Olin Announces Second Quarter 2020 Results
Olin Corporation (NYSE: OLN) reported a net loss of $120.1 million for Q2 2020, significantly worse than the $20.0 million loss in Q2 2019. Sales fell to $1,241.2 million from $1,592.9 million year-over-year. Adjusted EBITDA was $71.5 million, down from $204.6 million in the previous year. The decline stemmed from a 27% drop in sales in the Chlor Alkali Products and Vinyls and Epoxy businesses, attributed to weak customer demand and maintenance activities. However, the Winchester division saw a year-over-year earnings improvement, driven by elevated commercial ammunition demand. Olin plans refinancing and cost management measures to enhance liquidity and cash flow.
- Winchester segment earnings rose year-over-year by 58%, driven by higher commercial ammunition sales.
- Successfully improved liquidity through refinancing actions, enhancing flexibility amid economic challenges.
- Expected adjusted EBITDA for Q3 2020 is projected to be more than double Q2 levels due to lower maintenance costs and improved sales volumes.
- Reported a net loss of $120.1 million, significantly higher than the previous year's loss of $20.0 million.
- Chlor Alkali Products and Vinyls segment showed a 27% decline in sales compared to prior year.
- Epoxy segment experienced a 30% drop in shipment volumes and reported a segment loss of $13.0 million.
CLAYTON, Mo., Aug. 5, 2020 /PRNewswire/ -- Olin Corporation (NYSE: OLN) announced financial results for the second quarter ended June 30, 2020.
The second quarter 2020 reported net loss was
John E. Fischer, Chairman, President and Chief Executive Officer, said, "Second quarter 2020 sales for the combined Chlor Alkali Products and Vinyls and Epoxy businesses declined year-over-year by approximately
"The Chlor Alkali Products and Vinyls business experienced weaker broad-based customer demand from almost all end-use chemical customers in the second quarter 2020 compared to the first quarter of 2020. Shipments to our urethane customers were particularly weak and declined by approximately
"The Epoxy business experienced weaker product demand from European and North American automotive, oil and gas, and industrial coatings customers in the second quarter 2020 compared to the first quarter of 2020. Second quarter 2020 epoxy resin shipment volumes decreased approximately
"For the fourth consecutive quarter, the Winchester business experienced year-over-year improvement in segment earnings. Commercial ammunition demand remained elevated throughout the second quarter of 2020. We expect this higher level of ammunition demand to continue at least through the remainder of 2020.
"During the second quarter of 2020, Olin completed several refinancing actions, which enhanced our liquidity. These actions provide Olin the flexibility to navigate the current economic conditions. These refinancing actions complement our efforts to reduce our working capital, minimize spending and manage our balance sheet to maximize financial flexibility. The refinancing actions allowed us to make the required ethylene payment to the Dow Chemical Company (Dow) during the quarter under favorable terms.
OUTLOOK
"The Chlor Alkali Products and Vinyls and Epoxy businesses remain challenged by the current economic conditions. Visibility around future demand continues to be limited and customer order patterns remain volatile. The combination of lower maintenance turnaround costs, improved sales volumes, and higher product pricing are forecast to generate a third quarter 2020 adjusted EBITDA that is more than double second quarter 2020 levels. June and July activity levels support this outlook.
"During 2020, several initiatives are expected to create long-term improvement in cash flow:
- Refinancing of a portion of the high-cost bonds assumed during the 2015 Dow Chlorine Products acquisition, which become callable in late-2020, is expected to reduce interest expense by approximately
$30 million annually. - Winding down of the multi-year information technology project to integrate the acquired Dow Chlorine Products businesses is expected to reduce annual spending by approximately
$110 million , split between capital and expense. The wind down of the project will begin in the fourth quarter. - Olin's vinyl chloride monomer contract is transitioning from the toll manufacturing arrangement that has been in place since the 2015 Dow acquisition, to a direct customer sale agreement, beginning on January 1, 2021. The new vinyl chloride monomer contract is expected to improve annual adjusted EBITDA by approximately
$50 million to$75 million . - The multi-year Winchester contract to operate the U.S. Army Lake City ammunition facility in fourth quarter 2020 is expected to increase Winchester's annual revenue by
$450 million to$550 million with a corresponding improvement in annual adjusted EBITDA of$40 million to$50 million .
"In addition to the above 2020 initiatives, Olin expects to benefit in 2021 from lower maintenance turnaround spending and lower capital spending compared to 2020, and the realization of the full year benefit from cost reductions completed during 2020. These cash flow enhancements are generally independent of industry conditions."
SEGMENT REPORTING
Olin defines segment earnings as income (loss) before interest expense, interest income, other operating income (expense), non-operating pension income, other income, and income taxes.
CHLOR ALKALI PRODUCTS AND VINYLS
Chlor Alkali Products and Vinyls sales for the second quarter 2020 were
EPOXY
Epoxy sales for the second quarter 2020 were
WINCHESTER
Winchester sales for the second quarter 2020 were
CORPORATE AND OTHER COSTS
Second quarter 2020 charges to income for environmental investigatory and remedial activities were
Other corporate and unallocated costs in the second quarter of 2020 increased by
CASH AND LIQUIDITY
During the second quarter of 2020, Olin completed the following financing transactions:
- Amended our
$1.3 billion senior secured credit facility, including a senior delay-draw term loan facility of$500 million and a senior revolving credit facility of$800 million . Borrowings under the facility will be secured by domestic personal property of Olin Corporation and certain material domestic subsidiaries. - Issued
$500 million of9.5% Senior Notes due 2025 at99.5% of par value. - Reactivated our
$250 million Accounts Receivable Securitization Facility, of which$240.7 million was drawn at June 30, 2020.
Olin has no mandatory debt repayments until August 2022.
The cash balance at June 30, 2020 was
DIVIDEND
On July 30, 2020, Olin's Board of Directors declared a dividend of
CONFERENCE CALL INFORMATION
Olin senior management will host a conference call to discuss second quarter 2020 financial results at 10:00 a.m. Eastern time on Thursday, August 6, 2020. Prepared remarks will be followed by a question and answer session. Associated slides, which will be available one hour prior to the call, and the conference call will be accessible via webcast through Olin's website, www.olin.com, under the second quarter conference call icon. An archived replay of the webcast will also be available in the Investor Relations section of Olin's website beginning at 12:00 p.m. Eastern time. A final transcript of the call will be posted the day following the event.
COMPANY DESCRIPTION
Olin Corporation is a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. The chemical products produced include chlorine and caustic soda, vinyls, epoxies, chlorinated organics, bleach and hydrochloric acid. Winchester's principal manufacturing facilities produce and distribute sporting ammunition, law enforcement ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.
Visit www.olin.com for more information on Olin.
FORWARD-LOOKING STATEMENTS
This communication includes forward-looking statements. These statements relate to analyses and other information that are based on management's beliefs, certain assumptions made by management, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which we and our various segments operate. The statements contained in this communication that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.
We have used the words "anticipate," "intend," "may," "expect," "believe," "should," "plan," "project," "estimate," "forecast," "optimistic," and variations of such words and similar expressions in this communication to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. 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 conditions, 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.
The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, include, but are not limited to, the following:
- sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us, such as vinyls, urethanes, and pulp and paper;
- the cyclical nature of our operating results, particularly declines in average selling prices in the chlor alkali industry and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products;
- our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
- higher-than-expected raw material, energy, transportation, and/or logistics costs;
- failure to control costs or to achieve targeted cost reductions;
- new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
- the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
- weak industry conditions affecting our ability to comply with the financial maintenance covenants in our senior secured credit facility;
- the negative impact from the COVID-19 pandemic and the global response to the pandemic;
- the failure or an interruption of our information technology systems;
- complications resulting from our multiple enterprise resource planning systems and the conversion to a new system;
- the loss of a substantial customer for either chlorine or caustic soda could cause an imbalance in customer demand for these products;
- our substantial amount of indebtedness and significant debt service obligations;
- unexpected litigation outcomes;
- changes in, or failure to comply with, legislation or government regulations or policies;
- costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
- failure to attract, retain and motivate key employees;
- the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan;
- adverse changes in international markets, including economic, political or regulatory changes;
- our long range plan assumptions not being realized causing a non-cash impairment charge of long-lived assets;
- adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital; and
- various risks associated with our transition and subsequent operation of the Lake City U.S. Army Ammunition Plant.
All of our forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.
2020-13
Olin Corporation | ||||||
Consolidated Statements of Operations(a) | ||||||
Three Months | Six Months | |||||
Ended June 30, | Ended June 30, | |||||
(In millions, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||
Sales | ||||||
Operating Expenses: | ||||||
Cost of Goods Sold | 1,235.7 | 1,463.7 | 2,609.9 | 2,811.0 | ||
Selling and Administration | 99.7 | 97.0 | 196.4 | 204.0 | ||
Restructuring Charges | 1.7 | 3.8 | 3.4 | 7.8 | ||
Other Operating Income | 0.1 | 0.1 | 0.1 | 0.2 | ||
Operating (Loss) Income | (95.8) | 28.5 | (143.3) | 123.7 | ||
Interest Expense (b) | 69.4 | 57.9 | 132.5 | 115.3 | ||
Interest Income | 0.2 | 0.3 | 0.3 | 0.5 | ||
Non-operating Pension Income | 4.9 | 4.2 | 9.5 | 8.1 | ||
Other Income (c) | - | - | - | 11.2 | ||
Income (Loss) before Taxes | (160.1) | (24.9) | (266.0) | 28.2 | ||
Income Tax (Benefit) Provision | (40.0) | (4.9) | (65.9) | 6.5 | ||
Net (Loss) Income | $ (120.1) | $ (20.0) | $ (200.1) | $ 21.7 | ||
Net (Loss) Income Per Common Share: | ||||||
Basic | $ (0.76) | $ (0.12) | $ (1.27) | $ 0.13 | ||
Diluted | $ (0.76) | $ (0.12) | $ (1.27) | $ 0.13 | ||
Dividends Per Common Share | $ 0.20 | $ 0.20 | $ 0.40 | $ 0.40 | ||
Average Common Shares Outstanding - Basic | 157.9 | 164.6 | 157.8 | 164.8 | ||
Average Common Shares Outstanding - Diluted | 157.9 | 164.6 | 157.8 | 165.7 | ||
(a) | Unaudited. | |||||
(b) | Interest expense included | |||||
(c) | Other income for the six months ended June 30, 2019 included a gain of | |||||
Olin Corporation | ||||||||
Segment Information(a) | ||||||||
Three Months | Six Months | |||||||
Ended June 30, | Ended June 30, | |||||||
(In millions) | 2020 | 2019 | 2020 | 2019 | ||||
Sales: | ||||||||
Chlor Alkali Products and Vinyls | $ 651.2 | $ 909.2 | ||||||
Epoxy | 397.4 | 518.8 | 874.6 | 1,042.8 | ||||
Winchester | 192.6 | 164.9 | 380.6 | 322.1 | ||||
Total Sales | ||||||||
Income (Loss) before Taxes: | ||||||||
Chlor Alkali Products and Vinyls | $ (57.0) | $ 70.7 | $ (91.3) | $ 191.1 | ||||
Epoxy | (13.0) | 3.9 | (1.3) | 14.4 | ||||
Winchester | 16.0 | 10.1 | 26.5 | 19.2 | ||||
Corporate/Other: | ||||||||
Environmental Expense (b) | (2.8) | (17.2) | (5.4) | (19.0) | ||||
Other Corporate and Unallocated Costs (c) | (37.4) | (35.3) | (68.5) | (74.4) | ||||
Restructuring Charges | (1.7) | (3.8) | (3.4) | (7.8) | ||||
Other Operating Income | 0.1 | 0.1 | 0.1 | 0.2 | ||||
Interest Expense (d) | (69.4) | (57.9) | (132.5) | (115.3) | ||||
Interest Income | 0.2 | 0.3 | 0.3 | 0.5 | ||||
Non-operating Pension Income | 4.9 | 4.2 | 9.5 | 8.1 | ||||
Other Income (e) | - | - | - | 11.2 | ||||
Income (Loss) before Taxes | $ (160.1) | $ (24.9) | $ (266.0) | $ 28.2 | ||||
(a) | Unaudited. | |||||||
(b) | Environmental expense for both the three and six months ended June 30, 2019 included | |||||||
(c) | Other corporate and unallocated costs included charges of | |||||||
(d) | Interest expense included | |||||||
(e) | Other income for the six months ended June 30, 2019 included a gain of | |||||||
Olin Corporation | |||||
Consolidated Balance Sheets (a) | |||||
June 30, | December 31, | June 30, | |||
(In millions, except per share data) | 2020 | 2019 | 2019 | ||
Assets: | |||||
Cash & Cash Equivalents | $ 237.9 | $ 220.9 | $ 126.9 | ||
Accounts Receivable, Net | 700.2 | 760.4 | 848.2 | ||
Income Taxes Receivable | 17.6 | 13.9 | 23.4 | ||
Inventories, Net | 619.1 | 695.7 | 698.9 | ||
Other Current Assets | 42.0 | 23.1 | 28.8 | ||
Total Current Assets | 1,616.8 | 1,714.0 | 1,726.2 | ||
Property, Plant and Equipment | 3,234.9 | 3,323.8 | 3,410.5 | ||
Operating Lease Assets, Net | 371.8 | 377.8 | 295.8 | ||
Deferred Income Taxes | 38.3 | 35.3 | 28.1 | ||
Other Assets | 1,179.7 | 1,169.1 | 1,174.5 | ||
Intangibles, Net | 416.9 | 448.1 | 480.6 | ||
Goodwill | 2,119.7 | 2,119.7 | 2,119.6 | ||
Total Assets | $ 9,187.8 | ||||
Liabilities and Shareholders' Equity: | |||||
Current Installments of Long-term Debt | $ 1.8 | $ 2.1 | $ 1.1 | ||
Accounts Payable | 520.8 | 651.9 | 669.2 | ||
Income Taxes Payable | 7.7 | 19.8 | 9.5 | ||
Current Operating Lease Liabilities | 77.3 | 79.3 | 71.4 | ||
Accrued Liabilities | 318.7 | 329.1 | 298.9 | ||
Total Current Liabilities | 926.3 | 1,082.2 | 1,050.1 | ||
Long-term Debt | 4,073.9 | 3,338.7 | 3,232.6 | ||
Operating Lease Liabilities | 299.2 | 303.4 | 229.3 | ||
Accrued Pension Liability | 768.0 | 797.7 | 653.6 | ||
Deferred Income Taxes | 414.5 | 454.5 | 506.4 | ||
Other Liabilities | 307.3 | 793.8 | 792.5 | ||
Total Liabilities | 6,789.2 | 6,770.3 | 6,464.5 | ||
Commitments and Contingencies | |||||
Shareholders' Equity: | |||||
Common Stock, | 157.9 | 157.7 | 164.3 | ||
Additional Paid-in Capital | 2,127.0 | 2,122.1 | 2,229.2 | ||
Accumulated Other Comprehensive Loss | (773.9) | (803.4) | (660.4) | ||
Retained Earnings | 677.9 | 941.1 | 1,037.7 | ||
Total Shareholders' Equity | 2,188.9 | 2,417.5 | 2,770.8 | ||
Total Liabilities and Shareholders' Equity | $ 9,187.8 | ||||
(a) Unaudited. |
Olin Corporation | |||
Consolidated Statements of Cash Flows(a) | |||
Six Months | |||
Ended June 30, | |||
(In millions) | 2020 | 2019 | |
Operating Activities: | |||
Net (Loss) Income | $ 21.7 | ||
Gain on Disposition of Non-consolidated Affiliate | - | (11.2) | |
Stock-based Compensation | 4.1 | 5.3 | |
Depreciation and Amortization | 283.0 | 304.3 | |
Deferred Income Taxes | (52.1) | (16.6) | |
Qualified Pension Plan Contributions | (1.2) | (0.7) | |
Qualified Pension Plan Income | (5.9) | (4.6) | |
Changes in: | |||
Receivables | 64.1 | (70.8) | |
Income Taxes Receivable/Payable | (15.8) | (30.6) | |
Inventories | 75.7 | 9.6 | |
Other Current Assets | (18.3) | 2.4 | |
Accounts Payable and Accrued Liabilities | (74.9) | (1.9) | |
Other Assets | 0.6 | (2.3) | |
Other Noncurrent Liabilities | (5.6) | 29.4 | |
Other Operating Activities | 1.8 | 2.1 | |
Net Operating Activities | 55.4 | 236.1 | |
Investing Activities: | |||
Capital Expenditures | (166.5) | (191.3) | |
Payments under Ethylene Long-Term Supply Contracts | (461.0) | - | |
Payments under Other Long-Term Supply Contracts | (75.8) | - | |
Proceeds from Disposition of Non-consolidated Affiliate | - | 20.0 | |
Net Investing Activities | (703.3) | (171.3) | |
Financing Activities: | |||
Long-term Debt Borrowings (Repayments), Net | 737.4 | (25.6) | |
Common Stock Repurchased and Retired | - | (26.7) | |
Stock Options Exercised | 0.5 | 1.5 | |
Dividends Paid | (63.1) | (65.7) | |
Debt Issuance Costs | (9.6) | - | |
Net Financing Activities | 665.2 | (116.5) | |
Net Increase (Decrease) in Cash and Cash Equivalents | 17.3 | (51.7) | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (0.3) | (0.2) | |
Cash and Cash Equivalents, Beginning of Year | 220.9 | 178.8 | |
Cash and Cash Equivalents, End of Period | $ 237.9 | ||
(a) Unaudited. |
Olin Corporation | ||||||
Non-GAAP Financial Measures(a) | ||||||
Olin's definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net income (loss) plus an add-back for depreciation and amortization, interest expense (income), income tax expense (benefit), other expense (income), restructuring charges, acquisition-related costs and certain other non-recurring items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors as a supplemental financial measure to assess the financial performance without regard to financing methods, capital structures, taxes or historical cost basis. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP and Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. | ||||||
Three Months | Six Months | |||||
Ended June 30, | Ended June 30, | |||||
(In millions) | 2020 | 2019 | 2020 | 2019 | ||
Reconciliation of Net (Loss) Income to Adjusted EBITDA: | ||||||
Net (Loss) Income | $ 21.7 | |||||
Add Back: | ||||||
Interest Expense | 69.4 | 57.9 | 132.5 | 115.3 | ||
Interest Income | (0.2) | (0.3) | (0.3) | (0.5) | ||
Income Tax (Benefit) Provision | (40.0) | (4.9) | (65.9) | 6.5 | ||
Depreciation and Amortization | 136.5 | 151.4 | 283.0 | 304.3 | ||
EBITDA | 45.6 | 184.1 | 149.2 | 447.3 | ||
Add Back: | ||||||
Restructuring Charges | 1.7 | 3.8 | 3.4 | 7.8 | ||
Environmental Recoveries, Net (b) | - | (4.8) | - | (4.8) | ||
Information Technology Integration Project (c) | 20.4 | 21.5 | 35.1 | 35.6 | ||
Certain Non-recurring Items (d) | 3.8 | - | 6.6 | (11.2) | ||
Adjusted EBITDA | $ 71.5 | $ 194.3 | ||||
(a) | Unaudited. | |||||
(b) | Environmental recoveries, net for both the three and six months ended June 30, 2019 included | |||||
(c) | Information technology integration project charges were associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and related infrastructure costs. | |||||
(d) | Certain non-recurring items for the three and six months ended June 30, 2020 included | |||||
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SOURCE Olin Corporation
