
ten
years from that date. Stock options, restricted stock and performance shares typically vest over
three
years. We issue shares to settle stock options, restricted stock and share-based performance awards. In
2017
,
2016
and
2015
long-term incentive awards included stock options, performance share awards and restricted stock. The stock option exercise price was set at the fair market value of common stock on the date of the grant, and the options have a
ten
-year term.
Stock option transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
Shares
|
|
Option Price
|
|
Weighted-Average
Option Price
|
|
Options
|
|
Weighted-Average
Exercise Price
|
Outstanding at January 1, 2017
|
5,734,740
|
|
|
$13.14-27.65
|
|
$
|
19.25
|
|
|
3,407,300
|
|
|
$
|
20.56
|
|
Granted
|
1,621,000
|
|
|
29.75-31.90
|
|
29.82
|
|
|
|
|
|
Exercised
|
(1,791,865
|
)
|
|
13.14-27.40
|
|
18.09
|
|
|
|
|
|
Canceled
|
(221,349
|
)
|
|
13.14-29.75
|
|
22.14
|
|
|
|
|
|
Outstanding at December 31, 2017
|
5,342,526
|
|
|
$13.14-31.90
|
|
$
|
22.72
|
|
|
2,603,962
|
|
|
$
|
21.78
|
|
At December 31,
2017
, the average exercise period for all outstanding and exercisable options was
86
months and
67
months, respectively. At December 31,
2017
, the aggregate intrinsic value (the difference between the exercise price and market value) for outstanding options was
$68.9 million
and exercisable options was
$36.0 million
. The total intrinsic value of options exercised during the years ended December 31,
2017
,
2016
and
2015
was
$26.5 million
,
$2.1 million
and
$1.3 million
, respectively.
The total unrecognized compensation cost related to unvested stock options at December 31,
2017
was
$9.4 million
and was expected to be recognized over a weighted-average period of
1.2
years.
The following table provides certain information with respect to stock options exercisable at December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise Prices
|
|
Options
Exercisable
|
|
Weighted-Average
Exercise Price
|
|
Options
Outstanding
|
|
Weighted-Average
Exercise Price
|
Under $20.00
|
|
788,749
|
|
|
$
|
15.05
|
|
|
1,782,327
|
|
|
$
|
13.98
|
|
$20.00 - $25.00
|
|
855,668
|
|
|
22.69
|
|
|
855,668
|
|
|
22.69
|
|
Over $25.00
|
|
959,545
|
|
|
26.50
|
|
|
2,704,531
|
|
|
28.49
|
|
|
|
2,603,962
|
|
|
|
|
5,342,526
|
|
|
|
At December 31,
2017
, common shares reserved for issuance and available for grant or purchase under the following plans consisted of:
|
|
|
|
|
|
|
|
Number of Shares
|
Stock Option Plans
|
Reserved for Issuance
|
|
Available for
Grant or Purchase
(1)
|
2000 long term incentive plan
|
151,157
|
|
|
82,194
|
|
2003 long term incentive plan
|
290,389
|
|
|
61,205
|
|
2006 long term incentive plan
|
375,550
|
|
|
63,949
|
|
2009 long term incentive plan
|
2,110,063
|
|
|
143,310
|
|
2014 long term incentive plan
|
2,844,441
|
|
|
517,991
|
|
2016 long term incentive plan
|
6,000,000
|
|
|
4,513,000
|
|
Total under stock option plans
|
11,771,600
|
|
|
5,381,649
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
Stock Purchase Plans
|
Reserved for Issuance
|
|
Available for
Grant or Purchase
|
1997 stock plan for non-employee directors
|
544,027
|
|
|
416,766
|
|
Employee deferral plan
|
45,627
|
|
|
45,623
|
|
Total under stock purchase plans
|
589,654
|
|
|
462,389
|
|
|
|
(1)
|
All available to be issued as stock options, but includes a sub-limit for all types of stock awards of
2,856,933
shares.
|
Under the stock purchase plans, our non-employee directors may defer certain elements of their compensation into shares of our common stock based on fair market value of the shares at the time of deferral. Non-employee directors annually receive stock grants as a portion of their director compensation. Of the shares reserved under the stock purchase plans at December 31,
2017
,
127,261
shares were committed.
Performance share awards are denominated in shares of our stock and are paid half in cash and half in stock. Payouts for performance share awards granted prior to December 31, 2016 are based on Olin’s average annual return on capital over a
three
-year performance cycle in relation to the average annual return on capital over the same period among a portfolio of public companies which are selected in concert with outside compensation consultants. Payouts for performance share awards granted during 2017 are based on two criteria: (1) 50% of the award is based on Olin’s total shareholder returns over the applicable
three
-year performance cycle in relation to the total shareholder return over the same period among a portfolio of public companies which are selected in concert with outside compensation consultants and (2) 50% of the award is based on Olin’s net income over the applicable
three
-year performance cycle in relation to the net income goal for such period as set by the compensation committee of Olin’s board of directors. The expense associated with performance shares is recorded based on our estimate of our performance relative to the respective target. If an employee leaves the company before the end of the performance cycle, the performance shares may be prorated based on the number of months of the performance cycle worked and are settled in cash instead of half in cash and half in stock when the three-year performance cycle is completed. Performance share transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Settle in Cash
|
|
To Settle in Shares
|
|
Shares
|
|
Weighted-Average
Fair Value per Share
|
|
Shares
|
|
Weighted-Average
Fair Value per Share
|
Outstanding at January 1, 2017
|
542,828
|
|
|
$
|
25.84
|
|
|
536,575
|
|
|
$
|
16.18
|
|
Granted
|
154,550
|
|
|
30.05
|
|
|
154,550
|
|
|
30.02
|
|
Paid/Issued
|
(41,514
|
)
|
|
25.84
|
|
|
(40,500
|
)
|
|
25.57
|
|
Converted from shares to cash
|
82,625
|
|
|
17.47
|
|
|
(82,625
|
)
|
|
17.47
|
|
Canceled
|
(87,800
|
)
|
|
26.02
|
|
|
(87,800
|
)
|
|
15.16
|
|
Outstanding at December 31, 2017
|
650,689
|
|
|
$
|
35.62
|
|
|
480,200
|
|
|
$
|
19.81
|
|
Total vested at December 31, 2017
|
448,672
|
|
|
$
|
35.62
|
|
|
278,183
|
|
|
$
|
18.21
|
|
The summary of the status of our unvested performance shares to be settled in cash were as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Fair Value per Share
|
Unvested at January 1, 2017
|
301,529
|
|
|
$
|
25.84
|
|
Granted
|
154,550
|
|
|
30.05
|
|
Vested
|
(166,262
|
)
|
|
35.62
|
|
Canceled
|
(87,800
|
)
|
|
26.02
|
|
Unvested at December 31, 2017
|
202,017
|
|
|
$
|
35.62
|
|
At December 31,
2017
, the liability recorded for performance shares to be settled in cash totaled
$16.0 million
. The total unrecognized compensation cost related to unvested performance shares at December 31,
2017
was
$11.6 million
and was expected to be recognized over a weighted-average period of
1.2
years.
SHAREHOLDERS’ EQUITY
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 years ended December 31,
2017
,
2016
and
2015
, no shares were purchased and retired. We repurchased 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 were subject to certain restrictions on our ability to conduct share repurchases.
During
2017
,
2016
and
2015
, we issued
1.7 million
,
0.3 million
and
0.1 million
shares, respectively, with a total value of
$32.4 million
,
$4.1 million
and
$3.1 million
, respectively, representing stock options exercised.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
The following table represents the activity included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
(net of taxes)
|
|
Unrealized
Gains (Losses)
on Derivative
Contracts
(net of taxes)
|
|
Pension and
Postretirement
Benefits
(net of taxes)
|
|
Accumulated
Other
Comprehensive
Loss
|
|
($ in millions)
|
Balance at January 1, 2015
|
$
|
(2.3
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(436.6
|
)
|
|
$
|
(443.1
|
)
|
Unrealized losses
|
(15.7
|
)
|
|
(13.9
|
)
|
|
(125.3
|
)
|
|
(154.9
|
)
|
Reclassification adjustments into income
|
—
|
|
|
9.7
|
|
|
65.6
|
|
|
75.3
|
|
Tax benefit
|
5.9
|
|
|
1.5
|
|
|
22.8
|
|
|
30.2
|
|
Net change
|
(9.8
|
)
|
|
(2.7
|
)
|
|
(36.9
|
)
|
|
(49.4
|
)
|
Balance at December 31, 2015
|
(12.1
|
)
|
|
(6.9
|
)
|
|
(473.5
|
)
|
|
(492.5
|
)
|
Unrealized (losses) gains
|
(22.4
|
)
|
|
26.3
|
|
|
(61.0
|
)
|
|
(57.1
|
)
|
Reclassification adjustments into income
|
—
|
|
|
5.8
|
|
|
20.4
|
|
|
26.2
|
|
Tax benefit (provision)
|
10.4
|
|
|
(12.4
|
)
|
|
15.4
|
|
|
13.4
|
|
Net change
|
(12.0
|
)
|
|
19.7
|
|
|
(25.2
|
)
|
|
(17.5
|
)
|
Balance at December 31, 2016
|
(24.1
|
)
|
|
12.8
|
|
|
(498.7
|
)
|
|
(510.0
|
)
|
Unrealized gains (losses)
|
55.6
|
|
|
1.9
|
|
|
(27.3
|
)
|
|
30.2
|
|
Reclassification adjustments into income
|
—
|
|
|
(4.6
|
)
|
|
26.9
|
|
|
22.3
|
|
Tax (provision) benefit
|
(23.9
|
)
|
|
1.0
|
|
|
(4.2
|
)
|
|
(27.1
|
)
|
Net change
|
31.7
|
|
|
(1.7
|
)
|
|
(4.6
|
)
|
|
25.4
|
|
Balance at December 31, 2017
|
$
|
7.6
|
|
|
$
|
11.1
|
|
|
$
|
(503.3
|
)
|
|
$
|
(484.6
|
)
|
Net income (loss) and cost of goods sold included reclassification adjustments for realized gains and losses on derivative contracts from accumulated other comprehensive loss.
Net income (loss), cost of goods sold and selling and administration expenses included the amortization of prior service costs and actuarial losses from accumulated other comprehensive loss. This amortization is recognized equally in cost of goods sold and selling and administration expenses.
SEGMENT INFORMATION
We define segment results as income (loss) before interest expense, interest income, other operating income, other income (expense) and income taxes, and include the results of non-consolidated affiliates. Consistent with the guidance in ASC 280 “Segment Reporting,” we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Sales:
|
($ in millions)
|
Chlor Alkali Products and Vinyls
|
$
|
3,500.8
|
|
|
$
|
2,999.3
|
|
|
$
|
1,713.4
|
|
Epoxy
|
2,086.4
|
|
|
1,822.0
|
|
|
429.6
|
|
Winchester
|
681.2
|
|
|
729.3
|
|
|
711.4
|
|
Total sales
|
$
|
6,268.4
|
|
|
$
|
5,550.6
|
|
|
$
|
2,854.4
|
|
Income (loss) before taxes:
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
405.8
|
|
|
$
|
224.9
|
|
|
$
|
115.5
|
|
Epoxy
|
(11.8
|
)
|
|
15.4
|
|
|
(7.5
|
)
|
Winchester
|
72.4
|
|
|
120.9
|
|
|
115.6
|
|
Corporate/Other
|
(86.5
|
)
|
|
(55.8
|
)
|
|
(40.6
|
)
|
Restructuring charges
|
(37.6
|
)
|
|
(112.9
|
)
|
|
(2.7
|
)
|
Acquisition-related costs
|
(12.8
|
)
|
|
(48.8
|
)
|
|
(123.4
|
)
|
Other operating income
|
3.3
|
|
|
10.6
|
|
|
45.7
|
|
Interest expense
|
(217.4
|
)
|
|
(191.9
|
)
|
|
(97.0
|
)
|
Interest income
|
1.8
|
|
|
3.4
|
|
|
1.1
|
|
Income (loss) before taxes
|
$
|
117.2
|
|
|
$
|
(34.2
|
)
|
|
$
|
6.7
|
|
Earnings of non-consolidated affiliates:
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
1.8
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
432.2
|
|
|
$
|
418.1
|
|
|
$
|
186.1
|
|
Epoxy
|
94.3
|
|
|
90.0
|
|
|
20.9
|
|
Winchester
|
19.5
|
|
|
18.5
|
|
|
17.4
|
|
Corporate/Other
|
12.9
|
|
|
6.9
|
|
|
4.5
|
|
Total depreciation and amortization expense
|
$
|
558.9
|
|
|
$
|
533.5
|
|
|
$
|
228.9
|
|
Capital spending:
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
209.5
|
|
|
$
|
195.1
|
|
|
$
|
94.5
|
|
Epoxy
|
37.9
|
|
|
45.4
|
|
|
7.7
|
|
Winchester
|
22.5
|
|
|
19.5
|
|
|
25.6
|
|
Corporate/Other
|
24.4
|
|
|
18.0
|
|
|
3.1
|
|
Total capital spending
|
$
|
294.3
|
|
|
$
|
278.0
|
|
|
$
|
130.9
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Assets:
|
($ in millions)
|
Chlor Alkali Products and Vinyls
|
$
|
7,008.0
|
|
|
$
|
6,521.4
|
|
Epoxy
|
1,597.1
|
|
|
1,514.3
|
|
Winchester
|
425.2
|
|
|
424.0
|
|
Corporate/Other
|
188.0
|
|
|
302.9
|
|
Total assets
|
$
|
9,218.3
|
|
|
$
|
8,762.6
|
|
|
|
|
|
Investments—affiliated companies (at equity):
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
28.5
|
|
|
$
|
26.7
|
|
Segment assets include only those assets which are directly identifiable to an operating segment. Assets of the corporate/other segment include primarily such items as cash and cash equivalents, deferred taxes, and other assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
Geographic Data
|
2017
|
|
2016
|
|
2015
|
Sales:
|
($ in millions)
|
United States
|
$
|
3,560.4
|
|
|
$
|
3,356.8
|
|
|
$
|
2,208.5
|
|
Foreign
|
2,708.0
|
|
|
2,193.8
|
|
|
645.9
|
|
Total sales
|
$
|
6,268.4
|
|
|
$
|
5,550.6
|
|
|
$
|
2,854.4
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Long-lived assets:
|
($ in millions)
|
United States
|
$
|
3,211.9
|
|
|
$
|
3,352.2
|
|
Foreign
|
363.9
|
|
|
352.7
|
|
Total long-lived assets
|
$
|
3,575.8
|
|
|
$
|
3,704.9
|
|
Sales are attributed to geographic areas based on customer location and long-lived assets are attributed to geographic areas based on asset location.
ENVIRONMENTAL
As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business.
The establishment and implementation of national, state or provincial and local standards to regulate air, water and land quality affect substantially all of our manufacturing locations around the world. Laws providing for regulation of the manufacture, transportation, use and disposal of hazardous and toxic substances, and remediation of contaminated sites, have imposed additional regulatory requirements on industry, particularly the chemicals industry. In addition, implementation of environmental laws has required and will continue to require new capital expenditures and will increase plant operating costs. We employ waste minimization and pollution prevention programs at our manufacturing sites.
In connection with the Acquisition, DowDuPont retained liabilities relating to releases of hazardous materials and violations of environmental law to the extent arising prior to the Closing Date.
We are party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. Associated costs of investigatory and remedial activities are provided for in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Our ability to estimate future costs depends on whether our investigatory and remedial activities are in preliminary or advanced stages. With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we expect to incur to protect our interests against those unasserted claims. Our accrued liabilities for unasserted claims amounted to
$7.9 million
at December 31,
2017
. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding
30
years, which reasonably approximates the typical duration of long-term site OM&M.
Our liabilities for future environmental expenditures were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Beginning balance
|
$
|
137.3
|
|
|
$
|
138.1
|
|
Charges to income
|
10.3
|
|
|
9.2
|
|
Remedial and investigatory spending
|
(16.5
|
)
|
|
(10.3
|
)
|
Currency translation adjustments
|
0.5
|
|
|
0.3
|
|
Ending balance
|
$
|
131.6
|
|
|
$
|
137.3
|
|
At December 31,
2017
and
2016
, our consolidated balance sheets included environmental liabilities of
$111.6 million
and
$120.3 million
, respectively, which were classified as other noncurrent liabilities. Our environmental liability amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology. These liabilities are reassessed periodically to determine if environmental circumstances have changed and/or remediation efforts and our estimate of related costs have changed. As a result of these reassessments, future charges to income may be made for additional liabilities. Of the
$131.6 million
included on our consolidated balance sheet at December 31,
2017
for future environmental expenditures, we currently expect to utilize
$76.2 million
of the reserve for future environmental expenditures over the next 5 years,
$14.0 million
for expenditures 6 to 10 years in the future, and
$41.4 million
for expenditures beyond 10 years in the future.
Our total estimated environmental liability at December 31,
2017
was attributable to
59
sites,
15
of which were United States Environmental Protection Agency National Priority List sites.
Nine
sites accounted for
78%
of our environmental liability and, of the remaining
50
sites, no one site accounted for more than
3%
of our environmental liability. At
four
of the
nine
sites, part of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At
one
of the
nine
sites, a remedial action plan is being developed for part of the site and another part a remedial design is being developed. At
one
of the
nine
sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At
one
of these
nine
sites, a remedial investigation is being performed. At
one
of the
nine
sites, a remedial action plan is being developed for part of the site and another part is in the long-term OM&M stage. The
one
remaining site is in long-term OM&M. All
nine
sites are either associated with past manufacturing operations or former waste disposal sites. None of the
nine
largest sites represents more than
22%
of the liabilities reserved on our consolidated balance sheet at December 31,
2017
for future environmental expenditures.
Environmental provisions charged to income, which are included in cost of goods sold, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
($ in millions)
|
Charges to income
|
$
|
10.3
|
|
|
$
|
9.2
|
|
|
$
|
15.7
|
|
Recoveries from third parties of costs incurred and expensed
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
Environmental expense
|
$
|
8.5
|
|
|
$
|
9.2
|
|
|
$
|
15.7
|
|
These charges relate primarily to remedial and investigatory activities associated with past manufacturing operations and former waste disposal sites and may be material to operating results in future years.
Annual environmental-related cash outlays for site investigation and remediation are expected to range between approximately
$15 million
to
$25 million
over the next several years, which are expected to be charged against reserves recorded on our consolidated balance sheet. While we do not anticipate a material increase in the projected annual level of our environmental-related cash outlays for site investigation and remediation, there is always the possibility that such an increase may occur in the future in view of the uncertainties associated with environmental exposures. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies, advances in technology, changes in environmental laws and regulations and their application, changes in regulatory authorities, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other Potentially Responsible Parties (PRPs), our ability to obtain contributions from other parties and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably to us, which could materially adversely affect our financial
position or results of operations. At December 31,
2017
, we estimate that it is reasonably possible that we may have additional contingent environmental liabilities of
$60 million
in addition to the amounts for which we have already recorded as a reserve.
COMMITMENTS AND CONTINGENCIES
The following table summarizes our contractual commitments under non-cancelable operating leases and purchase contracts as of December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Purchase Commitments
|
|
($ in millions)
|
2018
|
$
|
87.9
|
|
|
$
|
692.7
|
|
2019
|
67.4
|
|
|
645.0
|
|
2020
|
51.5
|
|
|
631.5
|
|
2021
|
36.9
|
|
|
708.3
|
|
2022
|
23.9
|
|
|
708.0
|
|
Thereafter
|
87.5
|
|
|
4,364.2
|
|
Total commitments
|
$
|
355.1
|
|
|
$
|
7,749.7
|
|
Our operating lease commitments are primarily for railroad cars but also include distribution, warehousing and office space and data processing and office equipment. Virtually none of our lease agreements contain escalation clauses or step rent provisions. Total rent expense charged to operations amounted to
$118.5 million
,
$95.5 million
and
$75.1 million
in
2017
,
2016
and
2015
, respectively (sublease income is not significant). The above purchase commitments include raw material, capital expenditure and utility purchasing commitments utilized in our normal course of business for our projected needs. In connection with the Acquisition, certain additional agreements have been entered into with DowDuPont, including, long-term purchase agreements for raw materials. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key raw materials received from DowDuPont include ethylene, electricity, propylene and benzene. During 2016, we exercised one of the options to reserve additional ethylene supply at producer economics. In September 2017, DowDuPont’s new Texas 9 ethylene cracker in Freeport, TX became operational. As a result, a payment of
$209.4 million
was made in connection with this option, which increased the value of the long-term asset.
On February 27, 2017, we exercised the remaining option to obtain additional future ethylene at producer economics from DowDuPont. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to DowDuPont of between
$440 million
and
$465 million
on or about the fourth quarter of 2020. During September 2017, as a result of DowDuPont’s new Texas 9 ethylene cracker becoming operational, Olin recognized a long-term asset and other liabilities of
$389.2 million
, which represents the present value of the estimated 2020 payment. The discount amount of
$51.8 million
will be recorded as interest expense through the fourth quarter of 2020.
We, and our subsidiaries, are defendants in various legal actions (including proceedings based on alleged exposures to asbestos) incidental to our past and current business activities. At December 31,
2017
and
2016
, our consolidated balance sheets included liabilities for these legal actions of
$24.8 million
and
$13.6 million
, respectively. These liabilities do not include costs associated with legal representation and do not include
$8.0 million
of insurance recoveries included in receivables, net within the accompanying consolidated balance sheet as of December 31, 2017. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially and adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, DowDuPont retained liabilities related to litigation to the extent arising prior to the Closing Date.
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450 “Contingencies” and therefore do not record gain contingencies and recognize income until it is earned and realizable.
For the year ended December 31, 2016, we recognized an insurance recovery of
$11.0 million
in other operating income for property damage and business interruption related to a 2008 chlor alkali facility incident.
For the year ended December 31, 2015 we recognized insurance recoveries of
$57.4 million
for property damage and business interruption related to the Becancour, Canada and McIntosh, AL chlor alkali facilities. Cost of goods sold was reduced by
$10.5 million
and selling and administration was reduced by
$0.9 million
for the reimbursement of costs incurred and expensed in prior periods and other operating income included a gain of
$46.0 million
. The consolidated statement of cash flows for the year ended December 31, 2015 included
$25.8 million
for the property damage portion of the insurance recoveries within proceeds from disposition of property, plant and equipment and gains on disposition of property, plant and equipment.
DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities, our ongoing investing and financing activities and our operations that use foreign currencies. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks. ASC 815 requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at fair value. In accordance with ASC 815, we designate derivative contracts as cash flow hedges of forecasted purchases of commodities and forecasted interest payments related to variable-rate borrowings and designate certain interest rate swaps as fair value hedges of fixed-rate borrowings. We do not enter into any derivative instruments for trading or speculative purposes.
Energy costs, including electricity and natural gas, and certain raw materials used in our production processes are subject to price volatility. Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations. The majority of our commodity derivatives expire within one year. Those commodity contracts that extend beyond one year correspond with raw material purchases for long-term fixed-price sales contracts.
We actively manage currency exposures that are associated with net monetary asset positions, currency purchases and sales commitments denominated in foreign currencies and foreign currency denominated assets and liabilities created in the normal course of business. We enter into forward sales and purchase contracts to manage currency to offset our net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At December 31,
2017
, we had outstanding forward contracts to buy foreign currency with a notional value of
$135.5 million
and to sell foreign currency with a notional value of
$97.7 million
. All of the currency derivatives expire within one year and are for USD equivalents. The counterparties to the forward contracts are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. At December 31,
2016
, we had outstanding forward contracts to buy foreign currency with a notional value of
$73.2 million
and to sell foreign currency with a notional value of
$100.8 million
.
Cash Flow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive income (loss) until the hedged item is recognized into earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We had the following notional amount of outstanding commodity contracts that were entered into to hedge forecasted purchases:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Copper
|
$
|
45.2
|
|
|
$
|
35.8
|
|
Zinc
|
8.4
|
|
|
8.0
|
|
Lead
|
—
|
|
|
3.4
|
|
Natural gas
|
39.2
|
|
|
54.4
|
|
As of December 31,
2017
, the counterparties to these commodity contracts were Wells Fargo (
$36.3 million
), Citibank (
$34.3 million
), Merrill Lynch Commodities, Inc. (
$18.6 million
) and JPMorgan Chase Bank, National Association (
$3.6 million
), all of which are major financial institutions.
We use cash flow hedges for certain raw material and energy costs such as copper, zinc, lead, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations associated with forecasted purchases of raw materials and energy used in our manufacturing process. At December 31,
2017
, we had open derivative contract positions through
2022
. If all open futures contracts had been settled on December 31,
2017
, we would have recognized a pretax gain of
$7.5 million
.
If commodity prices were to remain at December 31,
2017
levels, approximately
$1.7 million
of deferred gains, net of tax, would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur.
We use interest rate swaps as a means of minimizing significant unanticipated earnings fluctuations that may arise from volatility in interest rates of our variable-rate borrowings. In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association, and Toronto-Dominion Bank. These counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the risk of changes in interest payments associated with our variable-rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$10.5 million
and are included in other current assets and other assets on the accompanying consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. For the year ended December 31,
2017
,
$3.1 million
of income was recorded to interest expense on the accompanying consolidated statement of operations related to these swap agreements.
At December 31,
2017
, we had open interest rate swaps designated as cash flow hedges with maximum terms through 2019. If all open futures contracts had been settled on December 31,
2017
, we would have recognized a pretax gain of
$10.5 million
.
If interest rates were to remain at December 31,
2017
levels,
$5.2 million
of deferred gains would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual interest rates when the forecasted transactions occur.
Fair Value Hedges
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. We include the gain or loss on the hedged items (fixed-rate borrowings) in the same line item, interest expense, as the offsetting loss or gain on the related interest rate swaps. As of both December 31,
2017
and
2016
, the total notional amounts of our interest rate swaps designated as fair value hedges were
$500.0 million
.
In April 2016, we entered into interest rate swaps on
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed rate debt due to changes in interest rates for a portion of our fixed rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$28.1 million
and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the years ended December 31,
2017
and
2016
,
$2.9 million
and
$2.6 million
, respectively, of income has been recorded to interest expense on the accompanying consolidated statement of operations related to these swap agreements.
Financial Statement Impacts
We present our derivative assets and liabilities in our consolidated balance sheets on a net basis whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to manage and substantially reduce our potential counterparty credit risk.
The following table summarizes the location and fair value of the derivative instruments on our consolidated balance sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Asset Derivatives:
|
|
|
|
Other current assets
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
Interest rate contracts - gains
|
$
|
6.9
|
|
|
$
|
1.9
|
|
Commodity contracts - gains
|
11.4
|
|
|
13.2
|
|
Commodity contracts - losses
|
(0.1
|
)
|
|
(1.7
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
Foreign exchange contracts - losses
|
(1.0
|
)
|
|
(0.5
|
)
|
Foreign exchange contracts - gains
|
2.0
|
|
|
0.6
|
|
Total other current assets
|
19.2
|
|
|
13.5
|
|
Other assets
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
Interest rate contracts - gains
|
3.6
|
|
|
7.7
|
|
Total other assets
|
3.6
|
|
|
7.7
|
|
Total Asset Derivatives
(1)
|
$
|
22.8
|
|
|
$
|
21.2
|
|
Liability Derivatives:
|
|
|
|
Current installments of long-term debt
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
Interest rate contracts - gains
|
$
|
—
|
|
|
$
|
0.1
|
|
Total current installments of long-term debt
|
—
|
|
|
0.1
|
|
Accrued liabilities
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
Commodity contracts - losses
|
3.8
|
|
|
—
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
Foreign exchange contracts - losses
|
—
|
|
|
1.7
|
|
Foreign exchange contracts - gains
|
—
|
|
|
(0.5
|
)
|
Total accrued liabilities
|
3.8
|
|
|
1.2
|
|
Other liabilities
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
Interest rate contracts - losses
|
28.1
|
|
|
28.5
|
|
Total other liabilities
|
28.1
|
|
|
28.5
|
|
Total Liability Derivatives
(1)
|
$
|
31.9
|
|
|
$
|
29.8
|
|
|
|
(1)
|
Does not include the impact of cash collateral received from or provided to counterparties.
|
The following table summarizes the effects of derivative instruments on our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
|
Years Ended December 31,
|
|
Location of Gain (Loss)
|
|
2017
|
|
2016
|
|
2015
|
Derivatives – Cash Flow Hedges
|
|
|
($ in millions)
|
Recognized in other comprehensive loss (effective portion):
|
|
|
|
|
|
|
Commodity contracts
|
———
|
|
$
|
(2.1
|
)
|
|
$
|
16.7
|
|
|
$
|
(13.9
|
)
|
Interest rate contracts
|
———
|
|
4.0
|
|
|
9.6
|
|
|
—
|
|
|
|
|
$
|
1.9
|
|
|
$
|
26.3
|
|
|
$
|
(13.9
|
)
|
Reclassified from accumulated other comprehensive loss into income (effective portion):
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity contracts
|
Cost of goods sold
|
|
1.5
|
|
|
(5.8
|
)
|
|
(9.7
|
)
|
|
|
|
$
|
4.6
|
|
|
$
|
(5.8
|
)
|
|
$
|
(9.7
|
)
|
Derivatives – Fair Value Hedges
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$
|
3.0
|
|
|
$
|
3.7
|
|
|
$
|
2.8
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
|
$
|
(2.2
|
)
|
Foreign exchange contracts
|
Selling and administration
|
|
1.8
|
|
|
(11.1
|
)
|
|
0.1
|
|
|
|
|
$
|
1.8
|
|
|
$
|
(11.5
|
)
|
|
$
|
(2.1
|
)
|
The ineffective portion of changes in fair value resulted in
zero
charged or credited to earnings for the years ended December 31,
2017
,
2016
and
2015
.
Credit Risk and Collateral
By using derivative instruments, we are exposed to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair-value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes us, thus creating a repayment risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, assume no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties. We monitor our positions and the credit ratings of our counterparties, and we do not anticipate non-performance by the counterparties.
Based on the agreements with our various counterparties, cash collateral is required to be provided when the net fair value of the derivatives, with the counterparty, exceeds a specific threshold. If the threshold is exceeded, cash is either provided by the counterparty to us if the value of the derivatives is our asset, or cash is provided by us to the counterparty if the value of the derivatives is our liability. As of December 31,
2017
and
2016
, this threshold was not exceeded. In all instances where we are party to a master netting agreement, we offset the receivable or payable recognized upon payment of cash collateral against the fair value amounts recognized for derivative instruments that have also been offset under such master netting agreements.
FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes the assets and liabilities measured at fair value in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Assets
|
($ in millions)
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
10.5
|
|
|
$
|
—
|
|
|
$
|
10.5
|
|
Commodity contracts
|
—
|
|
|
11.3
|
|
|
—
|
|
|
11.3
|
|
Foreign exchange contracts
|
—
|
|
|
1.0
|
|
|
—
|
|
|
1.0
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
28.1
|
|
|
—
|
|
|
28.1
|
|
Commodity contracts
|
—
|
|
|
3.8
|
|
|
—
|
|
|
3.8
|
|
Balance at December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
9.6
|
|
|
$
|
—
|
|
|
9.6
|
|
Commodity contracts
|
—
|
|
|
11.5
|
|
|
—
|
|
|
11.5
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
28.6
|
|
|
—
|
|
|
28.6
|
|
Foreign exchange contracts
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
For the years ended December 31,
2017
and
2016
, there were no transfers into or out of Level 1, Level 2 and Level 3.
Interest Rate Swaps
Interest rate swap financial instruments were valued using the “income approach” valuation technique. This method used valuation techniques to convert future amounts to a single present amount. The measurement was based on the value indicated by current market expectations about those future amounts. We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels.
Commodity Forward Contracts
Commodity contract financial instruments were valued primarily based on prices and other relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for commodities. We use commodity derivative contracts for certain raw materials and energy costs such as copper, zinc, lead, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations.
Foreign Currency Contracts
Foreign currency contract financial instruments were valued primarily based on relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for currencies. We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value of our long-term debt was determined based on current market rates for debt of similar risk and maturities. The following table summarizes the fair value measurements of debt and the actual debt recorded on our balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Amount recorded
on balance sheets
|
|
($ in millions)
|
Balance at December 31, 2017
|
$
|
—
|
|
|
$
|
3,758.0
|
|
|
$
|
153.0
|
|
|
$
|
3,911.0
|
|
|
$
|
3,612.0
|
|
Balance at December 31, 2016
|
—
|
|
|
3,703.7
|
|
|
153.0
|
|
|
3,856.7
|
|
|
3,617.6
|
|
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis as required by ASC 820. There were no assets measured at fair value on a nonrecurring basis as of December 31,
2017
and
2016
.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In October 2015, Spinco (the Issuer) issued
$720.0 million
aggregate principal amount of the 2023 Notes and
$500.0 million
aggregate principal amount of the 2025 Notes. During 2016, the Notes were registered under the Securities Act of 1933, as amended. The Issuer was formed on March 13, 2015 as a wholly owned subsidiary of DowDuPont and upon closing of the Acquisition became a 100% owned subsidiary of Olin (the Parent Guarantor). The Notes are fully and unconditionally guaranteed by the Parent Guarantor.
The following condensed consolidating financial information presents the condensed consolidating balance sheets as of December 31,
2017
and
2016
, and the related condensed consolidating statements of operations, comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31,
2017
of (a) the Parent Guarantor, (b) the Issuer, (c) the non-guarantor subsidiaries, (d) elimination entries necessary to consolidate the Parent Guarantor with the Issuer and the non-guarantor subsidiaries and (e) Olin on a consolidated basis. Investments in consolidated subsidiaries are presented under the equity method of accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
December 31, 2017
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
57.1
|
|
|
$
|
—
|
|
|
$
|
161.3
|
|
|
$
|
—
|
|
|
$
|
218.4
|
|
Receivables, net
|
95.6
|
|
|
—
|
|
|
637.6
|
|
|
—
|
|
|
733.2
|
|
Intercompany receivables
|
—
|
|
|
—
|
|
|
2,093.2
|
|
|
(2,093.2
|
)
|
|
—
|
|
Income taxes receivable
|
11.7
|
|
|
—
|
|
|
6.3
|
|
|
(1.1
|
)
|
|
16.9
|
|
Inventories, net
|
155.4
|
|
|
—
|
|
|
527.2
|
|
|
—
|
|
|
682.6
|
|
Other current assets
|
206.2
|
|
|
—
|
|
|
5.3
|
|
|
(163.4
|
)
|
|
48.1
|
|
Total current assets
|
526.0
|
|
|
—
|
|
|
3,430.9
|
|
|
(2,257.7
|
)
|
|
1,699.2
|
|
Property, plant and equipment, net
|
544.4
|
|
|
—
|
|
|
3,031.4
|
|
|
—
|
|
|
3,575.8
|
|
Investment in subsidiaries
|
6,680.4
|
|
|
4,092.3
|
|
|
—
|
|
|
(10,772.7
|
)
|
|
—
|
|
Deferred income taxes
|
38.1
|
|
|
—
|
|
|
34.5
|
|
|
(36.2
|
)
|
|
36.4
|
|
Other assets
|
45.9
|
|
|
—
|
|
|
1,162.5
|
|
|
—
|
|
|
1,208.4
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,132.1
|
|
|
—
|
|
|
(2,132.1
|
)
|
|
—
|
|
Intangible assets, net
|
0.3
|
|
|
5.7
|
|
|
572.5
|
|
|
—
|
|
|
578.5
|
|
Goodwill
|
—
|
|
|
966.3
|
|
|
1,153.7
|
|
|
—
|
|
|
2,120.0
|
|
Total assets
|
$
|
7,835.1
|
|
|
$
|
7,196.4
|
|
|
$
|
9,385.5
|
|
|
$
|
(15,198.7
|
)
|
|
$
|
9,218.3
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
Accounts payable
|
83.2
|
|
|
—
|
|
|
590.0
|
|
|
(3.4
|
)
|
|
669.8
|
|
Intercompany payables
|
2,093.2
|
|
|
—
|
|
|
—
|
|
|
(2,093.2
|
)
|
|
—
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
10.5
|
|
|
(1.1
|
)
|
|
9.4
|
|
Accrued liabilities
|
117.7
|
|
|
—
|
|
|
318.1
|
|
|
(161.4
|
)
|
|
274.4
|
|
Total current liabilities
|
2,294.8
|
|
|
—
|
|
|
918.6
|
|
|
(2,259.1
|
)
|
|
954.3
|
|
Long-term debt
|
839.4
|
|
|
2,522.2
|
|
|
249.7
|
|
|
—
|
|
|
3,611.3
|
|
Accrued pension liability
|
406.7
|
|
|
—
|
|
|
229.2
|
|
|
—
|
|
|
635.9
|
|
Deferred income taxes
|
—
|
|
|
3.0
|
|
|
544.4
|
|
|
(36.2
|
)
|
|
511.2
|
|
Long-term payables—affiliates
|
1,250.0
|
|
|
—
|
|
|
882.1
|
|
|
(2,132.1
|
)
|
|
—
|
|
Other liabilities
|
290.5
|
|
|
5.6
|
|
|
455.8
|
|
|
—
|
|
|
751.9
|
|
Total liabilities
|
5,081.4
|
|
|
2,530.8
|
|
|
3,279.8
|
|
|
(4,427.4
|
)
|
|
6,464.6
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
167.1
|
|
|
—
|
|
|
14.6
|
|
|
(14.6
|
)
|
|
167.1
|
|
Additional paid-in capital
|
2,280.9
|
|
|
4,125.7
|
|
|
4,808.2
|
|
|
(8,933.9
|
)
|
|
2,280.9
|
|
Accumulated other comprehensive loss
|
(484.6
|
)
|
|
—
|
|
|
(4.6
|
)
|
|
4.6
|
|
|
(484.6
|
)
|
Retained earnings
|
790.3
|
|
|
539.9
|
|
|
1,287.5
|
|
|
(1,827.4
|
)
|
|
790.3
|
|
Total shareholders' equity
|
2,753.7
|
|
|
4,665.6
|
|
|
6,105.7
|
|
|
(10,771.3
|
)
|
|
2,753.7
|
|
Total liabilities and shareholders' equity
|
$
|
7,835.1
|
|
|
$
|
7,196.4
|
|
|
$
|
9,385.5
|
|
|
$
|
(15,198.7
|
)
|
|
$
|
9,218.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
December 31, 2016
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
25.2
|
|
|
$
|
—
|
|
|
$
|
159.3
|
|
|
$
|
—
|
|
|
$
|
184.5
|
|
Receivables, net
|
88.3
|
|
|
—
|
|
|
586.7
|
|
|
—
|
|
|
675.0
|
|
Intercompany receivables
|
—
|
|
|
—
|
|
|
1,912.3
|
|
|
(1,912.3
|
)
|
|
—
|
|
Income taxes receivable
|
19.0
|
|
|
—
|
|
|
7.3
|
|
|
(0.8
|
)
|
|
25.5
|
|
Inventories, net
|
167.7
|
|
|
—
|
|
|
462.7
|
|
|
—
|
|
|
630.4
|
|
Other current assets
|
164.7
|
|
|
3.4
|
|
|
1.2
|
|
|
(138.5
|
)
|
|
30.8
|
|
Total current assets
|
464.9
|
|
|
3.4
|
|
|
3,129.5
|
|
|
(2,051.6
|
)
|
|
1,546.2
|
|
Property, plant and equipment, net
|
510.1
|
|
|
—
|
|
|
3,194.8
|
|
|
—
|
|
|
3,704.9
|
|
Investment in subsidiaries
|
6,035.2
|
|
|
3,734.7
|
|
|
—
|
|
|
(9,769.9
|
)
|
|
—
|
|
Deferred income taxes
|
133.5
|
|
|
—
|
|
|
103.5
|
|
|
(117.5
|
)
|
|
119.5
|
|
Other assets
|
48.1
|
|
|
—
|
|
|
596.3
|
|
|
—
|
|
|
644.4
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,194.2
|
|
|
—
|
|
|
(2,194.2
|
)
|
|
—
|
|
Intangible assets, net
|
0.4
|
|
|
5.7
|
|
|
623.5
|
|
|
—
|
|
|
629.6
|
|
Goodwill
|
—
|
|
|
966.3
|
|
|
1,151.7
|
|
|
—
|
|
|
2,118.0
|
|
Total assets
|
$
|
7,192.2
|
|
|
$
|
6,904.3
|
|
|
$
|
8,799.3
|
|
|
$
|
(14,133.2
|
)
|
|
$
|
8,762.6
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
0.6
|
|
|
67.5
|
|
|
$
|
12.4
|
|
|
—
|
|
|
$
|
80.5
|
|
Accounts payable
|
45.3
|
|
|
—
|
|
|
527.4
|
|
|
(1.9
|
)
|
|
570.8
|
|
Intercompany payables
|
1,882.8
|
|
|
29.5
|
|
|
—
|
|
|
(1,912.3
|
)
|
|
—
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
8.3
|
|
|
(0.8
|
)
|
|
7.5
|
|
Accrued liabilities
|
124.9
|
|
|
—
|
|
|
277.5
|
|
|
(138.6
|
)
|
|
263.8
|
|
Total current liabilities
|
2,053.6
|
|
|
97.0
|
|
|
825.6
|
|
|
(2,053.6
|
)
|
|
922.6
|
|
Long-term debt
|
913.9
|
|
|
2,413.3
|
|
|
209.9
|
|
|
—
|
|
|
3,537.1
|
|
Accrued pension liability
|
453.7
|
|
|
—
|
|
|
184.4
|
|
|
—
|
|
|
638.1
|
|
Deferred income taxes
|
—
|
|
|
223.6
|
|
|
926.4
|
|
|
(117.5
|
)
|
|
1,032.5
|
|
Long-term payables—affiliates
|
1,209.1
|
|
|
—
|
|
|
985.1
|
|
|
(2,194.2
|
)
|
|
—
|
|
Other liabilities
|
288.9
|
|
|
6.6
|
|
|
63.8
|
|
|
—
|
|
|
359.3
|
|
Total liabilities
|
4,919.2
|
|
|
2,740.5
|
|
|
3,195.2
|
|
|
(4,365.3
|
)
|
|
6,489.6
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
165.4
|
|
|
—
|
|
|
14.6
|
|
|
(14.6
|
)
|
|
165.4
|
|
Additional paid-in capital
|
2,243.8
|
|
|
4,125.7
|
|
|
4,808.2
|
|
|
(8,933.9
|
)
|
|
2,243.8
|
|
Accumulated other comprehensive loss
|
(510.0
|
)
|
|
—
|
|
|
(7.0
|
)
|
|
7.0
|
|
|
(510.0
|
)
|
Retained earnings
|
373.8
|
|
|
38.1
|
|
|
788.3
|
|
|
(826.4
|
)
|
|
373.8
|
|
Total shareholders' equity
|
2,273.0
|
|
|
4,163.8
|
|
|
5,604.1
|
|
|
(9,767.9
|
)
|
|
2,273.0
|
|
Total liabilities and shareholders' equity
|
$
|
7,192.2
|
|
|
$
|
6,904.3
|
|
|
$
|
8,799.3
|
|
|
$
|
(14,133.2
|
)
|
|
$
|
8,762.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Year Ended December 31, 2017
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
1,330.3
|
|
|
$
|
—
|
|
|
$
|
5,344.9
|
|
|
$
|
(406.8
|
)
|
|
$
|
6,268.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
1,176.1
|
|
|
—
|
|
|
4,770.3
|
|
|
(406.8
|
)
|
|
5,539.6
|
|
Selling and administration
|
137.9
|
|
|
—
|
|
|
212.8
|
|
|
—
|
|
|
350.7
|
|
Restructuring charges
|
1.7
|
|
|
—
|
|
|
35.9
|
|
|
—
|
|
|
37.6
|
|
Acquisition-related costs
|
12.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.8
|
|
Other operating (loss) income
|
(11.1
|
)
|
|
—
|
|
|
14.4
|
|
|
—
|
|
|
3.3
|
|
Operating (loss) income
|
(9.3
|
)
|
|
—
|
|
|
340.3
|
|
|
—
|
|
|
331.0
|
|
Earnings of non-consolidated affiliates
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
Equity income in subsidiaries
|
638.4
|
|
|
357.6
|
|
|
—
|
|
|
(996.0
|
)
|
|
—
|
|
Interest expense
|
44.5
|
|
|
165.8
|
|
|
13.0
|
|
|
(5.9
|
)
|
|
217.4
|
|
Interest income
|
6.3
|
|
|
—
|
|
|
1.4
|
|
|
(5.9
|
)
|
|
1.8
|
|
Income before taxes
|
592.7
|
|
|
191.8
|
|
|
328.7
|
|
|
(996.0
|
)
|
|
117.2
|
|
Income tax provision (benefit)
|
43.2
|
|
|
(310.0
|
)
|
|
(165.5
|
)
|
|
—
|
|
|
(432.3
|
)
|
Net income
|
$
|
549.5
|
|
|
$
|
501.8
|
|
|
$
|
494.2
|
|
|
$
|
(996.0
|
)
|
|
$
|
549.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Year Ended December 31, 2016
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
1,321.3
|
|
|
$
|
—
|
|
|
$
|
4,720.2
|
|
|
$
|
(490.9
|
)
|
|
$
|
5,550.6
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
1,128.7
|
|
|
—
|
|
|
4,285.9
|
|
|
(490.9
|
)
|
|
4,923.7
|
|
Selling and administration
|
138.1
|
|
|
—
|
|
|
185.1
|
|
|
—
|
|
|
323.2
|
|
Restructuring charges
|
0.8
|
|
|
—
|
|
|
112.1
|
|
|
—
|
|
|
112.9
|
|
Acquisition-related costs
|
47.4
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
48.8
|
|
Other operating (loss) income
|
(2.2
|
)
|
|
—
|
|
|
12.8
|
|
|
—
|
|
|
10.6
|
|
Operating income
|
4.1
|
|
|
—
|
|
|
148.5
|
|
|
—
|
|
|
152.6
|
|
Earnings of non-consolidated affiliates
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
Equity income in subsidiaries
|
16.2
|
|
|
139.0
|
|
|
—
|
|
|
(155.2
|
)
|
|
—
|
|
Interest expense
|
38.8
|
|
|
153.9
|
|
|
4.7
|
|
|
(5.5
|
)
|
|
191.9
|
|
Interest income
|
4.7
|
|
|
—
|
|
|
4.2
|
|
|
(5.5
|
)
|
|
3.4
|
|
Income (loss) before taxes
|
(12.1
|
)
|
|
(14.9
|
)
|
|
148.0
|
|
|
(155.2
|
)
|
|
(34.2
|
)
|
Income tax (benefit) provision
|
(8.2
|
)
|
|
(57.6
|
)
|
|
35.5
|
|
|
—
|
|
|
(30.3
|
)
|
Net (loss) income
|
$
|
(3.9
|
)
|
|
$
|
42.7
|
|
|
$
|
112.5
|
|
|
$
|
(155.2
|
)
|
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
Year Ended December 31, 2015
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Sales
|
$
|
1,215.4
|
|
|
$
|
—
|
|
|
$
|
2,002.5
|
|
|
$
|
(363.5
|
)
|
|
$
|
2,854.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
1,057.8
|
|
|
—
|
|
|
1,792.5
|
|
|
(363.5
|
)
|
|
2,486.8
|
|
Selling and administration
|
110.0
|
|
|
—
|
|
|
76.3
|
|
|
—
|
|
|
186.3
|
|
Restructuring charges
|
0.7
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
2.7
|
|
Acquisition-related costs
|
117.9
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
|
123.4
|
|
Other operating (loss) income
|
(4.0
|
)
|
|
—
|
|
|
49.7
|
|
|
—
|
|
|
45.7
|
|
Operating (loss) income
|
(75.0
|
)
|
|
—
|
|
|
175.9
|
|
|
—
|
|
|
100.9
|
|
Earnings of non-consolidated affiliates
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
Equity income in subsidiaries
|
90.2
|
|
|
19.7
|
|
|
—
|
|
|
(109.9
|
)
|
|
—
|
|
Interest expense
|
60.9
|
|
|
37.0
|
|
|
4.5
|
|
|
(5.4
|
)
|
|
97.0
|
|
Interest income
|
3.1
|
|
|
—
|
|
|
3.4
|
|
|
(5.4
|
)
|
|
1.1
|
|
Income (loss) before taxes
|
(40.9
|
)
|
|
(17.3
|
)
|
|
174.8
|
|
|
(109.9
|
)
|
|
6.7
|
|
Income tax (benefit) provision
|
(39.5
|
)
|
|
(12.7
|
)
|
|
60.3
|
|
|
—
|
|
|
8.1
|
|
Net (loss) income
|
$
|
(1.4
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
114.5
|
|
|
$
|
(109.9
|
)
|
|
$
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Year Ended December 31, 2017
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net income
|
$
|
549.5
|
|
|
$
|
501.8
|
|
|
$
|
494.2
|
|
|
$
|
(996.0
|
)
|
|
$
|
549.5
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
31.7
|
|
|
—
|
|
|
31.7
|
|
Unrealized losses on derivative contracts, net
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.7
|
)
|
Pension and postretirement liability adjustments, net
|
(12.3
|
)
|
|
—
|
|
|
(9.3
|
)
|
|
—
|
|
|
(21.6
|
)
|
Amortization of prior service costs and actuarial losses, net
|
15.3
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
17.0
|
|
Total other comprehensive income, net of tax
|
1.3
|
|
|
—
|
|
|
24.1
|
|
|
—
|
|
|
25.4
|
|
Comprehensive income
|
$
|
550.8
|
|
|
$
|
501.8
|
|
|
$
|
518.3
|
|
|
$
|
(996.0
|
)
|
|
$
|
574.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Year Ended December 31, 2016
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net (loss) income
|
$
|
(3.9
|
)
|
|
$
|
42.7
|
|
|
$
|
112.5
|
|
|
$
|
(155.2
|
)
|
|
$
|
(3.9
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
(12.0
|
)
|
|
—
|
|
|
(12.0
|
)
|
Unrealized gains on derivative contracts, net
|
19.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19.7
|
|
Pension and postretirement liability adjustments, net
|
(25.3
|
)
|
|
—
|
|
|
(12.2
|
)
|
|
—
|
|
|
(37.5
|
)
|
Amortization of prior service costs and actuarial losses, net
|
10.9
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
12.3
|
|
Total other comprehensive income (loss), net of tax
|
5.3
|
|
|
—
|
|
|
(22.8
|
)
|
|
—
|
|
|
(17.5
|
)
|
Comprehensive income (loss)
|
$
|
1.4
|
|
|
$
|
42.7
|
|
|
$
|
89.7
|
|
|
$
|
(155.2
|
)
|
|
$
|
(21.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Year Ended December 31, 2015
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net (loss) income
|
$
|
(1.4
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
114.5
|
|
|
$
|
(109.9
|
)
|
|
$
|
(1.4
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
(9.8
|
)
|
|
—
|
|
|
(9.8
|
)
|
Unrealized losses on derivative contracts, net
|
(2.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.7
|
)
|
Pension and postretirement liability adjustments, net
|
(73.7
|
)
|
|
—
|
|
|
(5.1
|
)
|
|
—
|
|
|
(78.8
|
)
|
Amortization of prior service costs and actuarial losses, net
|
39.6
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
41.9
|
|
Total other comprehensive loss, net of tax
|
(36.8
|
)
|
|
—
|
|
|
(12.6
|
)
|
|
—
|
|
|
(49.4
|
)
|
Comprehensive (loss) income
|
$
|
(38.2
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
101.9
|
|
|
$
|
(109.9
|
)
|
|
$
|
(50.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
Year Ended December 31, 2017
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net operating activities
|
$
|
472.0
|
|
|
$
|
—
|
|
|
$
|
176.8
|
|
|
$
|
—
|
|
|
$
|
648.8
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(89.1
|
)
|
|
—
|
|
|
(205.2
|
)
|
|
—
|
|
|
(294.3
|
)
|
Payments under long-term supply contracts
|
—
|
|
|
—
|
|
|
(209.4
|
)
|
|
—
|
|
|
(209.4
|
)
|
Proceeds from disposition of property, plant and equipment
|
—
|
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
5.2
|
|
Distributions from consolidated subsidiaries, net
|
2.7
|
|
|
—
|
|
|
—
|
|
|
(2.7
|
)
|
|
—
|
|
Net investing activities
|
(86.4
|
)
|
|
—
|
|
|
(409.4
|
)
|
|
(2.7
|
)
|
|
(498.5
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Borrowings
|
620.0
|
|
|
1,375.0
|
|
|
40.5
|
|
|
—
|
|
|
2,035.5
|
|
Repayments
|
(690.8
|
)
|
|
(1,334.1
|
)
|
|
(13.0
|
)
|
|
—
|
|
|
(2,037.9
|
)
|
Stock options exercised
|
29.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
Dividends paid
|
(133.0
|
)
|
|
—
|
|
|
(2.7
|
)
|
|
2.7
|
|
|
(133.0
|
)
|
Debt and equity issuance costs
|
(8.3
|
)
|
|
(2.9
|
)
|
|
—
|
|
|
—
|
|
|
(11.2
|
)
|
Intercompany financing activities
|
(171.4
|
)
|
|
(38.0
|
)
|
|
209.4
|
|
|
—
|
|
|
—
|
|
Net financing activities
|
(353.7
|
)
|
|
—
|
|
|
234.2
|
|
|
2.7
|
|
|
(116.8
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Net increase in cash and cash equivalents
|
31.9
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
33.9
|
|
Cash and cash equivalents, beginning of year
|
25.2
|
|
|
—
|
|
|
159.3
|
|
|
—
|
|
|
184.5
|
|
Cash and cash equivalents, end of year
|
$
|
57.1
|
|
|
$
|
—
|
|
|
$
|
161.3
|
|
|
$
|
—
|
|
|
$
|
218.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
Year Ended December 31, 2016
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net operating activities
|
$
|
702.6
|
|
|
$
|
—
|
|
|
$
|
(99.4
|
)
|
|
$
|
—
|
|
|
$
|
603.2
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(65.7
|
)
|
|
—
|
|
|
(212.3
|
)
|
|
—
|
|
|
(278.0
|
)
|
Business acquired and related transactions, net of cash acquired
|
(69.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69.5
|
)
|
Payments under long-term supply contracts
|
—
|
|
|
—
|
|
|
(175.7
|
)
|
|
—
|
|
|
(175.7
|
)
|
Proceeds from sale/leaseback of equipment
|
—
|
|
|
—
|
|
|
40.4
|
|
|
—
|
|
|
40.4
|
|
Proceeds from disposition of property, plant and equipment
|
0.2
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.5
|
|
Proceeds from disposition of affiliated companies
|
8.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
Net investing activities
|
(126.2
|
)
|
|
—
|
|
|
(347.3
|
)
|
|
—
|
|
|
(473.5
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Borrowings
|
—
|
|
|
—
|
|
|
230.0
|
|
|
—
|
|
|
230.0
|
|
Repayments
|
(335.6
|
)
|
|
(67.5
|
)
|
|
(32.2
|
)
|
|
—
|
|
|
(435.3
|
)
|
Stock options exercised
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Excess tax benefits from stock-based compensation
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Dividends paid
|
(132.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(132.1
|
)
|
Debt and equity issuance costs
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
Intercompany financing activities
|
(203.8
|
)
|
|
68.5
|
|
|
135.3
|
|
|
—
|
|
|
—
|
|
Net financing activities
|
(670.6
|
)
|
|
—
|
|
|
333.1
|
|
|
—
|
|
|
(337.5
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Net decrease in cash and cash equivalents
|
(94.2
|
)
|
|
—
|
|
|
(113.3
|
)
|
|
—
|
|
|
(207.5
|
)
|
Cash and cash equivalents, beginning of year
|
119.4
|
|
|
—
|
|
|
272.6
|
|
|
—
|
|
|
392.0
|
|
Cash and cash equivalents, end of year
|
$
|
25.2
|
|
|
$
|
—
|
|
|
$
|
159.3
|
|
|
$
|
—
|
|
|
$
|
184.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
Year Ended December 31, 2015
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
Net operating activities
|
$
|
(70.6
|
)
|
|
$
|
—
|
|
|
$
|
287.7
|
|
|
$
|
—
|
|
|
$
|
217.1
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(74.0
|
)
|
|
—
|
|
|
(56.9
|
)
|
|
—
|
|
|
(130.9
|
)
|
Business acquired and related transactions, net of cash acquired
|
(408.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(408.1
|
)
|
Proceeds from disposition of property, plant and equipment
|
1.7
|
|
|
—
|
|
|
24.5
|
|
|
—
|
|
|
26.2
|
|
Proceeds from disposition of affiliated companies
|
8.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
Net investing activities
|
(471.6
|
)
|
|
—
|
|
|
(32.4
|
)
|
|
—
|
|
|
(504.0
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Borrowings
|
1,275.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,275.0
|
|
Repayments
|
(149.5
|
)
|
|
—
|
|
|
(581.2
|
)
|
|
—
|
|
|
(730.7
|
)
|
Stock options exercised
|
2.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
Excess tax benefits from stock-based compensation
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Dividends paid
|
(79.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79.5
|
)
|
Debt and equity issuance costs
|
(35.2
|
)
|
|
(10.0
|
)
|
|
—
|
|
|
—
|
|
|
(45.2
|
)
|
Intercompany financing activities
|
(591.2
|
)
|
|
10.0
|
|
|
581.2
|
|
|
|
|
|
—
|
|
Net financing activities
|
422.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
422.2
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Net (decrease) increase in cash and cash equivalents
|
(120.0
|
)
|
|
—
|
|
|
255.2
|
|
|
—
|
|
|
135.2
|
|
Cash and cash equivalents, beginning of year
|
239.4
|
|
|
—
|
|
|
17.4
|
|
|
—
|
|
|
256.8
|
|
Cash and cash equivalents, end of year
|
$
|
119.4
|
|
|
$
|
—
|
|
|
$
|
272.6
|
|
|
$
|
—
|
|
|
$
|
392.0
|
|
OTHER FINANCIAL DATA
Quarterly Data (Unaudited)
($ in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Sales
|
|
$
|
1,567.1
|
|
|
$
|
1,526.5
|
|
|
$
|
1,554.9
|
|
|
$
|
1,619.9
|
|
|
$
|
6,268.4
|
|
Cost of goods sold
|
|
1,393.7
|
|
|
1,404.1
|
|
|
1,345.6
|
|
|
1,396.2
|
|
|
5,539.6
|
|
Net income (loss)
|
|
13.4
|
|
|
(5.9
|
)
|
|
52.7
|
|
|
489.3
|
|
|
549.5
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
0.08
|
|
|
(0.04
|
)
|
|
0.32
|
|
|
2.93
|
|
|
3.31
|
|
Diluted
|
|
0.08
|
|
|
(0.04
|
)
|
|
0.31
|
|
|
2.89
|
|
|
3.26
|
|
Common dividends per share
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.80
|
|
Market price of common stock
(1)
|
|
|
|
|
|
|
|
|
|
|
High
|
|
33.88
|
|
|
33.67
|
|
|
34.85
|
|
|
37.52
|
|
|
37.52
|
|
Low
|
|
25.43
|
|
|
27.79
|
|
|
28.45
|
|
|
33.34
|
|
|
25.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Sales
|
|
$
|
1,348.2
|
|
|
$
|
1,364.0
|
|
|
$
|
1,452.7
|
|
|
$
|
1,385.7
|
|
|
$
|
5,550.6
|
|
Cost of goods sold
|
|
1,175.4
|
|
|
1,236.9
|
|
|
1,284.4
|
|
|
1,227.0
|
|
|
4,923.7
|
|
Net (loss) income
|
|
(37.9
|
)
|
|
(1.0
|
)
|
|
17.5
|
|
|
17.5
|
|
|
(3.9
|
)
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.23
|
)
|
|
(0.01
|
)
|
|
0.11
|
|
|
0.11
|
|
|
(0.02
|
)
|
Diluted
|
|
(0.23
|
)
|
|
(0.01
|
)
|
|
0.11
|
|
|
0.10
|
|
|
(0.02
|
)
|
Common dividends per share
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.80
|
|
Market price of common stock
(1)
|
|
|
|
|
|
|
|
|
|
|
High
|
|
17.75
|
|
|
24.99
|
|
|
26.46
|
|
|
26.93
|
|
|
26.93
|
|
Low
|
|
12.29
|
|
|
16.55
|
|
|
18.24
|
|
|
19.62
|
|
|
12.29
|
|
|
|
(1)
|
NYSE composite transactions.
|