# OLIN Corp (OLN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from OLIN Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/74303/000007430324000041/oln-20231231.htm
Accession: 0000074303-24-000041
Filing date: 2024-02-22
Report date: 2023-12-31
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/fy2022/ (FY 2022)
Next year: /company/OLN/mda/fy2024/ (FY 2024)

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 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, industrial cartridges and clay targets.  

RECENT DEVELOPMENTS AND HIGHLIGHTS

2023 Overview

Net income was $460.2 million for 2023 compared to $1,326.9 million for 2022, a decrease of $866.7 million, or 65%. 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 2023 also reflects a pretax gain of $27.0 million from the sale of our domestic private trucking fleet and operations. Diluted net income per share was $3.57 for 2023 compared to $8.94 for 2022, a decrease of $5.37 per share, or 60%. The decrease in diluted net income per share was positively impacted by share repurchases throughout 2023.

On October 1, 2023, Olin acquired the assets of White Flyer from Reagent for $63.9 million. White Flyer designs, manufactures and sells recreational trap, skeet, international and sporting clay targets and has been included in our Winchester segment.

On January 10, 2023, BWA, our joint venture with Mitsui, began operations. BWA is an independent global trader of ECU-based derivatives, focused on globally traded caustic soda and EDC. Olin holds 51% interest and exercises control in BWA, and the joint venture is consolidated in our financial statements in our Chlor Alkali Products and Vinyls segment, 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 $664.2 million for 2023 compared to $1,181.3 million for 2022. Chlor Alkali Products and Vinyls segment results were lower than in the prior year due to lower volumes and lower pricing, partially offset by lower raw material and operating costs. The Chlor Alkali Products and Vinyls 2023 segment results were also negatively impacted by the second quarter’s maintenance turnaround and related operating issues at our vinyl chloride monomer plant at the Freeport, TX facility, which resulted in higher costs and reduced profit from lost sales of $104.2 million. The vinyl chloride monomer plant resumed normal operations in the latter half of the third quarter.

Epoxy reported segment loss of $31.0 million for 2023 compared to segment income of $388.5 million for 2022. Epoxy segment results were lower than in the prior year primarily due to lower volumes and lower product pricing. Epoxy segment results in 2023 have been impacted by significant exports out of Asia into the European and North American markets, negatively impacting pricing and volumes. Partially offsetting the lower volumes and pricing were lower raw material and operating costs.

Winchester reported segment income of $255.6 million for 2023 compared to $372.9 million for 2022. Winchester segment results were lower than in the prior year primarily due to lower commercial volumes and pricing, partially offset by higher domestic and international military sales.

Liquidity and Share Repurchases

During 2023, we repurchased and retired 13.3 million shares of common stock at a total value of $711.3 million. As of December 31, 2023, we have $997.0 million of remaining authorized common stock to be repurchased under the 2022 Repurchase Authorization program.

During 2023, we had net borrowings of $85.9 million with $68.0 million borrowed under our Senior Revolving Credit Facility and $28.5 million borrowed under our Receivables Financing Agreement.

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CONSOLIDATED RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

2023 Compared to 2022

Sales for 2023 were $6,833.0 million compared to $9,376.2 million in 2022, a decrease of $2,543.2 million, or 27%. Epoxy sales decreased by $1,361.3 million, primarily due to lower volumes, including the closure of our cumene facility and one of our bisphenol production lines, and lower product pricing. Chlor Alkali Products and Vinyls sales decreased by $1,089.9 million, primarily due to lower volumes, partially offset by products sold by BWA. Winchester sales decreased by $92.0 million, primarily due to lower commercial sales volumes, partially offset by higher domestic and international military sales.

Gross margin in 2023 decreased $1,016.4 million from 2022. Chlor Alkali Products and Vinyls gross margin decreased by $483.0 million primarily due to lower volumes. Epoxy gross margin decreased by $425.4 million primarily due to lower volumes and lower product pricing. Winchester gross margin decreased by $112.5 million, primarily due to lower commercial volumes. Gross margin as a percentage of sales decreased to 17% in 2023 from 23% in 2022.

Selling and administrative expenses in 2023 increased $12.8 million, or 3%, from 2022. The increase was primarily due to higher costs associated with BWA of $23.9 million, partially offset by lower legal and legal-related settlement expenses of $7.4 million and a favorable foreign currency impact of $5.5 million. Selling and administrative expenses as a percentage of sales increased to 6% in 2023 from 4% in 2022.

Restructuring charges for 2023 were $89.6 million compared to $25.3 million in 2022. The increase in charges was primarily due to our actions to reconfigure our global Epoxy asset footprint to optimize the most productive and cost-effective assets to support our strategic operating model, which resulted in restructuring charges of $73.4 million for 2023.

Other operating income for 2023 included a gain of $27.0 million from the sale of our domestic private trucking fleet and operations and an insurance recovery of $15.6 million associated with a second quarter 2022 business interruption at our Plaquemine, LA Chlor Alkali Products and Vinyls facility. Other operating income for 2022 included $13.0 million of gains from the sale of two former manufacturing facilities.

Interest expense in 2023 increased $37.2 million from 2022, primarily due to higher average interest rates. Interest expense for 2023 and 2022 was reduced by capitalized interest of $2.8 million and $3.1 million, respectively.

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Non-operating pension income includes all components of pension and other postretirement income (costs) other than service costs. Non-operating pension income was lower in 2023 from the prior year 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 2023 included benefits associated with a legal entity liquidation, prior year tax positions, stock-based compensation, remeasurement of deferred taxes due to a decrease in our state effective tax rates and foreign rate changes, and from a change in tax contingencies, and an expense from a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions. These factors resulted in a net $29.4 million tax benefit. Excluding these items, the effective tax rate for 2023 of 24.4% was higher than the 21.0% 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 inclusions, partially offset by foreign rate differential and favorable permanent salt depletion deductions. The effective tax rate for 2022 included benefits associated with a legal entity liquidation, prior year tax positions, stock-based compensation, and remeasurement of deferred taxes due to a decrease in our state effective tax rates, and expenses associated with a net increase in the valuation allowance related to state tax credits and a change in tax contingencies. These factors resulted in a net $60.2 million tax benefit. Excluding these items, the effective tax rate for 2022 of 24.4% was higher than the 21.0% 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.

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.

Selling and administrative expenses in 2022 decreased $23.0 million, or 6%, from 2021. The decrease was primarily due to the 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 administrative 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 bisphenol 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 from the sale of two former manufacturing facilities.

Interest expense in 2022 decreased by $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 benefits associated with a legal entity liquidation, prior year tax positions, stock-based compensation, and remeasurement of deferred taxes due to a decrease in our state effective tax rates, and expenses associated with a net increase in the valuation allowance related to state tax credits and a change in tax contingencies. These factors resulted in a net $60.2 million tax benefit. Excluding these items, the effective tax rate for 2022 of 24.4% was higher than the 21.0% 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

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deferred tax assets in foreign jurisdictions, domestic tax credits, prior year tax positions, stock-based compensation, and expenses from remeasurement of deferred taxes due to an increase in our state effective tax rates and a change in tax contingencies. These factors resulted in a net $103.6 million tax benefit. Excluding these items, the effective tax rate for 2021 of 22.5% was higher than the 21.0% U.S. federal statutory rate primarily due to state taxes, foreign income inclusions and foreign rate differential, partially offset by a net decrease in the valuation allowance related to utilization of losses in foreign jurisdictions and favorable permanent salt depletion deductions.

SEGMENT RESULTS

We define segment results as income (loss) before interest expense, interest income, 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]]
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[[/GREPCENT_TABLE]]

(1)Environmental expense for the years ended December 31, 2023, 2022 and 2021, included $6.4 million, $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 operating income for the year ended December 31, 2023, included a gain of $27.0 million from the sale of our domestic private trucking fleet and operations and an insurance recovery of $15.6 million associated with a second quarter 2022 business interruption at our Plaquemine, LA, Chlor Alkali Products and Vinyls facility. Other operating income for the year ended December 31, 2022, included $13.0 million of gains from the sale of two former manufacturing facilities. Other operating income for the year ended December 31, 2021, included a $1.4 million gain from the sale of a terminal facility.

(3)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 was reduced by capitalized interest of $2.8 million, $3.1 million and $3.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Chlor Alkali Products and Vinyls

2023 Compared to 2022

Chlor Alkali Products and Vinyls sales for 2023 were $3,995.1 million compared to $5,085.0 million in 2022, a decrease of $1,089.9 million, or 21%. The sales decrease was primarily due to lower volumes across all products and lower prices, primarily caustic soda and EDC, partially offset by products sold by BWA.

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Chlor Alkali Products and Vinyls reported segment income of $664.2 million for 2023 compared to $1,181.3 million for 2022, a decrease of $517.1 million.  Chlor Alkali Products and Vinyls operating results were negatively impacted by lower volumes across all products ($846.4 million) and lower prices, primarily caustic soda and EDC ($51.4 million), partially offset by lower raw material and operating costs ($341.0 million), primarily lower natural gas and electrical power costs, and decreased costs associated with product purchased from other parties ($39.7 million). The Chlor Alkali Products and Vinyls segment results were also negatively impacted by higher costs and reduced profit from lost sales associated with operating issues related to the second quarter’s maintenance turnaround at our vinyl chloride monomer plant at the Freeport, TX facility. Chlor Alkali Products and Vinyls segment results included depreciation and amortization expense of $440.7 million and $482.2 million in 2023 and 2022, respectively.

2022 Compared to 2021

Chlor Alkali Products and Vinyls sales for 2022 were $5,085.0 million compared to $4,140.8 million in 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.

Epoxy

2023 Compared to 2022

Epoxy sales were $1,329.2 million for 2023 compared to $2,690.5 million in 2022, a decrease of $1,361.3 million, or 51%. The sales decrease was primarily due to the closure of our cumene facility and one of our bisphenol production lines ($649.4 million), lower product prices ($419.6 million), lower volumes ($291.9 million) and an unfavorable effect of foreign currency translation ($0.4 million).

Epoxy reported segment loss of $31.0 million for 2023 compared to segment income of $388.5 million for 2022, a decrease of $419.5 million. The decrease in segment results was due to lower product prices ($419.6 million) and lower volumes ($138.6 million), which were both impacted by significant exports out of Asia into the European and North American markets, partially offset by lower raw material costs and operating costs ($138.7 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 $57.4 million and $83.3 million in 2023 and 2022, respectively.

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.

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Winchester

2023 Compared to 2022

Winchester sales were $1,508.7 million for 2023 compared to $1,600.7 million in 2022, a decrease of $92.0 million, or 6%. The decrease was due to lower ammunition sales to commercial customers ($272.6 million) and law enforcement agencies ($7.5 million), partially offset by higher sales to domestic and international military customers ($188.1 million). The lower commercial sales were primarily due to lower volumes, partially offset by fourth quarter 2023 sales from White Flyer.

Winchester reported segment income of $255.6 million for 2023 compared to $372.9 million for 2022, a decrease of $117.3 million. The decrease in segment results was due to lower volumes and an unfavorable product mix ($61.4 million), lower product pricing ($40.0 million), and higher commodity and operating costs ($15.9 million). Winchester segment results included depreciation and amortization expense of $27.2 million and $24.6 million in 2023 and 2022, respectively.

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.

Corporate/Other

2023 Compared to 2022

For the years ended December 31, 2023 and 2022, environmental expense included $6.4 million and $1.0 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, 2023, would have been $30.1 million, compared to $24.2 million for the year ended December 31, 2022. These charges related primarily to expected future investigatory and remedial activities associated with past manufacturing operations and former waste disposal sites.

For 2023, other corporate and unallocated costs were $106.3 million compared to $131.5 million for 2022, a decrease of $25.2 million, or 19%. The decrease was primarily due to lower legal and legal-related settlement expenses ($13.8 million), a favorable foreign currency impact ($5.5 million) and lower variable incentive compensation costs ($4.2 million), which includes mark-to-market adjustments on stock-based compensation expense.

2022 Compared to 2021

For the years ended December 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 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).

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 half of 2023 (collectively, Epoxy Optimization Plan).

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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 were 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. The closures were completed in the first quarter 2023. During the fourth quarter of 2022, we committed to and completed a plan to close down one of our bisphenol production lines at our Stade, Germany site. For the year ended December 31, 2023 and 2022, we recorded pretax restructuring charges of $73.4 million and $8.0 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 2025 of approximately $25 million related to these actions.

In 2023 and 2022, Olin incurred charges of $16.2 million and $17.3 million, respectively, associated with other previously disclosed restructuring plans. We expect to incur additional restructuring charges through 2027 of approximately $45 million related to these actions.

2024 OUTLOOK

In the fourth quarter of 2023, we executed an initiative which lowered our participation in ECU markets and adjusted our operating rates to mitigate the declining pricing environment we experienced during the second half of 2023. We expect this initiative will continue through most of the first quarter 2024. Our fourth quarter Chlor Alkali Products and Vinyls operating results were negatively impacted by this initiative. We expect the first quarter 2024 operating results from our Chemicals business to be slightly higher than the fourth quarter 2023. We also expect our Winchester business first quarter 2024 results to increase sequentially from fourth quarter 2023. Overall, we expect Olin’s first quarter 2024 operating results to be slightly higher than the fourth quarter 2023 levels.

Other corporate and unallocated costs in 2024 are expected to be higher than the $106.3 million in 2023.

During 2024, we anticipate environmental expenses in the $25 million to $35 million range, compared to $23.7 million in 2023.

We expect non-operating pension income in 2024 to be similar to the $24.0 million in 2023. 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 2024. We have several international qualified defined benefit pension plans for which we anticipate cash contributions of less than $5 million in 2024.

In 2024, we currently expect our capital spending to be in the $225 million to $250 million range and we expect to make payments under other long-term supply contracts in the $25 million to $50 million range for energy modernization on the U.S. Gulf Coast. We expect 2024 depreciation and amortization expense to be in the $500 million to $525 million range.

We currently believe the 2024 effective tax rate will be in the 25% to 30% 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 2024.

PENSION AND POSTRETIREMENT BENEFITS

We recorded an after-tax charge of $13.2 million ($18.1 million pretax) to shareholders’ equity as of December 31, 2023, for our pension and other postretirement plans. This charge primarily reflected a 30-basis point decrease in the domestic pension plans’ discount rate and a 50-basis point decrease in the international defined benefit pension plans’ discount rate, partially offset by a favorable performance on plan assets during 2023. In 2022, 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.

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 2024.

In connection with international qualified defined benefit pension plans, we made cash contributions of $1.0 million, $1.3 million and $1.1 million in 2023, 2022 and 2021, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2024.  

At December 31, 2023, the projected benefit obligation of $2,144.5 million exceeded the market value of assets in our qualified defined benefit pension plans by $226.5 million, as calculated under Accounting Standards Codification (ASC) 715 “Compensation—Retirement Benefits”.

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Components of net periodic benefit (income) costs were:

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2023","","2022","","2021"],["Net Periodic Benefit (Income) Costs","($ in millions)"],["Pension benefits","$","(20.7)","","","$","(33.0)","","","$","(27.5)"],["Other postretirement benefit costs","3.1","","","3.8","","","4.5"]]
[[/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 13 “Pension Plans” and Note 14 “Postretirement Benefits” of our Notes to Consolidated Financial Statements.

ENVIRONMENTAL MATTERS

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2023","","2022","","2021"],["Cash Outlays","($ in millions)"],["Remedial and investigatory spending (charged to reserve)","$","25.9","","","$","24.6","","","$","16.4"],["Capital spending","1.3","","","1.5","","","4.1"],["Plant operations (charged to cost of goods sold)","176.2","","","178.8","","","194.9"],["Total cash outlays","$","203.4","","","$","204.9","","","$","215.4"]]
[[/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 2024 are estimated to be approximately $210 million, of which approximately $25 million to $35 million is expected to be spent on investigatory and remedial efforts, approximately $5 million on capital projects and approximately $175 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, $25 million to $35 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,"],["","2023","","2022"],["Environmental Liabilities","($ in millions)"],["Beginning balance","$","146.6","","","$","147.3"],["Charges to income","30.1","","","24.2"],["Remedial and investigatory spending","(25.9)","","","(24.6)"],["Other","2.8","","","(0.3)"],["Ending balance","$","153.6","","","$","146.6"]]
[[/GREPCENT_TABLE]]

As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business.

The establishment and implementation of national, state or provincial and local standards to regulate air, water and land quality affect substantially all of our manufacturing locations around the world. Laws providing for regulation of the

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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 $11.6 million at December 31, 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. 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,"],["","2023","","2022","","2021"],["Environmental Expense","($ in millions)"],["Provisions charged to income","$","30.1","","","$","24.2","","","$","16.2"],["Insurance recoveries(1)","(6.4)","","","(1.0)","","","(2.2)"],["Environmental expense","$","23.7","","","$","23.2","","","$","14.0"]]
[[/GREPCENT_TABLE]]

(1)     Insurance recoveries for costs incurred and expensed in prior periods.

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. 

We have included additional information with respect to environmental matters within Note 21, “Environmental,” of our Notes to Consolidated Financial Statements.

LEGAL MATTERS AND CONTINGENCIES

Please see the discussion of legal matters and contingencies within Item 8, under the heading of “Legal Matters” within Note 23 “Commitments and Contingencies.”

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Data

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2023","","2022","","2021"],["Provided by (Used for)","($ in millions)"],["Net operating activities","$","974.3","","","$","1,921.9","","","$","1,741.0"],["Capital expenditures","(236.0)","","","(236.9)","","","(200.6)"],["Business acquired in purchase transaction, net of cash acquired","(63.9)","","","\u2014","","","\u2014"],["Payments under other long-term supply contracts","(64.5)","","","(37.7)","","","\u2014"],["Proceeds from disposition of property, plant and equipment","28.8","","","14.9","","","3.2"],["Net investing activities","(340.8)","","","(259.7)","","","(197.4)"],["Long-term debt borrowings (repayments), net","85.9","","","(201.1)","","","(1,103.1)"],["Debt early redemption premiums","\u2014","","","\u2014","","","(137.7)"],["Common stock repurchased and retired","(711.3)","","","(1,350.7)","","","(251.9)"],["Stock options exercised","25.4","","","25.7","","","72.4"],["Dividends paid","(101.0)","","","(116.2)","","","(127.8)"],["Contributions received from noncontrolling interests","44.1","","","\u2014","","","\u2014"],["Net financing activities","(656.9)","","","(1,646.7)","","","(1,552.0)"]]
[[/GREPCENT_TABLE]]

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Operating Activities

For 2023, cash provided by operating activities decreased by $947.6 million from 2022, primarily due to a decrease in operating results compared with the prior year. For 2023, working capital decreased $68.6 million, compared to a decrease of $65.2 million in 2022. Inventories decreased by $94.4 million from December 31, 2022, primarily due to inventory destocking efforts. A portion of the working capital decrease in 2023 was offset by incremental working capital associated with BWA.

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.

Investing Activities

Capital spending was $236.0 million and $236.9 million in 2023 and 2022, respectively. In 2024, we expect our capital spending to be in the $225 million to $250 million range. Our capital spending forecast represents normal capital spending to maintain our current operating facilities.

On October 1, 2023, Olin acquired the assets of White Flyer from Reagent for $63.9 million. The acquisition was financed with cash on hand.

For the year ended December 31, 2023 and 2022, payments of $64.5 million and $37.7 million, respectively, 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 $25.0 million to $50.0 million range in 2024.

For the year ended December 31, 2023, we received $28.5 million of cash proceeds from the sale of our domestic private trucking fleet and operations. For the year ended December 31, 2022, we received proceeds of $14.9 million from the sale of two former manufacturing facilities.

Financing Activities

During 2023 and 2022, activity of our outstanding debt included:

[[GREPCENT_TABLE]]
[["","","Long-term Debt Borrowings (Repayments) for the Year Ended December 31,"],["","","2023","","2022"],["Debt Instrument","","($ in millions)"],["Borrowings"],["Senior Revolving Credit Facility","","$","375.0","","","$","320.0"],["Receivables Financing Agreement","","332.7","","","95.0"],["Total borrowings","","707.7","","","415.0"],["Repayments"],["5.50% senior notes, due 2022 (2022 Notes)","","\u2014","","","(200.0)"],["Senior Revolving Credit Facility","","(307.0)","","","(320.0)"],["Term Loan Facility","","(8.7)","","","\u2014"],["Receivables Financing Agreement","","(304.2)","","","(95.0)"],["Finance leases","","(1.9)","","","(1.1)"],["Total repayments","","(621.8)","","","(616.1)"],["Long-term debt borrowings (repayments), net","","$","85.9","","","$","(201.1)"]]
[[/GREPCENT_TABLE]]

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

In 2023 and 2022, we repurchased and retired 13.3 million and 25.7 million shares, respectively, of common stock with a total value of $711.3 million and $1,350.7 million, respectively.

In 2023 and 2022, we issued 1.0 million and 1.1 million shares, respectively, with a total value of $25.4 million and $25.7 million, respectively, representing stock options exercised.

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The percent of total debt to total capitalization increased to 54.1% as of December 31, 2023, from 50.4% as of December 31, 2022, primarily as a result of a higher level of debt outstanding and lower shareholders’ equity, primarily due to common stock repurchases partially offset by our operating results.

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

Dividends per common share were $0.80 in 2023 and 2022. Total dividends paid on common stock amounted to $101.0 million and $116.2 million in 2023 and 2022, respectively. On February 21, 2024, our Board of Directors declared a dividend of $0.20 per share on our common stock, payable on March 15, 2024, to shareholders of record on March 7, 2024.

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.

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 (as defined below) and AR Facilities (as defined below). Additionally, we believe that we have access to the high yield debt and equity markets.

On October 11, 2022, we entered into a $1,550.0 million senior credit facility (Senior Credit Facility) that replaced our 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 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 requires principal amortization payments which began on 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, 2023, we had $1,131.6 million available under our $1,200.0 million Senior Revolving Credit Facility because we had $68.0 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 December 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. 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, 2023, there were no covenants or other restrictions that limited our ability to borrow.

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.

For the years ended December 31, 2023 and 2022, 13.3 million and 25.7 million shares, respectively, of common stock have been repurchased and retired at a total value of $711.3 million and $1,350.7 million, respectively. As of December 31, 2023, a cumulative total of 19.2 million shares were repurchased and retired at a total value of $1,003.0 million and $997.0 million of common stock remained authorized to be repurchased under the 2022 Repurchase Authorization program.

We maintain a $425.0 million Receivables Financing Agreement (Receivables Financing Agreement) that is scheduled to mature on October 14, 2025. 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 December 31, 2023 and 2022, we had $328.5 million and $300.0 million drawn under the agreement. As of December 31, 2023, $456.6 million of our trade receivables were

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pledged as collateral and we had $33.3 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 $175.5 million and certain of our foreign subsidiaries may sell their accounts receivable up to a maximum of €22.0 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 following table summarizes the AR Facilities activity:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["AR Facilities","($ in millions)"],["Beginning balance","$","111.8","","","$","83.3"],["Gross receivables sold","899.0","","","1,049.7"],["Payments received from customers on sold accounts","(947.5)","","","(1,021.2)"],["Ending balance","$","63.3","","","$","111.8"]]
[[/GREPCENT_TABLE]]

  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, 2023 and 2022 was $4.7 million and $3.1 million, respectively. The agreements are without recourse and therefore no recourse liability has been recorded as of December 31, 2023.

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, 2024:

[[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 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.

Contractual Obligations

Our current debt structure is used to fund our business operations. As of December 31, 2023, we had long-term borrowings, including the current installment, of $2,670.1 million, of which $893.7 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 13 “Pension Plans” and Note 17 “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 for the domestic qualified defined benefit plan. 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 2024. We also have postretirement healthcare plans that provide health and life insurance benefits to certain retired employees and their beneficiaries, as described in Note 14 “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:

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[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Less than 1 Year","","1-3 Years","","3-5 Years","","More than 5 Years","","Total"],["Contractual Commitments","($ in millions)"],["Debt obligations(1)","$","78.8","","","$","475.0","","","$","865.5","","","$","1,267.6","","","$","2,686.9"],["Interest payments under debt obligations(2)","158.3","","","264.8","","","174.8","","","81.5","","","679.4"],["Contingent tax liability","34.6","","","9.3","","","3.5","","","2.9","","","50.3"],["International qualified pension plan payments(3)","10.8","","","17.2","","","20.0","","","166.6","","","214.6"],["Non-qualified pension plan payments","0.6","","","0.8","","","0.5","","","1.8","","","3.7"],["Postretirement benefit payments","2.7","","","5.1","","","4.7","","","22.7","","","35.2"],["Total","$","285.8","","","$","772.2","","","$","1,069.0","","","$","1,543.1","","","$","3,670.1"]]
[[/GREPCENT_TABLE]]

(1)Excludes unamortized debt issuance costs and unamortized bond original issue discount of $16.8 million at December 31, 2023. 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 interest rates from those in effect at December 31, 2023, which ranged from 5.0% to 9.5%.

(3)These amounts are only estimated payments for our foreign qualified pension plans, assuming a weighted average annual expected rate of return on pension plan assets of 4.4% and a discount rate on pension plan obligations of 3.2%. 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 $1.0 million, $1.3 million and $1.1 million in 2023, 2022 and 2021, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2024. 

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 22 “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:

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Less than 1 Year","","1-3 Years","","3-5 Years","","More than 5 Years","","Total"],["Lease and Purchase Commitments","($ in millions)"],["Lease Commitments"],["Operating leases","$","80.9","","","$","125.8","","","$","81.1","","","$","132.6","","","$","420.4"],["Purchase Commitments"],["Raw materials / utilities","516.3","","","864.7","","","738.4","","","2,842.5","","","4,961.9"],["Capital expenditures","10.6","","","0.8","","","\u2014","","","\u2014","","","11.4"],["Other long-term supply contracts","37.5","","","80.4","","","\u2014","","","\u2014","","","117.9"],["Total purchase commitments","$","564.4","","","$","945.9","","","$","738.4","","","$","2,842.5","","","$","5,091.2"]]
[[/GREPCENT_TABLE]]

Other Guarantees

We also have standby letters of credit outstanding of $120.7 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, workers compensation insurance policies, plant closure and post-closure obligations, international payment obligations and international pension funding requirements.

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

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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. In the fourth quarter of 2023, we performed our triennial quantitative goodwill impairment test for our reporting units. We use a discounted cash flow approach to develop the estimated fair value of a reporting unit when a quantitative 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. Based on the aforementioned analysis, the estimated fair value of our reporting units exceeded the carrying value of the reporting units.

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

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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 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 (losses) gains of $(72.5) million, $58.2 million, and $180.1 million in 2023, 2022, and 2021, respectively, which were included in cost of goods sold. At December 31, 2023, we had open derivative notional contract positions through 2028 totaling $191.0 million. If all open futures contracts had been settled on December 31, 2023, we would have recognized a pretax loss of $24.6 million.

If commodity prices were to remain at December 31, 2023 levels, approximately $20.8 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. There were no outstanding interest rate swaps at December 31, 2023 and 2022.  

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. All of the currency derivatives expire within one year and are for USD equivalents. The counterparties to the forward contracts are large financial institutions; however, the risk of loss to us in the event of nonperformance by a counterparty could impact our financial position or results of operations. We had the following notional amounts of outstanding forward contracts to buy and

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sell foreign currency:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["Foreign Currency","($ in millions)"],["Buy","21.0","","","275.8"],["Sell","140.2","","","110.7"]]
[[/GREPCENT_TABLE]]

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 of $15.7 million, $27.3 million and $22.0 million in 2023, 2022 and 2021, respectively.

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

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["Derivative Assets and Liabilities","($ in millions)"],["Other current assets","$","2.1","","","$","1.8"],["Other assets","3.2","","","4.0"],["Total derivative asset","$","5.3","","","$","5.8"],["Accrued liabilities","$","31.9","","","$","42.5"],["Other liabilities","0.5","","","7.4"],["Total derivative liability","$","32.4","","","$","49.9"]]
[[/GREPCENT_TABLE]]