false00016739852021FY300 Kimball
DriveSuite 101ParsippanyNew JerseyLarge accelerated
filer☐☐http://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortizationhttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortizationhttp://fasb.org/us-gaap/2021-01-31#AccountsPayableCurrenthttp://fasb.org/us-gaap/2021-01-31#AccountsPayableCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#Liabilitieshttp://fasb.org/us-gaap/2021-01-31#LiabilitiesP3Y00016739852021-01-012021-12-3100016739852021-06-30iso4217:USD00016739852022-02-04xbrli:shares00016739852020-01-012020-12-3100016739852019-01-012019-12-31iso4217:USDxbrli:shares0001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-3100016739852021-12-3100016739852020-12-3100016739852019-12-3100016739852018-12-310001673985us-gaap:CommonStockMember2018-12-310001673985us-gaap:AdditionalPaidInCapitalMember2018-12-310001673985us-gaap:RetainedEarningsMember2018-12-310001673985us-gaap:TreasuryStockMember2018-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001673985us-gaap:RetainedEarningsMember2019-01-012019-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310001673985us-gaap:CommonStockMember2019-01-012019-12-310001673985us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001673985us-gaap:TreasuryStockMember2019-01-012019-12-310001673985us-gaap:CommonStockMember2019-12-310001673985us-gaap:AdditionalPaidInCapitalMember2019-12-310001673985us-gaap:RetainedEarningsMember2019-12-310001673985us-gaap:TreasuryStockMember2019-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001673985us-gaap:RetainedEarningsMember2020-01-012020-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001673985us-gaap:CommonStockMember2020-01-012020-12-310001673985us-gaap:TreasuryStockMember2020-01-012020-12-310001673985us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001673985us-gaap:CommonStockMember2020-12-310001673985us-gaap:AdditionalPaidInCapitalMember2020-12-310001673985us-gaap:RetainedEarningsMember2020-12-310001673985us-gaap:TreasuryStockMember2020-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001673985us-gaap:RetainedEarningsMember2021-01-012021-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-01-012021-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2021-01-012021-12-310001673985us-gaap:CommonStockMember2021-01-012021-12-310001673985us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001673985us-gaap:TreasuryStockMember2021-01-012021-12-310001673985us-gaap:CommonStockMember2021-12-310001673985us-gaap:AdditionalPaidInCapitalMember2021-12-310001673985us-gaap:RetainedEarningsMember2021-12-310001673985us-gaap:TreasuryStockMember2021-12-310001673985us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31asix:manufacuringSite00016739852016-10-010001673985us-gaap:CommodityContractMember2020-12-310001673985us-gaap:CommodityContractMember2021-12-310001673985srt:MinimumMemberus-gaap:BuildingAndBuildingImprovementsMember2021-01-012021-12-310001673985srt:MaximumMemberus-gaap:BuildingAndBuildingImprovementsMember2021-01-012021-12-310001673985srt:MinimumMemberus-gaap:MachineryAndEquipmentMember2021-01-012021-12-310001673985srt:MaximumMemberus-gaap:MachineryAndEquipmentMember2021-01-012021-12-310001673985asix:AssetsUsedInShortProductionCyclesOrSubjectToHighCorrosionMembersrt:MaximumMember2021-01-012021-12-310001673985asix:StandardPlantAssetsMembersrt:MinimumMember2021-01-012021-12-310001673985asix:StandardPlantAssetsMembersrt:MaximumMember2021-01-012021-12-310001673985srt:MinimumMemberasix:MajorProcessEquipmentMember2021-01-012021-12-310001673985srt:MaximumMemberasix:MajorProcessEquipmentMember2021-01-012021-12-31asix:customerasix:country0001673985asix:TenLargestCustomersMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-31xbrli:pure0001673985asix:TenLargestCustomersMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001673985asix:TenLargestCustomersMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310001673985us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberasix:ShawIndustriesGroupIncMember2021-01-012021-12-310001673985us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberasix:ShawIndustriesGroupIncMember2020-01-012020-12-310001673985us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberasix:ShawIndustriesGroupIncMember2019-01-012019-12-310001673985asix:NylonResinsMember2021-01-012021-12-310001673985asix:NylonResinsMember2020-01-012020-12-310001673985asix:NylonResinsMember2019-01-012019-12-310001673985asix:CaprolactamMember2021-01-012021-12-310001673985asix:CaprolactamMember2020-01-012020-12-310001673985asix:CaprolactamMember2019-01-012019-12-310001673985asix:ChemicalIntermediatesMember2021-01-012021-12-310001673985asix:ChemicalIntermediatesMember2020-01-012020-12-310001673985asix:ChemicalIntermediatesMember2019-01-012019-12-310001673985asix:AmmoniumSulfateFertilizersMember2021-01-012021-12-310001673985asix:AmmoniumSulfateFertilizersMember2020-01-012020-12-310001673985asix:AmmoniumSulfateFertilizersMember2019-01-012019-12-310001673985country:US2021-01-012021-12-310001673985country:US2020-01-012020-12-310001673985country:US2019-01-012019-12-310001673985us-gaap:NonUsMember2021-01-012021-12-310001673985us-gaap:NonUsMember2020-01-012020-12-310001673985us-gaap:NonUsMember2019-01-012019-12-3100016739852021-01-012021-03-310001673985stpr:ILus-gaap:StateAndLocalJurisdictionMember2021-12-310001673985us-gaap:DomesticCountryMember2021-12-3100016739852020-04-012020-06-300001673985us-gaap:AllowanceForCreditLossMember2020-12-310001673985us-gaap:AllowanceForCreditLossMember2021-01-012021-12-310001673985us-gaap:AllowanceForCreditLossMember2021-12-310001673985us-gaap:AllowanceForCreditLossMember2019-12-310001673985us-gaap:AllowanceForCreditLossMember2020-01-012020-12-310001673985us-gaap:AllowanceForCreditLossMember2018-12-310001673985us-gaap:AllowanceForCreditLossMember2019-01-012019-12-310001673985us-gaap:LandAndLandImprovementsMember2021-12-310001673985us-gaap:LandAndLandImprovementsMember2020-12-310001673985us-gaap:MachineryAndEquipmentMember2021-12-310001673985us-gaap:MachineryAndEquipmentMember2020-12-310001673985us-gaap:BuildingAndBuildingImprovementsMember2021-12-310001673985us-gaap:BuildingAndBuildingImprovementsMember2020-12-310001673985us-gaap:ConstructionInProgressMember2021-12-310001673985us-gaap:ConstructionInProgressMember2020-12-310001673985us-gaap:LongTermDebtMember2021-12-310001673985us-gaap:RevolvingCreditFacilityMember2021-12-310001673985asix:SecondAmendedAndRestatedCreditAgreementMember2020-02-190001673985asix:FirstAmendedAndRestatedCreditAgreementMember2020-02-190001673985us-gaap:BaseRateMembersrt:MinimumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985us-gaap:BaseRateMembersrt:MaximumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985us-gaap:EurodollarMembersrt:MinimumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985us-gaap:EurodollarMembersrt:MaximumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985srt:MinimumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985srt:MaximumMemberasix:SecondAmendedAndRestatedCreditAgreementMember2020-02-192020-02-190001673985asix:SeniorSecuredRevolvingCreditFacilityMemberus-gaap:RevolvingCreditFacilityMember2021-10-270001673985us-gaap:LetterOfCreditMemberasix:SeniorSecuredRevolvingCreditFacilityMember2021-10-270001673985asix:SeniorSecuredRevolvingCreditFacilityMemberus-gaap:BridgeLoanMember2021-10-270001673985us-gaap:BaseRateMemberasix:SeniorSecuredRevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2021-10-272021-10-270001673985us-gaap:BaseRateMemberasix:SeniorSecuredRevolvingCreditFacilityMembersrt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2021-10-272021-10-270001673985asix:SeniorSecuredRevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-10-272021-10-270001673985asix:SeniorSecuredRevolvingCreditFacilityMembersrt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-10-272021-10-270001673985asix:SeniorSecuredRevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2021-10-012021-10-220001673985asix:SeniorSecuredRevolvingCreditFacilityMembersrt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2021-10-272021-10-270001673985us-gaap:BaseRateMemberasix:SeniorSecuredRevolvingCreditFacilityMemberus-gaap:RevolvingCreditFacilityMember2021-10-272021-10-270001673985asix:SeniorSecuredRevolvingCreditFacilityMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-10-272021-10-270001673985asix:CollectiveBargainingAgreementMember2021-01-012021-12-3100016739852020-01-012020-03-3100016739852019-01-012019-03-3100016739852021-04-012021-06-3000016739852019-04-012019-06-3000016739852021-07-012021-09-3000016739852020-07-012020-09-3000016739852019-07-012019-09-3000016739852021-10-012021-12-3100016739852020-10-012020-12-3100016739852019-10-012019-12-310001673985srt:MinimumMember2021-12-310001673985srt:MaximumMember2021-12-310001673985us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember2021-12-310001673985us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember2020-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesMember2021-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesMember2020-12-310001673985asix:FixedIncomeandOtherSecuritiesMember2021-12-310001673985asix:FixedIncomeandOtherSecuritiesMember2020-12-310001673985asix:EmergingMarketsEquitySecuritiesMember2021-12-310001673985asix:EmergingMarketsEquitySecuritiesMember2020-12-310001673985asix:EmergingMarketsEquitySecuritiesMember2019-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesNonUsMember2021-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesNonUsMember2020-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesNonUsMember2019-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember2021-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember2020-12-310001673985us-gaap:DefinedBenefitPlanEquitySecuritiesUsMember2019-12-310001673985us-gaap:DomesticCorporateDebtSecuritiesMember2021-12-310001673985us-gaap:DomesticCorporateDebtSecuritiesMember2020-12-310001673985us-gaap:DomesticCorporateDebtSecuritiesMember2019-12-310001673985us-gaap:DefinedBenefitPlanRealEstateMember2021-12-310001673985us-gaap:DefinedBenefitPlanRealEstateMember2020-12-310001673985us-gaap:DefinedBenefitPlanRealEstateMember2019-12-310001673985us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember2019-12-310001673985us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Member2021-12-310001673985us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Member2020-12-310001673985us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Member2019-12-310001673985us-gaap:ForwardContractsMember2021-12-31asix:derivative_instrument0001673985us-gaap:ForwardContractsMember2020-12-310001673985us-gaap:InterestRateSwapMember2021-12-310001673985us-gaap:InterestRateSwapMember2019-07-310001673985us-gaap:InterestRateContractMemberus-gaap:DesignatedAsHedgingInstrumentMemberasix:AccruedLiabilitiesAndOtherLiabilitiesMember2021-12-310001673985us-gaap:InterestRateContractMemberus-gaap:DesignatedAsHedgingInstrumentMemberasix:AccruedLiabilitiesAndOtherLiabilitiesMember2020-12-310001673985us-gaap:InterestRateContractMemberus-gaap:DesignatedAsHedgingInstrumentMemberasix:AccruedLiabilitiesAndOtherLiabilitiesMember2019-12-310001673985us-gaap:DesignatedAsHedgingInstrumentMember2021-12-310001673985us-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001673985us-gaap:DesignatedAsHedgingInstrumentMember2019-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-12-310001673985us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember2021-01-012021-12-310001673985us-gaap:InterestRateContractMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember2021-01-012021-12-310001673985us-gaap:InterestRateContractMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-12-310001673985us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2018-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2018-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2018-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2019-01-012019-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2019-01-012019-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2019-01-012019-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2019-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2019-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2019-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2020-01-012020-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2020-01-012020-12-310001673985us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-01-012020-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2020-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2020-12-310001673985us-gaap:AccumulatedTranslationAdjustmentMember2021-12-310001673985us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2021-12-310001673985us-gaap:EmployeeStockOptionMember2021-01-012021-12-310001673985us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001673985us-gaap:EmployeeStockOptionMember2019-01-012019-12-310001673985us-gaap:DeferredCompensationShareBasedPaymentsMember2021-12-310001673985asix:May2018RepurchaseProgramMember2018-05-040001673985asix:February2019RepurchaseProgramMember2018-05-040001673985asix:FullValueAwardsMember2021-01-012021-12-310001673985asix:StockOptionAwardsAndSARsMember2021-01-012021-12-310001673985us-gaap:RestrictedStockUnitsRSUMembersrt:MinimumMember2021-01-012021-12-310001673985us-gaap:RestrictedStockUnitsRSUMembersrt:MaximumMember2021-01-012021-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2018-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2019-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2020-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-12-310001673985us-gaap:RestrictedStockUnitsRSUMember2021-12-310001673985srt:MinimumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-12-310001673985srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-12-310001673985us-gaap:EmployeeStockOptionMember2021-01-012021-12-310001673985us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001673985us-gaap:EmployeeStockOptionMember2019-01-012019-12-310001673985us-gaap:EmployeeStockOptionMember2021-12-310001673985us-gaap:EmployeeStockOptionMember2020-12-310001673985us-gaap:EmployeeStockOptionMember2019-12-3100016739852018-01-012018-12-310001673985us-gaap:PerformanceSharesMember2021-01-012021-12-310001673985us-gaap:PerformanceSharesMembersrt:MinimumMember2021-12-310001673985us-gaap:PerformanceSharesMembersrt:MaximumMember2021-12-310001673985us-gaap:PerformanceSharesMember2018-12-310001673985us-gaap:PerformanceSharesMember2019-01-012019-12-310001673985us-gaap:PerformanceSharesMember2019-12-310001673985us-gaap:PerformanceSharesMember2020-01-012020-12-310001673985us-gaap:PerformanceSharesMember2020-12-310001673985us-gaap:PerformanceSharesMember2021-12-310001673985asix:CommonwealthIndustrialServicesCISMember2021-01-012021-01-310001673985us-gaap:CustomerRelationshipsMemberasix:CommonwealthIndustrialServicesCISMember2021-01-012021-12-310001673985asix:CommonwealthIndustrialServicesCISMember2021-12-310001673985asix:CommonwealthIndustrialServicesCISMember2021-01-012021-12-310001673985us-gaap:SubsequentEventMember2022-02-182022-02-180001673985us-gaap:SubsequentEventMemberasix:USAminesLtdMember2022-02-182022-02-18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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
1-37774
AdvanSix Inc.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
|
|
|
Delaware |
|
81-2525089 |
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
|
|
300 Kimball Drive, Suite 101 Parsippany, New Jersey
|
|
07054 |
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code (973)
526-1800
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
|
|
|
|
|
|
|
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
|
Common Stock, par value $0.01 per share |
ASIX |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o
No ☒
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, a
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
|
o
|
Non-accelerated filer
o
|
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.
o
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report.
☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
☐
No
☒
The aggregate market value of common stock held by non-affiliates
of the registrant was approximately $821 million as of
June 30, 2021. The market value held by non-affiliates
excludes the value of those shares held by executive officers and
directors of the registrant.
There were 28,141,203 shares of common stock outstanding at
February 4, 2022.
Documents Incorporated by Reference
Part III: Proxy Statement for Annual Meeting of Stockholders to be
held June 15, 2022.
TABLE OF CONTENTS
PART I.
Item 1. Business
In this Annual Report on Form 10-K, unless the context otherwise
dictates, “AdvanSix”, the “Company”, “we” or “our” means AdvanSix
Inc. and its consolidated subsidiaries.
Corporate History
On October 1, 2016, Honeywell International Inc. (“Honeywell”)
completed the separation of AdvanSix. The separation was completed
by Honeywell distributing (the "Distribution") all of the then
outstanding shares of common stock of AdvanSix on October 1, 2016
(the “Distribution Date”) through a dividend in kind of AdvanSix
common stock, par value
$0.01
per share, to holders of Honeywell common stock as of the close of
business on the record date of September 16, 2016 who held their
shares through the Distribution Date (the “Spin-Off”).
Description of Business
AdvanSix Inc. plays a critical role in global supply chains,
innovating and delivering essential products for our customers in a
wide variety of end markets and applications that touch people’s
lives, such as building and construction, fertilizers, plastics,
solvents, packaging, paints, coatings, adhesives and electronics.
Our reliable and sustainable supply of quality products emerges
from the vertically integrated value chain of our three U.S.-based
manufacturing facilities. AdvanSix strives to deliver best-in-class
customer experiences and differentiated products in the industries
of nylon solutions, chemical intermediates and plant nutrients,
guided by our core values of Safety, Integrity, Accountability and
Respect. Our four key product lines are as
follows:
•Nylon
–
We sell our Nylon 6 resin globally, primarily under the Aegis®
brand name. Nylon 6 is a polymer resin, which is a synthetic
material used by our customers to produce fibers, filaments,
engineered plastics and films that, in turn, are used in such
end-products as carpets, automotive and electric components,
packaging, including food packaging, and other industrial
applications. In addition, our Nylon 6 resin is used to produce
nylon films which we sell to our customers primarily under the
Capran® brand name.
•Caprolactam
–
Caprolactam is the key monomer used in the production of Nylon 6
resin. We internally polymerize caprolactam into Aegis® Nylon 6
Resins, and we also market and sell the caprolactam that is not
consumed internally to customers who use it to manufacture polymer
resins to produce nylon fibers, films and other nylon products. Our
Hopewell manufacturing facility is one of the world’s largest
single-site producers of caprolactam as of December 31,
2021.
•Chemical
Intermediates –
We manufacture, market and sell a number of other chemical products
that are derived from the chemical processes within our integrated
supply chain. Most significant is acetone which is used by our
customers in the production of adhesives, paints, coatings,
solvents, herbicides and engineered plastic resins. Other
intermediate chemicals that we manufacture, market and sell include
phenol, alpha-methylstyrene (“AMS”), cyclohexanone, oximes (methyl
ethyl ketoxime, acetaldehyde oxime and 2-pentanone oxime),
cyclohexanol, sulfuric acid, ammonia and carbon
dioxide.
•Ammonium
Sulfate –
Our ammonium sulfate is used by customers as a fertilizer
containing nitrogen and sulfur, two key plant nutrients, as an
herbicide adjuvant for crop protection, and in several industrial
applications. Ammonium sulfate fertilizer is derived from the
caprolactam manufacturing process. Because of our Hopewell
facility’s size, scale and technology design, we are the world’s
largest single-site producer of ammonium sulfate fertilizer as of
December 31, 2021. We market and sell ammonium sulfate
primarily to North American and South American distributors, farm
cooperatives and retailers to fertilize crops.
Each of these product lines represented the following approximate
percentage of total sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Nylon |
25% |
|
24% |
|
27% |
|
Caprolactam |
19% |
|
19% |
|
22% |
|
Chemical Intermediates |
32% |
|
32% |
|
28% |
|
Ammonium Sulfate |
24% |
|
25% |
|
23% |
|
|
100% |
|
100% |
|
100% |
The following charts illustrate the distribution of our sales by
product line and by region, measured by the destination of each
sale, for the year ended December 31, 2021:
For information concerning revenues and assets by geographic
region, see “Note 3. Revenue” to our Consolidated Financial
Statements included in this Form 10-K, which is incorporated herein
by reference.
Our manufacturing process is vertically integrated. We use cumene,
a chemical compound produced from benzene and propylene, to
manufacture phenol, acetone and AMS at our Frankford, Pennsylvania
plant. The majority of the phenol we manufacture is further
processed at our Hopewell facility through an integrated series of
unit operations, which also consume natural gas and sulfur, to
produce caprolactam and ammonium sulfate. In 2021, approximately
56% of the caprolactam we have produced at our facility in
Hopewell, Virginia has been shipped to our facility in
Chesterfield, Virginia where it has been polymerized into Aegis®
Nylon 6 resins.
Our integrated manufacturing process, scale and the quantity and
range of our products make us one of the most reliable and
efficient manufacturers in our industry. We consistently focus on
and invest in improving production yields from our various
manufacturing processes to build on our leading cost position. Our
global logistics infrastructure enables a reliable intra-plant
supply chain and consistent and timely delivery to our customers.
In addition, we strive to understand the product applications and
end-markets into which our products are sold, which helps us
upgrade the quality, chemical properties and packaging of our
products in ways which enable us to attract price premiums and
greater demand.
We serve approximately 400 customers globally located in
approximately 50 countries. For the years ended December 31,
2021, 2020 and 2019, we had sales of $1,685 million,
$1,158 million and $1,297 million with net income of $140
million, $46 million and $41 million, respectively. For the years
ended December 31, 2021, 2020 and 2019, our international
sales were $302 million, $267 million and $240 million,
respectively.
AdvanSix is a single operating segment and a single reportable
segment, operating through three integrated U.S.-based
manufacturing sites located in Frankford, Pennsylvania and Hopewell
and Chesterfield, Virginia. The Company's headquarters is located
in Parsippany, New Jersey.
Competitive Strengths
Low Cost Position Driven by Integrated Manufacturing Footprint,
Large Scale, Favorable Geographical Location, and High Utilization
Rates.
Our vertically integrated manufacturing facilities, scale, access
to lower cost raw materials, and high plant utilization rates help
us maintain our position as the world’s lowest cost producer of
caprolactam. First, we are vertically integrated into several key
feedstock materials necessary to produce caprolactam, particularly
phenol, ammonia and oleum/sulfuric acid, which we believe is a
unique advantage in our industry. Our integration contributes to
higher operating margins by lowering raw material transportation,
handling and storage costs. It also allows us to remain flexible,
while optimizing sales from our diverse portfolio of products.
Second, we operate one of the world’s largest single-site
caprolactam and ammonium sulfate production facilities, which is a
competitive advantage in our fragmented industry. Our scale
provides operating leverage and the opportunity to achieve stronger
business performance than our competitors in several ways. Most
fundamentally, it enables us to spread fixed and overhead costs
across more pounds of production, thereby enabling us to produce
caprolactam at a lower per pound cost than our competitors, as well
as benefiting our procurement activities for raw materials and
services. In addition, we believe that our size and scale serves to
retain and attract customers who prioritize security of supply.
Third, the location of our manufacturing operations in the United
States affords us access to the world’s lowest cost natural gas,
which is a key raw material needed to manufacture the ammonia used
in the production of caprolactam and ammonium sulfate as well as
the source of energy for our manufacturing operations. By contrast,
a significant number of our competitors are in geographic locations
where energy prices are currently substantially higher. Our
footprint also provides access to a number of higher value end
markets across our product lines. Finally, our long-term customer
relationships and contracts enable us to maintain high plant
utilization rates, which, along with our large scale, provide
significant operating and purchasing leverage.
Diverse Revenue Sources from the Sale of Fertilizer, Acetone and
Other Chemical Intermediates.
Due to our specific chemical manufacturing processes, vertical
integration and scale, we produce ammonium sulfate fertilizer,
acetone and a wide range of other chemical intermediates that
enable us to diversify our revenue sources. Most significantly, for
every pound of caprolactam produced, we produce approximately four
pounds of ammonium sulfate, a fertilizer used by farmers around the
world. For the past two decades, we have employed agronomists to
educate growers and retailers in the Americas on the yield value of
using ammonium sulfate fertilizer on key crops including corn,
wheat, coffee, sugar, cotton and rice. We have also diversified and
optimized our ammonium sulfate-based offerings to include
spray-grade adjuvant to support crop protection, as well as other
specialty fertilizers and products for industrial use. Sales of
ammonium sulfate in 2021 were $401 million and represented 24% of
our total sales. We are among the most significant suppliers of
acetone to a variety of end-markets in North America. Sales of
acetone in 2021 were approximately $294 million and represented 17%
of our total sales. In addition to fertilizer and acetone, other
products from our manufacturing process include high-purity phenol,
AMS, cyclohexanone, oximes, cyclohexanol, sulfuric acid, ammonia
and carbon dioxide. The diversity of our sales portfolio helps to
mitigate, to some extent, the cyclicality in our end-markets.
Currently, we not only have leading positions across these diverse
product lines, but are also aligned to several favorable macro
trends that are supporting growth across the portfolio including
urbanization and aging infrastructure, digital transformation,
global food production and resource scarcity, and a shift to green
and performance chemicals.
Global Reach.
The global reach of our sales and marketing capabilities enables us
to compete everywhere nylon resin, caprolactam, ammonium sulfate
and chemical intermediates are consumed. In 2021, approximately 18%
of our sales were outside the United States. Our freight and
logistics capabilities and terminal locations position us well to
serve global markets, including the dock and loading facility at
our Hopewell facility which serves ocean-going dry-bulk freight
vessels. Our global reach enables us to arbitrage geographic price
variations to ensure we are receiving the highest value for our
products.
Technical Know-How, Customer Intimacy and Application Development
Capabilities.
Intimate knowledge of our customers and end-market applications,
combined with our technical know-how, enables us to develop
differentiated products that are often valued higher by customers
compared to commodity products. We have a Research and Development
("R&D") department consisting of scientists and engineers with
degrees in polymer and chemical synthesis, catalysis and chemical
engineering, who work not only on developing new products for nylon
resins but also driving unique offerings for our chemical
intermediates and ammonium sulfate customers. Our R&D team has
expanded our capabilities to test and scale production of copolymer
Nylon 6/66 resin, which is used in food packaging films and other
applications. Our agronomists provide the latest scientific
information on the importance of sulfur nutrition for crops and how
to optimize the benefits of ammonium sulfate fertilizer to our
global customers through a variety of channels including webinars,
technical training sessions for retailers and direct grower
meetings. Further, members of our technical
marketing team, representing each of our major product lines,
present at various industry events and conferences to demonstrate
our breadth of product offerings and capabilities.
Business Strategies
Operational Excellence and Improving Through-Cycle
Profitability.
Through our vertical integration, size, access to low-cost raw
materials, and high utilization rates, we seek to build on our
low-cost leadership position and expand operating margins by
reducing our Nylon 6 resin, caprolactam, ammonium sulfate and other
chemical intermediate production costs. Our focus on operational
excellence and ongoing productivity improvements concentrate on the
following:
•Increasing
production volume through asset reliability, flexibility and
capacity;
•Executing
planned plant turnarounds and prioritizing replacement maintenance
capital investments to mitigate risk and support safe, stable and
sustainable operations;
•Investing
in intermediate chemical buffer storage capacity to mitigate the
unfavorable impact of routine maintenance and unplanned
interruptions;
•Energy
and direct material initiatives aimed at increasing plant
productivity and lowering costs; and
•Procurement
processes, competitive bidding and supplier diversification to
reduce raw material and indirect costs.
Enhancing Portfolio Resiliency.
Our diverse portfolio serves us well particularly during times of
uncertainty. Over the past several years, we have invested in
capabilities to strengthen our innovation, increase the value of
our product portfolio and meet customer specifications in certain
high value industries including high-purity applications,
high-value intermediates and differentiated nylon. We have had
successes across the portfolio including our oximes-based EZ-Blox®
anti-skinning agent used in paints and coatings, and our Nadone®
cyclohexanone product line, which is a solvent used in various
high-value applications. Growing off a small base, we have also
seen commercial success with our Nylon-based wire and cable
offerings. Supporting our differentiated nylon portfolio, our
Chesterfield facility is capable of producing multiple grades of
higher value Nylon 6 resin as well as copolymer Nylon 6/66 resin,
which are used in engineered plastics for the automotive industry,
films for food packaging, as well as other higher value
applications. Our customers typically buy nylon resin and
caprolactam for compounding or extruding with additives and other
materials, to increase strength or flexibility or to add color to
make the resin more suitable for use in their end products such as
textiles, packaging and industrial materials. We leverage our
R&D investments, customer intimacy and knowledge of product
applications to develop new resin products to better serve our
customers and increase the value of our resin products portfolio.
For example, engineered plastics that utilize Nylon 6 and Nylon 66
resin are being increasingly used in automobiles to reduce weight
as automobile manufacturers strive to meet stricter fuel efficiency
standards. We work with our customers serving this market to
develop resin products specifically tailored for these product
applications. We are focused on working with customers to solve
their needs with respect to sustainability and have received
commercial orders for our recently launched 100% Post-Industrial
Recycled resins and films. Another focus of our R&D initiatives
includes nylon resin processing technologies that can produce
existing high value resins at lower costs. Our R&D team works
with existing and potential customers to understand end-use
applications, build application development capabilities and
protect the value proposition of our new products. In addition, as
a result of recent efforts and enhancements in crystallizer
technology and operations, we are now producing more high-quality
granular grade ammonium sulfate to meet the growing demand of our
customers.
Strong Capital Stewardship.
We have developed and are executing against a multi-year pipeline
of high-return growth and cost savings capital projects. These
efforts target improvement in production rate, cost, quality and
yield. We are focused on improving our return on invested capital
and remain disciplined in our approach as we support long-term
shareholder value. On an ongoing basis we evaluate options to
return cash to shareholders while also pursuing a highly-selective
acquisition and alliance strategy to supplement our organic sales
by broadening our customer base, developing our technology and
product portfolios, expanding our geographic reach and enhancing
our cash flow profile and margin stability. In 2021, we completed
our first acquisition of certain assets of Commonwealth Industrial
Services, Inc. and we initiated a structural return of cash in the
form of a quarterly dividend reflecting confidence in our cash flow
generation. The timing, declaration, amount and payment of
dividends to stockholders, if any, will fall within the sole
discretion of our Board of Directors (the "Board").
Industry Overview
Nylon Solutions.
Global demand for Nylon 6 resin spans a variety of end-uses such as
textiles, engineered plastics, industrial filament, food and
industrial films, and carpet. The market growth typically tracks
global GDP growth over the long-term but varies by
end-use.
Generally, prices for Nylon 6 resin and caprolactam reflect supply
and demand in the marketplace as well as the value of the basic raw
materials used in the production of caprolactam, consisting
primarily of benzene and, depending on the manufacturing process
utilized, natural gas and sulfur. The global prices for nylon resin
typically track a spread over the price of caprolactam, which in
turn tracks as a spread over benzene because the key feedstock
materials for caprolactam, phenol or cyclohexane, are derived from
benzene. This price spread has historically experienced cyclicality
as a result of global changes in supply and demand. Generally,
Nylon 6 resin prices track the cyclicality of caprolactam prices,
although prices set above the spread are achievable when nylon
resin manufacturers, like AdvanSix, formulate and produce
differentiated nylon resin products. Our differentiated Nylon 6
products are
typically valued at a higher level than commodity resin products.
We believe that Nylon 6 end-market growth will continue to
generally track global GDP over the long-term. Applications such as
engineered plastics and packaging have potential to grow at faster
rates given certain macrotrends. Additionally, one of our
strategies is to continue developing higher-value, differentiated
Nylon 6 products, such as our wire and cable, Post-Industrial
Recycled resins and films and co-polymer offerings, in current and
new customer applications.
The global market for Nylon 6 resin and caprolactam has undergone
significant change over the past decade. Following a peak in 2011
through the first half of 2016, nylon and caprolactam prices
experienced a cyclical period of downturn as Chinese manufacturers
entered the market and increased global supply at a time when
demand growth remained relatively stable. As a result of the
increased capacity and competitive intensity, industry margins for
Nylon 6 resin and caprolactam compressed over this period to a low
point in mid-2016. In the second half of 2016, capacity reductions
by our competitors occurred in North America and Europe improving
supply / demand fundamentals in North America with continued
dynamic conditions globally. Industry spreads had fluctuated near
marginal producer cost since 2016, but, slowing global growth and
soft end-market demand, combined with capacity increases and an
uncertain macro environment, pressured pricing and spreads during
the second half of 2019 and throughout 2020. In 2021, strong end
use demand, combined with industry operational upsets and supply
chain disruptions, created an environment for robust performance in
Nylon 6. Additionally, buyers have explored using Nylon 6 as a
substitution for other resins where applications allow, based on
the need for reliable, secure long-term supply and performance
needs.
Chemical Intermediates.
Chemical intermediates are used as key inputs for a variety of
end-market products including construction materials, paints and
coatings, packaging and consumer applications. The primary products
are acetone, phenol, AMS and cyclohexanone. Acetone and phenol
represent approximately 55% and 15%, respectively, of our chemical
intermediates sales. Prices for acetone are influenced by its own
supply and demand dynamics but can also be influenced by the
underlying move in propylene input costs. In the U.S., where we
primarily sell our acetone, there were elevated levels of acetone
imports during 2018 and 2019 given high industry operating rates
globally, which pressured regional pricing and spreads. As a result
of strong global acetone demand driven by favorable COVID-related
acetone derivative drivers (hand sanitizers and acrylic screens) in
addition to the implementation of acetone anti-dumping duties,
acetone imports into the U.S. declined through 2020 and 2021,
creating more favorable supply and demand conditions for the
product and improved pricing. Industry operating rates improved in
the second half of 2021 supporting a balancing of supply and demand
and moderation in acetone industry spreads relative to recent
highs. Supply and demand conditions for the remaining intermediates
we sell are generally balanced or favorable.
Plant Nutrients.
Ammonium sulfate fertilizer products are primarily sold in North
and South America. Ammonium sulfate is used as a fertilizer
providing the key nutrients of sulfur and nitrogen for major
agricultural crops globally such as corn, wheat, coffee, sugar,
cotton and rice. As of December 31, 2021, ammonium sulfate
fertilizer accounts for approximately 6% of the global market for
nitrogen fertilizer and over 40% of the global market for sulfur
fertilizer. Global prices for ammonium sulfate are influenced by
several factors including the price of urea, which is the most
widely used source of nitrogen-based fertilizer in the world. Other
global factors driving ammonium sulfate fertilizer demand are
general agriculture trends, including the price of crops. Our
ammonium sulfate product is positioned with the added value
proposition of sulfur nutrition to increase yields of key crops. In
addition, due to its nutrient density, the typical ammonium sulfate
product delivers pound for pound the most readily available sulfur
and nitrogen to crops than other fertilizers. During 2020, we
expanded our offering to directly supply packaged ammonium sulfate
to customers, primarily in North and South America, and diversified
and optimized our offerings to include spray-grade adjuvant to
support crop protection, as well as other specialty fertilizers and
products for industrial use.
Competition
Competition across our product offerings is based on a variety of
factors including price, reliability of supply, product innovation,
and quality. Other competitive factors include breadth of product
line, R&D efforts and technical and managerial capability.
While the competitive position of our individual products varies,
we believe we are a significant competitor in each major product
class. AdvanSix competes with integrated manufacturers, such as
Highsun Group Holdings Ltd., BASF Corporation, Sinopec Limited,
DOMO Chemicals GmbH, LANXESS AG and Ube Industries, Ltd. We also
compete with synthetic manufacturers of ammonium sulfate, such as
Pasadena Commodities International and Nutrien Ltd.; and
stand-alone phenol and acetone producers, such as Ineos and
Altivia. A number of our products are sold in markets with many
competitors, some of whom have substantial financial resources and
significant technological capabilities. Additionally, our
competitors include companies with global operations as well as
those operating only within specific geographic
regions.
Product Overview
Nylon and Caprolactam
We manufacture our Nylon 6 resin in our Chesterfield plant. We sell
our Nylon 6 resin globally, primarily under the Aegis® brand name.
In addition, we sell our Nylon 6 resin to a nylon film producer
from whom we purchase films to sell to our customers under
the
Capran® brand name. In 2021, our Nylon products generated $423
million of sales. In 2021, 2020 and 2019, Nylon sales were 25%, 24%
and 27% of our total sales, respectively.
We produce caprolactam, the key monomer used in the production of
Nylon 6 resin, at our Hopewell plant using phenol produced at our
Frankford plant and sulfur and natural gas obtained from
third-party suppliers. In 2021, caprolactam generated $316 million
of sales. In 2021, 2020 and 2019, caprolactam sales were 19%, 19%
and 22% of our total sales, respectively.
Chemical Intermediates
We produce and sell chemical intermediates to a range of customers
for use in many different types of end-products. In 2021, our
chemical intermediates generated $545 million of sales, of which
$443 million, or 81%, came from sales of acetone, phenol and
cyclohexanone, and $102 million, or 19%, came from sales of our
other chemical intermediates. In 2021, 2020 and 2019, sales of
chemical intermediates were 32%, 32% and 28% of our total sales,
respectively.
The phenol we produce at our Frankford plant is a key chemical
intermediate used in our caprolactam manufacturing process.
Approximately 80% of the phenol we produce is used in production of
caprolactam and other chemical intermediates at Hopewell, and
approximately 20% of our phenol is sold to customers for use in
their product applications such as resins, epoxies and Bisphenol
A.
All our acetone is sold to customers for use in end-products such
as adhesives, paints, coatings, solvents, herbicides and engineered
plastic resins. Acetone is typically used by our customers as a key
raw material in the production of a variety of other chemicals
which are then used in the applications listed above.
We also produce and sell cyclohexanone, AMS, oximes and
cyclohexanol. We use some of these products in our manufacturing
process and sell some to customers for use in end-products such as
resins, inks, paints, coatings and agricultural chemical
intermediates and electronic components.
Ammonium Sulfate
Ammonium sulfate fertilizer is produced simultaneously with
caprolactam as part of our integrated caprolactam manufacturing
process at our Hopewell plant. We manufacture this product in a
ratio of approximately four pounds of ammonium sulfate to one pound
of caprolactam. Our competitors typically produce approximately two
pounds or less of ammonium sulfate for each pound of caprolactam.
We are targeting conversion of approximately 65% of the ammonium
sulfate we produce in higher-value granular form. We sell ammonium
sulfate under the brand name Sulf-N®, and in 2021, our ammonium
sulfate products generated $401 million of sales. In 2021, 2020 and
2019, ammonium sulfate sales were 24%, 25% and 23% of our total
sales, respectively.
Raw Materials
The primary raw material used in our manufacturing process is
cumene, which is produced from benzene and propylene. We purchase
cumene from multiple suppliers to ensure stability of supply and
optimal terms. Other important raw materials used in our
manufacturing process are natural gas and sulfur, which are used to
produce caprolactam and ammonium sulfate. We purchase natural gas
and sulfur from a diverse set of suppliers.
Historically, we have been able to renew contracts with our
suppliers and obtain sufficient quantities of cumene, sulfur,
natural gas and any other key raw materials. Global supply and
demand can significantly impact the price of our key raw materials,
and historically prices have been cyclical. We mitigate our
exposure to commodity price risk primarily through the use of
medium and long-term, formula-based price contracts with our
suppliers and formula-based price agreements with
customers.
Sales, Marketing and Distribution
We have a global sales force with long-standing customer
relationships and deep expertise with our products, product
applications and end-markets. We predominantly sell directly to our
customers, primarily under contracts but also through spot
transactions under purchase orders and through
distributors.
Our products are supported by our global logistics capability that
we employ to ensure reliable and timely delivery to our customers
while maximizing distribution resources and
efficiency.
Customers
Globally, we serve approximately 400 customers in a wide variety of
industries located in approximately 50 countries. In 2021, the
Company's 10 largest customers accounted for approximately 40% of
total sales. Our largest customer is Shaw Industries Group
Inc.
("Shaw"), one of the world's largest consumers of caprolactam and
Nylon 6 resin. We sell caprolactam and Nylon 6 resin to Shaw under
a long-term agreement. Sales to Shaw were 12% of our total sales
for the year ended December 31, 2021, 14% for the year ended
December 31, 2020 and 22% for the year ended December 31, 2019. We
typically sell to our other customers under master services
agreements, with primarily one-year terms, or by purchase orders.
We have historically experienced low customer
turnover.
Seasonality
We produce ammonium sulfate fertilizer continuously throughout the
year as part of our manufacturing process, but quarterly sales
fluctuate based on the timing and length of the growing seasons in
North and South America. North America ammonium sulfate prices are
typically strongest during second quarter fertilizer application
and then typically decline seasonally with new season fill in the
third quarter. Due to the ammonium sulfate fertilizer sales cycle,
we occasionally build up higher inventory balances because our
production is continuous and not tied to seasonal demand for
fertilizers. Sales of most of our other products have generally
been subject to minimal, or no, seasonality.
Research & Development and Intellectual Property
We believe success in our industry is driven not only by
operational excellence and cost position but also through
technological strength and innovation. Our R&D activities focus
on improving our chemical manufacturing processes to increase
efficiency, capacity, productivity, and lowering our production and
operating costs, as well as innovating and developing new product
applications.
We benefit from numerous patents and trademarks that we own. We
sell our Nylon 6 resin under the Aegis® brand name, our nylon films
under the Capran® brand name and our ammonium sulfate fertilizer
under the Sulf-N® brand name. Chemical intermediates are sold under
the brand names of Nadone®, Naxol® and EZ-Blox™. We also benefit
from technology covered by trade secrets, including know-how and
other proprietary information relating to many of our products,
processes and technologies. We do not consider any individual
patent, trademark or licensing or distribution rights related to a
specific process or product to be of material importance in
relation to our overall business. In our judgment, our intellectual
property rights are adequate for the conduct of our business. We
intend to continue taking steps as necessary to protect our
intellectual property, including when appropriate, filing patent
applications for inventions that are deemed important to our
business.
In 2021, we conducted R&D at technology centers with
researchers at our sites in Frankford, Pennsylvania and
Chesterfield, Virginia where our former Colonial Heights R&D
facility relocated in early 2020 enabling an improved configuration
of our labs to drive productivity, increased connectivity with our
resin manufacturing and more effective collaboration with
customers.
Regulation and Environmental Matters
We are subject to various federal, state, local and foreign
government requirements regarding protection of human health and
the environment. Compliance with these laws and regulations results
in higher capital expenditures and costs. We believe that, as a
general matter, our policies, practices and procedures are properly
designed to prevent unreasonable risk of environmental impact, and
any resulting financial liability. Some risk of environmental
impact is, however, inherent in some of our operations and
products, as it is with other companies engaged in similar
businesses.
We are and have been engaged in the handling, manufacture, use and
disposal of many substances classified as hazardous by one or more
regulatory agencies. It is possible that future knowledge or other
developments, such as improved capability to detect substances in
the environment or increasingly strict environmental laws,
standards and enforcement policies, could bring into question our
current or past handling, manufacture, use or disposal of these
substances.
Among other environmental laws and regulations, we are subject to
the Comprehensive Environmental Response, Compensation and
Liability Act; the Resource Conservation and Recovery Act and
similar state, foreign and global laws for management and
remediation of hazardous materials; the Clean Air Act and the Clean
Water Act, for protection of air and water resources; the Toxic
Substance Control Act (“TSCA”), for regulation of chemicals in
commerce and reporting of potential known adverse effects. There
are also numerous other federal, state, local and foreign laws and
regulations governing materials transport and packaging, under
which we may be designated as a potentially responsible party
liable for cleanup costs associated with current operating sites
and various hazardous waste sites.
Our business may be impacted by potential climate change
legislation, regulation or international treaties or accords in the
foreseeable future. We will continue to monitor emerging
developments in this area.
Our accounting policy for environmental expenditures is discussed
in “Note 2. Summary of Significant Accounting Policies” to the
audited Consolidated Financial Statements included in this Form
10-K. We continuously seek to improve our health, safety
and
environmental performance. We have expended funds to comply with
environmental laws and regulations and expect to continue to do
so.
Our Frankford and Hopewell facilities are regulated facilities
under the Maritime Transportation Security Act of 2002 (“MTSA”) due
to the nature of our operations and the proximity of the facilities
to adjacent waterways. As a result, we are required to comply with
numerous regulations administered by the Department of Homeland
Security, including the development and implementation of compliant
security procedures and protocols. Additionally, sales of acetone,
which is a List II Chemical under the TSCA, are regulated by the
Drug Enforcement Act. This classification subjects us to audits by
the Drug Enforcement Administration and ongoing restrictions on our
sales activities with respect to acetone.
See “Risk Factors – Extensive environmental, health and safety laws
and regulations applicable to our operations, including initiatives
related to discharges into the air and water, hazardous waste,
sustainability, global warming and climate change, may result in
substantial costs and unanticipated loss or liability, which could
adversely affect our business, financial condition and results of
operations” in Item 1A.
Human Capital Management
As a company, we recognize that our people are our greatest asset
and the foundation of our success. We feel a deep sense of
responsibility to provide a safe, inclusive and engaging workplace
for all our employees and contractors, and strive for a
zero-incident safety culture. Our core values of Safety, Integrity,
Accountability and Respect guide our day-to-day activities and
inform our broader business strategy as we drive safe, stable and
sustainable operations through an ownership mentality aligned to
shareholder value creation. Our Board, along with management and
cross-functional teams, work closely to evaluate and proactively
address human capital management topics such as safety, inclusion
and diversity, employee development, employee benefits and employee
engagement.
Employees
As of December 31, 2021, the Company employed approximately
1,375 people. Of this total, approximately 565 are salaried
employees and approximately 810 are hourly employees. Approximately
705 employees are covered under collective bargaining agreements
that expire between 2023 and 2025. The Company strives to maintain
positive and productive relationships with all of its employees,
including the unions representing those employees.
Oversight and Management
Our Board and Board committees provide oversight on various human
capital management matters. As noted in their respective
charters:
•Our
Health, Safety, Environmental and Sustainability Committee oversees
policies and programs relating to compliance with health, safety,
environmental, and sustainability matters, including process
safety, supply chain security, asset reliability, product
stewardship, community engagement and government affairs, as well
as such other matters regarding the Company’s role as a responsible
corporate citizen.
•Our
Nominating and Governance Committee annually evaluates the
effectiveness of our governance framework and social responsibility
policies, goals and programs.
•Our
Audit Committee exercises oversight of enterprise risk assessments
and risk management including with respect to current and emerging
labor and human capital management risks and seeks to mitigate
exposure to those risks.
•Our
Compensation and Leadership Development Committee is responsible
for oversight of the performance, development and retention of
management necessary to support the growth and success of the
Company.
Health and Safety
At AdvanSix, safety is our number one core value — we “Live Safety”
in all we do. “Live Safety” is an interdependent concept meaning
that employees care not only for their own safety, but for the
safety of their teammates and communities in which we
operate.
AdvanSix is a Responsible Care® company with a focus on personal
and process safety and advancing as a sustainable enterprise.
Responsible Care® is the environmental, health, safety and security
performance initiative of the American Chemistry Council (ACC).
AdvanSix has demonstrated its commitment to the Responsible Care®
Guiding Principles, which encourage ethical leadership, product
safety, a culture which reduces and manages process safety risk,
reduction of pollution and waste, and continuous improvement in
environmental, health, safety and security
performance.
As an organization, we maintain a relentless focus on continuous
improvement and our expectation is zero injuries for employees and
contractors. Our
CARE
program —
Courage to Act, Respond and Engage
— was launched in 2019 and inspires us to Live Safety
in
all we do. We use the industry standard Total Case Incident Rate
("TCIR") to measure our ongoing safety performance and compare with
benchmarks. TCIR is defined as the number of occupational injuries
and illnesses per 100 employees. Our TCIR was 0.48 in 2021, 0.91 in
2020 and 0.86 in 2019.
In the first quarter of 2020, the Company began executing its
business continuity plans with dedicated teams chartered to
proactively implement measures to mitigate COVID-19 impacts while
continuing to operate all of its manufacturing facilities to meet
customer demand. In response to COVID-19, the Company took many
actions to protect its employees, customers, suppliers,
shareholders and surrounding communities including, but not limited
to: (i) 100% thermal screening process at all facilities and
restrictions on non-essential visitors; (ii) telecommuting across
all sites, where possible; (iii) prohibiting all non-essential
domestic and international business travel; (iv) establishing
social distancing while limiting the number of employees in control
rooms, labs and in-person meetings; and (v) maintaining policies
and practices consistent with CDC and government guidelines
including upgraded personal protective equipment, face coverings at
all facilities, and exposure management protocols. Our
telecommuting policies have been designed to allow for continued
operation of non-production business-critical functions, including
financial reporting systems and internal controls. The Company has
protocols in place at all sites, including on-site medical
personnel at manufacturing facilities to actively monitor employees
and contractors who report symptoms of or exposure to COVID-19. In
addition, the Company has trained a contingent workforce to operate
the plants as part of its business continuity planning. The Company
continued its execution of these measures at all sites through the
end of 2021 and intends to continue to do so through the duration
of the pandemic.
Equity, Diversity and Inclusion
At AdvanSix, we strive for an inclusive work environment that
fosters respect for all our coworkers, customers, suppliers and
business partners. We value the diversity reflected in the various
backgrounds, experiences, and ideas of our employees, contractors,
and other stakeholders. Our Equity, Diversity and Inclusion purpose
statement reflects our journey to be our customers' trusted partner
for Advantaged Chemistries by caring, innovating and advancing
together. To achieve that togetherness, we strive to represent the
communities in which we operate, celebrate our differences, inspire
belonging, and be tenacious in our pursuit of bringing out the best
in people both individually and collectively. Our Code of Conduct
outlines our commitment to provide employees a workplace that is
free from discrimination or harassment (specifically related to
gender, race, disability, ethnicity, nationality, religion and
sexual orientation) or personal behavior not conducive to a
productive work climate. We believe it is important that each
employee feels a sense of belonging and valued as part of the
organizational culture we are cultivating, and we feel it is
important that each employee sees diverse representation across our
AdvanSix team.
AdvanSix joined hundreds of companies in signing the CEO Action for
Diversity and Inclusion pledge in 2019, which centers around three
main commitments: to have complex discussions about diversity and
inclusion, implement and expand upon unconscious bias education and
share diversity and inclusion practices. We supported this
commitment through 2021 as we engaged in honest and transparent
conversations with our employees. AdvanSix also seeks to improve
gender equality in the manufacturing industry, starting with
supporting science, technology, engineering and math (STEM)
education and work in related fields. A group of employees formed
Supporting Women in Manufacturing (SWiM), an AdvanSix Employee
Resource Group, with the goal of promoting women in manufacturing,
female leadership and growth in STEM-related fields. SWiM seeks to
raise awareness on these matters through programs, events and
discussions, including networking, professional development,
outreach, volunteering and internal programs highlighting
leadership and career paths in multiple disciplines. AdvanSix is
committed to pay equity for its employees and regularly performs
reviews of its compensation practices to evaluate and maintain pay
equity in several respects, including by gender, ethnicity and
race.
At a national level, AdvanSix not only participates as a board
member, but is a patron level supporter of the American Institute
of Chemical Engineers’ ("AIChE") “Doing a World of Good” initiative
that actively supports five high priority pillars within the
chemical engineering field that align closely with sustainability
and ESG principles including equity, diversity and inclusion. In
addition, AdvanSix has supported and participated in the Future of
STEM Scholars Initiative ("FOSSI"), a national, industry-wide
program which provides scholarships to students pursuing STEM
degrees at Historically Black Colleges and Universities ("HBCU")
and connections to internships, leadership development and
mentoring opportunities. During 2021, we welcomed our first class
of FOSSI scholars all of whom are in attendance at
HBCUs.
During 2021, we introduced a number of key actions to advance
equity, diversity and inclusion within the organization including
focus group discussions, review of our talent pipeline and overall
development programs. Notably, we further enhanced our recruiting
processes by implementing a program mandating a diverse candidate
slate with the goal to increase our organization’s workforce
diversity and improve outreach in the local communities where we
operate. In addition, we continued unconscious bias training at
leadership and managerial levels enterprise-wide to enhance our
recruitment efforts and the evaluation process of candidates. We
conducted Days of Understanding at our largest manufacturing
facility throughout the month of June to encourage active
engagement by leadership with all employees to listen to their
experiences and gather feedback for improvement.
Our senior leadership team was comprised of over 50% women in 2021,
including our Chief Executive Officer, Chief Human Resources
Officer, Chief Information Officer, Vice President, Nylon Solutions
and Vice President, Business Development. Four directors of our
ten-member Board are women, and two directors of our ten-member
Board are ethnically diverse.
Employee Development
AdvanSix seeks to attract the best talent from a diverse range of
sources in order to meet the needs of our business now and in the
future. We have established strong relationships with community
colleges, universities, professional associations and industry
groups with a focus on technical positions and development in order
to attract talent including by utilizing co-op, internship programs
and university relations as a talent pipeline. Early career
development and continual learning is part of our employee
engagement strategy. To support the advancement of our employees,
we promote development through training that broadens work-related
skills and believe that the most effective model combines an
“experience, exposure, and education” approach. We acknowledge that
learning is a career-long endeavor and place the greatest emphasis
on learning by doing, supported by feedback, training, and
self-reflection.
AdvanSix promotes development through training that broadens
work-related skills. These include:
•Core
competencies for all employees to develop and apply
•Leadership
competencies needed by all employees managing people
•Functional
competencies that are position specific and used to inform job
progression
We support the continued development of our employees through
semi-annual performance and development reviews, including annual
enterprise-wide talent development assessments. We conduct safety
and environmental training modules for new employees as part of
Health, Safety and Environmental ("HSE") orientation, along with
job-specific training aligned to roles. We have instituted an
initiative to empower our First Line Supervisors ("FLS") to be HSE
leaders within our organization including serving as decision
makers and chief communicators on shift, while developing, coaching
and mentoring their shift teammates. On an annual basis, senior
leadership recognizes the FLS who demonstrates excellence with this
initiative with an FLS of the Year Award. During 2021, we held a
Technical Career Progression event in order to recognize those
employees who have displayed technical capability and regularly
deliver in three key areas — results, behaviors and
capability.
A highly trained and engaged workforce is essential for AdvanSix to
be our customers’ trusted partner, and those partnerships are built
by delivering best-in-class experiences that result in satisfied
customers and support shareholder return.
Employee Benefits
Our compensation programs are designed to align employee
compensation with Company performance and to provide appropriate
incentives in order to attract, retain and motivate our employees.
We believe that in order to maintain the strength of our workforce,
it is critical to monitor and assess the current business
environment and labor market to refine our compensation and
benefits programs and other resources available to our employees.
We seek to offer compensation that is competitive and consistent
with employee positions, skill levels, experience and geographic
location. In addition to offering competitive base salaries,
AdvanSix structures its compensation programs to balance incentive
earnings for both short-term and long-term
performance.
Our compensation and benefit programs are designed to support our
business strategy through four key objectives:
•Attract
and retain world-class talent;
•Drive
and pay for performance that creates superior results and
sustainable stockholder value;
•Manage
risk through oversight and sound management; and
•Nurture
a culture of employee health and wellness.
Information about our Executive Officers
The executive officers of AdvanSix, listed as follows, are
appointed annually by the Board. Ms. Kane, Mr. Preston and Mr.
Gramm were each first appointed as an executive officer in 2016,
Mr. Blindenbach was first appointed as an executive officer in
2019, and Ms. Slieter and Mr. Kintiroglou were each appointed as
executive officers in 2020.
There are no family relationships among them or our Board
members.
|
|
|
|
|
|
|
|
|
|
Name, Age |
Position |
Business Experience |
|
|
|
|
|
|
|
|
|
|
Erin N. Kane, 44
|
Chief Executive Officer and Director |
Prior to joining the Company, Ms. Kane served as vice president and
general manager of Honeywell Resins and Chemicals since October
2014. She joined Honeywell in 2002 as a Six Sigma Blackbelt of
Honeywell’s Specialty Materials business. In 2004, she was named
product marketing manager of Honeywell’s Specialty Additives
business. From 2006 until 2008, Ms. Kane served as global marketing
manager of Honeywell’s Authentication Technologies business, and in
2008 she was named global marketing manager of Honeywell’s Resins
and Chemicals business. In 2011, she was named business director of
chemical intermediates of Honeywell’s Resins and Chemicals
business. Prior to joining Honeywell, Ms. Kane held Six Sigma and
process engineering positions at Elementis Specialties and Kvaerner
Process. Ms. Kane serves on the Boards of Directors of AdvanSix
Inc., the Chemours Company, and the American Chemistry Council. She
served on the Board of Directors of the AIChE from 2019 through
2021. Ms. Kane brings to the Board her extensive leadership
experience as well as knowledge of AdvanSix’s business, industry,
health, safety and environmental processes, and
operations. |
|
Michael Preston, 50
|
Senior Vice President and Chief Financial Officer |
Prior to joining the Company, Mr. Preston held various finance
roles with Honeywell for over 15 years. Mr. Preston served as vice
president and chief financial officer for Honeywell’s UOP division
from 2013 to 2016. Prior to this role, Mr. Preston was vice
president of business analysis & planning from 2012 to 2013.
Mr. Preston also held several finance leadership roles within
Honeywell, including chief financial officer of the Fluorine
Products business, director of financial planning & analysis
for the Performance Materials and Technologies segment, and
director of business analysis & planning for Honeywell
corporate. Mr. Preston began his career with Honeywell in September
of 2001 as manager of investor relations. Prior to joining
Honeywell, he spent seven years in investor relations consulting.
Mr. Preston is a Chartered Financial Analyst (CFA) Charterholder
and is a member of the CFA Institute and CFA Society New
York. |
|
Achilles B. Kintiroglou, 43
|
Senior Vice President, General Counsel and Corporate
Secretary |
Prior to being named to his current role, Mr. Kintiroglou was the
deputy general counsel of AdvanSix since the spin-off in 2016.
Before joining AdvanSix, he was a corporate and securities partner
at Day Pitney LLP and a corporate and finance associate at
Pillsbury Winthrop Shaw Pittman LLP and Pitney Hardin
LLP. |
|
Kelly J. Slieter, 47
|
Senior Vice President and Chief Human Resources Officer |
Prior to joining the Company, Ms. Slieter served as vice president
of human resources of Honeywell International Inc. since 2018. She
joined Honeywell in 1997 as an intern and subsequently served in
various human resources roles through 2003, including as M&A
integration leader and as HR manager for multiple business units.
From 2003 to 2004, she served as human resources manager at
Bristol-Myers Squibb Company. From 2004 to 2005, she served as
organization development manager for Tyco International. Ms.
Slieter rejoined Honeywell in 2005 and served in roles with
increasing responsibility through 2015, including, director of HR
functional excellence, corporate; director of organization
development & learning for the Automation & Control
Solutions business; director of human resources for Honeywell
Building Solutions; and senior director, human resources corporate.
From 2015 through 2018, she served as vice president, human
resources of the Honeywell UOP business. |
|
|
|
|
|
|
|
|
|
|
Christopher Gramm, 52
|
Vice President, Controller |
Prior to joining the Company, Mr. Gramm served as vice president
and controller of the aerospace and corporate government compliance
divisions at Honeywell. From August 2014 to November 2015, Mr.
Gramm served as vice president of finance for the integrated supply
chain of the aerospace division at Honeywell. Beginning in March
2011, he was vice president and controller of the aerospace
division at Honeywell. Over the course of the period from 1997 to
March 2011, Mr. Gramm held several positions at Honeywell,
including controller and chief financial officer of various
divisions focused on areas including specialty materials and resins
and chemicals. He joined Honeywell in 1997 as a senior staff
accountant. Before joining Honeywell, Mr. Gramm was a manager at
Corning Life Sciences. |
|
Willem L. Blindenbach, 53
|
Senior Vice President, Integrated Supply Chain |
Prior to joining the Company, Mr. Blindenbach served as Vice
President of Mobil International Company Operations Manager, EMEA
since 2018. He joined ExxonMobil in 1994 and served in several
roles with increasing responsibility including Sales Engineer,
Technical Support Supervisor, Pernis Plant Operations Manager,
Europe Project Advisor, Europe Supply Manager, and Global
Operations Project Advisor. From 2006 to 2007, he served as
Executive Advisor to the President of ExxonMobil Lubes and Fuels.
From 2007 to 2009, Mr. Blindenbach served as Manager, Supply and
Distribution for EMEA. From 2010 to 2011, he served as Vice
President, ExxonMobil Lubricants, Trading and Supply Manager,
Global Basestocks. From 2011 to 2012, he served as Manager of
Global Product Integrity. From 2012 to 2013, he served as Project
Executive. From 2013 to 2014, he served as Manager of Midstream
Business. From 2014 through 2017, he served as Manager,
Manufacturing, Lubes, Americas. |
Other Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports are
available free of charge on our website (www.AdvanSix.com) under
the heading Investors (see SEC Filings) immediately after they are
filed with, or furnished to, the Securities and Exchange Commission
("SEC"). In addition, in this Form 10-K, the Company incorporates
by reference certain information from parts of its Proxy Statement
for the 2022 Annual Meeting of Stockholders, which will also be
available free of charge on our website. Information contained on,
or that may be accessed through, our website does not and will not
constitute part of this Form 10-K. Our filings with the SEC are
also available on the SEC website at www.sec.gov.
We are a Delaware corporation that was incorporated on May 4, 2016.
Our principal executive offices are located at 300 Kimball Drive,
Suite 101, Parsippany, NJ 07054. Our telephone number is
(973) 526-1800. Our website address is
www.AdvanSix.com.
Item 1A. Risk Factors
Cautionary Statement Concerning Forward-Looking
Statements
All statements other than statements of historical fact included in
this Form 10-K including, without limitation, statements under
“Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and in other parts of this
Form 10-K regarding our financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
When used in this Form 10-K, words such as “expect,” “anticipate,”
“estimate,” “outlook,” “project,” “strategy,” “intend,” “plan,”
“target,” “goal,” “may,” “will,” “should,” and “believe,” and other
variations or similar terminology and expressions identify
forward-looking statements. Such forward-looking statements are
based on the beliefs of management, as well as assumptions made by,
and information currently available to, our management. They are
not guarantees of future performance and actual results could
differ materially from those contemplated by the forward-looking
statements as a result of certain factors detailed in our filings
with the SEC. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are
qualified in their entirety by this paragraph. We do not undertake
to update or revise any of our forward-looking statements. Our
forward-looking statements are also subject to risks and
uncertainties that can affect our performance in both the near- and
long-term. These forward-looking statements should be considered in
light of the information included in this Form 10-K, including, in
particular, the factors discussed below. These factors may be
revised or supplemented in subsequent reports on Forms 10-Q and
8-K.
Risk Factors
You should carefully consider all information in this Form 10-K and
each of the risks described below, which we believe are the
principal risks we face. Any of the following risks could
materially and adversely affect our business, financial condition
and results of operations and the actual outcome of matters as to
which forward-looking statements are made in this Form
10-K.
Risks Relating to Our Business
Difficult and volatile conditions in the overall economy,
particularly in the United States but also globally, and in the
capital, credit and commodities markets could adversely affect our
business, financial condition and results of
operations.
Our business, financial condition and results of operations could
be adversely affected by difficult global economic conditions and
significant volatility in the capital, credit and commodities
markets and in the overall economy. Adverse events affecting the
health of the economy, including inflationary pressures, supply
chain issues, labor market shortages, trade conflicts including,
export and import restrictions, tariffs and other trade barriers,
the COVID-19 pandemic or other pandemics and the threat of war,
sovereign debt and economic crises, terrorism and protectionism
could have a negative impact on the health of the global economy.
These developments, or the perception that any of them could occur,
may have a material adverse effect on global economic conditions or
on the stability of global financial markets which may affect us
and our customers. For example:
•Weak
economic conditions, especially in our key markets, could reduce
demand for our products, impacting our sales and
margins;
•As
a result of volatility in commodity prices, we may encounter
difficulty in achieving sustained market acceptance of past or
future price increases;
•Under
difficult market conditions, there can be no assurance that access
to credit or the capital markets would be available or sufficient,
and as such, we may not be able to successfully obtain additional
financing on reasonable terms, or at all;
•Market
conditions and credit availability could adversely affect the
financial situation of raw material suppliers and their ability to
deliver key materials, thus impacting our ability to run our
production facilities at the intended rates; and
•Market
conditions could result in our key customers experiencing financial
difficulties and/or electing to limit spending, which in turn could
cause fluctuations in demand for our products, product prices,
volumes and margins potentially resulting in decreased sales and
earnings.
We are unable to predict the duration of economic conditions or
their effects on financial markets or our business and results of
operations. Economic volatility and uncertainty surrounding future
economic conditions may at times make it challenging to identify
risk that may affect our business, sources and uses of cash,
financial conditions and results of operations. If economic
conditions deteriorate, our results of operations, financial
condition and cash flows could be materially adversely
affected.
The industries in which we operate experience cyclicality which can
cause significant fluctuations in our cash flows and may adversely
affect our business, financial condition and results of
operations.
Our historical operating results reflect the cyclical nature of the
industries in which we operate including with respect to our Nylon
6 resin, caprolactam, nitrogen fertilizer, phenol and acetone
products. We experience cycles of fluctuating supply and demand for
each of our products resulting in changes in selling prices and
margins. Periods of high demand, tight supply and increasing
operating margins tend to result in increases in capacity and
production until supply exceeds demand, generally followed by
periods of oversupply and declining prices. While we strive to
maintain or increase our profitability by reducing costs through
improving
production efficiency, by emphasizing higher margin products and by
controlling transportation, selling and administration expense, we
cannot assure you that these efforts will be sufficient to offset
fully the effect of possible decreases in pricing on our operating
results. As a result of potential cyclicality, we cannot assure you
that pricing or profitability in the future will be comparable to
any historical period, including the most recent period shown in
our operating results. Structural changes in industry and customer
trends for our products could adversely affect our business,
financial condition and results of operations.
Any significant unplanned downtime or material disruption impacting
any of our production facilities or logistics operations, or any
third party on which we rely, may adversely affect our business,
financial condition and results of operations.
We seek to run our complex production facilities on a nearly
continuous basis for maximum efficiency and we rely on the
integrity of our logistics operations for the uninterrupted
operations of our business. While we have made significant annual
capital improvements at our manufacturing plants, operational
issues have occurred in the past and may occur in the future, which
could cause damage to our manufacturing and production equipment
and ancillary facilities. Unplanned interruptions in our production
capabilities may adversely affect our production costs, product
lead times and earnings during the affected period.
Although our integrated manufacturing, scale and the quantity and
range of our product offerings make us one of the most efficient
manufacturers in our industry, the significant level of integration
across our manufacturing facilities exposes us to increased risk
associated with unplanned downtime or material disruptions at any
one of our production facilities which could impact our supply
chain and our manufacturing process.
We seek to mitigate the risk of unplanned downtime through
regularly scheduled maintenance for both major and minor repairs at
all of our production facilities. We utilize maintenance excellence
and mechanical integrity programs and maintain what we believe is
an appropriate buffer inventory of intermediate chemicals necessary
for our manufacturing process, both of which are intended to
mitigate the extent of any production losses as a result of
unplanned downtime. However, unplanned interruptions have occurred
in the past and may occur in the future, and we may not have enough
intermediate chemical inventory at any given time to offset
production losses. Our business interruption insurance coverage may
not cover all costs or losses associated with unplanned downtime,
or such insurance may not continue to be available in amounts or on
terms acceptable to us. Moreover, taking our production facilities
offline for regularly scheduled repairs can be an expensive and
time-consuming operation with risk that discoverable items and
delays during the repair process may cause additional unplanned
downtime. Any such unplanned downtime at any of our production
facilities may adversely affect our business, financial condition
and results of operations.
Our production facilities and logistics operations, as well as
those of our suppliers or other third parties on which we rely, are
also subject to the risk of catastrophic loss and material
disruptions due to unanticipated events, such as unexpected repairs
or other operational and logistical problems, severe weather
conditions, personal injury or major accidents, prolonged power
failures, chemical spills, fires, explosions, acts of terrorism,
earthquakes, pandemics or other natural disasters, that we or such
third party may experience. While we seek to mitigate our risk of
unplanned interruptions, we have experienced such unplanned
interruptions in the past with respect to both our operations and
the operations of third parties as described in our periodic
reports filed with the SEC, and there is no assurance that we or
other third parties on which we rely will not experience unplanned
interruptions in the future. Depending on the nature, extent and
length of any operational interruption from any such event, the
results could adversely affect our business, financial condition
and results of operations.
Raw material price fluctuations and the ability of key suppliers to
meet delivery requirements can increase the cost of our products
and services, impact our ability to meet commitments to customers
and cause us to incur significant liabilities.
The cost of raw materials, including cumene, natural gas and
sulfur, is a key element in the cost of our products. Our inability
to offset material price inflation through increased prices to
customers, formula-based or long-term fixed price contracts with
suppliers, productivity actions or commodity hedges could adversely
affect our business, financial condition and results of
operations.
Although we believe that our sources of supply for raw materials
are generally robust, it is difficult to predict the impact that
shortages of raw materials or price increases may have in the
future. Our ability to manage inventory and meet delivery
requirements may be constrained by our suppliers’ inability to
scale production and adjust delivery of long lead-time products
during periods of fluctuating demand. Our inability to satisfy our
supply needs would jeopardize our ability to fulfill obligations
under contracts, which could, in turn, result in reduced sales and
profits, contract penalties or terminations and damage to customer
relationships.
When possible, we have purchased, and we plan to continue to
purchase, raw materials, including cumene, natural gas and sulfur,
through negotiated medium- or long-term contracts. To the extent we
have been able to achieve favorable terms in our existing
negotiated contracts, we may not be able to renew such contracts at
the current terms or at all, and this may adversely impact our
results of operations. To the extent the markets for our raw
materials significantly change, we may be bound by the terms of our
existing supplier contracts and obligated to purchase raw materials
at disadvantaged terms as compared to other market
participants.
Our operations and growth projects require substantial capital and
we may not be able to obtain additional capital that we need in the
future on favorable terms or at all.
Our industry is capital intensive, and we may require additional
capital in the future to finance our growth and development,
upgrade and improve our manufacturing capabilities, satisfy
regulatory and environmental compliance obligations, implement
further marketing and sales activities, fund ongoing R&D
activities, and meet general working capital needs. Our capital
requirements will depend on many factors, including acceptance of
and demand for our products, the extent to which we invest in new
technology, new products and R&D projects and the status and
timing of these developments. Our capital projects and other growth
investments may have lengthy deadlines during which market
conditions may deteriorate between the capital expenditure’s
approval date and the
conclusion of the project, negatively impacting projected returns
on our investments. Delays or cost increases related to capital and
other spending programs, including those relating to plant
improvements and development of new technologies, could materially
adversely affect our ability to achieve forecasted operating
results. In addition, we may need to seek additional capital in the
future, and debt or equity financing may not be available to us on
terms we find acceptable, if at all. If we incur additional debt or
raise equity through the issuance of our preferred stock, the terms
of the debt or our preferred stock may give the holders rights,
preferences and privileges senior to those of holders of our common
stock, particularly in the event of liquidation. If we raise funds
through the issuance of additional common equity, ownership in
AdvanSix would be diluted. We believe that we have adequate capital
resources to meet our projected operating needs, capital
expenditures and other cash requirements. However, we may need
additional capital resources in the future, and if we are unable to
obtain sufficient resources for our operating needs, capital
expenditures and other cash requirements for any reason, our
business, financial condition and results of operations could be
adversely affected.
Our results of operations may be materially adversely impacted by
the coronavirus (COVID-19) pandemic and the measures implemented to
contain the spread of the virus.
The continued spread of the coronavirus (COVID-19) pandemic and the
resulting containment measures have created significant volatility,
uncertainty and economic disruption globally and have had, and in
the future may have, a material impact on the Company's results of
operations.
The U.S. Department of Homeland Security designated our industry as
"essential critical infrastructure" during the response to COVID-19
for both public health and safety as well as community well-being.
The Company takes its obligation to produce materials that support
the broader population seriously, all while maintaining a
prioritized focus on the health and safety of its employees and the
communities in which it operates, and assuring the continuity of
its business operations. As a global provider of products that are
key inputs for our customers’ processes serving a variety of
end-markets, a pandemic presents obstacles that can adversely
affect our supply chain effectiveness and efficiencies, our
manufacturing operations and customer demand for our products and,
ultimately, our financial results. In the second quarter of 2020,
we experienced lower demand resulting from the economic impact of
COVID-19, although demand improved to pre-COVID-19 levels in the
second half of 2020. While the COVID-19 pandemic may impact the
Company's results of operations, financial position and liquidity,
we are unable to predict the extent or nature of these impacts at
this time.
The extent of any impact from the COVID-19 pandemic on our business
depends on numerous evolving factors and future developments that
cannot be accurately predicted at this time, including, but not
limited to: the scope and duration of the pandemic, including the
spread of the virus and its variants, the extent of any
resurgences, and the pace of recovery; the distribution, efficacy,
availability and public acceptance of vaccines, boosters or
treatments for COVID-19; governmental, business and individuals’
actions that have been and continue to be taken in response to the
pandemic, including our business continuity and cash optimization
plans that have been, and may in the future be, implemented; the
impact of social and economic restrictions and other containment
measures taken to combat virus transmission; the impact on labor
markets and our ability, and the ability of our suppliers and other
third parties on which we rely, to retain and hire employees;
inflationary pressures; supply chain disruptions; the effect on our
customers’ demand for our products and our suppliers’ ability to
manufacture and deliver our raw materials, including implications
of reduced refinery utilization in the U.S.; our ability to sell
and provide our goods and services, including as a result of travel
and other COVID-19-related restrictions; the ability of our
customers to pay for our products; any closures of our and our
customers’ offices and facilities; risks associated with increased
phishing, compromised business emails and other cybersecurity
attacks and disruptions to our technology infrastructure; and risks
associated with employees working remotely or operating with a
reduced workforce.
Due to difficult market conditions created by the pandemic, there
can be no assurance that access to credit or the capital markets
would be available or sufficient, and as such, if needed, we may
not be able to successfully obtain additional financing on
reasonable terms, at a reasonable cost, or at all. As a result,
these market conditions may impact our ability to comply with
financial covenants in our credit facility, increase our cost of
capital or make additional capital, including the refinancing of
our credit facility, more difficult or available only on terms less
favorable to us, if at all. A sustained downturn may also result in
the carrying value of our goodwill or other assets exceeding their
fair value, which may require us to recognize an impairment to
those assets. In addition, impacted financial markets and asset
values may have the effect of increasing our pension funding
obligations in order to ensure that our qualified pension plans
continue to be adequately funded, which may divert cash flow from
other uses. The effects of the pandemic may also impact our
financial reporting systems and internal control over financial
reporting, including our ability to ensure information required to
be disclosed in our reports under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure.
Any of these events could materially adversely impact our business,
financial condition, results of operations, cash flow, liquidity
and/or stock price. The COVID-19 pandemic, as well as future
pandemics, could also cause or contribute to the other risk factors
identified in this Form 10-K, as may be amended in our subsequent
Quarterly Reports on Form 10-Q, which in turn could materially
adversely affect our business, financial condition, results of
operations, cash flow, liquidity and/or stock price. Further, the
COVID-19 pandemic
may also affect our business, operations and financial results in a
manner that is not presently known to us or that we currently do
not consider to present significant risks to our
operations.
For additional information regarding the impact of COVID-19 on our
business, financial condition, results of operations, cash flow and
liquidity, see the discussions under "Recent Developments -
COVID-19" in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
Our competitive position, as well as our failure to develop and
commercialize new products or technologies to address our
customers’ needs and to effectively compete, could adversely affect
our business, financial condition and results of
operations.
Competition in the industries we serve is based on factors such as
price, product quality and service. Additionally, the markets for
our products are characterized by significant competition, both
regionally and internationally, new industry standards, evolving
distribution models, customer price sensitivity, and disruptive
product and manufacturing process innovations. In addition to
changes in regulations, the impact of health, sustainability, and
safety concerns could increase the costs incurred by our customers
to use our products and otherwise limit the use of these products,
which could lead to decreased demand for these products. Any of
these factors could create pressure on pricing and gross margins
and could adversely impact our business. As a result, our
competitors may be able to deliver greater innovation, respond more
quickly to new or emerging technologies and changes in market
demand, allocate more resources to the development, marketing and
sale of their products, successfully expand into emerging markets,
improve their cost structures, or price their products more
aggressively than us.
Our continued ability to enhance our existing product offerings, as
well as the successful development and commercialization of new
products and technologies, are drivers to our future strategy. The
development and commercialization of new products and technologies
requires significant investment in R&D, capital expenditures,
production and marketing. The sales and development cycle for our
products is subject to customary budgetary constraints, internal
acceptance procedures, competitive product assessments, scientific
and development resource allocations, regulatory limitations, and
other factors beyond our control. If we are not able to
successfully accommodate these factors to enable customer
development success, we will be unable to achieve sufficient sales
to reach profitability and compete effectively. There is no
assurance that we will be able to continue to identify, develop,
market or, in certain cases, secure regulatory approval for, new
products in a timely manner or at all, as may be required to
replace or enhance existing products. We cannot be certain that
costs incurred by investing in new products and technologies will
result in an increase in our revenues or profits. Our ability to
keep pace with our competitors and the success of any new products
and technologies is uncertain and could adversely affect our
business, financial condition and results of
operations.
The loss of one or more of our significant customers could
adversely affect our business, financial condition and results of
operations.
Our business depends on significant customers, many of whom have
been doing business with us for decades. The loss of one or several
significant customers may have an adverse effect on our business,
financial condition and results of operations. In 2021, our 10
largest customers accounted for approximately 40% of our total
sales across all product lines. Our largest customer is Shaw, one
of the world’s largest consumers of Nylon 6 resin and caprolactam.
We sell caprolactam and Nylon 6 resin to Shaw under a long-term
agreement. We typically sell to other customers under master
services agreements, with primarily one-year terms, or by purchase
orders. If our sales to any of our significant customers were to
decline, we may not be able to find other customers to purchase the
excess supply of our products. The loss of one or several of our
significant customers, or a significant reduction in purchase
volume by any of them, or significant unfavorable changes to
pricing or other terms in contracts with any of them, could have an
adverse effect on our business, financial condition and results of
operations. We are also subject to credit risk associated with
customer concentration. If one or more of our largest customers
were to become bankrupt or insolvent, or otherwise were unable to
pay for our products, we may incur significant write-offs of
accounts that may have an adverse effect on our business, financial
condition and results of operations.
The occurrence or threat of extraordinary events, including
terrorist attacks, may disrupt our operations and could adversely
affect our business, financial condition and results of
operations.
Due to concerns related to terrorism, we are subject to various
security laws including MTSA regulations. Our Frankford and
Hopewell facilities are regulated facilities under MTSA due to the
nature of our operations and the proximity of the facilities to
adjacent waterways. Federal, state, local and foreign governments
could implement new or impose more stringent regulations affecting
the security of our plants, terminals and warehouses or the
transportation and use of fertilizers or other chemicals. These
regulations could result in higher operating costs or limitations
on the sale of our products and could result in significant
unanticipated costs, lower sales and reduced profit margins. It is
possible that federal, state, local and foreign governments could
impose additional limitations on the use, sale or distribution of
chemicals we produce and sell, thereby limiting our ability to
manufacture or sell those products, or that illicit use of our
products could result in potential exposure for us. The occurrence
of extraordinary events, including future terrorist attacks and the
outbreak or escalation of hostilities, cannot be predicted, and
their occurrence can be expected to continue to negatively affect
the economy in general, and the markets for our products in
particular. The resulting damage from an attack on our assets could
include loss of life and property damage. In addition, available
insurance coverage may not be sufficient to cover all of the damage
incurred or, if available, may be prohibitively
expensive.
Hazards and compliance costs associated with chemical
manufacturing, storage and transportation could adversely affect
our business, financial condition and results of
operations.
There are hazards associated with chemical manufacturing and the
related storage and transportation of raw materials, products and
wastes. These hazards could lead to an interruption or suspension
of operations and could have an adverse effect on the
productivity
and profitability of a particular manufacturing facility, or on us
as a whole. While we endeavor to provide adequate protection for
the safe handling of these materials, issues could be created by
various events, including natural disasters, severe weather events,
acts of sabotage, human error, and performance by third parties,
and as a result, we could face potential hazards such as piping and
storage tank leaks and ruptures, mechanical failure, employee
exposure to hazardous substances and chemical spills and other
discharges or releases of toxic or hazardous substances or
gases.
These hazards may cause personal injury and loss of life, damage to
property and contamination of the environment, which could lead to
government fines, work stoppage injunctions, lawsuits by injured
persons, damage to our public reputation and brand and diminished
product acceptance. If such actions are determined to be adverse to
us or there is an associated economic impact to our business, we
may have inadequate insurance or cash flow to offset any associated
costs. Such outcomes could adversely affect our business, financial
condition and results of operations.
Our business, financial condition and results of operations could
be adversely affected by litigation and other commitments and
contingencies.
We face risks arising from various unasserted and asserted
litigation matters, including, but not limited to, product
liability and claims for third-party property damage or personal
injury stemming from alleged environmental or other torts or
otherwise. We have noted a nationwide trend in purported class
actions against chemical manufacturers generally seeking relief
such as medical monitoring, property damages, off-site remediation
and punitive damages arising from alleged environmental or other
torts without claiming present personal injuries. We also have
noted a trend in public and private nuisance suits being filed on
behalf of states, counties, cities and utilities alleging harm to
the general public.
Various factors or developments can lead to changes in current
estimates of liabilities such as a final adverse judgment,
significant settlements or changes in applicable law. An adverse
outcome or unfavorable development in any one or more of these
matters could be material to our financial results and could
adversely impact the value of any of our brands associated with any
such matters.
In the ordinary course of business, we may make certain
commitments, including representations, warranties and indemnities
relating to current and past operations, including those related to
divested businesses, and issue guarantees of third-party
obligations. Additionally, we may be required to indemnify
Honeywell for amounts related to liabilities allocated to, or
assumed by, us in connection with our spin-off. If we are required
to make any such payments, the payments could be significant and
could exceed the amounts we have accrued with respect thereto,
adversely affecting our business, financial condition and results
of operations.
Any acquisition, strategic relationship, joint venture or
investment could disrupt our business and harm our financial
condition. Our inability to successfully acquire and integrate
other businesses, assets, products or technologies or realize the
financial and strategic goals that were contemplated at the time of
any transaction could adversely affect our business, financial
condition and results of operations.
We actively evaluate acquisitions, strategic relationships, joint
ventures, collaborations, and strategic investments in businesses,
products or technologies that we believe could complement or expand
our business, broaden our technology and intellectual property or
otherwise offer growth or cost-saving opportunities. Any of these
transactions may be complex, time consuming and expensive, and may
present numerous challenges and risks. In 2021, we completed the
acquisition of certain assets of Commonwealth Industrial Services,
Inc., and in February 2022, we announced the signing of a
definitive agreement to acquire U.S. Amines, Ltd.
Lack of control over the actions of our business partners in any
strategic relationship, joint venture or collaboration, could
significantly delay the introduction of planned products or
otherwise make it difficult or impossible to realize the expected
benefits of such relationship. An investment in, or acquisition of,
complementary businesses, products or technologies in the future
could materially decrease the amount of our available cash or
require us to seek additional equity or debt financing. We may not
be successful in negotiating the terms of any potential
acquisition, conducting thorough due diligence, financing the
acquisition or effectively integrating the acquired business,
product or technology into our existing business and operations.
Our due diligence may fail to identify all of the problems,
liabilities or other shortcomings or challenges of an acquired
business, product or technology, including issues related to
intellectual property, product quality or product architecture,
regulatory compliance practices, revenue recognition or other
accounting practices or employee or customer issues. Additionally,
in connection with any acquisitions we complete, we may not achieve
the synergies or other benefits we expected to achieve, and we may
incur unanticipated expenses, write-downs, impairment charges or
unforeseen liabilities that could negatively affect our business,
financial condition and results of operations, have difficulty
incorporating the acquired businesses, disrupt relationships with
current and new employees, customers and vendors, incur significant
debt or have to delay or not proceed with announced transactions.
Further, contemplating or completing an acquisition and integrating
an acquired business, product or technology could divert management
and employee time and resources from other matters.
Failure to protect our intellectual property could adversely affect
our business, financial condition and results of
operations.
Intellectual property rights, including patents, trade secrets,
confidential information, trademarks, trade names and trade dress,
are important to our business. We will endeavor to protect our
intellectual property rights in key jurisdictions in which our
products are produced or used. However, we may be unable to obtain
protection for our intellectual property in such key jurisdictions.
Although we own and have applied for numerous patents and
trademarks, we may have to rely on judicial enforcement of our
patents and other proprietary rights. Our patents and other
intellectual property rights may be challenged, invalidated,
circumvented, and rendered unenforceable or otherwise compromised.
If we must take legal action to protect, defend or enforce our
intellectual property rights, any suits or proceedings could result
in significant costs and diversion of our resources and our
management’s attention, and we may not prevail in any such suits or
proceedings. A failure to protect, defend or enforce our
intellectual property could have an adverse
effect on our business, financial condition and results of
operations. Similarly, third parties may assert claims against us
and our customers and distributors alleging our products infringe
upon third-party intellectual property rights. Such claims could
result in significant costs and diversion of our resources and our
management’s attention and we may not prevail in any resulting
suits or proceedings.
We also rely materially upon unpatented proprietary technology,
know-how and other trade secrets to maintain our competitive
position. While we institute and maintain policies, internal
security measures, and agreements to protect our trade secrets and
other intellectual property, any failure to protect this
intellectual property could negatively affect our future
performance and growth.
We may be required to make significant cash contributions to our
defined benefit pension plan.
We sponsor a defined benefit pension plan under which certain
eligible AdvanSix employees who were employed by Honeywell prior to
the spin-off earn pension benefits as if they remained employed by
Honeywell. Significant changes in actual investment return on
pension assets, discount rates, retirement rates and other factors
could require unplanned cash pension contributions in future
periods. Changes in discount rates and actual asset returns
different from our anticipated asset returns can result in
significant non-cash actuarial gains or losses. With regard to cash
pension contributions, funding requirements for our pension plans
are largely dependent upon interest rates, actual investment
returns on pension assets and the impact of legislative or
regulatory changes related to pension funding obligations. Our
pension contributions may be material and could adversely impact
our financial condition, cash flow and results of operations. We
made pension contributions of approximately $17.5 million in 2021,
which satisfied our pension funding requirements for such period,
and we plan to make pension contributions in future periods
sufficient to satisfy funding requirements.
Some of our workforce is represented by labor unions and our
business could be harmed in the event of a prolonged work
stoppage.
Approximately 705 of our employees are covered under collective
bargaining agreements that expire between 2023 and 2025, which
represents approximately 51% of our employee-base as of
December 31, 2021. From time to time, we engage in
negotiations to renew collective bargaining agreements as those
contracts are scheduled to expire. While we generally have positive
relationships with our labor unions,
we cannot predict how stable our union relationships will be or
whether we will be able to successfully negotiate successor
agreements without impacting our financial condition. In addition,
the presence of unions may limit our flexibility in dealing with
our workforce. We may experience work stoppages, which could
negatively impact our ability to manufacture our products on a
timely basis and, ultimately, our business, financial condition and
results of operations.
We depend on the recruitment and retention of qualified personnel,
and our failure to attract and retain such personnel could
adversely affect our business, financial condition and results of
operations.
Due to the complex nature of our manufacturing business, our future
performance is highly dependent upon the continued services of our
key engineering personnel, scientists and our senior management
team, the development of additional management personnel and the
hiring of new qualified engineering, manufacturing, marketing,
sales and management personnel for our operations. Competition for
qualified personnel in our industry is intense, and we may not be
successful in attracting or retaining qualified personnel. The loss
of key employees, our inability to attract new, qualified employees
or adequately train employees, or any delay in hiring key
personnel, could negatively affect our business, financial
condition and results of operations.
Cybersecurity threats and incidents continue to increase in
frequency and sophistication. A successful cybersecurity attack
could disrupt our business operations, result in the loss of
critical and confidential information belonging to us, our
customers and other business partners, and adversely impact our
reputation, financial condition and results of
operations.
Global cybersecurity threats and incidents can range from
uncoordinated individual attempts to gain unauthorized access to
information technology (“IT”) systems to sophisticated and targeted
measures known as advanced persistent threats, directed at
AdvanSix, its plants and operations, its products, its customers
and/or its third-party service providers including cloud providers.
The techniques used to obtain unauthorized access to networks, or
to sabotage IT systems, change frequently and generally are not
recognized until launched against a target. We may be unable to
anticipate these techniques or to implement adequate preventative
measures. While we have experienced, and expect to continue to
experience, these types of threats and incidents, none of them to
date have been material to the Company. Our information technology
infrastructure, including cybersecurity controls, deploys
comprehensive measures to deter, prevent, detect, respond and
mitigate these threats including access controls, data encryption,
vulnerability assessments, continuous monitoring of our IT networks
and systems and maintenance of backup and protective systems. We
track cyber performance metrics and conduct training of our
employees on protective measures regarding information security,
data privacy, cyber-attacks and recognizing phishing attempts.
Despite these efforts, cybersecurity incidents, depending on their
nature and scope, could potentially result in the misappropriation,
destruction, corruption or unavailability of critical data and
confidential or proprietary information (our own or that of third
parties) and the disruption of our plant operations and business
generally or the disruption of the operations and businesses of our
vendors or customers. Additionally, we use third-party vendors that
may store sensitive data, including confidential information about
our employees, and these third parties are subject to their own
cybersecurity threats. While our standard vendor terms and
conditions include certain safeguards, including requiring the use
of appropriate security measures to prevent unauthorized use or
disclosure of our data, a breach at these third-party vendors may
occur. The potential consequences of a material cybersecurity
incident of our own systems or the systems of those with whom we do
business, include reputational consequences, safety risk, physical
damage to our assets, claims from and litigation with third
parties, fines levied by governmental authorities, diminution in
the value of our investment in research, development and
engineering, and increased cybersecurity protection and remediation
costs, which in turn could, individually or in the aggregate,
adversely affect our
competitiveness, plant operations, business, financial condition
and results of operations. We maintain cyber liability insurance,
but this insurance may not be sufficient to cover the losses that
may result from a cybersecurity incident.
Data privacy, information security and protection of confidential
information may require significant resources and present certain
risks.
We maintain, have access to and process certain confidential or
sensitive data, including proprietary business information,
personal data and other information, that may be subject to privacy
and security laws, regulations and/or customer-imposed controls.
Despite our efforts to protect such information and data, we may be
vulnerable to material security breaches, theft, misplaced or lost
data, or errors by employees or third-party providers that could
potentially cause such information and data to be compromised, or
lead to improper use of our systems or networks, unauthorized
access, use, disclosure, modification or destruction of
information, and operational disruptions. In addition, there are
different and potentially conflicting data privacy laws in effect
in the domestic and foreign jurisdictions in which we operate,
including the General and Data Protection Regulations implemented
in the European Union, and we must comply with all applicable laws
and standards. Noncompliance with these laws can result in
reputational damage, fines and penalties, and enforcement
proceedings and litigation, any of which may adversely affect our
business, reputation, financial condition and results of
operations.
Disruptions in transportation or significant changes in
transportation costs could adversely impact our business financial
condition and results of operations.
We rely heavily on third party transportation to deliver raw
materials to our facilities and ship products to our customers.
Transport operators are exposed to various risks, such as extreme
weather conditions, natural disasters, work stoppages, personnel
shortages, and operating hazards, as well as interstate and
international transportation requirements. If we experience
transportation problems, or if there are other significant changes
in the cost of these services, we may not be able to arrange
efficient alternatives and timely means to obtain raw materials or
ship products to our customers. We also seek to maintain
appropriate buffer inventory of intermediate chemicals necessary
for our manufacturing process, which are intended to mitigate the
extent of any delays or disruptions in supply chain logistics.
However, our failure to obtain raw materials, ship products or
maintain sufficient buffer inventory could materially and adversely
impact our business, financial condition and results of
operations.
Exposure to risks and events beyond our control could adversely
impact our business, financial condition and results of
operations.
We are exposed to risks from various events that are beyond our
control, which may have significant effects on our results of
operations. While we attempt to mitigate these risks through
appropriate loss prevention measures, insurance, business
contingency planning and other means, we may not be able to
anticipate all risks or to reasonably or cost-effectively manage
those risks that we do anticipate. We maintain property, cyber
liability, business interruption and casualty insurance but such
insurance may not cover all risks, loss, damages or expenses
associated with our business and is subject to limitations,
including deductibles and limits on the liabilities covered.
Consequently, our operations could be adversely affected by
circumstances or events in ways that are significant and/or long
lasting. The risks and uncertainties identified herein are not the
only risks that we have. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial
also may adversely affect us. If any known or unknown risks and
uncertainties develop into actual events, these developments could
have a material adverse effect on our business, financial condition
and results of operations.
Risks Relating to Our Indebtedness
We are subject to certain risks associated with our
indebtedness.
We are a borrower of funds under a credit facility. Our ability to
make payments on and to refinance our indebtedness, including the
debt incurred, as well as any future debt that we may incur, will
depend on our ability to generate cash in the future from
operations or financings. Our ability to generate cash is subject
to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. In
addition, the terms of our indebtedness include a number of
restrictive covenants that impose significant operating and
financial restrictions on us and our subsidiaries and limit our
ability to engage in actions that may be in our long-term best
interests. These may restrict our and our subsidiaries’ ability to
take some or all of the following actions:
• Incur or guarantee additional indebtedness
or sell disqualified or preferred stock;
• Pay dividends on, make distributions in
respect of, repurchase or redeem capital stock;
• Make investments or
acquisitions;
• Sell, transfer or otherwise dispose of
certain assets;
• Create liens;
• Enter into sale/leaseback
transactions;
• Enter into agreements restricting the
ability to pay dividends or make other intercompany
transfers;
• Consolidate, merge, sell or otherwise
dispose of all or substantially all of our or our subsidiaries’
assets;
• Enter into transactions with
affiliates;
• Prepay, repurchase or redeem certain kinds
of indebtedness;
• Issue or sell stock of our subsidiaries;
and/or
• Significantly change the nature of our
business.
These restrictions may impact our current and future operations,
how we conduct our business and pursue our strategy, as well as our
ability to incur debt that we may need to fund initiatives
associated with our strategy, ongoing operations, competitive
industry dynamics and new business opportunities. A breach of any
of these covenants, if applicable, could result in an event of
default under the terms of this indebtedness. If an event of
default occurs, the lenders would have the right to accelerate the
repayment of such debt and the event of default or acceleration may
result in the acceleration of the repayment of any other debt to
which a cross-default or cross-acceleration provision applies.
Substantially all domestic tangible and intangible assets of the
Company and its subsidiaries are pledged as collateral to secure
the obligation under our credit facility and, in the event we were
unable to repay any amount of this indebtedness when due and
payable, the lenders could proceed against the pledged collateral.
In the event our creditors accelerate the repayment of our
borrowings, we may not have sufficient assets to repay such
indebtedness, which could adversely affect our business, financial
condition and results of operations.
Furthermore, our credit facility currently uses LIBOR as a
benchmark for establishing the interest rate. Certain USD LIBOR
rates ceased to be published as of December 31, 2021 while the
remaining USD LIBOR rates will cease to be published on June 30,
2023, as announced by LIBOR's regulators and administrators. In
response to the phase-out of LIBOR, regulators have suggested
reforming or replacing LIBOR with other benchmark rates. The
consequences of these developments with respect to LIBOR cannot be
entirely predicted but could cause volatility or disruption in the
overall financial market, result in an increase in the cost of our
variable rate debt or adversely affect our cost of funding, any of
which could adversely affect our financial condition and results of
operations. Additionally, while our credit facility contains a
provision providing for an alternative rate calculation in the
event LIBOR is unavailable, this provision may not adequately
address the actual changes to LIBOR or successor
rates.
Risks Relating to Legal and Regulatory Matters
Extensive environmental, health and safety laws and regulations
applicable to our operations, including initiatives related to
discharges into the air and water, hazardous waste, sustainability,
global warming and climate change, may result in substantial costs
and unanticipated loss or liability, which could adversely affect
our business, financial condition and results of
operations.
Various federal, state, local and foreign governments regulate the
discharge of materials into the environment and can impose
substantial fines and criminal sanctions for violations and require
installation of costly equipment or operational changes to limit
emissions and/or decrease the likelihood of accidental hazardous
substance releases. If we are found to be in violation of these
laws or regulations, we may incur substantial costs, including
fines, damages, criminal or civil sanctions and remediation costs,
or experience interruptions in our operations. See “Item 1.
Business - Regulation and Environmental Matters” for more
information on the environmental laws and regulations to which we
are subject.
Primarily because of past operations at our current manufacturing
locations and other locations used in our operations as currently
conducted, we may be subject to potentially material liabilities
related to the remediation of environmental hazards and to claims
of personal injuries or property damages that may have been or may
be caused by hazardous substance releases and exposures or other
hazardous conditions. Lawsuits, claims and costs involving these
matters may arise in the future. In addition, changes in laws,
regulations and enforcement of policies, the discovery of
previously unknown contamination or other information related to
individual sites, the establishment of stricter state or federal
toxicity standards with respect to certain contaminants or the
imposition of new clean-up requirements or remedial techniques
could require us to incur additional costs in the future that would
have a negative effect on our business, financial condition and
results of operations.
Additionally, there are substantial uncertainties as to the nature,
stringency and timing of any future regulations or changes in
regulations, including discharges into the air and water, handling
and disposal of hazardous wastes, remediation of soil and
groundwater, and greenhouse gas (“GHG”) and water nutrient
regulations. Due to the concerns about risks associated with air,
water, global warming and climate change, more stringent
regulations may require us to incur additional capital expenditures
or make changes to our operating activities that would increase our
operating costs, reduce our efficiency, limit our output, increase
our costs for or limit the availability of energy, raw materials or
transportation or otherwise adversely affect our business,
financial condition and results of operations. If enacted, more
stringent GHG limitations are likely to have a significant impact
on us because our production facilities emit GHGs such as carbon
dioxide and nitrous oxide and because natural gas, a fossil fuel,
is a primary raw material used in our production process. To the
extent that GHG or other restrictions are not imposed in countries
where our competitors operate or are less stringent than
regulations that may be imposed in the United States, our
competitors may have cost or other competitive advantages over us.
In addition, increasing regulation of fuel emissions could
substantially increase the distribution and supply chain costs
associated with our products. Consequently, legislative and
regulatory programs to reduce emissions of GHG could have an
adverse effect on our business, financial condition and results of
operations.
Further, there has been public discussion that climate change may
be associated with more extreme weather conditions, such as
increased frequency and severity of storms, droughts, and floods.
Extreme weather conditions have and in the future may interfere
with our operating activities, disrupt our maritime logistics and
intraplant supply chain, increase our costs of operations or reduce
the efficiency of our operations, and potentially increase costs
for insurance coverage in the aftermath of such conditions.
Long-term, higher average global temperatures could result in
changes in natural resources, growing seasons, precipitation
patterns, weather patterns, species distributions, water
availability, sea levels, and biodiversity. These impacts could
cause changes in supplies of raw materials used to maintain our
production capacity and could lead to possible increased sourcing
costs in the future. We continually assess our manufacturing plants
for risks and opportunities to increase our preparedness for
climate change. We are continuing to evaluate sea level rise and
storm surge at our plants to understand potential impacts and
response actions that may need to be taken. Significant physical
effects of climate change could also have an indirect effect on our
financing and operations by disrupting the transportation or
process-related services provided by companies or suppliers with
whom we have a business relationship.
There is also a risk that one or more of our key raw materials or
one or more of our products may be found to have, or be
characterized as having, a toxicological or health-related impact
on the environment or on our customers or employees, which could
potentially result in us incurring liability in connection with
such characterization and the associated effects of any
toxicological or health-related impact. If such a discovery or
characterization occurs, we may incur increased costs to comply
with new regulatory requirements, or the relevant materials or
products, including products of our customers that incorporate our
materials or products, may be recalled or banned. Changes in laws
and regulations, or their interpretations, and our customers’
perception of such changes or interpretations may also affect the
marketability of certain of our products. Additionally, sales of
acetone, which is a List II Chemical under TSCA, are regulated by
the Drug Enforcement Act. This classification subjects us to
periodic audits by the Drug Enforcement Administration and ongoing
restrictions on our acetone sales activities.
Heightened public focus on climate change, sustainability, and
environmental issues has also led to increased government
regulation and may cause certain of our key stakeholders to require
that we meet certain standards, including customers or suppliers
who may impose environmental standards on us as a part of doing
business with them, all of which could increase the costs incurred
by our customers to use our products and otherwise limit the use of
these products, which could lead to decreased demand for these
products.
Our operations are dependent on numerous required permits and
approvals.
We hold numerous environmental and other governmental permits and
approvals authorizing operations at each of our facilities. In
addition, any expansion or major modification of our operations is
dependent upon securing the necessary environmental or other
permits or approvals. A decision by a government agency to deny or
delay issuing a new or renewed material permit or approval, or to
revoke or substantially modify an existing material permit or
approval, could have an adverse effect on our ability to continue
operations at the affected facility, or facilities, and on our
business, financial condition and results of
operations.
We are subject to risks related to adverse trade policies inherent
in international sales and associated regulations in certain
important markets for our products.
We have exposure to risks inherent in international sales,
including difficulties and costs associated with complying with a
wide variety of complex laws, treaties and regulations including
customs and international trade laws; unexpected changes in
political or regulatory environments; earnings and cash flows that
may be subject to tax withholding requirements or the imposition of
tariffs, exchange controls or other restrictions; political and
economic instability; import and export restrictions, tariffs, and
other trade barriers or retaliatory actions; fluctuations in
foreign currency exchange rates; government takeover or
nationalization of business; and government mandated price
controls. These considerations limit the countries in which we can
do business, the persons or entities with whom we can do business,
the products which we can buy or sell, and the terms under which we
can do business. As a U.S.-based producer, we are impacted by
anti-dumping investigations which have had, and may continue to
impose, significant anti-dumping duties on our products. Such
duties place us at a significant competitive disadvantage in the
applicable markets. In each case, we diligently evaluate our
commercial and legal options to defend these investigations and
their subsequent sunset reviews and take steps we feel are prudent
to protect our interests, including our filing anti-dumping
petitions covering imports of acetone with the International Trade
Commission in February 2019 (see "Anti-Dumping Duty Petitions"
under Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”). Historically, we have
successfully mitigated these risks through geographical mix
management so that the imposition of duties does not materially
affect our business results. However, such duties could have an
adverse effect on the sales of key product lines and affect our
business performance in the future.
There can be no assurance that, in the future, any governmental or
international trade body will not institute trade policies or
remedies that are adverse to exports from the United States, and
given the change in the U.S. presidential administration, we may
face additional uncertainty with regard to U.S. government trade
policy. In recent years, the U.S. imposed tariffs on certain U.S.
imports, and China and other countries responded with retaliatory
tariffs on certain U.S. exports. Any significant changes in
international trade policies, practices or trade remedies,
especially those instituted in our target markets or markets where
our major customers are located, such as the United
States-Mexico-Canada Agreement which became effective in July 2020,
could potentially increase the price of our products relative to
our competitors or decrease our customers’ demand for our products,
which in turn may adversely affect our business, financial
condition and results of operations.
Failure to maintain effective internal controls could adversely
impact our ability to meet our reporting requirements.
We are required, under the Sarbanes-Oxley Act of 2002, to maintain
effective internal control over financial reporting and disclosure
controls and procedures. This includes performing system and
process evaluations and testing of our internal control over
financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness of
our internal control over financial reporting, as required by the
Sarbanes-Oxley Act, with auditor attestation of the effectiveness
of our internal controls. If we are not able to comply with these
requirements, or if we or our independent registered public
accounting firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses, the
market price of our common shares could decline and we could be
subject to penalties or investigations by the NYSE, the SEC or
other regulatory authorities, which would require additional
financial and management resources.
Effective internal controls are necessary for us to provide
reasonable assurance with respect to our financial reports and to
effectively prevent fraud. Internal controls over financial
reporting may not prevent or detect misstatements because of
inherent limitations, including the possibility of human error, the
circumvention or overriding of controls, or fraud. Therefore, even
effective internal controls can provide only reasonable assurance
with respect to the preparation and fair presentation of financial
statements. If we fail
to maintain the effectiveness of our internal controls, including
any failure to implement required new or improved controls, or if
we experience difficulties in their implementation, our business
and operating results could be harmed, we could fail to meet our
reporting obligations, and there could be a material adverse effect
on our stock price.
The ongoing process of implementing internal controls requires
significant attention from management and we cannot be certain that
these measures will ensure that we implement and maintain adequate
controls over our financial processes and reporting in the future.
Difficulties encountered in their implementation could harm our
results of operations or cause us to fail to meet our reporting
obligations. If we fail to obtain the quality of services necessary
to operate effectively or incur greater costs in obtaining these
services, our profitability, financial condition and results of
operations may be materially and adversely affected.
Our spin-off could result in significant tax
liability.
Completion of our spin-off was conditioned on Honeywell’s receipt
of a written opinion of Cravath, Swaine & Moore LLP to the
effect that the October 1, 2016 distribution by Honeywell of all of
the then outstanding shares of AdvanSix common stock should qualify
for non-recognition of gain and loss under Section 355 of the Code.
The opinion of counsel did not address any U.S. state, local or
foreign tax consequences of the spin-off. The opinion was based on
numerous assumptions and on certain representations as to factual
matters from, and certain covenants by Honeywell and us. The
opinion cannot be relied on if any of the assumptions,
representations or covenants is incorrect, incomplete or inaccurate
or is violated in any material respect. The opinion of counsel is
not binding on the Internal Revenue Service (“IRS”) or the courts,
and there can be no assurance that the IRS or a court will not take
a contrary position. Honeywell did not request a ruling from the
IRS regarding the U.S. Federal income tax consequences of the
spin-off.
If the distribution were determined not to qualify for
non-recognition of gain and loss under Section 355(e) of the Code,
our U.S. stockholders could be subject to tax. In this case, each
U.S. stockholder who received our common stock in the distribution
would generally be treated as having received a distribution in an
amount equal to the fair market value of our common stock received,
which would generally result in (1) a taxable dividend to the U.S.
stockholder to the extent of that U.S. stockholder’s pro rata share
of Honeywell’s current and accumulated earnings and profits; (2) a
reduction in the U.S. stockholder’s basis (but not below zero) in
its Honeywell common stock to the extent the amount received
exceeds the stockholder’s share of Honeywell’s earnings and
profits; and (3) a taxable gain from the exchange of Honeywell
common stock to the extent the amount received exceeds the sum of
the U.S. stockholder’s share of Honeywell’s earnings and profits
and the U.S. stockholder’s basis in its Honeywell common stock. A
discussion of the material U.S. federal income tax consequences of
the spin-off can be found in our Form 10.
If, due to any of our representations being untrue or our covenants
being breached, it were determined that the distribution did not
qualify for non-recognition of gain and loss under Section 355 of
the Code, we could be required to indemnify Honeywell for the
resulting taxes and related expenses. Any such indemnification
obligation could adversely affect our business, financial condition
and results of operations.
Risks Relating to Our Common Stock and the Securities
Market
Our stock price may fluctuate significantly and investments in our
stock could lose value.
The market price of our common stock may fluctuate widely,
depending on many factors, some of which may be beyond our control,
including:
•Actual
or anticipated fluctuations in our results of operations due to
factors related to our business;
•Success
or failure of our business strategies;
•Competition
and industry capacity;
•Changes
in interest rates and other factors that affect earnings and cash
flow;
•Our
level of indebtedness, our ability to make payments on or service
our indebtedness and our ability to obtain financing as
needed;
•Our
ability to pay dividends or repurchase our common
stock;
•Our
ability to retain and recruit qualified personnel;
•Our
quarterly or annual earnings, or those of other companies in our
industry;
•Announcements
by us or our competitors of significant acquisitions or
dispositions;
•Changes
in accounting standards, policies, guidance, interpretations or
principles;
•Changes
in earnings estimates by securities analysts or our ability to meet
those estimates;
•The
operating and stock price performance of other comparable
companies;
•Investor
perception of our company and our industry;
•Overall
market fluctuations and volatility unrelated to our operating
performance;
•Results
from any material litigation or government
investigation;
•Changes
in laws and regulations (including tax laws and regulations)
affecting our business;
•Changes
in capital gains taxes and taxes on dividends affecting
stockholders; and
•General
economic conditions and other external factors.
General or industry-specific market conditions, stock market
performance or macroeconomic and geopolitical factors unrelated to
our performance may also affect our stock price. For these reasons,
investors should not rely on recent or historical trends to predict
future stock prices, financial condition, results of operations or
cash flows. Volatility in our stock price could expose us to
litigation, which could result in substantial costs and the
diversion of management time and resources. In addition,
repurchases pursuant to our share repurchase program could affect
our stock price and increase its volatility. The existence of a
share repurchase program could also cause our stock price to be
higher than it would be in the absence of such a program and could
potentially reduce the market liquidity for our stock. There can be
no assurance that any share repurchases will enhance stockholder
value because the market price of our common stock may decline
below the levels at which we repurchased shares of common stock.
Although our share repurchase program is intended to enhance
long-term stockholder value, short-term stock price fluctuations
could reduce the program’s effectiveness. Furthermore, the program
does not obligate the Company to repurchase any dollar amount or
number of shares of common stock, and may be suspended or
discontinued at any time and any suspension or discontinuation
could cause the market price of our stock to decline.
We cannot guarantee the timing, declaration, amount or payment of
any dividends, and the terms of our indebtedness could limit our
ability to pay dividends on our common stock.
The timing, declaration, amount and payment of dividends to
stockholders, if any, will fall within the sole discretion of our
Board. Among the items considered when establishing a dividend
policy will be the capital intensive nature of our business and
opportunities to retain future earnings for use in the operation of
our business and to fund future growth. Additionally, the terms of
our indebtedness limit our ability to pay cash dividends. There can
be no assurance that we will continue to pay a dividend in the
future.
Stockholder percentage ownership in AdvanSix may be diluted in the
future.
A stockholder’s percentage ownership in AdvanSix may be diluted in
the future because of common stock-based equity awards that we have
granted and expect to grant in the future to our directors,
officers and other employees. In addition, we may issue equity to
raise capital to finance our ongoing operations or as all or part
of the consideration paid for acquisitions and strategic
investments that we may make in the future.
Certain provisions in our Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws and Delaware law may
discourage takeovers.
Several provisions of our Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and Delaware law may
discourage, delay or prevent a merger or acquisition that is
opposed by our Board. These include, among others, provisions that
do not permit our stockholders to act by written consent, establish
advance notice requirements for stockholder nominations and
proposals, limit the persons who may call special meetings of
stockholders, and limit our ability to enter into business
combination transactions with certain stockholders. These and other
provisions of our Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and Delaware law may
discourage, delay or prevent certain types of transactions
involving an actual or a threatened acquisition or change in
control of AdvanSix, including unsolicited takeover attempts, even
though the transaction may offer our stockholders the opportunity
to sell their shares of our common stock at a price above the
prevailing market price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are located in leased space at 300
Kimball Drive, Suite 101, Parsippany, NJ 07054. We also own three
production facilities located in Frankford, Pennsylvania,
Chesterfield, Virginia and Hopewell, Virginia. In addition, upon
spin-off, we entered into site sharing and services agreements with
Honeywell under which Honeywell leased space to us at Honeywell’s
facility in Pottsville, Pennsylvania and its R&D center in
Colonial Heights, Virginia. Our Pottsville and Colonial Heights
site sharing and services agreements were terminated in late 2019
and our former Colonial Heights R&D facility relocated to our
AdvanSix site in Chesterfield in early 2020, enabling an improved
configuration of our labs to drive productivity, increased
connectivity with our resin manufacturing and more effective
collaboration with customers.
We consider the manufacturing facilities and technology centers and
the other properties that we own or lease to be in good condition
and generally suitable for the purposes for which they are used.
Our manufacturing facilities are maintained through ongoing capital
investments, regular maintenance and equipment upgrades. We believe
our facilities are adequate for our current
operations.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims
arising out of the ordinary course of our business operations. We
are not a party to, and, to our knowledge, there are no pending
claims or actions against us, the ultimate disposition of which
could be expected to have a material adverse effect on our
consolidated financial position, results of operations or operating
cash flows.
The United States Environmental Protection Agency (“EPA”) notified
the Company in December 2016 that alleged violations, involving the
enhanced leak detection and repair program and emission testing
requirements, at the Company’s manufacturing facility in Hopewell,
Virginia, in each case that were self-reported by the Company, may
potentially subject the Company to stipulated penalties under the
2013 consent decree among the Company, the U.S. and the
Commonwealth of Virginia. The Company has discussed this matter
with the EPA and negotiations to resolve it are ongoing. Although
the outcome of the matter cannot be predicted with certainty, we do
not believe that it will have a material adverse effect on our
consolidated financial position, results of operations or operating
cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the
symbol “ASIX”. On February 4, 2022, there were 18,830 holders
of record of our common stock and the closing price of our common
stock on the New York Stock Exchange was $40.55 per
share.
As of February 4, 2022, 28,141,203 shares of our common stock
and 0 shares of our preferred stock were outstanding.
On May 4, 2018, the Company announced that the Board of Directors
(the "Board") authorized a share repurchase program of up to $75
million of the Company’s common stock. On February 22, 2019, the
Company announced that the Board authorized a share repurchase
program of up to an additional $75 million of the Company's common
stock, which was in addition to the remaining capacity available
under the May 2018 share repurchase program. Repurchases may be
made, from time to time, on the open market, including through the
use of trading plans intended to qualify under Rule 10b5-1 of the
Exchange Act. The size and timing of these repurchases will depend
on pricing, market and economic conditions, legal and contractual
requirements and other factors. The share repurchase program has no
expiration date and may be modified, suspended or discontinued at
any time.
The below table sets forth the repurchases of Company common stock,
by month, for the quarter ended December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased
(1)
|
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced
Plan |
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under
the Plan |
|
October 2021 |
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
59,581,679 |
|
|
November 2021
(1)
|
|
1,274 |
|
|
49.14 |
|
|
— |
|
|
59,581,679 |
|
|
December 2021 |
|
— |
|
|
— |
|
|
— |
|
|
$ |
59,581,679 |
|
|
Total |
|
1,274 |
|
|
$ |
49.14 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Total number of shares purchased includes 1,274 shares
withheld to cover tax withholding obligations in connection with
the vesting of equity awards.
|
As of December 31, 2021, the Company had repurchased a total
of 3,615,476 shares of common stock, including 525,714 shares
withheld to cover tax withholding obligations in connection with
the vesting of equity awards, for an aggregate of $102.4 million at
a weighted average market price of $28.31 per share.
During the period January 1, 2022 through February 4, 2022, no
additional shares were repurchased under the currently authorized
repurchase program.
Dividends
As announced on February 18, 2022, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on March 15, 2022 to stockholders of record as of the close
of business on March 1, 2022.
As announced on September 28, 2021, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on November 23, 2021 to stockholders of record as of the
close of business on November 9, 2021.
We generally expect to declare and pay dividends on a quarterly
basis; however, the timing, declaration, amount and payment of
future dividends to stockholders, if any, will depend on our
financial condition, earnings, capital requirements and debt
service obligations and fall within the discretion of our Board.
Holders of shares of our common stock will be entitled to receive
dividends when, and if, declared by our Board at its discretion out
of funds legally available for that purpose, subject to the terms
of our indebtedness, the preferential rights of any preferred stock
that may be outstanding, legal requirements, regulatory
constraints, industry practices and other factors that our Board
deems relevant. Our credit agreement contains customary covenants
limiting the ability of the Company and its subsidiaries to, among
other things, pay cash dividends. There can be no assurance that
payment of a dividend will occur in the future.
The Company paid dividends of approximately $3.5 million for the
year ended December 31, 2021, with no dividends declared
during 2020 and 2019.
Performance Graph
The following graph compares the cumulative total stockholder
return on the Company’s common stock to the total returns on the
Standard & Poor’s ("S&P") Small Cap 600 Stock Index and the
S&P Small Cap 600 Materials Index. The changes for the periods
shown in the graph assume that $100 had been invested in AdvanSix
stock and each index on December 31, 2016, and that all dividends,
if any, were reinvested. The share price performance in the graph
is not necessarily indicative of future price
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
December 31, 2017 |
December 31, 2018 |
December 31, 2019 |
December 31, 2020 |
December 31, 2021 |
|
AdvanSix Inc.
|
100 |
190 |
110 |
90 |
90 |
214 |
|
S&P Small Cap 600
|
100 |
113 |
104 |
127 |
142 |
180 |
|
S&P Small Cap 600 Materials
|
100 |
110 |
85 |
103 |
126 |
150 |
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(Dollars in thousands, except per share data or unless otherwise
noted)
The following section, referred to as the "MD&A" presents
management's discussion and analysis of the Company's financial
condition and results of operations and should be read in
conjunction with the Consolidated Financial Statements and the
notes thereto contained in this Form 10-K. This section of this
Form 10-K generally discusses our financial condition and results
of operations as of and for the years ended December 31, 2021
and 2020 and year-to-year comparisons between 2021 and 2020.
Discussions of our financial condition and results of operations as
of and for the year ended December 31, 2019 and year-to-year
comparisons between 2020 and 2019 that are not included in this
Form 10-K can be found under the heading “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in
Part II, Item 7 of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2020, filed with the SEC on
February 19, 2021.
Business Overview
We produce and sell caprolactam as a commodity product and produce
and sell our Nylon 6 resin as both a commoditized and
differentiated resin product. Our results of operations are
primarily driven by production volume and the spread between the
sales prices of our products and the costs of the underlying raw
materials built into market-based and value-based pricing models.
The global prices for nylon resin typically track a spread over the
price of caprolactam, which in turn tracks as a spread over benzene
because the key feedstock materials for caprolactam, phenol or
cyclohexane, are derived from benzene. This price spread has
historically experienced cyclicality as a result of global changes
in supply and demand. Generally, Nylon 6 resin prices track the
cyclicality of caprolactam prices, although prices set above the
spread are achievable when nylon resin manufacturers, like
AdvanSix, formulate and produce differentiated nylon resin
products. Our differentiated Nylon 6 products are typically valued
at a higher level than commodity resin products.
We believe that Nylon 6 end-market growth will continue to
generally track global GDP over the long-term. Applications such as
engineered plastics and packaging have potential to grow at faster
rates given certain macrotrends. Additionally, we continue to
execute against our strategic focus on developing and
commercializing select higher-value, differentiated Nylon 6
products, such as our wire and cable, Post-Industrial Recycled
resins and films and co-polymer offerings, in current and new
customer applications.
We also manufacture, market and sell a number of chemical
intermediate products that are derived from the chemical processes
within our integrated supply chain. Most significant is acetone,
which is used by our customers in the production of adhesives,
paints, coatings and solvents. Prices for acetone are influenced by
its own supply and demand dynamics but can also be influenced by
the underlying move in propylene input costs. We continue to invest
in and grow our differentiated product offerings in high-purity
applications and high-value intermediates including our
oximes-based EZ-Blox® anti-skinning agent used in paints and
Nadone® cyclohexanone, which is a solvent used in various
high-value applications.
Our ammonium sulfate is used by customers as a fertilizer
containing nitrogen and sulfur, two key crop nutrients. Global
prices for ammonium sulfate fertilizer are influenced by several
factors including the price of urea, which is the most widely used
source of nitrogen-based fertilizer in the world. Other global
factors driving ammonium sulfate fertilizer demand are general
agriculture trends, including the price of crops. Our ammonium
sulfate product is positioned with the added value proposition of
sulfur nutrition to increase yields of key crops. In addition, due
to its nutrient density, the typical ammonium sulfate product
delivers pound for pound the most readily available sulfur and
nitrogen to crops than other fertilizers.
We seek to run our production facilities on a nearly continuous
basis for maximum efficiency as several of our intermediate
products are key feedstock materials for other products in our
integrated manufacturing chain. While our integration, scale and
range of product offerings make us one of the most efficient
manufacturers in our industry, these attributes also expose us to
increased risk associated with material disruptions at any one of
our production facilities or logistics operations which could
impact the overall manufacturing supply chain. Further, although we
believe that our sources of supply for our raw materials, including
cumene, natural gas and sulfur, are generally robust, it is
difficult to predict the impact that shortages, increased costs and
related supply chain logistics considerations may have in the
future. In order to mitigate the risk of unplanned interruptions,
we schedule several planned plant turnarounds each year to conduct
routine and major maintenance across our facilities. We also
utilize maintenance excellence and mechanical integrity programs,
targeted buffer inventory of intermediate chemicals necessary for
our manufacturing process, and co-producer swap arrangements, which
are intended to mitigate the extent of any production losses as a
result of planned and unplanned downtime; however, the mitigation
of all or part of any such production impact cannot be assured. For
a description of our principal risks, see “Risk Factors" in Item
1A.
Recent Developments
COVID-19
In March 2020, the World Health Organization categorized the novel
coronavirus (COVID-19) as a global pandemic with numerous countries
around the world declaring national emergencies, including the
United States. Since early 2020, COVID-19 has continued to spread,
with confirmed cases worldwide, and with certain jurisdictions
experiencing resurgences, including as a result of variant strains.
The spread resulted in authorities implementing numerous measures
to contain the virus, such as travel bans and restrictions,
quarantines, shelter-in-place orders and business shutdowns. The
pandemic and these containment measures have had a substantial
impact on businesses around the world and on global, regional and
national economies, including disruptions to supply chains,
volatility in demand, production and sales across most industries,
volatility within global financial markets, inflationary pressures
in commodity pricing and an increasingly dynamic workforce
environment. The continuously evolving nature of this pandemic and
the pace and shape of a full recovery may continue to have an
impact on the United States and global economies.
As previously disclosed, the Company experienced a material impact
on its second quarter 2020 results of operations associated with
lower demand, particularly in nylon, caprolactam and phenol, and a
decrease in overall sales volume related to global markets and the
economic impact of COVID-19. Starting in the second half of 2020,
and through the end of 2021, demand improved to
pre-COVID-19
levels with states, regions and countries in various phases of
re-opening and continued administration of vaccines for COVID-19.
The Company will continue to monitor developments and execute our
operational and safety mitigation plans as previously
disclosed.
As the situation surrounding COVID-19 remains fluid and
unpredictable, the Company cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on the
Company’s results of operations, financial position, and
liquidity.
Dividends
As announced on February 18, 2022, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on March 15, 2022 to stockholders of record as of the close
of business on March 1, 2022.
As announced on September 28, 2021, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on November 23, 2021 to stockholders of record as of the
close of business on November 9, 2021.
Acquisitions
On February 18, 2022, the Company announced the signing of a
definitive agreement to acquire U.S. Amines, Ltd., a leading North
American producer of alkyl and specialty amines serving high-value
end markets such as agrochemicals and pharmaceuticals, for an
estimated net purchase price of approximately $100 million.
The transaction is expected to close in the first quarter of 2022,
subject to customary closing conditions.
In January 2021, the Company acquired certain assets associated
with ammonium sulfate packaging, warehousing and logistics services
in Virginia from Commonwealth Industrial Services, Inc. for
approximately $9.5 million. This acquisition enables the
Company to expand its product offerings by directly supplying
packaged ammonium sulfate to customers, primarily in North and
South America. It diversifies and optimizes our product offerings
to include spray-grade adjuvant to support crop protection and
products for industrial use.
Credit Agreement
On October 27, 2021, the Company completed a refinancing of
its existing senior secured revolving credit facility under that
certain Credit Agreement, dated as of September 30, 2016,
among the Company, the guarantors, the lenders party thereto and
Bank of America, N.A., as administrative agent (as amended by
Amendment No. 1 on February 21, 2018 and Amendment No. 2 on
February 19, 2020), by entering into a new Credit Agreement
(the “Credit Agreement”), among the Company, the lenders party
thereto, the swing line lenders party thereto, the letter of credit
issuers party thereto and Truist Bank, as administrative agent,
which provides for a new senior secured revolving credit facility
in an aggregate principal amount of $500 million (the “Revolving
Credit Facility”). For a discussion of the Credit Agreement and
Revolving Credit Facility, please refer to "Note 9. Long-term Debt
and Credit Agreement."
Anti-Dumping Duty Petitions
Acetone
On February 19, 2019, the Company announced that it filed
anti-dumping duty petitions covering imports of acetone with the
International Trade Commission (“ITC”) and U.S. Department of
Commerce ("Commerce"). The petitions allege that dumped acetone
imports into the United States from Belgium, Saudi Arabia,
Singapore, South Africa, South Korea, and Spain have caused
material injury to the domestic industry. On April 4, 2019, the ITC
voted to continue the anti-dumping duty investigations concerning
imports of acetone from all such nations other than Saudi Arabia.
During the third quarter of 2019, Commerce announced its
preliminary affirmative dumping determination regarding imports
from Singapore, Spain, Belgium, South Africa and South Korea. On
October 21, 2019, Commerce published its final affirmative
determination of dumping regarding imports from Singapore and
Spain, and on December 10, 2019, the ITC issued its final
determination of material injury to the industry by reason of
imports from Singapore and Spain. Effective December 20, 2019,
Commerce imposed anti-dumping orders and applicable duties on
imports of acetone from Singapore and Spain for a five-year period.
On February 13, 2020, Commerce published its final affirmative
determination of dumping regarding imports from Belgium, South
Africa and South Korea and on March 17, 2020, the ITC issued its
final determination of material injury to the industry by reason of
imports from Belgium, South Africa and South Korea. Effective March
31, 2020, Commerce imposed anti-dumping orders and applicable
duties on imports of acetone from Belgium, South Africa and South
Korea for a five-year period. The anti-dumping orders are subject
to annual administrative review, if requested, which may change the
level of duties applicable to imports in future periods. On May 26,
2020, LG Chem, Ltd., and LG Chem America, Inc. filed a motion with
the U.S. Court of International Trade contesting the final
determination made by Commerce concerning imports from South Korea,
and on June 19, 2020, the Company filed a motion to intervene. The
anti-dumping orders applicable to imports from all other sources
were not appealed. On August 13, 2021, the U.S. Court of
International Trade affirmed its final determination and LG Chem
did not file any further appeal.
Ammonium Sulfate
In January 2017, Commerce published its final affirmative
determination in the anti-dumping duty investigation of imports of
ammonium sulfate from the People's Republic of China ("PRC") and in
March 2017, the ITC issued its final determination of material
injury by reason of imports from the PRC. Effective March 9, 2017,
Commerce imposed anti-dumping and countervailing duty orders and
applicable duties on imports of ammonium sulfate from the PRC for a
five-year period. The anti-dumping and countervailing duty orders
are subject to annual administrative review, if requested, which
may change the level of duties applicable to imports in future
periods. In February 2022, Commerce and the ITC initiated five-year
reviews of the anti-dumping and countervailing duty orders to
determine whether to extend the orders for another five years.
Determinations are expected in the fourth quarter of
2022.
Philadelphia Energy Solutions’ Shut Down
The Company has assessed the business impact of the fire that shut
down Philadelphia Energy Solutions’ (“PES”) refinery in
Philadelphia, Pennsylvania. PES was one of multiple suppliers to
the Company of cumene, a feedstock material used to produce phenol,
acetone and other chemical intermediates. As of year-end 2021, the
Company has incurred an approximately $35 million unfavorable
impact to pre-tax income since the refinery shut down and, during
2020, submitted a business interruption insurance claim, while
realigning its supply chain to ensure the continuity of its cumene
supply. While the Company has received $3.9 million of insurance
proceeds through December 31, 2021, it continues to pursue the
claim, which is ongoing.
Consolidated Results of Operations for the Years Ended December 31,
2021, 2020 and 2019
(Dollars in thousands)
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Sales |
$ |
1,684,625 |
|
|
$ |
1,157,917 |
|
|
$ |
1,297,393 |
|
|
% change compared with prior period |
45.5 |
% |
|
(10.8) |
% |
|
(14.4) |
% |
The change in sales is attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 versus 2020
|
|
2020 versus 2019
|
|
Volume |
7.4 |
% |
|
0.6 |
% |
|
Price |
38.1 |
% |
|
(11.4) |
% |
|
|
45.5 |
% |
|
(10.8) |
% |
2021 compared with 2020
Sales increased in 2021 compared to 2020 by $526.7 million
(approximately 45%) due primarily to (i) favorable market-based
pricing (approximately 20%), (ii) higher formula-based pass-through
pricing (approximately 18%) as a result of net cost increases in
benzene and propylene and (iii) higher sales volume (approximately
7%) driven primarily by improved end market demand and tight
industry supply conditions across all product lines.
Cost of Goods Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Cost of goods sold |
$ |
1,410,503 |
|
|
$ |
1,024,169 |
|
|
$ |
1,161,921 |
|
|
% change compared with prior period |
37.7 |
% |
|
(11.9) |
% |
|
(13.3) |
% |
|
Gross margin % |
16.3 |
% |
|
11.6 |
% |
|
10.4 |
% |
2021 compared with 2020
Costs of goods sold increased in 2021 compared to 2020 by $386.3
million (approximately 38%) due primarily to (i) increased prices
of raw materials (approximately 31%), (ii) higher sales volume
(approximately 4%), (iii) increased plant spend and sales freight
to support higher sales volume (approximately 3%) and (iv) an
unfavorable non-cash LIFO inventory reserve adjustment
(approximately 1%). The noted increase was partially offset by the
collection of insurance proceeds related to the 2019 shut-down of
cumene supplier Philadelphia Energy Solutions (approximately
1%).
Gross margin percentage increased by approximately 5% in 2021
compared to 2020 due primarily to (i) the net impact of
formula-based pass-through pricing and increased market pricing
(approximately 4%) and (ii) higher sales volume (approximately 2%),
partially offset by increased plant spend and sales freight to
support higher sales volume (approximately 2%).
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Selling, general and administrative expense |
$ |
82,985 |
|
|
$ |
70,870 |
|
|
$ |
75,375 |
|
|
% of sales |
4.9 |
% |
|
6.1 |
% |
|
5.8 |
% |
2021 compared with 2020
Selling, general and administrative expenses increased in 2021
compared to 2020 by $12.1 million, or approximately 17%, due
primarily to increased incentive and stock-based compensation costs
and increased functional support costs, as compared to cost control
measures implemented in response to the COVID-19 pandemic in the
prior year.
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Interest Expense, net |
$ |
5,023 |
|
|
$ |
7,792 |
|
|
$ |
5,454 |
|
2021 compared with 2020
Interest expense, net, decreased in 2021 compared to 2020 by $2.8
million, or approximately 36%, due primarily to lower average
borrowings, partially offset by lower amounts of interest
capitalized associated with capital projects.
Other Non-operating Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Other non-operating expense, net |
$ |
998 |
|
|
$ |
53 |
|
|
$ |
1,295 |
|
2021 compared with 2020
The increase in Other non-operating expense, net in 2021 compared
to 2020 was due primarily to an increase in deferred compensation
expense in the current year.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Income tax expense |
$ |
45,325 |
|
|
$ |
8,956 |
|
|
$ |
12,001 |
|
|
Effective tax rate |
24.5 |
% |
|
16.3 |
% |
|
22.5 |
% |
Under a provision included in the Coronavirus Aid, Relief, and
Economic Security ("CARES") Act, the Company filed a Federal net
operating loss (NOL) carryback claim in July 2020 which generated a
refund of previously paid taxes in the amount of $12.3 million. The
refund was received in the first quarter of 2021.
The Company's effective income tax rate for 2021 was higher
compared to the U.S. Federal statutory rate of 21% due primarily to
state taxes and executive compensation deduction limitations
partially offset by research tax credits and the foreign-derived
intangible income deduction.
The Company's effective income tax rate for 2020 was lower compared
to the U.S. Federal statutory rate of 21% due primarily to the
impact of research tax credits as well as an energy tax credit
described in more detail in “Note 4. Income Taxes”. This was
partially offset by state taxes, executive compensation deduction
limitations and a shortfall on the vesting of equity
compensation.
The Company's effective income tax rate for 2019 was slightly
higher compared to the U.S. Federal statutory rate of 21% due
primarily to state taxes and executive compensation deduction
limitations, partially offset by the vesting of restricted stock
units and research tax credits.
We are subject to income taxes in the United States and to a lesser
extent several foreign jurisdictions. Changes to income tax laws
and regulations, or the interpretation of such laws, in any of the
jurisdictions in which we operate could impact our effective tax
rate and cash flows from operating activities. The current U.S.
administration has released various draft tax reform proposals and,
as such, we continue to monitor these legislative proposals to
evaluate the impact on our business.
As of December 31, 2021, 2020 and 2019, there were no unrecognized
tax benefits recorded by the Company. Although there are no
unrecognized income tax benefits, when applicable, the Company’s
policy is to report interest expense and penalties related to
unrecognized income tax benefits in the income tax
provision.
For additional discussion of income taxes and the effective income
tax rate, see “Note 4. Income Taxes” in the Notes accompanying the
audited Consolidated Financial Statements included in Item 8 of
this Form 10-K.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
Net income |
$ |
139,791 |
|
|
$ |
46,077 |
|
|
$ |
41,347 |
|
2021
compared with 2020
As a result of the factors described above, net income was
$139.8 million in 2021 as compared to $46.1 million in
2020.
Non-GAAP Measures
The following tables set forth the non-GAAP financial measures of
EBITDA and EBITDA margin. EBITDA is defined as Net income before
Interest, Income taxes and Depreciation and amortization. EBITDA
margin is equal to EBITDA divided by Sales. The following tables
also present each of these measures as further adjusted. The
Company believes these non-GAAP financial measures provide
meaningful supplemental information as they are used by the
Company’s management to evaluate the Company’s operating
performance, enhance a reader’s understanding of the financial
performance of the Company, and facilitate a better comparison
among fiscal periods and performance relative to its competitors,
as the non-GAAP measures exclude items that are not considered core
to the Company’s operations.
These non-GAAP results are presented for supplemental informational
purposes only and should not be considered a substitute for the
financial information presented in accordance with U.S. GAAP.
Non-GAAP financial measures should be read only in conjunction with
the comparable U.S. GAAP financial measures. The Company’s non-GAAP
measures may not be comparable to other companies’ non-GAAP
measures.
The following is a reconciliation between the non-GAAP financial
measures of EBITDA and EBITDA Margin to their most directly
comparable U.S. GAAP financial measure:
(Dollars in thousands, except per share amounts or unless otherwise
noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2021 |
|
2020 |
|
2019 |
|
Net income |
|
$ |
139,791 |
|
|
$ |
46,077 |
|
|
$ |
41,347 |
|
|
Interest expense, net |
|
5,023 |
|
|
7,792 |
|
|
5,454 |
|
|
Income tax expense (benefit) |
|
45,325 |
|
|
8,956 |
|
|
12,001 |
|
|
Depreciation and amortization |
|
65,340 |
|
|
60,832 |
|
|
56,826 |
|
|
EBITDA (non-GAAP) |
|
255,479 |
|
|
123,657 |
|
|
115,628 |
|
|
One-time Pottsville restructuring charges
(1)
|
|
— |
|
|
— |
|
|
(11,020) |
|
|
EBITDA excluding one-time Pottsville restructuring charges
(non-GAAP) |
|
$ |
255,479 |
|
|
$ |
123,657 |
|
|
$ |
126,648 |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,684,625 |
|
|
$ |
1,157,917 |
|
|
$ |
1,297,393 |
|
|
|
|
|
|
|
|
|
|
EBITDA margin % (non-GAAP) |
|
15.2 |
% |
|
10.7 |
% |
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
EBITDA margin % excluding one-time Pottsville restructuring charges
(non-GAAP) |
|
15.2 |
% |
|
10.7 |
% |
|
9.8 |
% |
(1) 2019 one-time Pottsville restructuring charges reflect the
closure of the Company's Pottsville, Pennsylvania films
plant.
Liquidity and Capital Resources
Liquidity
We believe that cash balances and operating cash flows, together
with available capacity under our credit agreement, will provide
adequate funds to support our current short-term operating
objectives as well as our longer-term strategic plans, subject to
the risks and uncertainties outlined below and in the risk factors
as previously disclosed in in Item 1A, Risk Factors. Our principal
source of liquidity is our cash flow generated from operating
activities, which is expected to provide us with the ability to
meet the majority of our short-term funding requirements for the
next twelve months and beyond. Our cash flows are affected by
capital requirements and production volume, which may be materially
impacted by unanticipated events such as unplanned downtime,
material disruptions at our production facilities as well as the
prices of our raw materials, general economic and industry trends
and customer demand. The Company applies a proactive and
disciplined approach to working capital management to optimize cash
flow and to enable capital allocation options in support of the
Company’s strategy. We utilize supply chain financing and trade
receivables discount arrangements with third-party financial
institutions which enhance liquidity and enable us to efficiently
manage our working capital needs. Although we continue to optimize
supply chain financing and trade receivable programs in the
ordinary course, our utilization of these arrangements, both prior
to and during the COVID-19 pandemic, has not had a material impact
on our liquidity. In addition, we monitor the third-party
depository institutions that hold our cash and cash equivalents.
Our emphasis is primarily on the safety of principal and
secondarily on maximizing yield on those funds. We diversify our
cash and cash equivalents among counterparties to minimize exposure
to any one of these entities.
On a recurring basis, our primary future cash needs will be
centered on operating activities, working capital, and capital
expenditures reflecting disciplined capital deployment and
following the completion of several high-return growth and cost
savings investments. Capital expenditures are deployed for various
ongoing investments and initiatives to improve reliability, yield
and quality, expand production capacity and comply with HSE
regulations. While the COVID-19 pandemic has created and continues
to create volatility in funding markets, we expect that our future
cash from operations, together with cash on hand and our access to
credit and capital markets, will provide adequate resources to fund
our expected operating and financing needs and obligations. Our
ability to fund our capital needs, however, will depend on our
ongoing ability to generate cash from operations and access to
credit and capital markets, both of which are subject to the risk
factors previously disclosed in Item 1A, as well as general
economic, financial, competitive, regulatory and other factors that
are beyond our control.
At December 31, 2021, the Company had approximately $15
million of cash on hand with approximately $364 million of
additional capacity available under the revolving credit facility.
The Company’s Consolidated Leverage Ratio financial covenant of its
credit facility allows it to net up to $75 million of cash with
debt. Capital expenditures were approximately $57 million in 2021
compared to $83 million in 2020, reflecting efficiencies in project
execution in 2021 and the completion of several high-return growth
and cost savings investments in 2020.
As noted in Note 4. "Income Taxes," the Company filed a Federal net
operating loss (NOL) carryback claim under the CARES Act in July
2020 which generated a refund of previously paid taxes in the
amount of $12.3 million received in the first quarter of 2021.
Additionally, the Company deferred approximately $6.5 million of
social security taxes in 2020 under the CARES Act of which 50% was
paid on January 3, 2022 and the remainder is due by January 3,
2023.
We assumed from Honeywell all HSE liabilities and compliance
obligations related to the past and future operations of our
current business, as well as all HSE liabilities associated with
our three current manufacturing locations and the other locations
used in our current operations including any cleanup or other
liabilities related to any contamination that may have occurred at
such locations in the past. Honeywell retained all HSE liabilities
related to former business locations or the operation of our former
businesses. Although we have ongoing environmental remedial
obligations at certain of our facilities, in the past three years,
the associated remediation costs have not been material, and we do
not expect our known remediation costs to have a material adverse
effect on our consolidated financial position and results of
operations.
We expect that our primary cash requirements for 2022 will be to
fund costs associated with ongoing operations, capital expenditures
and amounts related to contractual obligations. See below under
“Capital Expenditures” for more information regarding our capital
expenditures in 2021, 2020 and 2019 and anticipated capital
expenditures for 2022. Amounts related to contractual obligations
are related to principal repayments and interest payments on
leases, long-term debt, purchase obligations, estimated
environmental compliance costs, and postretirement benefit
obligations. We anticipate that our estimated environmental
compliance costs will be approximately $1.7 million in aggregate
for 2022 through 2026. This amount is related to what has been
accrued as probable and reasonably estimable as of
December 31, 2021. For information regarding material cash
requirements from known contractual obligations with respect to
lease obligations, long-term debt principal repayments and purchase
obligations please refer to "Note 8. Leases", "Note 9. Long-term
Debt and Credit Agreement" and "Note 13. Commitments and
Contingencies", respectively, to the Consolidated Financial
Statements in Item 8 of this Form 10-K. Interest payments are
estimated based on the interest rate applicable as of
December 31, 2021 and approximate $4.1 million per year,
subject to changes in variable interest rates and additional
obligations.
The Company made contributions to the defined benefit pension plan
of $17.5 million during the year ended December 31, 2021
sufficient to satisfy pension funding requirements for 2021 under
the AdvanSix Retirement Earnings Plan. Cash contributions of
$1.2
million, $3.6 million and $12.7 million were made in the first
three quarters of 2021, respectively. No cash contributions were
made in the fourth quarter of 2021. The Company plans to make $10.0
million to $15.0 million of cash contributions in 2022 and
additional contributions in future years sufficient to satisfy
pension funding requirements in those periods.
The Company made cash contributions to the defined contribution
plan of $5.9 million and $6.1 million for the years ended December
31, 2021 and 2020, respectively.
On May 4, 2018, the Company announced that the Board authorized a
share repurchase program of up to $75 million of the Company’s
common stock. On February 22, 2019, the Company announced that the
Board authorized a share repurchase program of up to an additional
$75 million of the Company's common stock, which was in addition to
the remaining capacity available under the May 2018 share
repurchase program. Repurchases may be made, from time to time, on
the open market, including through the use of trading plans
intended to qualify under Rule 10b5-1 of the Exchange Act. The size
and timing of these repurchases will depend on pricing, market and
economic conditions, legal and contractual requirements and other
factors. The share repurchase program has no expiration date and
may be modified, suspended or discontinued at any time. The par
value of the shares repurchased is applied to Treasury stock and
the excess of the purchase price over par value is applied to
Additional paid-in capital.
As of December 31, 2021, the Company had repurchased 3,615,476
shares of common stock, including 525,714 shares withheld to cover
tax withholding obligations in connection with the vesting of
equity awards, for an aggregate of $102.4 million at a weighted
average market price of $28.31 per share. As of December 31,
2021, $59.6 million remained available for repurchase under the
currently authorized repurchase program. During 2021 and the period
from January 1, 2022 through February 4, 2022, no additional
shares were repurchased under the currently authorized repurchase
program.
At December 31, 2021, 2020 and 2019, the Company did not have
any off-balance sheet arrangements as defined in Item 303(a)(4)(ii)
of Regulation S-K or financing activities with special-purpose
entities. The Company has not guaranteed any debt or commitments of
other entities or entered into any options on non-financial
assets.
Dividends
As announced on February 18, 2022, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on March 15, 2022 to stockholders of record as of the close
of business on March 1, 2022.
As announced on September 28, 2021, the Board declared a quarterly
cash dividend of $0.125 per share on the Company's common stock,
payable on November 23, 2021 to stockholders of record as of the
close of business on November 9, 2021. Dividends paid to common
stockholders were approximately $3.5 million in 2021 and $0 in
2020.
We generally expect to declare and pay dividends on a quarterly
basis; however, the timing, declaration, amount and payment of
future dividends to stockholders, if any, will depend on our
financial condition, earnings, capital requirements and debt
service obligations and fall within the discretion of our Board.
Holders of shares of our common stock will be entitled to receive
dividends when, and if, declared by our Board at its discretion out
of funds legally available for that purpose, subject to the terms
of our indebtedness, the preferential rights of any preferred stock
that may be outstanding, legal requirements, regulatory
constraints, industry practice and other factors that our Board
deems relevant. Our credit agreement contains customary covenants
limiting the ability of the Company and its subsidiaries to, among
other things, pay cash dividends. There can be no assurance that
payment of a dividend will occur in the future.
Credit Agreement
On September 30, 2016, the Company as the borrower, entered
into a Credit Agreement with Bank of America, as administrative
agent (the "Original Credit Agreement"), which was amended on
February 21, 2018 pursuant to Amendment No. 1 to the Original
Credit Agreement (the "First Amended and Restated Credit
Agreement"), and further amended on February 19, 2020 pursuant
to, Amendment No. 2 to the First Amended and Restated Credit
Agreement (after giving effect to the Second Amendment, the “Second
Amended and Restated Credit Agreement”). The Second Amended and
Restated Credit Agreement had a five-year term with a scheduled
maturity date of February 21, 2023.
The Second Amended and Restated Credit Agreement required the
Company to maintain a Consolidated Leverage Ratio (as defined in
the Second Amended and Restated Credit Agreement) of (i) 3.50 to
1.00 or less for the fiscal quarter ending March 31, 2020, (ii)
4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020,
(iii) 4.25 to 1.00 or less for the fiscal quarter ending September
30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending
December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter
ending March 31, 2021 through and including the fiscal quarter
ending December 31, 2021, and (vi) 3.00 to 1.00 or less for the
fiscal quarter ending March 31, 2022 and each fiscal quarter
thereafter (subject to the Company’s option to elect a Consolidated
Leverage Ratio increase in connection with certain acquisitions).
The Consolidated Interest Coverage Ratio financial covenant
required the Company to maintain a Consolidated Interest Coverage
Ratio (as defined in the Second Amended and Restated Credit
Agreement) of not less than 3.00 to
1.00. If the Company did not comply with the covenants in the
Second Amended and Restated Credit Agreement, the lenders could,
subject to customary cure rights, require the immediate payment of
all amounts outstanding under the Revolving Credit
Facility.
Borrowings under the Second Amended and Restated Credit Agreement
bore interest at a rate equal to either the sum of a base rate plus
a margin ranging from 0.50% to 2.00% or the sum of a Eurodollar
rate plus a margin ranging from 1.50% to 3.00%, with either such
margin varying according to the Company’s Consolidated Leverage
Ratio (as defined in the Second Amended and Restated Credit
Agreement). The Company was also required to pay a commitment fee
in respect of unused commitments under the credit facility, if any,
at a rate ranging from 0.20% to 0.50% per annum depending on the
Company’s Consolidated Leverage Ratio.
In addition, the Second Amendment also amended certain
administrative provisions associated with the LIBOR Successor Rate
(as defined in the Second Amended and Restated Credit
Agreement).
The obligations under the Second Amended and Restated Credit
Agreement were secured by a pledge of assets and liens on
substantially all of the assets of AdvanSix.
The Second Amended and Restated Credit Agreement contained
customary covenants limiting the ability of the Company and its
subsidiaries to, among other things, pay cash dividends, incur debt
or liens, redeem or repurchase stock of the Company, enter into
transactions with affiliates, make investments, make capital
expenditures, merge or consolidate with others or dispose of
assets, as well as financial covenants that require the Company to
maintain interest coverage and leverage ratios at levels specified
in the Second Amended and Restated Credit Agreement. These
covenants placed limits on how we conduct our business, and in the
event of certain defaults, our repayment obligations could be
accelerated.
On October 27, 2021, the Company completed a refinancing of
the Second Amended and Restated Credit Agreement by entering into a
new Credit Agreement (the “Credit Agreement”), among the Company,
the lenders party thereto, the swing line lenders party thereto,
the letter of credit issuers party thereto and Truist Bank, as
administrative agent, which provides for a new senior secured
revolving credit facility in an aggregate principal amount of $500
million (the “Revolving Credit Facility”).
The Revolving Credit Facility has a scheduled maturity date of
October 27, 2026. The Credit Agreement permits the Company to
utilize up to $40 million of the Revolving Credit Facility for the
issuance of letters of credit and up to $40 million for swing line
loans. The Company has the option to establish a new class of term
loans and/or increase the amount of the Revolving Credit Facility
in an aggregate principal amount for all such incremental term
loans and increases of the Revolving Credit Facility of up to the
sum of (x) $175 million plus (y) an amount such that the Company’s
Consolidated First Lien Secured Leverage Ratio (as defined in the
Credit Agreement) would not be greater than 2.75 to 1.00, in each
case, to the extent that any one or more lenders, whether or not
currently party to the Credit Agreement, commits to be a lender for
such amount or any portion thereof.
Borrowings under the Credit Agreement bear interest at a rate equal
to either the sum of a base rate plus a margin ranging from 0.25%
to 1.25% or the sum of a Eurodollar rate plus a margin ranging from
1.25% to 2.25%, with either such margin varying according to the
Company’s Consolidated Leverage Ratio (as defined in the Credit
Agreement). The Company is also required to pay a commitment fee in
respect of unused commitments under the Revolving Credit Facility,
if any, at a rate ranging from 0.15% to 0.35% per annum depending
on the Company’s Consolidated Leverage Ratio. As of
October 27, 2021, the applicable margin under the Credit
Agreement was 0.375% for base rate loans and 1.375% for Eurodollar
loans and the applicable commitment fee rate was 0.175% per annum.
The Revolving Credit Facility also contains certain administrative
provisions regarding alternative rates of interest for LIBOR, as
applicable.
Substantially all tangible and intangible assets of the Company and
its domestic subsidiaries are pledged as collateral to secure the
obligations under the Credit Agreement.
As of October 27, 2021, the Company borrowed $150 million under the
Revolving Credit Facility. Borrowings under the Revolving Credit
Facility will be subject to customary borrowing
conditions.
The Credit Agreement contains customary covenants limiting the
ability of the Company and its subsidiaries to, among other things,
pay cash dividends, incur debt or liens, redeem or repurchase stock
of the Company, enter into transactions with affiliates, make
investments, make capital expenditures, merge or consolidate with
others or dispose of assets. The Credit Agreement also contains
financial covenants that require the Company to maintain a
Consolidated Interest Coverage Ratio (as defined in the Credit
Agreement) of not less than 3.00 to 1.00 and to maintain a
Consolidated Leverage Ratio of (i) 4.00 to 1.00 or less for the
fiscal quarter ending December 31, 2021, through and including
the fiscal quarter ending September 30, 2023 and (ii) 3.75 to
1.00 or less for each fiscal quarter thereafter (subject to the
Company’s option to elect a consolidated leverage ratio increase in
connection with certain acquisitions). If the Company does not
comply with the covenants in the Credit Agreement, the lenders may,
subject to customary cure rights, require the immediate payment of
all amounts outstanding under the Revolving Credit Facility. We
were in compliance with all of our covenants at December 31,
2021 and through the date of the filing of this Annual Report on
Form 10-K.
As the situation surrounding COVID-19 remains fluid and
unpredictable, the Company cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on the
Company’s results of operations, financial position, and liquidity.
For further information regarding risk and the impact COVID-19
could have on our business, financial condition, results of
operations and liquidity, including our ability to comply with
financial covenants in our credit facility and our access to, and
cost of, capital, see "Risk Factors" in Item 1A of this Annual
Report on Form 10-K.
As of December 31, 2021, $364 million was available for use
out of the total of $500 million under the Revolving Credit
Facility.
As of December 31, 2020, we had a balance of $275 million
under our prior credit facility. During the twelve months ended
December 31, 2021, we repaid an incremental net amount of $140
million to bring the balance under the Revolving Credit Facility to
$135 million as of December 31, 2021. We expect that Cash
provided by operating activities will fund future interest payments
on the Company's outstanding indebtedness.
The Company had approximately $1 million of letter of credit
agreements outstanding under the Revolving Credit Facility at
December 31, 2021. There was no amount associated with
bilateral letters of credit outside the Revolving Credit
Facility.
Cash Flow Summary for the Years Ended December 31, 2021, 2020 and
2019
Our cash flows from operating, investing and financing activities
for the years ended December 31, 2021, 2020 and 2019, as
reflected in the audited Consolidated Financial Statements included
in this Form 10-K, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
(Dollars in thousands) |
|
|
|
|
|
|
Cash provided by (used for): |
|
|
|
|
|
|
Operating activities |
$ |
218,849 |
|
|
$ |
111,847 |
|
|
$ |
120,385 |
|
|
Investing activities |
(67,562) |
|
|
(84,103) |
|
|
(153,125) |
|
|
Financing activities |
(146,793) |
|
|
(24,188) |
|
|
29,982 |
|
|
Net change in cash and cash equivalents |
$ |
4,494 |
|
|
$ |
3,556 |
|
|
$ |
(2,758) |
|
2021 compared with 2020
Net cash provided by operating activities increased by $107.0
million for the year ended December 31, 2021 versus the prior year
due primarily to a $93.7 million increase in net income and a $21.6
million cash improvement from Taxes receivable (including a $12.3
million cash tax refund received in the first quarter of 2021).
These net favorable impacts were partially offset by a $7.7 million
unfavorable cash impact from Other assets and liabilities driven a
decrease in pension liability of $10.0 million (primarily
reflecting the impact of cash pension contributions) partially
offset by a $2.7 million increase in prepaid expenses. Cash from
working capital (comprised of Accounts and other receivables,
Inventories, Accounts payable and Deferred income and customer
advances) was relatively neutral year-over-year, with a $20.8
million unfavorable cash impact for the year ended December 31,
2021 compared to a $20.2 million unfavorable cash impact in the
prior year period. Included within the year-over-year neutrality of
working capital was a $23.6 million unfavorable impact due to the
strategic absence of our typical ammonium sulfate pre-buy cash
advances during the fourth quarter of 2021.
Cash used for investing activities decreased by $16.5 million for
the year ended December 31, 2021 versus the prior year period due
to a decrease in cash paid for capital expenditures of
approximately $26.1 million reflecting capital project efficiencies
and timing of project execution offset by cash paid for the
acquisition of Commonwealth Industrial Services, Inc. of
approximately $9.5 million.
Cash used for financing activities increased by $122.6 million for
the year ended December 31, 2021 versus the prior year due to net
payments on the credit facility of $140.0 million for the year
ended December 31, 2021 compared to net payments of $22.0 million
during the prior year. During the year ended December 31, 2021 the
Company paid dividends of approximately $3.5 million and entered
into a new Revolving Credit Facility, as described above, with
approximately $2.4 million in fees compared to fee payments of $0.4
million during the prior year, both of which are described
above.
Capital Expenditures
Our operations are capital intensive, requiring ongoing investments
that have consisted, and are expected to continue to consist,
primarily of capital expenditures required to maintain and improve
equipment reliability, expand production output, further improve
mix, yield and cost position and comply with environmental and
safety regulations.
The following table summarizes ongoing and expansion capital
expenditures for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
(Dollars in thousands) |
|
|
|
|
|
|
Purchases of property, plant and equipment |
$ |
56,811 |
|
|
$ |
82,918 |
|
|
$ |
150,322 |
|
Capital expenditures decreased $26.1 million from 2020 to 2021
reflecting process and execution efficiencies, as well as timing
and scope of replacement maintenance and high-return growth and
cost savings projects.
For 2022, we expect our total capital expenditures to be
approximately $95 million to $105 million. Capital expenditures are
deployed for various ongoing investments and initiatives to improve
reliability, yield and quality, expand production capacity and
comply with HSE regulations.
Critical Accounting Policies
and Estimates
(Dollars in thousands, unless otherwise noted)
The Company’s significant accounting policies are more fully
described in "Note 2. Summary of Significant Accounting Policies"
to the Consolidated Financial Statements included in Item 8 of this
Form 10-K. Management believes that the application of these
policies on a consistent basis enables the Company to provide the
users of the financial statements with useful and reliable
information about the Company’s operating results and financial
condition.
The preparation of our Consolidated Financial Statements in
conformity with U.S. GAAP is based on the selection and application
of accounting policies that require management to make significant
estimates and assumptions about the effects of matters that are
inherently uncertain and that affect the reported amounts,
including, but not limited to, inventory valuations, impairment of
goodwill, stock-based compensation, long-term employee benefit
obligations, income taxes and environmental matters. Management’s
estimates are based on historical experience, facts and
circumstances available at the time and various other assumptions
that are believed to be reasonable. The Company reviews these
matters and reflects changes in estimates as appropriate.
Management believes that the following represents some of the more
critical judgment areas in the applications of the Company’s
accounting policies which could have a material effect on the
Company’s financial position, results of operations or cash
flows.
Inventories –
Substantially all of the Company's inventories are valued at the
lower of cost or market using the last-in, first-out (“LIFO”)
method. The Company includes spare and other parts in inventory
which are used in support of production or production facilities
operations and are valued based on weighted average
cost.
Inventories valued at LIFO amounted to $149.6 million and
$180.1 million at December 31, 2021 and 2020. Had such LIFO
inventories been valued at current costs, their carrying values
would have been approximately $6.0 million and $35.4 million higher
at December 31, 2021 and 2020.
Goodwill
– The Company had goodwill of $17.6 million and
$15.0 million as of December 31, 2021 and 2020,
respectively. Goodwill is subject to impairment testing annually as
of March 31, or whenever events or changes in circumstances
indicate that the carrying amount may not be fully recoverable.
Management first assesses qualitative factors as described in ASC
350 to determine whether it is necessary to perform the
quantitative goodwill impairment test. The Company completed its
annual goodwill impairment test as of March 31, 2021 and, based on
the results of the Company's assessment of qualitative factors, it
was determined that it was not necessary to perform the
quantitative goodwill impairment test.
Revenue Recognition –
The Company recognizes revenue upon the transfer of control of
goods or services to customers at amounts that reflect the
consideration expected to be received. AdvanSix primarily
recognizes revenues when title and control of the product transfers
from the Company to the customer. Outbound shipping costs incurred
by the Company are not included in revenues but are reflected as
freight expense in Costs of goods sold in the Consolidated
Statements of Operations.
Sales of our products to customers are made under a purchase order,
and in certain cases in accordance with the terms of a master
services agreement. These agreements typically contain
formula-based pass-through pricing tied to key feedstock materials
and volume ranges, but often do not specify the goods, including
the quantities thereof, to be transferred. Certain master services
agreements (including with respect to our largest customer) may
contain minimum purchase volumes which can be satisfied by the
customer on a periodic basis by choosing from various products
offered by the Company. In these cases, a performance obligation is
created when a customer submits a purchase order for a specific
product at a specified price, typically providing for delivery
within the next 60 days. Management considers the performance
obligation with respect to such purchase order satisfied at the
point in time when control of the product is transferred to the
customer, which is indicated by shipment of the product and
transfer of title and risk of loss to the customer. Transfer of
control to the customer occurs through various modes of shipment,
including trucks, railcars, and vessels, and follows a variety of
commercially acceptable shipping or destination point terms
pursuant to the arrangement with the
customer. Variable consideration is estimated for future volume
rebates and early pay discounts on certain products and product
returns. The Company records variable consideration as an
adjustment to the sale transaction price. Since variable
consideration is generally settled within one year, the time value
of money is not significant.
The Company applies the practical expedient in Topic 606 and does
not include disclosures regarding remaining performance obligations
that have original expected durations of one year or less, or
amounts for variable consideration allocated to wholly-unsatisfied
performance obligations or wholly-unsatisfied distinct goods that
form part of a single performance obligation, if any.
The Company also utilizes the practical expedient in Topic 606 and
does not include an adjustment for the effects of a significant
financing component given the expected period duration of one year
or less.
Stock-Based Compensation Plans –
The principal awards issued under our stock-based compensation
plans, which are described in "Note 16. Stock-Based Compensation
Plans" to the Consolidated Financial Statements included in Item 8
of this Form 10-K, are non-qualified stock options, performance
stock units and restricted stock units. The cost for such awards is
measured at the grant date based on the fair value of the award.
The value of the portion of the award that is ultimately expected
to vest, including the impact of the Company's anticipated
performance against certain metrics for performance stock units, is
recognized as expense over the requisite service periods (generally
the vesting period of the equity award) and is included in selling,
general and administrative expenses. Estimates of future
performance are utilized to determine the underlying expense for
shares expected to vest. Forfeitures are estimated at the time of
grant to recognize expense for those awards that are expected to
vest and are based on our historical forfeiture rates.
Pension Benefits
– We have a defined benefit plan covering certain employees
primarily in the U.S. The benefits are accrued over the employees’
service periods. We use actuarial methods and assumptions in the
valuation of defined benefit obligations and the determination of
net periodic pension income or expense. Differences between actual
and expected results or changes in the value of defined benefit
obligations and fair value of plan assets, if any, are not
recognized in earnings as they occur but rather systematically over
subsequent periods when net actuarial gains or losses are in excess
of 10% of the greater of the fair value of plan assets or the
plan’s projected benefit obligation.
A 25 basis point increase in the discount rate would result in a
decrease of approximately $0.1 million to the net periodic benefit
cost for 2022, while a 25 basis point decrease in the discount rate
would result in an increase of approximately $0.1 million to the
net periodic benefit cost for 2022. The resulting impact on the
pension benefit obligation would be a decrease of $3.5 million and
an increase of $3.7 million, respectively.
Income Taxes
– We account for income taxes pursuant to the asset and liability
method which requires us to recognize current tax liabilities or
receivables for the amount of taxes we estimate are payable or
refundable for the current year and deferred tax assets and
liabilities for the expected future tax consequences attributable
to temporary differences between the financial statement carrying
amounts and their respective tax bases of assets and liabilities
and the expected benefits of net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in
the period enacted. A valuation allowance is provided when it is
more likely than not that a portion or all of a deferred tax asset
will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
and the reversal of deferred tax liabilities during the period in
which related temporary differences become deductible.
We adopted the provisions of ASC 740 related to the accounting for
uncertainty in income taxes recognized in an enterprise’s
consolidated financial statements. ASC 740 prescribes a
comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns.
The benefit of tax positions taken or expected to be taken in our
income tax returns are recognized in the financial statements if
such positions are more likely than not of being sustained upon
examination by taxing authorities. Differences between tax
positions taken or expected to be taken in a tax return and the
benefit recognized and measured pursuant to the interpretation are
referred to as “unrecognized benefits”. A liability is recognized
(or amount of net operating loss carryover or amount of tax
refundable is reduced) for an unrecognized tax benefit because it
represents an enterprise’s potential future obligation to the
taxing authority for a tax position that was not recognized as a
result of applying the provisions of ASC 740. Interest costs and
related penalties related to unrecognized tax benefits are required
to be calculated, if applicable. Our policy is to classify tax
related interest and penalties, if any, as a component of income
tax expense. No interest or penalties related to unrecognized
income tax benefits were recorded during the years ended December
31, 2021, 2020 and 2019. As of December 31, 2021 and 2020, no
liability for unrecognized tax benefits was required to be
reported. We do not expect any significant changes in our
unrecognized tax benefits in the next year.
Use of Estimates –
The preparation of the Consolidated Financial Statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts in the Consolidated
Financial Statements and related disclosures in
the accompanying Notes. Actual results could differ from those
estimates. Estimates and assumptions are periodically reviewed and
the effects of changes are reflected in the Consolidated Financial
Statements in the period they are determined to be
necessary.
Recent Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies” to the
Consolidated Financial Statements included in Item 8 of this Form
10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Interest Rate Risk
Our exposure to risk based on changes in interest rates relates
primarily to our Revolving Credit Facility. The Revolving Credit
Facility bears interest at floating rates. For variable rate debt,
interest rate changes generally do not affect the fair market value
of such debt assuming all other factors remain constant, but do
impact future earnings and cash flows. Accordingly, we may be
exposed to interest rate risk on borrowings under the Revolving
Credit Facility.
As of December 31, 2021, the Company had one interest rate
swap agreement outstanding for a total notional amount of $50
million to exchange floating for fixed rate interest payments for
our LIBOR-based borrowings. The interest rate swap had a fair value
of zero at inception and was effective July 31, 2019 with a
maturity date of February 21, 2023. The interest rate swap has
been designated as a cash flow hedge and converts the Company's
interest rate payments on the first $50 million of variable-rate,
1-month LIBOR-based debt to a fixed interest rate. As a result of
this interest rate swap, interest payments on approximately 37% of
our borrowings, as of December 31, 2021, have been swapped
from floating rate to fixed rate for the life of the swap, without
an exchange of the underlying principal amount.
A hedge effectiveness assessment was completed by comparing the
critical terms of the hedged items with the hedging instruments,
and also by reviewing the credit standing of the counterparties. As
of December 31, 2021, it was determined that the critical
terms continued to exactly match, and that the counterparties still
had the ability to honor their obligations. As a result, the hedges
continue to be deemed effective.
Based on current borrowing levels at December 31, 2021, net of
the interest rate swap, a 25-basis point fluctuation in interest
rates for the year ended December 31, 2021 would have
resulted in an increase or decrease to our interest expense of
approximately $0.2 million.
See “Note 12. Derivative and Hedging Instruments” to the
Consolidated Financial Statements included in this Form 10-K, for a
discussion relating to credit and market, commodity price and
interest rate risk management.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID
238)
To the
Board of Directors and Stockholders of AdvanSix Inc.
Opinions on the Financial Statements and Internal Control over
Financial Reporting
We have audited the accompanying consolidated balance sheets of
AdvanSix Inc. and its subsidiaries (the “Company”) as of
December 31, 2021 and 2020, and the related consolidated
statements of operations, of comprehensive income, of stockholders’
equity and of cash flows for each of the three years in the period
ended December 31, 2021, including the related notes
(collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control
over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on
the Company's internal control over financial reporting based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over
financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising
from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to
the audit committee and that (i) relates to accounts or disclosures
that are material to the consolidated financial statements and (ii)
involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it
relates.
Revenue Recognition - Transfer of Control
As described in Notes 2 and 3 to the consolidated financial
statements, the Company recorded $1,685 million in sales for the
year ended December 31, 2021. Sales of the Company’s products to
customers are made under a purchase order, and in certain cases in
accordance with the terms of a master services agreement. A
performance obligation is created when a customer submits a
purchase order for a specific product at a specified price.
Management considers the performance obligation satisfied at the
point in time when control of the product is transferred to the
customer, which is indicated by shipment of the product and
transfer of title and risk of loss to the customer. Transfer of
control to the customer occurs through various modes of shipment,
including trucks, railcars, and vessels, and follows a variety of
commercially acceptable shipping or destination point terms
pursuant to the arrangement with the customer.
The principal considerations for our determination that performing
procedures relating to revenue recognition – transfer of control is
a critical audit matter are the high degree of auditor subjectivity
and effort in performing procedures and evaluating audit evidence
relating to the determination of the point in time when control of
the product was transferred to the customer and thus revenue was
recognized.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included
testing the effectiveness of controls relating to the Company’s
revenue recognition process, including controls over the point in
time when control of the product was transferred to the customer.
These procedures also included, among others (i) evaluating, on a
sample basis, management’s determination of the point in time when
control of the product was transferred to the customer based on
contractual terms in customer arrangements and the impact of this
determination on the timing of revenue recognition; (ii) testing,
on a sample basis, the point in time when control of the product
was transferred to the customer by obtaining supporting purchase
orders and shipping documents; and (iii) testing the completeness
and accuracy of data provided by management.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 18, 2022
We have served as the Company’s auditor since 2015.
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Sales |
$ |
1,684,625 |
|
|
$ |
1,157,917 |
|
|
$ |
1,297,393 |
|
|
Costs, expenses and other: |
|
|
|
|
|
|
Costs of goods sold |
1,410,503 |
|
|
1,024,169 |
|
|
1,161,921 |
|
|
Selling, general and administrative expenses |
82,985 |
|
|
70,870 |
|
|
75,375 |
|
|
Interest expense, net |
5,023 |
|
|
7,792 |
|
|
5,454 |
|
|
Other non-operating expense, net |
998 |
|
|
53 |
|
|
1,295 |
|
|
Total costs, expenses and other |
1,499,509 |
|
|
1,102,884 |
|
|
1,244,045 |
|
|
|
|
|
|
|
|
|
Income before taxes |
185,116 |
|
|
55,033 |
|
|
53,348 |
|
|
Income tax expense |
45,325 |
|
|
8,956 |
|
|
12,001 |
|
|
Net income |
$ |
139,791 |
|
|
$ |
46,077 |
|
|
$ |
41,347 |
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
Basic |
$ |
4.97 |
|
|
$ |
1.64 |
|
|
$ |
1.47 |
|
|
Diluted |
$ |
4.81 |
|
|
$ |
1.64 |
|
|
$ |
1.43 |
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
Basic |
28,152,876 |
|
|
28,048,726 |
|
|
28,122,288 |
|
|
Diluted |
29,045,186 |
|
|
28,157,062 |
|
|
28,898,836 |
|
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Net income |
$ |
139,791 |
|
|
$ |
46,077 |
|
|
$ |
41,347 |
|
|
Foreign exchange translation adjustment |
(43) |
|
|
(49) |
|
|
(9) |
|
|
Cash-flow hedges |
1,789 |
|
|
(1,028) |
|
|
(673) |
|
|
Pension obligation adjustments |
7,847 |
|
|
(5,604) |
|
|
(6,295) |
|
|
Other comprehensive income (loss), net of tax |
9,593 |
|
|
(6,681) |
|
|
(6,977) |
|
|
Comprehensive income |
$ |
149,384 |
|
|
$ |
39,396 |
|
|
$ |
34,370 |
|
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
ADVANSIX INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2021 |
|
2020 |
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
15,100 |
|
|
$ |
10,606 |
|
|
Accounts and other receivables – net |
178,140 |
|
|
123,554 |
|
|
Inventories – net |
149,570 |
|
|
180,085 |
|
|
Taxes receivable |
947 |
|
|
12,289 |
|
|
Other current assets |
6,097 |
|
|
6,969 |
|
|
Total current assets |
349,854 |
|
|
333,503 |
|
|
Property, plant and equipment – net |
767,964 |
|
|
765,469 |
|
|
Operating lease right-of-use assets |
136,207 |
|
|
114,484 |
|
|
Goodwill |
17,592 |
|
|
15,005 |
|
|
Other assets |
40,382 |
|
|
34,946 |
|
|
Total assets |
$ |
1,311,999 |
|
|
$ |
1,263,407 |
|
|
LIABILITIES |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
221,234 |
|
|
$ |
190,227 |
|
|
Accrued liabilities |
49,712 |
|
|
41,152 |
|
|
Operating lease liabilities – short-term |
36,127 |
|
|
29,279 |
|
|
|
|
|
|
Deferred income and customer advances |
2,749 |
|
|
26,379 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
309,822 |
|
|
287,037 |
|
|
Deferred income taxes |
133,330 |
|
|
125,575 |
|
|
Operating lease liabilities – long-term |
100,580 |
|
|
85,605 |
|
|
Line of credit – long-term |
135,000 |
|
|
275,000 |
|
|
|
|
|
|
Postretirement benefit obligations |
18,243 |
|
|
39,168 |
|
|
Other liabilities |
13,834 |
|
|
6,899 |
|
|
Total liabilities |
710,809 |
|
|
819,284 |
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note 13) |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
Common stock, par value $0.01; 200,000,000 shares authorized;
31,755,430 shares issued and 28,139,954 outstanding at
December 31, 2021; 31,627,139 shares issued and 28,033,227
outstanding at December 31, 2020
|
318 |
|
|
316 |
|
|
Preferred stock, par value $0.01; 50,000,000 shares authorized; 0
shares issued and outstanding at December 31, 2021 and
2020
|
— |
|
|
— |
|
|
Treasury stock at par (3,615,476 shares at December 31, 2021;
3,593,912 shares at December 31, 2020)
|
(36) |
|
|
(36) |
|
|
Additional paid-in capital |
195,931 |
|
|
184,732 |
|
|
Retained earnings |
411,516 |
|
|
275,243 |
|
|
Accumulated other comprehensive loss |
(6,539) |
|
|
(16,132) |
|
|
Total stockholders' equity |
601,190 |
|
|
444,123 |
|
|
Total liabilities and stockholders' equity |
$ |
1,311,999 |
|
|
$ |
1,263,407 |
|
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
$ |
139,791 |
|
|
$ |
46,077 |
|
|
$ |
41,347 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
65,340 |
|
|
60,832 |
|
|
56,826 |
|
|
Loss on disposal of assets |
1,711 |
|
|
696 |
|
|
5,190 |
|
|
Deferred income taxes |
4,702 |
|
|
17,611 |
|
|
8,442 |
|
|
Stock-based compensation |
11,299 |
|
|
4,902 |
|
|
8,349 |
|
|
Accretion of deferred financing fees |
677 |
|
|
553 |
|
|
427 |
|
|
Restructuring charges |
— |
|
|
— |
|
|
11,020 |
|
|
Changes in assets and liabilities, net of business
acquisitions: |
|
|
|
|
|
|
Accounts and other receivables |
(53,772) |
|
|
(18,990) |
|
|
54,383 |
|
|
Inventories |
31,227 |
|
|
(8,375) |
|
|
(35,567) |
|
|
Taxes receivable |
11,342 |
|
|
(10,242) |
|
|
(707) |
|
|
Accounts payable |
25,393 |
|
|
(1,337) |
|
|
(20,333) |
|
|
|
|
|
|
|
|
Accrued liabilities |
14,654 |
|
|
13,892 |
|
|
(4,561) |
|
|
Deferred income and customer advances |
(23,630) |
|
|
8,456 |
|
|
(2,860) |
|
|
Other assets and liabilities |
(9,885) |
|
|
(2,228) |
|
|
(1,571) |
|
|
Net cash provided by operating activities |
218,849 |
|
|
111,847 |
|
|
120,385 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Expenditures for property, plant and equipment |
(56,811) |
|
|
(82,918) |
|
|
(150,322) |
|
|
Acquisition of business |
(9,523) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
Other investing activities |
(1,228) |
|
|
(1,185) |
|
|
(2,803) |
|
|
Net cash used for investing activities |
(67,562) |
|
|
(84,103) |
|
|
(153,125) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from line of credit |
176,000 |
|
|
364,000 |
|
|
419,250 |
|
|
Payments of line of credit |
(316,000) |
|
|
(386,000) |
|
|
(322,250) |
|
|
Payment of line of credit facility fees |
(2,442) |
|
|
(425) |
|
|
— |
|
|
Principal payments of finance leases |
(735) |
|
|
(710) |
|
|
(4,839) |
|
|
Dividend payments |
(3,518) |
|
|
— |
|
|
— |
|
|
Purchase of treasury stock |
(652) |
|
|
(1,055) |
|
|
(62,196) |
|
|
Issuance of common stock |
554 |
|
|
2 |
|
|
17 |
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
(146,793) |
|
|
(24,188) |
|
|
29,982 |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
4,494 |
|
|
3,556 |
|
|
(2,758) |
|
|
Cash and cash equivalents at beginning of year |
10,606 |
|
|
7,050 |
|
|
9,808 |
|
|
Cash and cash equivalents at the end of year |
$ |
15,100 |
|
|
$ |
10,606 |
|
|
$ |
7,050 |
|
|
Supplemental non-cash investing activities: |
|
|
|
|
|
|
Capital expenditures included in accounts payable |
$ |
11,720 |
|
|
$ |
6,178 |
|
|
$ |
21,594 |
|
|
Supplemental cash activities: |
|
|
|
|
|
|
Cash paid for interest |
$ |
4,459 |
|
|
$ |
7,290 |
|
|
$ |
5,201 |
|
|
Cash paid for income taxes |
$ |
31,000 |
|
|
$ |
2,005 |
|
|
$ |
6,993 |
|
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained Earnings (Accumulated
Deficit)
|
|
|
|
Treasury Stock |
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total Equity
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
30,555,715 |
|
|
306 |
|
|
234,699 |
|
|
187,819 |
|
|
|
|
(12) |
|
|
(2,474) |
|
|
420,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
41,347 |
|
|
|
|
— |
|
|
— |
|
|
41,347 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(9) |
|
|
(9) |
|
|
Cash-flow hedges |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(673) |
|
|
(673) |
|
|
Pension obligation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(6,295) |
|
|
(6,295) |
|
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(6,977) |
|
|
(6,977) |
|
|
Issuance of common stock |
868,183 |
|
|
8 |
|
|
9 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
17 |
|
|
Acquisition of treasury shares (2,298,407 shares)
|
|
|
— |
|
|
(62,173) |
|
|
— |
|
|
|
|
(23) |
|
|
— |
|
|
(62,196) |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
8,349 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
8,349 |
|
|
Balance at December 31, 2019 |
31,423,898 |
|
|
314 |
|
|
180,884 |
|
|
229,166 |
|
|
|
|
(35) |
|
|
(9,451) |
|
|
400,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
46,077 |
|
|
|
|
— |
|
|
— |
|
|
46,077 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(49) |
|
|
(49) |
|
|
Cash-flow hedges |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(1,028) |
|
|
(1,028) |
|
|
Pension obligation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(5,604) |
|
|
(5,604) |
|
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(6,681) |
|
|
(6,681) |
|
|
Issuance of common stock |
203,241 |
|
|
2 |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
2 |
|
|
Acquisition of treasury shares (84,791 shares)
|
|
|
— |
|
|
(1,054) |
|
|
— |
|
|
|
|
(1) |
|
|
— |
|
|
(1,055) |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
4,902 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
4,902 |
|
|
Balance at December 31, 2020 |
31,627,139 |
|
|
$ |
316 |
|
|
$ |
184,732 |
|
|
$ |
275,243 |
|
|
|
|
$ |
(36) |
|
|
$ |
(16,132) |
|
|
$ |
444,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
139,791 |
|
|
|
|
— |
|
|
— |
|
|
139,791 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(43) |
|
|
(43) |
|
|
Cash-flow hedges |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
1,789 |
|
|
1,789 |
|
|
Pension obligation adjustments |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
7,847 |
|
|
7,847 |
|
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
9,593 |
|
|
9,593 |
|
|
Issuance of common stock |
128,291 |
|
|
2 |
|
|
552 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
554 |
|
|
Acquisition of treasury shares ( 21,564 shares)
|
— |
|
|
— |
|
|
(652) |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(652) |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
11,299 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
11,299 |
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
(3,518) |
|
|
|
|
— |
|
|
— |
|
|
(3,518) |
|
|
Balance at December 31, 2021 |
31,755,430 |
|
|
$ |
318 |
|
|
$ |
195,931 |
|
|
$ |
411,516 |
|
|
|
|
$ |
(36) |
|
|
$ |
(6,539) |
|
|
$ |
601,190 |
|
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
ADVANSIX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts or unless
otherwise noted)
Note 1. Organization, Operations and Basis of
Presentation
Description of Business
AdvanSix Inc. (“AdvanSix”, the “Company”, “we” or “our”) plays a
critical role in global supply chains, innovating and delivering
essential products for our customers in a wide variety of end
markets and applications that touch people’s lives, such as
building and construction, fertilizers, plastics, solvents,
packaging, paints, coatings, adhesives and electronics. Our
reliable and sustainable supply of quality products emerges from
the vertically integrated value chain of our three U.S.-based
manufacturing facilities. AdvanSix strives to deliver best-in-class
customer experiences and differentiated products in the industries
of nylon solutions, chemical intermediates and plant nutrients,
guided by our core values of Safety, Integrity, Accountability and
Respect.
We evaluated segment reporting in accordance with Accounting
Standards Codification Topic (“ASC”) 280. We concluded that
AdvanSix is a single operating segment and a single reportable
segment based on the operating results available which are
evaluated regularly by the chief operating decision maker (“CODM”)
to make decisions about resource allocation and performance
assessment. AdvanSix operations are managed as one integrated
process spread across three manufacturing sites, including
centralized supply chain and procurement functions. The production
process is dependent upon one key raw material, cumene, as the
input to the manufacturing of all finished goods produced for sale
through the sales channels and end-markets the Company serves.
Production rates and output volumes are managed across all three
plants jointly to align with the overall Company operating plan.
The CODM makes operational performance assessments and resource
allocation decisions on a consolidated basis, inclusive of all of
the Company’s products.
AdvanSix operates through three integrated U.S.-based manufacturing
sites located in Frankford, Pennsylvania, and Hopewell and
Chesterfield, Virginia. The Company's headquarters is located in
Parsippany, New Jersey.
Corporate History
On October 1, 2016, Honeywell International Inc. (“Honeywell”)
completed the separation of AdvanSix. The separation was completed
by Honeywell distributing (the "Distribution") all of the then
outstanding shares of common stock of AdvanSix on October 1, 2016
(the “Distribution Date”) through a dividend in kind of AdvanSix
common stock, par value $0.01 per share, to holders of Honeywell
common stock as of the close of business on the record date of
September 16, 2016 who held their shares through the Distribution
Date (the “Spin-Off”).
COVID-19
In March 2020, the World Health Organization categorized the novel
coronavirus (COVID-19) as a global pandemic with numerous countries
around the world declaring national emergencies, including the
United States. Since early 2020, COVID-19 has continued to spread,
with confirmed cases worldwide, and with certain jurisdictions
experiencing resurgences, including as a result of variant strains.
The spread resulted in authorities implementing numerous measures
to contain the virus, such as travel bans and restrictions,
quarantines, shelter-in-place orders and business shutdowns. The
pandemic and these containment measures have had a substantial
impact on businesses around the world and on global, regional and
national economies, including disruptions to supply chains,
volatility in demand, production and sales across most industries,
volatility within global financial markets, inflationary pressures
in commodity pricing and an increasingly dynamic workforce
environment. The continuously evolving nature of this pandemic and
the pace and shape of a full recovery may continue to have an
impact on the United States and global economies.
The Company’s Consolidated Financial Statements reflect estimates
and assumptions made by management that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the Consolidated Financial Statements
and reported amounts of revenue and expenses during the reporting
periods presented. The Company continues to consider the impact of
COVID-19 on the estimates and assumptions used for the financial
statements. As previously disclosed, the Company experienced a
material impact on its second quarter 2020 results of operations
associated with lower demand, particularly in nylon, caprolactam
and phenol, and a decrease in overall sales volume related to
global markets and the economic impact of COVID-19. Starting in the
second half of 2020, and through the end of 2021, demand improved
to pre-COVID-19 levels with states, regions and countries in
various phases of re-opening and continued administration of
vaccines for COVID-19. The Company will continue to monitor
developments and execute our operational and safety mitigation
plans as previously disclosed.
As the situation surrounding COVID-19 remains fluid and
unpredictable, the Company cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on the
Company’s results of operations, financial position, and
liquidity.
Basis of Presentation
Unless the context otherwise requires, references in these Notes to
the Consolidated Financial Statements to “we,” “us,” “our,”
“AdvanSix” and the “Company” refer to AdvanSix Inc. and its
consolidated subsidiaries after giving effect to the Spin-Off. All
intercompany transactions have been eliminated.
Note 2. Summary of Significant Accounting Policies
Accounting Principles
– The financial statements and accompanying Notes are prepared in
accordance with accounting principles generally accepted in the
United States of America. The following is a description of
AdvanSix’s significant accounting policies.
Principles of Consolidation
– The Consolidated Financial Statements include the accounts of
AdvanSix and all of its subsidiaries in which a controlling
financial interest is maintained. Our consolidation policy requires
equity investments that we exercise significant influence over but
do not control the investee and are not the primary beneficiary of
the investee’s activities to be accounted for using the equity
method. Investments through which we are not able to exercise
significant influence over the investee and which we do not have
readily determinable fair values are accounted for under the cost
method. All intercompany transactions and balances are eliminated
in consolidation.
Cash and Cash Equivalents
– Cash and cash equivalents include cash on hand and on deposit and
highly liquid, temporary cash investments with an original maturity
to the Company of three months or less. We reduce cash and
extinguish liabilities when the creditor receives our payment and
we are relieved of our obligation for the liability when checks
clear the Company’s bank account. Liabilities to creditors to whom
we have issued checks that remain outstanding aggregated $4.5
million at December 31, 2021 and are included in Cash and cash
equivalents and Accounts payable in the Consolidated Balance
Sheets.
Fair Value Measurement
– ASC 820, Fair Value Measurement defines fair value as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date (exit price). The Financial Accounting
Standards Board's ("FASB") guidance classifies the inputs used to
measure fair value into the following hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Unadjusted quoted prices in active markets for identical assets or
liabilities |
|
Level 2 |
Unadjusted quoted prices in active markets for similar assets or
liabilities, or |
|
Unadjusted quoted prices for identical or similar assets or
liabilities in markets that are not active, or Inputs other than
quoted prices that are observable for the asset or
liability |
|
Level 3 |
Unobservable inputs for the asset or liability |
Derivative Financial Instruments
– We minimize our risks from interest and foreign currency exchange
rate fluctuations through our normal operating and financing
activities and, when deemed appropriate, through the use of
derivative financial instruments. Derivative financial instruments
are used to manage risk and are not used for trading or other
speculative purposes. Derivative financial instruments that qualify
for hedge accounting must be designated and effective as a hedge of
the identified risk exposure at the inception of the contract.
Accordingly, changes in fair value of the derivative contract must
be highly correlated with changes in fair value of the underlying
hedged item at inception of the hedge and over the life of the
hedge contract.
All derivatives are recorded on the balance sheet as assets or
liabilities and measured at fair value. For derivatives designated
as hedges of the fair value of assets or liabilities, the changes
in fair values of both the derivatives and the hedged items are
recorded in current earnings. For derivatives designated as cash
flow hedges, the changes in fair value of the derivatives are
recorded in Accumulated other comprehensive income (loss) and
subsequently recognized in earnings when the hedged items impact
earnings. Cash flows of such derivative financial instruments are
classified consistent with the underlying hedged item. For
derivative instruments that are designated and qualify as a net
investment hedge, the derivative’s gain or loss is reported as a
component of Other comprehensive income (loss) and recorded in
Accumulated other comprehensive income (loss). The gain or loss
will be subsequently reclassified into net earnings when the hedged
net investment is either sold or substantially
liquidated.
Commodity Price Risk Management –
The Company's exposure to market risk for commodity prices can
result in changes in our cost of production. We primarily mitigate
our exposure to commodity price risk by using long-term,
formula-based price contracts with our suppliers and formula-based
price agreements with customers. Our customer agreements provide
for price adjustments based on relevant market indices and raw
material prices, and generally they do not include take-or-pay
terms. Instead, each customer agreement, the majority of which have
a term of at least one year, is typically determined by monthly or
quarterly volume estimates. We may also enter into forward
commodity contracts with third parties designated as hedges of
anticipated purchases of several
commodities. Forward commodity contracts are marked-to-market, with
the resulting gains and losses recognized in earnings, in the same
category as the items being hedged, when the hedged transaction is
recognized. At December 31, 2021 and 2020, we had no contracts
with notional amounts related to forward commodity
agreements.
Inventories –
Substantially all of the Company's inventories are valued at the
lower of cost or market using the last-in, first-out (“LIFO”)
method. The Company includes spare and other parts in inventory
which are used in support of production or production facilities
operations and are valued based on weighted average
cost.
Inventories valued at LIFO amounted to $149.6 million and $180.1
million at December 31, 2021 and 2020. Had such LIFO
inventories been valued at current costs, their carrying values
would have been approximately $6.0 million and $35.4 million higher
at December 31, 2021 and 2020.
Property, Plant, Equipment –
Property, plant, equipment asset values are recorded at cost,
including any asset retirement obligations, less accumulated
depreciation. For financial reporting, the straight-line method of
depreciation is used over the estimated useful lives of 30 to 50
years for buildings and improvements and 5 to 40 years for
machinery and equipment. Our machinery and equipment includes (1)
assets used in short production cycles or subject to high
corrosion, such as instrumentation, controls and insulation systems
with useful lives up to 15 years, (2) standard plant assets, such
as boilers and railcars, with useful lives ranging from 15 to 30
years and (3) major process equipment that can be used for long
durations with effective preventative maintenance and repair, such
as cooling towers, compressors, tanks and turbines with useful
lives ranging from 5 to 40 years. Recognition of the fair value of
obligations associated with the retirement of tangible long-lived
assets is required when there is a legal obligation to incur such
costs. Upon initial recognition of a liability, the cost is
capitalized as part of the related long-lived asset and depreciated
over the corresponding asset’s useful life.
Repairs and maintenance, including planned major maintenance, are
expensed as incurred. Costs which materially add to the value of
the asset or prolong its useful life are capitalized and the
replaced assets are retired.
Long-Lived Assets
– The Company evaluates the recoverability of the carrying amount
of long-lived assets (including property, plant and equipment and
intangible assets with determinable lives) whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. The Company evaluates events or
changes in circumstances based on several factors including
operating results, business plans and forecasts, general and
industry trends, and economic projections and anticipated cash
flows. An impairment is assessed when the undiscounted expected
future cash flows derived from an asset are less than its carrying
amount. Impairment losses are measured as the amount by which the
carrying value of an asset exceeds its fair value and are
recognized in the Consolidated Statements of Operations. The
Company also evaluates the estimated useful lives of long-lived
assets if circumstances warrant and revises such estimates based on
current events.
Goodwill –
The Company had goodwill of $17.6 million and
$15.0 million as of December 31, 2021 and 2020,
respectively. Goodwill is subject to impairment testing annually as
of March 31, or whenever events or changes in circumstances
indicate that the carrying amount may not be fully recoverable.
Management first assesses qualitative factors as described in ASC
350 to determine whether it is necessary to perform the
quantitative goodwill impairment test. The Company completed its
annual goodwill impairment test as of March 31, 2021 and, based on
the results of the Company's assessment of qualitative factors, it
was determined that it was not necessary to perform the
quantitative goodwill impairment test.
Revenue Recognition –
The Company recognizes revenue upon the transfer of control of
goods or services to customers at amounts that reflect the
consideration expected to be received. AdvanSix primarily
recognizes revenues when title and control of the product transfers
from the Company to the customer. Outbound shipping costs incurred
by the Company are not included in revenues but are reflected as
freight expense in Costs of goods sold in the Consolidated
Statements of Operations.
Sales of our products to customers are made under a purchase order,
and in certain cases in accordance with the terms of a master
services agreement. These agreements typically contain
formula-based pass-through pricing tied to key feedstock materials
and volume ranges, but often do not specify the goods, including
the quantities thereof, to be transferred. Certain master services
agreements (including with respect to our largest customer) may
contain minimum purchase volumes which can be satisfied by the
customer on a periodic basis by choosing from various products
offered by the Company. In these cases, a performance obligation is
created when a customer submits a purchase order for a specific
product at a specified price, typically providing for delivery
within the next 60 days. Management considers the performance
obligation with respect to such purchase order satisfied at the
point in time when control of the product is transferred to the
customer, which is indicated by shipment of the product and
transfer of title and risk of loss to the customer. Transfer of
control to the customer occurs through various modes of shipment,
including trucks, railcars, and vessels, and follows a variety of
commercially acceptable shipping or destination point terms
pursuant to the arrangement with the customer. Variable
consideration is estimated for future volume rebates and early pay
discounts on certain products and product returns. The Company
records variable consideration as an adjustment to the sale
transaction price. Since variable consideration is generally
settled within one year, the time value of money is not
significant.
The Company applies the practical expedient in Topic 606 and does
not include disclosures regarding remaining performance obligations
that have original expected durations of one year or less, or
amounts for variable consideration allocated to wholly-unsatisfied
performance obligations or wholly-unsatisfied distinct goods that
form part of a single performance obligation, if any.
The Company also utilizes the practical expedient in Topic 606 and
does not include an adjustment for the effects of a significant
financing component given the expected period duration of one year
or less.
Environmental –
The Company accrues costs related to environmental matters when it
is probable that we have incurred a liability related to a
contaminated site and the amount can be reasonably
estimated.
Deferred Income and Customer Advances
– AdvanSix typically has an annual pre-buy program for ammonium
sulfate that is classified as deferred income and customer advances
in the Consolidated Balance Sheets. Customers pay cash in advance
to reserve capacity for ammonium sulfate to guarantee product
availability during peak planting season. The Company recognizes a
customer advance when cash is received for the advanced buy.
Revenue is then recognized and the customer advance is relieved
upon title transfer of ammonium sulfate.
Trade Receivables and Allowance for Doubtful Accounts
– Trade accounts receivables are recorded at the invoiced amount as
a result of transactions with customers. AdvanSix maintains
allowances for doubtful accounts for estimated losses based on a
customer’s inability to make required payments. AdvanSix estimates
anticipated losses from doubtful accounts based on days past due,
as measured from the contractual due date and historical collection
history and incorporates changes in economic conditions that may
not be reflected in historical trends such as customers in
bankruptcy, liquidation or reorganization. Receivables are
written-off against the allowance for doubtful accounts when they
are determined uncollectible. Such determination includes analysis
and consideration of the particular conditions of the account,
including time intervals since last collection, customer
performance against agreed upon payment plans, success of outside
collection agencies activity, solvency of customer and any
bankruptcy proceedings. The Company adopted ASU 2016-13 effective
January 1, 2020, using a modified retrospective approach, which did
not have a material impact on the Company's consolidated financial
position or results of operations upon adoption.
Research and Development
– AdvanSix conducts research and development (“R&D”)
activities, which consist primarily of the development of new
products and product applications consisting primarily of labor
costs and depreciation and maintenance costs. R&D costs are
charged to expense as incurred. Such costs are included in costs of
goods sold and were $14.0 million, $11.8 million, and $13.9 million
for the years ended December 31, 2021, 2020 and 2019,
respectively.
Debt Issuance Costs
– Debt issuance costs are capitalized as a component of Other
assets and are amortized through interest expense over the related
term.
Stock-Based Compensation Plans –
The principal awards issued under our stock-based compensation
plans, which are described in "Note 16. Stock-Based Compensation
Plans" to the Consolidated Financial Statements included in Item 8
of this Form 10-K, are non-qualified stock options, performance
stock units and restricted stock units. The cost for such awards is
measured at the grant date based on the fair value of the award.
The value of the portion of the award that is ultimately expected
to vest, including the impact of the Company's anticipated
performance against certain metrics for performance stock units, is
recognized as expense over the requisite service periods (generally
the vesting period of the equity award) and is included in selling,
general and administrative expenses. Estimates of future
performance are utilized to determine the underlying expense for
shares expected to vest. Forfeitures are estimated at the time of
grant to recognize expense for those awards that are expected to
vest and are based on our historical forfeiture rates.
Dividend Equivalents –
If a dividend is authorized by the Board for stockholders of common
stock, holders of unvested RSUs and unvested PSUs will have their
accounts credited with dividend equivalents in the form and in an
amount equal to the dividend that the holder would have received
had the shares underlying the RSUs and PSUs been distributed at the
time that such dividend was paid. Dividend equivalents are subject
to the same vesting, forfeiture, performance and payment
restrictions as the respective equity award for which it is
attributable. Since the dividend equivalents are forfeitable, there
is no impact on the basic earnings per share
calculation.
Pension Benefits
– We have a defined benefit plan covering certain employees
primarily in the U.S. The benefits are accrued over the employees’
service periods. We use actuarial methods and assumptions in the
valuation of defined benefit obligations and the determination of
net periodic pension income or expense. Differences between actual
and expected results or changes in the value of defined benefit
obligations and fair value of plan assets, if any, are not
recognized in earnings as they occur but rather systematically over
subsequent periods when net actuarial gains or losses are in excess
of 10% of the greater of the fair value of plan assets or the
plan’s projected benefit obligation.
Foreign Currency Translation
– Assets and liabilities of subsidiaries operating outside the
United States with a functional currency other than U.S. dollars
are translated into U.S. dollars using year-end exchange rates.
Sales, costs and expenses are translated at the average exchange
rates in effect during the year. Foreign currency translation gains
and losses are included as a component of Accumulated other
comprehensive income (loss) in our Consolidated Balance
Sheets.
Income Taxes
– We account for income taxes pursuant to the asset and liability
method which requires us to recognize current tax liabilities or
receivables for the amount of taxes we estimate are payable or
refundable for the current year and deferred tax assets and
liabilities for the expected future tax consequences attributable
to temporary differences between the financial statement carrying
amounts and their respective tax bases of assets and liabilities
and the expected benefits of net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in
the period enacted. A valuation allowance is provided when it is
more likely than not that a portion or all of a deferred tax asset
will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
and the reversal of deferred tax liabilities during the period in
which related temporary differences become deductible.
We adopted the provisions of ASC 740 related to the accounting for
uncertainty in income taxes recognized in an enterprise’s
consolidated financial statements. ASC 740 prescribes a
comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns.
The benefit of tax positions taken or expected to be taken in our
income tax returns are recognized in the financial statements if
such positions are more likely than not of being sustained upon
examination by taxing authorities. Differences between tax
positions taken or expected to be taken in a tax return and the
benefit recognized and measured pursuant to the interpretation are
referred to as “unrecognized benefits”. A liability is recognized
(or amount of net operating loss carryover or amount of tax
refundable is reduced) for an unrecognized tax benefit because it
represents an enterprise’s potential future obligation to the
taxing authority for a tax position that was not recognized as a
result of applying the provisions of ASC 740. Interest costs and
related penalties related to unrecognized tax benefits are required
to be calculated, if applicable. Our policy is to classify tax
related interest and penalties, if any, as a component of income
tax expense. No interest or penalties related to unrecognized
income tax benefits were recorded during the years ended December
31, 2021, 2020 and 2019. As of December 31, 2021 and 2020, no
liability for unrecognized tax benefits was required to be
reported. We do not expect any significant changes in our
unrecognized tax benefits in the next year.
Leases
– The Company enters into agreements to lease transportation
equipment, storage facilities, office space, dock access and other
equipment. Operating leases have initial terms of up to 20 years
with some containing renewal options subject to customary
conditions.
An arrangement is considered to be a lease if the agreement conveys
the right to control the use of the identified asset in exchange
for consideration.
Operating leases, which are reported as Operating lease
right-of-use assets, and Operating lease liabilities – short-term
and Operating lease liabilities – long-term are included in our
Consolidated Balance Sheets. Finance leases are included as a
component of Property, plant and equipment – net, Accounts payable
and Other liabilities in our Consolidated Balance
Sheets.
The Company adopted ASU 2016-02, Leases (Topic 842) effective
January 1, 2019 and has elected the following practical expedients
available in Topic 842:
•the
package of three expedients which allows the Company to not
re-assess (i) whether any expired or existing contracts are, or
contain, leases, (ii) lease classification for any expired or
existing leases, and (iii) initial direct costs for any expired or
existing leases;
•the
short-term lease practical expedient, which allows the Company to
exclude leases with an initial term of 12 months or less
("short-term leases") from recognition in the unaudited
Consolidated Balance Sheets;
•the
bifurcation of lease and non-lease components practical expedients,
which did not require the Company to bifurcate lease and non-lease
components for real estate leases; and
•the
land easements practical expedient, which allows the Company to
carry forward the accounting treatment for land easements on
existing agreements.
Earnings Per Share
– Basic earnings per share is based on the weighted average number
of common shares outstanding. Diluted earnings per share is based
on the weighted average number of common shares outstanding and all
dilutive potential common shares outstanding.
Treasury Stock
– The Company has elected to account for treasury stock purchased
under the constructive retirement method. For shares repurchased in
excess of par, the company will allocate the excess value to
additional paid-in capital.
Use of Estimates –
The preparation of the Consolidated Financial Statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts in the Consolidated
Financial Statements and related disclosures in the accompanying
Notes. Actual results could differ from those estimates. Estimates
and assumptions are periodically reviewed and the effects of
changes are reflected in the Consolidated Financial Statements in
the period they are determined to be necessary.
Reclassifications
– Certain prior period amounts have been reclassified for
consistency with the current period presentation. All reclassified
amounts have been immaterial.
Recent Accounting Pronouncements
– The Company considers the applicability and impact of all
Accounting Standards Updates (“ASUs”) issued by the Financial
Accounting Standards Board (“FASB”). ASUs not discussed below were
assessed and determined to be either not applicable or are expected
to have minimal impact on our consolidated financial position or
results of operations.
On August 5, 2020, the FASB issued ASU No. 2020-06, Debt – Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).
The amendments in the ASU remove certain separation models for
convertible debt instruments and convertible preferred stock that
require the separation of a convertible debt instrument into a debt
component and an equity or derivative component. Therefore, the
embedded conversion features no longer are separated from the host
contract for convertible instruments with conversion features that
are not required to be accounted for as derivatives under Topic
815, Derivatives and Hedging, or that do not result in substantial
premiums accounted for as paid-in-capital. This will result in more
convertible debt instruments being accounted for as a single
liability measured at its amortized cost and more convertible
preferred stock being accounted for as a single equity instrument
measured at its historical cost, as long as no other features
require bifurcation and recognition as derivatives. The ASU also
amends the derivative scope exception guidance for contracts in an
entity’s own equity. The amendments remove three settlement
conditions that are required for equity contracts to qualify for
the derivative scope exception. The guidance is effective for
public business entities for fiscal years, and interim terms within
those fiscal years, beginning after December 15, 2021. Early
adoption of the amendments in this update is permitted, but no
earlier than fiscal years, including interim periods within those
fiscal years, beginning after December 15, 2020. The Company
adopted ASU 2020-06 effective January 1, 2022, which did not have
any impact on the Company's consolidated financial position or
results of operations upon adoption.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. The amendments of ASU No. 2020-04
are effective for companies as of March 12, 2020 through December
31, 2022. An entity may elect to apply the amendments for contract
modifications by Topic or Industry Subtopic as of any date from the
beginning of an interim period that includes or is subsequent to
March 12, 2020, or prospectively from a date within an interim
period that includes or is subsequent to March 12, 2020, up to the
date that the financial statements are available to be issued. The
amendments in this update apply only to contracts, hedging
relationships and other transactions that reference LIBOR or
another reference rate expected to be discontinued because of
reference rate reform and provide optional expedients and
exceptions for applying U.S. GAAP to contracts, hedging
relationships and other transactions affected by reference rate
reform if certain criteria are met. The Company adopted ASU 2020-04
effective September 30, 2021, which did not have a material impact
on the Company's consolidated financial position or results of
operations upon adoption.
On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes. The ASU
removes the exception to the general principles in FASB Accounting
Standards Codification ("ASC") 740, Income Taxes, associated with
the incremental approach for intra-period tax allocation,
accounting for basis differences when there are ownership changes
in foreign investments and interim-period income tax accounting for
year-to-date losses that exceed anticipated losses. In addition,
the ASU improves the application of income tax related guidance and
simplifies U.S. GAAP when accounting for franchise taxes that are
partially based on income, transactions with government resulting
in a step-up in tax basis goodwill, separate financial statements
of legal entities not subject to tax, and enacted changes in tax
laws in interim periods. Different transition approaches,
retrospective, modified retrospective, or prospective, will apply
to each income tax simplification provision. The guidance is
effective for public business entities for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2020. Early adoption of the amendments in this update is
permitted, including adoption in any interim period. The Company
adopted ASU 2019-12 effective January 1, 2021, which did not have a
material impact on the Company’s consolidated financial position or
results of operations upon adoption.
Note 3. Revenue
We serve approximately 400 customers annually in approximately 50
countries and across a wide variety of industries. For 2021, 2020
and 2019, the Company's ten largest customers accounted for
approximately 40%, 43% and 47% of total sales,
respectively.
We typically sell to customers under master services agreements,
with primarily one-year terms, or by purchase orders. We have
historically experienced low customer turnover and have an average
customer relationship of approximately 20 years. Our largest
customer is Shaw Industries Group Inc. ("Shaw"), a significant
consumer of caprolactam and Nylon 6 resin. We sell caprolactam
and
Nylon 6 resin to Shaw under a long-term agreement. Sales to Shaw
were 12% of our total sales for the year ended December 31, 2021,
14% for the year ended December 31, 2020 and 22% for the year ended
December 31, 2019.
The Company’s revenue by product line, and related approximate
percentage of total sales for 2021, 2020 and 2019 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Nylon |
$ |
422,897 |
|
|
25% |
|
$ |
284,701 |
|
|
24% |
|
$ |
351,169 |
|
|
27% |
|
Caprolactam |
316,132 |
|
|
19% |
|
216,268 |
|
|
19% |
|
278,634 |
|
|
22% |
|
Chemical Intermediates |
544,504 |
|
|
32% |
|
369,130 |
|
|
32% |
|
368,361 |
|
|
28% |
|
Ammonium Sulfate |
401,092 |
|
|
24% |
|
287,818 |
|
|
25% |
|
299,229 |
|
|
23% |
|
|
$ |
1,684,625 |
|
|
100% |
|
$ |
1,157,917 |
|
|
100% |
|
$ |
1,297,393 |
|
|
100% |
The Company’s revenues by geographic area, and related approximate
percentage of total sales for 2021, 2020 and 2019 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
United States |
$ |
1,382,501 |
|
|
82 |
% |
|
$ |
890,776 |
|
|
77 |
% |
|
$ |
1,057,498 |
|
|
82 |
% |
|
International |
302,124 |
|
|
18 |
% |
|
267,141 |
|
|
23 |
% |
|
239,895 |
|
|
18 |
% |
|
Total |
$ |
1,684,625 |
|
|
100 |
% |
|
$ |
1,157,917 |
|
|
100 |
% |
|
$ |
1,297,393 |
|
|
100 |
% |
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in
advance of our performance. Customer advances relate primarily to
sales from the ammonium sulfate business. Below is a roll-forward
of Deferred income and customer advances for the twelve months
ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income and Customer Advances |
|
|
2021 |
|
Opening balance January 1, 2021 |
|
|
$ |
26,379 |
|
|
Additional cash advances |
|
|
4,328 |
|
|
Less amounts recognized in revenues |
|
|
(27,958) |
|
|
Ending balance December 31, 2021 |
|
|
$ |
2,749 |
|
The Company expects to recognize as revenue the December 31,
2021 ending balance of Deferred income and customer advances within
one year or less.
Note 4. Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Income before taxes
|
|
|
|
|
|
|
U.S.
|
$ |
184,963 |
|
|
$ |
54,902 |
|
|
$ |
53,231 |
|
|
Non-U.S.
|
153 |
|
|
131 |
|
|
117 |
|
|
|
$ |
185,116 |
|
|
$ |
55,033 |
|
|
$ |
53,348 |
|
Income taxes
Income tax expense (benefit) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
Current Provision:
|
|
|
|
|
|
|
Federal
|
$ |
34,079 |
|
|
$ |
(10,289) |
|
|
$ |
2,519 |
|
|
State
|
6,504 |
|
|
1,605 |
|
|
1,007 |
|
|
Non-U.S.
|
35 |
|
|
20 |
|
|
24 |
|
|
Total current provision |
$ |
40,618 |
|
|
$ |
(8,664) |
|
|
$ |
3,550 |
|
|
Deferred Provision:
|
|
|
|
|
|
|
Federal
|
$ |
2,256 |
|
|
$ |
17,853 |
|
|
$ |
7,536 |
|
|
State
|
2,445 |
|
|
(240) |
|
|
907 |
|
|
Non-U.S.
|
6 |
|
|
7 |
|
|
8 |
|
|
Total deferred provision |
4,707 |
|
|
17,620 |
|
|
8,451 |
|
|
Total income tax expense (benefit) |
$ |
45,325 |
|
|
$ |
8,956 |
|
|
$ |
12,001 |
|
The U.S. federal statutory income tax rate is reconciled to the
effective income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
U.S. federal statutory income tax rate
|
21.0 |
% |
|
21.0 |
% |
|
21.0 |
% |
|
U.S. state income taxes
|
3.0 |
% |
|
2.0 |
% |
|
2.8 |
% |
|
|
|
|
|
|
|
U.S. state income tax rate change |
0.8 |
% |
|
— |
% |
|
— |
% |
|
Energy credit
|
— |
% |
|
(6.2) |
% |
|
— |
% |
|
Forfeitures, cancellations and shortfalls of equity
compensation |
— |
% |
|
0.3 |
% |
|
— |
% |
|
Executive compensation limitations |
1.0 |
% |
|
0.9 |
% |
|
1.5 |
% |
|
Research and other tax credits |
(0.3) |
% |
|
(2.6) |
% |
|
(3.0) |
% |
|
Foreign derived intangible income deduction |
(0.9) |
% |
|
— |
% |
|
— |
% |
|
Other, net
|
(0.1) |
% |
|
0.9 |
% |
|
0.2 |
% |
|
|
24.5 |
% |
|
16.3 |
% |
|
22.5 |
% |
The Company's effective income tax rate for 2021 was higher
compared to the U.S. Federal statutory rate of 21% due primarily to
state taxes and executive compensation deduction limitations
partially offset by research tax credits and the foreign-derived
intangible income deduction.
Under a provision included in the Coronavirus Aid, Relief, and
Economic Security ("CARES") Act, the Company filed a Federal net
operating loss (NOL) carryback claim in July 2020 which generated a
refund of previously paid taxes in the amount of
$12.3 million. The refund was received in the first quarter of
2021. Although the carryback claim generated a $12.3 million
refund, it also resulted in the loss of prior year permanent tax
benefits, the impact of which, is reflected in the above table
under "Other, net" above.
On March 11, 2021, the American Rescue Plan Act ("ARPA") was signed
into law. The ARPA is aimed at addressing the continuing economic
and health impacts of the COVID-19 pandemic. This legislative
relief, along with the previous governmental relief packages,
provide for numerous changes to current tax law. The ARPA did not
have a material impact on our financial statements for the year
ended December 31, 2021.
The Company's effective income tax rate for 2020 was lower compared
to the U.S. Federal statutory rate of 21% due primarily to the
impact of research tax credits as well as an energy tax credit
described in more detail below. This was partially offset by state
taxes, executive compensation deduction limitations and a shortfall
on the vesting of equity compensation.
The Company's effective income tax rate for 2019 was slightly
higher compared to the U.S. Federal statutory rate of 21% due
primarily to state taxes and executive compensation deduction
limitations, partially offset by the vesting of restricted stock
units and research tax credits.
As of December 31, 2021, 2020 and 2019, there were no unrecognized
tax benefits recorded by the Company (see below for further
information on unrecognized tax benefits). Although there are no
unrecognized income tax benefits, when applicable, the Company’s
policy is to report interest expense and penalties related to
unrecognized income tax benefits in the income tax
provision.
The Company uses the flow-through method to account for investment
tax credits, including certain energy credits. Under this method,
investment tax credits are recognized as a reduction to income tax
expense in the year they are earned.
The Company is subject to taxation in the United States and various
states and foreign jurisdictions. The Company is currently under a
federal tax examination for the tax years ended December 31, 2017
through December 31, 2019. There are no material examinations by
state tax authorities; however, tax years 2017 through 2021
generally remain open under the statute of limitations and are
subject to examination by the tax authorities.
We are subject to income taxes in the United States and to a lesser
extent several foreign jurisdictions. Changes to income tax laws
and regulations, or the interpretation of such laws, in any of the
jurisdictions in which we operate could impact our effective tax
rate and cash flows from operating activities. The current US
administration has released various draft tax reform proposals, as
such, we continue to monitor these legislative proposals to
evaluate the impact on our business.
Deferred tax assets (liabilities)
The tax effects of temporary differences which give rise to future
income tax benefits and expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2021 |
|
2020 |
|
Deferred tax assets: |
|
|
|
|
Net Operating Loss |
$ |
51 |
|
|
$ |
107 |
|
|
Accruals and Reserves |
7,040 |
|
|
4,966 |
|
|
Inventory |
5,934 |
|
|
4,439 |
|
|
Pension Obligation |
2,500 |
|
|
8,028 |
|
|
Operating lease liability |
32,902 |
|
|
27,358 |
|
|
Equity Compensation |
2,584 |
|
|
1,793 |
|
|
Other |
421 |
|
|
900 |
|
|
Total gross deferred tax assets |
51,432 |
|
|
47,591 |
|
|
Less: Valuation Allowance |
— |
|
|
— |
|
|
Total deferred tax assets |
$ |
51,432 |
|
|
$ |
47,591 |
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
Property, plant & equipment |
$ |
(146,717) |
|
|
$ |
(140,735) |
|
|
Intangibles |
(3,721) |
|
|
(3,744) |
|
|
Operating lease asset |
(32,782) |
|
|
(27,262) |
|
|
Other |
(1,542) |
|
|
(1,417) |
|
|
Total deferred tax liabilities |
(184,762) |
|
|
(173,158) |
|
|
Net deferred taxes |
$ |
(133,330) |
|
|
$ |
(125,567) |
|
The net deferred taxes are primarily related to U.S. operations.
The federal net operating loss ("NOL") generated as of December 31,
2019 was carried back to previous tax periods under the CARES Act
and the amount was fully utilized in the carryback claim. As of
2021, we recognized a state NOL carryforward in Illinois for $0.7
million which begins to expire in 2028. The Company fully utilized
its foreign NOL as of December 31, 2021. The Company has no
material federal or state tax credit carryforwards remaining as of
December 31, 2021. We believe that the state NOL carryforward,
tax credit carryforwards and other deferred tax assets are more
likely than not to be realized and we have not recorded a valuation
allowance against the deferred tax assets.
The Company's accounting policy is to record the tax impacts of
Global intangible low-taxed income as a period cost.
As of December 31, 2021 and 2020, there were no material
undistributed earnings of the Company's non-U.S. subsidiaries and,
as such, we have not provided a deferred tax liability for
undistributed earnings.
Unrecognized tax benefits
The following table sets forth the change in the Company's
unrecognized tax benefits (UTBs) for year ended December 31, 2021
and 2020. There are no unrecognized tax benefits in
2019.