# OLIN Corp (OLN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from OLIN Corp's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/74303/000007430323000054/oln-20221231.htm
Accession: 0000074303-23-000054
Filing date: 2023-02-23
Report date: 2022-12-31
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/
Previous year: /company/OLN/mda/fy2021/ (FY 2021)
Next year: /company/OLN/mda/fy2023/ (FY 2023)

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 systems and growth 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

2022 Overview

Net income was $1,326.9 million for 2022 compared to $1,296.7 million for 2021, an increase of $30.2 million, or 2%. The increase in results from the prior year was primarily due to improved operating results in our Chlor Alkali Products and Vinyls segment and lower interest expense, partially offset by a decline in the operating results of our Epoxy and Winchester business segments. Diluted net income per share was $8.94 for 2022 compared to $7.96 for 2021, an increase of $0.98 per share, or 12%. The increase in diluted net income per share was positively impacted by share repurchases throughout 2022.

Chlor Alkali Products and Vinyls reported segment income of $1,181.3 million for 2022 compared to $997.8 million for 2021. Chlor Alkali Products and Vinyls segment results were higher than in the prior year due to higher pricing across all products except vinyls intermediates, partially offset by higher raw materials and operating costs and lower volumes across all products.

Epoxy reported segment income of $388.5 million for 2022 compared to $616.5 million for 2021.  Epoxy segment results were lower than in the prior year primarily due to lower volumes across all products and higher raw materials costs, primarily benzene and propylene, and higher operating costs, partially offset by higher product prices.

Winchester reported segment income of $372.9 million for 2022 compared to $412.1 million for 2021.  Winchester segment results were lower than in the prior year primarily due to lower commercial volumes and higher commodity and operating costs, partially offset by increased commercial ammunition pricing. During 2022, Winchester experienced a transition in its commercial ammunition business from refilling depleted supply chains to filling inventories at the rate of its customers’ sales. In some cases, customers inventories became too high so Winchester chose to preserve value by manufacturing and selling less commercial ammunition.

Liquidity and Share Repurchases

In July 2022, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $2.0 billion. This program will terminate upon the purchase of $2.0 billion of common stock. During 2022, we repurchased and retired 25.7 million shares of common stock at a total value of $1,350.7 million, most of which were repurchased under prior authorized share repurchase programs. As of December 31, 2022, we have $1,701.5 million of remaining authorized common stock to be repurchased under the 2022 Repurchase Authorization program.

During 2022, we repaid $201.1 million of long-term debt which became due utilizing cash on hand.

During 2022, we entered into a new $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our existing senior credit facility. Pursuant to the agreement, the aggregate commitments under our senior revolving credit facility were increased from $800.0 million to $1,200.0 million and the aggregate principal amount under our senior term loan facility remained at $350.0 million. The Senior Credit Facility will mature in October 2027.

28

Table of Contents

During 2022, we also amended our existing Receivables Financing Agreement which increased the aggregate borrowing capacity from $300.0 million to $425.0 million and extended the maturity to October 2025.

Other Events

The invasion of Ukraine by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty. Russia sales represented less than 0.5% of our total sales for the full year 2021. During the first quarter of 2022, we ceased all sales to and purchases from Russia. Additionally, sanctions from the U.S. and the European Union continue to evolve, along with the overall impact the invasion has on the global economic and political environment. We continue to closely monitor the changing environment, including the increased volatility and heightened degree of uncertainty resulting from the invasion. As of now, the direct impact on our operations has not been significant, but we are unable to fully determine the future impact the invasion and the corresponding global response will have on our business.

CONSOLIDATED RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021","","2020"],["","($ in millions, except per share data)"],["Sales","$","9,376.2","","","$","8,910.6","","","$","5,758.0"],["Cost of goods sold","7,194.3","","","6,616.4","","","5,374.6"],["Gross margin","2,181.9","","","2,294.2","","","383.4"],["Selling and administration","393.9","","","416.9","","","422.0"],["Restructuring charges","25.3","","","27.9","","","9.0"],["Goodwill impairment","\u2014","","","\u2014","","","699.8"],["Other operating income","16.3","","","1.4","","","0.7"],["Operating income (loss)","1,779.0","","","1,850.8","","","(746.7)"],["Interest expense","143.9","","","348.0","","","292.7"],["Interest income","2.2","","","0.2","","","0.5"],["Non-operating pension income","38.7","","","35.7","","","18.9"],["Income (loss) before taxes","1,676.0","","","1,538.7","","","(1,020.0)"],["Income tax provision (benefit)","349.1","","","242.0","","","(50.1)"],["Net income (loss)","$","1,326.9","","","$","1,296.7","","","$","(969.9)"],["Net income (loss) per common share:"],["Basic","$","9.16","","","$","8.15","","","$","(6.14)"],["Diluted","$","8.94","","","$","7.96","","","$","(6.14)"]]
[[/GREPCENT_TABLE]]

2022 Compared to 2021

Sales for 2022 were $9,376.2 million compared to $8,910.6 million in 2021, an increase of $465.6 million, or 5%.  Chlor Alkali Products and Vinyls sales increased by $944.2 million, primarily due to higher pricing across all products, except vinyls intermediates, partially offset by lower volumes. Winchester sales increased by $16.9 million, primarily due to increased commercial ammunition pricing partially offset by lower volumes. Epoxy sales decreased by $495.5 million, primarily due to lower volumes partially offset by higher product prices.

Gross margin in 2022 decreased $112.3 million from 2021. Epoxy gross margin decreased by $238.4 million and Winchester gross margin decreased by $36.2 million, primarily due to lower volumes and higher raw material and operating costs, partially offset by higher product pricing. Chlor Alkali Products and Vinyls gross margin increased by $185.2 million, primarily due to higher pricing, partially offset by higher raw material and operating costs and lower volumes. Gross margin as a percentage of sales decreased to 23% in 2022 from 26% in 2021.

29

Table of Contents

Selling and administration expenses in 2022 decreased $23.0 million, or 6%, from 2021. The decrease was primarily due to lower variable incentive compensation expense of $35.4 million, which includes mark-to-market adjustments on stock-based compensation expense, partially offset by higher legal and legal-related settlement expense of $7.1 million and an unfavorable foreign currency impact of $7.5 million. Selling and administration expenses as a percentage of sales decreased to 4% in 2022 from 5% in 2021.

Restructuring charges for 2022 were $25.3 million compared to $27.9 million in 2021. The decrease 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, which resulted in pretax restructuring charges of $10.1 million for 2021. Partially offsetting this action, during the fourth quarter 2022, we committed and completed a plan to close down one of our BisA production lines at our Stade, Germany site. This action resulted in pretax restructuring charges of $8.0 million for 2022.

Other operating income for 2022 included $13.0 million of gains for the sale of two former manufacturing facilities.

Interest expense in 2022 decreased $204.1 million from 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 2022 and 2021 was reduced by capitalized interest of $3.1 million and $3.2 million, respectively. Without these items, interest expense decreased by $52.0 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.

The effective tax rate for 2022 included a benefit associated with a legal entity liquidation, prior year tax positions and stock-based compensation, a benefit from remeasurement of deferred taxes due to a decrease in our state effective tax rates, an expense associated with a net increase in the valuation allowance related to state tax credits and an expense from a change in tax contingencies. These factors resulted in a net $60.2 million tax benefit. After giving consideration to these items, the effective tax rate for 2022 of 24.4% was higher than the 21% U.S. federal statutory rate primarily due to state taxes, an increase in the valuation allowance related to losses in foreign jurisdictions and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions. 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.

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.

30

Table of Contents

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 $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 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.

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 $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.

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 and caustic soda used in our Epoxy segment is transferred at cost from the Chlor Alkali Products and Vinyls segment.

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021","","2020"],["Sales:","($ in millions)"],["Chlor Alkali Products and Vinyls","$","5,085.0","","","$","4,140.8","","","$","2,959.9"],["Epoxy","2,690.5","","","3,186.0","","","1,870.5"],["Winchester","1,600.7","","","1,583.8","","","927.6"],["Total sales","$","9,376.2","","","$","8,910.6","","","$","5,758.0"],["Income (loss) before taxes:"],["Chlor Alkali Products and Vinyls","$","1,181.3","","","$","997.8","","","$","3.5"],["Epoxy","388.5","","","616.5","","","40.8"],["Winchester","372.9","","","412.1","","","92.3"],["Corporate/Other:"],["Environmental expense(1)","(23.2)","","","(14.0)","","","(20.9)"],["Other corporate and unallocated costs(2)","(131.5)","","","(135.1)","","","(154.3)"],["Restructuring charges","(25.3)","","","(27.9)","","","(9.0)"],["Goodwill impairment","\u2014","","","\u2014","","","(699.8)"],["Other operating income(3)","16.3","","","1.4","","","0.7"],["Interest expense(4)","(143.9)","","","(348.0)","","","(292.7)"],["Interest income","2.2","","","0.2","","","0.5"],["Non-operating pension income","38.7","","","35.7","","","18.9"],["Income (loss) before taxes","$","1,676.0","","","$","1,538.7","","","$","(1,020.0)"]]
[[/GREPCENT_TABLE]]

(1)Environmental expense for the years ended December 31, 2022 and 2021 included $1.0 million and $2.2 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 year ended December 31, 2020 included costs associated with the implementation of the Information Technology Project of $73.9 million.

(3)Other operating income for the year ended December 31, 2022 included $13.0 million of gains for the sale of two former manufacturing facilities. Other operating income for the year ended December 31, 2021 included a $1.4 million gain on the sale of a terminal facility.

(4)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 year ended 2020 included $4.0 million of accretion expense related to the ethylene payment discount. Interest expense was reduced by capitalized interest of $3.1 million, $3.2 million and $6.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

32

Table of Contents

Chlor Alkali Products and Vinyls

2022 Compared to 2021

Chlor Alkali Products and Vinyls sales for 2022 were $5,085.0 million compared to $4,140.8 million for 2021, an increase of $944.2 million, or 23%.  The sales increase was primarily due to higher pricing across all products except vinyls intermediates partially offset by lower volumes.

Chlor Alkali Products and Vinyls reported segment income of $1,181.3 million for 2022 compared to $997.8 million for 2021, an increase of $183.5 million.  Chlor Alkali Products and Vinyls 2021 operating results were favorably impacted by Winter Storm Uri ($121.4 million), which 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. Without the impact of Winter Storm Uri, the increase in segment results of $304.9 million was due to higher prices across all products, except vinyls intermediates ($1,495.9 million), partially offset by higher raw material and operating costs ($491.4 million), primarily increased natural gas and electrical power costs, lower volumes across all products ($479.2 million) and increased costs associated with product purchased from other parties ($220.4 million). Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $482.2 million and $466.4 million in 2022 and 2021, respectively.

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 reported 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 Product and Vinyls segment results was 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.

Epoxy

2022 Compared to 2021

Epoxy sales were $2,690.5 million for 2022 compared to $3,186.0 million for 2021, a decrease of $495.5 million, or 16%.  The sales decrease was due to lower volumes ($942.1 million) and an unfavorable effect of foreign currency translation ($144.1 million), partially offset by higher product prices ($590.7 million).

Epoxy reported segment income of $388.5 million for 2022 compared to $616.5 million for 2021, a decrease of $228.0 million. Epoxy 2021 operating results were unfavorably impacted by Winter Storm Uri ($21.5 million), which included unabsorbed fixed manufacturing costs and storm-related maintenance costs. Without the impact of Winter Storm Uri, the decrease in segment results of $249.5 million was due to lower volumes ($460.5 million), higher raw material costs ($260.3 million), primarily benzene and propylene, higher operating costs ($106.5 million), primarily increased natural gas and electrical power costs, and a net unfavorable foreign currency impact ($12.9 million). These decreases were partially offset by higher product prices ($590.7 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 $83.3 million and $86.1 million in 2022 and 2021, respectively.

33

Table of Contents

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 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 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.

Winchester

2022 Compared to 2021

Winchester sales were $1,600.7 million for 2022 compared to $1,583.8 million for 2021, an increase of $16.9 million, or 1%.  The increase was due to higher sales to military customers ($23.7 million) and law enforcement agencies ($18.2 million) partially offset by lower commercial sales ($25.0 million). The lower commercial sales were primarily due to lower volumes, partially offset by higher pricing. During 2022, Winchester experienced a transition in its commercial ammunition business from refilling depleted supply chains to filling inventories at the rate of its customers’ sales. In some cases, customers inventories became too high so Winchester chose to preserve value by manufacturing and selling less commercial ammunition.

Winchester reported segment income of $372.9 million for 2022 compared to $412.1 million for 2021, a decrease of $39.2 million.  The decrease in segment results was due to higher commodity and operating costs ($86.9 million) and lower volumes ($80.8 million), partially offset by higher product pricing ($128.4 million). Winchester segment results included depreciation and amortization expense of $24.6 million and $23.3 million in 2022 and 2021, respectively.

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.

Corporate/Other

2022 Compared to 2021

For the year ended December 31, 2022 and 2021, environmental expense included $1.0 million and $2.2 million, respectively, 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, 2022 would have been $24.2 million, compared to $16.2 million for the year ended December 31, 2021. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For 2022, other corporate and unallocated costs were $131.5 million compared to $135.1 million for 2021, a decrease of $3.6 million, or 3%.  The decrease was primarily due to lower variable incentive compensation costs ($27.9 million), which

34

Table of Contents

includes mark-to-market adjustments on stock-based compensation expense, partially offset by higher legal and legal-related settlement expenses ($7.6 million) and an unfavorable foreign currency impact ($7.1 million).

2021 Compared to 2020

For the year ended December 31, 2021, environmental expense 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 of costs associated with the implementation of the Information Technology Project ($73.9 million), which was completed in late 2020, partially offset by higher variable incentive compensation costs ($45.7 million), which includes mark-to-market adjustments on stock-based compensation expense, and an unfavorable foreign currency impact ($7.0 million).

Restructurings

As a result of weak global resin demand and higher cost structures within the European region, we began a review of our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model. We committed to and completed a plan during the fourth quarter of 2022 to close down one of our BisA production lines at our Stade, Germany site. For the year ended December 31, 2022, we recorded pretax restructuring charges of $8.0 million for employee severance and related benefit costs and the write-off of equipment and facility costs related to this action. We expect to incur additional restructuring charges through 2024 of approximately $10 million 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. The closure was completed during third quarter of 2022. For the years ended December 31, 2022 and 2021, we recorded pretax restructuring charges of $8.3 million and $5.6 million, respectively, for write-off of equipment and facility costs, lease and other contract termination costs and for facility exit costs related to this action. We expect to incur additional restructuring charges through 2027 of approximately $30 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 were completed in the fourth quarter of 2021. For the years ended December 31, 2022 and 2021, we recorded pretax restructuring charges of $2.6 million and $6.5 million, respectively, for facility exit costs related to these actions. We expect to incur additional restructuring charges through 2024 of approximately $15 million related to these actions.

On December 11, 2019, we announced that we had made the decision to permanently close a chlor alkali plant with a capacity of 230,000 tons and our VDC production facility, both in Freeport, TX.  The VDC facility and related chlor alkali plant were closed during the fourth quarter of 2020 and second quarter of 2021, respectively. For the years ended December 31, 2022 and 2021, we recorded pretax restructuring charges of $6.0 million and $3.9 million, respectively, for facility exit costs related to these actions. We expect to incur additional restructuring charges through 2026 of approximately $30 million related to these actions.

Olin committed to a productivity initiative to align the organization with our strategic operating model and improve efficiencies. 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.

35

Table of Contents

2023 OUTLOOK

In 2023, we expect the challenging global economic conditions to continue as we expect operating results to decline across all our business segments compared to 2022. We expect our chemical businesses to continue to be tested by European and North American epoxy demand weakness and vinyls intermediates demand weakness. As a result, we expect the first quarter 2023 operating results from our Chemical businesses to be slightly lower than fourth quarter 2022 levels. We expect our Winchester business first quarter 2023 results to increase sequentially from fourth quarter 2022 but to be lower than first quarter 2022 levels due to lower commercial ammunition shipments. Overall, we expect Olin’s first quarter 2023 operating results to slightly decline from fourth quarter 2022 levels.

Other Corporate and Unallocated costs in 2023 are expected to be comparable with the $131.5 million in 2022.

During 2023, we anticipate environmental expenses in the $25 million to $30 million range, compared to $23.2 million in 2022.

We expect non-operating pension income in 2023 to be in the $25 million to $30 million range compared to $38.7 million in 2022. 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 2023. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less than $5 million in 2023.

In 2023, we currently expect our capital spending to be in the $200 million to $250 million range and we expect to make payments under other long-term supply contracts in the $50 million to $100 million range for energy modernization on the U.S. Gulf Coast. We expect 2023 depreciation and amortization expense to be in the $550 million to $575 million range.

We currently believe the 2023 effective tax rates will be in the 25% to 30% range and our cash tax rate to be in the 30% to 35% range as a result of previously deferred international tax payments expected to be made in 2023.

PENSION AND POSTRETIREMENT BENEFITS

We recorded an after-tax benefit of $46.8 million ($72.1 million pretax) to shareholders’ equity as of December 31, 2022 for our pension and other postretirement plans.  This benefit primarily reflected a 260-basis point increase in the domestic pension plans’ discount rate and a 230-basis point increase in the international defined benefit pension plans’ discount rate, partially offset by unfavorable performance on plan assets during 2022. In 2021, 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 charge 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. These non-cash charges to shareholders’ equity do not affect our ability to borrow under our senior credit facility.

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 2023.

In connection with international qualified defined benefit pension plans, we made cash contributions of $1.3 million, $1.1 million and $2.1 million in 2022, 2021 and 2020, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2023.  

At December 31, 2022, the projected benefit obligation of $2,115.3 million exceeded the market value of assets in our qualified defined benefit pension plans by $227.1 million, as calculated under Accounting Standards Codification (ASC) 715 “Compensation—Retirement Benefits”.

36

Table of Contents

Components of net periodic benefit (income) costs were:

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021","","2020"],["","($ in millions)"],["Pension benefits","$","(33.0)","","","$","(27.5)","","","$","(11.7)"],["Other postretirement benefit costs","3.8","","","4.5","","","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,"],["","2022","","2021","","2020"],["Cash outlays:","($ in millions)"],["Remedial and investigatory spending (charged to reserve)","$","24.6","","","$","16.4","","","$","12.8"],["Capital spending","1.5","","","4.1","","","3.8"],["Plant operations (charged to cost of goods sold)","178.8","","","194.9","","","182.8"],["Total cash outlays","$","204.9","","","$","215.4","","","$","199.4"]]
[[/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 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 2023 are estimated to be approximately $215 million, of which approximately $25 million to $30 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.  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,"],["","2022","","2021","","2020"],["","($ in millions)"],["Beginning balance","$","147.3","","","$","147.2","","","$","139.0"],["Charges to income","24.2","","","16.2","","","20.9"],["Remedial and investigatory spending","(24.6)","","","(16.4)","","","(12.8)"],["Foreign currency translation adjustments","(0.3)","","","0.3","","","0.1"],["Ending balance","$","146.6","","","$","147.3","","","$","147.2"]]
[[/GREPCENT_TABLE]]

37

Table of Contents

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, 2022.  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. 

Environmental provisions charged to income, which are included in cost of goods sold, were as follows:

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021","","2020"],["","($ in millions)"],["Provisions charged to income","$","24.2","","","$","16.2","","","$","20.9"],["Insurance recoveries for costs incurred and expensed","(1.0)","","","(2.2)","","","\u2014"],["Environmental expense","$","23.2","","","$","14.0","","","$","20.9"]]
[[/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, 2022 and 2021 included $1.0 million and $2.2 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 22 “Commitments and Contingencies.”

38

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Data

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021","","2020"],["Provided by (used for)","($ in millions)"],["Net operating activities","$","1,921.9","","","$","1,741.0","","","$","433.0"],["Capital expenditures","(236.9)","","","(200.6)","","","(298.9)"],["Payments under long-term supply contracts","(37.7)","","","\u2014","","","(536.8)"],["Net investing activities","(259.7)","","","(197.4)","","","(835.7)"],["Long-term debt (repayments) borrowings, net","(201.1)","","","(1,103.1)","","","520.3"],["Debt early redemption premium","\u2014","","","(137.7)","","","(14.6)"],["Common stock repurchased and retired","(1,350.7)","","","(251.9)","","","\u2014"],["Stock options exercised","25.7","","","72.4","","","1.9"],["Dividends paid","(116.2)","","","(127.8)","","","(126.3)"],["Net financing activities","(1,646.7)","","","(1,552.0)","","","371.0"]]
[[/GREPCENT_TABLE]]

Operating Activities

For 2022, cash provided by operating activities increased by $180.9 million from 2021, primarily due to a decrease in working capital compared with the prior year. For 2022, working capital decreased $65.2 million, compared to an increase of $243.1 million in 2021. Receivables decreased by $160.8 million from December 31, 2021, primarily as a result of lower sales in the fourth quarter of 2022 compared to fourth quarter of 2021. Inventories increased by $86.3 million from December 31, 2021 primarily as a result of increased raw material costs and increased inventory quantities within our Winchester and Epoxy businesses.

For 2021, cash provided by operating activities increased by $1,308.0 million from 2020, primarily due to a 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.

Investing Activities

Capital spending was $236.9 million and $200.6 million in 2022 and 2021, respectively. In 2023, we expect our capital spending to be in the $200 million to $250 million range.

For the year ended December 31, 2022, payments of $37.7 million were made under other long-term supply contracts for energy modernization projects on the U.S. Gulf Coast and we expect to make payments in the $50 million to $100 million range in 2023.

For the year ended December 31, 2022, we received proceeds of $14.9 million for the sale of two former manufacturing facilities.

Financing Activities

During 2022 and 2021, activity of our outstanding debt included:

39

Table of Contents

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2022","","Year Ended December 31, 2021"],["","","Long-term Debt Borrowings (Repayments)","","","","Long-term Debt Borrowings (Repayments)","","Debt Early Redemption Premiums Paid"],["Debt Instrument","","($ in millions)"],["Borrowings:"],["Senior Revolving Credit Facility","","$","320.0","","","","","$","\u2014"],["Senior Term Loans","","\u2014","","","","","315.0"],["Receivables Financing Agreement","","95.0","","","","","225.0"],["Total borrowings","","$","415.0","","","","","$","540.0"],["Repayments:"],["10.00% senior notes, due 2025 (Blue Cube 2025 Notes)","","$","\u2014","","","","","$","(500.0)","","","$","25.0"],["9.50% senior notes, due 2025 (2025 Notes)","","\u2014","","","","","(391.4)","","","99.4"],["9.75% senior notes, due 2023 (2023 Notes)","","\u2014","","","","","(120.0)","","","2.9"],["5.625% senior notes, due 2029 (2029 Notes)","","\u2014","","","","","(80.7)","","","8.0"],["5.00% senior notes, due 2030 (2030 Notes)","","\u2014","","","","","(34.7)","","","2.4"],["5.50% senior notes, due 2022 (2022 Notes)","","(200.0)","","","","","\u2014","","","\u2014"],["Senior Revolving Credit Facility","","(320.0)","","","","","\u2014","","","\u2014"],["Senior Term Loans","","\u2014","","","","","(465.0)","","","2.0"],["Receivables Financing Agreement","","(95.0)","","","","","(50.0)","","","\u2014"],["Finance leases","","(1.1)","","","","","(1.3)","","","\u2014"],["Total repayments","","$","(616.1)","","","","","$","(1,643.1)","","","$","137.7"],["Long-term debt repayments, net","","$","(201.1)","","","","","$","(1,103.1)"]]
[[/GREPCENT_TABLE]]

In 2022 and 2021, we paid debt issuance costs of $4.4 million and $3.9 million, respectively, primarily for the refinancing of our senior credit facilities.

In 2022 and 2021, we repurchased and retired 25.7 million and 4.7 million shares, respectively, of common stock with a total value of $1,350.7 million and $251.9 million, respectively.

In 2022 and 2021, we issued 1.1 million and 3.4 million shares, respectively, with a total value of $25.7 million and $72.4 million, respectively, representing stock options exercised.

The percent of total debt to total capitalization decreased to 50.4% at December 31, 2022 compared to 51.2% at December 31, 2021, as a result of a lower level of debt outstanding, partially offset by lower shareholders’ equity, primarily due to common stock repurchases partially offset by our operating results.

Dividends per common share were $0.80 in 2022 and 2021.  Total dividends paid on common stock amounted to $116.2 million and $127.8 million in 2022 and 2021, respectively.  On February 22, 2023, our board of directors declared a dividend of $0.20 per share on our common stock, payable on March 13, 2023 to shareholders of record on March 6, 2023.

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 2022, we repaid approximately $201.1 million of our outstanding debt using cash generated from operations. During 2022, activity of our outstanding debt included:

[[GREPCENT_TABLE]]
[["","","Long-term Debt Borrowings (Repayments)"],["","","Year Ended December 31, 2022"],["Debt Instrument","","($ in millions)"],["Borrowings:"],["Senior Revolving Credit Facility","","$","320.0"],["Receivables Financing Agreement","","95.0"],["Total borrowings","","$","415.0"],["Repayments:"],["5.50% senior notes, due 2022","","(200.0)"],["Senior Revolving Credit Facility","","(320.0)"],["Receivables Financing Agreement","","(95.0)"],["Finance leases","","(1.1)"],["Total repayments","","$","(616.1)"],["Long-term debt repayments, net","","$","(201.1)"]]
[[/GREPCENT_TABLE]]

On October 11, 2022, we entered into a new $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our existing senior credit facility (2021 Senior Credit Facility) which included outstanding senior term loans of $350.0 million and a senior revolving credit facility with aggregate commitments in an amount equal to $800.0 million. The Senior Credit Facility includes a senior term loan facility with aggregate commitments of $350.0 million (Term Loan Facility) and a senior revolving credit facility with aggregate commitments of $1,200.0 million (Senior Revolving Credit Facility). The Term Loan Facility was fully drawn on the closing date with the proceeds of the Term Loan Facility used to refinance the loans and commitments outstanding under the 2021 Senior Credit Facility. The Term Loan Facility will require principal amortization amounts payable beginning March 31, 2023 at a rate of 0.625% per quarter through the end of 2024, increasing to 1.250% per quarter thereafter until maturity. The maturity date for the Senior Credit Facility is October 11, 2027.

The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility. At December 31, 2022, we had $1,199.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had issued $0.4 million of letters of credit.

We were in compliance with all covenants and restrictions under all our outstanding credit agreements as of December 31, 2022, 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, 2022, there were no covenants or other restrictions that limited our ability to borrow.

41

Table of Contents

The overall cash increase of $13.5 million in 2022 primarily reflects our operating results, partially offset by our share repurchases, capital spending, debt repayments and dividends paid. 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 July 28, 2022, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $2.0 billion. This program will terminate upon the purchase of $2.0 billion of common stock. On November 1, 2021, our Board of Directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $1.0 billion. This program terminated upon the purchase of $1.0 billion of our common stock during the third quarter of 2022. 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 terminated upon the purchase of $500.0 million of our common stock during the first quarter of 2022.

For the years ended December 31, 2022 and 2021, 25.7 million and 4.7 million shares, respectively, of common stock have been repurchased and retired at a total value of $1,350.7 million and $251.9 million, respectively. As of December 31, 2022, a cumulative total of 5.9 million shares were repurchased and retired at a cost of $298.5 million and $1,701.5 million of common stock remained authorized to be repurchased under the 2022 Repurchase Authorization program.

On October 11, 2022, we amended our existing $300 million Receivables Financing Agreement which increased the facility limit to $425.0 million and extended the maturity to October 14, 2025 (Receivables Financing Agreement). Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the net leverage ratio covenant that is contained in the Senior Credit Facility. As of both December 31, 2022 and 2021, we had $300.0 million drawn under the agreement. As of December 31, 2022, $654.0 million of our trade receivables were pledged as collateral and we had $125.0 million 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 $207.7 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €42.9 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, 2022 and 2021 totaled $1,049.7 million and $876.4 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, 2022 and 2021 was $3.1 million and $1.1 million, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2022.  As of December 31, 2022 and 2021, $111.8 million and $83.3 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.

Credit Ratings

We receive ratings from three independent credit rating agencies: Fitch Ratings (Fitch), Moody's Investor Service (Moody's) and Standard & Poor's (S&P). The following table summarizes our credit ratings as of January 31, 2023:

[[GREPCENT_TABLE]]
[["Credit Ratings","","Long-term Rating","","Outlook"],["Fitch Ratings","","BBB-","","Stable"],["Moody\u2019s Investors Service","","Ba1","","Stable"],["Standard & Poor\u2019s","","BB+","","Positive"]]
[[/GREPCENT_TABLE]]

On January 12, 2023, Fitch assigned a first-time inaugural rating of BBB- and a stable outlook. On June 10, 2022, Moody's upgraded Olin to Ba1 from Ba2, and changed its outlook from Positive to Stable. On March 31, 2022, S&P affirmed Olin’s BB+ rating, and revised its outlook from stable to positive.

42

Table of Contents

Contractual Obligations

Our current debt structure is used to fund our business operations.  As of December 31, 2022, we had long-term borrowings, including the current installment and finance lease obligations, of $2,580.7 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 2023. 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)","$","9.7","","","$","508.7","","","$","898.0","","","$","1,184.6","","","$","2,601.0"],["Interest payments under debt obligations(2)","143.9","","","274.1","","","209.3","","","113.5","","","740.8"],["Contingent tax liability","18.3","","","14.9","","","14.0","","","4.4","","","51.6"],["International qualified pension plan payments(3)","6.4","","","8.9","","","11.9","","","158.5","","","185.7"],["Non-qualified pension plan payments","0.7","","","0.6","","","1.4","","","1.5","","","4.2"],["Postretirement benefit payments","2.9","","","5.3","","","4.8","","","21.9","","","34.9"],["Total","$","181.9","","","$","812.5","","","$","1,139.4","","","$","1,484.4","","","$","3,618.2"]]
[[/GREPCENT_TABLE]]

(1)Excludes unamortized debt issuance costs and unamortized bond original issue discount of $20.3 million at December 31, 2022. 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, 2022 which ranged from 4.55% 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 3.8% and a discount rate on pension plan obligations of 3.7%.  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 $1.3 million, $1.1 million and $2.1 million in 2022, 2021 and 2020, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2023. 

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 railcars, but also include logistics, manufacturing, storage, real estate, and information technology assets.  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","$","81.8","","","$","126.5","","","$","80.7","","","$","138.3","","","$","427.3"],["Purchasing commitments:"],["Raw materials","949.7","","","1,776.1","","","631.1","","","3,088.8","","","6,445.7"],["Capital expenditures","8.1","","","\u2014","","","\u2014","","","\u2014","","","8.1"],["Long-term energy supply contracts","75.0","","","76.4","","","\u2014","","","\u2014","","","151.4"],["Utilities","11.9","","","23.7","","","12.2","","","8.6","","","56.4"],["Total Purchasing Commitments","$","1,044.7","","","$","1,876.2","","","$","643.3","","","$","3,097.4","","","$","6,661.6"]]
[[/GREPCENT_TABLE]]

Other Guarantees

We also have standby letters of credit of $89.8 million of which $0.4 million have been issued under our Senior Revolving Credit Facility.  The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations, certain international payment obligations and certain international pension funding requirements. At December 31, 2022, we had $1,199.6 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” 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 a quantitative 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.

44

Table of Contents

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 the supply and demand fundamentals of the chlor alkali industry are 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 is 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 estimated 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 on 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 potentially responsible parties (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 “Derivatives and Hedging” (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

45

Table of Contents

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.  

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 $58.2 million, $180.1 million, and $(14.9) million in 2022, 2021, and 2020, respectively which were included in cost of goods sold.  At December 31, 2022, we had open derivative notional contract positions through 2027 totaling $261.2 million (2021—$224.3 million).  If all open futures contracts had been settled on December 31, 2022, we would have recognized a pretax loss of $43.5 million.

If commodity prices were to remain at December 31, 2022 levels, approximately $30.5 million of deferred losses, 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. 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 2021, we redeemed the 2025 Notes which resulted in recognition of the outstanding deferred swap loss. For the year ended December 31, 2021, $1.8 million 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, 2022, we had outstanding forward contracts to buy foreign currency with a notional value of $275.8 million and to sell foreign currency with a notional value of $110.7 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, 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.

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 $(27.3) million, $(22.0) million and $17.7 million in 2022, 2021 and 2020, respectively.

The fair value of our derivative asset and liability balances were:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2022","","2021"],["","($ in millions)"],["Other current assets","$","1.8","","","$","26.8"],["Other assets","4.0","","","7.9"],["Total derivative asset","$","5.8","","","$","34.7"],["Accrued liabilities","$","42.5","","","$","3.5"],["Other liabilities","7.4","","","0.3"],["Total derivative liability","$","49.9","","","$","3.8"]]
[[/GREPCENT_TABLE]]

46

Table of Contents