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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 166 added, 102 removed, 172 unchanged (61% of the section changed)

12 unchanged sentences

2023 Overview

Net income for the three months ended March 31, 2023 was $156.3 million compared to $393.0 million for the comparable prior year period in 2022.

For the three months ended March 31, 2023, the decrease in net income from the prior year was primarily due to lower operating results across all of our business segments.

Net income for the three and six months ended June 30, 2023 was $146.9 million and $303.2 million, respectively, compared to $422.1 million and $815.1 million, respectively, for the comparable prior year periods in 2022.

The decrease in net income from the prior year periods was primarily due to lower operating results across all of our business segments.

Net income for both the three and six months ended June 30, 2023 also reflects a gain of $27.0 million for the sale of our domestic private trucking fleet and operations for cash proceeds of $28.5 million.

On January 10, 2023, Blue Water Alliance (BWA), our joint venture with Mitsui & Co., Ltd.

(Mitsui), began operations after receiving all necessary regulatory approvals.

BWA is an independent global trader of ECU-based derivatives, focused on globally traded caustic soda and ethylene dichloride (EDC).

BWA is an independent global trader of ECU-based derivatives, focused on globally traded caustic soda and ethylene dichloride.

Olin holds 51% interest and exercises control in BWA and the joint venture is consolidated in our consolidated financial statements with Mitsui’s 49% interest in BWA classified as noncontrolling interest.

All intercompany accounts and transactions are eliminated in consolidation.

Chlor Alkali Products and Vinyls reported segment income of $245.9 million for the three months ended March 31, 2023, respectively.

Chlor Alkali Products and Vinyls segment results for first quarter 2023 were lower than in the comparable prior year period primarily due to lower volumes, partially offset by higher pricing across all products except vinyls intermediates.

Epoxy reported segment income of $21.4 million for the three months ended March 31, 2023.

Epoxy segment results were lower than in the comparable prior year period primarily due to lower volumes and lower pricing, which were both impacted by record exports out of Asia into Europe and North America markets.

Partially offsetting the lower volumes and prices were lower raw material and operating costs.

Winchester reported segment income of $61.0 million for the three months ended March 31, 2023.

Winchester segment results were lower than in the comparable prior year period primarily due to lower commercial volumes and higher commodity and operating costs.

Chlor Alkali Products and Vinyls reported segment income of $180.1 million and $426.0 million for the three and six months ended June 30, 2023, respectively.

Chlor Alkali Products and Vinyls segment results were lower than in the comparable prior year periods primarily due to lower volumes, partially offset by higher pricing across all products except vinyls intermediates.

The Chlor Alkali Products and Vinyls second quarter 2023 segment results were also negatively impacted by $78.9 million for the maintenance turnaround and subsequent operating issues with the vinyl chloride monomer plant at the Freeport, TX facility resulting in higher costs and reduced profit from lost sales.

Epoxy reported segment loss of $0.5 million for the three months ended June 30, 2023 and segment income of $20.9 million for the six months ended June 30, 2023.

Epoxy segment results were lower than in the comparable prior year periods primarily due to lower volumes and lower product pricing, which were both impacted by record exports out of Asia into Europe and North America markets.

Partially offsetting the lower volumes and pricing were lower raw material and operating costs.

Winchester reported segment income of $64.7 million and $125.7 million for the three and six months ended June 30, 2023, respectively.

Winchester segment results were lower than in the comparable prior year periods primarily due to lower commercial volumes and pricing, and higher commodity and operating costs, partially offset by higher domestic and international military sales.

Liquidity and Share Repurchases

During the three months ended March 31, 2023, we repurchased and retired 3.6 million shares of common stock at a total value of $206.1 million.

As of March 31, 2023, we have $1,497.2 million of remaining authorized common stock to be purchased under our 2022 Repurchase Authorization Program.

During the three months ended March 31, 2023, we had net borrowings of $192.6 million with $140.0 million borrowed under our Senior Revolving Credit Facility and an incremental $55.0 million drawn under our Receivables Financing Agreement.

The proceeds were used to fund inventory built in advance of a planned maintenance turnaround and our normal seasonal working capital growth during the first quarter.

During the six months ended June 30, 2023, we repurchased and retired 7.1 million shares of common stock at a total value of $393.0 million.

As of June 30, 2023, we had $1,312.2 million of remaining authorized common stock to be purchased under our 2022 Repurchase Authorization Program.

During the six months ended June 30, 2023, we had net borrowings of $143.7 million with $215.0 million borrowed under our Senior Revolving Credit Facility and repayments of $65.2 million under our Receivables Financing Agreement.

The net borrowings were used to fund our normal seasonal working capital growth.

Consolidated Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

($ in millions, except per share data)

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Diluted $ 1.13 $ 2.76 $ 2.29 $ 5.24

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Sales for the three months ended March 31, 2023 were $1,844.3 million compared to $2,461.4 million in the same period last year, a decrease of $617.1 million, or 25%.

Epoxy sales decreased by $428.8 million, primarily due to lower volumes, including the closure of our Cumene facility and one of our bisphenol (BisA) production lines.

Chlor Alkali Products and Vinyls sales decreased by $128.1 million primarily due to lower volumes, partially offset by product sold by BWA and higher prices across all products except vinyls intermediates.

Winchester sales decreased by $60.2 million, primarily due to lower commercial sales volumes.

Gross margin decreased $251.3 million for the three months ended March 31, 2023 compared to the prior year.

Epoxy gross margin decreased by $120.4 million primarily due to lower volumes.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales for the three months ended June 30, 2023 were $1,702.7 million compared to $2,616.1 million in the same period last year, a decrease of $913.4 million, or 35%.

Epoxy sales decreased by $438.9 million, primarily due to lower volumes, including the closure of our cumene facility and one of our bisphenol (BisA) production lines, and lower product pricing.

Chlor Alkali Products and Vinyls sales decreased by $401.2 million primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.

Winchester sales decreased by $73.3 million, primarily due to lower commercial sales volumes, partially offset by higher domestic and international military sales.

Gross margin decreased $354.6 million for the three months ended June 30, 2023 compared to the prior year.

Chlor Alkali Products and Vinyls gross margin decreased by $157.3 million primarily due to lower volumes.

Epoxy gross margin decreased by $139.9 million primarily due to lower volumes and lower product pricing.

Winchester gross margin decreased by $53.1 million primarily due to lower commercial volumes.

Gross margin as a percentage of sales decreased to 18% in 2023 from 25% in 2022.

Selling and administration expenses for the three months ended June 30, 2023 were $101.2 million, an increase of $2.2 million from the prior year.

The increase was primarily due to higher stock-based compensation expense of $2.7 million, which includes mark-to-market adjustments.

Selling and administration expenses as a percentage of sales increased to 6% in 2023 from 4% in 2022.

Restructuring charges for the three months ended June 30, 2023 and 2022 were $19.2 million and $3.6 million, respectively.

The increase in charges was primarily due to our actions to configure our global Epoxy asset footprint to optimize the most productive and cost effective assets to support our strategic operating model, which resulted in pretax restructuring charges of $13.3 million.

Other operating income for the three months ended June 30, 2023 included a gain of $27.0 million for the sale of our domestic private trucking fleet and operations.

Interest expense increased by $10.8 million for the three months ended June 30, 2023 from the prior year primarily due to higher 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 lower for the three months ended June 30, 2023 primarily due to an increase in the discount rate used to determine interest costs, partially offset by lower actuarial losses recognized to income.

The effective tax rate for the three months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $12.0 million tax benefit.

After giving consideration to these items, the effective tax rate for the three months ended June 30, 2023 of 25.4% was higher than the 21% U.S.

federal statutory rate primarily due to state income taxes and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions.

The effective tax rate for the three months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $8.5 million tax benefit.

After giving consideration to these items, the effective tax rate for the three months ended June 30, 2022 of 23.5% was higher than the 21% U.S.

federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales for the six months ended June 30, 2023 were $3,547.0 million compared to $5,077.5 million in the same period last year, a decrease of $1,530.5 million, or 30%.

Epoxy sales decreased by $867.7 million, primarily due to lower volumes, including the closure of our cumene facility and one of our BisA production lines, and lower product pricing.

Chlor Alkali Products and Vinyls sales decreased by $529.3 million primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.

Winchester sales decreased by $133.5 million, primarily due to lower commercial sales volumes, partially offset by higher domestic and international military sales.

Gross margin decreased $605.9 million for the six months ended June 30, 2023 compared to the prior year.

Epoxy gross margin decreased by $260.3 million primarily due to lower volumes and lower product pricing.

Chlor Alkali Products and Vinyls gross margin decreased by $232.5 million primarily due to lower volumes, partially offset by higher prices across all products except vinyls intermediates.

1 unchanged sentence

Gross margin as a percentage of sales decreased to 20% in 2023 from 26% in 2022.

Selling and administration expenses for the three months ended March 31, 2023 were $111.8 million, an increase of $7.5 million from the prior year.

The increase was primarily due to higher stock-based compensation expense of $4.2 million, which includes mark-to-market adjustments and an unfavorable foreign currency impact of $2.5 million.

Selling and administration expenses for the six months ended June 30, 2023 were $213.0 million, an increase of $9.7 million from the prior year.

The increase was primarily due to higher stock-based compensation expense of $7.0 million, which includes mark-to-market adjustments.

Selling and administration expenses as a percentage of sales increased to 6% in 2023 from 4% in 2022.

Restructuring charges for the three months ended March 31, 2023 and 2022 were $60.9 million and $3.1 million, respectively.

The increase in charges was primarily due to our decision to cease operations at our Cumene facility in Terneuzen, Netherlands and solid epoxy resin production at our facilities in Gumi, South Korea and Guaruja, Brazil which resulted in pretax restructuring charges of $55.9 million for the three months ended March 31, 2023.

Interest expense increased by $9.5 million for the three months ended March 31, 2023 from the prior year primarily due to higher average interest rates partially offset by lower level of debt outstanding.

The effective tax rate for the three months ended March 31, 2023 included a benefit associated with stock-based compensation, a benefit from remeasurement of deferred taxes due to a decrease in our state effective tax rates, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $5.2 million tax benefit.

After giving consideration to these items, the effective tax rate for the three months ended March 31, 2023 of 23.6% was higher than the 21% U.S.

Restructuring charges for the six months ended June 30, 2023 and 2022 were $80.1 million and $6.7 million, respectively.

Other operating income for the six months ended June 30, 2023 included a gain of $27.0 million for the sale of our domestic private trucking fleet and operations.

Interest expense increased by $20.3 million for the six months ended June 30, 2023 from the prior year primarily due to higher 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 lower for the six months ended June 30, 2023 primarily due to an increase in the discount rate used to determine interest costs, partially offset by lower actuarial losses recognized to income.

The effective tax rate for the six months ended June 30, 2023 included a benefit associated with stock-based compensation, a benefit from remeasurement of deferred taxes due to a decrease in our state effective tax rates, a benefit associated with prior year tax positions, an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions, and an expense from a change in tax contingencies, resulting in a net $17.2 million tax benefit.

After giving consideration to these items, the effective tax rate for the six months ended June 30, 2023 of 24.5% was higher than

federal statutory rate primarily due to state and foreign income taxes and an increase in the valuation allowance related to losses in foreign jurisdictions, partially offset by favorable permanent salt depletion deductions.

The effective tax rate for the three months ended March 31, 2022 included a benefit associated with prior year tax, stock-based compensation and a change in tax contingencies, resulting in a net $2.3 million tax benefit.

After giving consideration to these items, the effective tax rate for the three months ended March 31, 2022 of 25.4% was higher than the 21% U.S.

federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and a favorable permanent salt depletion deductions.

The effective tax rate for the six months ended June 30, 2022 included a benefit associated with prior year tax positions and stock-based compensation, resulting in a net $10.8 million tax benefit.

After giving consideration to these items, the effective tax rate for the six months ended June 30, 2022 of 24.4% was higher than the 21% U.S.

federal statutory rate primarily due to state and foreign income taxes, partially offset by foreign income exclusions and favorable permanent salt depletion deductions.

Segment Results

4 unchanged sentences

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

Three Months Ended March 31,

BWA is consolidated in our Chlor Alkali Products and Vinyls segment.

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

($ in millions)

3 unchanged sentences

Total sales $ 1,702.7 $ 2,616.1 $ 3,547.0 $ 5,077.5

Income before taxes:

Income (loss) before taxes:

Chlor Alkali Products and Vinyls $ 180.1 $ 346.5 $ 426.0 $ 675.1

11 unchanged sentences

Chlor Alkali Products and Vinyls

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Chlor Alkali Products and Vinyls sales for the three months ended March 31, 2023 were $1,117.1 million compared to $1,245.2 million for the same period in 2022, a decrease of $128.1 million, or 10%.

The sales decrease was primarily due to lower volumes, partially offset by product sold by BWA and higher prices across all products except vinyls intermediates.

Chlor Alkali Products and Vinyls segment income was $245.9 million for the three months ended March 31, 2023 compared to $328.6 million for the same period in 2022.

The decrease in segment results of $82.7 million was due to lower volumes across all products ($181.5 million) and increased costs associated with product purchased from other parties ($32.1

million), partially offset by higher prices across all products except vinyls intermediates ($123.0 million) and lower raw material and operating costs ($7.9 million).

Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $114.4 million and $123.1 million for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Epoxy sales for the three months ended March 31, 2023 were $360.7 million compared to $789.5 million for the same period in 2022, a decrease of $428.8 million, or 54%.

The sales decrease was primarily due to lower volumes ($194.0 million), the closure of our Cumene facility and one of our BisA production lines ($184.7 million), lower product prices ($42.6 million) and an unfavorable effect of foreign currency translation ($7.5 million).

Epoxy segment income was $21.4 million for the three months ended March 31, 2023 compared to $138.0 million for the same period in 2022.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Chlor Alkali Products and Vinyls sales for the three months ended June 30, 2023 were $1,002.3 million compared to $1,403.5 million for the same period in 2022, a decrease of $401.2 million, or 29%.

The sales decrease was primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.

Chlor Alkali Products and Vinyls segment income was $180.1 million for the three months ended June 30, 2023 compared to $346.5 million for the same period in 2022.

The decrease in segment results of $166.4 million was due to lower volumes across all products ($276.3 million), partially offset by lower raw material and operating costs ($65.7 million), higher prices across all products except vinyls intermediates ($28.3 million) and lower costs associated with product purchased from other parties ($15.9 million).

Chlor Alkali Products and Vinyls second quarter 2023 segment results were negatively impacted by the maintenance turnaround and subsequent operating issues with the vinyl chloride monomer plant at the Freeport, TX facility, resulting in higher costs and reduced profit from lost sales.

Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $113.3 million and $120.4 million for the three months ended June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Chlor Alkali Products and Vinyls sales for the six months ended June 30, 2023 were $2,119.4 million compared to $2,648.7 million for the same period in 2022, a decrease of $529.3 million, or 20%.

The sales decrease was primarily due to lower volumes, partially offset by products sold by BWA and higher prices across all products except vinyls intermediates.

Chlor Alkali Products and Vinyls segment income was $426.0 million for the six months ended June 30, 2023 compared to $675.1 million for the same period in 2022.

The decrease in segment results of $249.1 million was due to lower volumes across all products ($457.8 million) and increased costs associated with product purchased from other parties ($16.2 million), partially offset by higher prices across all products except vinyls intermediates ($151.3 million) and lower raw material and operating costs ($73.6 million).

Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $227.7 million and $243.5 million for the six months ended June 30, 2023 and 2022, respectively.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Epoxy sales for the three months ended June 30, 2023 were $333.8 million compared to $772.7 million for the same period in 2022, a decrease of $438.9 million, or 57%.

The sales decrease was primarily due to the closure of our cumene facility and one of our BisA production lines ($206.9 million), lower volumes ($118.7 million), lower product prices ($110.8 million) and an unfavorable effect of foreign currency translation ($2.5 million).

Epoxy segment loss was $0.5 million for the three months ended June 30, 2023 compared to segment income of $139.9 million for the same period in 2022.

The decrease in segment results of $140.4 million was primarily due to lower product prices ($110.8 million) and lower volumes ($75.6 million), which were both impacted by record exports out of Asia into Europe and North America markets, partially offset by lower raw material and operating costs ($46.0 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 $15.2 million and $20.4 million for the three months ended June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Epoxy sales for the six months ended June 30, 2023 were $694.5 million compared to $1,562.2 million for the same period in 2022, a decrease of $867.7 million, or 56%.

The sales decrease was primarily due to the closure of our cumene facility and one of our BisA production lines ($391.6 million), lower volumes ($312.7 million), lower product prices ($153.4 million) and an unfavorable effect of foreign currency translation ($10.0 million).

Epoxy segment income was $20.9 million for the six months ended June 30, 2023 compared to $277.9 million for the same period in 2022.

The decrease in segment results of $257.0 million was primarily due to lower volumes ($193.1 million) and lower product prices ($153.4 million), which were both impacted by record exports out of Asia into Europe and North America markets, partially offset by lower raw material and operating costs ($89.5 million).

1 unchanged sentence

Epoxy segment results included depreciation and amortization expense of $14.5 million and $20.4 million for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Winchester sales were $366.5 million for the three months ended March 31, 2023 compared to $426.7 million for the same period in 2022, a decrease of $60.2 million, or 14%.

The decrease was due to lower ammunition sales to commercial customers ($113.7 million), partially offset by higher sales to military customers ($45.9 million) and law enforcement agencies ($7.6 million).

Epoxy segment results included depreciation and amortization expense of $29.7 million and $40.8 million for the six months ended June 30, 2023 and 2022, respectively.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Winchester sales were $366.6 million for the three months ended June 30, 2023 compared to $439.9 million for the same period in 2022, a decrease of $73.3 million, or 17%.

The decrease was due to lower ammunition sales to commercial customers ($121.2 million), partially offset by higher sales to domestic and international military customers ($46.9 million) and law enforcement agencies ($1.0 million).

Commercial ammunition sales were primarily impacted by lower volumes.

Winchester segment income was $61.0 million for the three months ended March 31, 2023 compared to $118.9 million for the same period in 2022, a decrease of $57.9 million.

The decrease in segment results was due to lower volumes ($46.9 million), higher commodity and operating costs ($11.0 million).

Winchester segment income included depreciation and amortization expense of $6.2 million for both the three months ended March 31, 2023 and 2022.

Winchester segment income was $64.7 million for the three months ended June 30, 2023 compared to $119.3 million for the same period in 2022, a decrease of $54.6 million.

The decrease in segment results was due to lower volumes ($43.8 million), lower product pricing ($7.7 million) and higher commodity and operating costs ($3.1 million).

Winchester segment income included depreciation and amortization expense of $6.3 million and $5.9 million for the three months ended June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Winchester sales were $733.1 million for the six months ended June 30, 2023 compared to $866.6 million for the same period in 2022, a decrease of $133.5 million, or 15%.

The decrease was due to lower ammunition sales to commercial customers ($234.9 million), partially offset by higher sales to domestic and international military customers ($92.8 million) and law enforcement agencies ($8.6 million).

Commercial ammunition sales were primarily impacted by lower volumes.

Winchester segment income was $125.7 million for the six months ended June 30, 2023 compared to $238.2 million for the same period in 2022, a decrease of $112.5 million.

The decrease in segment results was due to lower volumes ($89.7 million), higher commodity and operating costs ($14.1 million) and lower product pricing ($8.7 million).

Winchester segment income included depreciation and amortization expense of $12.5 million and $12.1 million for the six months ended June 30, 2023 and 2022, respectively.

Corporate/Other

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

For the three months ended March 31, 2023, charges to income for environmental investigatory and remedial activities were $3.2 million compared to $5.6 million for the three months ended March 31, 2022.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

For the three months ended June 30, 2023, charges to income for environmental investigatory and remedial activities were $13.0 million compared to $5.0 million for the three months ended June 30, 2022.

These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For the three months ended March 31, 2023, other corporate and unallocated costs were $34.3 million compared to $30.3 million for the three months ended March 31, 2022, an increase of $4.0 million.

The increase was primarily due to higher stock-based compensation costs ($4.2 million), which includes mark-to-market adjustments, and an unfavorable foreign currency impact ($2.5 million), partially offset by lower legal and legal-related settlement expenses ($1.0 million).

For the three months ended June 30, 2023, other corporate and unallocated costs were $22.4 million compared to $35.0 million for the three months ended June 30, 2022, a decrease of $12.6 million.

The decrease was primarily due to lower variable incentive compensation costs ($6.4 million), which includes mark-to-market adjustments on stock-based compensation expense, and lower legal and legal-related settlement expenses ($4.5 million).

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

For the six months ended June 30, 2023, charges to income for environmental investigatory and remedial activities were $16.2 million compared to $10.6 million for the six months ended June 30, 2022.

These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For the six months ended June 30, 2023, other corporate and unallocated costs were $56.7 million compared to $65.3 million for the six months ended June 30, 2022, a decrease of $8.6 million.

The decrease was primarily due to lower legal and legal-related settlement expenses ($5.5 million) and lower variable incentive compensation costs ($2.0 million), which includes mark-to-market adjustments on stock-based compensation expense.

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.

As part of this review we announced operational cessations in the fourth quarter of 2022 and the first quarter of 2023.

As part of this review we announced operational cessations in the fourth quarter of 2022 and the first and second quarters of 2023 (collectively, Epoxy Optimization Plan).

The foregoing actions will complete the rightsizing plan of our Epoxy business.

On June 20, 2023, we announced we had made the decision to cease all remaining operations at our Gumi, South Korea facility, reduce epoxy resin capacity at our Freeport, TX facility, and reduce our sales and support staffing across Asia.

These actions are expected to be substantially completed by December 31, 2023.

On March 21, 2023, we announced we had made the decision to cease operations at our cumene facility in Terneuzen, Netherlands and solid epoxy resin production at our facilities in Gumi, South Korea and Guaruja, Brazil.

1 unchanged sentence

During the fourth quarter of 2022, we committed to and completed a plan to close down one of our BisA production lines at our Stade, Germany site.

For the three months ended March 31, 2023, we recorded pretax restructuring charges of $55.9 million for contract termination costs, the write-off of equipment and facility costs and facility exit costs related to the first quarter 2023 cessations.

For the three months ended March 31, 2023, we recorded additional pretax restructuring charges of $1.9 million for facility exit costs related to the fourth quarter 2022 BisA closure.

For the three and six months ended June 30, 2023, we recorded pretax restructuring charges of $13.3 million and $71.1 million, respectively, for the write-off of equipment and facility costs, employee severance and related benefit costs, contract termination costs and facility exit costs related to these actions.

We expect to incur additional restructuring charges through 2026 of approximately $50 million related to these actions.

In 2023, we expect the on-going challenging global economic conditions to continue as we expect operating results to decline across all our business segments compared to 2022.

We expect our Chlor Alkali Products and Vinyls business to experience declining caustic soda market conditions and continued vinyls intermediates demand weakness.

We expect our Chlor Alkali Products and Vinyls business to continue to be negatively impacted during the third quarter 2023 by the operating issues with the vinyl chloride monomer plant at the Freeport, TX facility.

We also expect Chlor Alkali Products and Vinyls to experience declining caustic soda market conditions and continued vinyls intermediates demand weakness in the third quarter 2023.

We expect our Epoxy business to continue to be challenged by European and North American demand weakness, aggravated by elevated Asian exports and a muted recovery of Chinese domestic demand.

We expect the second quarter 2023 operating results from our Chemical businesses to be slightly lower than first quarter 2023 levels.

We expect our Winchester business second quarter 2023 results to increase sequentially from first quarter 2023 levels as commercial customer inventories become more normalized.

Overall, we expect Olin’s second quarter 2023 operating results to slightly decline from first quarter 2023 levels.

We expect the third quarter 2023 operating results from our Chemical businesses to be lower than second quarter 2023 levels.

We expect our Winchester business third quarter 2023 results to increase sequentially from second quarter 2023 levels as we anticipate international and domestic military growth.

Overall, we expect Olin’s third quarter 2023 operating results to decline from second quarter 2023 levels.

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

5 unchanged sentences

We expect 2023 depreciation and amortization expense to be in the $525 million to $550 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.

We currently believe the 2023 effective tax rates will be in the 25% range and our cash tax rate to be in the 35% to 40% range as a result of previously deferred international tax payments expected to be made in 2023.

Environmental Matters

Environmental provisions charged to income, which are included in costs of goods sold, were $3.2 million and $5.6 million for the three months ended March 31, 2023 and 2022, respectively.

Environmental provisions charged to income, which are included in costs of goods sold, were $13.0 million and $5.0 million for the three months ended June 30, 2023 and 2022, respectively, and were $16.2 million and $10.6 million for the six months ended June 30, 2023 and 2022, respectively.

Our liabilities for future environmental expenditures were as follows:

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With respect to unasserted claims, we accrue liabilities for costs that, in our experience, we expect to incur to protect our interests against those unasserted claims.

Our accrued liabilities for unasserted claims amounted to $8.9 million at March 31, 2023.

Our accrued liabilities for unasserted claims amounted to $8.9 million at June 30, 2023.

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.

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Charges to income for investigatory and remedial efforts may be material to our operating results in 2023.

The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $146.7 million, $146.6 million and $149.5 million at March 31, 2023, December 31, 2022 and March 31, 2022, respectively, of which $121.7 million, $121.6 million and $124.5 million, respectively, were classified as other noncurrent liabilities.

The condensed balance sheets included reserves for future environmental expenditures to investigate and remediate known sites amounting to $151.8 million, $146.6 million and $148.9 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, of which $126.8 million, $121.6 million and $123.9 million, respectively, were classified as other noncurrent liabilities.

These amounts do not take into account any discounting of future expenditures or any consideration of insurance recoveries or advances in technology.

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Cash Flow Data

Three Months Ended March 31,

Six Months Ended June 30,

Provided By (Used For) ($ in millions)

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Payments under other long-term supply contracts (29.6) —

Proceeds from disposition of property, plant and equipment 28.8 —

Long-term debt borrowings (repayments), net 143.7 (0.5)

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Operating Activities

For the three months ended March 31, 2023, cash provided by operating activities decreased by $316.0 million from the three months ended March 31, 2022, primarily due to a decrease in operating results and an increase in working capital compared with the prior year.

For the three months ended March 31, 2023, working capital increased $244.4 million compared to an increase of $195.5 million for the three months ended March 31, 2022.

The working capital increase during the first quarter reflects inventory built in advance of a planned maintenance turnaround and normal seasonal working capital growth.

For the six months ended June 30, 2023, cash provided by operating activities decreased by $616.2 million from the six months ended June 30, 2022, primarily due to a decrease in operating results and an increase in working capital compared with the prior year.

For the six months ended June 30, 2023, working capital increased $213.7 million compared to an increase of $183.6 million for the six months ended June 30, 2022.

The working capital increase reflects normal seasonal working capital growth and incremental working capital associated with BWA.

Inventories increased by $137.9 million from December 31, 2022.

Accounts payable and accrued liabilities decreased $66.1 million primarily as a result of timing of payments during the first quarter of 2023.

Accounts payable and accrued liabilities decreased $141.1 million primarily as a result of timing of payments during the first half of 2023.

Investing Activities

Capital spending of $61.4 million for the three months ended March 31, 2023 compared to $47.3 million for the corresponding period in 2022.

Capital spending of $128.8 million for the six months ended June 30, 2023 compared to $103.9 million for the corresponding period in 2022.

For the total year 2023, we currently expect our capital spending to be in the $200 million to $250 million range.

We expect 2023 depreciation and amortization expense to be in the $525 million to $550 million range.

For the three months ended March 31, 2023, payments under other long-term supply contracts was $9.3 million for energy modernization on the U.S.

For the six months ended June 30, 2023, payments under other long-term supply contracts was $29.6 million for energy modernization on the U.S.

Gulf Coast and we expect to make payments for the total year 2023 in the $50 million to $100 million range.

For the six months ended June 30, 2023, we received $28.5 million of cash proceeds for the sale of our domestic private trucking fleet and operations.

Financing Activities

For the three months ended March 31, 2023, we had long-term debt borrowings, net of long-term debt repayments of $192.6 million.

For the three months ended March 31, 2022, we had long-term debt repayments, net of long-term debt borrowings of $0.2 million.

For the three months ended March 31, 2023 and 2022, 3.6 million and 5.2 million shares, respectively, of common stock were repurchased and retired at a total value of $206.1 million and $263.2 million, respectively.

We issued 0.4 million and 0.2 million shares representing stock options exercised for the three months ended March 31, 2023 and 2022, respectively, with a total value of $11.2 million and $5.2 million, respectively.

For the three months ended March 31, 2023, we received $44.1 million of cash contributions from noncontrolling interests for BWA.

The percent of total debt to total capitalization increased to 52.3% as of March 31, 2023 from 50.4% as of December 31, 2022 as a result of a higher level of debt outstanding.

In the first quarter of 2023 and 2022, we paid a quarterly dividend of $0.20 per share.

Dividends paid for the three months ended March 31, 2023 and 2022, were $26.2 million and $30.8 million, respectively.

On April 27, 2023, our Board of Directors declared a dividend of $0.20 per share on our common stock, payable on June 9, 2023 to shareholders of record on May 11, 2023.

For the six months ended June 30, 2023, we had long-term debt borrowings, net of long-term debt repayments of $143.7 million.

For the six months ended June 30, 2022, we had long-term debt repayments, net of long-term debt borrowings of $0.5 million.

For the six months ended June 30, 2023 and 2022, 7.1 million and 12.6 million shares, respectively, of common stock were repurchased and retired at a total value of $393.0 million and $689.7 million, respectively.

We issued 0.4 million and 0.9 million shares representing stock options exercised for the six months ended June 30, 2023 and 2022, respectively, with a total value of $11.9 million and $20.9 million, respectively.

For the six months ended June 30, 2023, we received $44.1 million of cash contributions from noncontrolling interests for BWA.

The percent of total debt to total capitalization increased to 52.5% as of June 30, 2023 from 50.4% as of December 31, 2022, primarily as a result of a higher level of debt outstanding, partially offset by lower shareholders’ equity, primarily due to common stock repurchases partially offset by our operating results.

In the first and second quarters of 2023 and 2022, we paid a quarterly dividend of $0.20 per share.

Dividends paid for the six months ended June 30, 2023 and 2022, were $51.8 million and $60.9 million, respectively.

On July 27, 2023, our Board of Directors declared a dividend of $0.20 per share on our common stock, payable on September 8, 2023 to shareholders of record on August 10, 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.

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On October 11, 2022, we entered into a new $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our previous senior credit facility (2021 Senior Credit Facility).

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 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.

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The Senior Revolving Credit Facility includes a $100.0 million letter of credit subfacility.

At March 31, 2023, we had $1,059.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had $140.0 million borrowed under the facility and 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 March 31, 2023, and no event of default had occurred that would permit the lenders under our outstanding credit agreements to accelerate the debt if not cured.

At June 30, 2023, we had $984.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had $215.0 million borrowed under the facility and 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 June 30, 2023, 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.

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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 March 31, 2023, there were no covenants or other restrictions that limited our ability to borrow.

The overall decrease in cash for the three months ended March 31, 2023 primarily reflects our share repurchases, capital spending, and dividends paid, partially offset by our debt borrowings, operating results and contributions from noncontrolling interests.

As of June 30, 2023, there were no covenants or other restrictions that limited our ability to borrow.

The overall decrease in cash for the six months ended June 30, 2023 primarily reflects our share repurchases, capital spending, and dividends paid, partially offset by our debt borrowings, operating results and contributions from noncontrolling interests.

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 our capital expenditure requirements, and comply with the financial ratios in our debt agreements.

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This program will terminate upon the purchase of $2.0 billion of common stock.

For the three months ended March 31, 2023, 3.6 million shares of common stock have been repurchased and retired at a total value of $206.1 million.

As of March 31, 2023, 9.6 million shares of common stock have been repurchased and retired at a total value of $502.8 million under the 2022 Repurchase Authorization program, and $1,497.2 million of common stock remained authorized to be repurchased under the program.

For the six months ended June 30, 2023, 7.1 million shares of common stock have been repurchased and retired at a total value of $393.0 million.

As of June 30, 2023, 13.0 million shares of common stock have been repurchased and retired at a total value of $687.8 million under the 2022 Repurchase Authorization program, and $1,312.2 million of common stock remained authorized to be repurchased under the program.

We maintain a $425.0 million Receivables Financing Agreement (Receivables Financing Agreement) that is scheduled to mature on October 14, 2025.

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In addition, the Receivables Financing Agreement incorporates the net leverage ratio covenant that is contained in the Senior Credit Facility.

As of March 31, 2023, December 31, 2022 and March 31, 2022, we had $355.0 million, $300.0 million and $300.0 million, respectively, drawn under the agreement.

As of March 31, 2023, $569.0 million of our trade receivables were pledged as collateral and we had $70.0 million of additional borrowing capacity under the Receivables Financing Agreement.

As of June 30, 2023, December 31, 2022 and June 30, 2022, we had $234.8 million, $300.0 million and $300.0 million, respectively, drawn under the agreement.

As of June 30, 2023, $478.6 million of our trade receivables were pledged as collateral and we had $120.0 million of additional borrowing capacity under the Receivables Financing Agreement, which was limited by our borrowing base.

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.

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These receivables qualify for sales treatment under ASC 860 and, accordingly, the proceeds are included in net cash provided by operating activities in the condensed statements of cash flows.

The gross amount of receivables sold for the three months ended March 31, 2023 and 2022 totaled $252.3 million and $281.4 million, respectively.

The gross amount of receivables sold for the six months ended June 30, 2023 and 2022 totaled $532.6 million and $477.2 million, respectively.

The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations.

The factoring discount was $1.2 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

The agreements are without recourse and therefore no recourse liability has been recorded as of March 31, 2023, December 31, 2022 and March 31, 2022.

As of March 31, 2023, December 31, 2022 and March 31, 2022, $77.1 million, $111.8 million and $97.9 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.

At March 31, 2023, we had total letters of credit of $76.9 million outstanding, of which $0.4 million were issued under our Senior Revolving Credit Facility.

The factoring discount was $1.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $2.5 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively.

The agreements are without recourse and therefore no recourse liability has been recorded as of June 30, 2023, December 31, 2022 and June 30, 2022.

As of June 30, 2023, December 31, 2022 and June 30, 2022, $77.2 million, $111.8 million and $109.9 million, respectively, of receivables qualifying for sales treatment were outstanding and will continue to be serviced by us.

At June 30, 2023, we had total letters of credit of $79.0 million outstanding, of which $0.4 million were issued under our Senior Revolving Credit Facility.

The letters of credit were used to support certain long-term debt, certain workers compensation insurance policies, certain plant closure and post-closure obligations, certain international payment obligations and certain international pension funding requirements.

Our current debt structure is used to fund our business operations.

As of March 31, 2023, we had long-term borrowings, including the current installment and finance lease obligations, of $2,774.2 million, of which $998.7 million were at variable rates.

Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount of $19.4 million as of March 31, 2023.

As of June 30, 2023, we had long-term borrowings, including the current installment and finance lease obligations, of $2,726.3 million, of which $951.3 million were at variable rates.

Included within long-term borrowings on the condensed balance sheets were deferred debt issuance costs and unamortized bond original issue discount of $18.5 million as of June 30, 2023.

Commitments from banks under our Senior Revolving Credit Facility, Receivables Financing Agreement and AR Facilities are additional sources of liquidity.

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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:

The following table summarizes our credit ratings as of June 30, 2023:

Credit Ratings Long-term Rating Outlook

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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 June 30, 2023, Moody’s affirmed Olin’s Ba1 rating and stable outlook.

On April 4, 2023, S&P affirmed Olin’s BB+ rating and positive outlook.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis