WASHINGTON, D.C. 20549
AdvanSix Inc.
TABLE OF CONTENTS
PART I.
Item 1. Business
In this Annual Report on Form 10-K, unless the context otherwise dictates, “AdvanSix”,“AdvanSix,” the “Company”, “we”“Company,” “we,” “us” or “our” means AdvanSix Inc. and its consolidated subsidiaries.
Separation from HoneywellCorporate History
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the previously announced separation of AdvanSix Inc.AdvanSix. The separation was completed by Honeywell distributing (the “Distribution”"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,$0.01per 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”). Each Honeywell stockholder who held their shares through the Distribution Date received one share of AdvanSix common stock for every 25 shares of Honeywell common stock held at the close of business on the record date of September 16, 2016. We filed our Form 10 describing the Spin-Off with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016 (the “Form 10”). On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock symbol. The Spin-Off is further described in Note 1 to the Consolidated Financial Statements included in Item 8 of this Form 10-K.Date.
Description of Business
AdvanSix Inc. is ana diversified chemistry company playing 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, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated manufacturervalue chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, plant nutrients and chemical intermediates, guided by our core values of Safety, Integrity, Accountability and Respect. Our four key product lines are as follows:
•Nylon Solutions
◦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 fibers, filaments and films that, in turn, are used in such end-products as carpets, automotive and electricalelectric components, carpets, sports apparel, fishing nets and food and industrial packaging. As a result of our backward integration and the configuration of our manufacturing facilities, we also sell a variety of other products, all of which are produced as part of our integrated Nylon 6 resin manufacturing process including caprolactam, ammonium sulfate fertilizers,packaging and other chemical intermediates:industrial applications.
Nylon –We sell our Nylon 6 resin globally, primarily under the Aegis® brand name. In addition, we use our Nylon 6 resin to produce nylon films which we primarily sell to our customers under the Capran® brand name.
◦Caprolactam – Caprolactam is the key chemical compoundmonomer used in the production of Nylon 6 resin. In recent years, approximately 60% of theWe internally polymerize caprolactam we have produced at our facility in Hopewell, Virginia has been shipped to our facility in Chesterfield, Virginia to manufactureinto Aegis® Nylon 6 resin. WeResins, and we also market and sell the caprolactam that is not consumed internally in Nylon 6 resin production to customers who use it to manufacture polymer resins to produce nylon fibers, filmscompounds and other nylon products. Our Hopewell manufacturing facility is one of the world’s largest single-site producers of caprolactam as of December 31, 2017.
2023.
•Ammonium Sulfate Fertilizers – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients. Ammonium sulfate fertilizers arefertilizer is derived from the caprolactamintegrated operations at the Hopewell manufacturing process.facility. 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, 2017.2023. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.
•Chemical Intermediates – We manufacture, market and sell a number of other chemical intermediate products that are derived from the chemicalmanufacturing 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 other engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”("AMS"), cyclohexanone, methyl ethyl ketoxime (“MEKO”), cyclohexanol, acetaldehyde oxime, 2-pentanone oxime, cyclohexanol, sulfuric acid, ammonia and carbon dioxide.
With the acquisition of U.S. Amines Limited ("U.S. Amines"), we also produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals.
Each of these product lines represented the following approximate percentage of total sales:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
Nylon | 23% | | 25% | | 25% |
Caprolactam | 19% | | 16% | | 19% |
Ammonium Sulfate | 29% | | 33% | | 24% |
Chemical Intermediates | 29% | | 26% | | 32% |
| 100% | | 100% | | 100% |
|
| | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Nylon | 29% | | 28% | | 27% |
Caprolactam | 19% | | 17% | | 18% |
Ammonium Sulfate Fertilizers | 19% | | 24% | | 25% |
Chemical Intermediates | 33% | | 31% | | 30% |
| 100% | | 100% | | 100% |
The following charts illustrate the distribution of our sales by product categoryline and by region, measured by the destination of each sale, for the year ended December 31, 2017:2023:
For information concerning revenues and assets by geographic region, see “Note 16 – Geographic Areas and Major Customers – Financial Data”3. Revenue” to our Consolidated Financial Statements included in Item 8 of this Form 10-K, which information is incorporated hereherein by reference.
Our manufacturing process is backwardvertically 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 primarily produce caprolactam and ammonium sulfate. In recent years,2023, approximately 60%55% of the caprolactam we produced at our caprolactam is thenfacility in Hopewell, Virginia was shipped to our facility in Chesterfield, plant,Virginia where it iswas polymerized into Aegis® Nylon 6 resin. In addition, we use our Nylon 6 resin to produce nylon films at a facilityresins. During 2022, AdvanSix acquired U.S. Amines, which has two manufacturing facilities located in Pottsville, Pennsylvania, which we primarily sell to our customers under the Capran® brand name.Bucks, Alabama and Portsmouth, Virginia.
Our integrated manufacturing process, our 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 orand packaging of our products in ways which enable us to attract price premiums and greater demand. In February 2022, we successfully completed our second acquisition with the U.S. Amines purchase, adding alkly and allyl amine chemistry to our value chains.
We serve over 500approximately 400 customers globally located in more than 40approximately 50 countries. For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, we had sales of $1,475$1,534 million, $1,192$1,946 million and $1,329$1,685 million with net income of $147$55 million, $34$172 million and $64$140 million, respectively. For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, our international sales were $286$284 million, $216$323 million and $372$302 million, respectively.
AdvanSix is a single operating segment and a single reportable segment, operating through four integratedfive U.S.-based manufacturing sites located in Frankford, Pennsylvania, Hopewell, Chesterfield and Pottsville, PennsylvaniaPortsmouth, Virginia and Hopewell and Chesterfield, Virginia.Bucks, Alabama. The Company's headquarters is located in Parsippany, New Jersey.
Competitive Strengths
Large-Scale Single-Site ProducerLow-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 Caprolactamcaprolactam. First, we are vertically integrated into several key feedstock materials necessary to produce caprolactam, particularly phenol, ammonia and Ammonium Sulfate. Weoleum/sulfuric acid, which we believe is a unique advantage in our industry. Our integration 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 globally, fragmented industry. Our scale provides operating and purchasing 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. We believe that our reputation as one of the world’s largest producers of caprolactam, Nylon 6 resin, ammonium sulfate and associated chemical intermediates, encourages potential customers to approach us for stability of their supply requirements.
Low Cost Position Driven by Favorable Geographical Location, Integrated Manufacturing Footprint and High Utilization Rates. Our access to lower cost raw materials, backward integrated manufacturing facilities and high plant utilization rates help us maintain our position as the world’s lowest cost producer of caprolactam. First,competitors. Third, the location of our manufacturing operations in the United States affords us access to the world’s lowest costlow-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 located in geographic locations where energy prices are currently substantially higher. Second, we are backward integrated into several key feedstock materials necessaryOur footprint also provides access to produce caprolactam and Nylon 6 resin, particularly phenol, ammonia and oleum/sulfuric acid, which we believe is a unique advantage innumber of higher value end markets across our industry. Backward 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.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.
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 2017, approximately 19% 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 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 specialty products that are often valued higher by customers compared to commodity products. We have an R&D department consisting of approximately 50 scientists and engineers with advanced degrees in polymer 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 testsize and scale, productionserves to retain and attract customers who prioritize security of copolymer Nylon 6/6.6 resin, which is used in food packaging films and other applications. We also have R&D resources located in Shanghai, China that specialize in working with nylon resin customers to develop products for specialty applications. Further, 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, an “Ask the Agronomist” blog, technical training sessions for retailers and direct grower meetings.supply.
Diverse Revenue Sources from the Sale of Ammonium Sulfate Fertilizer, Acetone and Other Chemical Intermediates. Due to our specific chemical manufacturing processes, backwardvertical 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 twomany 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 cotton.rice. We have initiated a program to educate growers and retailers on the yield benefit of ammonium sulfate fertilizer on soybeans and to generate on-farm research results that support this crop management practice. Traditionally grown as a less resource intensive alternative to corn, we see soybeans as a potential growth area for nitrogen and sulfur fertilizers as researchers continue to better understand the yield increases that growers can realize by fertilizing soybean crops with these two nutrients. We have also diversified and optimized our ammonium sulfate-based offerings to include a spray-grade adjuvant to support crop protection, as well as other specialty fertilizers and products for industrial use. Sales of ammonium sulfate in 20172023 were $277$441 million and represented 19%29% 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 20172023 were approximately $231$203 million and represented 16%13% of our total sales. In addition to fertilizerammonium sulfate and acetone, other products from our manufacturing process include high-purity phenol, AMS, cyclohexanone, oximes, cyclohexanol, sulfuric acid, ammonia MEKO 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. In addition, our acquisition of U.S. Amines in 2022 enables further diversification into agrochemical intermediates, water treatment and pharmaceuticals.
Global Reach. Our cost position, business model, and sales and marketing capabilities enable us to compete globally where nylon resin, caprolactam, ammonium sulfate and chemical intermediates are consumed. In 2023, 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. Our Research and Development ("R&D") talent consists 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
Build on our Low Cost Leadership PositionOperational Excellence and Improving Through-Cycle Profitability. Through our vertical integration, size, access to low costlow-cost raw materials, backward integration 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, and 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;
•Investing in digital transformation and process automation to optimize and improve operational efficiency;
•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.
LeverageEnhancing Portfolio Resiliency. Our diverse portfolio serves us well particularly during times of uncertainty. Supplementing our R&D Investmentsexposure to diverse end-use applications, we have enhanced our sales mix through our differentiated product portfolio, which earn gross margins that are roughly double our average base business margin. Over the past several years, we have invested in capabilities to strengthen our innovation, increase the value of our product portfolio and Applications Expertise. Our customers typically buy caprolactammeet customer specifications in certain high value industries including high-purity applications, high-value intermediates and nylondifferentiated 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 as well as copolymer Nylon 6/66 resin, which are used in engineered plastics for compounding or extruding with additives andthe automotive industry, films for food packaging, as well as 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.higher value applications. We leverage our R&D investments, customer intimacy and knowledge of product applications to develop new formulations of resin products to better serve our customers and increase the value of our resin products portfolio. For example, engineered plastics that utilize Nylon 6We are focused on working with customers to solve their needs with respect to sustainability and Nylon 6.6 resin are being increasingly used in automobiles to reduce weight as automobile manufacturers
strive to meet stricter fuel efficiency standards. We work withhave commercialized our customers serving this market to develop resin products specifically tailored for these product applications. Likewise, we are working to develop100% Post-Industrial Recycled resins and sell nylon resin products with differentiated characteristics for wire and cable applications and flexible food packaging. Another focus of our R&D initiatives includes nylon resin processing technologies that can produce existing high value resins at lower costs.films. 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.
Selective Investments to Produce Higher Value Products. Historically, a significant portion of our Nylon 6 resin was sold as a commodity product and, In addition, as a result was subjectof recent efforts and enhancements in crystallizer technology and operations, we are now producing a high-quality granular grade ammonium sulfate at greater conversion levels to cyclicality. Overmeet the past several years, we have invested in capabilities to increase the valuegrowing demand of our product portfolio.customers.
Strong Capital Stewardship. We installedhave developed and are executing against a disciplined framework for capital deployment that balances return of cash to shareholders with long-term investment to improve the through-cycle profitability of the business. We are focused on improving our return on invested capital and remain committed to delivering strong and sustainable total shareholder return over the long-term. Our target base capital expenditures are approximately $75 million per year on average between maintenance and health, safety and environmental capital to sustain the business. We have and will continue to flex this level of spend, as needed or required, to address critical enterprise risk mitigation, regulatory compliance and sustainability programs. We will continue to evaluate and execute high-return growth and cost savings capital projects. These efforts target improvement in production line atrate, cost, quality and yield. As an example, we are accelerating profitable growth through our Chesterfield facility that is capable of producing multiple grades of higher value Nylon 6 resin as well as copolymer Nylon 6/6.6 resin, both of which are usedmulti-year SUSTAIN (Sustainable U.S. Sulfate To Accelerate Increased Nutrition) program's planned expansion in engineered plastics for the automotive industry, films for food packaging, as well as other higher value applications. Similarly, we will explore other investments that will enable usgranular ammonium sulfate production. We continue to produce products that meet customer specifications in certain high value industries.
Use of Toll Manufacturers to Produce Higher Margin, AdvanSix-Developed Specialty Products. We use our technical know-howpursue a highly-selective acquisition and customer intimacy to develop products that blend our nylon resin with other types of nylon and non-nylon resin products and additives to produce higher value products. Where we do not have the in-house manufacturing capabilities to produce these products, we contract with third-party compounders to toll manufacture for us. Utilizing third party toll manufacturing has enabled the Company to diversify away from certain commodity end-markets, provide a low cost way to access certain geographic regions and, in some cases, explore new end-markets and applications with less risk.
Pursue a Highly-Selective Acquisition Strategy. We evaluate strategic acquisitions and alliancesalliance strategy to supplement our organic sales by broadening our customer base, expanding our geographic reach and developing our technology and product portfolios.portfolios, and enhancing our cash flow profile and margin stability. On an ongoing basis we evaluate options to return cash to shareholders including significant remaining capacity under our current share repurchase authorization. We initiated our competitive quarterly dividend in 2021 and increased it by 16% in 2022 and another 10% in 2023. The timing, declaration, amount and payment of dividends to stockholders, if any, will be within the sole discretion of our Board of Directors (the "Board").
Industry Overview
Nylon Solutions. Nylon is sold globally as a polymer resin that is drawn into fiber for textiles and Caprolactam. According to PCI Wood Mackenzie, estimated 2017 annual global demandcarpet and into filament for industrial applications: compounded for engineering plastics largely for automotive end-use; and extruded into film for food and
industrial packaging applications. During 2023, approximately seven million metric tons of Nylon 6 resin were produced and consumed globally, with China containing approximately 60% of total global Nylon 6 production capacity and Western Europe and North America combined for approximately 15%. Overall utilization of global production capacity was approximately 5,500 kMT, spanning a variety of end-uses such as engineered automotive plastics, carpets, textiles, industrial filament, and food and industrial films.55% to 65%. The market growth typically tracks global GDP growth over the long-term but varies by end-use. Some of these end-markets, such as engineered automotive plastics, are experiencing increased demand due to trends in lightweighting to meet stricter fuel efficiency standards. We expect this trend of increasing demand to continue as our customers find new uses for Nylon 6 resin within existing and new applications.
Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand trends 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 is a key driver of caprolactam prices because it is the common chemical compound used in the petrochemical derivatives, such as phenol and cyclohexane, which are the key feedstock materials for caprolactam, depending on the chosen manufacturing technology. Asphenol or cyclohexane, are derived from benzene. This price spread has historically experienced variation as a result theof global prices for caprolactam typically track as a spread over the price of benzene. Generally,changes in supply and demand. Nylon 6 resin prices generally track the cyclicality of caprolactam prices, although to the extent Nylon 6 resin producers are able to manufacture specialized nylon resin products, prices set above the average commodity spread are achievable.achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products for current and new customer applications. Our differentiated Nylon 6 products, such as our wire and cable, and co-polymer offerings, 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. Carpet is the largest end-use for Nylon 6 in North America and has seen stable to declining demand growth for a number of years reflecting shifts in consumer preferences to hard flooring versus soft and the previous substitution to lower-cost polyester. The housing sector had seen an improving trend in recent years, however, residential construction markets have slowed through 2023 reflecting the rise in interest rates. While Nylon 6 has a stronger presence in commercial carpet applications, including hospitality and office, where the material is preferred for its durability and performance characteristics, growth in both residential and commercial markets are challenged. Applications such as engineered plastics and packaging have potential to grow at faster rates given certain macrotrends.
The global market for Nylon 6 resin and caprolactam has undergone significant change inover the past seven yearsdecade. Following a peak in 2011 through the first half of 2016, nylon and caprolactam prices experienced a cyclical period of downturn as Chinese manufacturers have entered the market and increased global supply at a time when demand growth has remained relatively stable. As a result of the increased capacity and competitive intensity, industry margins for Nylon 6 resin and caprolactam have declined to historic lowscompressed over this period. Throughout 2017, industryperiod to a low point in mid-2016. In the second half of 2016, capacity reductions by our competitors occurred in North America and Europe improved supply/demand fundamentals in North America while conditions globally remained dynamic. Industry spreads had fluctuated near marginal producer cost.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. Nylon end-uses are sensitive to consumer demand, which was softer overall through 2023, particularly in consumer durables and residential end markets. However, buyers have explored using Nylon 6 as a substitute for other resins where applications allow, based on the need for reliable, secure long-term supply and performance needs.
Ammonium Sulfate.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 fertilizer on keyfor major agricultural crops that benefit from sulfur micronutrientsglobally such as corn, wheat, coffee, sugar, cotton and asrice. As of December 31, 2017,2023, ammonium sulfate fertilizer accounts for approximately 5%6% of the global market for nitrogen fertilizer and over 40% of the global market for sulfur fertilizer. 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. Urea pricing has declined in recent years due toOther global production expansions outpacing demand. In late 2017, urea prices firmed as Chinese environmental regulations reduced exports. Another global factorfactors driving demand for ammonium sulfate fertilizer isdemand are general agriculture trends, including the price of crops. Strong underlying agriculture fundamentals coupled with elevated global energy input costs and tighter nitrogen fertilizer supply and demand dynamics drove significantly higher nutrient values through most of 2021 and 2022. Nitrogen fertilizer pricing declined through 2023 amid lower energy costs and increases in global supply availability, however, remain favorable relative to historical levels. 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 produce a high-quality granular grade of ammonium sulfate to meet the growing demand of our customers. We also directly supply packaged ammonium sulfate to customers, primarily in North and South America, and have diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.
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 prices forprimary products are acetone, phenol, AMS and cyclohexanone. With the acquisition of U.S. Amines in the first quarter of 2022, we have expanded our end markets to include agrochemical, water treatment and pharmaceutical applications with the addition of a range of alkyl and specialty amines. Acetone and phenol represent approximately 46% and 10%, respectively, of our chemical intermediates generally correlatesales. Acetone global demand totals approximately six million metric tons with the U.S. representing approximately 20% of the global market. Major end-uses for acetone are methyl methacrylate, polycarbonate, epoxy resins, ketones and solvents used widely in automotive and construction, as well as agrochemicals. Polycarbonate and epoxy resins are the largest global end-use for phenol, followed by phenolic resins which are used in construction products, such as wood resins. Industry operating rates for phenol and acetone production have fallen in 2022 and 2023 as global demand drivers have been reduced and are estimated to be less than 70% both globally and in the prices of their underlying raw materials andU.S. with reduced
consumer demand. Prices for acetone are influenced by its own supply and demand dynamics.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. Generally, industry operating rates in 2022 and 2023 declined further with a reduction in global downstream demand. During 2022 and 2023, supply and demand of acetone was balanced in the U.S. with lower imports along with falling input propylene raw material costs, supporting favorable acetone industry margins. We also saw strong demand for AMS as a result of lower global production output. Supply and demand conditions for the remaining intermediates began to soften in the latter part of 2022 and have continued to remain weak through 2023 to be in line with overall weaker demand and reduced industry output.
Competition
Competition across our product offerings is based on a variety of factors including price, reliability of supply, quality, 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 competesGenerally, we compete in global, fragmented markets against competitors with integrated manufacturers, such as BASF Corporation, Sinopec Limited, DOMO Chemicals GmbH, LANXESS AG and Ube Industries, Ltd. We also compete with manufacturers such as Li Peng Enterprise Co. Ltd. and Zig Sheng Industrial Co., Ltd. that produce only polymer resin; synthetic manufacturers of ammonium sulfate, such as Pasadena Commodities International; and phenol producers, such as Ineos. 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 withboth global operations as well as those operating only within specific geographic regions. AdvanSix competes with integrated manufacturers, such as Highsun Group Holdings Ltd., BASF Corporation, Sinopec Limited, DOMO Chemicals GmbH, Envalior and UBE Corporation. 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 Phenol and Altivia. In the U.S. Amines business, the key alkyl amines U.S.-based competitor is Eastman Chemical Company.
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 use our Nylon 6 resin to produce nylon films at our Pottsville plant, which is sold to our customers under the Capran® brand name. In 2017,2023, our Nylon products generated $423$357 million of sales. In 2017, 20162023, 2022 and 2015,2021, Nylon sales were 29%23%, 28%25% and 27%25% of our total sales, respectively.
Caprolactam
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 2017,2023, caprolactam generated $288$298 million of sales. In 2017, 20162023, 2022 and 2015,2021, caprolactam sales were 19%, 17%16% and 18%19% of our total sales, respectively.
Ammonium Sulfate
Ammonium sulfate fertilizer is produced simultaneously with caprolactam as part of our integrated caprolactam manufacturing process at our Hopewell plant. We manufacture these productsthis product in a ratio of approximately four pounds of ammonium sulfate to one pound of caprolactam. Our co-product competitors typically produce approximately two pounds or less of ammonium sulfate for each pound of caprolactam. Approximately 60%We currently target conversion of approximately 65% of the ammonium sulfate we produce is ininto higher-value granular form.form and anticipate ongoing increases as we implement our SUSTAIN (Sustainable U.S. Sulfate to Accelerate Increased Nutrition) program. We sell ammonium sulfate under the brand name Sulf-N®, and in 2017,2023, our ammonium sulfate products generated $277$441 million of sales. In 2017, 20162023, 2022 and 2015,2021, ammonium sulfate sales were 19%29%, 24%33% and 25%24% of our total sales, respectively.
Chemical Intermediates
We producemanufacture, market and sell chemical intermediates to a range of customers for use in many different types of end-products. In 2017, our2023, chemical intermediates generated $487$438 million of sales, of which $399$297 million, or 82%68%, came from sales of acetone, phenol and cyclohexanone, and $88$141 million, or 18%32%, came from sales of our other chemical intermediates. In 2017, 20162023, 2022 and 2015,2021, sales of chemical intermediates were 33%29%, 31%26% and 30%32% of our total sales, respectively.
PhenolThe phenol we produce at our Frankford plant is a key chemical intermediate of caprolactam, and we produce the phenol we useused in our caprolactam manufacturing process at our Frankford plant. Approximately 75% to 80%process. The majority of the phenol we produce is used in production of caprolactam and other chemical intermediates at Hopewell, and approximately 20% to 25% of ourHopewell. Any remaining phenol is sold to customers for use in their product applications such as phenolic resins, epoxies and Bisphenol A.
All our acetone is sold to customers for use in end-productsproducts such as adhesives, paints, coatings,methyl methacrylate, polycarbonate, epoxy resins, ketones and solvents herbicidesused widely in automotive and other engineered plastic resins.construction, as well as agrochemicals. 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 alpha methylstyrene ("AMS"), methyl ethyl ketoxime ("MEKO"),AMS, cyclohexanone, cyclohexanol, acetaldehyde oximeoximes and 2-pentanone oxime. We use some of these products in our manufacturing process and sell somecyclohexanol to customers for use in end-products such as resins, inks, paints, coatings and agricultural chemicalelectronic components. The majority of cyclohexanone we produce is used in our caprolactam manufacturing process with the remainder sold to customers.
As a result of the U.S. Amines acquisition during the first quarter of 2022, we also produce and sell alkyl and specialty amines which are used in agrochemical intermediates, water treatment and detergents.pharmaceutical applications.
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 primarily 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. We continually seek to reduce costs of keycustomers which structurally pass through increases or decreases in raw materials and do not foresee any material constraints in the near term resulting from pricing or availability.costs.
Sales, Marketing and Distribution
We have a global sales force with global reach, 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.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 over 500approximately 400 customers in a wide variety of industries located in more than 40approximately 50 countries. In 2017,2023, the Company's 10 largest customers accounted for approximately 44%39% of total sales. Our largest customer is Shaw Industries Group Inc. ("Shaw"), one of the world’sworld's largest consumers of caprolactam and Nylon 6 resin. We sell caprolactam and Nylon 6 resin which we sell to themShaw under a long-term contract. In 2017, 2016 and 2015, salesagreement. Sales to Shaw were 22%, 17% and 16%, respectively,11% of our total sales.sales for the year ended December 31, 2023, and 12% for the years ended December 31, 2022 and 2021. We typically sell to our other customers under short-term contracts,master services agreements, with one- to two-yearprimarily one-year terms, or by purchase orders. We have historically experienced low customer turnover.
Seasonality
Except for sales of ourWe produce ammonium sulfate fertilizer products, which are influenced by seasonalcontinuously throughout the year as part of our manufacturing process, but quarterly sales fluctuate reflecting both geographical and product sales mix considerations based on the timing and length of the growing patternsseasons in North and South America,America. North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically strongest during second quarter fertilizer application and then typically decline seasonally with new season fill in the third quarter. Ammonium sulfate industry prices in the U.S. corn belt have declined approximately 10% from the second quarter to the third quarter, on average, since 2016. Due to the ammonium sulfate fertilizer sales of most of our products are subject to minimal or no seasonality. Wecycle, we occasionally build up higher inventory balances because theour production volumes are generally steady month-to-month rather thanis 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.
Backlog
In general, the Company does not manufacture its products against a backlog of orders and does not consider backlog to be a significant indicator of the level of future sales activity. Therefore, the Company believes that backlog information is not material to understanding its overall business and should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial return. However, we do have long-term supply contracts that carry minimum order obligations.
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 focusare regularly prioritized and funded with a stage gate approach with a primary emphasis on improving our chemical manufacturing processes to increase efficiency, capacity and productivity, and lowering ourlower production and operating costs, as well asand 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™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 totaloverall 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.
We conduct R&D at technology centers with approximately 50 researchers at our manufacturing sites in total. We lease R&D space from Honeywell in Colonial Heights, VirginiaFrankford, Pennsylvania and have R&D resources located in Shanghai, China. For the years ended December 31, 2017, 2016 and 2015, our R&D expenses were approximately $12.9 million, $13.8 million and $12.8 million, respectively.Chesterfield, Virginia.
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 (“CERCLA” also known as the “Federal Superfund Law”);Act; the Resource Conservation and Recovery Act (“RCRA”) and similar state, foreign and global laws for management and remediation of hazardous materials; the Clean Air Act (“CAA”) 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.
In July 2013, a consent decree was finalized among the United States, the Commonwealth of Virginia and AdvanSix regarding alleged violations of the CAA and the air operating permit at our manufacturing facility in Hopewell, Virginia. In the consent decree, we agreed to pay a civil penalty of $3 million and, among other things, install certain pollution control and other equipment in accordance with a schedule ending in 2019. In October 2015, a consent order was finalized between the Virginia Water Control Board and AdvanSix regarding alleged violations of Hopewell’s Virginia Pollutant Discharge Elimination System permit and other discharge requirements. In the consent order, we agreed to pay a civil penalty of $300,000 and, among other things, take corrective action with respect to process sewers and sumps at our Hopewell facility in accordance with a schedule ending in 2018.
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 –2. Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements included elsewhere in this Form 10-K. We continuously seek to improve our environment, health, safety and safetyenvironmental ("HSE") 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 certain of our products, such as acetone which is aand amines, may implicate List II Chemicalor other considerations under the TSCA, are regulated by the Drug Enforcement Act. This classification subjectsSuch classifications subject us to further compliance audits by the Drug Enforcement Administrationrelevant federal and state agencies and place ongoing restrictions on our sales activities with respect to acetone.activities.
See “Risk Factors – We are subject to extensiveExtensive environmental, health and safety laws and regulations thatapplicable 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, 2017,2023, the Company employed approximately 1,5101,450 people. Of this total, approximately 590570 are salaried employees and approximately 920880 are hourly employees. Approximately 760750 employees are covered under collective bargaining agreements that expire between 20182024 and 2021.2028. The Company strives to maintain positive and productive relationships with all of its employees, including the unions representing those employees.
Oversight and Management
Executive OfficersOur Board and Board committees provide oversight on various human capital management matters. As noted in their respective charters:
•Our Health, Safety, and Environmental Committee oversees policies and programs relating to HSE matters, including process safety, HSE management systems and compliance with HSE regulations and compliance.
•Our Nominating and Governance Committee annually evaluates the effectiveness of our corporate governance framework and corporate social responsibility policies, goals and programs, including oversight of sustainability matters, community engagement and government affairs, as well as such other matters regarding the Company's role as a responsible corporate citizen.
•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 Registrantperformance, development and retention of senior and executive 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 the 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 vision 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 0.97 in 2023, 1.15 in 2022 and 0.48 in 2021.
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 directors, 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 and inclusive work climate. We believe it is important that each employee feels a sense of belonging and is 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, to implement and expand upon unconscious bias education and to share diversity and inclusion practices. We supported this pledge through 2023 as we engaged in honest and transparent conversations with our employees.
During 2023, we progressed 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 continued our program of 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 created a program in 2022 for inclusive leadership, ensuring our leaders understand
and have the tools to create an inclusive environment where all can thrive. Our second inclusive leadership cohort kicked off a full year of experiential learning in 2023. We held our third annual Days of Understanding at two of our largest manufacturing facilities throughout the summer months to encourage active engagement by leadership with all employees to listen to their experiences and gather feedback for improvement.
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 participates as 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 supports 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 ("HBCUs") and connections to internships, leadership development and mentoring opportunities. During 2023, we welcomed our third class of FOSSI scholars all of whom are in attendance at HBCUs, increasing our total number of scholars to thirteen.
Our senior leadership team was comprised of approximately 50% women in 2023, including our Chief Executive Officer, Chief Human Resources Officer, Chief Information Officer, Vice President Chemical Intermediates, Emerging Chemistries and Vice President, Nylon Solutions Business Director. Four directors of our eight-member Board are women, and two directors of our eight-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 as a talent pipeline. We have emphasized investing in our talent and focusing on developing our people to incorporate opportunities for advancement based on experiential learning and development. We acknowledge that development 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; and
•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 to ensure leadership development and succession planning. We conduct safety and environmental training for new employees as part of HSE orientation, along with job-specific training aligned to roles. Our hands-on coaching and development initiative focused on our front-line teammates is designed to support safe, stable and sustainable operations, providing our operational workforce with the right tools and processes to execute their work efficiently while enabling streamlined decision making to best serve our customers.
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 best-in-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, Inc., listed as follows, are appointed annually by the Board of Directors. Each of the individuals wasBoard. Ms. Kane, Mr. Preston and Mr. Gramm were each first appointed as an executive officer in 2016.2016, and Ms. Slieter and Mr. Kintiroglou were each appointed as executive officers in 2020.
There are no family relationships among them.them or our Board members.
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Name, Age | Position | Business Experience |
Erin N. Kane, 4146 | 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 (HSE),processes, and operations. |
Michael Preston, 4652 | Senior Vice President and Chief Financial Officer | Prior to joining the Company, Mr. Preston held a number ofvarious finance roles with Honeywell for over 15 years. Most recently, Mr. Preston served as vice president and chief financial officer for Honeywell’s UOP division (2013-2016). Prior to this role, Mr. Preston was vice president of business analysis & planning (2012–2013) with Honeywell corporate. Mr. Preston also held several finance leadership roles within businesses and Honeywell corporate, including chief financial officer for Fluorine Products, director of financial planning & analysis for Performance Materials and Technologies, 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. 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. From 2012 to 2013, Mr. Preston was vice president of business analysis & planning. Mr. Preston served as vice president and chief financial officer for Honeywell’s UOP division from 2013 to 2016. Prior to joining Honeywell, he spent seven years in investor relations consulting. Mr. Preston was awarded theis a Chartered Financial Analyst designation in September of 2001(CFA) Charterholder and is a member of the CFA Institute and CFA Society New York Society of Security Analysts.York. |
John M. Quitmeyer, 67Achilles B. Kintiroglou, 45 | Senior Vice President, General Counsel and Corporate Secretary | Prior to joiningbeing named to his current role, Mr. Kintiroglou was the Company, Mr. Quitmeyer served as vice president anddeputy general counsel of Honeywell’s Automation and Control Solutions strategic business groupAdvanSix since 2005. He joined Honeywellthe spin-off in 1997 as general counsel of Honeywell’s safety restraint business. From 1997 until 1998, Mr. Quitmeyer served as general counsel of Honeywell’s automotive products group. From 1998 until 2000, Mr. Quitmeyer served as general counsel of Honeywell’s consumer products group. From 2000 until 2002, Mr. Quitmeyer was Honeywell’s chief litigation counsel. From 2002 until 2005, Mr. Quitmeyer served as general counsel of Honeywell’s Specialty Materials business. Prior to2016. Before joining Honeywell, Mr. QuitmeyerAdvanSix, he was a litigationcorporate and securities partner at Rogers & Wells.Day Pitney LLP and a corporate and finance associate at Pillsbury Winthrop Shaw Pittman LLP and Pitney Hardin LLP. |
Jonathan Bellamy, 52Kelly J. Slieter, 49 | Senior Vice President and Chief Human Resources Officer | Prior to joining the Company, Mr. BellamyMs. Slieter served as vice president of human resources of the Defense and Space business of Honeywell’s Aerospace divisionHoneywell International Inc. since 2015. He2018. 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 of the Turbo Technologies division.for multiple business units. From March 2000 until February 2003 Mr. Bellamyto 2004, she served as human resources manager then regionalat 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 Honeywell’s Turbo Technologies division. From February 2003 until December 2004, he served asHR functional excellence, corporate; director of organization development & learning for the Automation & Control Solutions business; director of human resources offor Honeywell Transportation Systems, Asia.Building Solutions; and senior director, human resources corporate. From December 2004 until November 2005, Mr. Bellamy2015 through 2018, she served as global human resources director of Honeywell’s Friction Materials division. From November 2005 until July 2010, Mr. Bellamy served as corporate human resources director. From 2010 to 2015, he was vice president, of human resources of the Honeywell UOP. Prior to joining Honeywell, Mr. Bellamy held human resources and operations positions at BTR Brook Hansen and N.S.K./RHP Bearings. |
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Name, Age | Position | Business ExperienceUOP business. |
Christopher Gramm, 4854 | 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. He joined Honeywell International Inc.in 1997 as a senior staff accountant. 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. Beginning in March 2011, he was vice president and controller of the aerospace division 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 International Inc. Beginning in March 2011, he was vice president and controller of the aerospace division at Honeywell International Inc. Over the course of the period from 1997 to March 2011, Mr. Gramm held several positions at Honeywell International Inc., including controller and chief financial officer of various divisions focused on areas including specialty materials and resins and chemicals. He joined Honeywell International Inc. in 1997 as a senior staff accountant.Honeywell. Before joining Honeywell, International Inc., Mr. Gramm was a manager at Corning Life Sciences. |
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)Filings) immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC)(the "SEC"). In addition, in this Form 10-K, the Company incorporates by reference certain information from parts of its Proxy Statement for the 20182024 Annual Meeting of
Stockholders, which will also be available free of charge on our website. Information contained on, or connected to,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. Effective February 1, 2017, ourOur principal executive offices are located at 300 Kimball Drive, Suite 101, Parsippany, NJ 07054. Prior to February 1, 2017, our principal executive offices were located at 115 Tabor Road, Morris Plains, NJ 07950. 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.amended (the "Exchange Act"). When used in this Form 10-K, words such as “anticipate,“expect,” “believe,“anticipate,” “estimate,” “expect,“outlook,” “project,” “strategy,” “intend,” “plan,” “intend”“target,” “goal,” “may,” “will,” “should,” and “believe,” and other variations or similar terminology and expressions as they relate to us or our management, 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-andnear- 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. 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 key raw material suppliers’ 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 result in decreased sales and earnings for us.
The industries in which we operate are highly competitive and experience cyclicality which can cause significant fluctuations in our cash flows. These industry dynamicsflows and may 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. We face significant competition from major international and regional competitors. Our competitors may improve their competitive positions in our core markets by successfully introducing new products or innovations in their manufacturing processes or improving their cost structures. If we are unable to keep pace with our competitors’ product and manufacturing process innovations or cost position improvements, our business, financial condition and results of operations could be adversely affected.
Our historical operating results reflect the cyclical and sometimes volatile nature of the industries in which we operate including with respect to our Nylon 6 resin, caprolactam, and ammonium sulfate industries.fertilizer, phenol and acetone products. We experience cycles of fluctuating supply and demand for each of theour products we sell 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. For example, in the past, nylon and caprolactam prices have experienced a cyclical period of downturn as the global market has experienced large increases in supply without a commensurate increase in demand. Decreases in the average selling prices of our products could have an adverse effect on our profitability. While we strive to maintain or increase our profitability by reducing costs through improving production efficiency, by emphasizing higher margin products and by controllingseeking to control transportation, selling and administration expense, we cannot assure you that these efforts will be sufficient to offset, fullyin whole or in part, the effect of possible decreases in pricing on our operating results. BecauseAs a result of the cyclical nature of our businesses,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.
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 inflation and potential recessionary pressures, rising interest rates, supply chain issues, labor market shortages, trade conflicts including export and import restrictions, tariffs and other trade barriers, the COVID-19 pandemic and any resurgences or other pandemics, the threat of war and geopolitical concerns, including as a result of the conflict between Russia and Ukraine, the conflict in Israel and Gaza and the possible expansion of such conflicts, 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 value chains and end markets, could reduce demand for our products, impacting our sales and margins;
•As a result of volatility in commodity prices, and increased inflation, we may encounter difficulty in achieving sustained market acceptance of past or future price increases;
•In addition, in the event of continued high inflationary pressure, we may not be able to adjust our pricing or increase our productivity and reduce our costs sufficient to offset increased costs, which could reduce our margins and profitability;
•Market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending, which in turn could cause decreases in demand for our products, decreased product prices and lower volumes and margins, potentially resulting in decreased sales and earnings;
•Under difficult market conditions, there can be no assurance that access to credit or the capital markets would be available to us or sufficient, and as such, we may not be able to successfully obtain additional financing on reasonable terms, or at all; and
•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.
We are unable to predict the duration of economic conditions, whether current economic conditions may erode further over time, or the effects of such conditions on financial markets or our business and results of operations. Volatility and uncertainty surrounding future economic conditions such as inflation, potential recessionary pressures or rising interest rates may at times make it challenging to identify risks that may affect our business, sources and uses of cash, financial condition and results of operations. If economic conditions deteriorate, our results of operations, financial condition and cash flows could be materially adversely affected.
Any significant unplanned downtime or material disruption at oneimpacting any of our production facilities, or logistics operations or information technology infrastructure, 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 and utilize maintenance excellence and mechanical integrity programs, operational issues have occurred for us 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, our ability to supply our customers on a timely basis, potential loss of customers, and our earnings during the affected period.
Although our integrated manufacturing,As a result of the scale and the quantity and range of our product offerings, make us one of the most efficient manufacturers in our industry,as well as the significant level of integration across our manufacturing facilities, exposes uswe are also exposed to increased risk associated with unplanned downtime or material disruptions at any one of our production facilities, which have occurred in the past and which may occur in the future, and 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 repairsUnplanned interruptions at all of our production facilities. We also utilize maintenance excellencefacilities have occurred in the past and mechanical integrity programsmay occur in the future, 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 outages may still occur or 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, or at all. 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 a third-partysuch 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 reports filed or furnished with the SEC, and there is no assurance that we or other third parties on which we rely may experience.will not experience unplanned interruptions in the future. In addition, disruptions to our information technology infrastructure from system failures, shutdowns, power outages, telecommunication or utility failures, cybersecurity incidents, and other events, including disruptions at our cloud computing, server, systems and other third party IT service providers, or as a result of system upgrades or digital transformation, could interfere with our operations, interrupt production and shipments, damage customer and business partner relationships, and negatively impact our reputation. 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,appropriate for our expected needs, it is difficult to predict what effectsthe 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 fillsatisfy 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 extentFurther, if 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 require substantial capital and we may not be able to obtain additional capital that we needDisruptions in the future on favorable termstransportation or at all.
Our industry is capital intensive, and we may require additional capitalsignificant changes in the future to finance our growth and development, upgrade and improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing R&D activities, satisfy regulatory and environmental compliance obligations 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 and R&D projects and the status and timing of these developments. 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. Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the Tax Matters Agreement entered into in connection with the Spin-Off that address compliance with Section 355(e) of the Internal Revenue Code of 1986, as amended (the “Code”), may limit our ability to issue stock. 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.
Failure to develop and commercialize new products or technologiestransportation costs could adversely affectimpact our business, financial condition and results of operations.
Our successful development and commercialization of new products and technologies are driversWe rely heavily on third party transportation to deliver raw materials to our future strategy. The developmentfacilities and commercializationship products to our customers. Transport and pipeline 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 newthese services, we may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship products and technologies requires significant investment in research and development, capital expenditures, production and marketing.to our customers. We cannot be certain that costs incurred by investing in new products and technologies will result in an increase inseek to maintain appropriate buffer inventory of intermediate chemicals necessary for our revenues or profits. The successmanufacturing process, which are intended to mitigate the extent of any such newdelays or disruptions in supply chain logistics. However, our failure to obtain raw materials, ship products or maintain sufficient buffer inventory could materially and technologies is uncertain and could adversely affectimpact our business, financial condition and results of operations.
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 and on 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 2017,2023, our 10 largest customers accounted for approximately 44%39% of our total sales.sales across all product lines. Our largest customer is Shaw, Industries Group, Inc. (“Shaw”), one of the world’s largest consumers of Nylon 6 resin and caprolactam. We sell caprolactam and Nylon 6 resin which we sell to themShaw under a long-term contract.agreement. We typically sell to other customers under short-term contractsmaster services agreements, with one- to two-yearprimarily 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.
We are subjectOur operations and growth projects require substantial capital and we may not be able to risks related to adverse trade policies imposed against exports from the United States in certain important markets for our products.
As a U.S.-based producer,obtain additional capital that we are impacted by antidumping investigations which have had, and may continue to impose, significant antidumping 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. 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,need in the future any governmentalon favorable terms or international trade bodyat 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, achieve sustainability priorities or goals adopted by the Company, implement further marketing and sales activities, fund ongoing R&D activities, and meet general working capital needs. Our capital requirements will not institute trade policies or remedies that are adverse to exports from the United States. 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 NAFTA, could potentially increase the pricelikely depend on many factors, including acceptance of our products relative to our competitors or decrease our customers’and demand for our products, the extent to which we invest in turnnew 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. Certain U.S. and non-U.S. financial institutions experienced crisis in 2023, resulting in disruption in the financial markets. Such events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or the financial services industry generally, or concerns about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could significantly impair our access to funding sources or other credit arrangements in amounts adequate to finance our current and future business operations or could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or 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 currently have adequate capital resources to meet our projected operating needs, capital expenditures and other expected 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.operations could be adversely affected.
We are subjectOur competitive position, as well as our failure to extensive environmental, healthdevelop and safety lawscommercialize new products or technologies to address our customers’ needs and regulations that may result in unanticipated loss or liability, whichto effectively compete, could adversely affect our business, financial condition and results of operations.
Various federal, state, localCompetition in the industries we serve is based on factors such as price, product quality and foreign governments regulateservice. Additionally, the dischargemarkets 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 materialshealth, 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 environmentsuccessful development and can impose substantial finescommercialization of new products and criminal sanctionstechnologies, 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 violationsour products is subject to customary budgetary constraints, internal acceptance procedures, competitive product assessments, scientific and require installationdevelopment resource allocations and regulatory limitations, many of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases.which may be beyond our control. If we are foundnot able to successfully accommodate these factors to enable customer development success, we could be in violationunable to achieve sufficient sales to reach the level of these laws or regulations,profitability we may incur substantialexpect or 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 including fines, damages, criminal or civil sanctionsincurred by investing in new products and remediation costs, or experience interruptionstechnologies will result in an increase in our operations. See “Item 1. Business - Regulationrevenues or profits. Our ability to keep pace with our competitors 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 timingsuccess of any future regulations or changes in regulations, including greenhouse gas (“GHG”)new products and water nutrient regulations. More stringent regulations, especially of GHGs, may require us to make changes in our operating activities that would increase our operating costs, reduce our efficiency, limit our output, require us to make capital improvements to our facilities, increase our costs for or limit the availability of energy, raw materials or transportation or otherwisetechnologies is uncertain and could 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
Hazards and nitrous oxide and because natural gas, a fossil fuel, is a primary raw material used in our production process. In addition, to the extent that GHG 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.
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 increasedcompliance 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.
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 liability for us.
Hazards 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.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 settlementsettlements 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 willmay be required to indemnify Honeywell for amounts related to liabilities allocated to, or assumed by, us under each of the Separation and Distribution Agreement, the Employee Matters Agreement and the Tax Matters Agreement entered into in connection with the Spin-Off.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 increase market share in our current markets or expand into adjacent markets 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 completed the acquisition of 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. Any transactions may be complex, time consuming and expensive, and may present numerous challenges and risks. 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.
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 Maritime Transportation Security Act of 2002 (“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.
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, and 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.
Some of our workforce is represented by labor unions and our business could be harmed in the event of a prolonged work stoppage.
Approximately 750 of our employees are covered under collective bargaining agreements that expire between 2024 and 2028, which represents approximately 52% of our employee base as of December 31, 2023. From time to time, we engage in negotiations to renew collective bargaining agreements as those contracts are scheduled to expire. In April 2023, a labor strike was initiated by the Hopewell South bargaining unit, affecting approximately 340 workers at the Company’s manufacturing facility in Hopewell, Virginia, which was later resolved in May 2023 when the bargaining unit voted to ratify a new five-year collective bargaining agreement. Ultimately, 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, our information technology infrastructure, including cybersecurity controls, is designed to deploy comprehensive measures to deter, prevent, detect, respond to 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 regardless of our efforts to mitigate the possibility of any such breach. The potential consequences of a material cybersecurity incident on our own systems or the systems of those with whom we do business include reputational consequences, safety risk, operational disruptions, 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.
We may be required to make significant cash contributions to our defined benefit pension plan.
After the Spin-Off, we sponsoredWe sponsor a defined benefit pension plan under which certain eligible AdvanSix employees willwho were employed by Honeywell prior to the spin-off earn pension benefits following the Spin-Off 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 no pension contributions of approximately $17 million in 2017, and we plan toduring 2023, but may make pension contributions in future periods sufficient to satisfy funding requirements.
SomeWe may be required to record significant charges from impairment to goodwill, intangibles, and other long-lived assets.
We are required under U.S. Generally Accepted Accounting Principles (“GAAP”) to test our goodwill for impairment annually or more frequently if indicators for potential impairment exist. Indicators that are considered include significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, or a significant decline in the Company’s stock price and/or market capitalization for a sustained period of time. In addition, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our workforce is represented by labor unionsintangible and ourother long-lived assets may not be recoverable include slower growth rates, the loss of a significant customer, burdensome new laws, or divestiture of a business could be harmedor asset for less than its carrying value. There are inherent uncertainties in management’s estimates, judgments, and assumptions used in assessing recoverability of goodwill, intangibles, and other long-lived assets. Any material changes in key assumptions, including failure to meet business plans, a deterioration in the event ofU.S. and global
financial markets, an increase in interest rates, an increase in inflation, or other unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rates and could potentially result in an impairment charge. We may be required to record a prolonged work stoppage.
Approximately 760significant charge to earnings in our consolidated financial statements during the period in which any impairment of our employees are unionized, which represents approximately 50% of our employee-base as of December 31, 2017. We cannot predict how stable our union relationships will begoodwill 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,intangible and other long-lived assets is determined, which could negatively impact our ability to manufacture our productshave a material adverse effect on a timely basis and, ultimately, 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, we may not be able to anticipate all risks, or to mitigate or reasonably and 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 and uncertainties that we face. 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 recruitmentfuture from operations or financings. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and retentionother factors that are beyond our control. In addition, the terms of qualified personnel,our indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our failureability to attractengage in actions that may be in our long-term best interests. These restrictive covenants may restrict our 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 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 retainfuture 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 personneldebt 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 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.
Due
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 complex nature of our manufacturing business, our future performance is highly dependent upon the continued services of our key engineering personnel, scientistsair and senior management, the development of additional management personnelwater, hazardous waste, sustainability, global warming and the hiring of new qualified engineering, manufacturing, marketing, salesclimate change, may result in substantial costs and management personnel for our operations. Competition for qualified personnel in our industry is intense, and we may not be successful in attractingunanticipated loss or retaining qualified personnel. The loss of key employees, our inability to attract new, qualified employees or adequately train employees, or the delay in hiring key personnel,liability, which could negativelyadversely 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.
Cybersecurity incidents could disrupt business
Primarily because of past operations resultat 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 lossfuture. In addition, changes in laws, regulations and enforcement of critical and confidentialpolicies, the discovery of previously unknown contamination or other information and adversely impactrelated 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 reputationbusiness, financial condition and results of operations.
Global cybersecurity threatsAdditionally, there are substantial uncertainties as to the nature, stringency and incidents can range from uncoordinated individual attemptstiming 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 gain unauthorized accessconcerns about risks associated with air, water, global warming and climate change, more stringent regulations may be imposed which could require us to information technology (“IT”) systemsincur additional capital expenditures or make changes to sophisticatedour 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 targeted measures knownresults 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 advanced persistent threats, directedcarbon 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 interfered, and in the future may interfere, with our operating activities, disrupt our maritime logistics and intra-plant 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. Climate-related events, such as extreme weather events, impacting areas where we or our suppliers operate manufacturing facilities may cause suspensions of operations, which could be prolonged, while damage is remedied or renovations are completed, and which could materially impact our operations and financial results. 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 AdvanSix, itsour 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 its products, its customers and/by disrupting the supply of raw materials to us and transportation or its third-party service providers including cloud providers. 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. We are transitioning away from certain transitionprocess-related services provided by Honeywellcompanies or suppliers with respect to our information technology infrastructure, including cybersecurity, which seeks to deploy comprehensive measures to deter, prevent, detect, respond and mitigate these threats including access controls, data encryption, vulnerability assessments, continuous monitoringwhom we have a business relationship.
There is also a risk that one or more of our IT networks and systems and maintenancekey raw materials or one or more of backup and protective systems. We are actively implementing such measures internallyour products may be found to have, or be characterized as we establishhaving, a toxicological or health-related impact on the information technology infrastructure needed to operate independently. Despite these efforts, cybersecurity incidents, dependingenvironment or on their nature and scope,our customers or employees, which 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)our incurring unexpected liability in connection with such characterization and the disruptionassociated effects of business operations. The potential consequencesany toxicological or health-related impact. If such a discovery or characterization occurs, we may incur increased costs to comply with new regulatory requirements or to modify the format or use of a material cybersecurity incident include reputational damage, claims from and litigation with third parties, fines levied by governmental authorities, diminution insuch substances to reduce or eliminate the valueimpact, or the relevant materials or products, including products of our investmentcustomers that incorporate our materials or products, may be recalled or banned. Changes in research, developmentlaws and engineering,regulations, or their interpretations, and our customers’ perception of such changes or interpretations may also affect the markets or marketability of certain of our products. Additionally, sales of certain of our products such as acetone or amines, may implicate List II or other considerations under the Drug Enforcement Act. Such classifications subject us to compliance audits by the relevant federal and state agencies and place ongoing restrictions on our sales activities.
Heightened public focus on climate change, sustainability, and environmental issues has also led to increased cybersecurity protectiongovernment regulation and remediationmay 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.
We are impacted by increasing stakeholder interest in turnperformance relative to sustainability and environmental, social and governance (ESG) matters.As a result, we have significantly expanded our reporting and investments associated with ESG matters and have announced goals regarding our sustainability and ESG performance.Our statements and goals for such matters represent our current plans but are not guarantees that we will be able to achieve such goals which may be adversely impacted by available technology, evolving regulatory requirements, availability of suppliers, and capital requirements.
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 adversely affecthave an adverse effect on our competitivenessability 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 defending our anti-dumping petitions covering imports of acetone and ammonium sulfate with the International Trade Commission (see "Anti-Dumping Duty Petitions - Ammonium Sulfate" under "Recent Developments" in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Historically, we have sought to mitigate these risks through geographical mix management so that the imposition of duties does not materially affect our business results, but such duties could have an adverse effect on the sales of our 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 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, (the “Sarbanes-Oxley Act”), 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.
Risks Relating to the Spin-Off
The Spin-OffOur spin-off could result in significant tax liability.
CompletionIn connection with our spin-off, if the October 1, 2016 distribution by Honeywell of all of the Spin-Off was conditioned on Honeywell’s receiptthen outstanding shares of a written opinion of Cravath, Swaine & Moore LLP to the effect that the Distribution 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 assumed that the Spin-Off was completed according to the terms of the Separation and Distribution Agreement and relied on the facts as stated in the Separation and Distribution Agreement, the Tax Matters Agreement, the other ancillary agreements, the Information Statement filed as Exhibit 99.1 to the Form 10 and a number of other documents. In addition, the opinion was based 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 DistributionAdvanSix common stock 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 Distributiondistribution 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-Offspin-off can be found in theour Form 10.
We could have an indemnification obligation to Honeywell if the Distribution were determined not to qualify for non-recognition treatment, which could adversely affect our business, financial condition and results of operations.
If, due to any of our representations being untrue or our covenants being breached, it were determined that the Distributiondistribution 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. In addition, Section 355(e) of the Code generally creates a presumption that the Distribution would be taxable to Honeywell, but not to stockholders, if we or our stockholders were to engage in transactions that result in a 50% or greater change by vote or value in the ownership of our stock during the four-year period beginning on the date that begins two years before the date of the Distribution, unless it were established that such transactions and the Distribution were not part of a plan or series of related transactions giving effect to such a change in ownership. If the Distribution were taxable to Honeywell due to such a 50% or greater change in ownership of our stock, Honeywell would recognize gain equal to the excess of the fair market value of our common stock distributed to Honeywell stockholders over Honeywell’s tax basis in our common stock and we generally would be required to indemnify Honeywell for the tax on such gain and related expenses. Any such indemnification obligation could adversely affect our business, financial condition and results of operations.
We are subject to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our strategic and operating flexibility.
We are subject to covenants and indemnification obligations pursuant to the Tax Matters Agreement that address compliance with Section 355 of the Code and preserve the tax-free nature of the Spin-Off. These covenants include certain restrictions on our activity unless Honeywell gives its consent for us to take a restricted action, which Honeywell is permitted to grant or withhold at its sole discretion. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable.
We have limited operating history as an independent, publicly-traded company, and our historical consolidated financial information is not necessarily representative of the results we would have achieved as an independent, publicly-traded company and may not be a reliable indicator of our future results.
We derived the historical consolidated financial information prior to the Spin-Off included in this Form 10-K from Honeywell’s consolidated financial statements, and this information does not necessarily reflect the results of operations and financial position we would have achieved as an independent, publicly-traded company during the periods presented, or those that we will achieve in the future. This is primarily because of the following factors:
Prior to the Spin-Off, we operated as part of Honeywell’s broader corporate organization, and Honeywell performed various corporate functions for us. Our historical consolidated financial information prior to the Spin-Off reflects allocations of corporate expenses from Honeywell for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent, publicly-traded company.
We have entered into transactions with Honeywell that did not exist prior to the Spin-Off, such as Honeywell’s provision of transition and other services, which will cause us to incur new costs. See the section titled “Certain Relationships and Related Party Transactions” of the Company’s Information Statement filed as Exhibit 99.1 to the Form 10 and "Note 3 - Related Party Transactions with Honeywell" to our Consolidated Financial Statements included in this Form 10-K.
Our historical consolidated financial information prior to the Spin-Off does not reflect changes that we expect to experience in the future as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure and personnel needs of our business. As part of Honeywell, there were certain benefits derived from Honeywell’s operating diversity, size, purchasing power, borrowing leverage and available capital for investments. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, or access capital markets on terms as favorable to us as those we obtained as part of Honeywell prior to the Spin-Off. In addition, our historical consolidated financial data does not include an allocation of interest expense comparable to the interest expense we will incur as a result of the series of internal transactions which were effected in order for us to hold, directly or through our subsidiaries, the businesses constituting Honeywell’s Resins and Chemicals business and related operations, and the Spin-Off, including interest expense in connection with the incurrence of indebtedness at AdvanSix.
Following the Spin-Off, we are also responsible for the additional costs associated with being an independent, publicly-traded company, including costs related to corporate governance, investor and public relations and public reporting. While we have been profitable as part of Honeywell, we cannot assure you that our profits will continue at a similar level as an independent, publicly-traded company.
Risks Relating to the Indebtedness
We incurred indebtedness in connection with the Spin-Off, and our leverage could adversely affect our business, financial condition and results of operations.
In connection with the Spin-Off, we incurred indebtedness in the aggregate principal amount of approximately $270 million in the form of term loans. We also entered into a $155 million revolving facility to be available for our working capital and other cash needs. Following the Spin-Off, we are responsible for servicing our own debt and obtaining and maintaining sufficient working capital and other funds to satisfy our cash requirements.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with the Spin-Off, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
The terms of our indebtedness restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations.
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.
As a result of all of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to raise additional debt financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of 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. Furthermore, the lenders of this indebtedness may require that we pledge our assets as collateral 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.
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.
We 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 evaluate whether to pay cash dividends onenhance stockholder value because the market price of our common stock inmay decline below the future,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 willcould limit our ability to pay dividends on our common stock.
We will evaluate whether to pay cash dividends to our stockholders and theThe timing, declaration, amount and payment of future dividends to stockholders, if any, will fallbe within the sole discretion of our Board. Among the items we will considerconsidered 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 may limit our ability to pay cash dividends. There can be no assurance that we will continue to pay a dividend in the future or continue to pay any dividend if we do commence paying dividends.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 or as necessary to finance our ongoing operations.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:
Provide for staggered terms for directors on our Board through our 2020 annual meeting of stockholders;
Dothat do not permit our stockholders to act by written consent, and require that stockholder action must take place at an annual or special meeting of our stockholders;
Establishestablish advance notice requirements for stockholder nominations and proposals;
Limitproposals, limit the persons who may call special meetings of stockholders;stockholders, and
Limit 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.
Our Amended and Restated Certificate of Incorporation designates the courts of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our Amended and Restated Certificate of Incorporation provides, unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on behalf of AdvanSix, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of AdvanSix to AdvanSix or AdvanSix’s stockholders, any action asserting a claim arising pursuant to the Delaware General Corporate Law (“DGCL”) or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine. However, if the Court of Chancery within the State of Delaware does not have jurisdiction, the action may be brought in any other state or federal court located within the State of Delaware. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and to have consented to these provisions. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision
of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
AdvanSix is committed to protecting the data and confidential information of its business, employees, customers and suppliers. As an organization, we face the risk of cybersecurity breaches and incidents from both external threat actors and from insiders which could compromise the security of our information and networks. Any cybersecurity breach or incident could harm our business or disrupt our operations.
Cybersecurity risk is closely monitored by our executive leadership with governance and oversight by the Audit Committee of the Board, whose oversight is expressly noted in its chartered responsibilities along with broader enterprise risk management. A cybersecurity team, led by the General Counsel, the Chief Information Officer (“CIO”) and the Chief Information Security Officer (“CISO”), is responsible for the management, implementation and operation of the cybersecurity program, alongside qualified internal and external security and IT subject matter experts.
Our CIO leads the Company’s information technology organization and brings over 25 years of experience to the role. She joined AdvanSix as Senior Director, Information Technology in September 2016, and prior to that time, spent 17 years with Honeywell, where she held IT positions of increasing responsibility in the Transportation Systems business and Corporate functions. Before joining Honeywell, our CIO held several roles at Electronic Data Systems (EDS), including system design and development, configuration management and database administration. She earned a Bachelor’s Degree in Psychology and an MBA, in Supply Chain and Business Information Systems, from Michigan State University.
Our CISO leads the Company’s cybersecurity and IT infrastructure organization and brings over 19 years of experience in the areas of technology governance, risk and compliance management, information security and cybersecurity, risk assessments, secure-Software Development Life Cycle (SDLC), security architecting, cloud security design and operations, threat and vulnerability management, Security Information and Event Management (SIEM)/Security Operation Center (SOC), and incident response management. He joined AdvanSix in December 2018 as our Cybersecurity Leader, and prior to that time, he worked as VP and Information Security Officer at MUFG, managing the overall risk management program, design and implementation. Prior to that role, our CISO served as a cybersecurity and privacy manager with PricewaterhouseCoopers, as a technology manager – IT security and infrastructure with Suez Environment North America, and as an IT auditor for Pentair. Our CISO has a Master's Degree in Computer Science from New Jersey Institute of Technology and a Bachelor’s Degree in Mechanical Engineering from University of Madras. In order to stay current with best practices, our CISO regularly completes cybersecurity certification courses and attends industry conferences.
We track the effectiveness of our cybersecurity program using key performance and risk metrics through daily surveillance with dashboard updates provided by the CISO to the General Counsel and the CIO supplemented by regular updates to the senior leadership team, which includes the Chief Executive Officer and the Chief Financial Officer. In addition, the CISO provides cybersecurity updates to the Audit Committee and the full Board. Informational report-outs, with risk metrics and dashboard updates, are provided to the Audit Committee on at least a quarterly basis. At least annually, the full Board is provided an update which includes a review of governance oversight, cybersecurity controls, implemented improvements and mitigations, vulnerability risks, third-party vendors utilized, and status of key initiatives.
AdvanSix’s cybersecurity program is based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework and consists of technical, administrative and operational controls working together as an integrated solution. AdvanSix engaged the services of a best-in-class third party cybersecurity firm to conduct an independent comprehensive maturity assessment of our cyber security program across critical areas which align with the NIST Cybersecurity Framework. As a result of the assessment, best practice recommendations were incorporated into the cybersecurity program to improve our cybersecurity posture and program maturity. We regularly monitor the qualitative and quantitative performance of the program and other risk metrics. Key risks are identified, and appropriate mitigations are implemented through a combination of people, process, and technology solutions that are continuously evolving to address a dynamic and increasingly sophisticated threat environment. Based on this framework, we have developed and implemented a comprehensive set of cybersecurity policies and procedures to address the key cybersecurity risks faced by AdvanSix. We continue to assess evolving threats and update our policies and procedures appropriately.
Our cybersecurity program is designed to protect information technology networks and assets using the latest technologies that leverage artificial intelligence, machine learning and automation. Our security architecture uses a “defense-in-depth approach,” with controls implemented at user, email, endpoint, cloud, access, and network levels. In addition, training our employees is a critical element of our cybersecurity program. Our comprehensive security awareness and training program covers 100% of our employees on protective measures regarding information security, data privacy, cyber-attacks and recognizing phishing attempts. This program includes regular communication, interactive trainings, and simulated phishing assessments and is designed to reinforce risk awareness and address the latest and most relevant risks. We have implemented robust controls and procedures to ensure trainings are completed in a timely manner and to track our cybersecurity performance metrics.
Our environment is monitored continuously for security events by our security operations center, which detects, alerts, and responds to any potential security incidents on 24/7 basis. Escalations of potential incidents or notable risks are escalated by the cybersecurity team and the CISO to the General Counsel and the CIO. If appropriate, the status of such potential incidents or notable risks will be further escalated to the Chief Executive Officer and the Chief Financial Officer. As of the date of this Annual Report on Form 10-K, we are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company.
AdvanSix has developed cybersecurity incident response plans and procedures, including the formation of a designated cybersecurity incident response team with representatives from across the organization. In the event of an actual cybersecurity incident, the cybersecurity incident response plan serves as the guiding framework for the Company including with respect to incident assessment, mitigations and controls, as well as response, recovery, reporting and resolution. We conduct periodic scenario planning sessions and tabletop exercises with the cybersecurity incident response team and other key functional roles in the enterprise to improve our response preparedness in the event of a security incident. AdvanSix has implemented various measures to protect its sites from both physical and cyber-attacks, which take into account applicable data security and other data privacy laws and regulations. Emerging threats and opportunities to further mitigate cybersecurity risk are continuously explored and evaluated. A vulnerability management program continually assesses our environment to identify and remediate system and software vulnerabilities. A data governance policy and data loss prevention program have been implemented to protect our intellectual property and other sensitive data. We also engage independent third parties to perform security assessments on at least an annual basis, which include penetration testing of our external and internal environment.
In summary, the Company’s approach to cybersecurity is intended to assess, identify, and manage risks from cybersecurity threats, implement mitigations and controls consistent with the NIST Cybersecurity Framework and support safe, stable and sustainable operations, while protecting our intellectual property, confidential information, privacy data, operations, and infrastructure.
Item 2. Properties
Effective February 1, 2017, ourOur principal executive offices are located in leased space at 300 Kimball Drive, Suite 101, Parsippany, NJ 07054. Prior to February 1, 2017, our principal executive offices were located at 115 Tabor Road, Morris Plains, NJ 07950. We also own three production facilitiesfive manufacturing sites located in Frankford, Pennsylvania, Chesterfield, Virginia, Hopewell, Virginia, Portsmouth, Virginia and Hopewell, Virginia. In addition, we lease space at Honeywell’s facility in Pottsville, Pennsylvania and its R&D center in Colonial Heights, Virginia. Honeywell leases space in our Chesterfield, Virginia manufacturing site. We have entered into one or more site sharing and services agreements and transition agreements with Honeywell under which we and Honeywell will allow each other to use these shared R&D facilities and manufacturing sites for specified fees.Bucks, Alabama.
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 threats of anypending claims or actions against us, the ultimate disposition of which wouldcould be expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.operating cash flows.
Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000
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 may 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.
The United States Environmental Protection Agency (“EPA”) and the Company entered into an Administrative Compliance Order on Consent in February 2023 in connection with alleged violations involving the Company’s risk management program at its manufacturing facility in Hopewell, Virginia and is negotiating a second Administrative Compliance Order associated with the same program. The Company is currently implementing an EPA-approved work plan to improve its risk management program at Hopewell in connection with the orders. The Company and EPA also anticipate entering into an Administrative Compliance Order in connection with alleged violations involving the Company’s stormwater and other discharges. These EPA allegations may potentially subject the Company to penalties. Although the outcome of these matters 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”.“ASIX.” On February 1, 2018,2, 2024, there were 34,39416,728 holders of record of our common stock and the closing price of our common stock on the New York Stock Exchange was $40.28$25.18 per share.
As of February 1, 2018, 30,482,9662, 2024, 26,700,024 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. On February 17, 2023, 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 previously approved share repurchase program. Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, 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 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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | 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 2023 | | 111,987 | | | $ | 28.97 | | | 111,987 | | | $ | 73,375,668 | |
November 2023 | | 120,010 | | | 26.09 | | | 120,010 | | | 70,245,038 | |
December 2023 | | 74,530 | | | 27.31 | | | 74,530 | | | $ | 68,209,639 | |
Total | | 306,527 | | | $ | 27.44 | | | 306,527 | | | |
| | | | | | | | | |
| |
As described in Item 1, on October 1, 2016, Honeywell completedof December 31, 2023, the previously announced separationCompany had repurchased a total of AdvanSix Inc. Following the Spin-Off, our authorized capital stock consisted of 200,000,0005,848,475 shares of common stock, par value $0.01including 854,340 shares withheld to cover tax withholding obligations in connection with the vesting of equity awards, for an aggregate of $182.0 million at a weighted average market price of $31.12 per share.
During the period January 1, 2024 through February 2, 2024, the Company repurchased an additional 64,678 shares at a weighted average market price of $26.39 per share under the current authorized repurchase program.
Dividends
The Company commenced the declaration of dividends on September 28, 2021 and 50,000,000 shareshas declared and paid dividends on a quarterly basis.
The Company has increased its quarterly dividend by 10% ($0.145 to $0.160) and 16% ($0.125 to $0.145) during the third quarter of preferred stock, par value $0.01 per share. The Spin-Off is further described in Note 1 to2023 and 2022, respectively.
Dividends paid during 2023 and announced on the Consolidated Financial Statements included in Item 8date of this Form 10-K.filing are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Date of Announcement | | Date of Record | | Date Payable | | Dividend per Share | | Total Approximate Dividend Amount ($M) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
2/16/2024 | | 3/4/2024 | | 3/18/2024 | | $0.160 | | $4.3 | |
11/3/2023 | | 11/14/2023 | | 11/28/2023 | | $0.160 | | $4.3 | |
8/4/2023 | | 8/15/2023 | | 8/29/2023 | | $0.160 | | $4.4 | |
5/5/2023 | | 5/16/2023 | | 5/30/2023 | | $0.145 | | $4.0 | |
2/17/2023 | | 3/3/2023 | | 3/17/2023 | | $0.145 | | $4.0 | |
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| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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| | | | | | | | | |
The following table sets forth the high and low market prices of our common stock for the quarterly periods indicated since the first day of “regular-way” trading on the New York Stock Exchange on October 3, 2016:
|
| | | | | | | |
| Market Prices |
2017 | Low | | High |
Quarter ended December 31, 2017 | $ | 39.28 |
| | $ | 46.51 |
|
Quarter ended September 30, 2017 | $ | 29.55 |
| | $ | 40.34 |
|
Quarter ended June 30, 2017 | $ | 24.72 |
| | $ | 33.67 |
|
Quarter ended March 31, 2017 | $ | 20.88 |
| | $ | 30.21 |
|
| | | |
2016 | | | |
Quarter ended December 31, 2016 | $ | 13.70 |
| | $ | 23.35 |
|
Dividends
We evaluate the payment of cash dividends to our stockholders and the timing, declaration, amount and payment of future dividends to stockholders, if any, will fallbe 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. The timing, declaration, amount and payment of the future dividends will depend on our financial condition, earnings, capital requirements and debt service obligations, as well asoutstanding, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.
We did not declare or pay anyThe Company paid dividends duringof approximately $16.7 million, $15.1 million and $3.5 million for the yearyears ended December 31, 2017 or during the fourth quarter of 2016.2023, 2022 and 2021, respectively.
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)("S&P") Small Cap 600 Stock Index and the S&P Small Cap 600 ChemicalsMaterials Index. The changes for the periods shown in the graph assume that $100 had been invested in AdvanSix stock and each index on October 3, 2016, the date that AdvanSix common stock began “regular-way” trading on the New York Stock Exchange,December 31, 2018, 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, 2018 | December 31, 2019 | December 31, 2020 | December 31, 2021 | December 31, 2022 | December 31, 2023 |
AdvanSix Inc. | 100 | 82 | 82 | 195 | 159 | 127 |
S&P Small Cap 600 | 100 | 123 | 137 | 173 | 145 | 169 |
S&P Small Cap 600 Materials | 100 | 121 | 148 | 175 | 164 | 197 |
|
| | | | | | |
| October 3, 2016 | December 31, 2016 | March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 |
AdvanSix Inc. | 100 | 135 | 166 | 190 | 242 | 256 |
S&P Small Cap 600 | 100 | 112 | 113 | 115 | 121 | 126 |
S&P Small Cap 600 Chemicals | 100 | 116 | 117 | 117 | 126 | 131 |
Item 6. Selected Financial Data[Reserved]
Selected Historical Consolidated Financial Data
The following tables present certain selected historical consolidated financial information as of and for each of the years in the five-year period ended December 31, 2017. The selected historical consolidated financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from our historical audited Consolidated Financial Statements. The selected historical data related to the balance sheet information for December 31, 2017 and 2016 and the statement of operations information for the years ended December 31, 2017, 2016 and 2015 are included in this Form 10-K. The selected historical data related to the balance sheet information for December 31, 2015, 2014 and 2013 and statement of operations information for the years ended December 31, 2014 and 2013 are not included in this Form 10-K.
The selected historical consolidated financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical Consolidated Financial Statements and the accompanying Notes thereto included elsewhere in this Annual Report. For the periods presented, our business was wholly owned by Honeywell through October 1, 2016. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented prior to October 1, 2016. In addition, our historical consolidated financial information does not reflect changes as a result of our separation from Honeywell, including changes in the financing, operations, cost structure and personnel needs of our business. Further, the historical consolidated financial information includes allocations of certain Honeywell corporate expenses, as described in “Note 3 – Related Party Transactions with Honeywell” to the historical Consolidated Financial Statements. We believe the assumptions and methodologies underlying the allocation of these
expenses are reasonable. However, such expenses may not be indicative of the actual level of expenses that we would have incurred if we had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future.
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| Year Ended December 31, |
Selected Statement of Operations Information (Dollars in thousands): | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Sales | $ | 1,475,194 |
| | $ | 1,191,524 |
| | $ | 1,329,409 |
| | $ | 1,790,372 |
| | $ | 1,766,586 |
|
Net Income | 146,699 |
| | 34,147 |
| | 63,776 |
| | 83,858 |
| | 118,746 |
|
| | | | | | | | | |
| As of December 31, |
Selected Balance Sheet Information (Dollars in thousands): | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Total assets | $ | 1,050,274 |
| | $ | 904,957 |
| | $ | 840,986 |
| | $ | 823,048 |
| | $ | 733,981 |
|
Total liabilities | 673,949 |
| | 689,595 |
| | 361,916 |
| | 406,293 |
| | 313,407 |
|
Total equity | 376,325 |
| | 215,362 |
| | 479,070 |
| | 416,755 |
| | 420,574 |
|
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Earnings Per Common Share (a) | | | |
| | |
| | |
| | |
|
Basic: | $ | 4.81 |
| | $ | 1.12 |
| | $ | 2.09 |
| | $ | 2.75 |
| | $ | 3.90 |
|
Diluted: | 4.72 |
| | 1.12 |
| | 2.09 |
| | 2.75 |
| | 3.90 |
|
Weighted average common shares (a) | | | |
| | |
| | |
| | |
|
Basic: | 30,482,966 |
| | 30,482,966 |
| | 30,482,966 |
| | 30,482,966 |
| | 30,482,966 |
|
Diluted: | 31,091,601 |
| | 30,503,587 |
| | 30,482,966 |
| | 30,482,966 |
| | 30,482,966 |
|
| |
(a) | On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the Company’s common stock were distributed to Honeywell stockholders of record as of September 16, 2016. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares, or 30,482,966 shares. These shares were treated as issued and outstanding from January 1, 2013 for purposes of calculating historical basic earnings per share. No dividends have been paid by the Company from October 1, 2016 through December 31, 2017. |
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 Management’s Discussionsection, referred to as the "MD&A" presents management's discussion and Analysisanalysis of the Company’sCompany's financial condition and results of operations discussion, which we refer to as our “MD&A,”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, 2023 and 2022 and year-to-year comparisons between 2023 and 2022. Discussions of our financial condition and results of operations as of and for the year ended December 31, 2021 and year-to-year comparisons between
Separation from Honeywell
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed2022 and 2021 that are not included in this Form 10-K can be found under the previously announced separationheading “Management’s Discussion and Analysis of AdvanSix Inc. The separation was completed by Honeywell distributing allFinancial Condition and Results of Operations” in Part II, Item 7 of the then outstanding shares of common stock of AdvanSixCompany’s Annual Report on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par value $0.01, to holders of Honeywell common stock as ofForm 10-K for the close of business on the record date of September 16, 2016 who held their shares through the Distribution Date (the “Spin-Off”). Each Honeywell stockholder who held their shares through the Distribution Date received one share of AdvanSix common stock for every 25 shares of Honeywell common stock held at the close of business on the record date of September 16, 2016. Wefiscal year ended December 31, 2022, filed our Form 10 describing the Spin-Off with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016 (the “Form 10”). On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock symbol. The spin-off is further described in Note 1 to the Consolidated Financial Statements included in Item 8.February 18, 2022.
Business Overview
AdvanSix Inc. is a diversified chemistry company playing 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, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, plant nutrients and chemical intermediates, guided by our core values of Safety, Integrity, Accountability and Respect. Our four key product lines are Nylon, Caprolactam, Ammonium Sulfate and Chemical Intermediates.
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. We produce and sell our Nylon 6 resin and caprolactam as a commodity products,product and also produce and sell our Nylon 6 resin as both a specializedcommoditized and differentiated resin product. The production of these products is capital intensive, requiring ongoing investments to increase production capacity as well as investments to improve plant reliability and the quality of our products. 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 the market-based and value-based pricing models for most of our products.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 specializeddifferentiated nylon resin products. Our specialized Nylon 6 products are typically valued at a higher level than commodity resin products.for current and new customer applications, such as our wire and cable and co-polymer offerings.
In recent years, nylon and caprolactam prices have experienced a cyclical period of downturn as the global market has experienced large increases in supply without a commensurate increase in demand. Most of this supply increase has been built by new Chinese manufacturers, resulting in margin compression for Nylon 6 resin and caprolactam in recent years to historic lows. Over the last year, capacity reductions by our competitors have occurred in North America and Europe improving supply/demand fundamentals in North America with continued dynamic conditions globally. We believe that, in addition to a potential recovery that has historically followed periods of oversupply and declining prices, Nylon 6 end-market growth will continue to generally track global GDP with certain applications growing at faster rates including engineered plastics and packaging. Additionally, one of our strategies is to continue developing specialty nylon and copolymer products that we believe will generate higher margins.
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. AnotherOther global factorfactors driving demand for ammonium sulfate fertilizer isdemand are general agriculture trends, including planted acres and 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 as compared to other fertilizers. We expect agriculture fundamentalsalso directly supply packaged ammonium sulfate to remain challenging through the 2018 planting season.customers, primarily in North and South America, and have diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.
We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience quarterly cyclicalityfluctuate reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America. North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically strongest during second quarter fertilizer application and then typically decline seasonally with new season fill in the third quarter. Ammonium sulfate industry prices in the corn belt have declined approximately 10% from the second quarter to the third quarter, on average, since 2016. 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.
We also manufacture, market and sell a number of chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. Most significant is acetone, the price of which is influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs. Our differentiated product offerings include high-purity applications and high-value intermediates including our U.S. Amines portfolio as well as our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.
We seek to run our production facilities on a nearly continuous basis for maximum efficiency andas several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain. WeWhile 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 outagesplant turnarounds each year to conduct routine and major maintenance across our facilities, which are referred to as plant turnarounds. While we may experience unplanned interruptions from time to time, we seek to mitigate the risk through regularly scheduled maintenance both for major and minor repairs at all of our production facilities. We also utilize maintenance excellence and mechanical integrity programs, and maintain appropriatetargeted 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.downtime;
While our integrated manufacturing, scale andhowever, the quantity and rangemitigation of our product offerings make us oneall or part of the most efficient manufacturers in our industry, we are also exposed to increased risk associated with unplanned downtime or material disruptions at any one of our production facilities which could impact our supply chain to downstream plants in our manufacturing process. Unplanned outages may occur and we may not have enough intermediate chemical inventory at any given time to offset such production losses. Moreover, taking our production facilities offline for regularly scheduled repairs canimpact cannot be an expensive and time-consuming operation with risk that discoverable items and delays during the repair process may cause unplanned downtime as well.assured. For a description of our principal risks, see “Risk Factors" in Item 1A.
Recent Developments
Business Operations
In the second quarter of 2019, the Company entered into an alliance with Oben Holding Group S.A. (“Oben”), a third-party producer of films for the flexible packaging industry. On September 8, 2023, the Company entered into an agreement to exit its alliance with Oben. The exit of the alliance provides a termination fee payable by Oben to AdvanSix in exchange for full transition of AdvanSix’s share of the alliance. The Company recorded a gain of $11.4 million in the third quarter of 2023. The gain represents management’s estimate of the value of the termination fee, which is calculated based upon a formula that takes into account a combination of historical and future performance, and is included as a component of Other non-operating (income) expense, net. Approximately 60% of the termination fee is subject to change as it is based on an estimate of future performance. This fee is payable in 3 installments, with the first installment of $4.4 million received in the fourth quarter of 2023. Subsequent installments are expected to be paid in the third quarters of 2024 and 2025.
On September 21, 2023, the Company was notified by a licensee of certain legacy ammonium sulfate fertilizer technology assets operated at the licensee's fertilizer manufacturing facility that it intends to close its facility no later than August 2024. As a result, the Company recognized a non-cash, pre-tax charge related to the assets located at the licensee's facility of approximately $4.5 million in the third quarter of 2023. The charge is included as a component of Other non-operating (income) expense, net. The remaining asset balance of $2.6 million, an amount equal to the cash-flows expected to be received through the end of the contract, will be depreciated through August 2024.
During the third quarter of 2023, the Company made a strategic decision to cease production of certain low-margin oximes products. The Company incurred an approximately $2.4 million unfavorable impact to pre-tax income during the third quarter of 2023 primarily as a result of a non-cash write-down of the assets associated with these products.
In January 2018,2024, as previously announced, the Company experienced a temporaryprocess-based operational disruption at its Frankford, Pennsylvania manufacturing site temporarily reducing phenol and acetone production issueat the facility, as well as production at its Hopewell and Chesterfield, Virginia facility related to severe winter weather.facilities. As a result of this unplanned interruption, caprolactam and resin production were reduced at our Hopewell and Chesterfield, Virginia manufacturing facilities. Thea delayed ramp to planned utilization rates, the Company expects to incur an approximately $30 millionis now anticipating a total unfavorable impact to pre-tax income in the first quarter 2024 of 2018, including the unfavorable impact$23 to $27 million, comprised of fixed cost absorption, lost sales, maintenance expense and incremental raw material costs. The Company informed its customers of this force majeure event and acted to mitigate the impact of the reduced output on its customers’ operations.lost sales and other additional costs including purchases of replacement product and incremental plant spend. The unplanned interruption had no adversedid not have a material impact on fourth quarter 2017 financial2023 results.
Share Repurchase Authorization
On February 21, 2018 (the “Closing Date”), the Company and its lenders amended the Credit Agreement to provide the Company with additional operating flexibility and lower borrowing costs. Under the amended Credit Agreement, the Company has a single $425 million revolving credit facility which replaces the former $270 million term loan and $155 million revolving credit facility. On the Closing Date, the Company borrowed $242 million in loans under the revolving credit facility, and the proceeds of such loans were used to repay the outstanding term loan facility. For a discussion of the amendment to the Credit Agreement, please refer to Note 18. "Subsequent Events."
2016 Operational Events
On December 8, 2016, the Company announced that it experienced a temporary outage at its Hopewell, Virginia facility reducing caprolactam production and a resulting reduction in resin production at its downstream Chesterfield, Virginia polymerization plant. The Company had previously resumed operations on November 21, 2016 following additional, unplanned maintenance related to the extensive planned fourth quarter 2016 turnaround activities. Under normal conditions, buffer inventories through the supply chain mitigate the impact of temporary production disruptions on customers. Due to the timing of this disruption relative to the November 21 startup, where inventories were depleted by incremental downtime, buffer inventories through the supply chain were insufficient to offset the temporary outage.
On October 31, 2016,17, 2023, the Company announced that the planned fourth quarter 2016 turnaround activitiesBoard 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 previously approved share repurchase program. Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, 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 repurchase program has no expiration date and may be modified, suspended or discontinued at any time.
Hopewell, VA Collective Bargaining Agreements
On April 7, 2023, the Company issued a press release announcing that a labor strike had been initiated by the Hopewell South bargaining unit, consisting of the International Chemical Workers Union Council/the United Food and Commercial Workers, Local 591-C, the International Brotherhood of Electrical Workers, Local 666, the International Association of Machinists and Aerospace Workers, Local No. 10, and the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry, Local 851, affecting approximately 340 workers at the Company’s manufacturing facility in Hopewell, Virginia. The Company had robust contingency measures in place and was well prepared to support safe, stable and sustainable operations during this period. On May 8, 2023, the Company announced that the Hopewell South bargaining unit voted to ratify a new five-year collective bargaining agreement and that Hopewell South employees would return to work on May 10, 2023. The strike did not have a material impact on the Company’s results of operations.
On September 29, 2023, the Company’s Hopewell North bargaining unit, represented by the United Steelworkers, ratified a new five-year labor agreement in advance of the prior agreement’s anticipated expiration date of October 4, 2023. The ratified labor agreement affects approximately 130 workers at the Company’s manufacturing facility in Hopewell, Virginia.
Anti-Dumping Duty Petition - Ammonium Sulfate
In January 2017, the U.S. Department of Commerce (“Commerce”) published its final affirmative determinations in the anti-dumping and countervailing duty investigations of imports of ammonium sulfate from the People's Republic of China (the "PRC"), and in March 2017, the International Trade Commission ("ITC") issued its final determinations of material injury by reason of dumped and subsidized 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 reviews, 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. In June 2022, Commerce issued its final determination that revocation of the orders would likely lead to continuation or recurrence of dumping and subsidies. In January 2023, the ITC made affirmative determinations that revocation of the orders would likely lead to continuation or recurrence of material injury. As a result of Commerce’s and ITC’s determinations, the orders will be extended due to additional, unplanned maintenance of its ammonia plant within its Hopewell, Virginia facility. The extensive planned turnaround activities, which were coordinated across numerous operating units within the Company’s Frankford, Hopewell and Chesterfield sites, began in early October. The ammonia plant turnaround began on October 17, 2016 and was planned to last for 20 days but continued for an additional two weeks to address the significant inspection findings regarding a code regulated pressure vessel. another five years.
Philadelphia Energy Solutions’ Shut Down
The Company worked with its customers and suppliers to mitigatehas assessed the business impact of the extended turnaround.June 2019 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 December 31, 2023, the Company has incurred an approximately $66 million unfavorable impact to pre-tax income since the refinery shut down in 2019 and submitted a business interruption insurance claim. During 2023, the Company entered into a settlement with one of its insurers and continues to pursue the claim with the other insurers, which is ongoing.
Consolidated Results of Operations for the Years Ended December 31, 2017, 20162023, 2022 and 20152021
(Dollars in thousands)thousands)
Sales
Sales | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Sales | $ | 1,533,599 | | | $ | 1,945,640 | | | $ | 1,684,625 | |
% change compared with prior period | (21.2) | % | | 15.5 | % | | 45.5 | % |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Sales | $ | 1,475,194 |
| | $ | 1,191,524 |
| | $ | 1,329,409 |
|
% change compared with prior period | 23.8 | % | | (10.4 | )% | | (25.7 | )% |
The change in sales is attributable to the following:
| | | | | | | | | | | |
| 2023 versus 2022 | | 2022 versus 2021 |
Volume | 0.2 | % | | (10.2) | % |
Price | (22.0) | % | | 22.2 | % |
Acquisition | 0.6 | % | | 3.5 | % |
| (21.2) | % | | 15.5 | % |
|
| | | | | |
| 2017 versus 2016 | | 2016 versus 2015 |
Volume | 8.5 | % | | (1.2 | )% |
Price | 15.3 | % | | (9.2 | )% |
| 23.8 | % | | (10.4 | )% |
20172023 compared with 20162022
Sales increased in 2017 compared to 2016 by $283.7 million, or approximately 24%, due primarily to higher sales prices (approximately 15%) and volume increases (approximately 9%) of chemical intermediates, caprolactam, ammonium sulfate and nylon. Sales prices increased due primarily to (i) higher prices of the raw materials, particularly benzene and propylene, used to manufacture nylon, caprolactam and chemical intermediates impacting formula-based pass-through pricing (approximately 12% favorable impact), and (ii) market-based pricing due primarily to improved industry conditions in nylon, caprolactam and chemical intermediates offset partially by lower prices of ammonium sulfate (approximately 3% favorable impact). Volume increased in 2017 due to improved plant production and the impacts of unplanned outages in the fourth quarter of 2016 discussed above.
2016 compared with 2015
Sales decreased in 20162023 compared to 20152022 by $137.9$412.0 million or approximately 10%,(approximately 21%) due to (i) net unfavorable market-based pricing (approximately 17%) primarily to lower sales prices (9%) and lower volumes (1%) of caprolactam and nylon, andreflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen fertilizer supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions and (ii) unfavorable raw material pass-through pricing (approximately 5%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products). This was partially offset by volume increases in chemical intermediates. Sales prices decreased due primarily to (i) lower pricesthe acquisition of the raw materials used to manufactureU.S. Amines (approximately 1%).
our intermediate chemicals, caprolactam and nylon impacting formula based pass-through pricing (approximately 4% impact), (ii) the impact of unfavorable industry conditions for nitrogen fertilizers on ammonium sulfate pricing (approximately 3% impact) and (iii) market based pricing pressure in the caprolactam and nylon end-markets (approximately 2% impact). Volumes decreased year over year due primarily to the extended outage activity in the fourth quarter of 2016 discussed above partially offset by year over year increased volumes from the first three quarters of 2016 due to improved production rates at our manufacturing locations.
Cost of Goods Sold
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Cost of goods sold | $ | 1,368,511 | | | $ | 1,631,161 | | | $ | 1,410,503 | |
% change compared with prior period | (16.1) | % | | 15.6 | % | | 37.7 | % |
Gross margin % | 10.8 | % | | 16.2 | % | | 16.3 | % |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Cost of goods sold | $ | 1,249,014 |
| | $ | 1,083,894 |
| | $ | 1,179,651 |
|
% change compared with prior period | 15.2 | % | | (8.1 | )% | | (26.6 | )% |
Gross margin % | 15.3 | % | | 9.0 | % | | 11.3 | % |
20172023 compared with 20162022
Costs of goods sold increased in 2017 compared to 2016 by $165.1 million, or approximately 15%, due primarily to higher prices of raw materials (approximately 14%), particularly benzene and propylene, and a one-time prior year benefit related to the termination of a long-term supply agreement in the three months ended March 31, 2016 (approximately 1% unfavorable).
Gross margin percentage increased by approximately 6% in 2017 compared to 2016 due primarily to higher sales and production volumes on a year-over-year basis (approximately 6%) offset partially by the termination of a long-term supply agreement in 2016 (approximately 1%).
2016 compared with 2015
Costs of goods sold decreased in 20162023 compared to 20152022 by $95.8$262.6 million or approximately 8%,(approximately 16%) due primarily to (i) lowerdecreased prices of raw materials including natural gas, sulfur, benzene and propylene (inputs to cumene which is a key feedstock to our products) (approximately 8%), (ii) lower costs due to the volume reductions discussed above (approximately 1%), and (iii) the termination of a long-term supply agreement in the first quarter of 2016 (approximately 1%17%) partially offset by the costs associated with the impact of the unplanned and extended plant turnarounds in the fourth quarter of 2016U.S. Amines acquisition (approximately 1%). Prices of raw materials decreased due primarily to cumene (approximately 4%), sulfur (approximately 2%) and natural gas (approximately 1% impact).
Gross margin percentage decreased by approximately 2%5% in 20162023 compared to 20152022 due primarily to (i) the net impact of saleslower market pricing overand formula-based raw material costspass-through pricing (approximately 2% unfavorable impact) and (ii) the impact of higher plant costs primarily associated with the unplanned and extended outages in the fourth quarter of 2016 described above (approximately 1%5%) partially offset from the benefits from the termination of a long-term supply agreement (approximately 1% favorable impact).
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Selling, general and administrative expense | $ | 95,538 | | | $ | 87,748 | | | $ | 82,985 | |
% of sales | 6.2 | % | | 4.5 | % | | 4.9 | % |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Selling, general and administrative expense | $ | 72,815 |
| | $ | 53,753 |
| | $ | 52,398 |
|
% of sales | 4.9 | % | | 4.5 | % | | 3.9 | % |
2023 compared with 2022
Selling, general and administrative expenses increased in 20172023 compared to 20162022 by $19.1$7.8 million, or approximately 35%9%, due primarily to higher stand-aloneincreased functional support costs incurred sinceincluding upgrades to our enterprise resource planning system, costs associated with pursuing the Spin-Off on October 1, 2016.business interruption insurance claim in connection with the June 2019 shutdown of cumene supplier, Philadelphia Energy Solutions, and a cash recovery in 2022 of a previously written off receivable. These stand-alone costs are related primarily to workforce and other infrastructure including costs for transition services provided by Honeywell whichincreases were partially offset by the elimination of costs allocatedlower incentive-based compensation costs.
Interest Expense, Net
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Interest Expense, net | $ | 7,485 | | | $ | 2,781 | | | $ | 5,023 | |
2023 compared with 2022
Interest expense, net, increased in the prior year to the Company from Honeywell on the basis of sales. The incremental one-time and ongoing stand-alone costs to operate our business as an independent public company remain in line with the Company’s expectations as previously disclosed in our Form 10 filed with the SEC and are expected to exceed the historical allocations of expenses from Honeywell.
Changes in the Selling, general and administrative expenses were not significant when comparing 2016 with 2015.
Other Non-operating Expense (Income), Net
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Other non-operating expense (income), net | $ | 8,733 |
| | $ | 102 |
| | $ | (2,877 | ) |
The increase in Other non-operating expense (income), net in 20172023 compared to 2016 was2022 by $4.7 million, or approximately 169%, due primarily to higher interest expense for the full year in 2017 versus interest expense for only the fourth quarter in 2016 occurring in conjunctionrates.
Other Non-operating (Income) Expense, Net
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Other non-operating (income) expense, net | $ | (7,158) | | | $ | (1,841) | | | $ | 998 | |
2023 compared with the establishment of debt associated with the Spin-Off. For additional discussion of long-term debt, see “Note 9. Long-term Debt and Credit Agreement” in the Notes accompanying the audited Consolidated Financial Statements.2022
Changes in the Other non-operating expense (income)income, net, increased in 2023 compared to 2022 by $5.3 million, or approximately 289%, net were not material when comparing 2016due primarily to the exit from its alliance with 2015.Oben (approximately $11.4 million) offset by (i) the exit from a licensing agreement of certain legacy ammonium sulfate technology assets operated at the licensee's fertilizer manufacturing facility, that it intends to close its facilities no later than August 2024 (approximately $4.5 million) and (ii) the exit of production from certain low-margin oximes products.
Income Tax Expense (Benefit)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Income tax expense | $ | 14,600 | | | $ | 53,905 | | | $ | 45,325 | |
Effective tax rate | 21.1 | % | | 23.9 | % | | 24.5 | % |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Income tax expense (benefit) | $ | (2,067 | ) | | $ | 19,628 |
| | $ | 36,461 |
|
Effective tax rate | (1.4 | )% | | 36.5 | % | | 36.4 | % |
On December 22, 2017 the U.S. government enacted significant changes to federal tax law following the passage of the Tax Cuts and Jobs Act (the “2017 Act”). The 2017 Act significantly changes the U.S. corporate tax system. The Company has reasonably estimated the accounting for the effects of the 2017 Act during the year ended December 31, 2017. Our financial statements for the year ended December 31, 2017 reflect certain effects of the 2017 Act including a reduction in the corporate tax rate to 21% from 35% and changes made to executive compensation rules. As a result of these changes to tax laws and tax rates under the 2017 Act, the Company incurred a reduction in income tax expense of $53,424 primarily related to the reduction in the federal corporate tax rate to 21% during the year ended December 31, 2017.
The Company's income tax benefit for 2017 was $2,067. In the absence of the changes in the 2017 Act, tax expense for 2017 would have been $51,357.
Given the significant changes resulting from and complexities associated with the 2017 Act, the financial impacts for the fourth-quarter and full-year 2017 as well as the estimated impact on the 2018 effective tax rate are provisional and subject to further analysis, interpretation and clarification of the 2017 Act, which could result in changes to these estimates during 2018. The Company will reflect any adjustments to the provisional amounts within one year from the enactment date of the 2017 Act, if applicable.
The Company’s effective income tax rate for 20172023 approximated the U.S. Federal statutory rate of 21%. Increases to the effective income tax rate, due primarily to state taxes and executive compensation limitations, were materially offset by research tax credits, excess tax benefits of equity compensation and the foreign-derived intangible income deduction.
The Company's effective income tax rate for 2022 and 2021 was lowerhigher compared to the U.S. Federal statutory rate of 35% due primarily to the enactment of the 2017 Act and the related remeasurement of deferred tax assets and liabilities. The Company also intends to make certain state tax apportionment elections in 2017 which results in a state income tax rate change that is expected to lower the Company’s overall state tax liability dependent upon the Company achieving minimum employment thresholds in tax years 2017 to 2019.
The Company’s effective income tax rates in 2016 and 2015 were higher compared to the U.S. Federal statutory tax rate of 35%21% due primarily to state taxes and to a lesser extent, losses incurred in foreign jurisdictions with rates lower than the U.S. Federal statutory rate,executive compensation deduction limitations partially offset by the federalresearch tax credit for research activitiescredits and the U.S. manufacturing incentive credits.foreign-derived intangible income deduction.
For 2018,On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. This legislation includes significant changes relating to tax, climate change, energy and health care. Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases. The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022. The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022. The impact of any excise tax imposed on the Company expectsfor share repurchases is generally accounted for as an effective tax rate (including federal, stateequity transaction with no consequences to the Company's results of operations, and foreign taxes) of approximately 25%. In the absencethis provision of the 2017 Act,law does not currently have a material impact on the Company would have expected a 2018 overall effective tax rate of approximately 38%.
During the thirdCompany's financial condition. The IRA also includes significant extensions, expansions and fourth quarters of 2017, the Company adjusted its deferred tax assets and liabilities to account for changes to the September 30, 2016 deferred tax balancesenhancements related to climate and energy tax credits designed to encourage
investment in the separation from Honeywell.adoption and expansion of renewable and alternative energy sources. The changes were attributableCompany continues to evaluate these energy credit provisions of the completionlaw in relation to our sustainability and environmental, social and governance initiatives.
As of Honeywell’s 2016 income tax returnDecember 31, 2023 and related return to provision adjustment. The adjustment resulted in a $12.5 million decrease in Deferred income taxes and an increase in Additional paid in capital.
For 2017, 2016 and 2015,2022, 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 –4. Income Taxes” in the Notes accompanying the audited Consolidated Financial Statements.Statements included in Item 8 of this Form 10-K.
Net Income
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Net income | $ | 54,623 | | | $ | 171,886 | | | $ | 139,791 | |
| | | | | |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Net income | $ | 146,699 |
| | $ | 34,147 |
| | $ | 63,776 |
|
20172023 compared with 20162022
As a result of the factors described above, net income was $146.7$54.6 million in 20172023 as compared to $34.1$171.9 million in 2016.2022.
2016 compared with 2015
As a result of the factors described above, net income was $34.1 million in 2016 as compared to $63.8 million in 2015.
Non-GAAP Measures
The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and EBITDA margin.Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net Incomeincome before Interest, Income Taxes,taxes, Depreciation and Amortization.amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and one-time merger and acquisition costs. Adjusted EBITDA marginMargin is equal to Adjusted EBITDA divided by Sales. The following tables may 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 itsthe Company's competitors, as the non-GAAP measures exclude items that aremanagement believes do not considered part ofreflect the Company’s ongoing 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’sCompany's non-GAAP measures may not be comparable to other companies’companies' non-GAAP measures.
The following is a reconciliation between the non-GAAP financial measures of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA marginMargin 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, |
| | 2017 | | 2016 | | 2015 |
Net income | | $ | 146,699 |
| | $ | 34,147 |
| | $ | 63,776 |
|
Interest expense, net | | 7,716 |
| | 1,847 |
| | — |
|
Income tax expense (benefit) | | (2,067 | ) | | 19,628 |
| | 36,461 |
|
Depreciation and amortization | | 48,455 |
| | 40,329 |
| | 36,410 |
|
EBITDA (non-GAAP) | | 200,803 |
| | 95,951 |
| | 136,647 |
|
Prior-year one-time benefit (1) | | — |
| | 15,500 |
| | — |
|
EBITDA excluding prior-year one-time benefit (non-GAAP) | | $ | 200,803 |
| | $ | 80,451 |
| | $ | 136,647 |
|
| | | | | | |
Sales | | $ | 1,475,194 |
| | $ | 1,191,524 |
| | $ | 1,329,409 |
|
| | | | | | |
EBITDA margin % (non-GAAP) | | 13.6 | % | | 8.1 | % | | 10.3 | % |
| | | | | | |
EBITDA margin % excluding prior year one-time benefit (non-GAAP) | | 13.6 | % | | 6.8 | % | | 10.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Twelve Months Ended December 31, |
| | | | | | 2023 | | 2022 | | 2021 |
Net Income | | | | | | $ | 54,623 | | | $ | 171,886 | | | $ | 139,791 | |
Non-cash stock-based compensation | | | | | | 8,313 | | | 10,279 | | | 11,299 | |
Non-recurring, unusual or extraordinary income* | | | | | | (4,472) | | | — | | | — | |
Non-cash amortization from acquisitions | | | | | | 2,126 | | | 1,815 | | | 239 | |
Non-recurring M&A costs | | | | | | — | | | 277 | | | 172 | |
Benefit from income taxes relating to reconciling items | | | | | | (661) | | | (1,996) | | | (1,798) | |
Adjusted Net Income (non-GAAP) | | | | | | 59,929 | | | 182,261 | | | 149,703 | |
Interest expense, net | | | | | | 7,485 | | | 2,781 | | | 5,023 | |
| | | | | | | | | | |
Income tax expense - Adjusted | | | | | | 15,261 | | | 55,901 | | | 47,123 | |
| | | | | | | | | | |
Depreciation and amortization - Adjusted | | | | | | 70,884 | | | 67,538 | | | 65,101 | |
Adjusted EBITDA (non-GAAP) | | | | | | $ | 153,559 | | | $ | 308,481 | | | $ | 266,950 | |
| | | | | | | | | | |
Sales | | | | | | $ | 1,533,599 | | | $ | 1,945,640 | | | $ | 1,684,625 | |
| | | | | | | | | | |
Adjusted EBITDA Margin** (non-GAAP) | | | | | | 10.0% | | 15.9% | | 15.8% |
(1) Reflects* Includes a $15.5pre-tax gain of approximately $11.4 million one-time benefit recognized in the first quarter of 2016 related to the terminationCompany's exit from the Oben alliance, the unfavorable impact to pre-tax income of approximately $4.5 million associated with a long-term supply agreement.licensee of certain legacy ammonium sulfate fertilizer technology assets closing its facility, and the unfavorable impact to pre-tax income of approximately $2.4 million from the exit of certain low-margin oximes products.
**Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales
The following are reconciliationsis a reconciliation between the non-GAAP financial measuremeasures of Net Income and EPS excluding the one-time net tax benefitAdjusted Earnings Per Share to its most directly comparable U.S. GAAP financial measure of Net Income and EPS:measure:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net Income | $ | 146,699 |
| | $ | 34,147 |
| | $ | 63,776 |
|
One-time net tax benefit (2) | (53,424 | ) | | — |
| | — |
|
Net Income excluding one-time net tax benefit | $ | 93,275 |
| | $ | 34,147 |
| | $ | 63,776 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Twelve Months Ended December 31, |
| | | | | | 2023 | | 2022 | | 2021 |
Numerator | | | | | | | | | | |
Net Income | | | | | | $ | 54,623 | | | $ | 171,886 | | | $ | 139,791 | |
Adjusted Net Income (non-GAAP) | | | | | | 59,929 | | | 182,261 | | | 149,703 | |
| | | | | | | | | | |
Denominator | | | | | | | | | | |
Weighted-average number of common shares outstanding - basic | | | | | | 27,302,254 | | | 27,969,436 | | | 28,152,876 | |
Dilutive effect of equity awards and other stock-based holdings | | | | | | 705,376 | | | 1,061,671 | | | 892,310 | |
Weighted-average number of common shares outstanding - diluted | | | | | | 28,007,630 | | | 29,031,107 | | | 29,045,186 | |
| | | | | | | | | | |
EPS - Basic | | | | | | $ | 2.00 | | | $ | 6.15 | | | $ | 4.97 | |
EPS - Diluted | | | | | | $ | 1.95 | | | $ | 5.92 | | | $ | 4.81 | |
Adjusted EPS - Basic (non-GAAP) | | | | | | $ | 2.20 | | | $ | 6.52 | | | $ | 5.32 | |
Adjusted EPS - Diluted (non-GAAP) | | | | | | $ | 2.14 | | | $ | 6.28 | | | $ | 5.15 | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Basic | | | | | |
EPS | $ | 4.81 |
| | $ | 1.12 |
| | $ | 2.09 |
|
One-time net tax benefit (2) | (1.75 | ) | | — |
| | — |
|
EPS excluding one-time net tax benefit | $ | 3.06 |
| | $ | 1.12 |
|
| $ | 2.09 |
|
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Diluted | | | | | |
EPS | $ | 4.72 |
| | $ | 1.12 |
| | $ | 2.09 |
|
One-time net tax benefit (2) | (1.72 | ) | | — |
| | — |
|
EPS excluding one-time net tax benefit | $ | 3.00 |
| | $ | 1.12 |
|
| $ | 2.09 |
|
(2) Reflects a $53,424 one-time net tax benefit recognized in the fourth quarter of 2017 related to the 2017 Act, which was signed and enacted effective December 22, 2017. The 2017 Act reduces the federal corporate tax rate to 21% from 35% for tax years beginning after December 31, 2017.
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 annualshort-term operating and longer termobjectives 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.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.requirements for the next twelve months and beyond. Our operating cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as well asunplanned downtime, material disruptions at our production facilities, the prices of our raw materials, and general economic and industry trends.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 asupply chain financing and trade receivables discount arrangementarrangements with a third partythird-party financial institutioninstitutions which enhancesoptimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enablesenable 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 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, capital expenditures, including high return growthdividends and cost savingsliquidity reflecting disciplined capital deployment. Capital expenditures are deployed for various ongoing investments environmental compliance costs, employee benefit obligations, interest payments, debt repayment and strategic acquisitions. Weinitiatives to improve reliability, yield and quality, expand production capacity, as well as comply with HSE regulations. While various macroeconomic conditions have created and could continue to create volatility in funding markets, we believe that our future cash from operations, together with cash on hand and our access to funds on hand and credit and capital markets, will provide adequate resources to fund our expected operating and financing needs.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, Risk Factors, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.
At December 31, 2023, the Company had approximately $30 million of cash on hand with approximately $329 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 $107 million in 2023 compared to $89 million in 2022, reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.
We assumed from Honeywell all health, safety and environmental (“HSE”)HSE liabilities and compliance obligations related to the past and future operations of our current business as of the spin-off, as well as all HSE liabilities associated with our three ownedcurrent manufacturing locations and the other locationsassumed from Honeywell that are 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, ourthe associated remediation costs have not been material, and we do not expect our known remediation costs to addresshave a material adverse effect on the Company's consolidated financial position and results of operations.
We expect that our primary cash requirements for 2024 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 2023, 2022 and 2021 and anticipated capital expenditures for 2024. 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 2024 through 2028. This amount is related to what has been accrued as probable and reasonably estimable as of December 31, 2023. For information regarding material cash requirements from known contractual obligations with respect to be material for 2018.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, 2023 and approximate $9.7 million per year, subject to changes in variable interest rates and additional obligations.
The Company made no cash contributions to the defined benefit pension plan of $2.2 million induring the first quarter of 2017, $1.6 million in the second quarter of 2017, $11.0 million in the third quarter of 2017 and $2.0 million in the fourth quarter of 2017 for a total of $16.8 million in full year 2017. The Company plans to make pension planended December 31, 2023. Additional contributions during 2018 sufficient to satisfy pension funding requirements of approximately $8 to $10 million. The Companymay be made a $2.0 million contribution in January 2018 and plans to make 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 $5.4$6.0 million and $5.9 million for the yearyears ended December 31, 2017.2023 and 2022, respectively.
We expectThe Company's Board of Directors (the "Board") has authorized share repurchase programs to repurchase shares of the Company's common stock as follows:
| | | | | | | | | | | | | | | | | | |
Date of Authorization | | Authorized Amount (millions) | | | | | | Authorized Amount Remaining as of December 31, 2023 (millions) |
May 4, 2018 | | $ | 75.0 | | | | | | | $ | — | |
February 22, 2019 | | 75.0 | | | | | | | — | |
February 17, 2023 | | 75.0 | | | | | | | 68.2 | |
Totals | | $ | 225.0 | | | | | | | $ | 68.2 | |
Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, 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, 2023, the Company had repurchased 5,848,475 shares of common stock, including 854,340 shares withheld to cover tax withholding obligations in connection with the vesting of equity awards, for an aggregate of $182.0 million at a weighted average market price of $31.12 per share. As of December 31, 2023, $68.2 million remained available for repurchase under the currently authorized repurchase program. During the period from January 1, 2024 through February 2, 2024, the Company repurchased an additional 64,678 shares at a weighted average market price of $26.39 per share under the currently authorized repurchase program.
At December 31, 2023, 2022 and 2021, 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
The Company commenced the declaration of dividends on September 28, 2021 and has since declared and paid a dividend on a quarterly basis.
The Company increased its quarterly dividend by 10% ($0.145 to $0.160) and 16% ($0.125 to $0.145) during the third quarter of 2023 and 2022, respectively.
Dividends paid during 2023 and announced on the date of this filing are as follows:
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Date of Announcement | | Date of Record | | Date Payable | | Dividend per Share | | Total Approximate Dividend Amount ($M) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
2/16/2024 | | 3/4/2024 | | 3/18/2024 | | $0.160 | | $4.3 | |
11/3/2023 | | 11/14/2023 | | 11/28/2023 | | $0.160 | | $4.3 | |
8/4/2023 | | 8/15/2023 | | 8/29/2023 | | $0.160 | | $4.4 | |
5/5/2023 | | 5/16/2023 | | 5/30/2023 | | $0.145 | | $4.0 | |
2/17/2023 | | 3/3/2023 | | 3/17/2023 | | $0.145 | | $4.0 | |
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The timing, declaration, amount and payment of future dividends to stockholders, if any, will be 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 primary cash requirementsBoard deems relevant.
The Company paid dividends of approximately $16.7 million, $15.1 million and $3.5 million for 2018 will be to fund our on-going operations, costs associated with planned plant outages, capital expenditures, pension benefit obligationsthe years ended December 31, 2023, 2022 and the amounts related to contractual obligations noted in the tables below. See the items noted below in “Contractual Obligations” and “Capital Expenditures” for more information.2021, respectively.
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.
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 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.
With the cessation of LIBOR on June 30, 2023 and subject to the First Amendment to the Credit Agreement, dated as of June 27, 2023, the Eurodollar Rate was replaced with the Adjusted Term SOFR as an alternative benchmark rate for purposes of the Credit Agreement. The transition was effective July 1, 2023. Borrowings under the Credit Agreement we incurred indebtednessbear 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 an Adjusted Term SOFR 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 aggregate principal amountCredit Agreement). The Company is also required to pay a commitment fee in respect of approximately $270.0 million inunused commitments under the form ofRevolving Credit Facility, if any, at a term loan,rate ranging from 0.15% to 0.35% per annum depending on the net proceeds of which were distributed to Honeywell substantially concurrentCompany’s Consolidated Leverage Ratio. In conjunction with the consummationcessation of LIBOR, as of July 1, 2023, the Spin-Off, and we also entered into a $155.0 million revolving credit facility to fund our working capital and other cash needs. For information regarding ourapplicable margin under the Credit Agreement refer to Note 9 – Long-term Debtwas 0.25% for base rate loans and Credit Agreement to1.25% for Adjusted Term SOFR loans and the Consolidated Financial Statements in Item 8applicable commitment fee rate was 0.15% per annum.
Substantially all tangible and intangible assets of this Form 10-K.
On February 21, 2018 (the “Closing Date”), the Company and its lenders amendeddomestic subsidiaries are pledged as collateral to secure the Credit Agreement to provide the Company with additional operating flexibility and lower borrowing costs. Under the amended Credit Agreement, the Company has a single $425 million revolving credit facility which replaces the former $270 million term loan and $155 million revolving credit facility. On the Closing Date, the Company borrowed $242 million in loans under the revolving credit facility, and the proceeds of such loans were used to repay the outstanding term loan facilityobligations under the Credit Agreement. For a discussion
The Credit Agreement contains customary covenants limiting the ability of the amendmentCompany and its subsidiaries to, the Credit Agreement, please refer to Note 18. "Subsequent Events."
Under the terms of the Credit Agreement, we are subject to restrictive covenants that limit our ability, among other things, topay cash dividends, incur additional indebtedness, pay dividendsdebt or liens, redeem or repurchase stock of the Company, enter into transactions with affiliates, make other distributions, andinvestments, make capital expenditures, merge or consolidate merge, sellwith others or otherwise dispose of assets, as well asassets. The Credit Agreement also contains financial covenants that require usthe Company to maintain interest coverage and leverage ratios at levels specifieda Consolidated Interest Coverage Ratio (as defined in the Credit Agreement. TheseAgreement) 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 ended 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 may limit how we conduct our business, and in the eventCredit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of certain defaults, our repayment obligations may be accelerated.all amounts outstanding under the Revolving Credit Facility. We were in compliance with all of our covenants at December 31, 20172023 and through the date of the filing of this Annual Report on Form 10-K.
We had a borrowed balance of $115 million under the amendedRevolving Credit Agreement,Facility at February 21, 2018. AsDecember 31, 2022. We borrowed an incremental net amount of $55 million during 2023 bringing the balance under the Revolving Credit Facility to $170 million, and available credit for use of $329 million as of December 31, 2017, $153.7 million is available for use out of the total credit of $425 million under the Credit Agreement. As of February 21, 2018, $181.7 million was available for use out of the total credit of $425 million under the amended Credit Agreement.
During the year ended December 31, 2017, we borrowed $308.5 million in the aggregate from our revolving credit facility to fund our working capital and other cash needs and these borrowings were fully repaid by December 31, 2017. The revolver amounts borrowed and repaid during each quarter are as follows:
|
| | | | |
(Dollars in millions) | | 2017 |
Quarter ended December 31, 2017 | | $ | — |
|
Quarter ended September 30, 2017 | | $ | 32.5 |
|
Quarter ended June 30, 2017 | | $ | 108.5 |
|
Quarter ended March 31, 2017 | | $ | 167.5 |
|
As a result of our early payment made in 2016, no amounts were due during 2017 related to our term loan.2023. We repaid the term loan in full in February 2018 in connection with the amendment to the Credit Agreement. Going forward, cashexpect that Cash provided by operating activities will be needed to fund future interest payments in respect to ouron 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, 2023. There was no amount associated with bilateral letters of credit outside the Revolving Credit Facility.
Cash Flow Summary for the Years Ended December 31, 2017, 20162023, 2022 and 20152021
Our cash flows from operating, investing and financing activities for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, as reflected in the audited Consolidated Financial Statements included in this Form 10-K, are summarized as follows:
| | | Years Ended December 31, | | Years Ended December 31, |
| 2017 | | 2016 | | 2015 | | 2023 | | 2022 | | 2021 |
(Dollars in thousands) | | | | | | (Dollars in thousands) | | | |
Cash provided by (used for): | |
| | |
| | |
|
Operating activities | $ | 134,607 |
| | $ | 113,740 |
| | $ | 101,536 |
|
Operating activities | |
Operating activities | |
Investing activities | (93,247 | ) | | (86,381 | ) | | (98,230 | ) |
Financing activities | (127 | ) | | (13,160 | ) | | (3,306 | ) |
Net increase in cash and cash equivalents | $ | 41,233 |
| | $ | 14,199 |
| | $ | — |
|
Net change in cash and cash equivalents | |
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 capacity, further improve mix, yield and cost position and comply with environmental and safety regulations.regulations and support sustainability initiatives.
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.
A 25 basis point increase in the discount rate would result in a decrease of approximately $0.3$0.1 million to the net periodic benefit cost for 2018,2024, while a 25 basis point decrease in the discount rate would result in an increase of approximately $0.3$0.1 million to the net periodic benefit cost for 2018.2024. The resulting impact on the pension benefit obligation would be a decrease of $2.3$2.9 million and an increase of $2.5$3.1 million, respectively.
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”.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, 20172023, 2022 and 2016.2021. As of December 31, 20172023 and December 31, 2016,2022, 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to risk based on changes in interest rates relates primarily to our Revolving Credit Agreement. We have not used derivative financial instruments in our investment portfolio.Facility. The Revolving Credit AgreementFacility 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 Agreement. Facility.
The details of the earnings per share calculations for the years ended December 31, 2017, 20162023, 2022 and 20152021 are as follows:
The following table summarizes information about the income statement impact from RSUs for the years endedYears Ended December 31, 20172023, 2022 and 2016:2021:
The following table summarizes information about the income statement impact from stock options for the yearyears ended December 31, 2017. There were no stock options granted prior to 2017.2023, 2022 and 2021.
The fair value related to stock options granted was determined using Black-Scholes option pricing model and the weighted average assumptions are shown in the table below: