# OLIN Corp (OLN) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from OLIN Corp's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/74303/000007430322000015/oln-20211231.htm Accession: 0000074303-22-000015 Filing date: 2022-02-24 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/OLN/ All MD&A years: /company/OLN/mda/ Next year: /company/OLN/mda/fy2022/ (FY 2022) Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS BACKGROUND Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO.  We are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. Our operations are concentrated in three business segments:  Chlor Alkali Products and Vinyls, Epoxy and Winchester.  All of our business segments are capital intensive manufacturing businesses.  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, hydrochloric acid, hydrogen, bleach products and potassium hydroxide.  The Epoxy segment produces and sells a full range of epoxy materials and precursors, including aromatics (acetone, bisphenol, cumene and phenol), allyl chloride, epichlorohydrin, liquid epoxy resins, solid 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.   RECENT DEVELOPMENTS AND HIGHLIGHTS Winter Storm Uri Olin’s Freeport, TX facility was affected by Winter Storm Uri and was forced to halt production due to the lack of electrical power, natural gas, and other raw materials. All of Olin’s Freeport operations were impacted. In addition, production at Olin’s Plaquemine, LA; St. Gabriel, LA; Oxford, MS; and McIntosh, AL facilities were also negatively impacted. As a result, by February 18, 2021, Olin declared Force Majeure on all chemical product shipments from North America. Our facilities had returned to operation by March 31, 2021. The 2021 results included a net pretax favorable impact of $99.9 million associated with Winter Storm Uri due to Olin’s customary financial hedges and contracts maintained to provide protection from rapid and dramatic changes in energy costs, partially offset by unabsorbed fixed manufacturing costs and storm-related maintenance costs. During 2021, Chlor Alkali Products and Vinyls segment results included a favorable impact of $121.4 million and Epoxy segment results included an unfavorable impact of $21.5 million associated with Winter Storm Uri. 2021 Overview Net income was $1,296.7 million for the year ended 2021 compared to net loss of $969.9 million for 2020. The increase in results from the prior year was due to improved operating results across all our business segments. The prior year results were also impacted by a $699.8 million pretax goodwill impairment charge. Chlor Alkali Products and Vinyls generated segment income of $997.8 million for 2021 compared to $3.5 million for 2020. Chlor Alkali Products and Vinyls segment results were higher than in the prior year due to higher pricing across all products, partially offset by higher raw material and operating costs. Epoxy reported segment income of $616.5 million for 2021 compared to $40.8 million for 2020.  Epoxy segment results were higher than in the prior year primarily due to higher product prices, partially offset by higher raw materials costs, primarily benzene and propylene. Winchester reported segment income of $412.1 million for 2021 compared to $92.3 million for 2020.  On October 1, 2020, Winchester assumed full management and operational control of Lake City. Winchester segment results were higher than in the prior year primarily due to increased commercial ammunition pricing and higher volumes, which includes ammunition produced at Lake City. Winchester segment results were also negatively impacted by higher commodity costs compared to the prior year. During 2021, we repaid approximately $1.1 billion of long-term debt. In connection with these financing transactions, we recognized a loss on extinguishment of debt of $152.2 million, which includes the payment of early redemption premiums of $137.7 million. During 2021, we repurchased and retired 4.7 million shares of common stock at a cost of $251.9 million. As of December 31, 2021, we have $52.2 million of remaining authorized common stock to be purchased under our 2018 Repurchase 27 Table of Contents Authorization program and $1.0 billion of remaining authorized common stock to be purchased under our 2021 Repurchase Authorization program. COVID-19 The 2019 Novel Coronavirus (COVID-19) global pandemic, and the various governmental, business and consumer responses to this pandemic, significantly impacted our results during 2020. We have taken measures to protect the health and safety of our employees, work with our customers and suppliers to minimize potential disruptions and support our communities during this global pandemic. Our operations are among businesses that were considered “essential” by government and public health authorities. We are following all federal, state and local health department guidelines and the costs associated with these safety procedures were not material. We continue to safely maintain plant operations and focus on business continuity. All Olin manufacturing facilities worldwide continue to operate, with the exception of those undergoing planned maintenance turnarounds. The spread of the pandemic and the associated response has caused significant disruptions and increased volatility in the U.S. and global economies, resulting in the disruption of the supply and demand fundamentals of our Chemicals businesses. During 2020, the various governmental, business and consumer responses to the pandemic negatively impacted the demand for several of the products produced by our Chlor Alkali Products and Vinyls and Epoxy businesses resulting in lower volumes and pricing. We initiated several actions during 2020 that partially mitigated the impact of economic decline on our financial performance, but also enhanced our position, financially and structurally, to take advantage of the eventual global economic recovery. These actions were primarily focused around liquidity and specific actions to reduce our costs in 2020. We continue to monitor the changing business environment, volatility and heightened degree of uncertainty resulting from the response to COVID-19, including compliance with certain federal, state and local governmental mandates. At the current time, we are unable to fully determine its future impact on our business. We continue to work with our customers, employees, suppliers and communities to address the impacts of COVID-19 and we continue to assess possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. 28 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["","($ in millions, except per share data)"],["Sales","$","8,910.6","","","$","5,758.0","","","$","6,110.0"],["Cost of goods sold","6,616.4","","","5,374.6","","","5,439.2"],["Gross margin","2,294.2","","","383.4","","","670.8"],["Selling and administration","416.9","","","422.0","","","416.9"],["Restructuring charges","27.9","","","9.0","","","76.5"],["Goodwill impairment","\u2014","","","699.8","","","\u2014"],["Other operating income","1.4","","","0.7","","","0.4"],["Operating income (loss)","1,850.8","","","(746.7)","","","177.8"],["Interest expense","348.0","","","292.7","","","243.2"],["Interest income","0.2","","","0.5","","","1.0"],["Non-operating pension income","35.7","","","18.9","","","16.3"],["Other income","\u2014","","","\u2014","","","11.2"],["Income (loss) before taxes","1,538.7","","","(1,020.0)","","","(36.9)"],["Income tax provision (benefit)","242.0","","","(50.1)","","","(25.6)"],["Net income (loss)","$","1,296.7","","","$","(969.9)","","","$","(11.3)"],["Net income (loss) per common share:"],["Basic","$","8.15","","","$","(6.14)","","","$","(0.07)"],["Diluted","$","7.96","","","$","(6.14)","","","$","(0.07)"]] [[/GREPCENT_TABLE]] 2021 Compared to 2020 Sales for 2021 were $8,910.6 million compared to $5,758.0 million in 2020, an increase of $3,152.6 million, or 55%.  Chlor Alkali Products and Vinyls sales increased by $1,180.9 million, primarily due to higher pricing across all products. Epoxy sales increased by $1,315.5 million, primarily due to higher product prices. Winchester sales increased by $656.2 million, primarily due to increased commercial ammunition pricing and higher commercial and military sales volumes, which included ammunition produced at Lake City. Gross margin increased $1,910.8 million from 2020. Chlor Alkali Products and Vinyls gross margin increased by $986.1 million, primarily due to higher pricing and the effect of Winter Storm Uri. Epoxy gross margin increased by $578.6 million, primarily due to higher product prices, partially offset by higher raw material costs and the effect of Winter Storm Uri. Winchester gross margin increased by $336.1 million, primarily due to increased commercial ammunition pricing and higher sales volumes, which included ammunition produced at Lake City. Gross margin as a percentage of sales increased to 26% in 2021 from 7% in 2020. Selling and administration expenses in 2021 decreased $5.1 million, or 1%, from 2020. The decrease was primarily due to the absence of $73.9 million of costs associated with a multi-year implementation of new enterprise resource planning, manufacturing and engineering systems, and related infrastructure (collectively, the Information Technology Project), which was completed in late 2020. This decrease was partially offset by higher variable incentive compensation expense of $49.4 million, which includes mark-to-market adjustments on stock-based compensation expense, and inclusion of a full year of selling and administration expenses associated with Lake City operations of $18.6 million. Selling and administration expenses as a percentage of sales decreased to 5% in 2021 from 7% in 2020. Restructuring charges for 2021 were $27.9 million compared to $9.0 million in 2020. The increase in charges was primarily due to a productivity initiative to align the organization with our new operating model and improve efficiencies, which was completed during the second quarter of 2021, and the 2021 decisions to permanently close our diaphragm-grade chlor alkali capacity, representing 400,000 tons, at our McIntosh, AL facility. Goodwill impairment includes non-cash pretax impairment charges of $557.6 million related to the Chlor Alkali Products and Vinyls segment and $142.2 million related to the Epoxy segment recorded during the third quarter of 2020. 29 Table of Contents Interest expense increased by $55.3 million for the year ended December 31, 2021. Interest expense for 2021 included $137.7 million of bond redemption premiums and $14.5 million for write-off of deferred debt issuance costs, write-off of bond original issue discount, and recognition of deferred fair value interest rate swap losses. Interest expense for 2020 included $14.6 million of bond redemption premiums, $5.8 million for write-off of deferred debt issuance costs and $4.0 million of accretion expense related to the 2020 ethylene payment discount. Interest expense for 2021 and 2020 was reduced by capitalized interest of $3.2 million and $6.4 million, respectively. Without these items, interest expense decreased by $75.7 million, primarily due to a lower level of debt outstanding and lower average interest rates. Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs. Non-operating pension income was higher for the year ended December 31, 2021 primarily due to a decrease in the discount rate used to determine interest costs. The effective tax rate for 2021 included benefits from a net decrease in the valuation allowance related to deferred tax assets in foreign jurisdictions and domestic tax credits, a benefit associated with prior year tax positions, a benefit associated with stock-based compensation, an expense from remeasurement of deferred taxes due to an increase in our state effective tax rates and an expense from a change in tax contingencies. These factors resulted in a net $103.6 million tax benefit. After giving consideration to these items, the effective tax rate for 2021 of 22.5% was higher than the 21% U.S. federal statutory rate primarily due to state taxes, foreign income inclusions and foreign income taxes, partially offset by a net decrease in the valuation allowance related to utilization of losses in foreign jurisdictions and favorable permanent salt depletion deductions. The effective tax rate for 2020 included expenses associated with a net increase in the valuation allowance related to foreign and domestic tax credits and deferred tax assets in foreign jurisdictions, a remeasurement of deferred taxes due to an increase in our state effective tax rates and a change in tax contingencies, and stock-based compensation, partially offset by a benefit associated with prior year tax positions. These factors resulted in a net $27.9 million tax expense. For 2020, a tax benefit of $10.8 million was recognized associated with the $699.8 million goodwill impairment charge. After giving consideration to these items, including the goodwill impairment charge on Olin’s loss before taxes, the effective tax rate for 2020 of 21.0% was equal to the 21.0% U.S. federal statutory rate as foreign income taxes, foreign income inclusions and a net increase in the valuation allowance related to losses in foreign jurisdictions were offset by state taxes and favorable permanent salt depletion deductions. 2020 Compared to 2019 Sales for 2020 were $5,758.0 million compared to $6,110.0 million in 2019, a decrease of $352.0 million, or 6%.  Chlor Alkali Products and Vinyls sales decreased by $460.2 million, primarily due to lower caustic soda and EDC pricing and lower caustic soda volumes. Epoxy sales decreased by $153.9 million, primarily due to lower product prices. Winchester sales increased by $262.1 million, primarily due to higher commercial and military sales volumes, which included ammunition produced at Lake City, and increased commercial ammunition pricing. Gross margin for 2020 decreased $287.4 million, or 43%, from 2019. Chlor Alkali Products and Vinyls gross margin decreased by $327.3 million, primarily due to lower caustic soda and EDC pricing and lower caustic soda volumes, partially offset by lower costs, primarily raw materials. Epoxy gross margin decreased $9.5 million, primarily due to lower product prices, partially offset by lower raw material costs. Winchester gross margin increased $73.5 million, primarily due to higher sales volumes, which included ammunition produced at Lake City, and increased commercial pricing. Gross margin as a percentage of sales decreased to 7% in 2020 from 11% in 2019. Selling and administration expenses in 2020 increased $5.1 million, or 1%, from 2019. The increase was primarily due to Lake City operations and higher transition costs relating to the Lake City contract of $22.4 million and higher stock-based compensation expense of $14.7 million, which includes mark-to-market adjustments. These increases were partially offset by lower salaries and benefits of $13.9 million, consulting and contract services of $7.9 million and travel-related expenses of $8.1 million. Selling and administration expenses for the years ended December 31, 2020 and 2019 included costs associated with the Information Technology Project of $73.9 million and $77.0 million, respectively. Selling and administration expenses as a percentage of sales were 7% in both 2020 and 2019. Restructuring charges in 2020 and 2019 were primarily associated with the March 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations. Restructuring charges for the years ended December 31, 2020 and 2019 were also associated with the closure of a chlor alkali plant and a VDC production facility, both in Freeport, TX, and included $58.9 million of non-cash impairment charges for equipment and facilities for the year ended December 31, 2019. Restructuring charges for the year ended December 31, 2019 also included costs associated with permanently closing the ammunition assembly operations at our Geelong, Australia facility in December 2018. 30 Table of Contents Goodwill impairment includes non-cash pretax impairment charges of $557.6 million related to the Chlor Alkali Products and Vinyls segment and $142.2 million related to the Epoxy segment recorded during the third quarter of 2020. Interest expense increased by $49.5 million for the year ended December 31, 2020, primarily due to a higher level of debt outstanding and higher interest rates. Interest expense included $14.6 million of expense related to the 2023 Notes redemption premium and $5.8 million for write-off of deferred debt issuance costs for financing transactions during 2020. Interest expense for the years ended December 31, 2020 and 2019 included $4.0 million and $17.0 million, respectively, of accretion expense related to the ethylene payment discount. Interest expense was reduced by capitalized interest of $6.4 million and $10.8 million for 2020 and 2019, respectively. Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs. Non-operating pension income was higher for the year ended December 31, 2020, primarily due to a decrease in the amortization of actuarial losses associated with our domestic qualified defined benefit pension plan. The effective tax rate for 2020 included expenses associated with a net increase in the valuation allowance related to foreign and domestic tax credits and deferred tax assets in foreign jurisdictions, a remeasurement of deferred taxes due to an increase in our state effective tax rates and a change in tax contingencies, and stock-based compensation, partially offset by a benefit associated with prior year tax positions. These factors resulted in a net $27.9 million tax expense. For 2020, a tax benefit of $10.8 million was recognized associated with the $699.8 million goodwill impairment charge. After giving consideration to these items, including the goodwill impairment charge on Olin’s loss before taxes, the effective tax rate for 2020 of 21.0% was equal to the 21% U.S. federal statutory rate as foreign income taxes, foreign income inclusions and a net increase in the valuation allowance related to losses in foreign jurisdictions were offset by state taxes and favorable permanent salt depletion deductions. The effective tax rate for 2019 included benefits associated with the finalization of the IRS review of years 2013 to 2015 U.S. income tax claims, stock-based compensation, prior year tax positions, foreign tax law changes, a remeasurement of deferred taxes due to a decrease in our state effective tax rates and a change in tax contingencies. The effective tax rate also included expenses associated with a net increase in the valuation allowance primarily related to foreign deferred tax assets and liabilities. These factors resulted in a net $19.4 million tax benefit. After giving consideration to these items, the effective tax rate for 2019 of 16.8% was lower than the 21% U.S. federal statutory rate primarily due to state taxes and a net increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by foreign income taxes and favorable permanent salt depletion deductions. 31 Table of Contents SEGMENT RESULTS We define segment results as income (loss) before interest expense, interest income, goodwill impairment charges, other operating income (expense), non-operating pension income, other income and income taxes. We have three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance. Chlorine used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment. [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["Sales:","($ in millions)"],["Chlor Alkali Products and Vinyls","$","4,140.8","","","$","2,959.9","","","$","3,420.1"],["Epoxy","3,186.0","","","1,870.5","","","2,024.4"],["Winchester","1,583.8","","","927.6","","","665.5"],["Total sales","$","8,910.6","","","$","5,758.0","","","$","6,110.0"],["Income (loss) before taxes:"],["Chlor Alkali Products and Vinyls","$","997.8","","","$","3.5","","","$","336.7"],["Epoxy","616.5","","","40.8","","","53.9"],["Winchester","412.1","","","92.3","","","40.1"],["Corporate/Other:"],["Environmental expense(1)","(14.0)","","","(20.9)","","","(20.5)"],["Other corporate and unallocated costs(2)","(135.1)","","","(154.3)","","","(156.3)"],["Restructuring charges(3)","(27.9)","","","(9.0)","","","(76.5)"],["Goodwill impairment","\u2014","","","(699.8)","","","\u2014"],["Other operating income(4)","1.4","","","0.7","","","0.4"],["Interest expense(5)","(348.0)","","","(292.7)","","","(243.2)"],["Interest income","0.2","","","0.5","","","1.0"],["Non-operating pension income","35.7","","","18.9","","","16.3"],["Other income(6)","\u2014","","","\u2014","","","11.2"],["Income (loss) before taxes","$","1,538.7","","","$","(1,020.0)","","","$","(36.9)"]] [[/GREPCENT_TABLE]] (1)Environmental expense for the years ended December 31, 2021 and 2019 included $2.2 million and $4.8 million, respectively, of insurance recoveries for environmental costs incurred and expensed in prior periods. Environmental expense is included in cost of goods sold in the consolidated statements of operations.   (2)Other corporate and unallocated costs for the years ended December 31, 2020 and 2019 included costs associated with the implementation of the Information Technology Project of $73.9 million and $77.0 million, respectively. (3)Restructuring charges for the year ended December 31, 2021 were primarily due to a productivity initiative to align the organization with our new operating model and improve efficiencies, which was completed during the second quarter of 2021, and the 2021 decisions to permanently close our diaphragm-grade chlor alkali capacity, representing 400,000 tons, at our McIntosh, AL facility. Restructuring charges for the years ended December 31, 2020 and 2019 were primarily associated with the closure of a chlor alkali plant and a VDC production facility, both in Freeport, TX, and included $58.9 million of non-cash impairment charges for equipment and facilities for the year ended December 31, 2019. (4)Other operating income for the year ended December 31, 2021 included a $1.4 million gain on the sale of a terminal facility. Other operating income for the year ended December 31, 2020 included an $0.8 million gain on the sale of land. (5)Interest expense for the year ended December 31, 2021 included a loss on extinguishment of debt of $152.2 million which includes bond redemption premiums, write-off of deferred debt issuance costs, bond original issue discount, and recognition of deferred fair value interest rate swap losses associated with the optional prepayment of existing debt. Interest expense for the year ended December 31, 2020 included a loss on extinguishment of debt of $20.4 million which includes bond redemption premiums and write-off of deferred debt issuance costs. Interest expense for the years ended 2020 and 2019 included $4.0 million and $17.0 million, respectively, of accretion expense related to the ethylene 32 Table of Contents payment discount. Interest expense was reduced by capitalized interest of $3.2 million, $6.4 million and $10.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. (6)Other income for the year ended December 31, 2019 included a gain of $11.2 million on the sale of our equity interest in a non-consolidated affiliate. Chlor Alkali Products and Vinyls 2021 Compared to 2020 Chlor Alkali Products and Vinyls sales for 2021 were $4,140.8 million compared to $2,959.9 million for 2020, an increase of $1,180.9 million, or 40%.  The sales increase was primarily due to higher pricing across all product lines. Chlor Alkali Products and Vinyls sales increase was also due to higher VCM sales as a result of our primary VCM contract transitioning from a toll manufacturing arrangement to a direct customer sale agreement beginning on January 1, 2021. Chlor Alkali Products and Vinyls generated segment income of $997.8 million for 2021 compared to $3.5 million for 2020, an increase of $994.3 million.  The increase in Chlor Alkali Products and Vinyls segment results was primarily due to higher product prices ($1,128.0 million) and the favorable impact of Winter Storm Uri ($121.4 million), partially offset by higher raw material and operating costs ($132.8 million) and increased costs associated with product purchased from other parties ($122.3 million). The impact of Winter Storm Uri includes a net one-time benefit associated with Olin’s customary financial hedges and contracts maintained to provide protection from rapid and dramatic changes in energy costs, partially offset by unabsorbed fixed manufacturing costs and storm-related maintenance costs. Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $466.4 million and $451.4 million in 2021 and 2020, respectively. 2020 Compared to 2019 Chlor Alkali Products and Vinyls sales for 2020 were $2,959.9 million compared to $3,420.1 million for 2019, a decrease of $460.2 million, or 13%.  The sales decrease was primarily due to lower caustic soda and EDC pricing and lower volumes, primarily caustic soda. Chlor Alkali Products and Vinyls generated segment income of $3.5 million for 2020 compared to $336.7 million for 2019, a decrease of $333.2 million.  The decrease in Chlor Alkali Products and Vinyls segment results was primarily due to lower product prices ($318.5 million), primarily caustic soda and EDC, and lower volumes ($143.1 million), primarily caustic soda. Partially offsetting these decreases were lower raw material costs ($83.8 million) and lower maintenance turnaround and operating costs ($44.6 million). Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $451.4 million and $470.4 million in 2020 and 2019, respectively. Epoxy 2021 Compared to 2020 Epoxy sales were $3,186.0 million for 2021 compared to $1,870.5 million for 2020, an increase of $1,315.5 million, or 70%.  The sales increase was primarily due to higher product prices ($1,211.0 million), a favorable effect of foreign currency translation ($74.9 million), and higher volumes ($29.6 million). Epoxy reported segment income of $616.5 million for 2021 compared to $40.8 million for 2020, an increase of $575.7 million. The increase in segment results was primarily due to higher product prices ($1,211.0 million) and increased volumes ($11.5 million), partially offset by higher raw material costs ($554.4 million), primarily benzene and propylene, higher operating and maintenance turnaround costs ($70.9 million) and the unfavorable impact of Winter Storm Uri ($21.5 million). A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros. Epoxy segment results included depreciation and amortization expense of $86.1 million and $90.7 million in 2021 and 2020, respectively. 33 Table of Contents 2020 Compared to 2019 Epoxy sales were $1,870.5 million for 2020 compared to $2,024.4 million for 2019, a decrease of $153.9 million, or 8%.  The sales decrease was primarily due to lower product prices ($180.0 million) and an unfavorable effect of foreign currency translation ($6.1 million), partially offset by higher volumes ($32.2 million). Epoxy reported segment income of $40.8 million for 2020 compared to $53.9 million for 2019, a decrease of $13.1 million, or 24%. The decrease in segment results was primarily due to lower product prices ($180.0 million) and an unfavorable product mix ($24.4 million), partially offset by lower raw material costs ($162.5 million), primarily benzene and propylene, and lower operating costs ($38.8 million). Epoxy segment results were also negatively affected by a first quarter 2020 force majeure declaration by a European phenol supplier, which reduced epoxy resin and epoxy resin precursor production, and Epoxy manufacturing plant closures and operating reductions in Asia due to COVID-19 ($10.0 million). A significant percentage of our Euro denominated sales are of products manufactured within Europe. As a result, the impact of foreign currency translation on revenue is primarily offset by the impact of foreign currency translation on raw materials and manufacturing costs also denominated in Euros.  Epoxy segment results included depreciation and amortization expense of $90.7 million and $100.1 million in 2020 and 2019, respectively. Winchester 2021 Compared to 2020 Winchester sales were $1,583.8 million for 2021 compared to $927.6 million for 2020, an increase of $656.2 million, or 71%.  The increase was due to higher ammunition sales to commercial customers ($463.6 million) and military customers ($179.2 million), both of which include ammunition produced at Lake City, and law enforcement agencies ($13.4 million). Winchester reported segment income of $412.1 million for 2021 compared to $92.3 million for 2020, an increase of $319.8 million.  The increase in segment results was due to higher product pricing ($221.6 million) and increased sales volumes ($134.1 million), which includes ammunition produced at Lake City, partially offset by higher commodity and operating costs ($49.4 million). Segment results in 2020 were also impacted by transition costs relating to the Lake City contract ($13.5 million). Winchester segment results included depreciation and amortization expense of $23.3 million and $20.1 million in 2021 and 2020, respectively. 2020 Compared to 2019 Winchester sales were $927.6 million for 2020 compared to $665.5 million for 2019, an increase of $262.1 million, or 39%.  The increase was due to higher ammunition sales to commercial customers ($199.2 million) and military customers ($51.9 million), both of which include ammunition produced at Lake City, and law enforcement agencies ($11.0 million). Winchester reported segment income of $92.3 million for 2020 compared to $40.1 million for 2019, an increase of $52.2 million, or 130%.  The increase in segment results was due to increased sales volumes ($49.2 million), which includes ammunition produced at Lake City, and higher product pricing ($23.4 million), partially offset by higher transition costs relating to the Lake City contract ($12.9 million) and higher operating costs ($7.5 million). Winchester segment results included depreciation and amortization expense of $20.1 million in both 2020 and 2019. Corporate/Other 2021 Compared to 2020 For the year ended December 31, 2021, charges to income for environmental investigatory and remedial activities were $14.0 million, which includes $2.2 million of insurance recoveries for environmental costs incurred and expensed in prior periods. Without these recoveries, charges to income for environmental investigatory and remedial activities for the year ended December 31, 2021 would have been $16.2 million, compared to $20.9 million for the year ended December 31, 2020. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites. For 2021, other corporate and unallocated costs were $135.1 million compared to $154.3 million for 2020, a decrease of $19.2 million, or 12%.  The decrease was primarily due to the absence of $73.9 million of costs associated with the implementation of the Information Technology Project, which was completed in late 2020, partially offset by higher variable 34 Table of Contents incentive compensation costs of $45.7 million, which includes mark-to-market adjustments on stock-based compensation expense, and an unfavorable foreign currency impact of $7.0 million. 2020 Compared to 2019 For the year ended December 31, 2020, charges to income for environmental investigatory and remedial activities were $20.9 million compared to $20.5 million for the year ended December 31, 2019. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites. The year ended December 31, 2019 includes a $4.8 million environmental insurance-related settlement gain. For 2020, other corporate and unallocated costs were $154.3 million compared to $156.3 million for 2019, a decrease of $2.0 million, or 1%.  The decrease was primarily due to lower salary and benefit costs of $12.2 million and lower travel-related expenses of $2.1 million, partially offset by higher stock-based compensation expense of $14.8 million, which includes mark-to-market adjustments. Other corporate and unallocated costs included costs associated with the implementation of the Information Technology Project for the year ended December 31, 2020 and 2019 of $73.9 million and $77.0 million, respectively. Restructurings Olin committed to a productivity initiative to align the organization with our new operating model and improve efficiencies (collectively, Productivity Plan). These actions and related activities were completed during the second quarter of 2021. For the year ended December 31, 2021, we recorded pretax restructuring charges of $10.3 million for employee severance and related benefit costs related to these actions. We do not expect to incur additional restructuring charges related to these actions. On May 18, 2021, we announced that we had made the decision to permanently close approximately 20% of our diaphragm-grade chlor alkali capacity, representing 225,000 tons, at our Plaquemine, LA facility (Plaquemine Plan). The closure was completed in the second quarter of 2021. We do not expect to incur restructuring charges related to this action. On March 15, 2021, we announced that we had made the decision to permanently close approximately 50% of our diaphragm-grade chlor alkali capacity, representing 200,000 tons, at our McIntosh, AL facility. The closure was completed in the first quarter of 2021. On October 21, 2021, we announced that we had made a decision to permanently cease operations of the remaining 50% of our diaphragm-grade chlor alkali capacity, representing an additional 200,000 tons, at our McIntosh, AL facility (collectively, McIntosh Plans). The closure is expected to be completed by the end of the third quarter of 2022. For the year ended December 31, 2021, we recorded pretax restructuring charges of $5.6 million for lease and other contract termination costs related to these actions. We expect to incur additional restructuring charges through 2026 of approximately $35 million related to these actions. On January 18, 2021, we announced we had made the decision to permanently close our trichloroethylene and anhydrous hydrogen chloride liquefaction facilities in Freeport, TX, which was completed in the fourth quarter of 2021. For the year ended December 31, 2021, we recorded pretax restructuring charges of $6.5 million for facility exit costs related to these actions. We expect to incur restructuring charges through 2024 of approximately $20 million related to these actions. 2022 OUTLOOK In 2022, we expect to continue to benefit from Olin’s strategic operating model of optimizing value across our Chemicals and Winchester businesses. In 2022, we expect operating results to improve across all our business segments compared to 2021. In early 2022, we expect sequentially higher raw material and operating costs, mainly increased natural gas and electrical power costs. As a result, we expect the first quarter 2022 results from our Chemicals businesses to be similar to fourth quarter 2021 levels. We expect our Winchester business first quarter 2022 results to increase sequentially from fourth quarter 2021. Other Corporate and Unallocated costs in 2022 are expected to be lower than the $135.1 million in 2021. During 2022, we anticipate environmental expenses in the $25 million to $30 million range compared to $14.0 million in 2021. We expect non-operating pension income in 2022 to be in the $40 million to $45 million range compared to $35.7 million in 2021. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to our domestic qualified defined benefit pension plan in 2022. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less than $5 million in 2022. 35 Table of Contents In 2022, we currently expect our capital spending to be in the $200 million to $250 million range. We expect 2022 depreciation and amortization expense to be in the $575 million to $600 million range. We currently believe the 2022 effective and cash tax rates will be in the 25% to 30% range. PENSION AND POSTRETIREMENT BENEFITS We recorded an after-tax benefit of $188.5 million ($249.7 million pretax) to shareholders’ equity as of December 31, 2021 for our pension and other postretirement plans.  This benefit primarily reflected a 50-basis point increase in the domestic pension plans’ discount rate and favorable performance on plan assets during 2021. In 2020, we recorded an after-tax benefit of $14.8 million ($26.6 million pretax) to shareholders’ equity as of December 31, 2020 for our pension and other postretirement plans. This benefit primarily reflected favorable performance on plan assets during 2020, partially offset by an 80-basis point decrease in the domestic pension plans’ discount rate. In 2019, we recorded an after-tax charge of $150.2 million ($183.9 million pretax) to shareholders’ equity as of December 31, 2019 for our pension and other postretirement plans.  This charge primarily reflected a 100-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2019. These non-cash charges to shareholders’ equity do not affect our ability to borrow under our senior credit facility. During 2019, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $12.5 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 2022. In connection with international qualified defined benefit pension plans, we made cash contributions of $1.1 million, $2.1 million and $2.4 million in 2021, 2020 and 2019, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2022.   At December 31, 2021, the projected benefit obligation of $2,883.0 million exceeded the market value of assets in our qualified defined benefit pension plans by $377.3 million, as calculated under ASC 715. Components of net periodic benefit (income) costs were: [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["","($ in millions)"],["Pension benefits","$","(27.5)","","","$","(11.7)","","","$","(8.8)"],["Other postretirement benefit costs","4.5","","","4.9","","","4.9"]] [[/GREPCENT_TABLE]] The service cost component of net periodic benefit (income) costs related to employees of the operating segments are allocated to the operating segments based on their respective estimated census data. We have included additional information with respect our defined benefit pension plans and other postretirement benefit plans within Note 12 “Pension Plans” and Note 13 “Postretirement Benefits” of our Notes to Consolidated Financial Statements. ENVIRONMENTAL MATTERS [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["Cash outlays:","($ in millions)"],["Remedial and investigatory spending (charged to reserve)","$","16.4","","","$","12.8","","","$","12.2"],["Capital spending","4.1","","","3.8","","","1.2"],["Plant operations (charged to cost of goods sold)","194.9","","","182.8","","","188.4"],["Total cash outlays","$","215.4","","","$","199.4","","","$","201.8"]] [[/GREPCENT_TABLE]] Cash outlays for remedial and investigatory activities associated with former waste sites and past operations were not charged to income but instead were charged to reserves established for such costs identified and expensed to income in prior years.  Cash outlays for normal plant operations for the disposal of waste and the operation and maintenance of pollution 36 Table of Contents control equipment and facilities to ensure compliance with mandated and voluntarily imposed environmental quality standards were charged to income. Total environmental-related cash outlays for 2022 are estimated to be approximately $215 million, of which approximately $25 million is expected to be spent on investigatory and remedial efforts, approximately $5 million on capital projects and approximately $185 million on normal plant operations.  Remedial and investigatory spending is anticipated to be higher in 2022 than 2021 due to the timing of continuing remedial action plans and investigations. Historically, we have funded our environmental capital expenditures through cash flow from operations and expect to do so in the future. Annual environmental-related cash outlays for site investigation and remediation, capital projects and normal plant operations are expected to range between $200 million to $220 million over the next several years, $20 million to $30 million of which is for investigatory and remedial efforts, which are expected to be charged against reserves recorded on our consolidated balance sheet.  While we do not anticipate a material increase in the projected annual level of our environmental-related cash outlays for site investigation and remediation, there is always the possibility that such an increase may occur in the future in view of the uncertainties associated with environmental exposures. Our liabilities for future environmental expenditures were as follows: [[GREPCENT_TABLE]] [["","December 31,"],["","2021","","2020","","2019"],["","($ in millions)"],["Beginning balance","$","147.2","","","$","139.0","","","$","125.6"],["Charges to income","16.2","","","20.9","","","25.3"],["Remedial and investigatory spending","(16.4)","","","(12.8)","","","(12.2)"],["Foreign currency translation adjustments","0.3","","","0.1","","","0.3"],["Ending balance","$","147.3","","","$","147.2","","","$","139.0"]] [[/GREPCENT_TABLE]] 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. We are party to various government 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 $9.0 million at December 31, 2021.  With respect to asserted claims, we accrue liabilities based on remedial investigation, feasibility study, remedial action and operation, maintenance and monitoring (OM&M) expenses that, in our experience, we expect to incur in connection with the asserted claims.  Required site OM&M expenses are estimated and accrued in their entirety for required periods not exceeding 30 years, which reasonably approximates the typical duration of long-term site OM&M.  37 Table of Contents Environmental provisions charged to income, which are included in cost of goods sold, were as follows: [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["","($ in millions)"],["Provisions charged to income","$","16.2","","","$","20.9","","","$","25.3"],["Insurance recoveries for costs incurred and expensed","(2.2)","","","\u2014","","","(4.8)"],["Environmental expense","$","14.0","","","$","20.9","","","$","20.5"]] [[/GREPCENT_TABLE]] 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.  Environmental expense for the years ended December 31, 2021 and 2019 included $2.2 million and $4.8 million, respectively, of insurance recoveries for environmental costs incurred and expensed in prior periods. Environmental expense is included in cost of goods sold in the consolidated statement of operations. We have included additional information with respect to environmental matters within Note 20, “Environmental,” of our Notes to Consolidated Financial Statements. LEGAL MATTERS AND CONTINGENCIES Please see the discussion of legal matters and contingencies within Item 8, under the heading of “Legal Matters” within Note 23, “Commitments and Contingencies.” LIQUIDITY AND CAPITAL RESOURCES Cash Flow Data [[GREPCENT_TABLE]] [["","Years ended December 31,"],["","2021","","2020","","2019"],["Provided by (used for)","($ in millions)"],["Net operating activities","$","1,741.0","","","$","433.0","","","$","617.3"],["Capital expenditures","(200.6)","","","(298.9)","","","(385.6)"],["Payments under long-term supply contracts","\u2014","","","(536.8)","","","\u2014"],["Proceeds from disposition of non-consolidated affiliate","\u2014","","","\u2014","","","20.0"],["Net investing activities","(197.4)","","","(835.7)","","","(365.6)"],["Long-term debt (repayments) borrowings, net","(1,103.1)","","","520.3","","","80.8"],["Debt early redemption premium","(137.7)","","","(14.6)","","","\u2014"],["Stock options exercised","72.4","","","1.9","","","1.7"],["Common stock repurchased and retired","(251.9)","","","\u2014","","","(145.9)"],["Net financing activities","(1,552.0)","","","371.0","","","(209.3)"]] [[/GREPCENT_TABLE]] Operating Activities For 2021, cash provided by operating activities increased by $1,308.0 million from 2020, primarily due to an increase in operating results, partially offset by working capital increases to support operations. For 2021, working capital increased $243.1 million, compared to a decrease of $141.6 million in 2020. The working capital increase primarily reflects a higher sales level. Receivables increased by $360.0 million from December 31, 2020, primarily as a result of higher sales in the fourth quarter of 2021. For the year ended December 31, 2021, our days sales outstanding (DSO), which was calculated by dividing period end accounts receivable by average daily sales for the period, improved from the comparable prior year period. Inventories increased by $206.0 million from December 31, 2020 and accounts payable and accrued liabilities increased $240.1 million, which were both primarily as a result of increased raw material costs. 38 Table of Contents For 2020, cash provided by operating activities decreased by $184.3 million from 2019, primarily due to a decrease in operating results, partially offset by a decrease in the investment in working capital from the prior year. During 2020, we executed a strategy to improve our working capital and manage our balance sheet to maximize our financial flexibility. For 2020, working capital decreased $141.6 million, which included an approximately $67 million investment in working capital to support Lake City operations, compared to a decrease of $11.0 million in 2019. In 2020, inventories decreased by $28.6 million, primarily as a result of lower raw material costs and lower Winchester inventory due to improved commercial ammunition demand, partially offset by the investment in Lake City inventory. Accounts payable and accrued liabilities increased by $149.3 million as a result of specific actions taken by management to improve Olin’s working capital. Investing Activities Capital spending was $200.6 million and $298.9 million in 2021 and 2020, respectively. In 2022, we expect our capital spending to be in the $200.0 million to $250.0 million range. In 2017, we began a multi-year implementation of the Information Technology Project. The project standardized business processes across the chemicals businesses with the objective of maximizing cost effectiveness, efficiency and control across our global operations. The project was completed in 2020. Our results for the years ended December 31, 2020 and 2019 include $41.0 million and $56.0 million, respectively, of capital spending and $73.9 million and $77.0 million, respectively, of expenses associated with this project. For the year ended December 31, 2020, a payment of $461.0 million was made associated with long-term supply contracts to reserve additional ethylene at producer economics and a payment of $75.8 million was made associated with the resolution of a dispute over the allocation to Olin of certain capital costs incurred at our Plaquemine, LA site. Financing Activities During 2021 and 2020, activity of our outstanding debt included: [[GREPCENT_TABLE]] [["","","Long-term Debt Borrowings (Repayments)","","Debt Early Redemption Premiums Paid","","Long-term Debt Borrowings (Repayments)","","Debt Early Redemption Premiums Paid"],["","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["Debt Instrument","","($ in millions)"],["Borrowings:"],["Senior Term Loans","","$","315.0","","","","","$","675.0"],["Receivables Financing Agreement","","225.0","","","","","655.0"],["9.50% senior notes due 2025","","\u2014","","","","","497.5"],["Total borrowings","","$","540.0","","","","","$","1,827.5"],["Repayments:"],["10.00% senior notes due 2025","","$","(500.0)","","","$","25.0","","","$","\u2014","","","$","\u2014"],["9.50% senior notes due 2025","","(391.4)","","","99.4","","","\u2014","","","\u2014"],["9.75% senior notes due 2023","","(120.0)","","","2.9","","","(600.0)","","","14.6"],["5.625% senior notes due 2029","","(80.7)","","","8.0","","","\u2014","","","\u2014"],["5.00% senior notes due 2030","","(34.7)","","","2.4","","","\u2014","","","\u2014"],["Senior Term Loans","","(465.0)","","","\u2014","","","(175.0)","","","\u2014"],["Receivables Financing Agreement","","(50.0)","","","\u2014","","","(530.0)","","","\u2014"],["Finance leases","","(1.3)","","","\u2014","","","(2.2)","","","\u2014"],["Total repayments","","$","(1,643.1)","","","$","137.7","","","$","(1,307.2)","","","$","14.6"],["Long-term debt (repayments) borrowings, net","","$","(1,103.1)","","","","","$","520.3"]] [[/GREPCENT_TABLE]] In 2021, we paid debt issuance costs of $3.9 million, primarily for the amendments to our Senior Credit Facility. In 2020, we paid debt issuance costs of $10.3 million, primarily for the issuance of the 2025 Notes and amendments to our Senior Credit Facility and Receivables Financing Agreement. 39 Table of Contents In 2021, we repurchased and retired 4.7 million shares of common stock with a total value of $251.9 million. In 2020, no shares were repurchased. We issued 3.4 million and 0.1 million shares representing stock options exercised for the year ended December 31, 2021 and 2020, respectively, with a total value of $72.4 million and $1.9 million, respectively. The percent of total debt to total capitalization decreased to 51.2% at December 31, 2021 compared to 72.7% at December 31, 2020, as a result of a lower level of debt outstanding and higher shareholders’ equity primarily resulting from our operating results. Dividends per common share were $0.80 in 2021 and 2020.  Total dividends paid on common stock amounted to $127.8 million and $126.3 million in 2021 and 2020, respectively.  On February 22, 2022, our board of directors declared a dividend of $0.20 per share on our common stock, payable on March 11, 2022 to shareholders of record on March 4, 2022. The payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial condition, our capital requirements and other factors deemed relevant by our board of directors.  In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions. 40 Table of Contents Liquidity and Other Financing Arrangements Our principal sources of liquidity are from cash and cash equivalents, cash flow from operations and borrowings under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities.  Additionally, we believe that we have access to the high yield debt and equity markets. In 2021, we repaid approximately $1.1 billion of our outstanding debt using cash generated from operations. During 2021, activity of our outstanding debt included: [[GREPCENT_TABLE]] [["","","Long-term Debt Borrowings (Repayments)"],["","","Year Ended December 31, 2021"],["Debt Instrument","","($ in millions)"],["Borrowings:"],["Senior Term Loans","","$","315.0"],["Receivables Financing Agreement","","225.0"],["Total borrowings","","$","540.0"],["Repayments:"],["10.00% senior notes due 2025 (Blue Cube 2025 Notes)","","$","(500.0)"],["9.50% senior notes due 2025 (2025 Notes)","","(391.4)"],["9.75% senior notes due 2023 (2023 Notes)","","(120.0)"],["5.625% senior notes due 2029 (2029 Notes)","","(80.7)"],["5.00% senior notes due 2030 (2030 Notes)","","(34.7)"],["Senior Term Loans","","(465.0)"],["Receivables Financing Agreement","","(50.0)"],["Finance leases","","(1.3)"],["Total repayments","","$","(1,643.1)"],["Long-term debt repayments, net","","$","(1,103.1)"]] [[/GREPCENT_TABLE]] On February 24, 2021, we entered into a $1,615.0 million senior secured credit facility (Senior Credit Facility) that amended our existing $1,300.0 million senior secured credit facility. On July 28, 2021, the liens on the collateral provided under the Senior Credit Facility were released based on the achievement of a net leverage ratio below 3.50 for the prior two consecutive fiscal quarters. The Senior Credit Facility includes a senior delayed-draw term loan facility with aggregate commitments of $315.0 million (Delayed Draw Term Loan), a senior term loan facility with aggregate commitments of $500.0 million (2020 Term Loan and together with the Delayed Draw Term Loan, the Senior Term Loans) and a senior revolving credit facility with aggregate commitments in an amount equal to $800.0 million (Senior Revolving Credit Facility). The maturity date for the Senior Credit Facility is July 16, 2024. The amendment modified the pricing grid for the Senior Credit Facility by reducing applicable interest rates on the borrowings under the facility. On March 30, 2021, Olin drew the entire $315.0 million of the Delayed Draw Term Loan and used the proceeds to fund the redemption of the 10.00% senior notes due October 15, 2025. During the year ended December 31, 2021, we repaid $465.0 million of the Senior Term Loans. These repayments satisfied all future required quarterly installments of the Senior Term Loans. The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At December 31, 2021, we had $799.6 million available under our $800.0 million Senior Revolving Credit Facility because we had issued $0.4 million of letters of credit. Under the Senior Credit Facility, we may select various floating-rate borrowing options. The actual interest rate paid on borrowings under the Senior Credit Facility is based on a pricing grid which is dependent upon the net leverage ratio as calculated under the terms of the applicable facility for the prior fiscal quarter. The Senior Credit Facility includes various customary restrictive covenants, including restrictions related to the ratio of debt to earnings before interest expense, taxes, depreciation and amortization (net leverage ratio) and the ratio of earnings before interest expense, taxes, depreciation and amortization to interest expense (coverage ratio). The calculation of debt in our net leverage ratio excludes borrowings under 41 Table of Contents the Receivables Financing Agreement, up to a maximum of $250.0 million, and is reduced by all unrestricted cash and cash equivalents. Compliance with these covenants is determined quarterly. We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2021, 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 a result of our restrictive covenant related to the net leverage ratio, the maximum additional borrowings available to us could be limited in the future. The limitation, if an amendment or waiver from our lenders is not obtained, could restrict our ability to borrow the maximum amounts available under the Senior Revolving Credit Facility and the Receivables Financing Agreement. As of December 31, 2021, there were no covenants or other restrictions that limited our ability to borrow. The overall cash decrease of $9.2 million in 2021 primarily reflects our debt repayments, capital spending, dividends paid and share repurchases funded primarily through our operating results. We believe, based on current and projected levels of cash flow from our operations, together with our cash and cash equivalents on hand and the availability to borrow under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities, we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, fund our operating needs, working capital, and capital expenditure requirements and comply with the financial ratios in our debt agreements. On April 26, 2018, our board of directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $500.0 million.  This program will terminate upon the purchase of $500.0 million of our common stock. On November 1, 2021, our board of directors authorized an additional share repurchase program for the purchase of shares of common stock at an aggregate price of up to $1.0 billion. This program will terminate upon the purchase of $1.0 billion of our common stock. For the year ended December 31, 2021, 4.7 million shares have been repurchased and retired at a cost of $251.9 million. For the year ended December 31, 2020, there were no shares repurchased. As of December 31, 2021, a total of 14.7 million shares were repurchased and retired at a cost of $447.8 million under the 2018 Repurchase Authorization program and $52.2 million of common stock remained authorized to be repurchased under this plan. As of December 31, 2021, there have been no repurchases under the 2021 Repurchase Authorization program and $1.0 billion of common stock remained authorized to be repurchased under this plan. During 2021, we amended our existing $250.0 million Receivables Financing Agreement which expanded the borrowing capacity to $300.0 million (Receivables Financing Agreement) and extended the maturity to September 28, 2024. The Receivables Financing Agreement includes a minimum borrowing requirement of 50% of the facility limit or available borrowing capacity, whichever is less. The administrative agent for our Receivables Financing Agreement is PNC Bank, National Association. Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the leverage covenant that is contained in the Senior Credit Facility. As of December 31, 2021 and 2020, we had $300.0 million and $125.0 million, respectively, drawn under the agreement. As of December 31, 2021, $556.2 million of our trade receivables were pledged as collateral and we had no additional borrowing capacity under the Receivables Financing Agreement. Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR Facilities, certain of our domestic subsidiaries may sell their accounts receivable up to a maximum of $250.0 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €43.4 million. We will continue to service the outstanding accounts sold. These receivables qualify for sales treatment under ASC 860 “Transfers and Servicing” and, accordingly, the proceeds are included in net cash provided by operating activities in the consolidated statements of cash flows. The gross amount of receivables sold for the years ended December 31, 2021 and 2020 totaled $673.4 million and $854.3 million, respectively.  The factoring discount paid under the AR Facilities is recorded as interest expense on the consolidated statements of operations. The factoring discount for the years ended December 31, 2021 and 2020 was $1.1 million and $1.5 million, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2021.  As of December 31, 2021 and 2020, $65.7 million and $48.8 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us. 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. Supplemental Guarantor Financial Information On May 14, 2021, following the redemption of the remaining Blue Cube 2025 Notes, all subsidiary guarantees of the 2025 Notes, 5.125% senior notes due 2027, 2029 Notes and 2030 Notes (collectively, the Senior Notes) were released in accordance with the terms of the indentures governing the Senior Notes. Our obligations under the Senior Notes are no longer 42 Table of Contents guaranteed by any of Olin’s subsidiaries and there are no outstanding debt securities issued by any of Olin’s subsidiaries that are guaranteed by Olin or any other of Olin’s subsidiaries. Contractual Obligations Our current debt structure is used to fund our business operations.  As of December 31, 2021, we had long-term borrowings, including the current installment and finance lease obligations, of $2,779.3 million, of which $805.9 million was at variable rates.  We expect to meet our contractual obligations through our normal sources of liquidity and believe we have the financial resources to satisfy these contractual obligations. We have several defined benefit pension and defined contribution plans, as described in Note 12 “Pension Plans” and Note 16 “Contributing Employee Ownership Plan” in the notes to consolidated financial statements contained in Item 8.  We fund the defined benefit pension plans based on the minimum amounts required by law plus such amounts we deem appropriate.  Given the inherent uncertainty as to actual minimum funding requirements for qualified defined benefit pension plans, no amounts are included in this table for any period beyond one year.  Based on the current funding requirements, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2022. We also have postretirement healthcare plans that provide health and life insurance benefits to certain retired employees and their beneficiaries, as described in Note 13 “Postretirement Benefits” in the notes to consolidated financial statements contained in Item 8.  The defined contribution and other postretirement plans are not pre-funded and expenses are paid by us as incurred. Our long-term contractual commitments associated with debt, contingent tax liabilities, pension and other postretirement benefits consisted of the following: [[GREPCENT_TABLE]] [["","Payments Due by Period"],["","Less than 1 Year","","1-3 Years","","3-5 Years","","More than 5 Years","","Total"],["","($ in millions)"],["Debt obligations, including finance lease obligations(1)","$","201.1","","","$","721.8","","","$","194.7","","","$","1,684.5","","","$","2,802.1"],["Interest payments under debt obligations(2)","116.5","","","214.8","","","183.9","","","195.0","","","710.2"],["Contingent tax liability","13.5","","","5.9","","","19.6","","","4.4","","","43.4"],["International qualified pension plan contributions(3)","1.6","","","7.9","","","10.5","","","283.6","","","303.6"],["Non-qualified pension plan payments","0.8","","","0.7","","","0.7","","","3.1","","","5.3"],["Postretirement benefit payments","3.4","","","6.2","","","5.8","","","35.1","","","50.5"],["Total","$","336.9","","","$","957.3","","","$","415.2","","","$","2,205.7","","","$","3,915.1"]] [[/GREPCENT_TABLE]] (1)Excludes unamortized debt issuance costs and unamortized bond original issue discount of $22.8 million at December 31, 2021. All debt obligations are assumed to be held until maturity. (2)For the purposes of this table, we have assumed for all periods presented that there are no changes in the rates from those in effect at December 31, 2021 which ranged from 0.2% to 9.5%. (3)These amounts are only estimated payments assuming for our foreign qualified pension plans a weighted average annual expected rate of return on pension plan assets of 4.2% and a discount rate on pension plan obligations of 1.4%.  These estimated payments are subject to significant variation and the actual payments may be more than the amounts estimated.  In connection with international qualified defined benefit pension plans we made cash contributions of $1.1 million, $2.1 million and $2.4 million in 2021, 2020 and 2019, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2022.  Non-cancelable operating leases and purchasing commitments are utilized in our normal course of business for our projected needs.  Our operating lease commitments as described in Note 21 “Leases” are primarily for railroad cars, but also include logistics, manufacturing, office and storage facilities and equipment, information technology equipment and land.  Virtually none of our lease agreements contain escalation clauses or step rent provisions.  We also have supply contracts with various third parties for certain raw materials, including ethylene, electricity, propylene and benzene. These contracts have initial terms ranging from several to 20 years. Our long-term contractual commitments associated with operating leases and purchasing commitments consisted of the following: 43 Table of Contents [[GREPCENT_TABLE]] [["","Payments Due by Period"],["","Less than 1 Year","","1-3 Years","","3-5 Years","","More than 5 Years","","Total"],["","($ in millions)"],["Operating leases","86.1","","","125.8","","","80.8","","","149.1","","","441.8"],["Purchasing commitments:"],["Raw materials","1,237.4","","","1,923.3","","","1,114.1","","","3,057.9","","","7,332.7"],["Capital expenditures","6.5","","","\u2014","","","\u2014","","","\u2014","","","6.5"],["Utilities","$","0.1","","","$","0.2","","","$","\u2014","","","$","\u2014","","","0.3"],["Total Purchasing Commitments","$","1,244.0","","","$","1,923.5","","","$","1,114.1","","","$","3,057.9","","","$","7,339.5"]] [[/GREPCENT_TABLE]] Other Guarantees We also have standby letters of credit of $81.1 million of which $0.4 million have been issued through our Senior Revolving Credit Facility.  The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations, certain international payment obligations and certain international pension funding requirements. At December 31, 2021, we had $799.6 million available under our Senior Revolving Credit Facility because we had issued $0.4 million of letters of credit. CRITICAL ACCOUNTING ESTIMATES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities.  Significant estimates in our consolidated financial statements include goodwill recoverability, environmental, restructuring and other unusual items, litigation, income tax reserves including deferred tax asset valuation allowances, pension, postretirement and other benefits and allowance for doubtful accounts.  We base our estimates on prior experience, current facts and circumstances and other assumptions.  Actual results may differ from these estimates. We believe the following critical accounting estimates are the more significant judgments used in the preparation of the consolidated financial statements. 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.  ASC 350 “Intangibles—Goodwill and Other” (ASC 350) permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the goodwill impairment test. 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; adverse cash flow trends; an adverse action or assessment by a government agency; unanticipated competition; sustained 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. We use a discounted cash flow approach to develop the estimated fair value of a reporting unit when a quantitative review is performed.  Management judgment is required in developing the assumptions for the discounted cash flow model.  We also corroborate our discounted cash flow analysis by evaluating a market-based approach that considers earnings before interest, taxes, depreciation and amortization (EBITDA) multiples from a representative sample of comparable public companies.  As a further indicator that each reporting unit has been valued appropriately using a discounted cash flow model, the aggregate fair value of all reporting units is reconciled to the total market value of Olin. An impairment would be recorded if the carrying amount of a reporting unit exceeded the estimated fair value. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. The discount rate, profitability assumptions and terminal growth rate of our reporting units and 44 Table of Contents the supply and demand fundamentals 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, in part 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. Also factoring into the discount rate was a market participant’s perceived risk (such as the company specific risk premium) in the valuation implied by the sustained reduction in our stock price. The discounted cash flow analysis requires estimates, assumptions and judgments about future events.  Our analysis uses our internally generated long-range plan.  Specifically, the assumptions in our long-range plan about terminal growth rates, forecasted capital expenditures and changes in future working capital requirements are used 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 chlor alkali industry operating and pricing forecasts. 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. 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.   Environmental 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 assessments 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.  Environmental costs and recoveries are included in costs of goods sold. 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 and 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, cash flows or results of operations. NEW ACCOUNTING PRONOUNCEMENTS Discussion of new accounting pronouncements can be referred to under Item 8, within Note 3, “Recent Accounting Pronouncements.” DERIVATIVE FINANCIAL INSTRUMENTS We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities, our ongoing investing and financing activities and our operations that use foreign currencies.  The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings.  We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks.  ASC 815 requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at fair value.  In accordance with ASC 815, we designate derivative contracts as cash flow hedges of forecasted purchases of commodities and forecasted interest payments related to variable-rate borrowings and designate certain interest rate swaps as fair value hedges of fixed-rate borrowings.  We do not enter into any derivative instruments for trading or speculative purposes. Energy costs, including electricity and natural gas, and certain raw materials used in our production processes are subject to price volatility.  Depending on market conditions, we may enter into futures contracts, forward contracts, commodity swaps and put and call option contracts in order to reduce the impact of commodity price fluctuations.  The majority of our commodity derivatives expire within one year.   45 Table of Contents 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 in earnings. We use cash flow hedges for certain raw material and energy costs such as copper, zinc, lead, ethane, 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.  Settlements on commodity derivative contracts resulted in gains (losses) of $180.1 million, $(14.9) million, and $31.1 million in 2021, 2020, and 2019, respectively which were included in cost of goods sold.  At December 31, 2021, we had open derivative notional contract positions through 2027 totaling $224.3 million (2020—$214.1 million).  If all open futures contracts had been settled on December 31, 2021, we would have recognized a pretax gain of $30.3 million. If commodity prices were to remain at December 31, 2021 levels, approximately $17.3 million of deferred gains, net of tax, would be reclassified into earnings during the next twelve months.  The actual effect on earnings will be dependent on actual commodity prices when the forecasted transactions occur. We use interest rate swaps as a means of minimizing cash flow fluctuations that may arise from volatility in interest rates of our variable-rate borrowings. For the year ended December 31, 2019, $4.3 million of income was recorded to interest expense on the accompanying consolidated statements of operations related to these swap agreements. We also use interest rate swaps as a means of managing interest expense and floating interest rate exposure to optimal levels.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.  We include the gain or loss on the hedged items (fixed-rate borrowings) in the same line item, interest expense, as the offsetting loss or gain on the related interest rate swaps.   In August 2019, we terminated the interest rate swaps designated as fair value hedges which resulted in a loss of $2.3 million that was deferred as an offset to the carrying value of the related debt and was subsequently recognized to interest expense. In 2021, we redeemed the 2025 Notes which resulted in recognition of the outstanding deferred swap loss. For the years ended December 31, 2021, 2019 and 2018, $1.8 million, $0.4 million and $2.6 million, respectively, of expense was recorded to interest expense on the accompanying consolidated statements of operations related to these swap agreements. We actively manage currency exposures that are associated with net monetary asset positions, currency purchases and sales commitments denominated in foreign currencies and foreign currency denominated assets and liabilities created in the normal course of business. We enter into forward sales and purchase contracts to manage currency risk to offset our net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of our operations. At December 31, 2021, we had outstanding forward contracts to buy foreign currency with a notional value of $199.0 million and to sell foreign currency with a notional value of $124.4 million. All of the currency derivatives expire within one year and are for U.S. dollar (USD) equivalents. The counterparties to the forward contracts are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could impact our financial position or results of operations. At December 31, 2020, we had outstanding forward contracts to buy foreign currency with a notional value of $169.9 million and to sell foreign currency with a notional value of $113.6 million. Our foreign currency forward contracts and certain commodity derivatives did not meet the criteria to qualify for hedge accounting.  The effect on operating results of items not qualifying for hedge accounting was a (loss) gain of $(22.0) million, $17.7 million and $(4.0) million in 2021, 2020 and 2019, respectively. 46 Table of Contents The fair value of our derivative asset and liability balances were: [[GREPCENT_TABLE]] [["","December 31,"],["","2021","","2020"],["","($ in millions)"],["Other current assets","$","26.8","","","$","24.2"],["Other assets","7.9","","","7.2"],["Total derivative asset","$","34.7","","","$","31.4"],["Accrued liabilities","$","3.5","","","$","0.1"],["Other liabilities","0.3","","","0.6"],["Total derivative liability","$","3.8","","","$","0.7"]] [[/GREPCENT_TABLE]]