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 and downstream products such as converted 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 The Dow Chemical Company (TDCC) 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 (loss) income. Certain reclassifications were made to prior year amounts to conform to the
2016
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, 2016, 2015 and 2014 of
$48.8 million
,
$123.4 million
and
$4.2 million
, respectively, were associated with the Acquisition.
Other Operating Income
Other operating income consists of miscellaneous operating income items, which are related to our business activities, and gains (losses) on disposition of property, plant and equipment.
Included in other operating income were the following:
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Years Ended December 31,
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|
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2016
|
|
2015
|
|
2014
|
|
|
($ in millions)
|
|
Gains (losses) on disposition of property, plant and equipment, net
|
$
|
(0.7
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
0.2
|
|
|
Gains on insurance recoveries
|
11.0
|
|
|
46.0
|
|
|
—
|
|
|
Gain on resolution of a contract matter
|
—
|
|
|
—
|
|
|
1.0
|
|
|
Other
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
Other operating income
|
$
|
10.6
|
|
|
$
|
45.7
|
|
|
$
|
1.5
|
|
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, 2016 and 2015, 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 or market. For U.S. inventories, inventory costs are determined principally by the dollar value 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.
Restricted Cash
Restricted cash, which is restricted as to withdrawal or usage, is classified on our consolidated balance sheet as a noncurrent asset separately from cash and cash equivalents.
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 activity of our asset retirement obligation was as follows:
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December 31,
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2016
|
|
2015
|
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|
($ in millions)
|
|
Beginning balance
|
$
|
53.5
|
|
|
$
|
54.4
|
|
|
Accretion
|
3.1
|
|
|
3.6
|
|
|
Spending
|
(8.8
|
)
|
|
(8.2
|
)
|
|
Currency translation adjustments
|
0.2
|
|
|
(1.1
|
)
|
|
Acquisition activity
|
—
|
|
|
1.7
|
|
|
Adjustments
|
7.4
|
|
|
3.1
|
|
|
Ending balance
|
$
|
55.4
|
|
|
$
|
53.5
|
|
At December 31,
2016
and
2015
, our consolidated balance sheets included an asset retirement obligation of
$42.8 million
and
$46.2 million
, respectively, which were classified as other noncurrent liabilities.
In
2016
, we had net adjustments that increased the asset retirement obligation by
$7.4 million
, which were primarily comprised of increases in estimated costs for certain assets. In
2015
, we had net adjustments that increased the asset retirement obligation by
$3.1 million
, which were primarily due to changes in the estimated timing of payments 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” 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.
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 a 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 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. No impairment charges were recorded for 2016, 2015 or 2014.
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. In order to evaluate the sensitivity of the fair value calculation on the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit. We also applied a hypothetical decrease of 100-basis points in our terminal growth rate or an increase of 100-basis points in our weighted-average cost of capital to test the fair value calculation. In all cases, the estimated fair value of our reporting units derived in these sensitivity calculations exceeded the carrying value in excess of 10%. 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,
2016
.
No
impairment of our intangible assets were recorded in
2016
,
2015
or
2014
.
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.
Discontinued Operations
We present the results of operations, financial position and cash flows that have either been sold or that meet the criteria for “held for sale” accounting as discontinued operations. At the time an operation qualifies for held for sale accounting, the operation is evaluated to determine whether or not the carrying value exceeds its fair value less cost to sell. Any loss as a result of carrying value in excess of fair value less cost to sell is recorded in the period the operation meets held for sale accounting. Management judgment is required to assess the criteria required to meet held for sale accounting, and estimate fair value. Changes to the operation could cause it to no longer qualify for held for sale accounting and changes to fair value or adjustments to amounts previously reported as discontinued operations could result in an increase or decrease to previously recognized losses.
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 substantially all 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,
2016
and
2015
, 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:
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|
|
2016
|
|
2015
|
|
2014
|
|
Dividend yield
|
6.09
|
%
|
|
2.92
|
%
|
|
3.13
|
%
|
|
Risk-free interest rate
|
1.35
|
%
|
|
1.69
|
%
|
|
2.13
|
%
|
|
Expected volatility
|
32
|
%
|
|
34
|
%
|
|
42
|
%
|
|
Expected life (years)
|
6.0
|
|
|
6.0
|
|
|
7.0
|
|
|
Weighted-average grant fair value (per option)
|
$
|
1.90
|
|
|
$
|
6.80
|
|
|
$
|
8.34
|
|
|
Weighted-average exercise price
|
$
|
13.14
|
|
|
$
|
27.40
|
|
|
$
|
25.69
|
|
|
Shares granted
|
1,670,400
|
|
|
776,750
|
|
|
624,200
|
|
Dividend yield was based on a historical average. 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 January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which amends ASC 350 “Intangibles—Goodwill and Other.” This update will simplify the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. This update will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carry amount exceeds the reporting unit’s fair value. The update does not modify the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The guidance in this update is applied on a prospective basis with earlier application permitted. We are currently evaluating the effect of this update on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” which amends ASC 230 “Statement of Cash Flows.” This update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the effect of this update on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting,” which amends ASC 718 “Compensation—Stock Compensation.” This update will simplify the income tax consequences, accounting for forfeitures and classification on the statements of cash flows of share-based payment arrangements. This standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with earlier application permitted. We will adopt this update in the first quarter of 2017.
In February 2016, the FASB issued ASU 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which amends ASC 740 “Income Taxes” (ASC 740). This update requires deferred income tax liabilities and assets, and any related valuation allowance, to be classified as noncurrent on the balance sheet. This update simplifies the current guidance requiring the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be applied either prospectively or retrospectively, with earlier application permitted. We adopted the provisions of ASU 2015-17 on December 31, 2015, which was applied prospectively, and, therefore, all prior periods have not been retrospectively adjusted.
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement—Period Adjustments” (ASU 2015-16), which amends ASC 805 “Business Combinations.” This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. We adopted ASU 2015-16 on January 1, 2016. This update is applied prospectively to adjustments of provisional amounts that occur after the effective date with earlier application permitted. This update did not have a material effect 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 are currently evaluating the effect of this update on our consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (ASU 2015-07) which amends ASC 820 “Fair Value Measurement.” This update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This update is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years and impacts the disclosure requirements surrounding certain assets held by our pension plans. The new guidance will be applied on a retrospective basis. We adopted ASU 2015-07 on January 1, 2016 which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and, in August 2015, the FASB issued ASU 2015-15 “Interest—Imputation of Interest,” which both amend ASC 835-30 “Interest—Imputation of Interest.” These updates require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability while debt issuance costs related to line-of-credit arrangements will continue to be presented as an asset. We adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016 which required retrospective application. As of December 31, 2015, debt issuance costs of
$31.4 million
were reclassified within our consolidated balance sheet from other assets to long-term debt and
$1.5 million
were reclassified within our consolidated balance sheet from other assets to current installments of long-term debt.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09), which amends ASC 605 “Revenue Recognition” and creates a new topic, ASC 606 “Revenue from Contracts with Customers” (ASC 606). Subsequent to the issuance of ASU 2014-09, ASC 606 was amended by various updates that amend and clarify the impact and implementation of the aforementioned standard. These updates provide guidance on how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon initial application, the provisions of these updates are required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. These updates also expand the disclosure requirements surrounding revenue recorded from contracts with customers. These updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based on the analysis conducted to date, we believe the most significant impact the updates will have will be on our accounting policies and disclosures on revenue recognition. Preliminarily, we do not expect that these updates will materially impact our consolidated financial statements and we have not yet determined the method of application we will use.
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, TDCC, Merger Sub and Spinco (collectively, the Acquisition). Pursuant to the Merger Agreement and a Separation Agreement dated March 26, 2015 between TDCC and Spinco (the Separation Agreement), prior to the Merger, (1) TDCC transferred the Acquired Business to Spinco and (2) TDCC distributed Spinco’s stock to TDCC’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 TDCC
|
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 TDCC which resulted in a payment of
$69.5 million
for the year ended December 31, 2016.
In connection with the Acquisition, TDCC 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, 2016, 2015 and 2014, we incurred costs in connection with the Merger and related transactions, including
$48.8 million
,
$76.3 million
and
$4.2 million
, respectively, of advisory, legal, accounting, integration 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, 2016 and 2015 include Epoxy sales of
$1,822.0 million
and
$429.6 million
, respectively, and segment income (loss) of
$15.4 million
and
$(7.5) million
, respectively. For the years ended December 31, 2016 and 2015, Chlor Alkali Products and Vinyls include sales of the Acquired Chlor Alkali Business of
$1,715.7 million
and
$373.0 million
, respectively, and segment income of
$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 TDCC, 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
$51.1 million
.
Based on final valuations, purchase price was allocated to intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
October 5, 2015
|
|
|
Weighted-Average Amortization Period (Years)
|
|
Gross Amount
|
|
|
|
|
($ 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, TDCC 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
10.0%
senior notes due October 15, 2025 (2025 Notes and, together with the 2023 Notes, the Notes) to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC 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 new five-year delayed-draw term loan facility of up to
$1,050.0 million
. As of the Closing Date, Spinco drew
$875.0 million
to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year
$1,850.0 million
senior credit facility consisting of a
$500.0 million
senior revolving credit facility, which replaced Olin’s
$265.0 million
senior revolving credit facility at the closing 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. This new senior credit facility will expire in 2020. The
$500.0 million
senior revolving credit facility includes a
$100.0 million
letter of credit subfacility. The term loan facility includes amortization payable in equal quarterly installments at a rate of
5.0%
per annum for the first two years, increasing to
7.5%
per annum for the following year and to
10.0%
per annum for the last two years. Under the new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the 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.
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 will mature on October 5, 2018 and will have 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 contains customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the new
$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 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 TDCC have agreed to enter into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin has made upfront payments of
$433.5 million
upon the closing of the Merger in order to receive ethylene at producer economics and for certain reservation fees for the option to obtain additional future ethylene supply at producer economics. 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, one of the options to obtain additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of
$209.4 million
in 2017, which will increase the carrying value of the long-term asset. On February 27, 2017, we exercised the remaining option to obtain additional future ethylene supply and in connection with the exercise we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between
$425.0 million
and
$465.0 million
on or about the fourth quarter of 2020, which will increase the value of the long-term asset.
In connection with the Transactions and effective October 1, 2015, we filed a Certificate of Amendment to our Articles of Incorporation to increase the number of authorized shares of Olin common stock from
120.0 million
shares to
240.0 million
shares.
Pro forma financial information
The following pro forma summary reflects consolidated results of operation as if the Acquisition had occurred on January 1, 2014 (unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2015
|
|
2014
|
|
|
($ in millions, except
per share data)
|
|
Sales
|
$
|
5,681.8
|
|
|
$
|
6,948.2
|
|
|
Net (loss) income
|
(36.6
|
)
|
|
0.8
|
|
|
Net (loss) income per common share:
|
|
|
|
|
Basic
|
$
|
(0.22
|
)
|
|
$
|
—
|
|
|
Diluted
|
$
|
(0.22
|
)
|
|
$
|
—
|
|
The pro forma financial information was prepared based on historical financial information and have 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 statements of income use 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 periods presented.
The pro forma results for the years ended December 31, 2015 and 2014 primarily include recurring adjustments for re-pricing of sales, raw materials and services to/from TDCC 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 years ended December 31, 2015 and 2014 included non-recurring adjustments of
$47.0 million
and
$4.2 million
, respectively, relating to the elimination of transaction costs incurred that are 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 year ended December 31,
2016
, we recorded pretax restructuring charges of
$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
$33 million
related to these capacity reductions. This estimate of additional restructuring charges does not include any additional charges related to a contract termination that is currently in dispute. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.
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. In the fourth quarter of 2014, we recorded pretax restructuring charges of
$10.0 million
for the write-off of equipment and facility costs, employee severance and related benefit costs and lease and other contract termination costs related to these actions. For the years ended December 31,
2016
and 2015, we recorded pretax restructuring charges of
$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. We expect to incur additional restructuring charges through 2018 of approximately
$7 million
related to the shut down of this portion of the facility.
On
December 9, 2010
, our board of directors approved a plan to eliminate our use of mercury in the manufacture of chlor alkali products. Under the plan, the
260,000
tons of mercury cell capacity at our Charleston, TN facility was converted to
200,000
tons of membrane capacity capable of producing both potassium hydroxide and caustic soda. The board of directors also approved plans to reconfigure our Augusta, GA facility to manufacture bleach and distribute caustic soda, while discontinuing chlor alkali manufacturing at this site. The completion of these projects eliminated our chlor alkali production using mercury cell technology. For the year ended December 31,
2014
, we recorded pretax restructuring charges of
$3.8 million
for employee severance and related benefit costs, employee relocation costs, facility exit costs, write-off of equipment and facility costs and lease and other contract termination costs related to these actions.
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,
2016
,
2015
and
2014
, we recorded pretax restructuring charges of
$0.8 million
,
$0.7 million
and
$1.9 million
, respectively, for employee severance and related benefit costs, employee relocation costs and facility exit costs related to these actions.
The following table summarizes the
2016
,
2015
and
2014
activities by major component of these restructuring actions and the remaining balances of accrued restructuring costs as of December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and job related benefits
|
|
Lease and other contract termination costs
|
|
Employee relocation costs
|
|
Facility exit costs
|
|
Write-off of equipment and facility
|
|
Total
|
|
|
($ in millions)
|
|
Balance January 1, 2014
|
$
|
10.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.2
|
|
|
2014 restructuring charges
|
4.5
|
|
|
4.5
|
|
|
0.5
|
|
|
2.9
|
|
|
3.3
|
|
|
15.7
|
|
|
Amounts utilized
|
(3.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
(2.9
|
)
|
|
(3.3
|
)
|
|
(10.2
|
)
|
|
Balance at December 31, 2014
|
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
|
|
The following table summarizes the cumulative restructuring charges of these 2016, 2014 and 2010 restructuring actions by major component through December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
|
Winchester
|
|
Total
|
|
|
|
Becancour
|
|
Capacity Reductions
|
|
Mercury
|
|
|
|
|
|
($ in millions)
|
|
Write-off of equipment and facility
|
|
$
|
3.5
|
|
|
$
|
76.6
|
|
|
$
|
17.8
|
|
|
$
|
—
|
|
|
$
|
97.9
|
|
|
Employee severance and job related benefits
|
|
2.7
|
|
|
5.1
|
|
|
5.6
|
|
|
13.1
|
|
|
26.5
|
|
|
Facility exit costs
|
|
1.3
|
|
|
14.7
|
|
|
15.6
|
|
|
2.3
|
|
|
33.9
|
|
|
Pension and other postretirement benefits curtailment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
4.1
|
|
|
Employee relocation costs
|
|
—
|
|
|
1.4
|
|
|
0.9
|
|
|
6.0
|
|
|
8.3
|
|
|
Lease and other contract termination costs
|
|
5.3
|
|
|
13.5
|
|
|
0.7
|
|
|
—
|
|
|
19.5
|
|
|
Total cumulative restructuring charges
|
|
$
|
12.8
|
|
|
$
|
111.3
|
|
|
$
|
40.6
|
|
|
$
|
25.5
|
|
|
$
|
190.2
|
|
As of December 31,
2016
, we have incurred cash expenditures of
$67.6 million
and non-cash charges of
$109.1 million
related to these restructuring actions. The remaining balance of
$12.7 million
is expected to be paid out through 2020.
DISCONTINUED OPERATIONS
In 2007 we sold our Metals business, which was a reportable segment, and accordingly it was reported as a discontinued operation. Metals produced and distributed copper and copper alloy sheet, strip, foil, rod, welded tube, fabricated parts, and stainless steel and aluminum strip. In conjunction with the sale of the Metals business, we retained certain assets and liabilities.
During 2014, we made a payment of
$5.5 million
to resolve certain indemnity obligations related to the sale. As a result of the favorable resolution, we recognized a pretax gain of
$4.6 million
included in income from discontinued operations. The tax provision from discontinued operations included expense of
$2.2 million
for changes in tax contingencies related to the Metals sale. Income from discontinued operations, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in millions)
|
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.6
|
|
|
Tax provision
|
—
|
|
|
—
|
|
|
3.9
|
|
|
Income from discontinued operations, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
EARNINGS PER SHARE
Basic and diluted (loss) income per share are computed by dividing net (loss) income 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,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Computation of Income (loss) per Share
|
(In millions, except per share data)
|
|
Income (loss) from continuing operations, net
|
$
|
(3.9
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
105.0
|
|
|
Income from discontinued operations, net
|
—
|
|
|
—
|
|
|
0.7
|
|
|
Net (loss) income
|
$
|
(3.9
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
105.7
|
|
|
Basic shares
|
165.2
|
|
|
103.4
|
|
|
78.6
|
|
|
Basic (loss) income per share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.33
|
|
|
Income from discontinued operations, net
|
—
|
|
|
—
|
|
|
0.01
|
|
|
Net (loss) income
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.34
|
|
|
Diluted shares:
|
|
|
|
|
|
|
Basic shares
|
165.2
|
|
|
103.4
|
|
|
78.6
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
1.1
|
|
|
Diluted shares
|
165.2
|
|
|
103.4
|
|
|
79.7
|
|
|
Diluted (loss) income per share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.32
|
|
|
Income from discontinued operations, net
|
—
|
|
|
—
|
|
|
0.01
|
|
|
Net (loss) income
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.33
|
|
The computation of dilutive shares from stock-based compensation does not include
6.5 million
,
5.2 million
and
0.6 million
shares in
2016
,
2015
and
2014
, 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 are continued to be serviced by us. As of December 31, 2016,
$282.3 million
of our trade receivables have been pledged as collateral and we had
$210.0 million
drawn
under the 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 which was amended on September 1, 2016 and, on December 22, 2016, we entered into a separate trade accounts receivable factoring arrangement (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
$242.0 million
. We will continue to service such accounts. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” (ASC 860) 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 year ended December 31, 2016 totaled
$533.6 million
. The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of operations. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2016. As of December 31, 2016,
$126.1 million
of receivables qualifying for sale treatment were outstanding and will continue to be serviced by us.
In conjunction with the Acquisition, we obtained receivables with a fair value of
$401.6 million
as of October 5, 2015. At December 31,
2016
and
2015
, our consolidated balance sheets included other receivables of
$95.6 million
and
$94.8 million
, respectively, which were classified as receivables, net.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES
Allowance for doubtful accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Beginning balance
|
$
|
6.4
|
|
|
$
|
3.0
|
|
|
Provisions charged
|
4.5
|
|
|
5.2
|
|
|
Write-offs, net of recoveries
|
(0.8
|
)
|
|
(1.8
|
)
|
|
Ending balance
|
$
|
10.1
|
|
|
$
|
6.4
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Supplies
|
$
|
58.1
|
|
|
$
|
86.5
|
|
|
Raw materials
|
72.6
|
|
|
91.5
|
|
|
Work in process
|
110.7
|
|
|
105.8
|
|
|
Finished goods
|
435.1
|
|
|
445.3
|
|
|
|
676.5
|
|
|
729.1
|
|
|
LIFO reserves
|
(46.1
|
)
|
|
(43.9
|
)
|
|
Inventories, net
|
$
|
630.4
|
|
|
$
|
685.2
|
|
In conjunction with the Acquisition, we obtained inventories with a fair value of
$456.4 million
as of October 5, 2015. Inventories valued using the LIFO method comprised
54%
and
49%
of the total inventories at December 31,
2016
and
2015
, respectively. The replacement cost of our inventories would have been approximately
$46.1 million
and
$43.9 million
higher than that reported at December 31,
2016
and
2015
, respectively. During 2014 the reduction in LIFO inventory quantities resulted in LIFO inventory liquidation losses of
$1.5 million
.
OTHER ASSETS
Included in other assets were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Investments in non-consolidated affiliates
|
$
|
26.7
|
|
|
$
|
25.0
|
|
|
Deferred debt issuance costs
|
2.6
|
|
|
3.3
|
|
|
Tax-related receivables
|
17.5
|
|
|
1.5
|
|
|
Interest rate swaps
|
7.7
|
|
|
—
|
|
|
Supply contracts
|
566.7
|
|
|
406.5
|
|
|
Other
|
23.2
|
|
|
18.3
|
|
|
Other assets
|
$
|
644.4
|
|
|
$
|
454.6
|
|
In connection with the Acquisition, Olin and TDCC have agreed to enter into arrangements for the long-term supply of ethylene by TDCC to Olin, pursuant to which, among other things, Olin has made upfront payments of
$433.5 million
upon the Closing Date in order to receive ethylene at producer economics and for certain reservation fees for the option to obtain additional future ethylene supply at producer economics. 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, one of the options to obtain additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of
$209.4 million
in 2017, which will increase the value of the long-term asset. On February 27, 2017, we exercised the remaining option to obtain additional future ethylene supply and in connection with the exercise we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between
$425.0 million
and
$465.0 million
on or about the fourth quarter of 2020, which will increase the value of the long-term asset.
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, 2016 was 21 years. For the years ended December 31, 2016 and 2015, amortization expense of
$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
$25.0 million
in 2017, 2018, 2019, 2020 and 2021 related to these long-term supply contracts. The long-term supply contracts are monitored for impairment each reporting period.
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Useful Lives
|
|
2016
|
|
2015
|
|
|
|
|
($ in millions)
|
|
Land and improvements to land
|
10-20 Years
|
|
$
|
281.2
|
|
|
$
|
280.4
|
|
|
Buildings and building equipment
|
10-30 Years
|
|
375.0
|
|
|
380.4
|
|
|
Machinery and equipment
|
3-15 Years
|
|
4,765.9
|
|
|
4,665.8
|
|
|
Leasehold improvements
|
|
|
3.4
|
|
|
2.7
|
|
|
Construction in progress
|
|
|
171.0
|
|
|
123.5
|
|
|
Property, plant and equipment
|
|
|
5,596.5
|
|
|
5,452.8
|
|
|
Accumulated depreciation
|
|
|
(1,891.6
|
)
|
|
(1,499.4
|
)
|
|
Property, plant and equipment, net
|
|
|
$
|
3,704.9
|
|
|
$
|
3,953.4
|
|
In conjunction with the Acquisition, we obtained property, plant and equipment with a fair value of
$3,079.1 million
as of October 5, 2015.
The weighted-average useful life of machinery and equipment at December 31,
2016
was
12
years. Depreciation expense was
$435.7 million
,
$198.1 million
and
$124.5 million
for
2016
,
2015
and
2014
, respectively. Interest capitalized was
$1.9 million
,
$1.1 million
and
$0.2 million
for
2016
,
2015
and
2014
, respectively. Maintenance and repairs charged to operations amounted to
$236.4 million
,
$158.5 million
and
$125.0 million
in
2016
,
2015
and
2014
, respectively.
The consolidated statements of cash flows for the years ended December 31,
2016
,
2015
and
2014
, included decreases of
$29.9 million
,
$7.4 million
and
$0.5 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,
2016
,
2015
and
2014
.
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.
During 2015, assets of
$1.4 million
were acquired under capital leases and are included in machinery and equipment as of December 31, 2015.
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 have been collected under the sale arrangement.
On February 11, 2011, we acquired PolyOne’s
50%
interest in SunBelt. With this acquisition, we agreed to a three-year earn out, which had no guaranteed minimum or maximum, based on the performance of SunBelt Chlor Alkali Partnership (SunBelt). For the year ended December 31, 2014, we paid the final payment of
$26.7 million
for the earn out related to the 2013 SunBelt performance. The earn out payment for 2014 included
$14.8 million
that was recognized as part of the original purchase price. The
$14.8 million
is included as a financing activity in the statement of cash flows.
We hold a
9.1%
limited partnership interest in Bay Gas Storage Company, Ltd. (Bay Gas), an Alabama limited partnership, in which EnergySouth, Inc. (EnergySouth) is the general partner with interest of
90.9%
. Bay Gas owns, leases and operates underground gas storage and related pipeline facilities, which are used to provide storage in the McIntosh, AL area and delivery of natural gas to EnergySouth customers.
The following table summarizes our investment in our non-consolidated equity affiliate:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Bay Gas
|
$
|
26.7
|
|
|
$
|
25.0
|
|
The following table summarizes our equity earnings of our non-consolidated affiliate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in millions)
|
|
Bay Gas
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
We did not receive any distributions from our non-consolidated affiliates in
2016
,
2015
and
2014
.
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, 2015
|
$
|
747.1
|
|
|
$
|
—
|
|
|
$
|
747.1
|
|
|
Acquisition activity
|
1,130.8
|
|
|
296.7
|
|
|
1,427.5
|
|
|
Foreign currency translation adjustment
|
(0.4
|
)
|
|
(0.1
|
)
|
|
(0.5
|
)
|
|
Balance at December 31, 2015
|
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
|
|
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. The increase in goodwill during 2015 was a result of the Acquisition and was based upon the preliminary valuation partially offset by the effects of foreign currency translation adjustments.
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
2015
|
|
|
Useful Lives
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
|
|
|
($ in millions)
|
|
Customers, customer contracts and relationships
|
(10-15 years)
|
|
$
|
667.8
|
|
|
$
|
(112.9
|
)
|
|
$
|
554.9
|
|
|
$
|
641.0
|
|
|
$
|
(64.0
|
)
|
|
$
|
577.0
|
|
|
Trade name
|
(5 years)
|
|
17.8
|
|
|
(12.7
|
)
|
|
5.1
|
|
|
17.9
|
|
|
—
|
|
|
17.9
|
|
|
Acquired technology
|
(7 years)
|
|
84.2
|
|
|
(15.0
|
)
|
|
69.2
|
|
|
84.7
|
|
|
(2.7
|
)
|
|
82.0
|
|
|
Other
|
(4-10 years)
|
|
2.3
|
|
|
(1.9
|
)
|
|
0.4
|
|
|
2.3
|
|
|
(1.7
|
)
|
|
0.6
|
|
|
Total intangible assets
|
|
|
$
|
772.1
|
|
|
$
|
(142.5
|
)
|
|
$
|
629.6
|
|
|
$
|
745.9
|
|
|
$
|
(68.4
|
)
|
|
$
|
677.5
|
|
In conjunction with the Acquisition, we obtained intangible assets with a fair value of
$612.6 million
as of October 5, 2015. In connection with the integration of the Acquired Business, in the first quarter of 2016, the K.A. Steel Chemicals Inc. (KA Steel) 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
$73.8 million
,
$25.8 million
and
$14.6 million
in
2016
,
2015
and
2014
, respectively. We estimate that amortization expense will be approximately
$62.8 million
in 2017, 2018 and 2019, approximately
$62.3 million
in 2020 and approximately
$61.4 million
in 2021. Intangible assets with finite lives are reviewed for impairment when circumstances or other events indicate that impairment may have occurred.
DEBT
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Notes payable:
|
($ in millions)
|
|
Variable-rate Senior Term Loan facility, due 2020 (2.77% and 2.17% at December 31, 2016 and 2015, respectively)
|
$
|
1,282.5
|
|
|
$
|
1,350.0
|
|
|
Variable-rate Sumitomo credit facility, due 2018 (2.27% and 1.77% at December 31, 2016 and 2015, respectively)
|
590.0
|
|
|
800.0
|
|
|
Variable-rate Recovery Zone bonds, due 2024-2035 (2.47% and 1.40% at December 31, 2016 and 2015, respectively)
|
103.0
|
|
|
103.0
|
|
|
Variable-rate Go Zone bonds, due 2024 (2.47% and 1.40% at December 31, 2016 and 2015, respectively)
|
50.0
|
|
|
50.0
|
|
|
Variable-rate Industrial development and environmental improvement obligations, due 2025 (0.25% and 0.27% at December 31, 2016 and 2015, 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
|
|
|
6.75%, due 2016
|
—
|
|
|
125.0
|
|
|
7.23%, SunBelt Notes due 2013-2017
|
12.2
|
|
|
24.4
|
|
|
Receivables financing agreement
|
210.0
|
|
|
—
|
|
|
Capital lease obligations
|
3.9
|
|
|
4.6
|
|
|
Total notes payable
|
3,674.5
|
|
|
3,879.9
|
|
|
Deferred debt issuance costs and unamortized fair value premium
|
(28.5
|
)
|
|
(32.7
|
)
|
|
Interest rate swaps
|
(28.4
|
)
|
|
1.6
|
|
|
Total debt
|
3,617.6
|
|
|
3,848.8
|
|
|
Amounts due within one year
|
80.5
|
|
|
205.0
|
|
|
Total long-term debt
|
$
|
3,537.1
|
|
|
$
|
3,643.8
|
|
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, 2016,
$282.3 million
of our trade receivables have been pledged as collateral. During 2016 we drew
$230.0 million
under the agreement and subsequently repaid
$20.0 million
. As of December 31, 2016,
$210.0 million
was drawn 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. The net
$210.0 million
proceeds were used to repay a portion of the Sumitomo Credit Facility.
On the Closing Date, Spinco issued
$720.0 million
aggregate principal 2023 Notes and
$500.0 million
aggregate principal 2025 Notes to TDCC. TDCC transferred the Notes to certain unaffiliated securityholders in satisfaction of existing debt obligations of TDCC 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 new five-year delayed-draw term loan facility of up to
$1,050.0 million
. As of the Closing Date, Spinco drew
$875.0 million
to finance the cash portion of the Cash and Debt Distribution. Also on June 23, 2015, Olin and Spinco entered into a new five-year
$1,850.0 million
senior credit facility consisting of a
$500.0 million
senior revolving credit facility, which replaced Olin’s
$265.0 million
senior revolving credit facility at the closing 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 senior credit facility. This new senior credit facility will expire in 2020. The
$500.0 million
senior revolving credit facility includes a
$100.0 million
letter of credit subfacility. At December 31,
2016
, we had
$483.4 million
available under our
$500.0 million
senior revolving credit facility because we had issued
$16.6 million
of letters of credit under the
$100.0 million
subfacility. The term loan facility includes amortization payable in equal quarterly installments at a rate of
5.0%
per annum for the first two years, increasing to
7.5%
per annum for the following year and to
10.0%
per annum for the last two years. During 2016, we repaid
$67.5 million
under the required quarterly installments of this new senior credit facility.
Under the new senior credit facility, we may select various floating rate borrowing options. The actual interest rate paid on borrowings under the senior credit facility is based on a pricing grid which is dependent upon the leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). Compliance with these covenants is determined quarterly based on the operating cash flows. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2016 and 2015, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured. 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, 2016, there were no covenants or other restrictions that limited our ability to borrow.
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 will mature on October 5, 2018 and will have 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 contains customary representations, warranties and affirmative and negative covenants which are substantially similar to those included in the new
$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.
In June 2016, we repaid
$125.0 million
of 6.75% senior notes due 2016 (2016 Notes), which became due.
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 new
$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.
In August 2014, we redeemed our
$150.0 million
2019 Notes, which would have matured on August 15, 2019. We recognized interest expense of
$9.5 million
for the call premium (
$6.7 million
), the write-off of unamortized deferred debt issuance costs (
$2.1 million
) and unamortized discount (
$0.7 million
) related to this action during 2014. 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 and 2014, we repaid
$2.8 million
and
$0.9 million
, respectively, 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 new 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.
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 is 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
2016
,
2015
and
2014
,
$12.2 million
was repaid on these SunBelt Notes.
We have guaranteed the Series O Notes, and PolyOne, our former SunBelt partner, has guaranteed the Series G Notes, in both cases pursuant to customary guaranty agreements. We have agreed to indemnify PolyOne for any payments or other costs under the guarantee in favor of the purchasers of the Series G Notes, to the extent any payments or other costs arise from a default or other breach under the SunBelt Notes. If SunBelt does not make timely payments on the SunBelt Notes, whether as a result of a failure to pay on a guarantee or otherwise, the holders of the SunBelt Notes may proceed against the assets of SunBelt for repayment.
During 2015, assets of
$1.4 million
were acquired under capital leases with terms between 6 years and 7 years.
At December 31,
2016
, we had total letters of credit of
$73.3 million
outstanding, of which
$16.6 million
were issued under our
$500.0 million
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
$80.3 million
in
2017
,
$691.9 million
in
2018
,
$345.7 million
in
2019
,
$980.3 million
in
2020
,
$0.2 million
in
2021
and a total of
$1,576.1 million
thereafter.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
, and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017, and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo Bank, N.A. (Wells Fargo), PNC Bank, National Association, and Toronto-Dominion Bank. These 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
$9.6 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. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In April 2016, we entered into interest rate swaps on
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are Toronto-Dominion Bank and SMBC Capital Markets, Inc., both of which are major financial institutions.
In October 2016, we entered into interest rate swaps on an additional
$250.0 million
of our underlying fixed-rate debt obligations, whereby we agreed to pay variable rates to the counterparties who, in turn, pay us fixed rates. The counterparties to these agreements are PNC Bank, National Association and Wells Fargo, both of which are major financial institutions.
We have designated the April 2016 and October 2016 interest rate swap agreements as fair value hedges of the risk of changes in the value of fixed rate debt due to changes in interest rates for a portion of our fixed rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$28.5 million
and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended December 31, 2016,
$2.6 million
of income has been recorded to interest expense on the accompanying consolidated statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In June 2012, we terminated
$73.1 million
of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of
$2.2 million
which will be recognized through 2017. As of December 31,
2016
,
$0.1 million
of this gain was included in current installments of long-term debt.
Our loss in the event of nonperformance by these counterparties could be significant to our financial position and results of operations. These interest rate swaps reduced interest expense by
$3.7 million
,
$2.8 million
and
2.9 million
in 2016, 2015
and 2014, respectively. The difference between interest paid and interest received is included as an adjustment to interest expense.
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 defined benefit pension plans under a flat-benefit formula. Our funding policy for the 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 statutory practices.
Our domestic 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).
Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date, 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.
During the fourth quarter of 2014, the Society of Actuaries (SOA) issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the U.S. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) became law. The law changed the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation, and potentially reducing or eliminating the minimum annual funding requirement. The law also increased premiums paid to the PBGC. During the third quarter of 2014, the “Highway and Transportation Funding Act” (HATFA 2014) became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief.
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
2017
.
We have international qualified defined benefit pension plans to which we made cash contributions of
$1.3 million
and
$0.9 million
in
2016
and
2015
, respectively, and we anticipate less than
$5 million
of cash contributions to international qualified defined benefit pension plans in
2017
.
As of the Closing Date and as part of the Acquisition, our domestic qualified defined benefit pension plan assumed certain domestic qualified defined benefit pension obligations and assets related to active employees and certain terminated, vested retirees of the Acquired Business with a net liability of
$281.7 million
. In connection therewith, pension assets were transferred from TDCC’s domestic qualified defined benefit pension plans to our domestic qualified defined benefit pension plan. Immediately prior to the Acquisition, the Acquired Business’s participant accounts assumed in the Acquisition were closed to new participants and were no longer accruing additional benefits.
Also as of the Closing Date, we assumed certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany, Switzerland and other international locations who transferred to Olin in connection with the Acquisition. The net liability assumed as of the Closing Date was
$160.6 million
.
Pension Obligations and Funded Status
Changes in the benefit obligation and plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
Change in Benefit Obligation
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Benefit obligation at beginning of year
|
$
|
2,458.5
|
|
|
$
|
227.4
|
|
|
$
|
2,685.9
|
|
|
$
|
2,116.5
|
|
|
$
|
66.3
|
|
|
$
|
2,182.8
|
|
|
Service cost
|
1.3
|
|
|
7.6
|
|
|
8.9
|
|
|
2.1
|
|
|
2.2
|
|
|
4.3
|
|
|
Interest cost
|
82.4
|
|
|
5.3
|
|
|
87.7
|
|
|
80.2
|
|
|
3.1
|
|
|
83.3
|
|
|
Actuarial (gain) loss
|
88.7
|
|
|
20.4
|
|
|
109.1
|
|
|
(45.8
|
)
|
|
1.8
|
|
|
(44.0
|
)
|
|
Benefits paid
|
(132.2
|
)
|
|
(3.4
|
)
|
|
(135.6
|
)
|
|
(205.6
|
)
|
|
(2.8
|
)
|
|
(208.4
|
)
|
|
Curtailments/settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
12.6
|
|
|
0.1
|
|
|
12.7
|
|
|
Plan participant’s contributions
|
—
|
|
|
0.9
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Plan amendments
|
—
|
|
|
(1.2
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Business combination
|
(32.5
|
)
|
|
—
|
|
|
(32.5
|
)
|
|
498.5
|
|
|
171.4
|
|
|
669.9
|
|
|
Currency translation adjustments
|
—
|
|
|
(6.0
|
)
|
|
(6.0
|
)
|
|
—
|
|
|
(14.7
|
)
|
|
(14.7
|
)
|
|
Benefit obligation at end of year
|
$
|
2,466.2
|
|
|
$
|
251.0
|
|
|
$
|
2,717.2
|
|
|
$
|
2,458.5
|
|
|
$
|
227.4
|
|
|
$
|
2,685.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ 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
|
$
|
1,974.0
|
|
|
$
|
62.5
|
|
|
$
|
2,036.5
|
|
|
$
|
1,915.4
|
|
|
$
|
63.3
|
|
|
$
|
1,978.7
|
|
|
Actual return on plans’ assets
|
191.5
|
|
|
3.5
|
|
|
195.0
|
|
|
(25.4
|
)
|
|
0.4
|
|
|
(25.0
|
)
|
|
Employer contributions
|
6.4
|
|
|
2.0
|
|
|
8.4
|
|
|
77.6
|
|
|
1.0
|
|
|
78.6
|
|
|
Benefits paid
|
(132.2
|
)
|
|
(3.4
|
)
|
|
(135.6
|
)
|
|
(205.6
|
)
|
|
(2.8
|
)
|
|
(208.4
|
)
|
|
Business combination
|
(27.7
|
)
|
|
—
|
|
|
(27.7
|
)
|
|
212.0
|
|
|
10.8
|
|
|
222.8
|
|
|
Currency translation adjustments
|
—
|
|
|
1.9
|
|
|
1.9
|
|
|
—
|
|
|
(10.2
|
)
|
|
(10.2
|
)
|
|
Fair value of plans’ assets at end of year
|
$
|
2,012.0
|
|
|
$
|
66.5
|
|
|
$
|
2,078.5
|
|
|
$
|
1,974.0
|
|
|
$
|
62.5
|
|
|
$
|
2,036.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
Funded Status
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Qualified plans
|
$
|
(450.6
|
)
|
|
$
|
(182.6
|
)
|
|
$
|
(633.2
|
)
|
|
$
|
(480.8
|
)
|
|
$
|
(163.5
|
)
|
|
$
|
(644.3
|
)
|
|
Non-qualified plans
|
(3.6
|
)
|
|
(1.9
|
)
|
|
(5.5
|
)
|
|
(3.7
|
)
|
|
(1.4
|
)
|
|
(5.1
|
)
|
|
Total funded status
|
$
|
(454.2
|
)
|
|
$
|
(184.5
|
)
|
|
$
|
(638.7
|
)
|
|
$
|
(484.5
|
)
|
|
$
|
(164.9
|
)
|
|
$
|
(649.4
|
)
|
Under ASC 715 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
. In
2015
, we recorded a
$78.8 million
after-tax charge (
$125.4 million
pretax) to shareholders’ equity as of
December 31, 2015
for our pension plans. This charge reflected unfavorable performance on plan assets during 2015 partially offset by 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 domestic pension plans’ discount rate. The
$44.0 million
actuarial gain for
2015
was primarily due to a
50
-basis point increase in the plans’ discount
rate. The
$12.7 million
curtailments/settlements for
2015
was primarily due to the change in control which created a mandatory acceleration of payments under the domestic non-qualified pension plan as a result of the Acquisition.
Amounts recognized in the consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Accrued benefit in current liabilities
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.5
|
)
|
|
Accrued benefit in noncurrent liabilities
|
(453.8
|
)
|
|
(184.3
|
)
|
|
(638.1
|
)
|
|
(484.1
|
)
|
|
(164.8
|
)
|
|
(648.9
|
)
|
|
Accumulated other comprehensive loss
|
743.1
|
|
|
43.5
|
|
|
786.6
|
|
|
714.2
|
|
|
26.6
|
|
|
740.8
|
|
|
Net balance sheet impact
|
$
|
288.9
|
|
|
$
|
(141.0
|
)
|
|
$
|
147.9
|
|
|
$
|
229.7
|
|
|
$
|
(138.3
|
)
|
|
$
|
91.4
|
|
At December 31,
2016
and
2015
, the benefit obligation of non-qualified pension plans was
$5.5 million
and
$5.1 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:
2017
—
$0.6 million
;
2018
—
$0.5 million
;
2019
—
$0.6 million
;
2020
—
$0.6 million
; and
2021
—
$0.3 million
. Benefit payments for the qualified plans are projected to be as follows:
2017
—
$135.5 million
;
2018
—
$136.8 million
;
2019
—
$136.9 million
;
2020
—
$137.7 million
; and
2021
—
$136.5 million
.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Projected benefit obligation
|
$
|
2,717.2
|
|
|
$
|
2,685.9
|
|
|
Accumulated benefit obligation
|
2,685.7
|
|
|
2,655.0
|
|
|
Fair value of plan assets
|
2,078.5
|
|
|
2,036.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Components of Net Periodic Benefit Costs (Income)
|
($ in millions)
|
|
Service cost
|
$
|
12.3
|
|
|
$
|
7.8
|
|
|
$
|
5.3
|
|
|
Interest cost
|
87.7
|
|
|
83.3
|
|
|
86.5
|
|
|
Expected return on plans’ assets
|
(157.8
|
)
|
|
(147.4
|
)
|
|
(139.5
|
)
|
|
Amortization of prior service cost
|
—
|
|
|
1.6
|
|
|
2.2
|
|
|
Recognized actuarial loss
|
20.7
|
|
|
26.2
|
|
|
20.3
|
|
|
Curtailments/settlements
|
—
|
|
|
47.2
|
|
|
0.2
|
|
|
Net periodic benefit costs (income)
|
$
|
(37.1
|
)
|
|
$
|
18.7
|
|
|
$
|
(25.0
|
)
|
|
|
|
|
|
|
|
|
Included in Other Comprehensive Loss (Pretax)
|
|
|
|
|
|
|
Liability adjustment
|
$
|
66.1
|
|
|
$
|
125.4
|
|
|
$
|
138.9
|
|
|
Amortization of prior service costs and actuarial losses
|
(20.7
|
)
|
|
(62.4
|
)
|
|
(22.7
|
)
|
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. These charges were included in acquisition-related costs. Also, for the years ended December 31, 2015 and 2014, we recorded a curtailment charge of
$0.1
million and
$0.2 million
, respectively, associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. These charges were 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
2017
will be approximately
$27 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
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount rate—periodic benefit cost
|
4.4%(1)
|
|
|
3.9
|
%
|
|
4.5
|
%
|
|
2.7
|
%
|
|
2.8
|
%
|
|
4.8
|
%
|
|
Expected return on assets
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
6.0
|
%
|
|
6.0
|
%
|
|
7.50
|
%
|
|
Rate of compensation increase
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.5
|
%
|
|
Discount rate—benefit obligation
|
4.1
|
%
|
|
4.4
|
%
|
|
3.9
|
%
|
|
2.3
|
%
|
|
2.7
|
%
|
|
3.9
|
%
|
(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
3.5%
and the discount rate used to determine service costs of
4.6%
.
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
7.0%
for the last 5 years,
9.1%
for the last 10 years and
9.0%
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 allocation at December 31,
2016
and
2015
by asset class was as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
Asset Class
|
2016
|
|
2015
|
|
U.S. equities
|
19
|
%
|
|
4
|
%
|
|
Non-U.S. equities
|
15
|
%
|
|
6
|
%
|
|
Fixed income/cash
|
35
|
%
|
|
47
|
%
|
|
Acquisition plan receivable
|
—
|
%
|
|
10
|
%
|
|
Alternative investments
|
20
|
%
|
|
19
|
%
|
|
Absolute return strategies
|
11
|
%
|
|
14
|
%
|
|
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,
2016
, the following target allocation and ranges have been set for each asset class:
|
|
|
|
|
|
|
|
|
Asset Class
|
Target Allocation
|
|
Target Range
|
|
U.S. equities
|
27
|
%
|
|
19-35
|
|
Non-U.S. equities
|
18
|
%
|
|
4-35
|
|
Fixed income/cash
|
29
|
%
|
|
20-80
|
|
Alternative investments
|
6
|
%
|
|
0-32
|
|
Absolute return strategies
|
20
|
%
|
|
10-30
|
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,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
Investments Measured at NAV
(1)
|
|
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
|
|
The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31,
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
Investments Measured at NAV
(1)
|
|
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
|
$
|
43.2
|
|
|
$
|
36.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79.6
|
|
|
Non-U.S. equities
|
118.2
|
|
|
0.8
|
|
|
3.7
|
|
|
—
|
|
|
122.7
|
|
|
Acquisition plan receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
212.0
|
|
|
212.0
|
|
|
Fixed income/cash
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
—
|
|
|
60.1
|
|
|
—
|
|
|
—
|
|
|
60.1
|
|
|
Government treasuries
|
41.7
|
|
|
—
|
|
|
385.9
|
|
|
—
|
|
|
427.6
|
|
|
Corporate debt instruments
|
52.8
|
|
|
0.3
|
|
|
261.1
|
|
|
—
|
|
|
314.2
|
|
|
Asset-backed securities
|
118.6
|
|
|
—
|
|
|
37.0
|
|
|
—
|
|
|
155.6
|
|
|
Alternative investments
|
|
|
|
|
|
|
|
|
|
|
|
Hedge fund of funds
|
335.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
335.6
|
|
|
Real estate funds
|
27.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27.4
|
|
|
Private equity funds
|
18.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18.4
|
|
|
Absolute return strategies
|
283.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
283.3
|
|
|
Total assets
|
$
|
1,039.2
|
|
|
$
|
97.6
|
|
|
$
|
687.7
|
|
|
$
|
212.0
|
|
|
$
|
2,036.5
|
|
|
|
|
|
(1)
|
Investments measured at net asset value (NAV) as a practical expedient reflect the adoption of ASU 2015-07, which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted.
|
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 will be transferred from TDCC’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. As of December 31, 2015, this amount was subject to certain post-closing adjustments. During 2016, assets of
$184.3 million
were transferred from TDCC’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
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31,
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Realized
Gain/(Loss)
|
|
Unrealized Gain/(Loss) Relating to Assets Held at Period End
|
|
Purchases, Sales, Settlements, and Other
|
|
Transfers
In/(Out)
|
|
December 31, 2015
|
|
|
($ 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, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
Change in Benefit Obligation
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Benefit obligation at beginning of year
|
$
|
53.9
|
|
|
$
|
8.1
|
|
|
$
|
62.0
|
|
|
$
|
58.5
|
|
|
$
|
8.7
|
|
|
$
|
67.2
|
|
|
Service cost
|
0.8
|
|
|
0.4
|
|
|
1.2
|
|
|
1.1
|
|
|
0.1
|
|
|
1.2
|
|
|
Interest cost
|
1.2
|
|
|
0.4
|
|
|
1.6
|
|
|
2.0
|
|
|
0.3
|
|
|
2.3
|
|
|
Actuarial loss (gain)
|
(5.1
|
)
|
|
—
|
|
|
(5.1
|
)
|
|
(0.7
|
)
|
|
0.7
|
|
|
—
|
|
|
Benefits paid
|
(7.2
|
)
|
|
(0.4
|
)
|
|
(7.6
|
)
|
|
(7.0
|
)
|
|
(0.3
|
)
|
|
(7.3
|
)
|
|
Currency translation adjustments
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
(1.5
|
)
|
|
(1.5
|
)
|
|
Curtailment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Benefit obligation at end of year
|
$
|
43.6
|
|
|
$
|
8.6
|
|
|
$
|
52.2
|
|
|
$
|
53.9
|
|
|
$
|
8.1
|
|
|
$
|
62.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Funded status
|
$
|
(43.6
|
)
|
|
$
|
(8.6
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
(53.9
|
)
|
|
$
|
(8.1
|
)
|
|
$
|
(62.0
|
)
|
Under ASC 715 we recorded a
$3.2 million
after-tax benefit (
$5.1 million
pretax) to shareholders’ equity as of December 31,
2016
for our other postretirement plans. In
2015
, we recorded an after-tax benefit of less than
$0.1 million
(
$0.1 million
pretax) to shareholders’ equity as of December 31,
2015
for our other postretirement plans.
Amounts recognized in the consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
($ in millions)
|
|
($ in millions)
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Accrued benefit in current liabilities
|
$
|
(4.8
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(5.3
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(5.6
|
)
|
|
Accrued benefit in noncurrent liabilities
|
(38.8
|
)
|
|
(8.3
|
)
|
|
(47.1
|
)
|
|
(48.6
|
)
|
|
(7.8
|
)
|
|
(56.4
|
)
|
|
Accumulated other comprehensive loss
|
24.8
|
|
|
0.3
|
|
|
25.1
|
|
|
29.7
|
|
|
0.2
|
|
|
29.9
|
|
|
Net balance sheet impact
|
$
|
(18.8
|
)
|
|
$
|
(8.3
|
)
|
|
$
|
(27.1
|
)
|
|
$
|
(24.2
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Components of Net Periodic Benefit Cost
|
($ in millions)
|
|
Service cost
|
$
|
1.2
|
|
|
$
|
1.2
|
|
|
$
|
1.1
|
|
|
Interest cost
|
1.6
|
|
|
2.3
|
|
|
2.7
|
|
|
Amortization of prior service cost
|
(2.6
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Recognized actuarial loss
|
2.3
|
|
|
3.1
|
|
|
2.9
|
|
|
Curtailment
|
—
|
|
|
0.1
|
|
|
—
|
|
|
Net periodic benefit cost
|
$
|
2.5
|
|
|
$
|
6.7
|
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
Included in Other Comprehensive Loss (Pretax)
|
|
|
|
|
|
|
Liability adjustment
|
$
|
(5.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
3.1
|
|
|
Amortization of prior service costs and actuarial losses
|
0.3
|
|
|
(3.2
|
)
|
|
(2.8
|
)
|
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
2017
will be approximately
$3 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
|
2016
|
|
2015
|
|
2014
|
|
Discount rate—periodic benefit cost
|
4.1
|
%
|
|
3.7
|
%
|
|
4.3
|
%
|
|
Discount rate—benefit obligation
|
3.8
|
%
|
|
4.1
|
%
|
|
3.7
|
%
|
The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least
$250 million
par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio is used as the discount rate.
We review external data and our own internal trends for healthcare costs to determine the healthcare cost for the post retirement benefit obligation. The assumed healthcare cost trend rates for pre-65 retirees were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Healthcare cost trend rate assumed for next year
|
8.0
|
%
|
|
8.5
|
%
|
|
Rate that the cost trend rate gradually declines to
|
5.0
|
%
|
|
5.0
|
%
|
|
Year that the rate reaches the ultimate rate
|
2022
|
|
|
2022
|
|
For post-65 retirees, we provide a fixed dollar benefit, which is not subject to escalation.
Assumed healthcare cost trend rates have an effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Percentage
Point Increase
|
|
One-Percentage
Point Decrease
|
|
|
($ in millions)
|
|
Effect on total of service and interest costs
|
$
|
0.6
|
|
|
$
|
(0.4
|
)
|
|
Effect on postretirement benefit obligation
|
2.1
|
|
|
(1.8
|
)
|
We expect to make payments of approximately
$5 million
for each of the next five years under the provisions of our other postretirement benefit plans.
INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Components of Income (Loss) from Continuing Operations Before Taxes
|
($ in millions)
|
|
Domestic
|
$
|
(23.3
|
)
|
|
$
|
(66.9
|
)
|
|
$
|
164.4
|
|
|
Foreign
|
(10.9
|
)
|
|
73.6
|
|
|
(1.7
|
)
|
|
Income (loss) from continuing operations before taxes
|
$
|
(34.2
|
)
|
|
$
|
6.7
|
|
|
$
|
162.7
|
|
|
Components of Income Tax (Benefit) Provision
|
|
|
|
|
|
|
Current expense (benefit):
|
|
|
|
|
|
|
Federal
|
$
|
(11.6
|
)
|
|
$
|
(16.6
|
)
|
|
$
|
25.9
|
|
|
State
|
0.9
|
|
|
1.2
|
|
|
1.3
|
|
|
Foreign
|
15.7
|
|
|
14.4
|
|
|
5.3
|
|
|
|
5.0
|
|
|
(1.0
|
)
|
|
32.5
|
|
|
Deferred (benefit) expense:
|
|
|
|
|
|
|
Federal
|
$
|
(10.1
|
)
|
|
$
|
8.9
|
|
|
$
|
26.9
|
|
|
State
|
(5.1
|
)
|
|
(2.4
|
)
|
|
3.0
|
|
|
Foreign
|
(20.1
|
)
|
|
2.6
|
|
|
(4.7
|
)
|
|
|
(35.3
|
)
|
|
9.1
|
|
|
25.2
|
|
|
Income tax (benefit) provision
|
$
|
(30.3
|
)
|
|
$
|
8.1
|
|
|
$
|
57.7
|
|
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) from continuing operations before taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
Effective Tax Rate Reconciliation (Percent)
|
2016
|
|
2015
|
|
2014
|
|
Statutory federal tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
State income taxes, net
|
8.0
|
|
|
(38.2
|
)
|
|
2.4
|
|
|
Foreign rate differential
|
(25.1
|
)
|
|
(129.8
|
)
|
|
0.4
|
|
|
U.S. tax on foreign earnings
|
24.4
|
|
|
128.6
|
|
|
(0.6
|
)
|
|
Domestic manufacturing/export tax incentive
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
Salt depletion
|
45.4
|
|
|
(38.8
|
)
|
|
(0.5
|
)
|
|
Non-deductible transaction costs
|
—
|
|
|
133.1
|
|
|
—
|
|
|
Change in valuation allowance
|
(0.7
|
)
|
|
27.9
|
|
|
1.1
|
|
|
Remeasurement of deferred taxes
|
9.4
|
|
|
7.6
|
|
|
0.4
|
|
|
Change in tax contingencies
|
(9.7
|
)
|
|
5.0
|
|
|
(0.3
|
)
|
|
Dividends paid to CEOP
|
2.8
|
|
|
(11.1
|
)
|
|
(0.5
|
)
|
|
Return to provision
|
5.3
|
|
|
(4.2
|
)
|
|
(0.7
|
)
|
|
Research tax credit
|
0.6
|
|
|
(3.1
|
)
|
|
—
|
|
|
Other, net
|
(6.8
|
)
|
|
8.9
|
|
|
0.6
|
|
|
Effective tax rate
|
88.6
|
%
|
|
120.9
|
%
|
|
35.5
|
%
|
The effective tax rate from continuing operations for 2016 included a benefit of
$4.8 million
associated with return to provision adjustments for the finalization of our prior years’ U.S. federal and state income tax returns. The return to provision adjustment for 2016 included
$14.9 million
of benefit primarily associated with a change in estimate related to the calculation of salt depletion and
$9.7 million
of expense associated with the correction of an immaterial error related to non-deductible acquisition costs. The effective tax rate from continuing operations for 2016 also included an expense of
$4.1 million
related to changes in uncertain tax positions for prior tax years and a benefit of
$3.2 million
related to the remeasurement of deferred taxes due to a decrease in our state effective tax rates. The effective tax rate from continuing operations for 2015 included
$8.9 million
of expense associated with certain transaction costs related to the Acquisition that are not deductible for U.S. tax purposes partially offset by
$2.6 million
of benefit associated with salt depletion deductions. The effective tax rate from continuing operations for 2014 included
$1.2 million
of benefit associated with return to provision adjustments for the
finalization of our 2013 U.S. federal and state income tax returns and
$0.7 million
of benefit associated with the expiration of the statutes of limitations in federal and state jurisdictions. These items were partially offset by
$0.8 million
of expense associated with increases in valuation allowances on certain state tax credit balances, primarily due to a change in state tax law, and
$0.6 million
of expense related to the remeasurement of deferred taxes due to an increase in state effective tax rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Components of Deferred Tax Assets and Liabilities
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Deferred tax assets:
|
|
|
Pension and postretirement benefits
|
$
|
226.1
|
|
|
$
|
235.2
|
|
|
Environmental reserves
|
54.5
|
|
|
55.3
|
|
|
Asset retirement obligations
|
22.0
|
|
|
21.0
|
|
|
Accrued liabilities
|
53.0
|
|
|
53.7
|
|
|
Tax credits
|
13.2
|
|
|
23.3
|
|
|
Net operating losses
|
105.3
|
|
|
40.1
|
|
|
Capital loss carryforward
|
2.8
|
|
|
4.7
|
|
|
Other miscellaneous items
|
—
|
|
|
18.5
|
|
|
Total deferred tax assets
|
476.9
|
|
|
451.8
|
|
|
Valuation allowance
|
(29.0
|
)
|
|
(29.3
|
)
|
|
Net deferred tax assets
|
447.9
|
|
|
422.5
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
875.5
|
|
|
875.6
|
|
|
Intangible amortization
|
137.3
|
|
|
138.4
|
|
|
Inventory and prepaids
|
13.6
|
|
|
11.6
|
|
|
Partnerships
|
106.3
|
|
|
101.4
|
|
|
Taxes on unremitted earnings
|
223.6
|
|
|
294.8
|
|
|
Other miscellaneous items
|
4.6
|
|
|
—
|
|
|
Total deferred tax liabilities
|
1,360.9
|
|
|
1,421.8
|
|
|
Net deferred tax liability
|
$
|
(913.0
|
)
|
|
$
|
(999.3
|
)
|
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,
2016
, we had a U.S. net operating loss carryforward (NOL) of approximately
$198.0 million
(representing
$69.3 million
of deferred tax assets) that will expire in years 2017 through 2036, if not utilized. The utilization of
$2.5 million
of the deferred tax assets are limited under Section 382 of the U.S. Internal Revenue Code to $1.0 million in 2017 and
$0.5 million
in 2018 through 2020.
At December 31,
2016
, we had deferred state tax benefits of
$13.2 million
relating to state NOLs, which are available to offset future state taxable income through 2036.
At December 31,
2016
, we had deferred state tax benefits of
$12.9 million
relating to state tax credits, which are available to offset future state tax liabilities through 2031.
At December 31,
2016
, we had a capital loss carryforward of
$7.3 million
(representing
$2.8 million
of deferred tax assets) which are available to offset future consolidated capital gains that will expire in years 2018 through 2021, if not utilized.
At December 31,
2016
, we had a NOL of approximately
$89.0 million
(representing
$22.8 million
of deferred tax assets) in various foreign jurisdictions. Of these,
$21.6 million
(representing
$5.4 million
of deferred tax assets) expire in various years from 2020 to 2026. The remaining
$67.4 million
(representing
$17.4 million
of deferred tax assets) do not expire.
The activity of our deferred income tax valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Beginning balance
|
$
|
29.3
|
|
|
$
|
16.6
|
|
|
Charged to income tax provision
|
8.4
|
|
|
1.8
|
|
|
Acquisition activity
|
(4.3
|
)
|
|
12.3
|
|
|
Deductions from reserves - credited to income tax provision
|
(4.4
|
)
|
|
(1.4
|
)
|
|
Ending balance
|
$
|
29.0
|
|
|
$
|
29.3
|
|
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 from continuing operations, if recognized. As of December 31,
2015
, we had
$35.1 million
of gross unrecognized tax benefits, which would have a net
$33.5 million
impact on the effective tax rate from continuing operations, if recognized. The change for
2016
primarily relates to additional gross unrecognized benefits for prior year tax positions, as well as the settlement of ongoing audits. The change for
2015
primarily relates to additional gross unrecognized benefits for prior year tax positions, as well as the settlement of ongoing audits. The amounts of unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Beginning balance
|
$
|
35.1
|
|
|
$
|
36.1
|
|
|
Increase for current year tax positions
|
1.7
|
|
|
—
|
|
|
Increase for prior year tax positions
|
5.8
|
|
|
0.2
|
|
|
Reductions due to statute of limitations
|
(0.3
|
)
|
|
—
|
|
|
Decrease for prior year tax positions
|
(1.8
|
)
|
|
—
|
|
|
Decrease due to tax settlements
|
(2.1
|
)
|
|
(1.2
|
)
|
|
Ending balance
|
$
|
38.4
|
|
|
$
|
35.1
|
|
Income from discontinued operations, net for the year ended December 31, 2014 included
$2.2 million
of tax expense related to changes in tax contingencies.
We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision. As of December 31,
2016
and
2015
, interest and penalties accrued were
$3.0 million
and
$3.4 million
, respectively. For
2016
,
2015
and
2014
, we recorded (benefit) expense related to interest and penalties of
$(0.4) million
,
$0.2 million
and
$0.4 million
, respectively.
As of December 31,
2016
, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately
$12.3 million
over the next twelve months. The anticipated reduction primarily relates to settlements with tax authorities and the expiration of federal, state and foreign statutes of limitation.
We operate globally and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. Our U.S. federal income tax returns are under examination by the Internal Revenue Service (IRS) for tax years 2008 and 2010 to 2012. In connection with the Acquisition, TDCC retained liabilities relating to taxes to the extent arising prior to the Closing Date. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:
|
|
|
|
|
|
|
Tax Years
|
|
U.S. federal income tax
|
2008; 2010 - 2015
|
|
U.S. state income tax
|
2006 - 2015
|
|
Canadian federal income tax
|
2012 - 2015
|
|
Brazil
|
2014 - 2015
|
|
Germany
|
2015
|
|
China
|
2014 - 2015
|
|
The Netherlands
|
2014 - 2015
|
|
South Korea
|
2014 - 2015
|
ACCRUED LIABILITIES
Included in accrued liabilities were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Acquisition-related accruals
|
$
|
—
|
|
|
$
|
90.2
|
|
|
Accrued compensation and payroll taxes
|
77.8
|
|
|
53.4
|
|
|
Tax-related accruals
|
40.9
|
|
|
29.5
|
|
|
Accrued interest
|
30.7
|
|
|
35.0
|
|
|
Legal and professional costs
|
21.2
|
|
|
32.0
|
|
|
Accrued employee benefits
|
21.2
|
|
|
24.4
|
|
|
Environmental (current portion only)
|
17.0
|
|
|
19.0
|
|
|
Asset retirement obligation (current portion only)
|
12.6
|
|
|
7.3
|
|
|
Other
|
42.4
|
|
|
37.3
|
|
|
Accrued liabilities
|
$
|
263.8
|
|
|
$
|
328.1
|
|
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
$28.2 million
,
$18.1 million
and
$16.1 million
for
2016
,
2015
and
2014
, respectively. The increase in defined contribution plan expense 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
$11.2 million
,
$6.9 million
and
$5.7 million
in
2016
,
2015
and
2014
, respectively.
Employees generally become vested in the value of the contributions we make to the CEOP according to a schedule based on service. After
two
years of service, participants are
25%
vested. They vest in increments of
25%
for each additional year and after
five
years of service, they are
100%
vested in the value of the contributions that we have made to their accounts.
Employees may transfer any or all of the value of the investments, including Olin common stock, to any one or combination of investments available in the CEOP. Employees may transfer balances daily and may elect to transfer any percentage of the balance in the fund from which the transfer is made. However, when transferring out of a fund, employees are prohibited from trading out of the fund to which the transfer was made for
seven
calendar days. This limitation does not apply to trades into the money market fund or the Olin Common Stock Fund.
STOCK-BASED COMPENSATION
Stock-based compensation expense was allocated to the operating segments for the portion related to employees whose compensation would be included in cost of goods sold with the remainder recognized in corporate/other. There were no significant capitalized stock-based compensation costs. Stock-based compensation granted includes stock options, performance stock awards, restricted stock awards and deferred directors’ compensation. Stock-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in millions)
|
|
Stock-based compensation
|
$
|
11.2
|
|
|
$
|
11.5
|
|
|
$
|
9.2
|
|
|
Mark-to-market adjustments
|
3.0
|
|
|
(3.0
|
)
|
|
(3.6
|
)
|
|
Total expense
|
$
|
14.2
|
|
|
$
|
8.5
|
|
|
$
|
5.6
|
|
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
2016
,
2015
and
2014
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, 2016
|
4,720,105
|
|
|
$14.28-27.65
|
|
|
$
|
21.29
|
|
|
3,371,449
|
|
|
$
|
19.28
|
|
|
Granted
|
1,670,400
|
|
|
13.14
|
|
|
13.14
|
|
|
|
|
|
|
Exercised
|
(267,082
|
)
|
|
14.28-23.28
|
|
|
16.48
|
|
|
|
|
|
|
Canceled
|
(388,683
|
)
|
|
13.14-25.57
|
|
|
19.77
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
5,734,740
|
|
|
$13.14-27.65
|
|
|
$
|
19.25
|
|
|
3,407,300
|
|
|
$
|
20.56
|
|
At December 31,
2016
, the average exercise period for all outstanding and exercisable options was
75
months and
54
months, respectively. At December 31,
2016
, the aggregate intrinsic value (the difference between the exercise price and market value) for outstanding options was
$39.1 million
and exercisable options was
$18.4 million
. The total intrinsic value of options exercised during the years ended December 31,
2016
,
2015
and
2014
was
$2.1 million
,
$1.3 million
and
$3.9 million
, respectively.
The total unrecognized compensation cost related to unvested stock options at December 31,
2016
was
$4.1 million
and was expected to be recognized over a weighted-average period of
1.3
years.
The following table provides certain information with respect to stock options exercisable at December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise Prices
|
|
Options
Exercisable
|
|
Weighted-Average
Exercise Price
|
|
Options
Outstanding
|
|
Weighted-Average
Exercise Price
|
|
Under $16.00
|
|
897,129
|
|
|
$
|
15.06
|
|
|
2,518,379
|
|
|
$
|
13.82
|
|
|
$16.00 – $22.00
|
|
1,286,916
|
|
|
20.25
|
|
|
1,286,916
|
|
|
20.25
|
|
|
Over $22.00
|
|
1,223,255
|
|
|
24.92
|
|
|
1,929,445
|
|
|
25.66
|
|
|
|
|
3,407,300
|
|
|
|
|
5,734,740
|
|
|
|
At December 31,
2016
, 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
|
245,486
|
|
|
97,444
|
|
|
2003 long term incentive plan
|
365,005
|
|
|
235,305
|
|
|
2006 long term incentive plan
|
1,360,312
|
|
|
87,116
|
|
|
2009 long term incentive plan
|
2,660,662
|
|
|
122,710
|
|
|
2014 long term incentive plan
|
3,000,000
|
|
|
244,975
|
|
|
2016 long term incentive plan
|
6,000,000
|
|
|
6,000,000
|
|
|
Total under stock option plans
|
13,631,465
|
|
|
6,787,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Stock Purchase Plans
|
Reserved for Issuance
|
|
Available for
Grant or Purchase
|
|
1997 stock plan for non-employee directors
|
553,402
|
|
|
460,663
|
|
|
Employee deferral plan
|
45,627
|
|
|
45,623
|
|
|
Total under stock purchase plans
|
599,029
|
|
|
506,286
|
|
|
|
|
|
(1)
|
All available to be issued as stock options, but includes a sub-limit for all types of stock awards of
3,287,550
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,
2016
,
92,739
shares were committed.
Performance share awards are denominated in shares of our stock and are paid half in cash and half in stock. Payouts 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. 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, 2016
|
311,528
|
|
|
$
|
17.48
|
|
|
302,000
|
|
|
$
|
25.59
|
|
|
Granted
|
339,619
|
|
|
15.28
|
|
|
340,925
|
|
|
15.39
|
|
|
Paid/Issued
|
(103,417
|
)
|
|
17.48
|
|
|
(96,500
|
)
|
|
23.28
|
|
|
Converted from shares to cash
|
2,474
|
|
|
13.14
|
|
|
(2,474
|
)
|
|
13.14
|
|
|
Canceled
|
(7,376
|
)
|
|
13.14
|
|
|
(7,376
|
)
|
|
13.14
|
|
|
Outstanding at December 31, 2016
|
542,828
|
|
|
$
|
25.84
|
|
|
536,575
|
|
|
$
|
16.18
|
|
|
Total vested at December 31, 2016
|
241,299
|
|
|
$
|
25.84
|
|
|
235,046
|
|
|
$
|
18.62
|
|
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, 2016
|
110,000
|
|
|
$
|
17.48
|
|
|
Granted
|
408,431
|
|
|
13.63
|
|
|
Vested
|
(209,526
|
)
|
|
25.84
|
|
|
Canceled
|
(7,376
|
)
|
|
13.14
|
|
|
Unvested at December 31, 2016
|
301,529
|
|
|
$
|
25.84
|
|
At December 31,
2016
, the liability recorded for performance shares to be settled in cash totaled
$6.2 million
. The total unrecognized compensation cost related to unvested performance shares at December 31,
2016
was
$12.1 million
and was expected to be recognized over a weighted-average period of
1.1
years.
SHAREHOLDERS’ EQUITY
On April 24, 2014, our board of directors authorized a new share repurchase program for up to
8 million
shares of common stock that will terminate on April 24, 2017 for any of the remaining shares not yet repurchased. For the years ended December 31, 2016 and 2015,
no
shares were purchased and retired. We repurchased and retired
2.5 million
shares in
2014
at a cost of
$64.8 million
. As of December 31,
2016
, we had repurchased a total of
1.9 million
shares under the April 2014 program, and
6.1 million
shares remained authorized to be purchased. Under the Merger Agreement relating to the Acquisition, we were restricted from repurchasing shares of our common stock prior to the consummation of the Merger. For a period of two years subsequent to the Closing Date of the Merger, we will continue to be subject to certain restrictions on our ability to conduct share repurchases.
During
2016
,
2015
and
2014
, we issued
0.3 million
,
0.1 million
and
0.5 million
shares, respectively, with a total value of
$4.1 million
,
$3.1 million
and
$12.1 million
, respectively, representing stock options exercised.
We have registered an undetermined amount of securities with the SEC, so that, from time-to-time, we may issue debt securities, preferred stock and/or common stock and associated warrants in the public market under that registration statement.
The following table represents the activity included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
(net of taxes)
|
|
Unrealized
Gains (Losses)
on Derivative
Contracts
(net of taxes)
|
|
Pension and
Postretirement
Benefits
(net of taxes)
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
($ in millions)
|
|
Balance at January 1, 2014
|
$
|
(0.5
|
)
|
|
$
|
0.9
|
|
|
$
|
(365.5
|
)
|
|
$
|
(365.1
|
)
|
|
Unrealized losses
|
(1.8
|
)
|
|
(10.2
|
)
|
|
(142.0
|
)
|
|
(154.0
|
)
|
|
Reclassification adjustments into income
|
—
|
|
|
1.8
|
|
|
25.5
|
|
|
27.3
|
|
|
Tax benefit
|
—
|
|
|
3.3
|
|
|
45.4
|
|
|
48.7
|
|
|
Net change
|
(1.8
|
)
|
|
(5.1
|
)
|
|
(71.1
|
)
|
|
(78.0
|
)
|
|
Balance at December 31, 2014
|
(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
|
)
|
Net (loss) income and cost of goods sold included reclassification adjustments for realized gains and losses on derivative contracts from accumulated other comprehensive loss.
Net (loss) income, 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) from continuing operations 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” (ASC 280), we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results. Beginning in the fourth quarter of 2015, we modified our reportable segments due to changes in our organization resulting from the Acquisition. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. For segment reporting purposes, the Acquired Business’s Global Epoxy operating results comprise the Epoxy segment and the Acquired Chlor Alkali Business operating results combined with our former Chlor Alkali Products and Chemical Distribution segments comprise the Chlor Alkali Products and Vinyls segment. This reporting structure has been retrospectively applied to financial results for all periods presented. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. Sales and profits are recognized in the Chlor Alkali Products and Vinyls segment for all caustic soda generated and sold by Olin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Sales:
|
($ in millions)
|
|
Chlor Alkali Products and Vinyls
|
$
|
2,999.3
|
|
|
$
|
1,713.4
|
|
|
$
|
1,502.8
|
|
|
Epoxy
|
1,822.0
|
|
|
429.6
|
|
|
—
|
|
|
Winchester
|
729.3
|
|
|
711.4
|
|
|
738.4
|
|
|
Total sales
|
$
|
5,550.6
|
|
|
$
|
2,854.4
|
|
|
$
|
2,241.2
|
|
|
Income (loss) from continuing operations before taxes:
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
224.9
|
|
|
$
|
115.5
|
|
|
$
|
130.1
|
|
|
Epoxy
|
15.4
|
|
|
(7.5
|
)
|
|
—
|
|
|
Winchester
|
120.9
|
|
|
115.6
|
|
|
127.3
|
|
|
Corporate/Other
|
(55.8
|
)
|
|
(40.6
|
)
|
|
(33.8
|
)
|
|
Restructuring charges
|
(112.9
|
)
|
|
(2.7
|
)
|
|
(15.7
|
)
|
|
Acquisition-related costs
|
(48.8
|
)
|
|
(123.4
|
)
|
|
(4.2
|
)
|
|
Other operating income
|
10.6
|
|
|
45.7
|
|
|
1.5
|
|
|
Interest expense
|
(191.9
|
)
|
|
(97.0
|
)
|
|
(43.8
|
)
|
|
Interest income
|
3.4
|
|
|
1.1
|
|
|
1.3
|
|
|
Income (loss) from continuing operations before taxes
|
$
|
(34.2
|
)
|
|
$
|
6.7
|
|
|
$
|
162.7
|
|
|
Earnings of non-consolidated affiliates:
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
418.1
|
|
|
$
|
186.1
|
|
|
$
|
119.4
|
|
|
Epoxy
|
90.0
|
|
|
20.9
|
|
|
—
|
|
|
Winchester
|
18.5
|
|
|
17.4
|
|
|
16.3
|
|
|
Corporate/Other
|
6.9
|
|
|
4.5
|
|
|
3.4
|
|
|
Total depreciation and amortization expense
|
$
|
533.5
|
|
|
$
|
228.9
|
|
|
$
|
139.1
|
|
|
Capital spending:
|
|
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
195.1
|
|
|
$
|
94.5
|
|
|
$
|
49.6
|
|
|
Epoxy
|
45.4
|
|
|
7.7
|
|
|
—
|
|
|
Winchester
|
19.5
|
|
|
25.6
|
|
|
21.4
|
|
|
Corporate/Other
|
18.0
|
|
|
3.1
|
|
|
0.8
|
|
|
Total capital spending
|
$
|
278.0
|
|
|
$
|
130.9
|
|
|
$
|
71.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Assets:
|
($ in millions)
|
|
Chlor Alkali Products and Vinyls
|
$
|
6,521.4
|
|
|
$
|
6,690.7
|
|
|
Epoxy
|
1,514.3
|
|
|
1,591.2
|
|
|
Winchester
|
424.0
|
|
|
411.9
|
|
|
Corporate/Other
|
302.9
|
|
|
595.1
|
|
|
Total assets
|
$
|
8,762.6
|
|
|
$
|
9,288.9
|
|
|
|
|
|
|
|
Investments—affiliated companies (at equity):
|
|
|
|
|
Chlor Alkali Products and Vinyls
|
$
|
26.7
|
|
|
$
|
25.0
|
|
Segment assets include only those assets which are directly identifiable to an operating segment. Assets of the corporate/other segment include primarily such items as cash and cash equivalents, deferred taxes, restricted cash and other assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
Geographic Data
|
2016
|
|
2015
|
|
2014
|
|
Sales:
|
($ in millions)
|
|
United States
|
$
|
3,356.8
|
|
|
$
|
2,208.5
|
|
|
$
|
2,051.4
|
|
|
Foreign
|
2,193.8
|
|
|
645.9
|
|
|
189.8
|
|
|
Total sales
|
$
|
5,550.6
|
|
|
$
|
2,854.4
|
|
|
$
|
2,241.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Long-lived assets:
|
($ in millions)
|
|
United States
|
$
|
3,352.2
|
|
|
$
|
3,561.7
|
|
|
Foreign
|
352.7
|
|
|
391.7
|
|
|
Total long-lived assets
|
$
|
3,704.9
|
|
|
$
|
3,953.4
|
|
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, TDCC 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
$2.0 million
at December 31,
2016
. With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with the asserted claims. Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding
30
years, which reasonably approximates the typical duration of long-term site OM&M.
Our liabilities for future environmental expenditures were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Beginning balance
|
$
|
138.1
|
|
|
$
|
138.3
|
|
|
Charges to income
|
9.2
|
|
|
15.7
|
|
|
Remedial and investigatory spending
|
(10.3
|
)
|
|
(14.1
|
)
|
|
Currency translation adjustments
|
0.3
|
|
|
(1.8
|
)
|
|
Ending balance
|
$
|
137.3
|
|
|
$
|
138.1
|
|
At December 31,
2016
and
2015
, our consolidated balance sheets included environmental liabilities of
$120.3 million
and
$119.1 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
$137.3 million
included on our consolidated balance sheet at December 31,
2016
for future environmental expenditures, we currently expect to utilize
$77.8 million
of the reserve for future environmental expenditures over the next 5 years,
$16.1 million
for expenditures 6 to 10 years in the future, and
$43.4 million
for expenditures beyond 10 years in the future.
Our total estimated environmental liability at December 31,
2016
was attributable to
64
sites,
16
of which were USEPA NPL sites.
Nine
sites accounted for
79%
of our environmental liability and, of the remaining
55
sites, no one site accounted for more than
3%
of our environmental liability. At
four
of the
nine
sites, part of the site is subject to a remedial investigation and another part is in the long-term OM&M stage. At
one
of the
nine
sites, a remedial action plan is being developed for part of the site and another part a remedial design is being developed. At
one
of the
nine
sites, part of the site is subject to a remedial investigation and another part a remedial design is being developed. At
one
of these
nine
sites, a remedial investigation is being performed. The
two
remaining sites are in long-term OM&M. All
nine
sites are either associated with past manufacturing operations or former waste disposal sites. None of the
nine
largest sites represents more than
23%
of the liabilities reserved on our consolidated balance sheet at December 31,
2016
for future environmental expenditures.
Environmental provisions charged (credited) to income, which are included in cost of goods sold, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in millions)
|
|
Charges to income
|
$
|
9.2
|
|
|
$
|
15.7
|
|
|
$
|
9.6
|
|
|
Recoveries from third parties of costs incurred and expensed in prior periods
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
|
Total environmental expense
|
$
|
9.2
|
|
|
$
|
15.7
|
|
|
$
|
8.2
|
|
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 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,
2016
, we estimate that it is reasonably possible that we may have additional contingent environmental liabilities of
$60 million
in addition to the amounts for which we have already recorded as a reserve.
COMMITMENTS AND CONTINGENCIES
The following table summarizes our contractual commitments under non-cancelable operating leases and purchase contracts as of December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Purchase Commitments
|
|
|
($ in millions)
|
|
2017
|
$
|
78.8
|
|
|
$
|
603.1
|
|
|
2018
|
65.9
|
|
|
514.8
|
|
|
2019
|
51.9
|
|
|
497.5
|
|
|
2020
|
38.5
|
|
|
494.4
|
|
|
2021
|
26.9
|
|
|
493.8
|
|
|
Thereafter
|
77.6
|
|
|
2,992.2
|
|
|
Total commitments
|
$
|
339.6
|
|
|
$
|
5,595.8
|
|
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
$95.5 million
,
$75.1 million
and
$66.8 million
in
2016
,
2015
and
2014
, 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 TDCC, including, long-term purchase agreements for raw materials. These agreements are maintained through long-term cost based contracts that provide us with a reliable supply of key raw materials. Key raw materials received from TDCC include ethylene, electricity, propylene and benzene. Additionally, during 2016, one of the options to obtain additional future ethylene supply at producer economics was exercised by us and, accordingly, additional payments will be made to TDCC of
$209.4 million
in 2017. On February 27, 2017, we exercised the remaining option to obtain additional future ethylene supply and in connection with the exercise we also secured a long-term customer arrangement. Consequently, additional payments will be made to TDCC of between
$425.0 million
and
$465.0 million
on or about 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,
2016
and
2015
, our consolidated balance sheets included liabilities for these legal actions of
$13.6 million
and
$21.2 million
, respectively. These liabilities do not include costs associated with legal representation. Based on our analysis, and considering the inherent uncertainties associated with litigation, we do not believe that it is reasonably possible that these legal actions will materially adversely affect our financial position, cash flows or results of operations. In connection with the Acquisition, TDCC retained liabilities related to litigation to the extent arising prior to the Closing Date. In addition to the aforementioned legal actions, we are party to a dispute relating to a contract termination. The other party to the contract has filed a demand for arbitration alleging, among other things, that Olin breached the related agreement and claimed damages in excess of the amount Olin believes it is obligated for under the contract. Any additional losses related to this contract dispute are not currently estimable because of unresolved questions of fact and law but, if resolved unfavorably to Olin, they could have a material effect on our financial results.
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain contingency. In certain instances such as environmental projects, we are responsible for managing the cleanup and remediation of an environmental site. There exists the possibility of recovering a portion of these costs from other parties. We account for gain contingencies in accordance with the provisions of ASC 450 “Contingencies” (ASC 450) 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 “Derivatives and Hedging” (ASC 815) required an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We use hedge accounting treatment for substantially all of our business transactions whose risks are covered using derivative instruments. 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.
The company actively manages 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,
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
. All of the currency derivatives expire within one year and are for USD equivalents. The counterparties to the forward contracts were 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,
2015
, we had outstanding forward contracts to buy foreign currency with a notional value of
$21.7 million
and to sell foreign currency with a notional value of
$10.1 million
.
Cash Flow Hedges
ASC 815 requires that all derivative instruments be recorded on the balance sheet at their fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the change in fair value of the derivative is recognized as a component of other comprehensive income (loss) until the hedged item is recognized into earnings. Gains and losses on the derivatives representing hedge ineffectiveness are recognized currently in earnings.
We had the following notional amount of outstanding commodity contracts that were entered into to hedge forecasted purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in millions)
|
|
Copper
|
$
|
35.8
|
|
|
$
|
43.6
|
|
|
Zinc
|
8.0
|
|
|
8.7
|
|
|
Lead
|
3.4
|
|
|
9.3
|
|
|
Natural gas
|
54.4
|
|
|
2.0
|
|
As of December 31,
2016
, the counterparties to these commodity contracts were Wells Fargo (
$41.7 million
), Citibank (
$22.0 million
), Merrill Lynch Commodities, Inc. (
$19.8 million
) and JPMorgan Chase Bank, National Association (
$18.1 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,
2016
, we had open positions in futures contracts through 2021. If all open futures contracts had been settled on December 31,
2016
, we would have recognized a pretax gain of
$11.1 million
.
If commodity prices were to remain at December 31,
2016
levels, approximately
$6.2 million
of deferred gains would be reclassified into earnings during the next twelve months. The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur.
In April 2016, we entered into three tranches of forward starting interest rate swaps whereby we agreed to pay fixed rates to the counterparties who, in turn, pay us floating rates on
$1,100.0 million
,
$900.0 million
and
$400.0 million
of our underlying floating-rate debt obligations. Each tranche’s term length is for twelve months beginning on December 31, 2016, December 31, 2017 and December 31, 2018, respectively. The counterparties to the agreements are SMBC Capital Markets, Inc., Wells Fargo, PNC Bank, National Association, and Toronto-Dominion Bank. These counterparties are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could be significant to our financial position or results of operations. We have designated the swaps as cash flow hedges of the risk of changes in interest payments associated with our variable rate borrowings. Accordingly, the swap agreements have been recorded at their fair market value of
$9.6 million
and are included in other current assets and other assets on the accompanying consolidated balance sheet, with the corresponding gain deferred as a component of other comprehensive loss. No gain or loss has been recorded in earnings as a result of ineffectiveness.
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. These interest rate swaps are treated as cash flow hedges. At December 31,
2016
, 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,
2016
, we would have recognized a pretax gain of
$9.6 million
.
If interest rates were to remain at December 31,
2016
levels,
$1.1 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
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 December 31,
2016
and
2015
, the total notional amounts of our interest rate swaps designated as fair value hedges were
$500.0 million
and
zero
, respectively.
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
$28.5 million
and are included in other long-term liabilities on the accompanying consolidated balance sheet, with a corresponding decrease in the carrying amount of the related debt. For the year ended December 31, 2016,
$2.6 million
of income has been recorded to interest expense on the accompanying consolidated statement of operations related to these swap agreements. No gain or loss has been recorded in earnings as a result of ineffectiveness.
In June 2012, we terminated
$73.1 million
of interest rate swaps with Wells Fargo that had been entered into on the SunBelt Notes in May 2011. The result was a gain of
$2.2 million
which will be recognized through 2017. As of December 31,
2016
,
$0.1 million
of this gain was included in current installments of long-term debt.
We use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels. These interest rate swaps are treated as fair value hedges. The accounting for gains and losses associated with changes in fair value of the derivative and the effect on the consolidated financial statements will depend on the hedge designation and whether the hedge is effective in offsetting changes in fair value of cash flows of the asset or liability being hedged.
Financial Statement Impacts
We present our derivative assets and liabilities in our consolidated balance sheets on a net basis whenever we have a legally enforceable master netting agreement with the counterparty to our derivative contracts. We use these agreements to manage and substantially reduce our potential counterparty credit risk.
The following table summarizes the location and fair value of the derivative instruments on our consolidated balance sheets. The table disaggregates our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
Derivatives Designated
as Hedging Instruments
|
|
Balance Sheet Location
|
|
2016
|
|
2015
|
|
Balance Sheet Location
|
|
2016
|
|
2015
|
|
|
|
|
|
($ in millions)
|
|
|
|
($ in millions)
|
|
Interest rate contracts
|
|
Other current assets
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
Current installments of long-term debt
|
|
$
|
0.1
|
|
|
$
|
1.2
|
|
|
Interest rate contracts
|
|
Other assets
|
|
7.7
|
|
|
—
|
|
|
Long-term debt
|
|
—
|
|
|
0.4
|
|
|
Interest rate contracts
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
|
28.5
|
|
|
—
|
|
|
Commodity contracts – gains
|
|
Other current assets
|
|
13.2
|
|
|
—
|
|
|
Accrued liabilities
|
|
—
|
|
|
(0.1
|
)
|
|
Commodity contracts – losses
|
|
Other current assets
|
|
(1.7
|
)
|
|
—
|
|
|
Accrued liabilities
|
|
—
|
|
|
11.5
|
|
|
|
|
|
|
$
|
21.1
|
|
|
$
|
—
|
|
|
|
|
$
|
28.6
|
|
|
$
|
13.0
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – gains
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest rate contracts – losses
|
|
Other current assets
|
|
—
|
|
|
(0.1
|
)
|
|
Accrued liabilities
|
|
—
|
|
|
—
|
|
|
Commodity contracts – losses
|
|
Other current assets
|
|
—
|
|
|
—
|
|
|
Accrued liabilities
|
|
—
|
|
|
0.2
|
|
|
Foreign exchange contracts – losses
|
|
Other current assets
|
|
(0.5
|
)
|
|
—
|
|
|
Accrued liabilities
|
|
1.7
|
|
|
—
|
|
|
Foreign exchange contracts – gains
|
|
Other current assets
|
|
0.6
|
|
|
0.1
|
|
|
Accrued liabilities
|
|
(0.5
|
)
|
|
—
|
|
|
|
|
|
|
$
|
0.1
|
|
|
$
|
1.2
|
|
|
|
|
$
|
1.2
|
|
|
$
|
0.2
|
|
|
Total derivatives
(1)
|
|
|
|
$
|
21.2
|
|
|
$
|
1.2
|
|
|
|
|
$
|
29.8
|
|
|
$
|
13.2
|
|
|
|
|
|
(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)
|
|
2016
|
|
2015
|
|
2014
|
|
Derivatives – Cash Flow Hedges
|
|
|
($ in millions)
|
|
Recognized in other comprehensive loss (effective portion):
|
|
|
|
|
|
|
|
|
Commodity contracts
|
———
|
|
$
|
16.7
|
|
|
$
|
(13.9
|
)
|
|
$
|
(10.2
|
)
|
|
Interest rate contracts
|
———
|
|
9.6
|
|
|
—
|
|
|
—
|
|
|
|
|
|
$
|
26.3
|
|
|
$
|
(13.9
|
)
|
|
$
|
(10.2
|
)
|
|
Reclassified from accumulated other comprehensive loss into income (effective portion):
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
|
$
|
(5.8
|
)
|
|
$
|
(9.7
|
)
|
|
$
|
(1.8
|
)
|
|
Derivatives – Fair Value Hedges
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$
|
3.7
|
|
|
$
|
2.8
|
|
|
$
|
2.9
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
|
$
|
(0.4
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
1.4
|
|
|
Foreign exchange contracts
|
Selling and administration
|
|
(11.1
|
)
|
|
0.1
|
|
|
—
|
|
|
|
|
|
$
|
(11.5
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
1.4
|
|
The ineffective portion of changes in fair value resulted in
zero
charged or credited to earnings for the years ended December 31,
2016
,
2015
and
2014
.
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,
2016
, this threshold was not exceeded. As of December 31,
2015
, the amount recognized in accrued liabilities for cash collateral provided by us to counterparties was
$5.6 million
. In all instances where we are party to a master netting agreement, we offset the receivable or payable recognized upon payment of cash collateral against the fair value amounts recognized for derivative instruments that have also been offset under such master netting agreements.
FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred. Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes the assets and liabilities measured at fair value in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Assets
|
($ in millions)
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
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
|
|
|
Balance at December 31, 2015
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
Commodity contracts
|
—
|
|
|
11.6
|
|
|
—
|
|
|
11.6
|
|
For the years ended December 31,
2016
and 2015, 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, restricted cash, 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, 2016
|
$
|
—
|
|
|
$
|
3,703.7
|
|
|
$
|
153.0
|
|
|
$
|
3,856.7
|
|
|
$
|
3,617.6
|
|
|
Balance at December 31, 2015
|
—
|
|
|
3,826.9
|
|
|
153.0
|
|
|
3,979.9
|
|
|
3,848.8
|
|
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,
2016
and
2015
.
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 TDCC and upon closing of the Acquisition became a 100% owned subsidiary of Olin (the Parent Guarantor). The Exchange 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, 2016 and 2015, 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, 2016 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, 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
|
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 BALANCE SHEETS
|
|
December 31, 2015
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
119.4
|
|
|
—
|
|
|
$
|
272.6
|
|
|
—
|
|
|
$
|
392.0
|
|
|
Receivables, net
|
107.7
|
|
|
—
|
|
|
679.4
|
|
|
(3.7
|
)
|
|
783.4
|
|
|
Intercompany receivables
|
—
|
|
|
76.1
|
|
|
1,093.1
|
|
|
(1,169.2
|
)
|
|
—
|
|
|
Income taxes receivable
|
27.3
|
|
|
—
|
|
|
5.7
|
|
|
(0.1
|
)
|
|
32.9
|
|
|
Inventories
|
166.0
|
|
|
—
|
|
|
519.2
|
|
|
—
|
|
|
685.2
|
|
|
Current deferred income taxes
|
—
|
|
|
—
|
|
|
2.7
|
|
|
(2.7
|
)
|
|
—
|
|
|
Other current assets
|
152.1
|
|
|
5.0
|
|
|
4.6
|
|
|
(121.8
|
)
|
|
39.9
|
|
|
Total current assets
|
572.5
|
|
|
81.1
|
|
|
2,577.3
|
|
|
(1,297.5
|
)
|
|
1,933.4
|
|
|
Property, plant and equipment, net
|
508.7
|
|
|
—
|
|
|
3,444.7
|
|
|
—
|
|
|
3,953.4
|
|
|
Investment in subsidiaries
|
5,905.0
|
|
|
3,636.3
|
|
|
—
|
|
|
(9,541.3
|
)
|
|
—
|
|
|
Deferred income taxes
|
155.6
|
|
|
—
|
|
|
84.9
|
|
|
(144.6
|
)
|
|
95.9
|
|
|
Other assets
|
43.5
|
|
|
—
|
|
|
411.1
|
|
|
—
|
|
|
454.6
|
|
|
Long-term receivables—affiliates
|
—
|
|
|
2,562.6
|
|
|
—
|
|
|
(2,562.6
|
)
|
|
—
|
|
|
Intangible assets, net
|
0.5
|
|
|
—
|
|
|
677.0
|
|
|
—
|
|
|
677.5
|
|
|
Goodwill
|
—
|
|
|
990.2
|
|
|
1,183.9
|
|
|
—
|
|
|
2,174.1
|
|
|
Total assets
|
$
|
7,185.8
|
|
|
$
|
7,270.2
|
|
|
$
|
8,378.9
|
|
|
$
|
(13,546.0
|
)
|
|
$
|
9,288.9
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
$
|
192.8
|
|
|
—
|
|
|
$
|
12.2
|
|
|
—
|
|
|
$
|
205.0
|
|
|
Accounts payable
|
37.3
|
|
|
—
|
|
|
576.6
|
|
|
(5.7
|
)
|
|
608.2
|
|
|
Intercompany payables
|
1,169.2
|
|
|
—
|
|
|
—
|
|
|
(1,169.2
|
)
|
|
—
|
|
|
Income taxes payable
|
1.5
|
|
|
—
|
|
|
6.1
|
|
|
(2.7
|
)
|
|
4.9
|
|
|
Accrued liabilities
|
227.8
|
|
|
—
|
|
|
221.3
|
|
|
(121.0
|
)
|
|
328.1
|
|
|
Total current liabilities
|
1,628.6
|
|
|
—
|
|
|
816.2
|
|
|
(1,298.6
|
)
|
|
1,146.2
|
|
|
Long-term debt
|
1,084.0
|
|
|
2,547.4
|
|
|
12.4
|
|
|
—
|
|
|
3,643.8
|
|
|
Accrued pension liability
|
484.3
|
|
|
—
|
|
|
164.6
|
|
|
—
|
|
|
648.9
|
|
|
Deferred income taxes
|
—
|
|
|
294.8
|
|
|
945.1
|
|
|
(144.7
|
)
|
|
1,095.2
|
|
|
Long-term payables—affiliates
|
1,296.4
|
|
|
286.5
|
|
|
979.7
|
|
|
(2,562.6
|
)
|
|
—
|
|
|
Other liabilities
|
273.7
|
|
|
—
|
|
|
61.1
|
|
|
1.2
|
|
|
336.0
|
|
|
Total liabilities
|
4,767.0
|
|
|
3,128.7
|
|
|
2,979.1
|
|
|
(4,004.7
|
)
|
|
6,870.1
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
165.1
|
|
|
—
|
|
|
14.6
|
|
|
(14.6
|
)
|
|
165.1
|
|
|
Additional paid-in capital
|
2,236.4
|
|
|
4,146.1
|
|
|
4,789.6
|
|
|
(8,935.7
|
)
|
|
2,236.4
|
|
|
Accumulated other comprehensive loss
|
(492.5
|
)
|
|
—
|
|
|
(31.7
|
)
|
|
31.7
|
|
|
(492.5
|
)
|
|
Retained earnings
|
509.8
|
|
|
(4.6
|
)
|
|
627.3
|
|
|
(622.7
|
)
|
|
509.8
|
|
|
Total shareholders' equity
|
2,418.8
|
|
|
4,141.5
|
|
|
5,399.8
|
|
|
(9,541.3
|
)
|
|
2,418.8
|
|
|
Total liabilities and shareholders' equity
|
$
|
7,185.8
|
|
|
$
|
7,270.2
|
|
|
$
|
8,378.9
|
|
|
$
|
(13,546.0
|
)
|
|
$
|
9,288.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) 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 (loss) 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 OPERATIONS
|
|
Year Ended December 31, 2014
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
|
Sales
|
$
|
1,373.2
|
|
|
—
|
|
|
1,285.5
|
|
|
$
|
(417.5
|
)
|
|
$
|
2,241.2
|
|
|
Operating expenses:
|
|
|
|
|
—
|
|
|
|
|
|
|
Cost of goods sold
|
1,148.1
|
|
|
—
|
|
|
1,122.6
|
|
|
(417.5
|
)
|
|
1,853.2
|
|
|
Selling and administration
|
90.7
|
|
|
—
|
|
|
75.4
|
|
|
—
|
|
|
166.1
|
|
|
Restructuring charges
|
4.8
|
|
|
—
|
|
|
10.9
|
|
|
—
|
|
|
15.7
|
|
|
Acquisition-related costs
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.2
|
|
|
Other operating income
|
0.9
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
1.5
|
|
|
Operating income
|
126.3
|
|
|
—
|
|
|
77.2
|
|
|
—
|
|
|
203.5
|
|
|
Earnings of non-consolidated affiliates
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
Equity income (loss) in subsidiaries
|
48.8
|
|
|
—
|
|
|
—
|
|
|
(48.8
|
)
|
|
—
|
|
|
Interest expense
|
47.0
|
|
|
—
|
|
|
1.3
|
|
|
(4.5
|
)
|
|
43.8
|
|
|
Interest income
|
2.5
|
|
|
—
|
|
|
3.3
|
|
|
(4.5
|
)
|
|
1.3
|
|
|
Income (loss) from continuing operations before taxes
|
132.3
|
|
|
—
|
|
|
79.2
|
|
|
(48.8
|
)
|
|
162.7
|
|
|
Income tax provision
|
27.3
|
|
|
—
|
|
|
30.4
|
|
|
—
|
|
|
57.7
|
|
|
Income (loss) from continuing operations
|
105.0
|
|
|
—
|
|
|
48.8
|
|
|
(48.8
|
)
|
|
105.0
|
|
|
Income from discontinued operations, net
|
$
|
0.7
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Net income (loss)
|
$
|
105.7
|
|
|
—
|
|
|
$
|
48.8
|
|
|
$
|
(48.8
|
)
|
|
$
|
105.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) income, 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) income, 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 COMPREHENSIVE INCOME (LOSS)
|
|
Year Ended December 31, 2014
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
|
Net income (loss)
|
105.7
|
|
|
—
|
|
|
48.8
|
|
|
(48.8
|
)
|
|
105.7
|
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
|
(1.8
|
)
|
|
Unrealized losses on derivative contracts, net
|
(5.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.1
|
)
|
|
Pension and postretirement liability adjustments, net
|
(83.4
|
)
|
|
—
|
|
|
(3.2
|
)
|
|
—
|
|
|
(86.6
|
)
|
|
Amortization of prior service costs and actuarial losses, net
|
14.1
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
15.5
|
|
|
Total other comprehensive (loss) income, net of tax
|
(74.4
|
)
|
|
—
|
|
|
(3.6
|
)
|
|
—
|
|
|
(78.0
|
)
|
|
Comprehensive income (loss)
|
$
|
31.3
|
|
|
$
|
—
|
|
|
$
|
45.2
|
|
|
$
|
(48.8
|
)
|
|
$
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 contract
|
—
|
|
|
—
|
|
|
(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 investments in non-consolidated equity affiliate
|
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 investments in non-consolidated equity affiliate
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31, 2014
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Guarantor
|
|
Issuer
|
|
Subsidiary
Non-Guarantor
|
|
Eliminations
|
|
Total
|
|
Net operating activities
|
$
|
134.7
|
|
|
—
|
|
|
$
|
24.5
|
|
|
—
|
|
|
$
|
159.2
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(51.3
|
)
|
|
—
|
|
|
(20.5
|
)
|
|
—
|
|
|
(71.8
|
)
|
|
Proceeds from disposition of property, plant and equipment
|
3.5
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
5.6
|
|
|
Restricted cash activity, net
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.2
|
|
|
Other investing activities
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
Net investing activities
|
(43.6
|
)
|
|
—
|
|
|
(18.1
|
)
|
|
—
|
|
|
(61.7
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
150.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150.0
|
|
|
Repayments
|
(150.2
|
)
|
|
—
|
|
|
(12.2
|
)
|
|
—
|
|
|
(162.4
|
)
|
|
Earn out payment - SunBelt
|
—
|
|
|
—
|
|
|
(14.8
|
)
|
|
—
|
|
|
(14.8
|
)
|
|
Common stock repurchased and retired
|
(64.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(64.8
|
)
|
|
Stock options exercised
|
6.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.6
|
|
|
Excess tax benefits from stock-based compensation
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
Dividends paid
|
(63.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63.0
|
)
|
|
Debt and equity issuance costs
|
(1.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
Intercompany financing activities
|
(27.0
|
)
|
|
|
|
27.0
|
|
|
|
|
—
|
|
|
Net financing activities
|
(148.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148.5
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
(57.4
|
)
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
(51.0
|
)
|
|
Cash and cash equivalents, beginning of year
|
296.8
|
|
|
—
|
|
|
11.0
|
|
|
—
|
|
|
307.8
|
|
|
Cash and cash equivalents, end of year
|
$
|
239.4
|
|
|
—
|
|
|
$
|
17.4
|
|
|
—
|
|
|
$
|
256.8
|
|
OTHER FINANCIAL DATA
Quarterly Data (Unaudited)
($ in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
|
Sales
|
|
$
|
518.0
|
|
|
$
|
535.4
|
|
|
$
|
533.6
|
|
|
$
|
1,267.4
|
|
|
$
|
2,854.4
|
|
|
Cost of goods sold
|
|
433.2
|
|
|
445.5
|
|
|
460.0
|
|
|
1,148.1
|
|
|
2,486.8
|
|
|
Net income (loss)
|
|
13.1
|
|
|
42.3
|
|
|
5.9
|
|
|
(62.7
|
)
|
|
(1.4
|
)
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
0.17
|
|
|
0.55
|
|
|
0.08
|
|
|
(0.39
|
)
|
|
(0.01
|
)
|
|
Diluted
|
|
0.17
|
|
|
0.54
|
|
|
0.08
|
|
|
(0.39
|
)
|
|
(0.01
|
)
|
|
Common dividends per share
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.80
|
|
|
Market price of common stock
(1)
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
34.34
|
|
|
32.56
|
|
|
27.18
|
|
|
22.13
|
|
|
34.34
|
|
|
Low
|
|
22.00
|
|
|
26.77
|
|
|
15.73
|
|
|
16.60
|
|
|
15.73
|
|
|
|
|
|
(1)
|
NYSE composite transactions.
|