ADVANSIX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
10,048
|
|
|
$
|
9,808
|
|
Accounts and other receivables – net
|
109,292
|
|
|
160,266
|
|
Inventories – net
|
162,479
|
|
|
137,182
|
|
Other current assets
|
8,433
|
|
|
3,807
|
|
Total current assets
|
290,252
|
|
|
311,063
|
|
Property, plant and equipment – net
|
731,643
|
|
|
672,210
|
|
Operating lease right-of-use assets
|
136,122
|
|
|
—
|
|
Goodwill
|
15,005
|
|
|
15,005
|
|
|
|
|
|
Other assets
|
38,795
|
|
|
36,348
|
|
Total assets
|
$
|
1,211,817
|
|
|
$
|
1,034,626
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
219,225
|
|
|
$
|
231,720
|
|
Accrued liabilities
|
29,839
|
|
|
30,448
|
|
|
|
|
|
Operating lease liabilities – short-term
|
35,656
|
|
|
—
|
|
Deferred income and customer advances
|
1,948
|
|
|
22,556
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
286,668
|
|
|
284,724
|
|
Deferred income taxes
|
112,579
|
|
|
103,783
|
|
Operating lease liabilities – long-term
|
100,752
|
|
|
—
|
|
Line of credit – long-term
|
266,000
|
|
|
200,000
|
|
|
|
|
|
Postretirement benefit obligations
|
22,581
|
|
|
21,080
|
|
Other liabilities
|
6,011
|
|
|
4,701
|
|
Total liabilities
|
794,591
|
|
|
614,288
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 9)
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
Common stock, par value $0.01; 200,000,000 shares authorized; 30,600,708 shares issued and 27,481,162 outstanding at September 30, 2019; 30,555,715 shares issued and 29,345,001 outstanding at December 31, 2018
|
306
|
|
|
306
|
|
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
—
|
|
|
—
|
|
Treasury stock at par (3,119,546 shares at September 30, 2019; 1,210,714 shares at December 31, 2018)
|
(31)
|
|
|
(12)
|
|
Additional paid-in capital
|
189,242
|
|
|
234,699
|
|
Retained earnings
|
231,260
|
|
|
187,819
|
|
Accumulated other comprehensive loss
|
(3,551)
|
|
|
(2,474)
|
|
Total stockholders' equity
|
417,226
|
|
|
420,338
|
|
Total liabilities and stockholders' equity
|
$
|
1,211,817
|
|
|
$
|
1,034,626
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
43,441
|
|
|
$
|
45,483
|
|
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
|
|
|
|
Depreciation and amortization
|
42,094
|
|
|
38,905
|
|
Loss on disposal of assets
|
4,967
|
|
|
1,560
|
|
Deferred income taxes
|
9,149
|
|
|
8,816
|
|
Stock based compensation
|
7,575
|
|
|
7,506
|
|
Accretion of deferred financing fees
|
320
|
|
|
1,696
|
|
Restructuring charges
|
12,623
|
|
|
—
|
|
Changes in assets and liabilities:
|
|
|
|
Accounts and other receivables
|
51,136
|
|
|
46,878
|
|
Inventories
|
(26,739)
|
|
|
14,182
|
|
Accounts payable
|
(12,844)
|
|
|
(10,675)
|
|
|
|
|
|
Accrued liabilities
|
(4,470)
|
|
|
(9,703)
|
|
Deferred income and customer advances
|
(20,608)
|
|
|
(14,899)
|
|
Other assets and liabilities
|
(6,108)
|
|
|
(2,014)
|
|
Net cash provided by operating activities
|
100,536
|
|
|
127,735
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Expenditures for property, plant and equipment
|
(106,386)
|
|
|
(72,650)
|
|
|
|
|
|
Other investing activities
|
(2,203)
|
|
|
(1,656)
|
|
Net cash used for investing activities
|
(108,589)
|
|
|
(74,306)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Payments of long-term debt
|
—
|
|
|
(266,625)
|
|
|
|
|
|
Borrowings from line of credit
|
316,750
|
|
|
284,500
|
|
Payments of line of credit
|
(250,750)
|
|
|
(84,500)
|
|
Payment of line of credit facility fees
|
—
|
|
|
(1,362)
|
|
|
|
|
|
|
|
|
|
Principal payments of finance leases
|
(4,656)
|
|
|
(225)
|
|
Purchase of treasury stock
|
(53,067)
|
|
|
(20,443)
|
|
Issuance of common stock
|
16
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
8,293
|
|
|
(88,655)
|
|
|
|
|
|
Net change in cash and cash equivalents
|
240
|
|
|
(35,226)
|
|
Cash and cash equivalents at beginning of period
|
9,808
|
|
|
55,432
|
|
Cash and cash equivalents at the end of period
|
$
|
10,048
|
|
|
$
|
20,206
|
|
|
|
|
|
Supplemental non-cash investing activities:
|
|
|
|
Capital expenditures included in accounts payable
|
$
|
27,344
|
|
|
$
|
17,649
|
|
|
|
|
|
Supplemental cash activities:
|
|
|
|
Cash paid for interest
|
$
|
3,519
|
|
|
$
|
4,406
|
|
Cash paid for income taxes
|
$
|
6,949
|
|
|
$
|
7,254
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional Paid-In Capital
|
|
Retained Earnings (Accumulated Deficit)
|
|
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Equity
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
30,555,715
|
|
|
$
|
306
|
|
|
$
|
234,699
|
|
|
$
|
187,819
|
|
|
|
|
$
|
(12)
|
|
|
$
|
(2,474)
|
|
|
$
|
420,338
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
20,174
|
|
|
|
|
—
|
|
|
—
|
|
|
20,174
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(192)
|
|
|
(192)
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(193)
|
|
|
(193)
|
|
Issuance of common stock
|
22,497
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Purchase of treasury stock (793,754 shares)
|
—
|
|
|
—
|
|
|
(23,845)
|
|
|
—
|
|
|
|
|
(8)
|
|
|
—
|
|
|
(23,853)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,762
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,762
|
|
Balance at March 31, 2019
|
30,578,212
|
|
|
306
|
|
|
213,632
|
|
|
207,993
|
|
|
|
|
(20)
|
|
|
(2,667)
|
|
|
419,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
15,346
|
|
|
|
|
—
|
|
|
—
|
|
|
15,346
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
4
|
|
|
4
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(429)
|
|
|
(429)
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(425)
|
|
|
(425)
|
|
Issuance of common stock
|
13,260
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock (578,045 shares)
|
—
|
|
|
—
|
|
|
(16,408)
|
|
|
—
|
|
|
|
|
(6)
|
|
|
—
|
|
|
(16,414)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,812
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,812
|
|
Balance at June 30, 2019
|
30,591,472
|
|
|
306
|
|
|
200,036
|
|
|
223,339
|
|
|
|
|
(26)
|
|
|
(3,092)
|
|
|
420,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
7,921
|
|
|
|
|
—
|
|
|
—
|
|
|
7,921
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(20)
|
|
|
(20)
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(439)
|
|
|
(439)
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(459)
|
|
|
(459)
|
|
Issuance of common stock
|
9,236
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock (537,033 shares)
|
—
|
|
|
—
|
|
|
(12,795)
|
|
|
—
|
|
|
|
|
(5)
|
|
|
—
|
|
|
(12,800)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,001
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,001
|
|
Balance at September 30, 2019
|
30,600,708
|
|
|
$
|
306
|
|
|
$
|
189,242
|
|
|
$
|
231,260
|
|
|
|
|
$
|
(31)
|
|
|
$
|
(3,551)
|
|
|
$
|
417,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional Paid-In Capital
|
|
Retained Earnings (Accumulated Deficit)
|
|
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Equity
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
30,482,966
|
|
|
$
|
305
|
|
|
$
|
263,081
|
|
|
$
|
121,985
|
|
|
|
|
$
|
—
|
|
|
$
|
(9,046)
|
|
|
$
|
376,325
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
11,593
|
|
|
|
|
—
|
|
|
—
|
|
|
11,593
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(410)
|
|
|
|
|
—
|
|
|
410
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(410)
|
|
|
|
|
—
|
|
|
409
|
|
|
(1)
|
|
Issuance of common stock
|
25,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Purchase of treasury stock (8,995 shares)
|
—
|
|
|
—
|
|
|
(370)
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(370)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,281
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,281
|
|
Balance at March 31, 2018
|
30,508,322
|
|
|
305
|
|
|
264,992
|
|
|
133,168
|
|
|
|
|
—
|
|
|
(8,637)
|
|
|
389,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
28,410
|
|
|
|
|
—
|
|
|
—
|
|
|
28,410
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(17)
|
|
|
(17)
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(17)
|
|
|
(17)
|
|
Issuance of common stock
|
16,416
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock (70,107 shares)
|
—
|
|
|
—
|
|
|
(2,742)
|
|
|
—
|
|
|
|
|
(1)
|
|
|
—
|
|
|
(2,743)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,599
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,599
|
|
Balance at June 30, 2018
|
30,524,738
|
|
|
305
|
|
|
264,849
|
|
|
161,578
|
|
|
|
|
(1)
|
|
|
(8,654)
|
|
|
418,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
5,480
|
|
|
|
|
—
|
|
|
—
|
|
|
5,480
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(8)
|
|
|
|
(8)
|
|
Cash-flow Hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Pension obligation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(8)
|
|
|
(8)
|
|
Issuance of common stock
|
30,977
|
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Purchase of treasury stock (485,145 shares)
|
—
|
|
|
—
|
|
|
(17,326)
|
|
|
|
—
|
|
|
|
|
(5)
|
|
|
—
|
|
|
(17,331)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,626
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,626
|
|
Balance at September 30, 2018
|
30,555,715
|
|
|
|
$
|
306
|
|
|
$
|
250,149
|
|
|
$
|
167,058
|
|
|
|
|
$
|
(6)
|
|
|
$
|
(8,662)
|
|
|
$
|
408,845
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
1. Organization, Operations and Basis of Presentation
Description of Business
AdvanSix Inc. (“AdvanSix”, the “Company”, "we" or "our") is an integrated manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce engineered plastics, fibers, filaments and films that, in turn, are used in such end-products as automotive and electronic 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, acetone and other chemical intermediates.
Basis of Presentation
The Condensed Consolidated 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 Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2019, and its results of operations for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. The Condensed Consolidated Balance Sheet at December 31, 2018 was derived from audited annual financial statements 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, 2018 (the "2018 Form 10-K"). All intercompany transactions have been eliminated.
Certain prior period amounts have been reclassified for consistency with the current period presentation.
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 and nine months ended September 30, 2019 and 2018 were September 28, 2019 and September 29, 2018, respectively.
Liabilities to creditors to whom we have issued checks that remained outstanding at September 30, 2019 and December 31, 2018 aggregated $5.4 million and $7.7 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.
The Company submitted a business interruption insurance claim related to the first quarter 2018 weather event and recorded a benefit of $6.6 million and $2.3 million to Cost of goods sold in the first and second quarters of 2019, respectively. The business interruption claim was closed during the second quarter of 2019 with a total recorded benefit of approximately of $12 million.
On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (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.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
As of September 30, 2019, the Company had repurchased 3,089,762 shares of common stock for an aggregate of $90.4 million at a weighted average market price of $29.26 per share. As of September 30, 2019, $59.6 million remained available for share repurchases under the current authorization.
2. Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government (“UST”), the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal Swap Rate. Pursuant to the amendments, SOFR will be an option to replace LIBOR as it is phased out. The amendments of ASU No. 2018-16 are effective for companies that have adopted ASU 2017-12 for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year or at such time a company adopts ASU 2017-12. Early adoption of ASU 2018-16 is not permitted without previous adoption of ASU 2017-12. As the Company elected to early adopt ASU 2017-12 during the fourth quarter of 2018, the Company adopted ASU 2018-16 effective January 1, 2019, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.
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). Initial guidance stated that the new standard be applied under a modified retrospective approach with periods prior to the adoption date being adjusted. During July 2018, however, the FASB issued ASU 2018-11, Leases (Topic 842), providing another transition method allowing a company to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting prior periods. The Company adopted the standard effective January 1, 2019 electing the cumulative-effect adjustment approach made available in ASU 2018-11. The Company has also elected the following practical expedients:
•the package of three expedients which allows the Company not to re-assess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases;
•the short-term lease practical expedient, which allows the Company to exclude leases with an initial term of 12 months or less (“short-term leases”) from recognition in the unaudited Condensed Consolidated Balance Sheet;
•the bifurcation of lease and non-lease components practical expedients, which did not require the Company to bifurcate lease and non-lease components for our real estate leases; and
•the land easements practical expedient, which allows the Company to carry forward the accounting treatment for land easements on existing agreements.
We have implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The standard had a material impact to our Condensed Consolidated Balance Sheet but did not have a significant impact in the recognition, measurement or presentation of lease expenses within the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. The most significant impact was the recognition of right-of-use (“ROU”) assets and liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. See "Note 8. Leases" for further information.
3. Revenues
Revenue Recognition
We serve approximately 400 customers annually in more than 40 countries and across a wide variety of industries. For the three months ended September 30, 2019 and 2018, the Company's ten largest customers accounted for approximately 51% and 48% of total sales, respectively. For the nine months ended September 30, 2019 and 2018, the Company's ten largest customers accounted for approximately 47% and 45% of total sales, respectively.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
We typically sell to customers under master service agreements, with one- to two-year terms on average, or by purchase orders. We have historically experienced low customer turnover and have an average customer relationship of approximately 20 years. Our largest customer is Shaw Industries Group Inc. (“Shaw”), one of the world's largest consumers of caprolactam and Nylon 6 resin. We sell Nylon 6 resin and caprolactam to Shaw under a long-term agreement. For the three months ended September 30, 2019 and 2018, our sales to Shaw were 23% and 22%, respectively, of our total sales. For the nine months ended September 30, 2019 and 2018, our sales to Shaw were 21% and 22%, respectively, of our total sales.
Each of the Company’s product lines represented the following approximate percentage of total sales for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Nylon
|
25%
|
|
|
28%
|
|
|
28%
|
|
|
28%
|
|
Caprolactam
|
26%
|
|
|
18%
|
|
|
22%
|
|
|
18%
|
|
Ammonium Sulfate Fertilizers
|
20%
|
|
|
19%
|
|
|
23%
|
|
|
20%
|
|
Chemical Intermediates
|
29%
|
|
|
35%
|
|
|
27%
|
|
|
34%
|
|
|
100%
|
|
|
100%
|
|
|
100%
|
|
|
100%
|
|
The Company's revenues by geographic area for the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
United States
|
$
|
250,056
|
|
|
$
|
306,050
|
|
|
$
|
797,249
|
|
|
$
|
946,195
|
|
International
|
60,577
|
|
|
62,603
|
|
|
173,494
|
|
|
182,155
|
|
Total
|
$
|
310,633
|
|
|
$
|
368,653
|
|
|
$
|
970,743
|
|
|
$
|
1,128,350
|
|
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Customer advances relate primarily to sales from the ammonium sulfate business. Below is a roll-forward of Deferred income and customer advances for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
Opening balance January 1, 2019
|
$
|
22,556
|
|
|
|
Additions to deferred revenues
|
1,083
|
|
|
|
Less amounts recognized in revenues
|
(21,691)
|
|
|
|
Ending balance September 30, 2019
|
$
|
1,948
|
|
The Company expects to recognize as revenue the September 30, 2019 ending balance of Deferred income and customer advances within one year or less.
4. Earnings Per Share
The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. The details of the basic and diluted EPS calculations for the three and nine months ended September 30, 2019 and 2018 were as follows:
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Basic
|
|
|
|
|
|
|
|
Net Income
|
$
|
7,921
|
|
|
$
|
5,480
|
|
|
$
|
43,441
|
|
|
$
|
45,483
|
|
Weighted average common shares outstanding
|
27,608,985
|
|
|
30,160,991
|
|
|
28,192,760
|
|
|
30,375,873
|
|
EPS – Basic
|
$
|
0.29
|
|
|
$
|
0.18
|
|
|
$
|
1.54
|
|
|
$
|
1.50
|
|
Diluted
|
|
|
|
|
|
|
|
Dilutive effect of equity awards and other stock-based holdings
|
972,466
|
|
|
822,843
|
|
|
971,264
|
|
|
813,767
|
|
Weighted average common shares outstanding
|
28,581,451
|
|
|
30,983,834
|
|
|
29,164,024
|
|
|
31,189,640
|
|
EPS – Diluted
|
$
|
0.28
|
|
|
$
|
0.18
|
|
|
$
|
1.49
|
|
|
$
|
1.46
|
|
Diluted EPS is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents (which includes units allocated to the AdvanSix stock unit fund under the AdvanSix Inc. Deferred Compensation Plan) using the treasury stock method and the average market price of our common stock for the year.
The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Options and stock equivalents
|
658,327
|
|
|
135,535
|
|
|
509,401
|
|
|
130,535
|
|
5. Accounts and Other Receivables – Net
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Accounts receivables
|
$
|
108,832
|
|
|
$
|
166,017
|
|
Other
|
2,320
|
|
|
1,716
|
|
Total accounts and other receivables
|
111,152
|
|
|
167,733
|
|
Less – allowance for doubtful accounts
|
(1,860)
|
|
|
(7,467)
|
|
Total accounts and other receivables – net
|
$
|
109,292
|
|
|
$
|
160,266
|
|
The decrease in Total accounts and other receivables – net at September 30, 2019 versus December 31, 2018 was due primarily to lower sales and increased collections related to a trade receivables discount arrangement with a third-party financial institution. The change in the allowance for doubtful accounts relates primarily to an accounts receivable write-off of approximately $5.1 million related to a customer bankruptcy as previously reported in the 2018 Form 10-K.
6. Inventories
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Raw materials
|
$
|
46,714
|
|
|
$
|
55,002
|
|
Work in progress
|
65,146
|
|
|
46,728
|
|
Finished goods
|
57,558
|
|
|
39,368
|
|
Spares and other
|
24,618
|
|
|
24,555
|
|
|
194,036
|
|
|
165,653
|
|
Reduction to LIFO cost basis
|
(31,557)
|
|
|
(28,471)
|
|
Total inventories – net
|
$
|
162,479
|
|
|
$
|
137,182
|
|
The increase in Total inventories – net at September 30, 2019 compared to the balance at December 31, 2018 was due primarily to increased Work in progress and Finished goods inventory due to sales timing, product mix and buffer inventory build ahead of the Company's planned fourth quarter 2019 turnaround partially offset by lower levels of Raw materials driven by the timing of cumene deliveries.
7. Postretirement Benefit Cost
The components of Net periodic benefit cost of the Company’s pension plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
1,714
|
|
|
$
|
2,001
|
|
|
$
|
5,141
|
|
|
$
|
6,004
|
|
Interest cost
|
521
|
|
|
469
|
|
|
1,563
|
|
|
1,407
|
|
Expected return on plan assets
|
(334)
|
|
|
(287)
|
|
|
(1,002)
|
|
|
(862)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
1,901
|
|
|
$
|
2,183
|
|
|
$
|
5,702
|
|
|
$
|
6,549
|
|
The Company made contributions to the defined benefit pension plan of $4.2 million during the nine months ended September 30, 2019 sufficient to satisfy pension funding requirements for 2019 under the AdvanSix Retirement Earnings Plan. The Company made contributions of $0 in the first quarter of 2019, $0.5 million in the second quarter of 2019 and $3.7 million in the third quarter of 2019. The Company does not plan to make additional pension plan contributions during the fourth quarter of 2019, but plans to make additional contributions in future years sufficient to satisfy pension funding requirements in those periods.
The pension plan assets are invested through a master trust fund. The strategic asset allocation for the trust fund is selected by the Company's Investment Committee reflecting the results of comprehensive asset and liability modeling. The Investment Committee establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk.
8. Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease pre-payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease and, when it is reasonably certain that such an option will be exercised, it is included in the determination of the corresponding assets and
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
liabilities. Short-term leases are not recognized on our unaudited Condensed Consolidated Balance Sheets. Lease expense for all lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. The Company has entered into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment. The leases have initial terms of up to 20 years with some containing renewal options subject to customary conditions.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
Finance lease cost:
|
|
|
|
Amortization of right-of-use asset
|
$
|
172
|
|
|
$
|
477
|
|
Interest on lease liabilities
|
18
|
|
|
52
|
|
Total finance lease cost
|
190
|
|
|
529
|
|
Operating lease cost
|
9,874
|
|
|
25,375
|
|
Short-term lease cost
|
2,527
|
|
|
10,924
|
|
|
|
|
|
Total lease cost
|
$
|
12,591
|
|
|
$
|
36,828
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
25,089
|
|
Operating cash flows from finance leases
|
48
|
|
Financing cash flows from finance leases
|
4,656
|
|
Non-cash information:
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
38,324
|
|
Finance leases
|
872
|
|
Supplemental balance sheet information related to leases was as follows:
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
|
|
|
|
|
|
|
September 30,
2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
136,122
|
|
Operating lease liabilities – short term
|
35,656
|
|
Operating lease liabilities – long term
|
100,752
|
|
Total operating lease liabilities
|
$
|
136,408
|
|
Finance Leases
|
|
Property, plant and equipment – gross
|
$
|
2,633
|
|
Accumulated depreciation
|
(1,206)
|
|
Property, plant and equipment – net
|
$
|
1,427
|
|
Accounts payable
|
676
|
|
Other liabilities
|
768
|
|
Total finance lease liabilities
|
$
|
1,444
|
|
Weighted Average Remaining Lease Term
|
|
Operating leases
|
9.2 years
|
Finance leases
|
2.3 years
|
Weighted Average Discount Rate
|
|
Operating leases
|
5.75
|
%
|
Finance leases
|
4.87
|
%
|
The cumulative effect of the changes made to the Condensed Consolidated Balance Sheets for the adoption of the new leasing standard on January 1, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet accounts prior to new leasing standard adoption adjustments
|
|
Adjustments due to the adoption of the new leasing standard
|
|
Balance Sheet accounts after the new leasing standard adoption adjustments
|
ASSETS
|
|
|
|
|
|
Property, plant and equipment – net
|
$
|
1,032
|
|
|
$
|
—
|
|
|
$
|
1,032
|
|
Operating lease right-of-use assets
|
—
|
|
|
117,921
|
|
|
117,921
|
|
Total assets
|
1,034,626
|
|
|
$
|
117,921
|
|
|
1,152,547
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
318
|
|
|
$
|
—
|
|
|
$
|
318
|
|
Operating lease liabilities – short term
|
—
|
|
|
24,794
|
|
|
24,794
|
|
Total current liabilities
|
284,724
|
|
|
24,794
|
|
|
309,518
|
|
Operating lease liabilities – long term
|
—
|
|
|
93,127
|
|
|
93,127
|
|
Other liabilities
|
762
|
|
|
—
|
|
|
762
|
|
Total liabilities
|
614,288
|
|
|
117,921
|
|
|
732,209
|
|
Total equity
|
420,338
|
|
|
—
|
|
|
420,338
|
|
Total liabilities and equity
|
1,034,626
|
|
|
$
|
117,921
|
|
|
1,152,547
|
|
Maturities of lease liabilities were as follows:
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating Leases
|
|
Finance Leases
|
2019 (remainder)
|
$
|
10,987
|
|
|
$
|
194
|
|
2020
|
41,576
|
|
|
708
|
|
2021
|
29,838
|
|
|
472
|
|
2022
|
20,578
|
|
|
151
|
|
2023
|
12,391
|
|
|
—
|
|
Thereafter
|
70,375
|
|
|
—
|
|
Total lease payments
|
185,745
|
|
|
1,525
|
|
Less imputed interest
|
(49,337)
|
|
|
(81)
|
|
Total
|
$
|
136,408
|
|
|
$
|
1,444
|
|
As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments for leases having initial or remaining non-cancellable lease terms in excess of one year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating Leases
|
|
Capital Leases
|
2019
|
$
|
36,110
|
|
|
$
|
239
|
|
2020
|
29,318
|
|
|
212
|
|
2021
|
16,111
|
|
|
131
|
|
2022
|
11,571
|
|
|
89
|
|
2023
|
9,104
|
|
|
—
|
|
Thereafter
|
26,627
|
|
|
—
|
|
Total lease payments
|
$
|
128,841
|
|
|
$
|
671
|
|
|
|
|
|
|
|
|
|
9. Commitments and Contingencies
The Company is subject to a number of lawsuits, investigations and disputes, some of which involve substantial amounts claimed, arising out of the conduct of the Company or other third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of 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.
Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on the Company’s consolidated results of operations, balance sheet and/or operating cash flows in the periods recognized or paid.
We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to be material for 2019.
10. Income Taxes
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the quarter. The provision for income taxes was $1.5 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively. The provision for income taxes was $13.6 million and $13.4 million for the nine months ended September 30, 2019 and 2018, respectively.
In the current period, the Company recorded an income tax benefit of $0.9 million in connection with the filing of the 2018 U.S. federal income tax return primarily attributable to additional research tax credits claimed in 2018. This resulted in a 9.9% and 1.6% decrease to the Company’s effective tax rate for the three and nine months ended September 30, 2019, respectively. In the period ended September 30, 2018, the Company recorded a net $1.0 million income tax benefit in connection with the filing of the 2017 U.S. federal income tax return and the accounting under ASC 740 (Staff Accounting Bulletin No. 118) for the Tax Cuts and Jobs Act ("Tax Act") . These adjustments resulted in a 18.2% and 1.8% decrease to the Company’s effective tax rate for the three and nine months ended September 30, 2018, respectively.
11. Fair Value Measurements
Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. During the fourth quarter of 2018, the Company acquired a royalty stream which has been treated as an asset acquisition. The purchase price of the royalty stream for $1.0 million approximated its fair value at December 31, 2018 and is considered a Level 3 asset. The fair value measurement is based on the expected future cash flows and, as there is no reason to believe that the asset is impaired, it is assumed that the valuation remains unchanged at September 30, 2019. In November 2018 and July 2019, the Company entered into two interest rate swap transactions related to its credit agreement. The fair value of the interest rate swaps at September 30, 2019 was a loss of approximately $2.2 million and is considered a Level 2 liability.
The pension plan assets are invested in collective investment trust funds. These investments are measured at fair value using the net asset value per share as a practical expedient. Investments valued using the net asset value method (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure.
The Company’s Condensed Consolidated Balance Sheets also include Cash and cash equivalents, Accounts receivable and Accounts payable all of which are recorded at amounts which approximate fair value.
The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment. Goodwill and indefinite lived intangible assets must be evaluated at least annually.
12. Derivative and Hedging Instruments
The specific credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of the hedging instrument, interest rate swap agreements, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing.
For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in Other comprehensive income. Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings.
Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities.
The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
single customer. Although the Company did not have any customers accounting for a significant percentage of trade Accounts receivable - net at September 30, 2019, one customer accounted for approximately 22% of trade Accounts receivable – net at December 31, 2018.
Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. We may also enter into forward commodity contracts with third-parties designated as hedges of anticipated purchases of several commodities. Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized. At September 30, 2019 and 2018, we had no financial contracts related to forward commodity agreements.
Interest Rate Risk Management – The Company has entered into two interest rate swap agreements for a total notional amount of $100 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. These interest rate swaps had a fair value of zero at inception and were effective November 30, 2018 and July 31, 2019 with respective maturity dates of November 30, 2021 and February 21, 2023. In accordance with FASB Accounting Standards Codification (“ASC”) ASC 815, the Company designated the interest rate swaps as cash flow hedges of floating-rate borrowings. The interest rate swaps convert the Company’s interest rate payments on the first $100 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. These interest rate swaps involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount.
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|
Liability Derivatives
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
Fair Value
|
|
Balance Sheet Classification
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts
|
Accrued liabilities and Other liabilities
|
(2,246)
|
|
Accrued liabilities and Other liabilities
|
(833)
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
(2,246)
|
|
|
|
$
|
(833)
|
|
|
|
|
The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
Loss on derivative instruments included in Accumulated other comprehensive income at December 31, 2018
|
|
|
|
$
|
(833)
|
|
Fair value adjustment
|
|
|
|
(1,413)
|
|
Loss on derivative instruments included in Accumulated other comprehensive income at September 30, 2019
|
|
|
|
$
|
(2,246)
|
|
At September 30, 2019, the Company expects to reclassify approximately $0.9 million of net losses on derivative instruments from Accumulated other comprehensive income to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt.
13. Restructuring
On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts to improve the Company’s competitive position in providing quality film products and services to its customers. The Company also announced a strategic alliance with Oben Holding Group S.A. (“Oben”), a third-party producer of films for the flexible packaging industry, leveraging the Company's sales channels and Nylon 6 supply with Oben's new state-of-the-art manufacturing facility. The Company ceased operations at the Pottsville, Pennsylvania plant in July 2019.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)
Restructuring costs consist of long-lived asset impairments, facility exit costs, employee separations and inventory write-downs. Facility exit costs include demolition, equipment relocation, contract terminations and project management costs. These costs are included in Cost of goods sold in the Condensed Consolidated Statements of Operations. The Company recorded a restructuring charge of $12.6 million in the second quarter of 2019 and does not expect to incur any additional restructuring charges related to the closure of its films plant.
Restructuring costs for the nine months ended September 30, 2019 were as follows:
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Write-off of equipment and facility
|
$
|
7,131
|
|
Facility exit costs
|
2,686
|
|
Employee separations
|
1,364
|
|
Inventory write-downs
|
1,442
|
|
Total restructuring charges
|
$
|
12,623
|
|
The following table summarizes the components of restructuring activities and the remaining balances of accrued restructuring charges as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Benefits
|
|
Facility Exit Costs
|
|
Total
|
Accrual balance at December 31, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Charges
|
1,364
|
|
|
2,686
|
|
|
4,050
|
|
Cash payments
|
(1,364)
|
|
|
(103)
|
|
|
(1,467)
|
|
Accrual balance at September 30, 2019
|
$
|
—
|
|
|
$
|
2,583
|
|
|
$
|
2,583
|
|
The balance of accrued restructuring charges is expected to be settled within the next twelve months.