Company Quick10K Filing
Olin
Price18.31 EPS1
Shares164 P/E25
MCap3,012 P/FCF7
Net Debt3,375 EBIT311
TEV6,387 TEV/EBIT21
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-01
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10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-25
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10-K 2011-12-31 Filed 2012-02-24
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8-K 2020-05-19
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8-K 2018-01-16
8-K 2018-01-16

OLN 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1. Description of Business
Note 2. Restructuring Charges
Note 3. Accounts Receivables
Note 4. Allowance for Doubtful Accounts Receivables
Note 5. Inventories
Note 6. Other Assets
Note 7. Goodwill and Intangible Assets
Note 8. Earnings per Share
Note 9. Environmental
Note 10. Commitments and Contingencies
Note 11. Shareholders' Equity
Note 12. Segment Information
Note 13. Stock - Based Compensation
Note 14. Debt
Note 15. Contributing Employee Ownership Plan
Note 16. Pension Plans and Retirement Benefits
Note 17. Income Taxes
Note 18. Derivative Financial Instruments
Note 19. Fair Value Measurements
Note 20. Supplemental Guarantor Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 oln-ex3112020331xq1.htm
EX-31.2 oln-ex3122020331xq1.htm
EX-32 oln-ex322020331xq1.htm

Olin Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.91.51.10.70.3-0.12012201420172020
Rev, G Profit, Net Income
0.50.30.1-0.1-0.3-0.52012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-1070
olinlogo04302020.jpg
Olin Corporation
(Exact name of registrant as specified in its charter)
Virginia
13-1872319
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
190 Carondelet Plaza,
Suite 1530,
Clayton,
MO
63105
(Address of principal executive offices)
(Zip Code)
(314) 480-1400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class:
Trading symbol:
Name of each exchange on which registered:
Common Stock, $1.00 par value per share
OLN
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

As of March 31, 2020, 157,851,156 shares of the registrant’s common stock were outstanding.

1


TABLE OF CONTENTS FOR FORM 10-Q
Page
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
     Segment Results
 
     Outlook
 
 
 
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


2


Part I — Financial Information

Item 1.  Financial Statements.

OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Balance Sheets
(In millions, except per share data)
(Unaudited)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
194.5

 
$
220.9

 
$
105.7

Receivables, net
802.9

 
760.4

 
808.3

Income taxes receivable
19.9

 
13.9

 
6.3

Inventories, net
667.5

 
695.7

 
717.5

Other current assets
54.5

 
23.1

 
46.7

Total current assets
1,739.3

 
1,714.0

 
1,684.5

Property, plant and equipment (less accumulated depreciation of $3,373.8, $3,268.1 and $2,892.4)
3,282.7

 
3,323.8

 
3,433.5

Operating lease assets, net
366.5

 
377.8

 
275.1

Deferred income taxes
39.6

 
35.3

 
31.7

Other assets
1,205.3

 
1,169.1

 
1,131.4

Intangible assets, net
431.4

 
448.1

 
494.2

Goodwill
2,119.6

 
2,119.7

 
2,119.5

Total assets
$
9,184.4

 
$
9,187.8

 
$
9,169.9

Liabilities and Shareholders’ Equity

 
 
 
 
Current liabilities:

 
 
 
 
Current installments of long-term debt
$
2.0

 
$
2.1

 
$
126.1

Accounts payable
668.1

 
651.9

 
637.0

Income taxes payable
7.4

 
19.8

 
13.0

Current operating lease liabilities
76.6

 
79.3

 
69.4

Accrued liabilities
811.8

 
329.1

 
294.4

Total current liabilities
1,565.9

 
1,082.2

 
1,139.9

Long-term debt
3,489.5

 
3,338.7

 
3,067.2

Operating lease liabilities
295.0

 
303.4

 
206.0

Accrued pension liability
778.0

 
797.7

 
660.2

Deferred income taxes
449.9

 
454.5

 
525.9

Other liabilities
317.0

 
793.8

 
733.1

Total liabilities
6,895.3

 
6,770.3

 
6,332.3

Commitments and contingencies

 

 

Shareholders’ equity:
 
 
 
 
 
Common stock, $1.00 par value per share:  authorized, 240.0 shares; issued and outstanding, 157.8, 157.7 and 164.9 shares
157.8

 
157.7

 
164.9

Additional paid-in capital
2,122.8

 
2,122.1

 
2,239.2

Accumulated other comprehensive loss
(821.1
)
 
(803.4
)
 
(656.9
)
Retained earnings
829.6

 
941.1

 
1,090.4

Total shareholders’ equity
2,289.1

 
2,417.5

 
2,837.6

Total liabilities and shareholders’ equity
$
9,184.4

 
$
9,187.8

 
$
9,169.9


The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.

3


OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Operations
(In millions, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Sales
$
1,425.1

 
$
1,553.4

Operating expenses:
 
 
 
Cost of goods sold
1,374.2

 
1,347.3

Selling and administration
96.7

 
107.0

Restructuring charges
1.7

 
4.0

Other operating income

 
0.1

Operating (loss) income
(47.5
)
 
95.2

Interest expense
63.1

 
57.4

Interest income
0.1

 
0.2

Non-operating pension income
4.6

 
3.9

Other income

 
11.2

Income (loss) before taxes
(105.9
)
 
53.1

Income tax (benefit) provision
(25.9
)
 
11.4

Net (loss) income
$
(80.0
)
 
$
41.7

Net (loss) income per common share:
 
 
 
Basic
$
(0.51
)
 
$
0.25

Diluted
$
(0.51
)
 
$
0.25

Average common shares outstanding:
 
 
 
Basic
157.8

 
165.0

Diluted
157.8

 
166.1


The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.

4


OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Net (loss) income
$
(80.0
)
 
$
41.7

Other comprehensive loss, net of tax:
 
 
 
Foreign currency translation adjustments, net
(9.0
)
 
(8.3
)
Unrealized losses on derivative contracts, net
(17.9
)
 
(3.3
)
Amortization of prior service costs and actuarial losses, net
9.2

 
5.7

Total other comprehensive loss, net of tax
(17.7
)
 
(5.9
)
Comprehensive (loss) income
$
(97.7
)
 
$
35.8


The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.

5


OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Shareholders’ Equity
 
Shares Issued
 
Par Value
Balance at January 1, 2019
165.3

 
$
165.3

 
$
2,247.4

 
$
(651.0
)
 
$
1,070.5

 
$
2,832.2

Lease accounting adoption adjustment

 

 

 

 
11.2

 
11.2

Net income

 

 

 

 
41.7

 
41.7

Other comprehensive loss

 

 

 
(5.9
)
 

 
(5.9
)
Dividends paid:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.20 per share)

 

 

 

 
(33.0
)
 
(33.0
)
Common stock repurchased and retired
(0.6
)
 
(0.6
)
 
(12.6
)
 

 

 
(13.2
)
Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised
0.1

 
0.1

 
1.3

 

 

 
1.4

Other transactions
0.1

 
0.1

 
0.3

 

 

 
0.4

Stock-based compensation

 

 
2.8

 

 

 
2.8

Balance at March 31, 2019
164.9

 
164.9

 
2,239.2

 
(656.9
)
 
1,090.4

 
2,837.6

Balance at January 1, 2020
157.7

 
157.7

 
2,122.1

 
(803.4
)
 
941.1

 
2,417.5

Net loss

 

 

 

 
(80.0
)
 
(80.0
)
Other comprehensive loss

 

 

 
(17.7
)
 

 
(17.7
)
Dividends paid:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.20 per share)

 

 

 

 
(31.5
)
 
(31.5
)
Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised

 

 
0.7

 

 

 
0.7

Other transactions
0.1

 
0.1

 
2.6

 

 

 
2.7

Stock-based compensation

 

 
(2.6
)
 

 

 
(2.6
)
Balance at March 31, 2020
157.8

 
$
157.8

 
$
2,122.8

 
$
(821.1
)
 
$
829.6

 
$
2,289.1


The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.


6


OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Operating Activities
 
 
 
Net (loss) income
$
(80.0
)
 
$
41.7

Adjustments to reconcile net (loss) income to net cash and cash equivalents provided by (used for) operating activities:
 
 
 
Gain on disposition of non-consolidated affiliate

 
(11.2
)
Stock-based compensation
0.2

 
3.3

Depreciation and amortization
146.5

 
152.9

Deferred income taxes
(6.5
)
 
(3.0
)
Qualified pension plan contributions
(0.1
)
 
(0.1
)
Qualified pension plan income
(2.8
)
 
(2.0
)
Change in:
 
 
 
Receivables
(66.1
)
 
(36.2
)
Income taxes receivable/payable
(18.3
)
 
(9.9
)
Inventories
24.3

 
(11.2
)
Other current assets
(32.7
)
 
(12.4
)
Accounts payable and accrued liabilities
(7.7
)
 
(17.9
)
Other assets

 
2.9

Other noncurrent liabilities
(2.0
)
 
6.4

Other operating activities
(2.7
)
 
1.0

Net operating activities
(47.9
)
 
104.3

Investing Activities
 
 
 
Capital expenditures
(95.9
)
 
(102.2
)
Proceeds from disposition of non-consolidated affiliate

 
20.0

Net investing activities
(95.9
)
 
(82.2
)
Financing Activities
 
 
 
Long-term debt:
 
 
 
Borrowings
225.0

 

Repayments
(75.4
)
 
(50.2
)
Common stock repurchased and retired

 
(13.2
)
Stock options exercised
0.5

 
1.4

Dividends paid
(31.5
)
 
(33.0
)
Debt issuance costs
(0.4
)
 

Net financing activities
118.2

 
(95.0
)
Effect of exchange rate changes on cash and cash equivalents
(0.8
)
 
(0.2
)
Net decrease in cash and cash equivalents
(26.4
)
 
(73.1
)
Cash and cash equivalents, beginning of period
220.9

 
178.8

Cash and cash equivalents, end of period
$
194.5

 
$
105.7

Cash paid for interest and income taxes:
 
 
 
Interest, net
$
58.5

 
$
52.3

Income taxes, net of refunds
$
2.5

 
$
17.8

Non-cash investing activities:
 
 
 
Decrease in capital expenditures included in accounts payable and accrued liabilities
$
25.4

 
$
20.6


The accompanying notes to condensed financial statements are an integral part of the condensed financial statements.

7


OLIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Olin Corporation (Olin) is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, MO.  We are a manufacturer concentrated in three business segments:  Chlor Alkali Products and Vinyls, Epoxy and Winchester.  The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride (EDC) and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrochloric acid, hydrogen, bleach products and potassium hydroxide.  The Epoxy segment produces and sells a full range of epoxy materials, including allyl chloride, epichlorohydrin, liquid epoxy resins, solid epoxy resins and downstream products such as differentiated epoxy resins and additives. The Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

We have prepared the condensed financial statements included herein, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The preparation of the financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. In our opinion, these financial statements reflect all adjustments (consisting only of normal accruals), which are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate. We recommend that you read these condensed financial statements in conjunction with the financial statements, accounting policies and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019. Certain reclassifications were made to prior year amounts to conform to the 2020 presentation.

NOTE 2. RESTRUCTURING CHARGES

On December 11, 2019, we announced that we had made the decision to permanently close a chlor alkali plant with a capacity of 230,000 tons and our vinylidene chloride (VDC) production facility, both in Freeport, TX.  These closures are expected to be completed before the end of 2020.  We expect to incur additional restructuring charges through 2024 of approximately $50 million related to these actions.

On December 10, 2018, we announced that we had made the decision to permanently close the ammunition assembly operations at our Winchester facility in Geelong, Australia. Subsequent to the facility’s closure, product for customers in the region will be sourced from Winchester manufacturing facilities located in the United States. For the three months ended March 31, 2019, we recorded pretax restructuring charges of $0.1 million for lease and other contract termination costs related to this action. For the three months ended March 31, 2019, we recorded additional pretax restructuring charges of $1.4 million for employee severance and related benefit costs related to our Winchester operations.

On March 21, 2016, we announced that we had made the decision to close a combined total of 433,000 tons of chlor alkali capacity across three separate locations. Associated with this action, we have permanently closed our Henderson, NV chlor alkali plant with 153,000 tons of capacity and have reconfigured the site to manufacture bleach and distribute caustic soda and hydrochloric acid. Also, the capacity of our Niagara Falls, NY chlor alkali plant has been reduced from 300,000 tons to 240,000 tons and the chlor alkali capacity at our Freeport, TX facility was reduced by 220,000 tons. This 220,000 ton reduction was entirely from diaphragm cell capacity. For the three months ended March 31, 2020 and 2019, we recorded pretax restructuring charges of $1.7 million and $2.5 million, respectively, for facility exit costs, employee severance and related benefit costs and lease and other contract termination costs related to these actions. We expect to incur additional restructuring charges through 2020 of approximately $5 million related to these capacity reductions.

8



The following table summarizes the 2020 and 2019 activities by major component of these restructuring actions and the remaining balances of accrued restructuring costs as of March 31, 2020 and 2019:
 
Employee severance and related benefit costs
 
Lease and other contract termination costs
 
Facility exit costs
 
Total
 
($ in millions)
Balance at January 1, 2019
$
1.5

 
$
6.0

 
$
0.7

 
$
8.2

Restructuring charges
1.4

 
0.1

 
2.5

 
4.0

Amounts utilized
(0.7
)
 
(0.6
)
 
(2.4
)
 
(3.7
)
Balance at March 31, 2019
$
2.2

 
$
5.5

 
$
0.8

 
$
8.5

Balance at January 1, 2020
$

 
$
3.1

 
$

 
$
3.1

Restructuring charges
0.1

 
0.1

 
1.5

 
1.7

Amounts utilized
(0.1
)
 
(0.2
)
 
(1.5
)
 
(1.8
)
Balance at March 31, 2020
$

 
$
3.0

 
$

 
$
3.0



The following table summarizes the cumulative restructuring charges of these restructuring actions by major component through March 31, 2020:
 
Chlor Alkali Products and Vinyls
 
Winchester
 
Total
 
Freeport
 
Capacity Reductions
 
 
 
($ in millions)
Write-off of equipment and facility
$
58.9

 
$
78.1

 
$
2.6

 
$
139.6

Employee severance and related benefit costs

 
6.7

 
2.7

 
9.4

Facility exit costs

 
49.7

 
0.2

 
49.9

Employee relocation costs

 
1.7

 

 
1.7

Lease and other contract termination costs

 
41.0

 
0.4

 
41.4

Total cumulative restructuring charges
$
58.9

 
$
177.2

 
$
5.9

 
$
242.0



As of March 31, 2020, we have incurred cash expenditures of $99.4 million and non-cash charges of $139.6 million related to these restructuring actions. The remaining balance of $3.0 million is expected to be paid out through 2021.

NOTE 3. ACCOUNTS RECEIVABLES

On July 16, 2019, our existing $250.0 million Receivables Financing Agreement was extended to July 15, 2022 and downsized to $10.0 million with the option to expand (Receivables Financing Agreement). During the three months ended March 31, 2020, we amended the Receivables Financing Agreement to expand the borrowing capacity and borrowed $150.0 million. During April 2020, we expanded the facility and borrowed an additional $100.0 million. The Receivables Financing Agreement includes a minimum borrowing requirement of 50% of the available borrowing capacity or facility limit, whichever is greater, beginning on October 1, 2020. The administrative agent for our Receivables Financing Agreement is PNC Bank, National Association.  Under the Receivables Financing Agreement, our eligible trade receivables are used for collateralized borrowings and continue to be serviced by us. In addition, the Receivables Financing Agreement incorporates the leverage covenant that is contained in the $2,000.0 million senior credit facility. As of March 31, 2020$345.2 million of our trade receivables were pledged as collateral. As of March 31, 2020, we had $150.0 million drawn and no additional borrowing capacity under the Receivables Financing Agreement. As of December 31, 2019 and March 31, 2019, we had zero and $125.0 million, respectively, drawn under the Receivables Financing Agreement.


9


Olin also has trade accounts receivable factoring arrangements (AR Facilities) and pursuant to the terms of the AR Facilities, certain of our subsidiaries may sell their accounts receivable up to a maximum of $315.0 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 condensed statements of cash flows.  The following table summarizes the AR Facilities activity:

 
March 31,
 
2020
 
2019
 
($ in millions)
Balance at beginning of year
$
63.1

 
$
132.4

     Gross receivables sold
262.0

 
134.9

     Payments received from customers on sold accounts
(256.2
)
 
(170.5
)
Balance at end of period
$
68.9

 
$
96.8


The factoring discount paid under the AR Facilities is recorded as interest expense on the condensed statements of operations. The factoring discount was $0.6 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively. The agreements are without recourse and therefore no recourse liability had been recorded as of March 31, 2020, December 31, 2019, or March 31, 2019.
 
NOTE 4. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES

We evaluate the collectibility of financial instruments based on our current estimate of credit losses expected to be incurred over the life of the financial instrument.  The only significant financial instrument which creates exposure to credit losses are customer accounts receivables.  We measure credit losses on uncollected accounts receivable through an allowance for doubtful accounts receivable which is based on a combination of factors including both historical collection experience and reasonable estimates that affect the expected collectibility of the receivable.  These factors include historical bad debt experience, industry conditions of the customer or group of customers, geographical region, credit ratings and general market conditions. We group receivables together for purposes of estimating credit losses when customers have similar risk characteristics; otherwise, the estimation is performed on the individual receivable.

This estimate is periodically adjusted when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While we have a large number of customers that operate in diverse businesses and are geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and, therefore, the need to revise estimates for the provision for doubtful accounts could occur.

Allowance for doubtful accounts receivables consisted of the following:
 
March 31,
 
2020
 
2019
 
($ in millions)
Balance at beginning of year
$
11.9

 
$
12.9

Provisions charged
0.2

 
0.5

Write-offs, net of recoveries

 
(0.1
)
Foreign currency translation adjustment
(0.3
)
 
(0.1
)
Balance at end of period
$
11.8

 
$
13.2




10


NOTE 5. INVENTORIES

Inventories consisted of the following:
 
March 31, 2020
 
December 31,
2019
 
March 31, 2019
 
($ in millions)
Supplies
$
103.5

 
$
80.5

 
$
70.3

Raw materials
80.8

 
74.9

 
73.5

Work in process
106.3

 
140.3

 
145.6

Finished goods
419.5

 
449.5

 
498.7

 
710.1

 
745.2

 
788.1

LIFO reserve
(42.6
)
 
(49.5
)
 
(70.6
)
Inventories, net
$
667.5

 
$
695.7

 
$
717.5



Inventories are valued at the lower of cost and net realizable value. For U.S. inventories, inventory costs are determined principally by the last-in, first-out (LIFO) method of inventory accounting while for international inventories, inventory costs are determined principally by the first-in, first-out (FIFO) method of inventory accounting. Cost for other inventories has been determined principally by the average-cost method (primarily operating supplies, spare parts and maintenance parts). Elements of costs in inventories included raw materials, direct labor and manufacturing overhead. Inventories under the LIFO method are based on annual estimates of quantities and costs as of year-end; therefore, the condensed financial statements at March 31, 2020 reflect certain estimates relating to inventory quantities and costs at December 31, 2020. The replacement cost of our inventories would have been approximately $42.6 million, $49.5 million and $70.6 million higher than reported at March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

NOTE 6. OTHER ASSETS

Included in other assets were the following:
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
 
($ in millions)
Supply contracts
$
1,103.2

 
$
1,112.6

 
$
1,090.1

Other
102.1

 
56.5

 
41.3

Other assets
$
1,205.3

 
$
1,169.1

 
$
1,131.4



On January 1, 2019, we sold our 9.1% limited partnership interest in Bay Gas Storage Company, Ltd. (Bay Gas) for $20.0 million. The sale closed on February 7, 2019 which resulted in a gain of $11.2 million for the three months ended March 31, 2019 which was recorded to other income in the condensed statements of operations.

On October 5, 2015 (the Closing Date), we completed the acquisition (the Acquisition) from The Dow Chemical Company (Dow) of its U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses (collectively, the Acquired Business). In connection with the Acquisition, Olin and Dow entered into arrangements for the long-term supply of ethylene by Dow to Olin, pursuant to which, among other things, Olin made upfront payments in order to receive ethylene at producer economics and for certain reservation fees and for the option to obtain additional ethylene at producer economics. During 2016, we exercised one of the options to reserve additional ethylene at producer economics. During 2017, an additional payment of $209.4 million was made in connection with this option which increased the value of the long-term asset.

Amortization expense of $9.4 million for both the three months ended March 31, 2020 and 2019 was recognized within cost of goods sold related to these supply contracts and is reflected in depreciation and amortization on the condensed statements of cash flows. The long-term supply contracts are monitored for impairment each reporting period.

On February 27, 2017, we exercised the remaining option to reserve additional ethylene at producer economics from Dow. In connection with the exercise of this option, we also secured a long-term customer arrangement. As a result, an additional payment will be made to Dow that is not to exceed $493 million on or about the fourth quarter of 2020. Olin has recognized a long-term asset and other liability of $439.9 million, which represented the present value of the additional

11


estimated payment. The discounted amount of $52.7 million will be recorded as interest expense through the fourth quarter of 2020. For both the three months ended March 31, 2020 and 2019, $4.0 million of interest expense was recorded for accretion on the 2020 payment discount. The liability balance as of March 31, 2020 of $480.8 million was reclassified to accrued liabilities from other liabilities on the condensed balance sheet.

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying value of goodwill were as follows:

 
Chlor Alkali Products and Vinyls
 
Epoxy
 
Total
 
($ in millions)
Balance at January 1, 2019
$
1,832.6

 
$
287.0

 
$
2,119.6

Foreign currency translation adjustment
(0.1
)
 

 
(0.1
)
Balance at March 31, 2019
$
1,832.5

 
$
287.0

 
$
2,119.5

Balance at January 1, 2020
$
1,832.7

 
$
287.0

 
2,119.7

Foreign currency translation adjustment
(0.1
)
 

 
(0.1
)
Balance at March 31, 2020
$
1,832.6

 
$
287.0

 
$
2,119.6



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. 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.  During the three months ended March 31, 2020, we identified triggering events associated with an overall decrease in our stock price, an adverse change in the business climate and a significant reduction in near-term cash flow projections. As a result of these events, we performed a quantitative goodwill impairment test during the first quarter of 2020. We used a discounted cash flow approach to develop the estimated fair value of our reporting units. Based on the aforementioned analysis, the estimated fair value of our reporting units exceeded the carrying value of the reporting units and no impairment charges were recorded.

The discount rate, profitability assumptions and terminal growth rate of our reporting units and the cyclical nature of the chlor alkali industry were the material assumptions utilized in the discounted cash flow model used to estimate the fair value of each reporting unit.  The discount rate reflects a weighted-average cost of capital, which is calculated based on observable market data.  Some of this data (such as the risk free or treasury rate and the pretax cost of debt) are based on the market data at a point in time.  Other data (such as the equity risk premium) are based upon market data over time for a peer group of companies in the chemical manufacturing or distribution industries with a market capitalization premium added, as applicable.

The discounted cash flow analysis requires estimates, assumptions and judgments about future events.  Our analysis uses our internally generated long-range plan.  Our discounted cash flow analysis uses the assumptions in our long-range plan about terminal growth rates, forecasted capital expenditures and changes in future working capital requirements to determine the implied fair value of each reporting unit.  The long-range plan reflects management judgment, supplemented by independent chemical industry analyses which provide multi-year chlor alkali industry operating and pricing forecasts.

We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit.  However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future.  In order to evaluate the sensitivity of the fair value calculation on the goodwill impairment test, we applied three separate sensitivities: a hypothetical 10% decrease to the fair value of each reporting unit, a hypothetical decrease of 100-basis points in our terminal growth rate and an increase of 100-basis points in our weighted-average cost of capital to test the fair value calculation. The hypothetical 10% decrease to the fair value of our Chlor Alkali Products and Vinyls reporting unit exceeded the carrying value of the reporting unit, but was not significantly in excess of the carrying value. In all other cases, the estimated fair value of our Epoxy and Chlor Alkali Products and Vinyls reporting units derived in these sensitivity calculations did not exceed the carrying value of our reporting units.  If our assumptions regarding future performance are not achieved, we may be required to record goodwill impairment charges in