AdvanSix(ASIX) - 2021 Q4 - Annual Report

PART I. This section details AdvanSix's business operations, competitive landscape, risk factors, property holdings, legal proceedings, and human capital management practices Item 1. Business AdvanSix is a vertically integrated manufacturer of nylon solutions, chemical intermediates, and plant nutrients, leveraging U.S.-based facilities, operational excellence, and strategic investments - AdvanSix innovates and delivers essential products for building & construction, fertilizers, plastics, solvents, packaging, paints, coatings, adhesives, and electronics, leveraging its vertically integrated U.S.-based manufacturing facilities[8] Corporate History AdvanSix was spun off from Honeywell International Inc. in 2016, distributing common stock to Honeywell shareholders - AdvanSix Inc. was separated from Honeywell International Inc. on October 1, 2016, through a spin-off distribution of its common stock to Honeywell shareholders[7] Description of Business The company's core business involves the production of Nylon 6 resin, Caprolactam, various chemical intermediates, and Ammonium Sulfate through a vertically integrated manufacturing process - AdvanSix's key product lines include Nylon 6 resin (Aegis® brand), Caprolactam, Chemical Intermediates (e.g., acetone, phenol, AMS), and Ammonium Sulfate (Sulf-N® brand)[8][9][10][11] - The company's manufacturing process is vertically integrated, using cumene to produce phenol, acetone, and AMS at its Frankford, Pennsylvania plant, which is then further processed at its Hopewell and Chesterfield, Virginia facilities[15] Annual Production Capacity by Plant | Plant | Product Line | Annual Capacity | | :-------------- | :----------------------------------------- | :------------------ | | Frankford Plant | Phenol, Acetone, Alpha-Methylstyrene | 680 million pounds | | Hopewell Plant | Caprolactam | 805 million pounds | | Hopewell Plant | Ammonium Sulfate | 3.4 billion pounds | | Hopewell Plant | Ammonia | 1.3 billion pounds | | Chesterfield Plant | Aegis® Nylon 6 Resins | 440 million pounds | Competitive Strengths AdvanSix maintains a low-cost position and diverse revenue streams through its integrated manufacturing, global reach, and technical expertise - AdvanSix maintains a low-cost position due to its vertically integrated manufacturing footprint, large scale (one of the world's largest single-site caprolactam and ammonium sulfate producers), favorable U.S. geographical location with access to low-cost natural gas, and high plant utilization rates[18] - The company benefits from diverse revenue sources, with ammonium sulfate sales at $401 million (24% of total sales) and acetone sales at approximately $294 million (17% of total sales) in 2021[19] - Global reach, with approximately 18% of 2021 sales outside the United States, and strong technical know-how combined with R&D capabilities enable the development of differentiated products and customer intimacy[20][21] Business Strategies AdvanSix focuses on operational excellence, portfolio resiliency through innovation, and strong capital stewardship to enhance profitability and shareholder returns - AdvanSix focuses on operational excellence to improve through-cycle profitability by increasing production volume, executing planned plant turnarounds, investing in intermediate chemical buffer storage, and implementing energy/direct material initiatives[23] - The company aims to enhance portfolio resiliency through innovation, increasing the value of its product portfolio in high-purity applications, high-value intermediates, and differentiated nylon, including recently launched 100% Post-Industrial Recycled resins and films[24] - Strong capital stewardship involves executing high-return growth and cost-saving capital projects, evaluating cash returns to shareholders (e.g., initiated quarterly dividend in 2021), and pursuing selective acquisitions and alliances (e.g., Commonwealth Industrial Services, Inc. acquisition in 2021)[25] Industry Overview Global demand for AdvanSix's products generally tracks GDP, with prices influenced by supply, demand, raw material costs, and market-specific dynamics - Global demand for Nylon 6 resin and caprolactam generally tracks global GDP, with prices influenced by supply and demand, and raw material costs (primarily benzene, natural gas, and sulfur)[26][27] - The market experienced a cyclical downturn from 2011-2016 due to increased Chinese capacity, but 2021 saw robust performance driven by strong end-use demand, operational upsets, and supply chain disruptions[29] - U.S. acetone market conditions improved in 2020 and 2021 due to strong global demand (partially COVID-related) and the implementation of anti-dumping duties[30] - Ammonium sulfate fertilizer prices are influenced by urea prices and general agriculture trends, with AdvanSix's product offering the added value of sulfur nutrition[31] Competition AdvanSix competes on factors including price, supply reliability, product innovation, and technical capabilities against integrated manufacturers and specialized producers - Competition across AdvanSix's product offerings is based on factors including price, reliability of supply, product innovation, quality, breadth of product line, R&D efforts, and technical/managerial capability[32] - Key competitors include integrated manufacturers (e.g., Highsun Group, BASF), synthetic ammonium sulfate producers (e.g., Nutrien Ltd.), and stand-alone phenol and acetone producers (e.g., Ineos, Altivia)[32] Product Overview In 2021, Nylon products, Caprolactam, Chemical Intermediates, and Ammonium Sulfate each contributed significantly to total sales - In 2021, Nylon products generated $423 million in sales (25% of total sales), and Caprolactam generated $316 million in sales (19% of total sales)[34] - Chemical intermediates generated $545 million in sales (32% of total sales) in 2021, with acetone, phenol, and cyclohexanone accounting for 81% of these sales[35] - Ammonium sulfate products generated $401 million in sales (24% of total sales) in 2021, produced at a ratio of approximately four pounds of ammonium sulfate to one pound of caprolactam[37] Raw Materials The company's primary raw materials are cumene, natural gas, and sulfur, with commodity price risk mitigated through formula-based contracts - The primary raw materials are cumene (derived from benzene and propylene), natural gas, and sulfur, purchased from multiple suppliers to ensure supply stability[38] - Commodity price risk is mitigated through medium and long-term, formula-based price contracts with suppliers and formula-based price agreements with customers[38] Sales, Marketing and Distribution AdvanSix employs a global sales force and logistics infrastructure to ensure reliable product delivery to customers - AdvanSix employs a global sales force with deep product and market expertise, primarily selling directly to customers under contracts or through spot transactions and distributors[39] - The company's global logistics infrastructure ensures reliable and timely delivery to customers while maximizing distribution efficiency[39] Customers AdvanSix serves approximately 400 global customers, with its largest customer, Shaw Industries Group Inc., accounting for 12% of 2021 sales - AdvanSix serves approximately 400 customers globally in about 50 countries, with its 10 largest customers accounting for approximately 40% of total sales in 2021[40] - Shaw Industries Group Inc. is the largest customer, representing 12% of total sales in 2021, with whom AdvanSix has a long-term agreement for caprolactam and Nylon 6 resin[42] Seasonality Ammonium sulfate fertilizer sales are seasonal, peaking in the second quarter, while most other product sales are not significantly seasonal - Ammonium sulfate fertilizer sales fluctuate seasonally based on growing seasons in North and South America, typically strongest in the second quarter and declining in the third, leading to occasional inventory build-up[43] - Sales of most other products are generally subject to minimal or no seasonality[43] Research & Development and Intellectual Property R&D activities focus on process improvement and new product applications, supported by numerous patents, trademarks, and trade secrets - R&D activities focus on improving chemical manufacturing processes (efficiency, capacity, productivity, cost reduction) and developing new product applications[44] - The company benefits from numerous patents, trademarks (e.g., Aegis®, Capran®, Sulf-N®, Nadone®, Naxol®, EZ-Blox™), and trade secrets, with R&D conducted at technology centers in Frankford, PA, and Chesterfield, VA[45][46] Regulation and Environmental Matters AdvanSix is subject to extensive environmental, health, and safety regulations, which can result in significant capital expenditures and operational costs - AdvanSix is subject to extensive federal, state, local, and foreign environmental, health, and safety laws and regulations, including CERCLA, RCRA, Clean Air Act, Clean Water Act, and TSCA, which result in higher capital expenditures and costs[47][49] - The company's Frankford and Hopewell facilities are regulated under the Maritime Transportation Security Act (MTSA), and acetone sales are regulated by the Drug Enforcement Act[52] - Potential climate change legislation, stricter environmental laws, or the discovery of new toxicological impacts could lead to substantial costs, operational changes, or limitations on product sales[48][50] Human Capital Management AdvanSix employs approximately 1,375 people, prioritizing safety, and is committed to Equity, Diversity, and Inclusion - As of December 31, 2021, AdvanSix employed approximately 1,375 people, with about 705 employees covered under collective bargaining agreements[55] - Safety is a core value, with a Total Case Incident Rate (TCIR) of 0.48 in 2021, demonstrating continuous improvement from 0.91 in 2020 and 0.86 in 2019[57][60] - The company is committed to Equity, Diversity, and Inclusion, having signed the CEO Action for Diversity and Inclusion pledge, supporting STEM education, and achieving over 50% women in senior leadership in 2021[62][63][66] Information about our Executive Officers The executive officers include Erin N. Kane (CEO), Michael Preston (SVP & CFO), Achilles B. Kintiroglou (SVP, General Counsel & Corporate Secretary), Kelly J. Slieter (SVP & CHRO), Christopher Gramm (VP, Controller), and Willem L. Blindenbach (SVP, Integrated Supply Chain) - The executive officers include Erin N. Kane (CEO), Michael Preston (SVP & CFO), Achilles B. Kintiroglou (SVP, General Counsel & Corporate Secretary), Kelly J. Slieter (SVP & CHRO), Christopher Gramm (VP, Controller), and Willem L. Blindenbach (SVP, Integrated Supply Chain)[74][76] Other Information AdvanSix's SEC filings are available on its website and www.sec.gov, with the company incorporated in Delaware in 2016 - AdvanSix's SEC filings (10-K, 10-Q, 8-K) and amendments are available free of charge on its website (www.AdvanSix.com) under the Investors section and on www.sec.gov[77](index=77&type=chunk) - The company is a Delaware corporation, incorporated on May 4, 2016, with its principal executive offices located in Parsippany, New Jersey[78] Item 1A. Risk Factors The company faces material risks from volatile economic conditions, industry cyclicality, operational disruptions, raw material price fluctuations, and extensive regulatory and environmental compliance - The company's business, financial condition, and results of operations could be adversely affected by difficult global economic conditions, including inflationary pressures, supply chain issues, labor market shortages, and trade conflicts[83] - Significant unplanned downtime or material disruptions at any of its integrated production facilities or logistics operations, or those of third-party suppliers, may adversely affect production costs, product lead times, and earnings[87][89][91] - Extensive environmental, health, and safety laws and regulations, including those related to climate change, may result in substantial costs, unanticipated loss or liability, and could increase operating costs or limit output[130][131][133] Risks Relating to Our Business AdvanSix faces risks from weak economic conditions, industry cyclicality, capital intensity, the COVID-19 pandemic, customer concentration, and cybersecurity threats - Weak economic conditions, especially in key markets, could reduce demand for products, impacting sales and margins, while volatility in commodity prices may hinder sustained price increases[83] - The industries in which AdvanSix operates experience cyclicality, causing significant fluctuations in supply, demand, selling prices, and margins for its Nylon 6 resin, caprolactam, nitrogen fertilizer, phenol, and acetone products[85] - The company's operations are capital intensive, and it may require additional capital in the future for growth, upgrades, and compliance, which may not be available on favorable terms or at all[94][95] - The COVID-19 pandemic has created significant volatility and economic disruption, impacting supply chains, demand, and financial markets, with the extent of future impacts remaining unpredictable[97][99] - The loss of one or more significant customers, particularly Shaw Industries Group Inc. (12% of 2021 sales), or unfavorable changes in contract terms, could adversely affect business, financial condition, and results of operations[105] - Cybersecurity threats and incidents are increasing in frequency and sophistication, posing risks of business disruption, loss of critical information, and adverse impacts on reputation and financial condition[121][122] Risks Relating to Our Indebtedness AdvanSix's ability to manage its debt is dependent on future cash generation, subject to restrictive covenants and potential LIBOR phase-out impacts - AdvanSix's ability to make payments on and refinance its indebtedness depends on future cash generation, which is subject to various economic and market factors beyond its control[127] - The terms of the company's credit facility include restrictive covenants that limit its ability to incur additional debt, pay dividends, make acquisitions, and dispose of assets, with a breach potentially leading to accelerated repayment[127][128] - The phase-out of LIBOR as an interest rate benchmark introduces uncertainty and could cause volatility or disruption in financial markets, potentially increasing the cost of variable rate debt[129] Risks Relating to Legal and Regulatory Matters The company faces potential liabilities from environmental remediation, permit dependencies, adverse trade policies, internal control failures, and spin-off tax indemnification - The company is subject to potentially material liabilities related to environmental remediation and claims of personal injuries or property damages from hazardous substance releases, with future changes in laws or discovery of contamination potentially increasing costs[132] - Operations are dependent on numerous required permits and approvals; denial, delay, revocation, or substantial modification of a material permit could adversely affect the ability to continue operations[137] - Adverse trade policies, including tariffs and anti-dumping duties (e.g., on acetone and ammonium sulfate), could increase product prices relative to competitors or decrease customer demand[138][139] - Failure to maintain effective internal controls over financial reporting could adversely impact the company's ability to meet reporting requirements, potentially leading to a decline in stock price, penalties, or investigations[140][141] - If the 2016 spin-off from Honeywell were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, AdvanSix could be required to indemnify Honeywell for resulting taxes and related expenses[143][145] Risks Relating to Our Common Stock and the Securities Market AdvanSix's common stock price may fluctuate widely due to various factors, and future dividends or equity issuances are not assured - The market price of AdvanSix's common stock may fluctuate widely due to factors such as operational results, business strategies, industry competition, interest rates, earnings, acquisitions, and general economic conditions[146] - The timing, declaration, amount, and payment of future dividends are at the sole discretion of the Board and are subject to financial condition, earnings, capital requirements, and debt service obligations, with no assurance of future payments[148] - Stockholder percentage ownership may be diluted in the future due to common stock-based equity awards or the issuance of equity to raise capital or fund acquisitions[149] - Certain provisions in the company's corporate documents and Delaware law may discourage, delay, or prevent mergers or acquisitions opposed by the Board, even if such transactions offer stockholders a premium[150] Item 1B. Unresolved Staff Comments AdvanSix reported that there were no unresolved staff comments from the SEC - No unresolved staff comments were reported[151] Item 2. Properties AdvanSix leases its executive offices and owns three production facilities in Pennsylvania and Virginia, with all properties maintained through capital investments - Principal executive offices are located in leased space at 300 Kimball Drive, Suite 101, Parsippany, NJ 07054[151] - The company owns three production facilities in Frankford, Pennsylvania, Chesterfield, Virginia, and Hopewell, Virginia[151] - The former Colonial Heights R&D facility relocated to the AdvanSix site in Chesterfield in early 2020, improving lab configuration, connectivity with resin manufacturing, and customer collaboration[151] Item 3. Legal Proceedings The company is involved in routine litigation and EPA negotiations for self-reported environmental violations, not expecting material adverse effects - The company is involved in litigation relating to claims arising out of the ordinary course of its business operations, but does not expect any to have a material adverse effect on its consolidated financial position, results of operations, or operating cash flows[153] - AdvanSix is in ongoing negotiations with the United States Environmental Protection Agency (EPA) regarding alleged violations of the enhanced leak detection and repair program and emission testing requirements at its Hopewell, Virginia manufacturing facility, which were self-reported[154] Item 4. Mine Safety Disclosures This item is not applicable to AdvanSix - This item is not applicable[154] PART II. This section covers the market for AdvanSix's common equity, management's discussion and analysis of financial condition, market risks, and audited financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AdvanSix common stock trades on the NYSE, with an active share repurchase program and initiated quarterly cash dividends in 2021 - AdvanSix common stock is traded on the New York Stock Exchange under the symbol "ASIX", with 28,141,203 shares outstanding as of February 4, 2022[4][156] - The Board authorized a share repurchase program of up to $150 million, with $59,581,679 remaining available as of December 31, 2021[157][159][160] - The company declared quarterly cash dividends of $0.125 per share in September 2021 and February 2022, with approximately $3.5 million paid in dividends for the year ended December 31, 2021[161][163] Cumulative Total Stockholder Return (December 31, 2016 = $100) | | 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] This item is reserved and contains no information - This item is reserved and contains no information[166] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes AdvanSix's financial condition and operational results, highlighting sales and net income growth, recent developments, liquidity, and critical accounting policies - AdvanSix's results are primarily driven by production volume and the spread between product sales prices and raw material costs, with a strategic focus on developing higher-value, differentiated Nylon 6 products and chemical intermediates[168][169][170] - The company experienced a material impact from COVID-19 in Q2 2020 but saw demand recover to pre-pandemic levels by H2 2020 and through 2021[174] Business Overview AdvanSix's operational results are driven by production volume and price spreads, with a focus on differentiated products and risk mitigation strategies - AdvanSix's operational results are primarily driven by production volume and the spread between sales prices of its products and the costs of underlying raw materials, particularly for Nylon 6 resin and caprolactam, which track benzene prices[168] - The company aims to grow by developing and commercializing higher-value, differentiated Nylon 6 products and investing in differentiated chemical intermediate offerings like oximes-based EZ-Blox® and Nadone® cyclohexanone[169][170] - AdvanSix mitigates risks of unplanned interruptions through regularly scheduled maintenance, maintenance excellence programs, targeted buffer inventory of intermediate chemicals, and co-producer swap arrangements[172] Recent Developments Recent developments include demand recovery, strategic acquisitions, anti-dumping duties, and impacts from a refinery shutdown - Demand improved to pre-COVID-19 levels from the second half of 2020 through the end of 2021, following a material impact on Q2 2020 results due to lower demand[174] - AdvanSix acquired certain assets of Commonwealth Industrial Services, Inc. for approximately $9.5 million in January 2021, expanding its ammonium sulfate product offerings and logistics services[177] - The company announced the signing of a definitive agreement to acquire U.S. Amines, Ltd. for an estimated net purchase price of approximately $100 million, expected to close in Q1 2022[177] - Anti-dumping orders were imposed on acetone imports from Singapore, Spain (Dec 2019), Belgium, South Africa, and South Korea (March 2020) for a five-year period, creating more favorable supply and demand conditions[179] - The shutdown of Philadelphia Energy Solutions' refinery resulted in an approximately $35 million unfavorable impact to pre-tax income since 2019, partially offset by $3.9 million in insurance proceeds received through December 31, 2021[182] Consolidated Results of Operations for the Years Ended December 31, 2021, 2020 and 2019 AdvanSix reported significant sales and net income growth in 2021, driven by favorable pricing, higher pass-through pricing, and increased sales volume Sales Performance (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | % Change (2021 vs 2020) | | :----- | :----------------- | :----------------- | :----------------- | :---------------------- | | Sales | $1,684,625 | $1,157,917 | $1,297,393 | 45.5% | - The 45.5% increase in sales in 2021 compared to 2020 was primarily due to favorable market-based pricing (approximately 20%), higher formula-based pass-through pricing (approximately 18%), and higher sales volume (approximately 7%)[186] Cost of Goods Sold and Gross Margin (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | % Change (2021 vs 2020) | | :--------------- | :----------------- | :----------------- | :----------------- | :---------------------- | | Cost of goods sold | $1,410,503 | $1,024,169 | $1,161,921 | 37.7% | | Gross margin % | 16.3% | 11.6% | 10.4% | +4.7 percentage points | - Selling, general and administrative expenses increased by $12.1 million (17%) in 2021 compared to 2020, primarily due to increased incentive and stock-based compensation costs and higher functional support costs[190] Net Income and EPS (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------- | :----------------- | :----------------- | :----------------- | | Net income| $139,791 | $46,077 | $41,347 | | Basic EPS | $4.97 | $1.64 | $1.47 | | Diluted EPS | $4.81 | $1.64 | $1.43 | Non-GAAP Measures AdvanSix utilizes non-GAAP measures like EBITDA and EBITDA margin to provide supplemental information for evaluating operating performance - AdvanSix uses non-GAAP financial measures, EBITDA and EBITDA margin, to provide meaningful supplemental information for evaluating operating performance and facilitating comparisons, as they exclude items not considered core to operations[199] EBITDA and EBITDA Margin (Non-GAAP) (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :------------------------------------------------------------------- | :----------------- | :----------------- | :----------------- | | 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 | | Sales | $1,684,625 | $1,157,917 | $1,297,393 | | EBITDA margin % (non-GAAP) | 15.2% | 10.7% | 8.9% | Liquidity and Capital Resources AdvanSix maintains liquidity through cash, operating cash flows, and a revolving credit facility, with increased operating cash flow in 2021 - AdvanSix maintains liquidity through cash balances, operating cash flows, and its $500 million revolving credit facility (refinanced in October 2021), with $364 million of additional capacity available at December 31, 2021[203][205][220][225] - Net cash provided by operating activities increased by $107.0 million in 2021, primarily due to a $93.7 million increase in net income and a $21.6 million cash improvement from taxes receivable, including a $12.3 million refund from a CARES Act NOL carryback claim[206][228] Cash Flow Summary (2019-2021) | Cash Flow Activity | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :---------------------------------- | :----------------- | :----------------- | :----------------- | | 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) | - Capital expenditures decreased by $26.1 million from 2020 to 2021, reflecting process and execution efficiencies, with expected total capital expenditures for 2022 ranging from $95 million to $105 million[231] - The company made $17.5 million in contributions to its defined benefit pension plan in 2021 and plans to make $10.0 million to $15.0 million in 2022[209][210] Critical Accounting Policies and Estimates Financial statement preparation requires significant estimates for inventory, goodwill, stock-based compensation, employee benefits, income taxes, and environmental matters - The preparation of financial statements requires significant estimates and assumptions, particularly for inventory valuations (using the LIFO method), goodwill impairment, stock-based compensation, long-term employee benefit obligations, income taxes, and environmental matters[232] - Substantially all inventories are valued at the lower of cost or market using the LIFO method; LIFO inventories amounted to $149.6 million at December 31, 2021[233] - Goodwill, valued at $17.6 million at December 31, 2021, is subject to annual impairment testing, with a qualitative assessment performed in 2021[234] - Revenue is recognized upon the transfer of control of goods to customers, typically indicated by shipment and transfer of title and risk of loss[235][236] Recent Accounting Pronouncements AdvanSix adopted ASU 2020-06, ASU 2020-04, and ASU 2019-12, none of which had a material impact on its financial statements - AdvanSix adopted ASU 2020-06 (Debt – Debt with Conversion and Other Options) effective January 1, 2022, and ASU 2020-04 (Reference Rate Reform) effective September 30, 2021, neither of which had a material impact on its consolidated financial position or results of operations[314][315] - The company also adopted ASU 2019-12 (Income Taxes) effective January 1, 2021, which did not have a material impact on its consolidated financial position or results of operations[316] Item 7A. Quantitative and Qualitative Disclosures About Market Risk AdvanSix manages interest rate risk on its floating-rate Revolving Credit Facility through an interest rate swap, converting a portion of borrowings to a fixed rate - The company's exposure to risk based on changes in interest rates relates primarily to its Revolving Credit Facility, which bears interest at floating rates[247] - AdvanSix uses an interest rate swap agreement for a total notional amount of $50 million to exchange floating for fixed rate interest payments for its LIBOR-based borrowings, designated as a cash flow hedge[248] - As a result of the interest rate swap, interest payments on approximately 37% of borrowings as of December 31, 2021, have been converted from floating to fixed rate[248] - A 25-basis point fluctuation in interest rates would have resulted in an increase or decrease to interest expense of approximately $0.2 million for the year ended December 31, 2021[249] Item 8. Financial Statements and Supplementary Data This section presents AdvanSix's audited consolidated financial statements, including an unqualified audit opinion, critical audit matters, and detailed notes on accounting policies and disclosures - PricewaterhouseCoopers LLP issued an unqualified opinion on AdvanSix's consolidated financial statements for the three years ended December 31, 2021, and on the effectiveness of its internal control over financial reporting as of December 31, 2021[253] - A critical audit matter identified was Revenue Recognition - Transfer of Control, due to the high degree of auditor subjectivity and effort in evaluating the timing of revenue recognition[260][261] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP provided an unqualified opinion on AdvanSix's consolidated financial statements and internal control over financial reporting - PricewaterhouseCoopers LLP, registered with the PCAOB, provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for AdvanSix[253][254] - The audits were conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and management's estimates[255][256] Critical Audit Matters The critical audit matter identified was Revenue Recognition - Transfer of Control, due to the subjectivity in evaluating the timing of product control transfer - The critical audit matter identified was Revenue Recognition - Transfer of Control, due to the high degree of auditor subjectivity and effort in evaluating the point in time when control of the product was transferred to the customer[260][261] - Audit procedures included testing the effectiveness of controls, evaluating management's determination of control transfer based on contractual terms, and testing supporting purchase orders and shipping documents[262] Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing sales, costs, expenses, and net income for 2019-2021 Consolidated Statements of Operations (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :----------------------------------- | :----------------- | :----------------- | :----------------- | | Sales | $1,684,625 | $1,157,917 | $1,297,393 | | 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 | | 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 | | Basic EPS | $4.97 | $1.64 | $1.47 | | Diluted EPS | $4.81 | $1.64 | $1.43 | Consolidated Statements of Comprehensive Income This section presents the company's consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :---------------------------------------- | :----------------- | :----------------- | :----------------- | | 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 | $34,370 | Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of December 31, 2020, and 2021 Consolidated Balance Sheets (December 31, 2020-2021) | Metric | Dec 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | | :----------------------------------- | :------------------------- | :------------------------- | | ASSETS | | | | Cash and cash equivalents | $15,100 | $10,606 | | Accounts and other receivables – net | $178,140 | $123,554 | | Inventories – net | $149,570 | $180,085 | | Total current assets | $349,854 | $333,503 | | Property, plant and equipment – net | $767,964 | $765,469 | | Goodwill | $17,592 | $15,005 | | Total assets | $1,311,999 | $1,263,407 | | LIABILITIES | | | | Accounts payable | $221,234 | $190,227 | | Total current liabilities | $309,822 | $287,037 | | Line of credit – long-term | $135,000 | $275,000 | | Postretirement benefit obligations | $18,243 | $39,168 | | Total liabilities | $710,809 | $819,284 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $601,190 | $444,123 | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing operating, investing, and financing activities for 2019-2021 Consolidated Statements of Cash Flows (2019-2021) | Cash Flow Activity | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :---------------------------------- | :----------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $218,849 | $111,847 | $120,385 | | Net cash used for investing activities | $(67,562) | $(84,103) | $(153,125) | | 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 end of year | $15,100 | $10,606 | $7,050 | Supplemental Cash Activities (2019-2021) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :----------------- | :----------------- | :----------------- | :----------------- | | Cash paid for interest | $4,459 | $7,290 | $5,201 | | Cash paid for income taxes | $31,000 | $2,005 | $6,993 | Consolidated Statements of Stockholders' Equity This section presents the company's consolidated statements of stockholders' equity, detailing changes in equity components for 2019-2021 Consolidated Statements of Stockholders' Equity (2019-2021) | Metric | Dec 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :---------------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Common Stock Amount | $318 | $316 | $314 | | Additional Paid-In Capital | $195,931 | $184,732 | $180,884 | | Retained Earnings | $411,516 | $275,243 | $229,166 | | Treasury Stock | $(36) | $(36) | $(35) | | Accumulated Other Comprehensive Income (Loss) | $(6,539) | $(16,132) | $(9,451) | | Total Equity | $601,190 | $444,123 | $400,878 | - In 2021, total stockholders' equity increased by $157,067 thousand, driven by net income of $139,791 thousand and a positive change in accumulated other comprehensive income of $9,593 thousand[274] Notes to Consolidated Financial Statements These notes provide detailed context on AdvanSix's accounting policies, segment information, revenue, income taxes, and other financial disclosures - AdvanSix operates as a single operating and reportable segment, with its operations managed as one integrated process across three U.S.-based manufacturing sites[278][279] - The company's significant accounting policies cover areas such as revenue recognition (transfer of control at shipment), inventory valuation (LIFO method), goodwill impairment, stock-based compensation, and income taxes[291][295][296][302][306] Revenue by Product Line (2019-2021) | Product Line | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :------------------- | :----------------- | :----------------- | :----------------- | | Nylon | $422,897 | $284,701 | $351,169 | | Caprolactam | $316,132 | $216,268 | $278,634 | | Chemical Intermediates | $544,504 | $369,130 | $368,361 | | Ammonium Sulfate | $401,092 | $287,818 | $299,229 | | Total Sales | $1,684,625 | $1,157,917 | $1,297,393 | Revenue by Geographic Area (2019-2021) | Region | 2021 ($ thousands) | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------- | :----------------- | :----------------- | :----------------- | | United States | $1,382,501 | $890,776 | $1,057,498 | | International | $302,124 | $267,141 | $239,895 | | Total Sales | $1,684,625 | $1,157,917 | $1,297,393 | - The company's defined benefit pension plan had an under-funded status of $20,137 thousand at December 31, 2021, and the company plans to make $10.0 million to $15.0 million in contributions in 2022[363][370] - In January 2021, AdvanSix acquired certain assets of Commonwealth Industrial Services, Inc. for approximately $9.5 million, resulting in $2.587 million in goodwill, aimed at expanding product offerings and bolstering logistics[411][413] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure AdvanSix reported that there were no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure matters were reported[415] Item 9A. Controls and Procedures Management concluded that AdvanSix's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021[417] - Management assessed and determined that the company maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO[419] - PricewaterhouseCoopers LLP, the independent registered public accounting firm, audited and attested to the effectiveness of the company's internal control over financial reporting[420] - No material changes in the company's internal control over financial reporting were identified during the quarter ended December 31, 2021[421] Item 9B. Other Information AdvanSix reported no other information required under this item - No other information was reported under this item[423] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to AdvanSix - This item is not applicable[423] PART III. This section incorporates by reference information from the company's Proxy Statement regarding directors, executive compensation, security ownership, related transactions, and principal accounting fees Item 10. Directors, Executive Officers and Corporate Governance This item incorporates proxy statement information on directors, executive officers, and corporate governance, including the independent and expert Audit Committee - Information relating to directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement[425] - The Audit Committee members are Paul E. Huck (Chair), Darrell K. Hughes, Daniel F. Sansone, and Farha Aslam; all are independent and designated as audit committee financial experts[426] - AdvanSix's corporate governance policies, including the Code of Business Conduct, Corporate Governance Guidelines, and Committee Charters, are available on its website[427] Item 11. Executive Compensation This item incorporates by reference information from AdvanSix's 2022 Proxy Statement regarding executive compensation and the Compensation Committee - Information relating to executive compensation and the Compensation Committee is incorporated by reference from the 2022 Proxy Statement[428] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This item incorporates by reference information from AdvanSix's 2022 Proxy Statement regarding security ownership of certain beneficial owners and management - Information relating to security ownership of certain beneficial owners and management is incorporated by reference from the 2022 Proxy Statement[429] Item 13. Certain Relationships and Related Transactions and Director Independence This item incorporates by reference information from AdvanSix's 2022 Proxy Statement regarding certain relationships, related transactions, and director independence - Information relating to certain relationships and related transactions and director independence is incorporated by reference from the 2022 Proxy Statement[430] Item 14. Principal Accounting Fees and Services This item incorporates by reference information from AdvanSix's 2022 Proxy Statement regarding principal accounting fees and services, and the Audit Committee's pre-approval policies for non-audit services - Information relating to principal accounting fees and services and the Audit Committee's pre-approval policies and procedures for non-audit services is incorporated by reference from the 2022 Proxy Statement[431] PART IV. This section lists exhibits and financial statement schedules, notes the absence of a Form 10-K summary, and includes the required corporate signatures Item 15. Exhibits and Financial Statement Schedules This item lists all exhibits and financial statement schedules, including the audit report, consolidated financial statements, and a detailed exhibit index - The item includes the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, Stockholders' Equity, and Notes to Consolidated Financial Statements[433] - A comprehensive Exhibit Index lists various documents, including separation and distribution agreements, corporate governance documents, employment letters, and credit agreements[436][437][438][440] - No financial statement schedules are included[433] Item 16. Form 10-K Summary AdvanSix has elected not to include a Form 10-K summary under this item - The company has elected not to include a Form 10-K summary under this Item 16[434] Signatures This section contains the required Form 10-K signatures from the Principal Executive, Financial, and Accounting Officers, and the Board of Directors - The report is signed by Erin N. Kane (Chief Executive Officer and Director), Michael Preston (Senior Vice President and Chief Financial Officer), Christopher Gramm (Vice President and Controller), and members of the Board of Directors[442][444] - The signing date for the report is February 18, 2022[442][444]