(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
AdvanSix Inc.
(Exact Name of Registrant as Specified in its Charter)
AdvanSix Inc. (Exact Name of Registrant as Specified in its Charter) |
Delaware | 81-2525089 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
|
300 Kimball Drive, Suite 101, Parsippany, New Jersey | 07054 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o |
Emerging growth company o |
ADVANSIX INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Three Months Ended
March 31, 2017 2016 Sales $ 376,704 $ 299,830 Costs, expenses and other: Costs of goods sold 314,117 245,559 Selling, general and administrative expenses 16,806 11,378 Other non-operating, net 1,540 (658 ) 332,463 256,279 Income before taxes 44,241 43,551 Income taxes 16,948 16,157 Net income $ 27,293 $ 27,394 Earnings per common share Basic $ 0.90 $ 0.90 Diluted $ 0.88 $ 0.90 Weighted average common shares outstanding Basic 30,482,966 30,482,966 Diluted 30,894,254 30,482,966 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Sales $ 366,660 $ 323,953 $ 1,104,805 $ 932,201 Costs, expenses and other: Costs of goods sold 309,629 285,091 923,268 804,471 Selling, general and administrative expenses 19,086 11,695 54,022 33,949 Other non-operating expense (income), net 2,133 (635 ) 6,381 (1,792 ) 330,848 296,151 983,671 836,628 Income before taxes 35,812 27,802 121,134 95,573 Income taxes 14,538 11,342 46,803 36,712 Net income $ 21,274 $ 16,460 $ 74,331 $ 58,861 Earnings per common share Basic $ 0.70 $ 0.54 $ 2.44 $ 1.93 Diluted $ 0.68 $ 0.54 $ 2.40 $ 1.93 Weighted average common shares outstanding Basic 30,482,966 30,482,966 30,482,966 30,482,966 Diluted 31,159,710 30,482,966 31,013,606 30,482,966 condensed consolidatedCondensed Consolidated and combined financial statements.Combined Financial Statements.3
ADVANSIX INC.
Three Months Ended
March 31, 2017 2016 Net income $ 27,293 $ 27,394 Foreign exchange translation adjustment (1 ) 7 Commodity hedges — (65 ) Other comprehensive income (loss), net of tax (1 ) (58 ) Comprehensive income $ 27,292 $ 27,336 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Net income $ 21,274 $ 16,460 $ 74,331 $ 58,861 Foreign exchange translation adjustment (12 ) (148 ) (15 ) 284 Commodity hedges — (3,470 ) — (1,635 ) Other comprehensive income (loss), net of tax (12 ) (3,618 ) (15 ) (1,351 ) Comprehensive income $ 21,262 $ 12,842 $ 74,316 $ 57,510 condensed consolidatedCondensed Consolidated and combined financial statements.Combined Financial Statements.4
ADVANSIX INC.
March 31, December 31, 2017 2016 ASSETS Current assets: Cash and cash equivalents $ 12,028 $ 14,199 Accounts and other receivables – net 167,965 131,671 Inventories – net 112,037 128,978 Other current assets 5,675 7,690 Total current assets 297,705 282,538 Property, plant, equipment – net 584,714 575,375 Goodwill 15,005 15,005 Other assets 30,602 32,039 Total assets $ 928,026 $ 904,957 LIABILITIES Current liabilities: Accounts payable $ 208,416 $ 222,929 Accrued liabilities 22,573 25,396 Income taxes payable 5,238 86 Deferred income and customer advances 19,707 25,567 Current portion of long-term debt 3,375 — Total current liabilities 259,309 273,978 Deferred income taxes 125,906 114,200 Long-term debt 261,557 264,838 Postretirement benefit obligations 33,603 33,544 Other liabilities 3,313 3,035 Total liabilities 683,688 689,595 COMMITMENTS AND CONTINGENCIES (Note 8) EQUITY Common stock, par value $0.01; 200,000,000 shares authorized and 30,482,966 shares issued and outstanding 305 305 Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding — — Additional paid in capital 244,490 242,806 Retained earnings/(accumulated deficit) 2,579 (24,714 ) Accumulated other comprehensive income (loss) (3,036 ) (3,035 ) Total equity 244,338 215,362 Total liabilities and equity $ 928,026 $ 904,957 September 30, 2017 December 31, 2016 ASSETS Current assets: Cash and cash equivalents $ 39,986 $ 14,199 Accounts and other receivables – net 152,511 131,671 Inventories – net 100,474 128,978 Other current assets 8,684 7,690 Total current assets 301,655 282,538 Property, plant and equipment – net 597,877 575,375 Goodwill 15,005 15,005 Other assets 35,105 32,039 Total assets $ 949,642 $ 904,957 LIABILITIES Current liabilities: Accounts payable $ 177,688 $ 222,929 Accrued liabilities 27,630 25,396 Income taxes payable 18 86 Deferred income and customer advances 801 25,567 Current portion of long-term debt 10,125 — Total current liabilities 216,262 273,978 Deferred income taxes 147,461 114,200 Long-term debt 254,995 264,838 Postretirement benefit obligations 25,372 33,544 Other liabilities 2,941 3,035 Total liabilities 647,031 689,595 COMMITMENTS AND CONTINGENCIES (Note 8) EQUITY Common stock, par value $0.01; 200,000,000 shares authorized and 30,482,966 shares issued and outstanding 305 305 Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding — — Additional paid in capital 255,709 242,806 Retained earnings/(accumulated deficit) 49,617 (24,714 ) Accumulated other comprehensive income (loss) (3,020 ) (3,035 ) Total equity 302,611 215,362 Total liabilities and equity $ 949,642 $ 904,957 condensed consolidatedCondensed Consolidated and combined financial statements.Combined Financial Statements.5
ADVANSIX INC.
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 27,293 | $ | 27,394 | ||||
Adjustments to reconcile net income to net cash (used for) provided by operating activities: | ||||||||
Depreciation and amortization | 11,296 | 9,788 | ||||||
Loss on disposal of assets | 534 | 415 | ||||||
Deferred income taxes | 11,706 | 10,548 | ||||||
Stock based compensation | 1,684 | — | ||||||
Accretion of deferred financing fees | 148 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts and other receivables | (36,295 | ) | (18,033 | ) | ||||
Inventories | 16,941 | 11,988 | ||||||
Accounts payable | (176 | ) | (17,098 | ) | ||||
Income taxes payable | 5,152 | — | ||||||
Accrued liabilities | (2,823 | ) | (7,088 | ) | ||||
Deferred income and customer advances | (5,860 | ) | (5,169 | ) | ||||
Other assets and liabilities | 1,606 | (8,704 | ) | |||||
Net cash provided by operating activities | 31,206 | 4,041 | ||||||
Cash flows from investing activities: | ||||||||
Expenditures for property, plant and equipment | (33,214 | ) | (24,626 | ) | ||||
Other investing activities | (121 | ) | (203 | ) | ||||
Net cash used for investing activities | (33,335 | ) | (24,829 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings from revolving credit facility | 167,500 | — | ||||||
Payments of revolving credit facility | (167,500 | ) | — | |||||
Principal payments of capital leases | (42 | ) | — | |||||
Net increase in invested equity | — | 20,788 | ||||||
Net cash (used for) provided by financing activities | (42 | ) | 20,788 | |||||
Net decrease in cash and cash equivalents | (2,171 | ) | — | |||||
Cash and cash equivalents at beginning of period | 14,199 | — | ||||||
Cash and cash equivalents at the end of period | $ | 12,028 | $ | — | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Interest paid | $ | 2,434 | $ | — | ||||
Income taxes paid | $ | — | $ | — | ||||
Non-Cash Financing Activities: | ||||||||
Capital expenditures included in accounts payable | $ | 14,295 | $ | 11,526 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 74,331 | $ | 58,861 | |||
Adjustments to reconcile net income to net cash (used for) provided by operating activities: | |||||||
Depreciation and amortization | 35,524 | 29,964 | |||||
Loss on disposal of assets | 1,236 | 1,246 | |||||
Deferred income taxes | 40,478 | 29,206 | |||||
Stock based compensation | 5,686 | — | |||||
Accretion of deferred financing fees | 444 | — | |||||
Changes in assets and liabilities: | |||||||
Accounts and other receivables | (20,825 | ) | (20,117 | ) | |||
Inventories | 28,504 | 13,581 | |||||
Accounts payable | (33,893 | ) | (161 | ) | |||
Income taxes payable | (68 | ) | — | ||||
Accrued liabilities | 2,234 | (9,690 | ) | ||||
Deferred income and customer advances | (24,766 | ) | (23,501 | ) | |||
Other assets and liabilities | (10,414 | ) | (12,922 | ) | |||
Net cash provided by operating activities | 98,471 | 66,467 | |||||
Cash flows from investing activities: | |||||||
Expenditures for property, plant and equipment | (67,206 | ) | (56,859 | ) | |||
Other investing activities | (5,387 | ) | (461 | ) | |||
Net cash used for investing activities | (72,593 | ) | (57,320 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from long term debt | — | 270,000 | |||||
Payment of debt issuance costs | — | (1,770 | ) | ||||
Borrowings from revolving credit facility | 308,500 | 40,000 | |||||
Payments to revolving credit facility | (308,500 | ) | — | ||||
Payment of revolving credit facility fees | — | (1,016 | ) | ||||
Distribution to Honeywell in connection with the Spin-Off | — | (269,347 | ) | ||||
Principal payments of capital leases | (91 | ) | — | ||||
Net decrease in invested equity | — | (9,050 | ) | ||||
Net cash (used for) provided by financing activities | (91 | ) | 28,817 | ||||
Net increase in cash and cash equivalents | 25,787 | 37,964 | |||||
Cash and cash equivalents at beginning of period | 14,199 | — | |||||
Cash and cash equivalents at the end of period | $ | 39,986 | $ | 37,964 | |||
Non-Cash Investing Activities: | |||||||
Capital expenditures included in accounts payable | $ | 17,228 | $ | 19,935 | |||
Supplemental Disclosure of Cash Flow Information: | |||||||
Interest paid | $ | 7,976 | $ | — | |||
Income taxes paid | $ | 12,695 | $ | — |
ADVANSIX INC.
In January 2017, the FASB issued ASU 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under ASC 350. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The amendment eliminates the requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount (i.e., Step 2 of today’s goodwill impairment test). The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company elected to In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The new standard also requires disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018 (early adoption is permitted). The new standard should be applied under a modified retrospective approach. We are evaluating the impact of the new standard on Although we have not yet completed our assessment, adoption of this standard will have a significant impact on our Consolidated Balance Sheets. However, we do not expect adoption of this standard to have a significant impact on the recognition, measurement or presentation of lease expenses within the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows. Information about our undiscounted future lease payments and the timing of those payments is provided under “Contractual Obligations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2016 Form 10-K. We will adopt this standard effective January 1, 2019. the assessment performed to date, the Company has preliminarily concluded that revenues from the Company's products are expected to remain substantially unchanged from the Company's current revenue recognition model. The Company will continue to assess the new standard and the potential impact on the Company’s consolidated financial position and results of operations and related disclosures upon adoption. The increase in accounts receivable at September 30, 2017 was partially offset by higher accounts receivable collections related to a trade receivables discount arrangement with a third party financial institution which enhances liquidity and enables the Company to efficiently manage its working capital needs. $4.4 million (unfavorable pretax income impact) during the three months ended September 30, 2017. We expect agriculture fundamentals to remain challenging through the 2017/2018 planting season. 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. same prior year periods. Liquidity and Capital Resources expenditures. During the nine months ended September 30, 2017, we borrowed $308.5 million in the aggregate from our revolving credit facility for our working capital and other cash needs and these borrowings were fully repaid by September 30, 2017. nine months ended September 30, 2017 versus the prior year period. facility whereas revolver borrowings from the prior year period were not repaid and remained outstanding during that period. assumptions. Date: unlessexcept share and per share amounts and as otherwise noted)theour Nylon 6 resinintegrated manufacturing processchain including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates. Each of theseour product lines represented the following approximate percentage of our sales: Three Months Ended March 31, 2017 2016 Nylon 29% 28% Caprolactam 21% 18% Ammonium Sulfate Fertilizers 18% 25% Chemical Intermediates 32% 29% Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Nylon 28% 29% 29% 29% Caprolactam 19% 16% 19% 16% Ammonium Sulfate Fertilizers 20% 22% 20% 24% Chemical Intermediates 33% 33% 32% 31% previously announced separation of AdvanSix. The separation was completed by Honeywell distributing 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, 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”). the Condensed Consolidated and Combined Financial Statements to “we,” “us,” “our,” “AdvanSix” and the “Company” refer to AdvanSix Inc. and its consolidated subsidiaries after giving effect to the Spin-Off. All significant intercompany balances and transactions have been eliminated.7ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted)condensed consolidatedCondensed Consolidated and combined financial statementsCombined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated and Combined Financial Statements contain all adjustments, consisting of aonly normal recurring nature consideredadjustments, necessary for a fair presentationstatement of its financial position as of September 30, 2017, and its results of operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The Condensed Consolidated andhave been included.but does not contain all of the footnote disclosures from the annual financial statements. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.condensed consolidatedCondensed Consolidated and combined financial statements,Combined Financial Statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date that the condensed consolidatedCondensed Consolidated and combined financial statementsCombined Financial Statements were issued.following suchto follow that convention. It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice were generally not significant to reported results for any quarter and only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three month reporting periodsand nine months ending March 31,September 30, 2017 and 2016 were April 1,September 30, 2017 and April 2,October 1, 2016, respectively.March 31,September 30, 2017 and December 31, 2016 aggregated $17.7$6.4 million and $12.5 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated and Combined Balance Sheets.CompanyCompany’s consolidated financial position and results of operations is expected upon adoption.8ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted)early adopt ASU 2017-04 early beginning in January 2017 and there was no impact on the CompanyCompany’s consolidated financial position and results of operations upon adoption.early adopt ASU 2017-01 early beginning in January 2017 and there was no impact on the CompanyCompany’s consolidated financial position and results of operations upon adoption.CompanyCompany’s consolidated financial position and results of operations upon adoption.9ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted)our Consolidatedthe Company’s consolidated financial position and Combined Financial Statementsresults of operations and related disclosures.We are continuing to assessDuring the potential impactthree months ended September 30, 2017, the Company continued its assessment of this guidance, including the impact on those areas currently subject to industry-specific guidance. As part of our assessment, we areAdvanSix revenue streams by reviewing and documenting customer contracts and related transaction support to determine the impact on revenue recognition under the new guidance. Our methodstandard. The Company has made progress on redrafting its revenue recognition policies, assessing the redesign of internal controls, as well as evaluating the expanded disclosure requirements. The Company plans to adopt the standard effective January 1, 2018 and the impact of adoption, if any, will in part be basedreflected as an adjustment to retained earnings at the beginning of the year of adoption. Based on the degreeresults of change identified in our assessment.March 31,September 30, 2016, AdvanSix was allocated $10,740$10,470 and $31,877, respectively, of general corporate expenses incurred by Honeywell for certain services, such as legal, accounting, information technology, human resources,March 31,September 30, 2016 were $1,540.$3,274 and $5,955, respectively. Of these sales, $1,525$3,080 and $5,682, respectively, were sold to Honeywell at zero margin. Costs of goods sold to Honeywell during the three and nine months ended March 31,September 30, 2016 were $1,537.$3,157 and $5,842, respectively. Purchases from Honeywell during the three and nine months ended March 31,September 30, 2016 were $1,192.$1,041 and $3,299, respectively. The total net effect of the settlement of these intercompanyinter-company transactions was reflected in the Condensed Consolidated and Combined Statements of Cash Flows as a financing activity identified as Invested equity.10ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted)While we wereMarch 31,September 30, 2017.March 31,September 30, 2016.March 31,September 30, 2017 and 2016 are as follows: March 31, 2017 2016 Basic Net Income $ 27,293 $ 27,394 Weighted average common shares outstanding 30,482,966 30,482,966 EPS – Basic $ 0.90 $ 0.90 March 31, 2017 2016 Diluted Net Income $ 27,293 $ 27,394 Weighted average common shares outstanding – Basic 30,482,966 30,482,966 Dilutive effect of unvested equity awards 411,288 — Weighted average common shares outstanding – Diluted 30,894,254 30,482,966 EPS – Diluted $ 0.88 $ 0.90 11ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Basic Net Income $ 21,274 $ 16,460 $ 74,331 $ 58,861 Weighted average common shares outstanding 30,482,966 30,482,966 30,482,966 30,482,966 EPS – Basic $ 0.70 $ 0.54 $ 2.44 $ 1.93 Diluted Dilutive effect of unvested equity awards 676,744 — 530,640 — Weighted average common shares outstanding 31,159,710 30,482,966 31,013,606 30,482,966 EPS – Diluted $ 0.68 $ 0.54 $ 2.40 $ 1.93 our common stock under the 2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates to Company employees consisting of 175,026 stock options, 89,896 performance stock units (at target) and 68,797 restricted stock units. AllThese equity awards have a per share strike price or grant date fair value per share as applicable, of $26.66 with vesting periods ranging from 12 to 36 months.$1,684$2,067 and $5,686 for the three and nine months ended March 31,September 30, 2017.- – Net March 31,
2017 December 31,
2016Accounts receivables $ 164,309 $ 119,475 Other 4,852 15,407 169,161 134,882 Less – allowance for doubtful accounts (1,196 ) (3,211 ) Total accounts and other receivables – net $ 167,965 $ 131,671 September 30, 2017 December 31, 2016 Accounts receivables $ 151,318 $ 119,475 Other 1,816 15,407 Total accounts and other receivables 153,134 134,882 Less – allowance for doubtful accounts (623 ) (3,211 ) Total accounts and other receivables – net $ 152,511 $ 131,671 accountsAccounts receivable at March 31,September 30, 2017 versus December 31, 2016 iswas due to significantly higher sales during the firstthird quarter of 2017 versus the fourth quarter of 2016 which was impacted by ourthe Company's plant turnaround activities. March 31,
2017 December 31,
2016Raw materials $ 42,078 $ 68,900 Work in progress 39,676 47,759 Finished goods 35,212 19,069 Spares and other 23,398 23,129 140,364 158,857 Reduction to LIFO cost basis (28,327 ) (29,879 ) Total inventories $ 112,037 $ 128,978 September 30, 2017 December 31, 2016 Raw materials $ 39,313 $ 68,900 Work in progress 36,801 47,759 Finished goods 32,946 19,069 Spares and other 24,118 23,129 133,178 158,857 Reduction to LIFO cost basis (32,704 ) (29,879 ) Total inventories $ 100,474 $ 128,978 the total amountinventories as of inventories at March 31,September 30, 2017 compared to December 31, 2016 is due primarily to lower levels of raw materials due to the timingdriven primarily by cumene delivery delays resulting from hurricane impacts on logistics as well as higher than normal levels of cumene purchases and the replenishmentinventory at December 31, 2016. The decrease was partially offset by a buildup of finished goods inventory compared to December 31, 2016 following thefourth quarter 2016 plant turnaround activitiesoutages. The overall lower levels of inventories at September 30, 2017 resulted in a change in the fourth quarterLIFO cost basis reserve of 2016.12ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted) Three Months Ended March 31, 2017 2016 Service costs $ 1,908 $ — Interest costs 333 — Expected return on plan assets (76 ) — Amortization of actuarial net loss — — Amortization of prior service cost (gain) — — Curtailment gain — — Other(1) — 1,717 Net periodic benefit cost $ 2,165 $ 1,717 Three Months Ended
September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Service costs $ 1,908 $ — $ 5,724 $ — Interest costs 333 — 999 — Expected return on plan assets (76 ) — (228 ) — — 1,717 — 5,151 Net periodic benefit cost $ 2,165 $ 1,717 $ 6,495 $ 5,151 (1) Prior to the Spin-Off, certain of our employees participated in a defined benefit pension plan (“Shared Plan”) sponsored by Honeywell which included participants of other Honeywell subsidiaries and operations. Pension expenseNet periodic benefit cost related to participation in the Shared Plan was $1.7 million and $5.2 million for the three and nine months ended March 31, 2016.September 30, 2016, respectively.plans to makemade contributions during 2017 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $20$17.0 million as well asand will make additional contributions in future years sufficient to satisfy pension funding requirements in those periods. The Company made contributions to the AdvanSix Retirement Earnings Plan of $2.2 million in Januarythe first quarter of 2017, and $1.6 million in Aprilthe second quarter of 2017, $11.1 million in the third quarter of 2017 and $2.0 million in October 2017.September 30, 2017 Cash and cash equivalents 2% US and non-US equity securities 65% Fixed income / other securities 33% Total Pension Assets 100% ofadverseof adverse judgments or outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts.13ADVANSIX INC.NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS(Dollars in thousands, unless otherwise noted)incomeIncome before income taxes for the period. The provision for income taxes was $16.9$14.5 million and $16.2$11.3 million for the three monthsMarch 31,September 30, 2017 and 2016, respectively.
The provision for income taxes was $46.8 million and $36.7 million for the nine months ended September 30, 2017 and 2016, respectively.14under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”in this MD&A regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “will,” “estimate,” “expect,” “intend” and similar 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. 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.15Since 2011, commodity caprolactamresincaprolactam 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 come frombeen built by new Chinese manufacturers, entering the market, although many of our other competitors have also announced recent increasesresulting in production capacity. As a result, our marginsmargin compression for Nylon 6 resin and caprolactam have declined 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, certain anticipated trends in the Nylon 6 resin industry may begin to bolster an increase in demand. Nylon 6 end-market growth will continue to generally trackstrack global GDP with certain applications growing at faster rates including engineered plastics and packaging. Additionally, one of our strategies is to continue developing specialty resinnylon and copolymer products that we believe will obtain higher margins.Urea pricing has been under pressure recently due to the loosening of urea export restrictions by the Chinese government and the growth of both Chinese and broader global production capacity. A secondary global price driver for ammonium sulfate fertilizer is the price of future deliveries of crops, including corn, wheat and coffee, which are impacted by general trends in the agricultural industry.On average, weWe schedule twoseveral planned outages pereach year to conduct routine and major maintenance atacross our facilities, which are referred to as plant turnarounds. While wean appropriate buffer inventory of intermediate chemicals necessary for our manufacturing process, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime. However,While our integrated manufacturing, scale and the quantity and range of our product offerings make us one of the most efficient manufacturers in our industry, we are also exposed to increased risk associated with unplanned outages may still occur and we may not have enough intermediate chemical inventorydowntime or material disruptions at any given time to offset such production losses. Moreover, takingone of 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 unplanned downtime as well.
which could impact our supply chain to downstream plants in our manufacturing process.16 Three Months Ended
March 31, 2017 2016 Sales $ 376,704 $ 299,830 % change compared with prior year period 25.6 % Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Sales $366,660 $323,953 $1,104,805 $932,201 % change compared with prior year period 13.2% 18.5% Three Months Ended March 31, 2017Volume3.8%Price 21.8%25.6% Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017Volume 4.9% 4.1% Price 8.3% 14.4% 13.2% 18.5% forin the three months ended March 31,September 30, 2017 compared to the prior year period by $76.9$42.7 million or approximately 26%(approximately 13.2%) due primarily to higher sales prices (approximately 22%8.3%) and volume increases (approximately 4%4.9%) of caprolactam, and resins, intermediate chemicalschemical intermediates, and ammonium sulfate.sulfate offset partially by lower nylon volume. Sales prices increased due primarily to (i) higher prices of the raw materials used to manufacture our intermediate chemicals, caprolactam, nylon and resinschemical intermediates impacting formula-based pass-through pricing (approximately 4.2% favorable impact), particularly benzene and propylene (inputs to cumene which is a key feedstock material for our products), (approximately 19% favorable impact) and (ii) market-based pricing due primarily to increases in prices ofnylon and caprolactam and resins as well as chemical intermediatespricing offset partially by a decrease inlower prices of ammonium sulfate (approximately 3%4.1% favorable impact). Three Months Ended
March 31, 2017 2016 Costs of goods sold $ 314,117 $ 245,559 % change compared with prior year period 27.9 % Gross Margin percentage 16.6 % 18.1 % Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Costs of goods sold $309,629 $285,091 $923,268 $804,471 % change compared with prior year period 8.6% 14.8% Gross Margin percentage 15.6% 12.0% 16.4% 13.7% March 31,September 30, 2017 compared to the prior year period by $68.6$24.5 million or approximately 28%8.6% due primarily to (i) higher prices of raw materials (approximately 5.7%), particularly benzene and propylene (inputs to cumene which is a key feedstock material for our products), and higher sales volumes (approximately 24%1.8%).(ii)increased sales volumes (approximately 2.1%).7%2.0% unfavorable) which were partially offset by the net favorable fixed cost absorption impact of higher production volumes on a year-over-year basis (approximately 3%).17decreasedincreased by approximately 1%2.7% in the threenine months ended March 31,September 30, 2017 compared to the prior year period due primarily to higher sales and production volumes on a year-over-year basis (approximately 3.7%) offset partially by the termination of a long-term supply agreement in the first quarterthree months ended March 31, 2016 (approximately 4%) and the net impact of pricing over raw material costs (approximately 1% impact) which were mostly offset by the net favorable fixed cost absorption impact of higher production volumes (approximately 5%1.4%). Three Months Ended
March 31, 2017 2016 Selling, general and administrative expenses $ 16,806 $ 11,378 Percent of sales 4.5 % 3.8 % Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Selling, general and administrative expenses $19,086 $11,695 $54,022 $33,949 Percent of sales 5.2% 3.6% 4.9% 3.6% $5.4$7.4 million and $20.1 million in the three and nine months ended March 31,September 30, 2017, respectively compared to the corresponding prior year periodperiods due primarily to higher stand-alone costs incurred since the Spin-Off on October 1, 20162016. These stand-alone costs are related primarily to workforce and other infrastructure and shared facilities including costs for transition services provided by Honeywell. InHoneywell which were partially offset by the three months ended March 31, 2016, theseelimination of costs were allocated in the prior year to the Company from Honeywell on the basis of sales. Three Months Ended
March 31, 2017 2016 Tax expense $ 16,948 $ 16,157 Effective tax rate 38.3 % 37.1 % Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Tax expense $14,538 $11,342 $46,803 $36,712 Effective tax rate 40.6% 40.8% 38.6% 38.4% March 31,September 30, 2017 was higher compared to the U.S. federal statutory rate due primarily to state taxes partially offset byand changes in the benefit from theCompany's domestic manufacturing credit. deduction. increased for the three and nine months ended March 31,September 30, 2017 comparedwere comparable to the same period last year due primarily to a higher effective state income tax provision driven by changesrates in the mix of state tax jurisdictions. Three Months Ended
March 31, 2017 2016 Net income $ 27,293 $ 27,394 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Net income $21,274 $16,460 $74,331 $58,861 $27.3$21.3 million and $74.3 million for the three and nine months ended March 31,September 30, 2017, respectively, as compared to $27.4$16.5 million and $58.9 million in the corresponding prior year period.18benefit.benefit described below. EBITDA is defined as Net Incomeincome before Interest, Income Taxes,taxes, Depreciation and Amortization.amortization. EBITDA Margin is equal to EBITDA divided by Sales. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that are not considered core to the Company’s operations. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable GAAP financial measures. The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA Margin, and EBITDA and EBITDA Margin excluding the prior year one-time benefit to their most directly comparable GAAP financial measure: Three Months Ended
March 31, 2017 2016 Net income $ 27,293 $ 27,394 Interest expense 1,539 — Income taxes 16,948 16,157 Depreciation and amortization 11,296 9,788 EBITDA (non-GAAP) 57,076 53,339 Prior year one-time benefit(1) — 15,500 EBITDA excluding prior year one-time benefit $ 57,076 $ 37,839 Sales $ 376,704 $ 299,830 EBITDA Margin (non-GAAP) 15.2 % 17.8 % EBITDA Margin excluding prior year one-time benefit (non-GAAP) 15.2 % 12.6 % Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 Net income $ 21,274 $ 16,460 $ 74,331 $ 58,861 Interest expense (income) 1,961 — 5,373 — Income taxes 14,538 11,342 46,803 36,712 Depreciation and amortization 12,565 10,307 35,524 29,964 EBITDA (non-GAAP) 50,338 38,109 162,031 125,537 — — — 15,500 EBITDA excluding prior year one-time benefit (non-GAAP) $ 50,338 $ 38,109 $ 162,031 $ 110,037 Sales $ 366,660 $ 323,953 $ 1,104,805 $ 932,201 EBITDA Margin (non-GAAP) 13.7% 11.8% 14.7% 13.5% EBITDA Margin excluding prior year one-time benefit (non-GAAP) 13.7% 11.8% 14.7% 11.8% (1) Prior year one-time benefit reflects the $15.5 million one-time benefit in the first quarter of 2016 related to the termination of a long-term supply agreement. 19plan,and longer term strategic plans, subject to the risks and uncertainties outlined below and in the risk factors as previously disclosed in our 2016 Form 10-K and incorporated by reference in Item 1A of Part II of this Report.10-K. 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. Our operating cash flows are affected by capital requirements and production volume as well as the prices of our raw materials and general economic and industry trends. We utilize a trade receivables discount arrangement with a third party financial institution which enhances liquidity and enables us to efficiently manage our working capital needs. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on 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.plans to makemade contributions during 2017 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan in the aggregate amount of approximately $20$17 million as well asand will make additional contributions in future years sufficient to satisfy pension funding requirements in those periods. The Company made contributions to the AdvanSix Retirement Earnings Plan of $2.2 million in Januaryfirst quarter of 2017, and $1.6 million in Aprilthe second quarter of 2017, $11.1 million in third quarter of 2017 and $2.0 million in October 2017.expenditures and defined benefit pension plan contributions.$270$270.0 million in the form of a term loan, the net proceeds of which were distributed to Honeywell substantially concurrent with the consummation of the Spin-Off, and we also entered into a $155$155.0 million revolving credit facility to fund our working capital and other cash needs. For information regarding our Credit Agreement, refer to “Note 9-Long-term Debt and Credit Agreement” to the Consolidated and Combined Financial Statements in Item 8 of our 2016 Form 10-K. Going forward, cash provided by operating activities will be needed to fund future interest payments in respect of ouron the Company's outstanding indebtedness.20March 31,September 30, 2017. As of March 31,September 30, 2017, $153$152.9 million of the total credit facility of $425$425.0 million is available to be drawn under the Credit Agreement.month periodmonths ended March 31,September 30, 2017, we borrowed $167.5$32.5 million in the aggregate from our revolving credit facility for our working capital and other cash needs and these borrowings were fully repaid by March 31,September 30, 2017. Three Months Ended
March 31, 2017 2016 Cash provided by (used for): Operating activities $ 31,206 $ 4,041 Investing activities (33,335 ) (24,829 ) Financing activities (42 ) 20,788 Net decrease in cash and cash equivalents $ (2,171 ) $ — Nine Months Ended
September 30, 2017 2016 Cash provided by (used for): Operating activities $ 98,471 $ 66,467 Investing activities (72,593 ) (57,320 ) Financing activities (91 ) 28,817 Net increase in cash and cash equivalents $ 25,787 $ 37,964 $27.2$32.0 million for the threenine months ended March 31,September 30, 2017 versus the prior year period due primarily to (i) a $15.5 million increase in Net income versus the prior year period due to significantly higher sales for the nine months ended September 2017, (ii) a $14.9 million larger decrease in Inventory during the nine months ended September 30, 2017 versus the prior year period due primarily to the timing of cumene purchases, (iii) a $11.9 million increase in Accrued liabilities due to the timing of payments during the nine months ended September 30, 2017 versus the same period last year and (iv) a $11.3 million increase in deferred income taxes versus the prior year period due primarily to a $17.1 million decrease in Accounts payable in the first quarter of 2016 due to timing oflower cash tax payments a $10.3 million increase in Other assets and liabilities due to our contributionsrelative to the Hopewell regional wastewater treatment facility and other factors in the first quarter of 2016, and a $5.2 million increase in Income taxes payable as the Company is now responsible for its ownincome tax liabilities.provision. This activity was offset partially by higher accounts receivablea net $33.8 million unfavorable cash impact from Accounts payable due primarily to the timing of $18.3 million due to higher sales inpayments during the first quarter of 2017.$8.5$15.3 million for the threenine months ended March 31,September 30, 2017 versus the sameprior year period last year due primarily to an increase in cash paid for capital expenditures of $8.6$10.3 million.provided byfrom financing activities decreased by $20.8$28.9 million for the threenine months ended March 31,September 30, 2017 versus the same period lastprior year due to a reduction in invested equity resulting from the completion of the Spin-Off from Honeywell.period. Cash provided by operating activities was sufficient to repay all current period borrowings under the revolving credit facility.21 Three Months
Ended March
31, 2017 Capital expenditures in Accounts payable at December 31, 2016 $ 28,495 Purchases of property, plant and equipment 19,014 Capital expenditures in Accounts payable at March 31, 2017 (14,295 ) Cash paid for capital expenditures $ 33,214 Nine Months Ended
September 30, 2017Capital expenditures in Accounts payable at December 31, 2016 $ 28,485 Purchases of property, plant and equipment 55,949 Capital expenditures in Accounts payable at September 30, 2017 (17,228 ) Cash paid for capital expenditures $ 67,206 as toor the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumption.March 31,September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any material changes in commitments or contractual obligations other than those detailed in our 2016 Form 10-K. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.22first quarter ofnine months ended September 30, 2017 would result in an increase or decrease to our interest expense of approximately $0.1$0.5 million.March 31,September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.23Exhibit Description 3.1 3.2 10.1 Fifth Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated as of March 1, 2017, by and between 10.2Sixth Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated as of March 1, 2017, by and between AdvanSix Resins & Chemicals LLC and Shaw Industries Group, Inc.* (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 6, 2017).10.3Form of Restricted Stock Unit Agreement for Officers under the 2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates †10.4Form of Performance Stock Unit Agreement under the 2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates †10.5Form of Stock Option Award Agreement under the 2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates †31.1 2431.2 32.1 32.2 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase †Indicates management contract or compensatory plan.*Confidential treatment has been granted for certain information contained in Exhibits 10.1 and 10.2, and the omitted portions have been filed separately with the SEC.25 ADVANSIX INC. May 11,November 7, 2017By: /s/ Michael Preston Michael Preston Senior Vice President and Chief Financial Officer 26