Olin Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results, not standalone fourth-quarter financials. Olin manufactures chemicals and ammunition through Chlor Alkali Products and Vinyls, Epoxy, and Winchester; these represented 46%, 36%, and 18% of 2021 sales, respectively.
Financial results and key metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $8,910.6 million | $5,758.0 million |
| Gross margin | $2,294.2 million; 26% of sales | $383.4 million; 7% of sales |
| Operating income (loss) | $1,850.8 million | $(746.7) million |
| Net income (loss) | $1,296.7 million; diluted EPS $7.96 | $(969.9) million; diluted EPS $(6.14) |
| Cash from operations | $1,741.0 million | $433.0 million |
| Capital expenditures | $200.6 million | $298.9 million |
| Cash and cash equivalents | $180.5 million | $189.7 million |
| Total debt | $2,779.3 million | $3,863.8 million |
| Debt / total capitalization | 51.2% | 72.7% |
| Current ratio | 1.3 | 1.4 |
All amounts are in U.S. dollars. The reported effective tax rate was 15.7%; management’s discussion states that after specified tax items, the rate was 22.5%.
Segment performance
| Segment | FY2021 sales | FY2021 segment income | FY2020 segment income |
|---|---|---|---|
| Chlor Alkali Products and Vinyls | $4,140.8 million | $997.8 million | $3.5 million |
| Epoxy | $3,186.0 million | $616.5 million | $40.8 million |
| Winchester | $1,583.8 million | $412.1 million | $92.3 million |
Material changes and notable items
- Sales rose 55% year over year, driven mainly by higher chemical product prices and stronger ammunition pricing and volumes. Segment income increased substantially across all three businesses.
- FY2020 included a $699.8 million goodwill impairment charge; none was recorded in 2021.
- Winter Storm Uri disrupted multiple facilities and caused a North American chemical-shipment force majeure. Olin reported a net pretax favorable 2021 impact of $99.9 million: $121.4 million favorable in Chlor Alkali Products and Vinyls and $21.5 million unfavorable in Epoxy.
- Olin repaid approximately $1.1 billion of debt net of borrowings, while recording a $152.2 million loss on debt extinguishment, including $137.7 million of redemption premiums. Interest expense was $348.0 million, but excluding specified debt-extinguishment items it fell year over year, primarily due to lower debt and rates.
- Olin repurchased 4.7 million shares for $251.9 million and paid $0.80 per share in dividends. A new $1.0 billion repurchase authorization was approved; no purchases had been made under it by year-end.
- Olin permanently closed 225,000 tons of diaphragm-grade chlor alkali capacity at Plaquemine and decided to close a further 400,000 tons at McIntosh, with the latter closure expected by the end of Q3 2022. It also closed Freeport trichloroethylene and anhydrous hydrogen chloride liquefaction facilities.
Liquidity, outlook, risks, and contingencies
- Operating cash flow was strong, but working capital increased $243.1 million, including a $360.0 million rise in receivables. Year-end cash was $180.5 million; $799.6 million was available under the $800 million revolving facility. The $300 million receivables financing facility was fully drawn at year-end.
- Olin said it expected sufficient liquidity to meet operating, debt-service, working-capital, and capital-spending needs, and reported compliance with credit-agreement covenants at December 31, 2021. Debt due within one year was $201.1 million; total debt included $805.9 million at variable rates.
- 2022 outlook: Management expected operating results to improve in all segments versus 2021. It expected chemical results in Q1 2022 to be similar to Q4 2021 as raw-material and energy costs rose, while Winchester results were expected to increase sequentially. Forecasts included capital spending of $200–$250 million, environmental expenses of $25–$30 million, and effective and cash tax rates of 25%–30%.
- Environmental liabilities were $147.3 million at year-end; Olin estimated an additional $70 million of reasonably possible contingent environmental liabilities. Total 2022 environmental cash outlays were estimated at about $215 million.
- Caustic soda price-fixing class actions in the U.S. and Canada seek unspecified damages. Olin said losses were not currently estimable and an unfavorable outcome could materially affect results, cash flows, or financial position. Other legal matters include exposure-related claims; recorded liabilities for other legal actions were $14.2 million.
- Principal risks include chemical and ammunition price and demand cycles, energy and feedstock inflation, execution of the chemicals operating model, supply and transportation disruptions, severe weather, plant safety and reliability, leverage and covenant constraints, environmental regulation and remediation, and government-contract compliance. Winchester backlog was approximately $1.928 billion at January 31, 2022, down from $2.175 billion a year earlier; fulfillment depends partly on production capacity.
Investor verification checklist
- Check the sustainability of elevated chemical prices and margins, and the impact of higher energy, feedstock, and operating costs on 2022 results.
- Review debt maturities, variable-rate exposure, covenant headroom, and the economics of the receivables financing and factoring arrangements.
- Track Winchester backlog conversion, production capacity, customer demand, and the Lake City contract’s contribution to segment earnings.
- Assess the costs, timing, and expected benefits of planned capacity closures and other restructuring actions, including projected future charges.
- Monitor environmental remediation estimates and the caustic soda antitrust litigation; outcomes and potential losses remain uncertain.
- Distinguish recurring operating performance from the unusual storm benefit, debt-redemption charges, and tax valuation-allowance effects.